Political Risk and the Valuation of National Oil Companies: The Case of PDVSA.

Details

Supervisors

Petitjean, Mikael

Faculty

Louvain School of Management

Degree label

Master [120] en sciences de gestion

Abstract

Petróleos de Venezuela SA (PDVSA), Venezuela’s National Oil Company, has been greatly impacted by government action in the last 20 years; this is not an isolated case, as NOCs are inherently more vulnerable to government actions. We address this subject from the angle of predictability of adverse government actions in the oil and gas industry in Venezuela, and from the valuation of the impact said actions have on PDVSA. We start by giving an overview of the definitions relevant to this thesis; risk, political risk, the oil and gas industry, National Oil Companies, and Venezuela’s oil and gas industry and PDVSA. We then proceed to evaluate adverse government action in the industry and the predictability of said actions by applying a discriminant model. In addition, a market multiple valuation based on the EV/EBITDA ratio is employed in order to assess PDVSA’s value throughout the years analyzed and observe the impact of said actions. These two analyses allowed us to observe that, among other things, governments tend to take adverse government actions when the industry is more attractive and revenues are increasing, in order to increase its share of said revenue. We will conclude by reviewing the results from the two analysis, presenting the limitations encountered and offering suggestions on said limitations for further research on the subject.