Pdvsa poised to sign first E&P profit sharing

Jan. 15, 1996
Venezuela's state petroleum company Petroleos de Venezuela SA (Pdvsa) this month will sign its first exploration and production profit sharing contracts. The effort represents Venezuela's most extensive offering of this type for private investment since nationalization 20 years ago. It also is the first offering of exploration acreage in Venezuela since 1958. The program is expected to generate as much as $12 billion in added investment in Venezuela's upstream sector the next 10-15

Venezuela's state petroleum company Petroleos de Venezuela SA (Pdvsa) this month will sign its first exploration and production profit sharing contracts.

The effort represents Venezuela's most extensive offering of this type for private investment since nationalization 20 years ago. It also is the first offering of exploration acreage in Venezuela since 1958.

The program is expected to generate as much as $12 billion in added investment in Venezuela's upstream sector the next 10-15 years.

Pdvsa goals

The E&P profit sharing program falls in line with Pdvsa's goal of boosting oil productive capacity to more than 5 million b/d by 2005 from the current level of slightly more than 3 million b/d, in expectation of growing world oil demand.

Pdvsa's 10 year business plan calls for total outlay of $60 billion to hike productive capacity to 5.691 million b/d. That breaks out as $33 billion for Pdvsa solo projects, another $11 billion for joint ventures, and $16 billion from private oil companies for marginal fields reactivation projects, E&P profit sharing deals, Orinoco heavy oil projects, and other oil and gas ventures.

Meantime, Pdvsa has earmarked about $6 billion in capital spending this year, with most of the focus on E&P to underpin production and reserves growth.

The company also is moving to consolidate its growing global role as a refiner and marketer of heavy crudes and related products.

E&P program

The long awaited E&P profit sharing program is a departure from Venezuela's other recent efforts to attract private-especially foreign-investment to its upstream sector.

Pdvsa has signed some major "strategic alliance" agreements involving major oil companies for participation in heavy oil development/ upgrading ventures (see table, OGJ, Aug. 14, 1995, p. 37).

In addition, Pdvsa is making progress in a 3 year old program targeting private investment to reactivate marginal oil fields in Venezuela (OGJ, June 12, 1995, p. 33).

Further, Pdvsa has all the elements in place except for a market for its liquefied natural gas export scheme, which includes offshore natural gas field development, in cooperation with foreign oil companies (OGJ, Sept. 4, 1995, Newsletter).

The profit sharing scheme under Pdvsa's "apertura" (opening) oil program is the first time since nationalization in 1976 that private companies will be allowed to conduct E&P programs in Venezuela as equity owners.

The profit sharing deals call for exploration of 10 undeveloped blocks earmarked for joint ventures financed totally by private companies. Minimum investment is expected to be $40-60 million/block.

The 10 blocks are spread over an area estimated at 4.5 million acres (see map, OGJ, Sept. 18, 1995, p. 85). Potential reserves are estimated at 7 billion bbl of high quality medium and light gravity crudes.

If commercial volumes of oil and/or gas are discovered, the private companies will form joint ventures with one of Pdvsa's subsidiaries, sharing the venture's profits and being reimbursed for exploration costs.

Companies, timetable

More than 300 companies have expressed an interest in the E&P profit sharing program, and about 70 have qualified to bid (see table).

Here is the schedule for opening sealed bids under the profit sharing program:

  • Jan. 22, Catatumbo Block A, Zulia and Merida states; La Ceiba Block B, Trujillo, Merida, and Zulia states.

  • Jan. 23, Guanare Block C, Portuguesa state; San Carlos Block D, Cojedes and Portuguesa states.

  • Jan. 24, El Sombrero Block E, Guarico state; Guarapiche Block F, Monagas and Sucre states.

  • Jan. 25, West Gulf of Paria Block G and East Gulf of Paria Block H, both Sucre state.

  • Jan. 26, Punta Pescador Block I and Delta Centro Block J, both Delta Amacuro state.

Pdvsa 1996 spending

Pdvsa' s 1996 budget focuses heavily on its efforts to boost Venezuela's crude oil reserves to about 66 billion bbl, which it reckons would be an increase of about 1.6 billion bbl.

Oil & Gas Journal estimated Venezuela's proved crude reserves as of Jan. 1, 1996, at 64.5 billion bbl (OGJ, Dec. 25, 1995, p. 44).

Pdvsa said its 1996 E&P program includes more funds for exploratory drilling in new areas such as the South Andean flank and North and Central Monagas state.

Increased spending also will go for development and appraisal drilling, secondary recovery, and steam injection projects.

In addition, Pdvsa expects to increase Venezuela's gas reserves by about 585 million bbl of oil equivalent (BOE) to about 25 billion BOE.

Pdvsa reported production of Orimulsion, its boiler fuel that is an emulsion of extra heavy crude, water, and a surfactant, will total about 4.8 million metric tons in 1996, up 104,000 tons from 1995. It also reported production and marketing of coal from its Carbones del Guasare joint venture will be about flat in 1996 with 1995's level of 4.5 million tons.

Downstream plans

Pdvsa is pressing a program of upgrading and modernizing its refineries while eyeing possible further investments in refining abroad. All told, the goal is to add 600,000 b/d to worldwide refining capacity.

Plans call for increasing refining capacity in Venezuela by about 200,000 b/d by 2000 at a cost of about $5.2 billion.

Current refining capacity in Venezuela is about 1.167 million b/d. Crude throughput is pegged at 983,000 b/d for 1996.

Much of the refining investment emphasis is on processing larger volumes of heavy and extra heavy crudes.

Plans call for Pdvsa subsidiary Maraven SA to complete a $2 billion upgrade of its 286,000 b/d Cardon refinery this year.

Pdvsa also plans to expand the 195,000 b/d Puerto La Cruz and 115,000 b/d El Palito refineries operated by its Corpoven SA unit.

Amuay project

In addition, Pdvsa subsidiary Lagoven SA will increase capacity of the hydrodesulfurization unit at its 571,000 b/d Amuay refinery. Plans call for expanding unit capacity to 250,000 b/d of high sulfur, heavy crudes from 190,000 b/d.

The project will allow the refinery to process feedstock from other refineries and supply low sulfur and desulfurized distillates and gas oils, said Lagoven Refining Manager Heraldo Sifontes.

"That gas oil will be supplied to other refineries in the Pdvsa circuit to be used at catalytic cracking units for the production of gasoline," Sifontes said.

Amuay's expanded deep conversion capacity of 98,000 b/d breaks out as 64,000 b/d of flexicoking and 34,000 b/d of delayed coking.

During first half 1995, Amuay processed about 102,000 b/d of heavy crudes, the highest in 45 years of operation. That volume of throughput is expected to rise to about 170,000 b/d as expansion work progresses, Sifontes said.

"Refining hard to market heavy crudes means greater operational and commercial flexibility for Lagoven," Sifontes said.

Pdvsa estimates about 73% of Venezuela's oil reserves are heavy and extra heavy crudes and 27% medium and light crudes and condensate.

Foreign refining

Pdvsa currently is negotiating the purchase of several refineries in the U.S. and possibly building another in Brazil, said Ronald Pantin, the company's strategic planning coordinator.

He did not disclose which plants are under consideration for purchase but said negotiations are based on an "association scheme" aimed at boosting Pdvsa's refining capacity by 400,000 b/d.

In the U.S., Pdvsa has about 676,000 b/d of refining capacity in wholly or partly owned refineries at Lake Charles, La., Corpus Christi, Tex., Paulsboro, N.J., Savannah, Ga., Lemont, Ill., and Houston.

In addition, Pdvsa has 310,000 b/d of refining capacity at the Isla refinery in Curacao and a combined 260,000 b/d of capacity at refineries in Germany, Sweden, Belgium, and the U.K.

Heavy oil upgrading

As an adjunct to the refining expansion, Pdvsa continues to press projects with ARCO, Conoco, Mobil, and Total intended to produce a combined total of about 500,000 b/d of extra heavy crude and convert it into a more marketable synthetic crude.

Following an agreement last month setting up a $2 billion heavy oil joint development/marketing venture be- tween Chevron Corp. and Pdvsa unit Maraven SA (OGJ, Dec. 25, 1995, p. 29), Mobil is expected to complete negotiations on a similar project involving Orinoco extra heavy crudes with Lagoven.

"The prospects for that project look very positive," said Lagoven Pres. Julius Trinkunas.

He noted the prefeasibility study for the project is complete, and the contract should get a final green light for signing in the first quarter.

Under their strategic association, Mobil and Lagoven would set up a joint venture to produce about 100,000 b/d of extra heavy crude from the Orinoco belt's Cerro Negro region. The Cerro Negro crude will be upgraded at sites in Venezuela and the U.S. for marketing as syncrude.

The deal is expected not only to open markets to Lagoven in the U.S. but also lead to other joint ventures involving the two companies in the U.S.

Last November, Maraven signed a 35 year, $1.5 billion strategic association contract with Conoco Inc. to produce, transport, and upgrade 120,000 b/d of Orinoco extra heavy crude (OGJ, Nov. 13, 1995, Newsletter).

Earlier, Maraven signed a contract with Total covering a $2.85 billion project to produce and upgrade 180,000 b/d of Orinoco crude.

A $3.5 billion strategic association between Corpoven and ARCO to produce 165,000 b/d of Orinoco crude, upgrade that to 210,000 b/d of syncrude, and export the syncrude still is pending approval (OGJ, Oct. 3, 1994, Newsletter).

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