Venezuela, Russia Strike Deal on Orinoco Oil Fields

CARACAS (Dow Jones Newswires), Jun. 3, 2009

Venezuela and Russia have signed an agreement to develop two prized oil fields out of several in the Orinoco region that are currently up for licensing.

Venezuela's congress has approved an energy cooperation deal with Russia that includes the creation of a joint venture company to develop the Carabobo 1 north and Carabobo 1 center oil fields, two of the seven areas that the Andean country has offered to foreign oil companies, according to a copy of the agreement published in the latest Official Gazette.

The decision confirms President Hugo Chavez's vow to cement a close oil bond with Russia but leaves a number of questions regarding the bidding process for Orinoco areas, which has already suffered months of delays. The accord appears to give Russian companies two of the fields, even before the bidding has begun.

Lukoil Holdings (LKOH.RS), along with TNK, OAO Rosneft (ROSN.RS) and OAO Gazprom (GAZP.RS), have formed a consortium expected to develop fields jointly with Petroleos de Venezuela SA, or PdVSA.

Officials at PdVSA couldn't comment on the matter. A spokesman for Lukoil declined to comment, but said the company remains committed to the Carabobo tender.

Many industry executives expected these Russian firms to win several Orinoco areas in the Carabobo field tender, which includes developing several plants to upgrade heavy crude into more marketable oil for export.

The Carabobo field tender is the first such Venezuelan offer to foreign oil companies in decades. The opening gives interested companies the opportunity to serve as minority partners in a joint venture with the government. Foreign companies would own a 40% maximum stake in each venture.

The Carabobo 1 north and center fields are expected to each produce anywhere between 200,000 and 240,000 barrels of crude a day.

Companies interested in these and other fields have been asked to present an offer that includes the financing needed to develop the fields and build the crude upgrading plants. The process, however, has suffered months of delays and PdVSA officials have said they expect to receive formal offers on July 28 and a final selection of partners is expected on Aug. 14.

The tender was initially announced in late October with only four fields up for bid. Later on in the year, PdVSA added three more areas to the bidding process for a total of seven. Industry insiders have long speculated that PdVSA might have increased the number of areas offered with the intent of reserving some of these for its Russian partners.

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