Venezuela awards Carabobo blocks to two consortia

Venezuelan President Hugo Chavez offered reassurances to international oil companies after state-owned Petroleos de Venezuela SA (PDVSA) signed agreements with two consortia to develop oil fields in his country’s Orinoco belt.

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 11 -- Venezuelan President Hugo Chavez offered reassurances to international oil companies after state-owned Petroleos de Venezuela SA (PDVSA) signed agreements with two consortia to develop oil fields in his country’s Orinoco belt.

“They say there's no type of judicial security here in Venezuela, and stuff like this, but it's not true,” said Chavez, as he addressed senior executives from Chevron Corp., Repsol YPF SA, and other firms involved in the auction.

“You have all the guarantees for your investments, your profits, and the capital that you want to repatriate,” said Chavez, who added that his country has too much oil for them to ignore. “You need to be here.”

Underlining his country’s importance, Chavez cited a recent US Geological Survey report stating that the Orinoco belt holds 513 billion bbl of recoverable heavy crude. In its report, USGS established a range of recoverable oil of 380-652 billion bbl and determined a mean estimate of 513 billion bbl.

JVs formed
Chavez’s remarks came after Oil Minister Rafael Ramirez announced that PDVSA will create joint ventures with the two consortia to develop two sectors in the Carabobo area of the Orinoco belt. The two winning groups each will hold 40% stakes, while PDVSA will hold 60%.

Under the previously released terms of the tender, the successful bidders are required to raise oil production at each block to at least 400,000 b/d and to finance the entire $10-20 billion cost of each project themselves.

The winners will have until March to finalize the joint venture with PDVSA and will need to take a final investment decision by yearend. After that, the companies will have a year to construct one bitumen upgrader for each of the projects.

PDVSA will form one joint venture with a consortium comprised of Chevron, 34%; Suelopetrol, 1%; and Mitsubishi, Jogmec, and Inpex, a collective 5%. Ramirez said the group was awarded the Carabobo 3 block after agreeing to pay $500 million for drilling rights and a further $1 billion for financing to PDVSA.

The Carabobo 3 project includes development of three blocks: Carabobo 2 Sur, Carabobo 3 Norte, and Carabobo 5. The project also includes construction of a heavy-oil upgrader.

PDVSA’s other JV will be undertaken with a consortium of Repsol YPF (11%) and Petronas (11%) together with Oil & Natural Gas Corp. (11%), Oil India Ltd. (3.5%), and Indian Petroleum Corp. (3.5%). Ramirez said that group was awarded the Carabobo 1 block after agreeing to pay a $1.05 billion signing bonus and another $1.05 billion to PDVSA for financing.

The Carabobo 1 project includes development of two blocks: Carabobo 1 Centro and Carabobo 1 Norte. The project also includes construction of a heavy-oil upgrader.

Ramirez said a third area up for bidding, Carabobo 2, went unassigned and that Venezuela would have to wait until a later time to determine how the block would be developed. According to Chavez, “It is still available.”

Meanwhile, despite the upbeat tempo of Venezuelan officials, doubts have lingered over whether IOCs would invest in the country under the rule of Chavez, who has nationalized the assets of scores of foreign companies, including those of ExxonMobil Corp. and ConocoPhillips.

Concerns raised
Such concerns were voiced by William Edwards, an oil analyst with Edwards Energy Consultants, who said the IOCs that have signed on might be taking a risk because Chavez could launch another wave of state takeovers.

"I'd say it's very risky because once you're investing money in the country, the government is your partner," Edwards told OGJ. "They could set one set of rules to invite you in, then they can change the rules. Venezuela has a history of doing exactly this. That’s what makes this so risky."

Nonetheless, Chevron Vice-Pres. George Kirkland expressed optimism over the new agreement, saying, “We look forward to being part of this new opportunity that will expand development of one of the world’s largest known hydrocarbon resources.”

Japan's Ministry of Economy, Trade, and Industry likewise said it welcomes the choice of the Inpex-Mitsubishi Corp. consortium as a developer, as it will help the country to secure stable energy supplies.

According to earlier reports, PDVSA’s strategic plan calls for the investment of about $15 billion during 2006-12 to increase heavy-oil production from the Orinoco tar belt of Venezuela to 1.2 million b/d from the present level of 600,000 b/d (OGJ, Nov. 21, 2005, p. 54).

Contact Eric Watkins at hippalus@yahoo.com.

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