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Copyright

Petrolera Zuata, Petrozuata C.A.


Harvard Business School Case N9-299-012
Case Software 2-299-701
Copyright 1998 by the President and Fellows of Harvard College
This case was prepared as the basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.

Page 1

Exhibit1
Exhibit 1

Venezuelan Macroeconomic Data: 1970-1996

Real GDP
Growth
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996

Sources:

7.3%
2.4
2.5
6.1
5.2
5.1
8.3
6.2
2.2
1.3
(2.5)
(0.2)
0.8
(5.2)
(0.5)
1.1
6.2
4.5
6.2
(8.5)
7.5
10.1
7.4
(0.6)
(2.5)
3.7
(0.4)

Per Capita
GDP Growth

Government
Surplus/GDPa

3.7%
(1.0)
(1.0)
2.5
1.7
1.5
4.6
2.5
(1.3)
(2.0)
(5.5)
(3.0)
(1.8)
(7.5)
(2.9)
(1.4)
3.5
1.7
3.4
(10.8)
4.9
7.5
4.9
(2.8)
(4.6)
1.5
(2.5)

(0.9)
0.5
(0.2)
1.6
2.4
0.6
0.5
(4.4)
(3.6)
2.1
0.0
2.2
(2.1)
(0.6)
2.8
2.0
(0.4)
(1.7)
(6.1)
(1.1)
(2.1)
(1.4)
(3.8)
(2.5)
(6.8)
(4.6)
0.2

Total Debt
Stock/GDP
6.9%
12.7
15.2
14.0
8.6
6.8
13.3
25.1
35.7
42.2
42.0
41.0
40.2
48.1
63.8
59.0
56.4
73.8
57.5
75.6
68.3
63.8
62.4
62.2
62.6
46.0
49.9

Oil Exports/
Total Exports
89.0%
92.2
91.4
88.6
95.2
94.6
94.2
95.4
95.1
95.2
94.9
94.6
94.7
91.3
87.7
82.6
69.2
81.8
76.4
74.9
80.0
81.1
79.0
74.7
72.7
74.4
80.4

Inter-American Development Bank, and International Financial Statistics, International Monetary Fun

Negative values signify Government Deficit/GDP.

The interest rates provided are yields to maturity on long-term Venezuelan government bonds.

The exchange rates provided are the official bolivar/U.S. dollar exchange rates determined by the Venezuelan
and early 1996, the government fixed the exchange rate. Between 1989 and 1994 and after early 1996, the
against the U.S. dollar.

Page 2

Exhibit1

Oil Exports/
GDP
17.2%
19.0
17.3
21.6
33.4
25.6
23.6
21.3
18.8
23.9
26.2
24.3
19.5
17.4
21.0
17.3
10.9
14.9
13.5
23.4
29.2
23.1
18.7
18.0
20.2
17.9
26.7

Unemployment
Rate
7.8%
...
...
...
7.6
8.3
6.8
5.5
5.1
5.8
6.6
6.8
7.8
11.2
14.3
14.3
12.1
9.9
7.9
9.7
11.0
10.1
8.1
6.8
8.9
10.9
12.3

Inflation
Rate

Interest
Ratesb

2.5%
3.2
2.8
4.1
8.3
10.3
7.6
7.8
7.1
12.4
21.5
16.2
9.6
6.3
12.2
11.4
11.5
28.1
29.3
84.7
40.6
34.2
31.4
38.1
60.8
59.9
99.9

...
...
...
...
...
...
...
...
...
...
...
...
...
...
13.15%
12.55
12.07
13.49
14.86
17.32
20.06
27.14
31.66
41.03
54.73
53.38
49.09

ternational Monetary Fund.

mined by the Venezuelan government. Prior to 1989 and between 1994


and after early 1996, the government allowed the bolivar to float freely

Page 3

Exchange
Ratec
4.450
4.350
4.350
4.285
4.285
4.285
4.293
4.293
4.293
4.293
4.293
4.293
4.293
4.300
7.500
7.500
14.500
14.500
14.500
43.079
50.380
61.554
79.450
105.640
170.000
290.000
476.500

Exhibit2
Exhibit 2

DuPont and PDVSA Balance Sheets (U.S. dollars in millions): 1995-1996

DuPont
1996

PDVSA
1995

1996

ASSETS
Cash
Accounts and notes receivable
Inventory
Prepaid expenses
Deferred income taxes
Total current assets

$1,319
5,193
3,706
297
588
$11,103

$1,455
4,912
3,737
276
575
$10,955

$2,745
3,429
1,740
1,124
508
$9,546

Property, plant, and equipment


Investment in affiliates
Other assets
Total assets

$21,213
2,278
3,393
$37,987

$21,341
1,846
3,170
$37,312

$32,957
1,863
1,036
$45,402

Accounts payable
Current portion of long-term debt
Short-term debt and lease obligations
Income taxes
Other accrued liabilities
Total current liabilities

$2,757
300
3,610
526
3,794
$10,987

$2,636
551
5,606
470
3,468
$12,731

$2,033
1,137
--2,616
1,156
$6,942

Long-term debt
Capital lease obligations
Deferred income taxes
Other liabilities
Total liabilities

$4,983
104
2,133
8,451
$26,658

$5,572
106
1,783
8,454
$28,646

$4,668
455
19
1,166
$13,250

Minority interests
Total stockholders' equity
Total liabilities and equity

$620
10,709
$37,987

$230
8,436
$37,312

$354
31,798
$45,402

LIABILITIES AND EQUITY

Sources:

Du Pont 1996 Annual Report and PDVSA 1996 Form 20-F.

Page 4

Exhibit2

PDVSA
1995

$464
3,226
1,551
729
429
$6,399
$30,774
1,899
853
$39,925

$1,672
1,074
--351
952
$4,049
$4,933
531
313
1,168
$10,994
$271
28,660
$39,925

Page 5

Exhibit3
Exhibit 3

DuPont and PDVSA Income Statements (U.S. dollars in millions): 1995-1996

DuPont
1996

PDVSA
1995

1996

Sales
Other income
Total income

$43,810
1,340
$45,150

$42,163
1,059
$43,222

$32,786
1,069
$33,855

Cost of goods sold


Selling, general, and administrative expenses
Depreciation, depletion, and amortization
Exploration expenses
Interest and debt expense
Taxes other than on income
Other expense (income), net
Equity earnings of affiliates
Minority interests
Total costs and expenses

$25,144
2,856
2,621
1,436
713
6,399
------$39,169

$23,363
2,995
2,722
1,398
758
6,596
------$37,832

$15,720
967
2,749
142
343
3,203
79
(89)
19
$23,133

$5,981
(2,345)
$3,636

$5,390
(2,097)
$3,293

$10,722
(6,227)
$4,495

Earnings per share of common stock

$6.47

$5.61

Average number of common shares (millions)

560.7

585.1

$34.94

$47.06

Earnings before income taxes


Provision for income taxes
Net income

Year-end stock price

Sources:

Du Pont 1996 Annual Report, and PDVSA 1996 Form 20-F.

Page 6

Exhibit3

PDVSA
1995
$25,050
991
$26,041
$14,061
1,163
2,400
118
421
2,513
(354)
(132)
23
$20,213
$5,828
(2,455)
$3,373

Page 7

Exhibit4
Exhibit 4

Conoco and Maraven Financial Information (U.S. dollars in millions): 1995-1996

Conoco

Sales
Operating profit
Provision for income taxes
Equity in earnings of affiliates

1995

$20,579
1,818
(933)
(25)

$17,958
1,257
(660)
22

$5,503
3,574
na
---

$860

$619

$1,070

$13,018
1,128
1,616

$12,634
1,111
1,714

$10,814
940
612

After-tax operating income


Identifiable assets
Depreciation, depletion, and amortization
Capital expenditures

Sources:

Maraven

1996

DuPont 1996 Annual Report, and PDVSA.

Page 8

1996

Exhibit4

Maraven
1995
$4,073
1,924
na
--($16)
$10,093
770
1,871

Page 9

Exhibit7
Exhibit 7

Sources and Uses of Funds (U.S. dollars in thousands): 1996-2000

1996

1997

$11,995
655

$191,849
170,512

$151,141
45,121

Upgrader & Loading Facilitya


Upstream Contingency
Total Capex

14,345
0
$26,994

243,305
0
$605,666

510,987
0
$707,249

Other Costs
Deferred Development Costs
and Operating Expenditures
Initial Cash Balance
Financing Costs
Legal & Advisory Fees
Debt Service Reserve
Excess Cash Balance

$52,040
0
0
0
0
0

$23,328
0
61,134
15,000
0
47,213

$71,724
10,000
86,816
0
0
0

$79,035

$752,341

$875,789

$0

$1,000,000

$24,299

$79,035
0

$0
1,986

$0
550,148

0
$79,035

47,213
$49,199

4,484
$554,632

$79,035

$1,049,199

$578,931

USES
Capital Expenditures
Crude Oil Production
Crude Oil Pipeline

Total Uses
SOURCES
Total Project Debt
Shareholder Funds
Initial Paid in Capital
Additional Paid-in Capital
Operating Cash Flowb
Total Shareholder Funds
Total Sources

Source:
a

Petrozuata Planning Documents.

Includes a $139 million contingency.

Includes interest income.

Page 10

1998

Exhibit7

1999

2000

Total

$77,092
0

$16,702
0

$448,780
216,288

230,306
0
$307,399

67,912
37,925
$122,539

1,066,854
37,925
$1,769,847

$0
0
94,955
0
0
0

$0
0
111,556
0
80,865
195

$147,093
10,000
354,461
15,000
80,865
47,408

$402,353

$315,155

$2,424,673

$242,981

$182,720

$1,450,000

$0
(1,576)

$0
(185,047)

$79,035
365,511

160,948
$159,373

317,481
$132,434

530,126
$974,673

$402,353

$315,155

$2,424,673

Page 11

Exhibit8
Exhibit 8

Oil and Gas Industry Comparables: 1996 (unless otherwise indicated)

S&P
Rating

Country

Country
Rating

Debt to
Value (%)

OIL & GAS PROJECTS


Athabasca Oil Sands
Canadian Oil Sands
YPF Sociedad Anomima
Ras Laffan (2001)
Petrozuata (2001)

BBB
BBB+
BBB
BBB+
???

Canada
Canada
Argentina
Qatar
Venezuela

AA+
AA+
BBBBBB
B

26.8%
22.9
34.8
62.7
60.0

INDEPENDENT OIL COMPANIES


Apache
Burlington Resources
Husky Oil
Noble Affiliates
Norcen Energy Resources
Talisman Energy

BBB
ABBB
BBB
BBB
BBB+

U.S.
U.S.
Canada
U.S.
Canada
Canada

AAA
AAA
AA+
AAA
AA+
AA+

45.8X
37.9
41.9
54.1
49.6
30.0

INTEGRATED OIL COMPANIES


Amoco
Chevron
Exxon
Mobil
Texaco
Shell Canada
PDVSA

AAA
AA
AAA
AA
A+
AA
B

U.S.
U.S.
U.S.
U.S.
U.S.
Canada
Venezuela

AAA
AAA
AAA
AAA
AAA
AA+
B

26.6X
32.0
21.0
32.7
39.3
20.6
15.4

Sources:

S&P's Global Sector Review, Bloomberg, and casewriter estimates.

Page 12

Exhibit8

Pretax Interest
Coverage (X)

EBITDA/
Interest (X)

Operating Income
as a % of Revenue

Revenues
($ millions)

8.15X
8.62
4.77
4.51
4.70

11.09X
13.49
8.2
na
3.65

32.3%
30.7
44.0
51.1
79.4

$251.5
118.3
5,937.00
851.6
569.2

2.68X
3.70
2.66
4.49
1.49
4.54

5.85X
6.56
5.02
10.72
4.99
10.24

60.1%
62.6
39.7
46.0
42.2
59.0

$976.0
1,293.00
1,272.90
878.3
1,257.30
1,182.90

13.08X
9.85
10.25
11.73
5.68
6.57
32.26

21.22X
14.2
15.06
16.69
8.83
10.47
40.27

18.9%
16.9
13.8
11.9
10.1
19.7
48.7

$32,150.0
37,580.0
116,728.0
71,129.0
44,561.0
5,140.0
33,855.0

Page 13

Exhibit9
Exhibit 9

Credit Ratings for Selected Sovereign Foreign Currency Long-Term Debt

S&P
Sovereign

Dec. 1994

Dec. 1996

Moody's
Dec. 1994
Dec. 1996

North America
Canada
Mexico
United States

AA+
BB
AAA

AA+
BB
AAA

Aa1
Baa1
Aaa

Aa2
Ba2
Aaa

Central America
Costa Rica
Panama

n/r
n/r

n/r
n/r

n/r
n/r

n/r
n/r

South America
Argentina
Bolivia
Brazil
Chile
Colombia
Ecuador
Peru
Venezuela

BBn/r
B+
BBB+
n/r
n/r
n/r
B+

BBn/r
B+
ABBBn/r
n/r
B

B2
n/r
B1
Baa2
n/r
n/r
n/r
Ba2

B1
n/r
B1
Baa1
Baa3
n/r
B3
Ba2

Sources:

Bloomberg and "Country Credit Ratings," Institutional Investor, March 1995 and September 1996.

Page 14

Exhibit9

Institutional Investor
Sept. 1994
Sept. 1996

81.3
46.1
90.8

79.4
41.6
90.7

30.3
24.4

33.9
28.5

37.3
21.4
30.3
54.9
44.4
24.5
21.0
36.0

38.9
25.4
38.3
61.2
46.7
26.4
30.0
32.0

nd September 1996.

Page 15

Exhibit10a
Exhibit 10a

Year
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
2033
2034

Petrozuata Equity Cash Flow Projections (U.S. dollars in thousands)

Forecast
Price of
Maya
Crude
$12.25
12.56
12.87
13.19
13.52
13.86
14.21
14.56
14.93
15.3
15.68
16.07
16.47
16.89
17.31
17.74
18.19
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64
18.64

Total
Revenue
$0
0
78,524
429,059
804,108
569,156
583,597
598,398
613,568
629,117
645,052
661,386
678,126
695,283
712,869
730,892
749,365
768,299
768,798
769,309
769,831
770,365
770,911
771,468
781,859
782,441
783,036
783,644
784,266
784,901
785,550
786,214
786,891
787,584
788,291
789,014
789,753
790,508
791,279

Cash
Available
for Debt
Service
(CADS)
$0
47,213
4,484
160,948
317,481
384,765
389,154
366,575
401,552
398,211
433,477
435,267
438,118
373,182
371,469
378,471
387,428
328,978
358,441
391,545
383,528
382,868
327,531
308,024
283,051
299,464
295,554
294,578
289,656
289,705
278,074
276,806
274,449
263,604
247,540
250,329
242,937
240,644
226,196

Page 16

Total Debt
Service

(160,922)
(157,694)
(154,466)
(176,949)
(188,009)
(200,307)
(201,204)
(210,153)
(166,148)
(150,455)
(158,377)
(164,964)
(85,668)
(87,403)
(124,573)
(137,103)
(68,691)
(6,653)
(6,653)
(6,653)
(6,653)
(81,653)
0

Cash Used
for Debt
Service
Reserve
Account

(80,865)
1,614
1,614
(11,509)
(5,700)
(6,345)
(550)
(4,671)
10,623
19,595
(4,135)
(3,438)
40,417
(933)
(19,051)
(6,498)
4,468
62,038
0
0
0
0
3,327
0

Equity Cash Flows


Dividends

$1,576
185,047
225,457
233,074
200,600
218,903
203,857
232,620
229,393
238,588
226,629
216,878
216,655
262,881
242,378
251,988
260,474
250,893
376,215
320,878
301,370
276,398
292,810
217,227
294,578
289,656
289,705
278,074
276,806
274,449
263,604
247,540
250,329
242,937
240,644
226,196

Exhibit10a

Equity Cash Flows


Investment
(79,035)
(1,986)
(550,148)

Total Debt
$0
1,000,000
1,024,299
1,267,280
1,450,000
1,411,111
1,372,222
1,333,333
1,268,856
1,187,614
1,086,961
977,484
849,556
755,137
669,137
567,137
449,137
401,689
348,241
252,034
134,448
75,000
75,000
75,000
75,000
75,000
0

Page 17

Exhibit10a
Sources:

Petrozuata Planning Documents, Federal Reserve Bulletin, S&P Bond Guide, and casewriter estimat

Page 18

Exhibit10a
, and casewriter estimates.

Page 19

Exhibit10b
Exhibit 10b

Capital Markets Data (as of January 1997)

Government or
International Debt

Yields

Federal Funds Rate


3-month Treasury Bill
3-month LIBOR
10-year Treasury Bond
30-year Treasury Bond

5.19%
5.03
5.78
6.56
6.81

Sources:

Corporate Bond Ratings


(U.S. industrials)
AAA
AA
A
BBB
BB
B

Yields
7.13%
7.21
7.39
7.70
8.69
10.17

Petrozuata Planning Documents, Federal Reserve Bulletin, S&P Bond Guide,


and casewriter estimates.

Page 20