1 00:00:18,440 --> 00:00:20,840 Speaker 1: Hello, and welcome to a special edition of The Credit Edge. 2 00:00:20,840 --> 00:00:23,560 Speaker 1: My name is James Crombie. I'm a senior editor at Bloomberg. 3 00:00:23,880 --> 00:00:26,000 Speaker 1: We're here to discuss Venezuela, one of the biggest stories 4 00:00:26,040 --> 00:00:29,240 Speaker 1: of twenty twenty six. Potential for regime change in the 5 00:00:29,240 --> 00:00:32,440 Speaker 1: oil rich nation, sparks a huge bond rally, and there 6 00:00:32,479 --> 00:00:35,279 Speaker 1: are hopes of more debt gains to come. We are 7 00:00:35,360 --> 00:00:37,960 Speaker 1: joined by Spencer Cutter, who covers the energy sector for 8 00:00:38,000 --> 00:00:38,960 Speaker 1: Bloomberg Intelligence. 9 00:00:39,000 --> 00:00:41,199 Speaker 2: How are you, Spencer, I'm doing great, James, thanks for 10 00:00:41,240 --> 00:00:41,600 Speaker 2: having me. 11 00:00:42,320 --> 00:00:45,000 Speaker 1: And we're also delighted to have Damien Sassauur, who covers 12 00:00:45,000 --> 00:00:47,680 Speaker 1: the wonderful world of emerging markets, also for BI how's 13 00:00:47,680 --> 00:00:48,280 Speaker 1: it going Damien? 14 00:00:48,360 --> 00:00:49,880 Speaker 3: Hey James, how are you great. 15 00:00:49,960 --> 00:00:52,839 Speaker 1: So in Venezuela, US oil companies are being asked to 16 00:00:52,840 --> 00:00:56,760 Speaker 1: do their patriotic duty and start developing the ailing energy sector, 17 00:00:57,000 --> 00:01:00,240 Speaker 1: but the head of Excellon says it's uninvestible. Now, we're 18 00:01:00,280 --> 00:01:03,120 Speaker 1: not going to get into the complexities of politics or 19 00:01:03,200 --> 00:01:06,360 Speaker 1: international law, or whether taking one guy out and leaving 20 00:01:06,400 --> 00:01:08,679 Speaker 1: the rest of his government in place really fixes the problem. 21 00:01:08,680 --> 00:01:12,520 Speaker 1: But let's just assume Venezuela does change sanctions go away, 22 00:01:12,800 --> 00:01:16,160 Speaker 1: oil starts pumping, the economy starts to recover, and bondholders 23 00:01:16,200 --> 00:01:19,640 Speaker 1: get paid damon. We've seen similar situations in emerging markets 24 00:01:19,680 --> 00:01:22,840 Speaker 1: like this before the politics change, fear turns to greed. 25 00:01:23,280 --> 00:01:25,360 Speaker 1: Short term though, what do we really need to focus 26 00:01:25,360 --> 00:01:26,720 Speaker 1: on in Venezuela, Well, what. 27 00:01:26,680 --> 00:01:28,520 Speaker 4: Can we lean into here? I mean, there's a lot 28 00:01:28,560 --> 00:01:30,680 Speaker 4: of noise and there's a lot of smoke, and you know, 29 00:01:30,800 --> 00:01:32,480 Speaker 4: at the end of the day, we have a lot 30 00:01:32,480 --> 00:01:34,800 Speaker 4: of creditors, not just the sixty to seventy billion dollars 31 00:01:34,840 --> 00:01:38,280 Speaker 4: of dollars of dollar pay debt between Petevesa and Venezuela 32 00:01:38,319 --> 00:01:41,240 Speaker 4: into a lesser extent alacar, which you're also looking at 33 00:01:41,319 --> 00:01:44,960 Speaker 4: a lot of bilateral loans between Venezuela and other nations 34 00:01:44,959 --> 00:01:47,760 Speaker 4: such as China and Russia. So the question is, and 35 00:01:47,800 --> 00:01:51,320 Speaker 4: it's a complex one, is where do creditors sit in 36 00:01:51,360 --> 00:01:54,400 Speaker 4: the capital stack? How subordinated are they, how senior are they? 37 00:01:54,560 --> 00:01:56,320 Speaker 4: And these need to be worked out in the form 38 00:01:56,320 --> 00:01:58,360 Speaker 4: of creditor committees over the better part of the nextlet's 39 00:01:58,400 --> 00:02:01,080 Speaker 4: call it year to two years, you know, and we're 40 00:02:01,120 --> 00:02:02,320 Speaker 4: going to see what comes of it. 41 00:02:02,360 --> 00:02:02,560 Speaker 3: You know. 42 00:02:02,640 --> 00:02:05,360 Speaker 4: My thinking is this is gonna be a long drawn 43 00:02:05,400 --> 00:02:06,559 Speaker 4: out and complicated issue. 44 00:02:06,600 --> 00:02:08,440 Speaker 3: And I'm sure Spencer can weigh in here. 45 00:02:08,720 --> 00:02:11,000 Speaker 4: For us to think that, you know, Venezuela is going 46 00:02:11,040 --> 00:02:13,519 Speaker 4: to return to pumping one point four million barrels a 47 00:02:13,560 --> 00:02:16,400 Speaker 4: day by the end of twenty twenty seven, maybe. 48 00:02:16,120 --> 00:02:17,200 Speaker 3: A reach if you follow me. 49 00:02:17,280 --> 00:02:19,519 Speaker 4: But look, you know, let's just you know, take a 50 00:02:19,560 --> 00:02:21,360 Speaker 4: step back and look at the fundamentals, right, I mean, 51 00:02:21,400 --> 00:02:23,480 Speaker 4: if this all goes as planned and the US does 52 00:02:23,520 --> 00:02:26,960 Speaker 4: indeed get Venezuela right sorted, right, I mean, the US, 53 00:02:27,000 --> 00:02:30,800 Speaker 4: between Guyana, Venezuela and itself can control roughly thirty percent 54 00:02:31,160 --> 00:02:34,720 Speaker 4: of the world's proven oil inventories, so that definitely changes 55 00:02:34,760 --> 00:02:37,639 Speaker 4: the geopolitical lan at le. I mean, just by comparison, 56 00:02:37,680 --> 00:02:40,880 Speaker 4: Saudi Arabia controls only twelve to fourteen percent. And then 57 00:02:40,919 --> 00:02:42,960 Speaker 4: you know, it's a top three holder of in ground gold, 58 00:02:42,960 --> 00:02:45,400 Speaker 4: it's got the seventh largest gas reserves in the world. 59 00:02:45,520 --> 00:02:48,080 Speaker 4: I mean, it's got box site, it's got rare earth. 60 00:02:48,160 --> 00:02:50,320 Speaker 4: So yeah, I mean there's a lot to lean into. 61 00:02:50,880 --> 00:02:53,560 Speaker 4: But you know, they first need to get things cleaned 62 00:02:53,639 --> 00:02:56,760 Speaker 4: up on the ground, and you know, in order for 63 00:02:56,840 --> 00:03:00,240 Speaker 4: you know, foreign investors to come in and invent. They 64 00:03:00,240 --> 00:03:02,080 Speaker 4: take their hard earned dollars and put it to work. 65 00:03:02,320 --> 00:03:04,040 Speaker 1: And on the credit side, who is this really for? 66 00:03:04,200 --> 00:03:06,640 Speaker 1: Is it just hedge funds? Is it's a long term 67 00:03:06,639 --> 00:03:09,280 Speaker 1: investor plays it? You know, could pension funds get invuilt, 68 00:03:09,280 --> 00:03:12,000 Speaker 1: you know, because these these can be career making trades, right, 69 00:03:12,000 --> 00:03:12,600 Speaker 1: these things. 70 00:03:12,720 --> 00:03:15,080 Speaker 4: Yeah, So we basically just did a deep dive. We 71 00:03:15,080 --> 00:03:18,040 Speaker 4: looked at all ETFs and act the forty funds on 72 00:03:18,080 --> 00:03:20,400 Speaker 4: the terminal that's you know, you know, funds who basically 73 00:03:21,240 --> 00:03:24,200 Speaker 4: report their position level data. And at the end of 74 00:03:24,240 --> 00:03:27,000 Speaker 4: the day, we don't see very much of any exposure 75 00:03:27,040 --> 00:03:29,840 Speaker 4: to Venezuela at all, outside of maybe Ashmore into a 76 00:03:29,880 --> 00:03:32,639 Speaker 4: lesser extent GMO. You know, most of the funds that 77 00:03:32,760 --> 00:03:35,040 Speaker 4: you know we have data on. You know, you'd be 78 00:03:35,040 --> 00:03:37,040 Speaker 4: hard pressed to find anybody with a greater than two 79 00:03:37,040 --> 00:03:40,360 Speaker 4: percent weight in Venezuela and pedabase and bonds cumulatively speaking. 80 00:03:40,400 --> 00:03:42,720 Speaker 3: So you know, the question is who is holding all 81 00:03:42,760 --> 00:03:43,080 Speaker 3: this debt? 82 00:03:43,080 --> 00:03:45,960 Speaker 4: And you're absolutely right it's these distressed players, these advent 83 00:03:46,040 --> 00:03:48,840 Speaker 4: riven players. I'm thinking, you know, grammar Cy, I'm thinking, 84 00:03:48,960 --> 00:03:52,320 Speaker 4: great Lock. You know, people who really have a deep experience, 85 00:03:52,480 --> 00:03:56,000 Speaker 4: you know, in in distressed emerging markets and and so yeah, 86 00:03:56,040 --> 00:03:57,600 Speaker 4: I think I think that's where a lot of the 87 00:03:57,640 --> 00:03:59,640 Speaker 4: bonds are really are really hiding out. 88 00:04:00,040 --> 00:04:02,000 Speaker 1: And Elliott for example, Yeah, exactly. 89 00:04:02,040 --> 00:04:03,800 Speaker 4: Well, I mean, you know, let's just also be clear, 90 00:04:04,000 --> 00:04:05,720 Speaker 4: not all bonds are created equal. There are quite a 91 00:04:05,760 --> 00:04:07,720 Speaker 4: few bonds out there, I think thirty seven to be exact. 92 00:04:07,720 --> 00:04:09,840 Speaker 4: One of them, the eight and a half percent ptaverases 93 00:04:09,880 --> 00:04:13,280 Speaker 4: of twenty twenty. You know, they are secured by fifty 94 00:04:13,480 --> 00:04:16,480 Speaker 4: point one percent of Sitko holdings. And as we know, 95 00:04:16,600 --> 00:04:19,120 Speaker 4: Citco has three refineries here in the US. It's got 96 00:04:19,160 --> 00:04:22,159 Speaker 4: convenience and gas convenience stores and gas stations across the country, 97 00:04:22,200 --> 00:04:24,880 Speaker 4: and so you know, that is a very different animal. 98 00:04:24,880 --> 00:04:27,120 Speaker 4: And those bonds were actually trading above par right. 99 00:04:27,040 --> 00:04:29,839 Speaker 1: Now, Okay, Ye, Element's always confuse me that some connection 100 00:04:30,839 --> 00:04:34,120 Speaker 1: and the way that there is an interconnection with the 101 00:04:34,240 --> 00:04:37,440 Speaker 1: US companies already. But just going back to the actual 102 00:04:37,640 --> 00:04:40,320 Speaker 1: bonds themselves, I mean, there's Venezuela's sovereign bonds, which are 103 00:04:40,400 --> 00:04:43,280 Speaker 1: quite liquid. They're a PEDIVEASA, which is the oil company 104 00:04:43,440 --> 00:04:46,919 Speaker 1: that's trading. They both shot up to let's say, Petaves 105 00:04:46,960 --> 00:04:49,800 Speaker 1: was around thirty five cents. I saw Venezuela sovereign was 106 00:04:49,800 --> 00:04:52,200 Speaker 1: about maybe forty five, but now they're back down again. 107 00:04:52,960 --> 00:04:56,279 Speaker 1: Was this kind of initial euphoria and maybe misunderstanding and 108 00:04:56,279 --> 00:04:59,200 Speaker 1: then they just took profit and exited. What happened with 109 00:04:59,240 --> 00:04:59,680 Speaker 1: that trade? 110 00:05:00,000 --> 00:05:01,720 Speaker 4: I think a lot of the move that we saw 111 00:05:02,160 --> 00:05:03,560 Speaker 4: and this is not I mean, I've been asked this 112 00:05:03,600 --> 00:05:05,080 Speaker 4: question quite a bit, and a lot of people think 113 00:05:05,080 --> 00:05:07,919 Speaker 4: these were smart investors who basically bought the bonds, you know, 114 00:05:08,360 --> 00:05:10,320 Speaker 4: cents on the dollar, pennies on the dollar, really five 115 00:05:10,360 --> 00:05:13,080 Speaker 4: six seven cents on the dollar a little over a 116 00:05:13,160 --> 00:05:16,080 Speaker 4: year ago, knowing full well that when Trump you know, 117 00:05:16,279 --> 00:05:18,240 Speaker 4: took over the presidency, he was going to write the 118 00:05:18,240 --> 00:05:19,960 Speaker 4: ship and these bonds are going to be trading at 119 00:05:19,960 --> 00:05:21,080 Speaker 4: forty fifty cents on the dollar. 120 00:05:21,080 --> 00:05:23,000 Speaker 3: I don't really believe that's the case. I think this was. 121 00:05:23,000 --> 00:05:28,160 Speaker 4: More indicative of the EM distressed asset class. I mean, 122 00:05:28,160 --> 00:05:30,080 Speaker 4: this is not just of any story. This is Lebanon, 123 00:05:30,120 --> 00:05:32,240 Speaker 4: this is for Lanka. This is a lot of distressed 124 00:05:32,279 --> 00:05:35,760 Speaker 4: EM sovereign names trading you know, who have just generated 125 00:05:35,760 --> 00:05:38,440 Speaker 4: you know, one hundred percent plus, you know, total returns 126 00:05:38,480 --> 00:05:39,640 Speaker 4: over the better part of last year. 127 00:05:39,720 --> 00:05:40,800 Speaker 3: Right, So, Venny. 128 00:05:40,960 --> 00:05:44,080 Speaker 4: Obviously more recently, this is this has kind of fueled 129 00:05:44,080 --> 00:05:45,880 Speaker 4: the fire and fanned the flames. But at the end 130 00:05:45,920 --> 00:05:48,080 Speaker 4: of the day, this is just a reach for yield 131 00:05:48,240 --> 00:05:52,080 Speaker 4: and you know, you know, EM high yield and EM 132 00:05:52,120 --> 00:05:55,559 Speaker 4: distressed are areas where you can really get a pretty 133 00:05:55,600 --> 00:05:58,159 Speaker 4: considerable pick up over US treasuries. So yeah, you know, 134 00:05:58,240 --> 00:06:00,920 Speaker 4: I think a lot of those returns may very well 135 00:06:00,960 --> 00:06:03,880 Speaker 4: be baked in and upside may be capped from here 136 00:06:03,920 --> 00:06:04,320 Speaker 4: on out. 137 00:06:04,320 --> 00:06:05,440 Speaker 3: But who am I to say? 138 00:06:05,880 --> 00:06:07,680 Speaker 1: And if you look at the price, then we're kind 139 00:06:07,680 --> 00:06:10,000 Speaker 1: of you know, pricing in now. I mean, there's a 140 00:06:10,040 --> 00:06:12,520 Speaker 1: long way to go, obviously in these sorts of situations, 141 00:06:12,560 --> 00:06:16,279 Speaker 1: but it's pricing in a pretty steep haircut of let's say, 142 00:06:16,560 --> 00:06:20,240 Speaker 1: sixty to seventy cents on the on the debt. You know, 143 00:06:20,279 --> 00:06:23,760 Speaker 1: that takes us back to Argentina, say twenty five years ago, 144 00:06:23,800 --> 00:06:25,840 Speaker 1: when they got that kind of write down. I think 145 00:06:25,920 --> 00:06:28,640 Speaker 1: in that case it was more about ability, sorry, willingness, 146 00:06:28,640 --> 00:06:33,000 Speaker 1: not ability to pay. So there's this whole therefore, a 147 00:06:33,040 --> 00:06:35,640 Speaker 1: next discussion on ability to pay. I think we should 148 00:06:35,640 --> 00:06:38,680 Speaker 1: start with that. You know, you talked about getting the 149 00:06:38,680 --> 00:06:41,800 Speaker 1: oil pumping, which was which they'd absolutely need in order 150 00:06:41,880 --> 00:06:43,640 Speaker 1: to pay back some of his debt, But what are 151 00:06:43,640 --> 00:06:46,520 Speaker 1: your assumptions around ability to pay from Venezuela. 152 00:06:46,720 --> 00:06:50,120 Speaker 4: So I am pretty much hearing from people who are 153 00:06:50,120 --> 00:06:51,960 Speaker 4: far closer to this that you're going to have to 154 00:06:51,960 --> 00:06:57,160 Speaker 4: give creditors some upside exposure to if Venezuela truly is 155 00:06:57,200 --> 00:06:58,800 Speaker 4: able to get its economy heading in the right to 156 00:06:58,839 --> 00:07:00,720 Speaker 4: rest in something like GDP link to warrants or something 157 00:07:00,760 --> 00:07:02,480 Speaker 4: along those lines. You got to give them some skin 158 00:07:02,520 --> 00:07:05,080 Speaker 4: in the game, some equity upside. And you know, I 159 00:07:05,279 --> 00:07:06,919 Speaker 4: don't disagree with that, but you know, at the end 160 00:07:06,960 --> 00:07:09,640 Speaker 4: of the day, you know, for the market to be 161 00:07:09,720 --> 00:07:12,000 Speaker 4: pricing in, I mean, at one point eighty five to 162 00:07:12,080 --> 00:07:15,280 Speaker 4: ninety percent of the value of these bonds had been lost. 163 00:07:15,560 --> 00:07:18,720 Speaker 4: I think now we're back to you know, sixty five percent, 164 00:07:18,760 --> 00:07:20,840 Speaker 4: give or take, you know, the the value given. You 165 00:07:20,880 --> 00:07:23,000 Speaker 4: know where face was, and so you know there's still 166 00:07:23,000 --> 00:07:25,480 Speaker 4: a lot of upside in there. Those creditors definitely need 167 00:07:25,520 --> 00:07:27,559 Speaker 4: to get get paid back. But it's all about timing. 168 00:07:27,600 --> 00:07:28,280 Speaker 3: James, you know this. 169 00:07:28,400 --> 00:07:30,000 Speaker 4: You know you could be waiting front of a twenty 170 00:07:30,040 --> 00:07:32,080 Speaker 4: years until you know these bonds pay off. I mean, 171 00:07:32,160 --> 00:07:34,240 Speaker 4: just look at Argentina as as a test case here. 172 00:07:34,280 --> 00:07:36,680 Speaker 4: So you know, it depends on, as you rightly point out, 173 00:07:36,720 --> 00:07:39,360 Speaker 4: investor willingness to take on that risk, and you know 174 00:07:39,400 --> 00:07:41,480 Speaker 4: what the risk reward is quite frankly. 175 00:07:41,920 --> 00:07:44,480 Speaker 1: And you talk about the long runwaymen. I have taught 176 00:07:44,520 --> 00:07:47,600 Speaker 1: to Cuba debtholders. I taught to them twenty years ago 177 00:07:47,600 --> 00:07:49,000 Speaker 1: and they've been waiting twenty years. So that's you know, 178 00:07:49,040 --> 00:07:51,720 Speaker 1: there was a long, long way to go. But you know, 179 00:07:51,960 --> 00:07:54,559 Speaker 1: the warrant thing is interesting because that's been used before. 180 00:07:54,840 --> 00:07:56,680 Speaker 1: Argentina used it before, and I think at the time 181 00:07:56,680 --> 00:07:59,000 Speaker 1: when they designed them, they didn't expect them to pay out, 182 00:07:59,000 --> 00:08:00,800 Speaker 1: but they actually paid out really well because the Argentine 183 00:08:00,840 --> 00:08:03,560 Speaker 1: economy just grew very quickly, which is which is potential 184 00:08:03,800 --> 00:08:06,200 Speaker 1: here also oil warrants. Do you think that's a possibility. 185 00:08:06,280 --> 00:08:07,880 Speaker 4: I mean, I think it's all on the table, right. 186 00:08:07,920 --> 00:08:09,560 Speaker 4: I mean, it's really just a function of you know, 187 00:08:09,640 --> 00:08:11,880 Speaker 4: getting you know, people together to kind of you know, 188 00:08:12,080 --> 00:08:15,560 Speaker 4: figure out what the blueprint is and how quickly you know, 189 00:08:15,720 --> 00:08:18,760 Speaker 4: you can you know, Venezuela can reassert its itself and 190 00:08:18,880 --> 00:08:21,360 Speaker 4: and and get oil pumping again and all that good stuff. 191 00:08:21,360 --> 00:08:23,280 Speaker 4: But you know, I think I think at the end 192 00:08:23,320 --> 00:08:25,080 Speaker 4: of the day, you know, what's the market impact. The 193 00:08:25,120 --> 00:08:28,680 Speaker 4: market impact is obviously against what I'm seeing, and I'd 194 00:08:28,680 --> 00:08:30,520 Speaker 4: love to hear Spencer's thoughts on this. You look at 195 00:08:30,680 --> 00:08:32,960 Speaker 4: you know, Connico Phillips. You know their owed ten billion 196 00:08:33,000 --> 00:08:38,120 Speaker 4: dollars from Venezuela. I'm talking ICSID, you know, basically ruled 197 00:08:38,320 --> 00:08:41,320 Speaker 4: in their favor in terms of arbitration after Hugoshav has 198 00:08:41,400 --> 00:08:43,360 Speaker 4: nationalized all those assets, you know, back in May of 199 00:08:43,440 --> 00:08:45,680 Speaker 4: twenty of two thousand and seven, and I think ex 200 00:08:45,720 --> 00:08:48,400 Speaker 4: On Mobiles another you know, one point five billion. In 201 00:08:48,400 --> 00:08:50,400 Speaker 4: the case of Exon Mobile, I think two hundred and 202 00:08:50,400 --> 00:08:52,760 Speaker 4: fifty five million of that had already been paying back, 203 00:08:53,000 --> 00:08:55,839 Speaker 4: has already been paid back by Venezuela, meaning you know, 204 00:08:55,960 --> 00:08:59,520 Speaker 4: Venezuela acknowledges that it owes this money. So you know 205 00:08:59,600 --> 00:09:02,240 Speaker 4: these are and Crystal X. There's another one point two billionaire. 206 00:09:02,320 --> 00:09:04,800 Speaker 4: This is a Canadian sort of gold miner who's no 207 00:09:04,840 --> 00:09:07,400 Speaker 4: longer listed. There's a lot of you know, investors who 208 00:09:07,440 --> 00:09:10,040 Speaker 4: are owed and who have been promised. And you know, 209 00:09:10,120 --> 00:09:15,559 Speaker 4: again where do the dollar pay Venny and Petabsa creditors 210 00:09:15,840 --> 00:09:18,480 Speaker 4: stand in the capitol stack, the verdict is still out. 211 00:09:18,840 --> 00:09:21,360 Speaker 1: So Spencer, let's bring you in here. Is this a 212 00:09:21,360 --> 00:09:24,280 Speaker 1: wind full potential? Is it a bonanza for the for 213 00:09:24,400 --> 00:09:27,000 Speaker 1: the US oil producers who have been cooled in? Really? 214 00:09:27,040 --> 00:09:28,960 Speaker 1: And you know, there's a lot of excitement at least 215 00:09:29,160 --> 00:09:32,640 Speaker 1: from the Trump government on. You know, how much opportunity 216 00:09:32,679 --> 00:09:35,040 Speaker 1: there is for US companies to make some money hit. 217 00:09:35,240 --> 00:09:38,199 Speaker 2: You know, there's a potential upside. I think the upside 218 00:09:38,320 --> 00:09:41,600 Speaker 2: for the companies that are actually going to be putting 219 00:09:41,600 --> 00:09:44,439 Speaker 2: boots on the ground and month dollars into the economy, 220 00:09:44,559 --> 00:09:47,480 Speaker 2: and then the industry in Venezuela is kind of yet 221 00:09:47,520 --> 00:09:50,200 Speaker 2: to be seen. A lot of that again is going 222 00:09:50,240 --> 00:09:52,120 Speaker 2: to depend on you know, as Damion mentioned, what's the 223 00:09:52,120 --> 00:09:54,120 Speaker 2: blueprint for how this is going to work? And we 224 00:09:54,200 --> 00:09:58,400 Speaker 2: don't know yet. So I'm hesitant to say that Chevron, 225 00:09:58,679 --> 00:10:02,360 Speaker 2: which is already operating and has been operating in Venezuela 226 00:10:02,400 --> 00:10:05,120 Speaker 2: with waivers on sanctions, you know, I guess they're sort 227 00:10:05,120 --> 00:10:08,199 Speaker 2: of in the caffird seat here at this point. Exon 228 00:10:08,400 --> 00:10:11,240 Speaker 2: was involved in Conico filts, et cetera. Of history there. 229 00:10:12,240 --> 00:10:14,520 Speaker 2: What's the upside for them? Hard to say. Those are 230 00:10:14,520 --> 00:10:18,000 Speaker 2: obviously very big companies though have lots of reserves and 231 00:10:18,040 --> 00:10:22,439 Speaker 2: operations and refineries, et cetera around the world. You know, 232 00:10:22,520 --> 00:10:27,120 Speaker 2: let's put this in perspective. The global oil production today 233 00:10:27,240 --> 00:10:29,680 Speaker 2: is somewhere in the one hundred million barrels a day 234 00:10:30,720 --> 00:10:33,920 Speaker 2: a little higher. One hundred and five million venezuela right 235 00:10:34,000 --> 00:10:37,760 Speaker 2: now accounts for around one million, maybe a little less. 236 00:10:37,800 --> 00:10:39,520 Speaker 2: It used to be two and a half to three 237 00:10:39,559 --> 00:10:42,880 Speaker 2: million barrels a day, So it's come down dramatically over 238 00:10:42,920 --> 00:10:46,360 Speaker 2: the last couple of decades. So can that grow back 239 00:10:46,440 --> 00:10:49,959 Speaker 2: up to one and a half to two Possibly, That's 240 00:10:50,000 --> 00:10:51,600 Speaker 2: going to take a long time and a lot of 241 00:10:51,640 --> 00:10:56,240 Speaker 2: money to get there, so hard to say. I think 242 00:10:56,679 --> 00:11:00,040 Speaker 2: the more immediate reaction might be seen in the the 243 00:11:00,280 --> 00:11:04,679 Speaker 2: refining side because oil just to sort of back up. 244 00:11:05,960 --> 00:11:10,520 Speaker 2: Oil lives on a spectrum of quality and how it's characteristics. 245 00:11:10,559 --> 00:11:15,959 Speaker 2: On the one side, you have light sweet oil wtiis 246 00:11:16,280 --> 00:11:18,840 Speaker 2: light sweet Louisiana, know, the stuff that's coming out of Texas, 247 00:11:19,320 --> 00:11:26,320 Speaker 2: very easy to refine, very easy to transport. And on 248 00:11:26,360 --> 00:11:28,680 Speaker 2: the other hand, you have other side of the spectrum. 249 00:11:29,000 --> 00:11:34,160 Speaker 2: You've got heavy sour crude, which is what's coming out 250 00:11:34,320 --> 00:11:38,680 Speaker 2: of Canada, the oil sands and it's what's coming a 251 00:11:38,720 --> 00:11:42,120 Speaker 2: big product percentage of Mexico's production, and then pretty much 252 00:11:42,160 --> 00:11:46,160 Speaker 2: all of Venezuela is very heavy sour crude, and not 253 00:11:46,200 --> 00:11:49,720 Speaker 2: all refineries can handle that heavy sour crude. So the 254 00:11:49,800 --> 00:11:54,200 Speaker 2: companies that might most immediately benefit are the companies on 255 00:11:54,240 --> 00:11:57,120 Speaker 2: the US Gulf Coast that have refineries that can handle 256 00:11:57,120 --> 00:11:59,720 Speaker 2: that heavy sour crude. So Valero is one of those 257 00:11:59,720 --> 00:12:02,040 Speaker 2: and have seen their stock pop a little bit and 258 00:12:02,080 --> 00:12:04,720 Speaker 2: their bonds have outperforms. I mean it's very short period. 259 00:12:04,760 --> 00:12:07,240 Speaker 2: It's only what you know, not even two weeks into 260 00:12:07,240 --> 00:12:09,440 Speaker 2: the year, but their bonds have outperformed so far this year. 261 00:12:10,000 --> 00:12:13,920 Speaker 2: They're well positioned to take some of that heavy sour 262 00:12:14,000 --> 00:12:18,280 Speaker 2: crud if it comes in, and adding more of that 263 00:12:18,360 --> 00:12:23,559 Speaker 2: supply onto the global market could lower the price. Maybe 264 00:12:23,559 --> 00:12:25,800 Speaker 2: it displaces some of the Canadian crewed and some of 265 00:12:25,679 --> 00:12:28,160 Speaker 2: the Mexican crew that's been coming into the US, but 266 00:12:28,240 --> 00:12:32,880 Speaker 2: you have a larger discount to the other global oil benchmarks, 267 00:12:32,960 --> 00:12:35,520 Speaker 2: so it's basically a lower cost for those refineries that 268 00:12:35,520 --> 00:12:40,520 Speaker 2: can then you know, should be able to improve their margins. 269 00:12:41,200 --> 00:12:44,439 Speaker 2: So that's the immediate sort of what i'd say some 270 00:12:44,880 --> 00:12:47,000 Speaker 2: more short term out come the longer term. It's just 271 00:12:47,080 --> 00:12:48,880 Speaker 2: like again, it's going to be hard to say and 272 00:12:48,920 --> 00:12:51,720 Speaker 2: hard to tell depending on how this plays out. 273 00:12:53,000 --> 00:12:53,200 Speaker 3: Well. 274 00:12:53,240 --> 00:12:55,720 Speaker 4: I mean, you know one thing that I've also noticed there, James, 275 00:12:55,760 --> 00:12:58,920 Speaker 4: is PBF and Phillips right alongside Balero. I mean, those 276 00:12:58,920 --> 00:13:01,120 Speaker 4: are the other kind of you know, go for refiners 277 00:13:01,160 --> 00:13:03,280 Speaker 4: with capacity to handle that heavy sour crew that Spencer's 278 00:13:03,320 --> 00:13:05,080 Speaker 4: referring to. But you know, on the flip side of that, 279 00:13:05,120 --> 00:13:07,640 Speaker 4: who's to lose. It's Canada, right, I mean it's some core, 280 00:13:07,679 --> 00:13:10,640 Speaker 4: it's Canadian Natural Resources, it's Centavus, So you know those 281 00:13:10,640 --> 00:13:14,280 Speaker 4: guys obviously are you know, the largest heavy sour crew. 282 00:13:14,320 --> 00:13:15,360 Speaker 3: Dux borders to the US. 283 00:13:15,360 --> 00:13:17,920 Speaker 4: And now if there's a replacement feed stock, you know 284 00:13:17,960 --> 00:13:20,040 Speaker 4: what does that mean. I'd like to take this to 285 00:13:20,040 --> 00:13:21,920 Speaker 4: the next level because I'm an emerging market guy and 286 00:13:22,000 --> 00:13:24,800 Speaker 4: one area that I'm looking at is China, right, because 287 00:13:24,880 --> 00:13:29,079 Speaker 4: China has been buying all those discounted barrels from Venezuela 288 00:13:29,120 --> 00:13:32,480 Speaker 4: for some time, and they're independent refiners, they're teapots, they're 289 00:13:32,480 --> 00:13:36,160 Speaker 4: all kind of geared up for that particular type of oil. 290 00:13:36,640 --> 00:13:38,679 Speaker 4: And where is their feet stock going to come from now? 291 00:13:38,800 --> 00:13:39,000 Speaker 3: Right? 292 00:13:39,040 --> 00:13:40,560 Speaker 4: I mean, and what does this mean? And does that 293 00:13:40,600 --> 00:13:43,960 Speaker 4: mean that you're going to have to see Cinepac and CNPC, 294 00:13:44,200 --> 00:13:47,640 Speaker 4: the large Chinese state owned oil companies, you know, kind 295 00:13:47,679 --> 00:13:49,640 Speaker 4: of taking some of that risk on their own balance 296 00:13:49,679 --> 00:13:52,400 Speaker 4: sheets because they can't let these teapots, you know, just 297 00:13:52,440 --> 00:13:53,040 Speaker 4: all die. 298 00:13:53,400 --> 00:13:55,440 Speaker 3: So you know, there's a lot of implications here. I mean, 299 00:13:55,760 --> 00:13:57,160 Speaker 3: it goes really really deep, you know. 300 00:13:57,320 --> 00:14:01,280 Speaker 2: I mean, Damien's right, but the the refining capacity for 301 00:14:01,360 --> 00:14:05,719 Speaker 2: those those companies, the valeros et cetera that have the 302 00:14:05,960 --> 00:14:08,559 Speaker 2: golf coasterfiners that can handle the complexity for the heavy 303 00:14:08,800 --> 00:14:13,000 Speaker 2: sour crude likes coming out of Venezuela and Canada and Mexico, 304 00:14:13,240 --> 00:14:14,880 Speaker 2: you know, there is a limit to that. So if 305 00:14:15,400 --> 00:14:19,880 Speaker 2: if the Venezuela crude is displacing the Pemex crude, which 306 00:14:20,000 --> 00:14:22,360 Speaker 2: is frankly of the last couple year's pemes sort of 307 00:14:22,480 --> 00:14:26,720 Speaker 2: filled the gap for the declining Venezuela output, that Pemex 308 00:14:26,760 --> 00:14:30,000 Speaker 2: crude could go somewhere else. So I'm wondering, you know, 309 00:14:30,040 --> 00:14:33,120 Speaker 2: as we're talking here, maybe some of the Mexican exports 310 00:14:33,840 --> 00:14:36,840 Speaker 2: fill the gap that you know is being left from 311 00:14:37,520 --> 00:14:39,960 Speaker 2: where the Venezuelan exports were going, you know, so you 312 00:14:40,000 --> 00:14:43,680 Speaker 2: could just see a dynamic of Mexico starts exporting to 313 00:14:43,840 --> 00:14:46,520 Speaker 2: regions where Venezuela was exporting. 314 00:14:46,960 --> 00:14:49,640 Speaker 4: It's hard to say, you know, Spencer, one thing that's 315 00:14:49,680 --> 00:14:52,080 Speaker 4: kind of I've heard, and you know you're the expert here. 316 00:14:52,120 --> 00:14:53,840 Speaker 4: I so somebody told me, I think it's a wood 317 00:14:53,840 --> 00:14:57,840 Speaker 4: mackenzie that they estimated to bring online and their five 318 00:14:57,880 --> 00:14:59,800 Speaker 4: hundred thousand barrels per day in Venezuela is going to 319 00:14:59,840 --> 00:15:02,000 Speaker 4: cost something on the order of fifteen to twenty billion dollars, 320 00:15:02,040 --> 00:15:05,720 Speaker 4: which is not an insignificant amount of money. However, I've 321 00:15:05,720 --> 00:15:09,560 Speaker 4: heard that that's twenty five percent cheaper than current deep 322 00:15:09,600 --> 00:15:12,760 Speaker 4: border projects in Guiana and Brazil. So from a relative 323 00:15:12,880 --> 00:15:15,600 Speaker 4: kind of value standpoint, right, if you're looking to put 324 00:15:15,600 --> 00:15:20,480 Speaker 4: capital work in Latin America in the energy sector, you know, yeah, 325 00:15:20,520 --> 00:15:23,280 Speaker 4: I mean assuming you know, you know, a developer can 326 00:15:23,280 --> 00:15:26,960 Speaker 4: get comfortable with what's going on in the ground there, security, safety, 327 00:15:27,040 --> 00:15:29,200 Speaker 4: all of that good stuff. Power, I mean, you know, 328 00:15:29,280 --> 00:15:31,960 Speaker 4: all of it. Yeah, I mean it might it might 329 00:15:32,080 --> 00:15:32,840 Speaker 4: actually make. 330 00:15:32,760 --> 00:15:37,600 Speaker 2: Sense, yes, But as with post stories, you know, so 331 00:15:37,720 --> 00:15:41,840 Speaker 2: you look at offshore Ghana, that's been sort of the 332 00:15:41,840 --> 00:15:46,600 Speaker 2: the jackpot for Chevron and the reason Exon wanted to 333 00:15:46,640 --> 00:15:51,360 Speaker 2: buy hes and you're talking billions and billions and billions 334 00:15:51,360 --> 00:15:54,440 Speaker 2: of dollars upfront to develop that. But then once it's developed, 335 00:15:54,440 --> 00:15:56,440 Speaker 2: the marginal cost for a new barrel out of the 336 00:15:56,440 --> 00:15:59,040 Speaker 2: ground is somewhere, you know, less than thirty dollars a barrel. 337 00:15:59,080 --> 00:16:01,440 Speaker 2: They're talking on like twenty twenty five dollars a barrel. 338 00:16:02,040 --> 00:16:06,320 Speaker 2: So it's major, major upfront capital. But once that's done 339 00:16:06,360 --> 00:16:09,320 Speaker 2: and that developments put and put in place, your marginal 340 00:16:09,360 --> 00:16:12,040 Speaker 2: cost is relatively low on a global scale versus you know, 341 00:16:12,080 --> 00:16:14,440 Speaker 2: the other model is, you know, the fracking in the 342 00:16:14,560 --> 00:16:16,840 Speaker 2: United States where you have to drill a new well 343 00:16:16,880 --> 00:16:19,560 Speaker 2: every month because the one you drilled six months ago 344 00:16:19,760 --> 00:16:23,280 Speaker 2: he is now producing fifty percent less than it used to. 345 00:16:24,800 --> 00:16:26,800 Speaker 2: So the cappex there is just sort of a long 346 00:16:26,880 --> 00:16:31,200 Speaker 2: run treadmill. And so for Venezuela you kind of have, 347 00:16:31,440 --> 00:16:35,360 Speaker 2: you know, the reserve. The problem with heavy heavy crude, 348 00:16:35,400 --> 00:16:39,120 Speaker 2: heavy sour crude that's coming out of Venezuela is it's 349 00:16:39,160 --> 00:16:43,720 Speaker 2: not cheap to produce in Canada. Your upfront cost may 350 00:16:43,720 --> 00:16:45,240 Speaker 2: be a little you know, you may not have the 351 00:16:45,520 --> 00:16:50,880 Speaker 2: Capex treadmill that you have for the US shale business model, 352 00:16:51,600 --> 00:16:54,840 Speaker 2: but you have diluted that you need to buy. Because 353 00:16:54,840 --> 00:16:56,960 Speaker 2: this stuff is so thick and heavy, you can't just 354 00:16:56,960 --> 00:16:58,640 Speaker 2: put it in a pipeline and ship it down to 355 00:16:58,680 --> 00:17:00,720 Speaker 2: the coast and then put it in a on a 356 00:17:00,760 --> 00:17:02,800 Speaker 2: tanker that then takes it to the Gulf of Mexico 357 00:17:02,880 --> 00:17:05,920 Speaker 2: to be refined. It's too heavy and too too nasty 358 00:17:05,960 --> 00:17:09,240 Speaker 2: for that. So you need to dilute it with either 359 00:17:09,440 --> 00:17:13,119 Speaker 2: already refined product or some lighter version of crude, so 360 00:17:13,160 --> 00:17:15,040 Speaker 2: that the costs for just getting it out of the 361 00:17:15,040 --> 00:17:18,000 Speaker 2: ground getting it to market are still pretty high. So 362 00:17:19,720 --> 00:17:22,159 Speaker 2: I think you're not only talking about the tens of 363 00:17:22,200 --> 00:17:24,119 Speaker 2: billions of dollars up front, but I also think you 364 00:17:24,200 --> 00:17:28,719 Speaker 2: need a global oil market where prices are, you know, 365 00:17:28,800 --> 00:17:31,480 Speaker 2: fifty dollars a barrel or more, just to sort of 366 00:17:31,600 --> 00:17:34,480 Speaker 2: keep the thing running on a profitable scale for the 367 00:17:34,520 --> 00:17:36,440 Speaker 2: long term. 368 00:17:36,800 --> 00:17:39,199 Speaker 4: You know, one thing I also you know, I mean, 369 00:17:39,400 --> 00:17:41,080 Speaker 4: just trying to get my head around it, really is, 370 00:17:41,200 --> 00:17:42,920 Speaker 4: you know, trying to development bank, right. I mean, we 371 00:17:42,920 --> 00:17:45,560 Speaker 4: don't have a lot of data of the exposure China 372 00:17:45,560 --> 00:17:47,920 Speaker 4: has to Venezuela, but we do have tryin to Development Bank, 373 00:17:47,960 --> 00:17:50,120 Speaker 4: which itself is a large issue of dollar bonds here 374 00:17:50,119 --> 00:17:52,720 Speaker 4: in the US, and they listen to this one. They 375 00:17:52,760 --> 00:17:56,840 Speaker 4: have a sixty billion dollar portfolio, of which Venezuela represents 376 00:17:56,960 --> 00:18:00,080 Speaker 4: nineteen billion of it. It is there large via the 377 00:18:00,119 --> 00:18:02,439 Speaker 4: oil for loans program. Right, it's the largest single country 378 00:18:02,440 --> 00:18:06,879 Speaker 4: commodity back position in that bank's portfolio. If Venezuela, for 379 00:18:06,920 --> 00:18:10,399 Speaker 4: whatever reason, chooses not to honor its Chinese obligations, what 380 00:18:10,520 --> 00:18:13,720 Speaker 4: is chrying to Development Bank do with those loans? Do 381 00:18:13,840 --> 00:18:16,640 Speaker 4: they mark them down? If they do that, I mean, 382 00:18:16,680 --> 00:18:19,560 Speaker 4: they're basically signaling to members of China's one built, one 383 00:18:19,600 --> 00:18:24,440 Speaker 4: run program that it's commodity linked loans cannot survive regime change. 384 00:18:24,440 --> 00:18:27,480 Speaker 4: So think about other countries like Paraguay or Ecuador, they 385 00:18:27,520 --> 00:18:29,200 Speaker 4: just have a regime change and they say, sorry, China, 386 00:18:29,240 --> 00:18:30,600 Speaker 4: we're not paying you back. They're not going to let 387 00:18:30,640 --> 00:18:34,000 Speaker 4: that happen. So this cankicking exercise extends all the way 388 00:18:34,040 --> 00:18:37,160 Speaker 4: to a you know, an investment grade rated development bank 389 00:18:37,240 --> 00:18:40,120 Speaker 4: like China Development Bank, And what's it mean for their 390 00:18:40,160 --> 00:18:43,160 Speaker 4: balance sheet and their ability to tap capital markets going forward. 391 00:18:43,200 --> 00:18:45,159 Speaker 4: It's just, you know, again, there is a bit of 392 00:18:45,200 --> 00:18:46,080 Speaker 4: a domino effect here. 393 00:18:46,119 --> 00:18:48,520 Speaker 1: James going back to what you're saying, Spencer about the 394 00:18:48,920 --> 00:18:51,720 Speaker 1: huge amount of capitul it needs to be spent by 395 00:18:52,440 --> 00:18:58,960 Speaker 1: these companies in order to develop the Venezuelan oil. You know, 396 00:18:59,320 --> 00:19:02,080 Speaker 1: if you can get the security that Damian mentions and 397 00:19:02,760 --> 00:19:04,679 Speaker 1: all of the other stuff that's going on on the ground. 398 00:19:05,000 --> 00:19:07,800 Speaker 1: I mean, I've spent time in Venezuela and I found 399 00:19:07,840 --> 00:19:10,359 Speaker 1: it a very scary place. I didn't feel very secure, 400 00:19:10,560 --> 00:19:12,920 Speaker 1: so I wouldn't go there. But once they are there, 401 00:19:13,080 --> 00:19:15,720 Speaker 1: they've got to put down billions dollars and they probably 402 00:19:15,720 --> 00:19:18,919 Speaker 1: won't start really getting any return for years. Is that 403 00:19:19,000 --> 00:19:22,439 Speaker 1: not bad for bondholders? 404 00:19:23,760 --> 00:19:28,200 Speaker 2: Well, you're talking about I mean referring to bondholders for 405 00:19:28,280 --> 00:19:30,560 Speaker 2: the Exons and Chevrons and Conico filps that are going 406 00:19:30,600 --> 00:19:34,160 Speaker 2: to be doing it. Yeah, I mean it's a risk. 407 00:19:34,240 --> 00:19:37,280 Speaker 2: It might increase the company's risk profile. But again, you know, 408 00:19:37,400 --> 00:19:41,199 Speaker 2: for Exon and Chevron and companies are that scale, they 409 00:19:41,200 --> 00:19:43,919 Speaker 2: can throw around ten billion, twenty billion dollars here or 410 00:19:43,920 --> 00:19:47,000 Speaker 2: there and it's a rounding error for you know, their 411 00:19:47,040 --> 00:19:51,639 Speaker 2: balance sheet. But they're also just very conservative companies. I 412 00:19:51,640 --> 00:19:56,480 Speaker 2: mean Exon and Chevron. You know, these guys don't invest 413 00:19:57,359 --> 00:20:01,000 Speaker 2: unless they're pretty comfortable with the outcome, at least from 414 00:20:01,000 --> 00:20:08,000 Speaker 2: illegal and sovereign standpoint. So yeah, it might on the margin, 415 00:20:08,080 --> 00:20:12,399 Speaker 2: increase their credit risk and the risk profile, But I 416 00:20:12,440 --> 00:20:15,080 Speaker 2: don't see them doing anything that's going to be meaningful 417 00:20:15,280 --> 00:20:18,960 Speaker 2: unless they've got some really strong security and guarantees that 418 00:20:19,000 --> 00:20:20,760 Speaker 2: they're going to be okay. You know, one idea that 419 00:20:20,800 --> 00:20:25,159 Speaker 2: gets batted around is maybe the US government says, okay, 420 00:20:26,119 --> 00:20:31,760 Speaker 2: we will guarantee a portion of the debt or the 421 00:20:31,800 --> 00:20:34,959 Speaker 2: capital that you're investing in in Venezuela. So if you 422 00:20:35,040 --> 00:20:38,320 Speaker 2: if you put in fifty billion dollars and things just 423 00:20:38,359 --> 00:20:42,400 Speaker 2: don't work out in Venezuela, you know, seizes those assets 424 00:20:42,440 --> 00:20:44,879 Speaker 2: again ten years from now, Well we'll pay the fifty 425 00:20:44,920 --> 00:20:49,080 Speaker 2: billion back on the margin. Yeah, but it also keep 426 00:20:49,080 --> 00:20:53,560 Speaker 2: in mind, you know, these companies look at returns and 427 00:20:53,640 --> 00:20:56,719 Speaker 2: projects that are decades out. So again back to the 428 00:20:56,720 --> 00:21:00,760 Speaker 2: offshore Ghana project, you know that took that took a 429 00:21:00,800 --> 00:21:04,800 Speaker 2: decade and billions of dollars. They didn't have the same Well, 430 00:21:04,960 --> 00:21:07,840 Speaker 2: you know, you could argue political risk, but you so 431 00:21:07,920 --> 00:21:09,920 Speaker 2: they're they're they're used to doing that, so you could. 432 00:21:09,720 --> 00:21:12,080 Speaker 1: Say they're also going to be pushed very hard by 433 00:21:12,119 --> 00:21:15,280 Speaker 1: the Trump administration to get on this train right now. 434 00:21:15,480 --> 00:21:17,119 Speaker 2: Yeah, they're going to be pushed very hard, and I 435 00:21:17,119 --> 00:21:18,879 Speaker 2: think there's going to be a lot of sort of 436 00:21:19,800 --> 00:21:22,280 Speaker 2: horse trading and carrots and sticks that are going to 437 00:21:22,320 --> 00:21:26,480 Speaker 2: be thrown around to, you know, to get these companies 438 00:21:26,480 --> 00:21:30,399 Speaker 2: to to invest. What's going to be need to be 439 00:21:30,440 --> 00:21:33,639 Speaker 2: invested if they're really going to turn the production around 440 00:21:33,640 --> 00:21:37,120 Speaker 2: in Venezuela. You know, maybe it's if you don't invest, 441 00:21:37,200 --> 00:21:41,800 Speaker 2: we're going to somehow revoke leases on certain you know, 442 00:21:42,160 --> 00:21:45,320 Speaker 2: US government federal land somewhere, or if you do invest, 443 00:21:45,400 --> 00:21:48,960 Speaker 2: we're going to, like I said, guarantee some of the 444 00:21:49,000 --> 00:21:52,320 Speaker 2: capital that you're putting into the country, or we're going 445 00:21:52,359 --> 00:21:55,520 Speaker 2: to give you first shot at these other reserves that 446 00:21:55,520 --> 00:21:58,200 Speaker 2: we're going to open up in, you know whatever, Gulf 447 00:21:58,240 --> 00:22:02,200 Speaker 2: of Mexico or Gulf of America and Alaska. I don't, 448 00:22:02,200 --> 00:22:06,200 Speaker 2: you know, pick your place. So sort of again, carrot 449 00:22:06,240 --> 00:22:08,479 Speaker 2: and stick type of approach. Hard to say, And that's 450 00:22:08,520 --> 00:22:10,359 Speaker 2: why we're kind of sitting here like I don't know 451 00:22:10,400 --> 00:22:14,440 Speaker 2: what this is going to look like six days from now, 452 00:22:14,480 --> 00:22:18,400 Speaker 2: six months from now, or six years from now. There's 453 00:22:18,440 --> 00:22:22,199 Speaker 2: a lot of variability here. But you know, Venezuela is 454 00:22:22,240 --> 00:22:26,399 Speaker 2: sitting on a huge pile of oil reserves. It's heavy 455 00:22:26,520 --> 00:22:29,359 Speaker 2: sour crude. It needs a certain market, it needs a 456 00:22:29,400 --> 00:22:34,240 Speaker 2: certain refinery. It competes with certain oil produced by certain regions. Again, 457 00:22:34,280 --> 00:22:37,600 Speaker 2: those regions are primarily Mexico and Canada. So to extend 458 00:22:37,680 --> 00:22:43,679 Speaker 2: Venezuela output does climb, those producers in those regions may suffer. 459 00:22:43,760 --> 00:22:48,000 Speaker 2: But then again, the refiners who refine the product may 460 00:22:48,080 --> 00:22:51,119 Speaker 2: benefit because they have you know, more competition, more supply 461 00:22:51,200 --> 00:22:52,440 Speaker 2: for the product that they're buying. 462 00:22:52,600 --> 00:22:54,400 Speaker 4: Just from an investor standpoint, one thing that is kind 463 00:22:54,440 --> 00:22:56,680 Speaker 4: of interesting is, you know, the move that we've seen 464 00:22:56,760 --> 00:22:58,480 Speaker 4: and just to be clear, if you look at the 465 00:22:58,560 --> 00:23:02,280 Speaker 4: JP Morgan NB Global of Fight Index, which allowed Venezuelan 466 00:23:02,280 --> 00:23:06,359 Speaker 4: and bonds back into the index, you know sometime back, 467 00:23:06,400 --> 00:23:08,800 Speaker 4: I mean basically to be clear, the Biden administration in 468 00:23:08,800 --> 00:23:12,320 Speaker 4: October of twenty twenty three removed sanctions on secondary trading 469 00:23:12,320 --> 00:23:15,240 Speaker 4: of those bonds, and that kicked off much of the 470 00:23:15,280 --> 00:23:19,240 Speaker 4: return that we've seen since. Right I mean, veny did 471 00:23:19,280 --> 00:23:21,880 Speaker 4: know over one hundred percent last year alone. So now 472 00:23:21,920 --> 00:23:24,000 Speaker 4: you have to kind of, you know, rightly point out 473 00:23:24,080 --> 00:23:26,680 Speaker 4: like you got to kind of you got to kind 474 00:23:26,680 --> 00:23:28,480 Speaker 4: of come up with what do you think your recovery 475 00:23:28,560 --> 00:23:29,639 Speaker 4: value is on these bonds? 476 00:23:29,720 --> 00:23:29,960 Speaker 3: Right? 477 00:23:30,000 --> 00:23:32,119 Speaker 4: And are the bonds currently trading there? And you know, 478 00:23:32,280 --> 00:23:33,880 Speaker 4: just you know, back of the napkin, I can tell 479 00:23:33,880 --> 00:23:36,040 Speaker 4: you this, you're a lot closer to where that recovery 480 00:23:36,080 --> 00:23:37,840 Speaker 4: value is today than you were only a month ago. 481 00:23:38,000 --> 00:23:40,560 Speaker 4: So you know, just again, how much juice is left 482 00:23:40,800 --> 00:23:41,800 Speaker 4: in the bonds? 483 00:23:41,880 --> 00:23:43,080 Speaker 3: And is it worth the risk? 484 00:23:43,280 --> 00:23:45,359 Speaker 4: You know, I mean there's other look, I mean, you know, 485 00:23:45,400 --> 00:23:47,160 Speaker 4: there's I'm not going to suggest that there are other 486 00:23:47,640 --> 00:23:50,239 Speaker 4: you know, I guess less risky ways to make that 487 00:23:50,280 --> 00:23:52,240 Speaker 4: type of return, But yeah, I am going to suggest 488 00:23:52,240 --> 00:23:54,600 Speaker 4: that James, there are a lot of different ways to 489 00:23:54,720 --> 00:23:57,000 Speaker 4: extract some performance out of the you know, global fixed 490 00:23:57,000 --> 00:23:59,280 Speaker 4: income market, and you know there's a lot of risk 491 00:23:59,320 --> 00:24:00,200 Speaker 4: here in venezuel Was. 492 00:24:00,240 --> 00:24:04,200 Speaker 1: Still I've want to ask also about the sale of Citgo. 493 00:24:05,680 --> 00:24:07,840 Speaker 1: How likely is that, what's the timing? What are we 494 00:24:07,880 --> 00:24:09,280 Speaker 1: expecting that this is? 495 00:24:09,320 --> 00:24:11,520 Speaker 2: This is an interesting point that I think it's worth 496 00:24:11,560 --> 00:24:15,320 Speaker 2: bringing up just because it ties into everything we're talking 497 00:24:15,320 --> 00:24:16,520 Speaker 2: about here, So and. 498 00:24:16,840 --> 00:24:18,680 Speaker 1: Just and just it's meant to explain to our listener 499 00:24:18,680 --> 00:24:20,679 Speaker 1: is what CICCO actually is how it works. 500 00:24:20,960 --> 00:24:25,440 Speaker 2: Yeah, So Sitco Petroleum is the refining and marketing arm 501 00:24:25,840 --> 00:24:31,359 Speaker 2: of Petavesa that is based in the United States. So 502 00:24:31,520 --> 00:24:34,480 Speaker 2: it was owned by the by Venezuelan and oil company, 503 00:24:34,520 --> 00:24:37,080 Speaker 2: but it was located in the United States, owned refineries 504 00:24:37,200 --> 00:24:39,159 Speaker 2: and as Damon mentioned at the beginning, they got you know, 505 00:24:39,200 --> 00:24:43,840 Speaker 2: gas stations and the the big sign at the Fenway 506 00:24:43,880 --> 00:24:50,720 Speaker 2: Park in Boston. And so after Venezuela nationalized and sees 507 00:24:50,760 --> 00:24:54,800 Speaker 2: all the oil and gas assets, a lot of those 508 00:24:54,840 --> 00:24:58,120 Speaker 2: companies sued in the US court and basically said, well, 509 00:24:58,119 --> 00:25:02,560 Speaker 2: we you know, we we lost billions of dollars and 510 00:25:02,600 --> 00:25:05,240 Speaker 2: as recourse to get repaid, we want to get repaid 511 00:25:05,359 --> 00:25:08,439 Speaker 2: via the sale of sit Goo. You know, this sees 512 00:25:08,520 --> 00:25:13,639 Speaker 2: this company's assets because they stole our assets illegally. And 513 00:25:13,680 --> 00:25:16,160 Speaker 2: so a court in the United States order and said, yes, 514 00:25:16,280 --> 00:25:18,480 Speaker 2: you know what, Citgo should be sold and the proceeds 515 00:25:18,520 --> 00:25:21,720 Speaker 2: will be used to help, you know, make some of 516 00:25:21,760 --> 00:25:25,280 Speaker 2: these creditors hold up for their losses. It was a 517 00:25:25,320 --> 00:25:28,000 Speaker 2: long drawn out process. It kind of went through very 518 00:25:28,200 --> 00:25:32,560 Speaker 2: several iterations, but a final sale was agreed upon by 519 00:25:32,600 --> 00:25:34,240 Speaker 2: the court at the end of last year. I think 520 00:25:34,240 --> 00:25:37,440 Speaker 2: it was in November for five point nine billion dollars 521 00:25:37,480 --> 00:25:41,960 Speaker 2: and it's two company that isn't this name came up earlier, 522 00:25:42,320 --> 00:25:47,840 Speaker 2: an affiliate of Elliott Management. So Sitco is on track 523 00:25:47,880 --> 00:25:51,960 Speaker 2: to be sold. It hasn't been completed yet, and now 524 00:25:52,880 --> 00:25:55,800 Speaker 2: Venezuela and Peta Basa are suing to try to block it. 525 00:25:55,840 --> 00:25:57,800 Speaker 2: We'll see where that goes. But I think now with 526 00:25:57,920 --> 00:26:03,080 Speaker 2: this whole new dynam baby that does potentially change the outcome. 527 00:26:03,080 --> 00:26:05,080 Speaker 2: I don't know, hard hard to say. Again, it's another 528 00:26:05,440 --> 00:26:07,720 Speaker 2: wild card in this sole process. But that's just an 529 00:26:07,760 --> 00:26:10,520 Speaker 2: example of kind of how this how things have been 530 00:26:10,520 --> 00:26:13,800 Speaker 2: playing out, and that you know, credit impact related to it. 531 00:26:14,200 --> 00:26:17,359 Speaker 4: And the more interesting about that is who won the 532 00:26:17,400 --> 00:26:20,320 Speaker 4: auction for that subsidiary. It's our friend Paul Singer at 533 00:26:20,359 --> 00:26:23,800 Speaker 4: Elliott of notoriously of Argentina fame. Right, So you know, 534 00:26:23,840 --> 00:26:26,240 Speaker 4: if there's somebody who knows, you know, the dinner workings 535 00:26:26,280 --> 00:26:29,040 Speaker 4: of you know em sovereign workouts, there's nobody better. And 536 00:26:29,320 --> 00:26:31,000 Speaker 4: you know, I've been told, you know, just back of 537 00:26:31,040 --> 00:26:34,480 Speaker 4: the nap and that Sickle Holdings is you know, market 538 00:26:34,560 --> 00:26:36,919 Speaker 4: values somewhere in the range of ten to fifteen billion. 539 00:26:37,000 --> 00:26:39,760 Speaker 4: So I didn't know it was five billion in change 540 00:26:39,800 --> 00:26:41,359 Speaker 4: that they won the auction for. I heard it was 541 00:26:41,359 --> 00:26:43,520 Speaker 4: a little bit more, but even so that's a pretty 542 00:26:44,080 --> 00:26:45,159 Speaker 4: significant uptick. 543 00:26:45,240 --> 00:26:45,439 Speaker 3: You know. 544 00:26:45,520 --> 00:26:48,480 Speaker 4: So there's a lot of value there, but certainly not 545 00:26:48,760 --> 00:26:52,040 Speaker 4: nearly enough to handle the seventy billion odd of bonds 546 00:26:52,080 --> 00:26:54,960 Speaker 4: outstanding for you know, dollar pay creditors of venezuel into 547 00:26:55,000 --> 00:26:55,920 Speaker 4: the basic to get paid back. 548 00:26:56,640 --> 00:26:58,879 Speaker 1: I want to ask you, Damiens, the photos of what 549 00:26:58,880 --> 00:27:00,440 Speaker 1: you raised about China. I don't to go to two 550 00:27:00,480 --> 00:27:02,960 Speaker 1: fountain down this rabbit hole because it's a topic for 551 00:27:02,960 --> 00:27:05,520 Speaker 1: a whole different show, but you know, it is interesting. 552 00:27:05,920 --> 00:27:07,920 Speaker 1: I've been looking at Venezuela and other parts of last 553 00:27:07,920 --> 00:27:11,200 Speaker 1: in America for years. China has been very very aggressive 554 00:27:11,480 --> 00:27:15,440 Speaker 1: lending across the region, you know, in quote America's backyard, 555 00:27:16,200 --> 00:27:18,800 Speaker 1: very good terms in places that no one else would lend. 556 00:27:19,000 --> 00:27:23,000 Speaker 1: And when I would ask Chinese officials at China Development 557 00:27:23,000 --> 00:27:26,360 Speaker 1: Bank for example, or the boroughs you know what's going 558 00:27:26,400 --> 00:27:28,280 Speaker 1: on here, and they say, well, you know, we will 559 00:27:28,320 --> 00:27:31,960 Speaker 1: never default on China. That could never happen. Now you're 560 00:27:31,960 --> 00:27:34,160 Speaker 1: suggesting that that it could happen, and you know. 561 00:27:34,520 --> 00:27:35,920 Speaker 4: Oh, I'm just saying if you're sitting there at the 562 00:27:35,960 --> 00:27:37,719 Speaker 4: China Development Bank, and you have to make a decision 563 00:27:37,800 --> 00:27:40,240 Speaker 4: about whether or not to mark these assets down to zero. 564 00:27:40,320 --> 00:27:42,919 Speaker 4: What message are you sending to other borrowers from the 565 00:27:42,960 --> 00:27:45,640 Speaker 4: bank right? Otherwise what you got to do is you've 566 00:27:45,640 --> 00:27:47,960 Speaker 4: got to basically kick the can down the road and 567 00:27:48,000 --> 00:27:51,200 Speaker 4: turn it out right, And now you're holding non performing 568 00:27:51,200 --> 00:27:53,480 Speaker 4: assets on your balance sheet? And what does that mean 569 00:27:53,480 --> 00:27:55,800 Speaker 4: from the perspective of, you know, a development bank that 570 00:27:55,840 --> 00:27:58,280 Speaker 4: needs to tap capital markets in order to you know, 571 00:27:59,160 --> 00:28:01,520 Speaker 4: you know, survive and lend more money and and and 572 00:28:01,720 --> 00:28:04,240 Speaker 4: grow itself. So you know, it's a very interesting kind 573 00:28:04,240 --> 00:28:06,480 Speaker 4: of quagmire that kind of finds itself in here in 574 00:28:06,520 --> 00:28:07,000 Speaker 4: my opinion. 575 00:28:07,800 --> 00:28:10,639 Speaker 1: So one quick crystal ball gaze for both of you 576 00:28:10,680 --> 00:28:12,959 Speaker 1: as we wrap this up. What's the likelihood you think 577 00:28:13,000 --> 00:28:15,600 Speaker 1: of real change this year? You know, if we do 578 00:28:15,640 --> 00:28:18,400 Speaker 1: this show one year from now, will we be talking 579 00:28:18,440 --> 00:28:21,119 Speaker 1: about a different Venezuela. Will you know that that big 580 00:28:21,160 --> 00:28:26,000 Speaker 1: oil place suddenly be happening, Will will bondholders be you know, 581 00:28:26,400 --> 00:28:29,359 Speaker 1: having a big champagne party reception down the road? What's 582 00:28:29,440 --> 00:28:33,600 Speaker 1: what's your realistic? You know, your your your base case, 583 00:28:34,080 --> 00:28:35,000 Speaker 1: the sultheas Spencer. 584 00:28:36,240 --> 00:28:39,320 Speaker 2: My base case is that the rest of this year 585 00:28:39,520 --> 00:28:42,840 Speaker 2: is spent horse trading, trying to put together the blueprint 586 00:28:43,040 --> 00:28:44,719 Speaker 2: as to what's going to happen and how it's going 587 00:28:44,800 --> 00:28:49,520 Speaker 2: to happen. You still have you know, the regime that's 588 00:28:49,560 --> 00:28:52,520 Speaker 2: in charge in Venezuela is still largely the old regime, 589 00:28:52,600 --> 00:28:56,480 Speaker 2: just a different person at the top of the pyramid. 590 00:28:56,680 --> 00:29:00,000 Speaker 2: Trump is obviously twisting some arms to try to get 591 00:29:00,120 --> 00:29:02,440 Speaker 2: things done there, but that's going to take a long time. 592 00:29:02,640 --> 00:29:06,479 Speaker 2: Nobody seems to know what that plan in bluet blueprint is. 593 00:29:07,920 --> 00:29:10,520 Speaker 2: And you know, as you mentioned, Exeon said at the beginning, 594 00:29:10,680 --> 00:29:13,560 Speaker 2: you know, Venezuela is uninvestable as it stands today. So 595 00:29:13,600 --> 00:29:15,400 Speaker 2: I think the next the rest of this year is 596 00:29:15,440 --> 00:29:18,000 Speaker 2: spent trying to figure out how to make Venezuela investable. 597 00:29:18,040 --> 00:29:20,880 Speaker 2: And then if we can get to that point, then 598 00:29:20,960 --> 00:29:23,719 Speaker 2: you start to see build out and actually dollars flowing 599 00:29:23,800 --> 00:29:26,200 Speaker 2: in and more oil potentially flowing out. But I think 600 00:29:26,200 --> 00:29:27,479 Speaker 2: the rest of this year is trying to figure out 601 00:29:27,520 --> 00:29:28,000 Speaker 2: how to get there. 602 00:29:28,120 --> 00:29:29,080 Speaker 3: Yeah, I agree with Spencer. 603 00:29:29,200 --> 00:29:30,680 Speaker 4: I mean, look, I'm a New York Jet fan and 604 00:29:30,720 --> 00:29:33,400 Speaker 4: I cover emerging market fixed income, so I'm inherently a bear, 605 00:29:33,640 --> 00:29:35,880 Speaker 4: and so by that point, then your term challenges are 606 00:29:35,960 --> 00:29:38,760 Speaker 4: nothing short of massive. I mean, I'm talking pro government 607 00:29:38,800 --> 00:29:42,320 Speaker 4: motorcycle gangs like Collectivos who are basically running rampant here. 608 00:29:42,160 --> 00:29:44,160 Speaker 3: Powerful drug cartels. You have armed guerrillas. 609 00:29:44,560 --> 00:29:46,880 Speaker 4: I mean, you know, the Venezuelan government right now just 610 00:29:46,960 --> 00:29:49,520 Speaker 4: doesn't have an ability to control all that. And far 611 00:29:49,600 --> 00:29:51,600 Speaker 4: be it from me to guess, but I imagine the US 612 00:29:51,640 --> 00:29:53,080 Speaker 4: isn't going to want to get involved on the ground 613 00:29:53,120 --> 00:29:56,240 Speaker 4: and start to you know, please that either. So you know, look, 614 00:29:56,320 --> 00:29:58,640 Speaker 4: I mean, you have a population of thirty million people, 615 00:29:58,800 --> 00:30:01,000 Speaker 4: you have eight million micro many of which are living 616 00:30:01,040 --> 00:30:03,240 Speaker 4: here in the US. Yeah, we can shere all this on, 617 00:30:03,680 --> 00:30:06,680 Speaker 4: but really, at the end of the day, and what's 618 00:30:06,680 --> 00:30:09,440 Speaker 4: really changed. You know, this has never been in my 619 00:30:09,880 --> 00:30:12,760 Speaker 4: I tried before where you actually have the US government 620 00:30:12,800 --> 00:30:15,200 Speaker 4: going in extracting the leader but leaving the existing regime 621 00:30:15,200 --> 00:30:17,920 Speaker 4: in place. We've not seen something like this before. So 622 00:30:17,960 --> 00:30:20,920 Speaker 4: the question is, can Delci Rodriguez, who's the acting president, 623 00:30:21,320 --> 00:30:24,720 Speaker 4: really bring things, you know, really control what's going on 624 00:30:24,720 --> 00:30:27,760 Speaker 4: on the ground. I'm not holding my breath for that one. 625 00:30:28,960 --> 00:30:32,400 Speaker 1: Great stuff. Spencer Cutter and Damien Sassau from Bloomberg Intelligence 626 00:30:32,440 --> 00:30:34,000 Speaker 1: It's been a pleasure having you on the Credit Edge. 627 00:30:34,000 --> 00:30:37,400 Speaker 1: Many thanks, Thank you, sir, Thank you for even more analysis. 628 00:30:37,400 --> 00:30:39,440 Speaker 1: Read all of Spencer and Damien's great work on the 629 00:30:39,480 --> 00:30:43,080 Speaker 1: Bloomberg Terminal, or just call them the great value fantastic people. 630 00:30:43,240 --> 00:30:45,840 Speaker 1: Bloomberg Intelligence is part of our research department, with five 631 00:30:45,960 --> 00:30:49,440 Speaker 1: hundred analysts and strategists working across all markets. 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