PDVSA Plans Project Changes, $4B Financing in Tough Times

Orinoco Heavy Oil Belt
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Venezuelan President Hugo Chavez
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CARACAS (Dow Jones Newswires), Mar. 19, 2009

Petroleos de Venezuela SA, PdVSA, may seek as much as $4 billion in financing this year as it adjusts its investment strategy and cuts costs in times of low oil prices.

The state oil company's plans also include revamping its major heavy oil reserve quantification project, and the delay of an Orinoco region licensing round, all steps in response to the global economic slowdown and the jittery state of global finance.

"We're evaluating financing of $3 billion to $4 billion this year, but it will all depend on what happens with oil prices," Eulogio Del Pino, PdVSA's vice president for production and exploration, told Dow Jones Newswires. "We're looking at financing options from China and Japan."

Del Pino declined to offer additional details of the company's financing plans but noted other ways in which the current atmosphere of low oil prices has impacted the company.

PdVSA will delay the completion of the Magna Reserva Project, its heavy oil reserve quantification venture meant to quantify the crude deposits in four major areas of the rich Orinoco region. Magna Reserva is a key element of President Hugo Chavez's oil industry policy.

Booking additional oil reserves in the Orinoco, Chavez has argued, will officially make Venezuela the country with the second largest proven crude reserves in the world, after Saudi Arabia.

"The venture could take another six months of 2010 to finalize," said Del Pino. Magna Reserva's original completion date was October through December of 2009.

The Boyaca block oil, believed to be the richest piece of oil real estate near the Orinoco river belt, will remain unexplored until next year, according to the PdVSA director.

At the same time, however, Del Pino noted that PdVSA is adding new oil-rich areas to the Magna reserva project, including old wells in the Aguaro Guariquito national park, that borders the Orinoco oil region. It's estimated that some sites in the park could hold anywhere between 5 billion and 10 billion barrels of crude, based on preliminary estimates.

Del Pino insisted that despite delays, Venezuela will certify the needed extra barrels to reach a total of 200 billion barrels in proven reserves by the end of this year. In its latest reserve booking Tuesday, Venezuela now claims to control 172.3 billion barrels in proven oil reserves.

Other projects meant to increase oil output are also suffering delays. Late last year Chavez opened up the Orinoco region in a licensing round that the oil ministry may choose to adjust, Del Pino said.

"Companies participating in the licensing process have asked for a timetable extension," he said. "These days companies are having trouble securing the needed financing for these ventures." Del Pino said the oil ministry will decide in the end on any official timetable changes.

Under the rules of the Carabobo field licensing round, foreign partners are required to plan and finance the oil pumping and processing of heavy oil, while retaining a minority stake in ventures with the state.

Oil industry executives have been complaining for weeks of delays in the timetable that many of them attribute to PdVSA.

Venezuela's oil company is now facing difficult financial times since oil prices plummeted in late 2008. The country's oil now fetches $40.75 a barrel, below the $60-a-barrel needed for this year's state budget. Already, Chavez's government is planning spending cuts and changes to the original budget estimates.

Nonetheless, Oil Minister Rafael Ramirez has insisted that no oil ventures will be scratched, even in the face of tight fiscal times. Most industry observers believe in the end Venezuela will delay a number of oil projects as the president continues to favor social spending over oil industry investment. The company still plans to invest $12 billion in the industry this year, a similar level as in 2008.  

Copyright (c) 2009 Dow Jones & Company, Inc.


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