Eni funds $1.5 billion for PDVSA development of Orinoco block

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, July 15 -- Venezuela's Petroleos de Venezuela SA signed a $2 billion financing agreement with Eni SPA mainly for development of the two firms’ joint venture in the Orinoco heavy oil belt.

Eni agreed to finance PDVSA's share of development costs for Junin-5's early production phase up to a total of $1.5 billion, with the remaining $500 million to be used to fund an electric power station to be built in the Guiria Peninsula.

Development of the Junin-5 heavy oil block, in the Faja of Orinoco, was the primary topic of discussion between Venezuela’s Minister of Energy and Petroleum Rafael Ramirez and Eni's Chief Executive Paolo Scaroni.

The development plan for Junin-5 calls for an early production phase of 75,000 b/d starting in late-2013, and a full phase of 240,000 b/d in 2018. The plan also calls for construction of a refinery on the coast, in Jose.

PDVSA and Eni also discussed options to anticipate the early production start up in late-2012 using synergies with existing PDVSA facilities to transport an initial gross production of 7,000-10,000 b/d.

The two sides expect to drill 10 wells this year. By yearend they also plan to award the engineering contract for the refinery.

After signing the agreement, Scaroni said Eni planned to invest $7 billion in Venezuela over the next 7 years.

Scaroni said he expected Junin-5 to begin producing heavy oil next year with early production of 50,000 b/d. Scaroni said the oil would be converted into diesel and sold into European markets.

Ramirez said his country needs $80 billion in investment to develop its Orinoco heavy oil belt, and that it would soon sign a $4 billion deal with China National Petroleum Co. to develop another project.

Venezuela last month signed a $1.5 billion loan agreement with a consortium of Japanese banks led by Japan Bank for International Cooperation (JPIC), which may be repaid in oil shipments.

Venezuela would repay the loan over 15 years in cash or oil at a rate of Libor plus 3.8 points, Ramirez said, adding that the loan will be used to finance expansion of the Puerto la Cruz and El Palito refineries.

Ramirez said Venezuela wants to nearly double production from the 140,000 b/d El Palito refinery, while Puerto la Cruz is slated to raise production to 210,000 b/d from 180,000 b/d.

Work on the upgrades is expected to start at yearend and will be completed by 2015, said Ramirez, who added that the expansion project will allow diesel exports from El Palito to international markets.

Under the loan agreement, which is backed by JBIC and eight other Japanese banks, Mitsubishi Corp. and Itochu Corp. will receive Venezuela's light Santa Barbara crude oil as part of the repayment.

The two firms said they also will seek to receive other crude grades and refined products from Venezuela as part of the repayment.

Itochu earlier this year won an order to supply four Aframax tankers to a shipping subsidiary of PDVSA, and it commissioned Sumitomo Heavy Industries to build the vessels (OGJ Online, Feb. 7, 2011).

Contact Eric Watkins at hippalus@yahoo.com.