CNPC, Sinopec Bid for Venezuela Carabobo Oil Blocks

Orinoco Heavy Oil Belt
(Click to Enlarge)

BEIJING (Dow Jones Newswires), Mar. 20, 2009

Venezuela is evaluating bids from two Chinese state oil companies for stakes in Orinoco oil blocks that Caracas is offering up to foreign investors, a person close to the issue said.

China National Petroleum Corp., the nation's top oil and gas producer and the parent of PetroChina Co., and China Petrochemical Corp., or Sinopec Group, have made bids, and these would be discussed in coming days when top Venezuela oil officials visit China, he said.

Oil minister Rafael Ramirez and a team from Petroleos de Venezuela SA, or PdVSA, are due in Beijing Saturday for the talks and to attend a "Joint Energy Commission" meeting with the National Development and Reform Commission, China's economic planning agency.

"Some Chinese companies are participating in the bidding process and their advance proposals are now being reviewed," said an oil company official, noting CNPC and Sinopec are already active in other Venezuelan oil projects.

It is unclear whether the Chinese companies have submitted joint bids for both fields or whether they are making separate approaches.

Another person said CNPC had joined with France's Total SA in its bid for assets in the seven heavy oil Carabobo blocks in the Orinoco belt that Caracas is opening to foreign investors.

CNPC spokesman Liu Weijiang and Sinopec's press office couldn't be reached for comment.

Venezuela's government says the area contains 272 billion barrels of recoverable reserves, and it needs to attract foreign investors to help shoulder the huge financial burden needed to extract the oil -- something Caracas can't do alone at a time of relatively low oil prices and reduced revenues.

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 the venture.

In January, Ramirez said bids had been received from 17 companies. It is unclear when decisions will be taken on the bids.

"Companies participating in the licensing process have asked for a timetable extension," Eulogio Del Pino, PdVSA's vice-president for production and exploration, told Dow Jones Newswires on Wednesday.

"These days companies are having trouble securing the needed financing for these ventures," Del Pino said.

Financing Problems

Del Pino also said that PdVSA is "looking at financing options from China and Japan" to help raise as much as $4 billion to help it push ahead with a range of oil sector projects.

Ramirez is due to come to China after brief trips late this week planned for Japan and South Korea.

PdVSA aims to invest around $12 billion this year, similar to last year's level, despite the collapse in benchmark West Texas Intermediate crude oil prices from a July 2008 peak of $147 a barrel to around $49 now.

Venezuela and China have signed several energy cooperation agreements over the past year, the latest on Feb. 18 when China agreed to a further $6 billion cash infusion into a bilateral development fund, and PdVSA agreed to sell an additional 80,000 to 200,000 barrels of oil per day to PetroChina.

Venezuela is now providing China with around 300,000 barrels a day of oil, around 70% of this in the form of sour fuel oil.

President Hugo Chavez said on Wednesday that Ramirez would review agreements on building a refinery while in China and "for Venezuela to supply China over the next few years up to one million barrels of oil per day," the Spanish news agency EFE reported.

On March 13, CNPC president Jiang Jiemin said a proposed joint venture with PdVSA to build a 400,000 barrel-a-day refinery in Southern China to process Venezuelan oil still needed NDRC approval.

China's deepening relationship with Venezuela has come at the expense of the U.S., which saw imports from South America's largest producer in 2008 plummet to their lowest level since 1994.

This was largely due to Venezuela cutting off crude oil sales to ExxonMobil Corp. last year after a dispute over compensation for nationalized assets.

Venezuela is also reinforcing ties with Russia. On Tuesday, Chavez said a deal had just been signed with a consortium of Lukoil Holdings, TNK-BP Holding, OAO Rosneft and OAO Gazprom to develop reserves in the southeastern Orinoco basin, which he later said involved the Russian companies making a direct investment of at least $6 billion.

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

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