CARACAS, Feb 10 (Reuters) - Venezuela was to award the
largest oil investment of President Hugo Chavez's 11-year rule
on Wednesday, drawing tens of billions of dollars of
much-needed foreign finance to the Orinoco Belt just three
years after the leftist leader nationalized operations there.
The contest to tap into the OPEC member's 100-plus billion
barrels of reserves looks set to be won by groups led by
U.S.-based Chevron (CVX.N) and Spain's Repsol (REP.MC),
evidence that oil giants are eager to replenish waning reserves
that are often under control of producer nations.
Caracas even softened some of the fiscal terms in another
sign of dwindling resource nationalism around the world sparked
by falling oil prices that have forced producer nations to seek
partnerships from companies they marginalized during a
five-year commodities boom.
The bid results were to be announced around 6 p.m. local
time (2230 GMT) at Miraflores presidential palace in Caracas.
"It's extremely hard not to see this as a success,
especially given the level of risk aversion and the complete
lack of private investment in the oil industry in more than a
decade," said Eurasia Group analyst Patrick Esteruelas.
Timeline of Venezuela's oil industry: [ID:nN09244390]
Factbox on Carabobo oil field auction: [ID:nN09248426]
Venezuelan oil production: link.reuters.com/cud68h
Map of Carabobo field: link.reuters.com/dud68h
Venezuela's Carabobo oil tender includes three projects
slated to produce 1.2 million barrels per day following years
of slumping oil production in the OPEC nation, though the new
facilities may not do much to increase the country's total
exports due to declining output at older fields.
The auction's winners will have a major opportunity to gain
access the Orinoco region, which the U.S. Geological Survey
recently called one of the world's largest crude reserves.
"The Orinoco is Venezuela's oil future, and therefore the
country's economic future," said Roger Tissot, consultant with
Gas Energy Latin America.
"If PDVSA would have had the money to do everything alone,
they would have tried to do so -- but they cannot. They have
financial and also I would guess human resources limitations."
Venezuela itself holds the world's fifth-largest oil
reserves at an estimated 100 billion barrels, according to the
BP Statistical Review, though the Venezuelan government says it
holds at least 177 billion barrels that could yet be produced.
But companies face a host of risks including a major
financing burden, a massive infrastructure buildout in isolated
areas that in some cases have no roads, and the liability that
Chavez could launch another wave of state takeovers.
The leftist leader in 2007 took over operations of four
Orinoco projects run by private oil companies, leading U.S.
giants Exxon Mobil (XOM.N) and ConocoPhillips (COP.N) to leave
the country and sue for compensation.
Industry sources say Chevron and Repsol put in bids in
rival consortia. Repsol's bidding group also includes India's
ONGC (ONGC.BO) and Malaysia's Petronas (PETR.KL).
"Chevron has had a relatively good relationship with the
Chavez administration. They know the country well and are
familiar with the political risks of Venezuela," Tissot added.
"Repsol has a large experience in Latin America, and
although they tried to reduce their exposure to Latin America
due to rising resource nationalism and changes in royalty and
taxes in the last few years, it is hard for them to ignore the
potential of Venezuela."
The sources said the government did not receive bids from
several companies Chavez has openly courted. They include
China's CNPC; Russian firms such as Lukoil (LKOH.MM) and
Gazprom (GAZP.MM); and Shell (RDSa.L), which has proprietary
technology for heavy oil production.
This is likely due in part to Venezuela running a parallel
process of direct adjudication for blocks in the Junin area of
the Orinoco belt that boasts solid reserves but is considered a
less attractive production area.
SEPARATE ORINOCO OFFERING
Venezuela offered Junin blocks to Italy's Eni (ENI.MI),
China's CNPC and a consortium of Russian companies including
Lukoil -- possibly explaining why these companies did not put
in offers for Carabobo fields.
Eni and a consortium of Russian companies in recent weeks
each agreed to invest close to $20 billion dollars to develop
projects in the Junin area.
In the Carabobo auction, Venezuela had to ease its hefty
tax burden, which steadily increased during the oil boom years,
to convince companies to overlook the risks and put up billions
The projects will have production capacity of 400,000
barrels per day each and will begin output in 2012 or 2013
producing tar-like Orinoco oil and mixing it with lighter oil
to create a medium grade similar to Mexico's Maya crude.
The winning bidders are required to put up a bonus of at
least $1 billion for two of the projects and $500 million for
the third, which has larger reserves but is more difficult to
Companies must also pay a minimum $1 billion loan to
Venezuelan state oil company PDVSA for each of the areas.
By 2016, the companies will build multibillion-dollar
upgraders that will turn the oil into light synthetic crude,
which fetches higher prices on international markets.