Access to future Venezuelan output secured

Oil companies who successfully bid for operational contracts to reactivate marginal fields in Venezuela also have secured for themselves access to part of the country's future oil production.

Under contract conditions, private companies will be paid a fee for each barrel of oil produced that must be delivered to state oil company Petroleos de Venezuela SA (Pdvsa). Those fees vary in each contract and will serve to cover both capital investment in the fields and provide profit margins for the investors. A sliding scale will be applied to the value of the oil produced, which is intended to compensate operators with lower rates of return.

Pdvsa Pres. Luis Giusti has said the operating companies also will be able to purchase the oil they produce at the reactivated fields at market prices.

According to Giusti, Pdvsa is not selling the fields but rather contracting the private companies to operate those fields. Private domestic and foreign oil companies are paying a fee that gives them the right to have access to oil produced in the marginal fields, said Giusti.

High prices paid

During the June 2-6 tender for marginal oil fields, successful bidders paid about $2.2 billion for the rights to operate the fields (OGJ, June 16, 1997, p. 27).

Industry observers have said the figure was high considering the acreage that was auctioned.

But they noted that individual companies had different reasons for bidding high to secure an operating contract in Venezuela, ranging for strategic reasons to having direct access to new oil reserves.

Judging from the high price paid for the contracts and subsequent investment required, the successful bidders are expected to move swiftly to bring new production on stream and recover their investment, said one oil industry observer. There was a wide range of oil companies, both in size and origin.

China's surprise entry

China National Petroleum Co. (CNPC), a newcomer to the oil business in Venezuela, bid about $358.7 million to land two fields (Intercampo and Caracoles). It is interested in a broad range of involvement in the Venezuelan oil industry.

The Chinese company already holds an agreement with Bitumenes Orinoco SA (Bitor) for the purchase of about 1 million metric tons of Venezuela's trademark boiler fuel, Orimulsion, that will be used for test runs in industrial and electric power plants in China.

China is seriously considering the possibility of purchasing about 5.2 million metric tons/year of Orimulsion beginning in 2000 and has expressed willingness to invest about $300 million in the construction of an Orimulsion-producing module at Morichal, Monagas state, eastern Venezuela.

CNPC reportedly also is eyeing a possible joint venture with a Pdvsa subsidiary to produce and upgrade extra-heavy crudes from the Orinoco oil belt in eastern Venezuela, similar to several other projects already secured by other foreign oil companies.

CNPC advisor Nelson Vasquez has said the company's aggressive efforts during the June 2-6 tender demonstrates its strategy to secure an active and long-lasting presence in Vene- zuela's oil industry.

CNPC's Director for International Corporations Wang Shao Xian has said her company is interested in working with Pdvsa in the future. She also explained that the Chinese company is focusing on the opening of Latin America's petroleum sector to meet growing energy needs in China.

Tender status

The tender, which involved about 1 million acres of Venezuelan onshore and offshore territory, forms part of an aggressive new policy being carried out by Pdvsa to pursue joint ventures with private oil companies and boost the nation's oil production capacity to more than 6.2 million b/d by 2000.

Winning bidders in the June 2-6 tender now are required to sign the 20-year operating contracts with Pdvsa's subsidiaries Lagoven SA, Corpoven SA, and Maraven SA by Aug. 1. It isn't clear at this point how the imminent restructuring of Pdvsa and its subsidiaries (see related story, p. 40) will affect these or other, previously awarded marginal fields and exploration risk contracts in Venezuela.

The tender, the third of its kind held by Pdvsa in recent years, was considered an overall success.

Of the 20 fields originally placed on the auction block, 18 were granted to the highest bidders.

Companies that were granted contracts in the tender are expected eventually to invest as much as $10 billion to reactivate undeveloped and/or shutin oil fields that are expected to produce as much as 500,000 b/d of oil by 2006.