Oliver L Campbell : PDVSA'S Operational and Financial Reporting

Former Petroleos de Venezuela (PDVSA) Finance Coordinator Oliver L Campbell writes: BP published its 3rd quarter 2008 results on 28 October in a summarized report of 29 pages. Royal Dutch Shell published its 3rd quarter results on 30 October in a report of 23 pages. ExxonMobil also published its 3rd quarter results on 30 October but in a report of only14 pages. PDVSA has yet to publish its 3rd quarter results, but it published its 1st semester results on 15 September in a report of 98 pages.

What does this tell us? That BP, Shell and ExxonMobil are quick off the mark to report interim results, but that they do so in a summarized form with a limited number of pages. PDVSA is slow off the blocks but it reports the results in much more detail--three times more pages than Shell.

I believe timeliness is more important than detail for interim results. May I suggest to PDVSA that, in future, they provide a detailed report only for the first semester? For the 1st and 3rd quarters, they could then follow the example of the private oil companies and only provide a summarized version. It is hoped, in that way, they can then inform us of the operational and financial highlights by, say, May 15 and November 15 respectively in a report of no more than 30 pages.

In a recent article I wrote " Has PDVSA abandoned the concept of Joint Ventures?" I believed that to be so, but I am indebted to a colleague who confirms that my assumption is correct. This arises from legislation which eliminates both Operating Service Agreements and Joint Ventures and stipulates PDVSA must have a majority shareholding in all mixed companies (Gaceta Oficial 38.493 del 4 de agosto de 2006-- Ley de reforma parcial del Decreto Nº 1.510 con fuerza de Ley Orgánica de Hidrocarburos--Artículo 22). It is evident from the legislation that mixed companies are not joint ventures.

The International Accounting Standards Board (IASB) quotes the following definition: "A joint venture is a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Joint control is the contractually agreed sharing of control over an economic activity, and exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control."

It is quite clear that, when the Venezuelan government makes all the rules and also holds more than 50% of the shares, joint control does not exist and this rules out the structure of a joint venture. Though joint ventures are no longer allowed in Venezuela , it is possible they may exist abroad e.g. PDVSA'S 40% stake in the Pernambuco refinery in Brazil .

All the mixed companies, comprising those which were previously operating service agreements and present and new associations in the Orinoco Oil Belt, will be accounted for as subsidiary companies. That means they will be consolidated 100% even though PDVSA may hold only 60% of the shares. The accounting effect is that all the mixed companies' income and expense items will be added on a line-by-line basis to PDVSA'S other income and expense, and the balance sheet will include all the mixed companies' assets and liabilities. Be prepared to see a substantial increase to Property, Plant and Equipment in PDVSA'S balance sheet, and also expect to see a large rise in Minority Interests in the Statement of Net Income.

We look forward to seeing PDVSA'S publication of their 3rd quarter's 2008 results in the next few days.

Oliver L Campbell , MBA, DipM, FCCA, ACMA, MCIM was born in El Callao in 1931

where his father worked in the gold mining industry. He spent the WWII years in

England, returning to Venezuela in 1953 to work with Shell de Venezuela (CSV),

later as Finance Coordinator at Petroleos de Venezuela (PDVSA). In 1982 he

returned to the UK with his family and retired early in 2002.