Chevron Exec Encouraged By Venezuela's New Oil Auction Terms

Orinoco Belt Regions
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BOGOTA (Dow Jones), Dec. 3, 2009

A Chevron Corp. executive called the Venezuelan government's new terms for its Carabobo heavy oil drilling tender an improvement, and said he thinks the revisions are most likely the final draft.

"It's encouraging that they've continued to improve the terms," Wes Lohec, Chevron's managing director for Latin America, said Wednesday. "I don't think there will be any further changes in the terms. These are the terms with which we'll have to make our bid decision."

Venezuela's government on Tuesday sent interested oil companies, including Chevron, revised terms for the project to encourage participation. The project has been delayed several times amid concerns raised by some companies on issues such as how much they would have to pay in royalties and taxes, and what decision-making roles firms would have. The drilling would be done as joint ventures with Venezuela's state oil company Petroleos de Venezuela, or PdVSA.

Lohec, who was speaking to reporters at an oil conference in Bogota, did not comment on what specific changes were made to the terms.

With the new, and apparently final terms in their hands, oil companies now have until mid to late January to study them and then submit a bid. Each block could involve costs ranging from $10 billion to $20 billion, which could include construction of an upgrader to turn the tar-like crude into a more marketable, lighter oil.

Apart from Chevron, other firms considering a bid include Chinese state oil firm CNPC, BP PLC and France's Total SA.

Being auctioned are a handful of heavy and extra-heavy oil blocks in the eastern Orinoco region, where vast, retrievable reserves are virtually guaranteed. Winning companies, or consortiums of two or more firms, would get a 40% stake in each project, while PdVSA would reserve a majority 60%.

The government is hoping the project will help boost Venezuela's oil production capacity over the coming years by at least 1.2 million barrels a day.

The country's production capacity currently stands at about 3.2 million barrels per day. In 2008, Venezuela was the world's 10th-largest oil producer and the largest in South America, according to the Energy Information Administration.

The Carabobo project would also provide a much-needed infusion of foreign investment into Venezuela, whose economy has fallen into a recession recently. A drop in oil prices from its 2008 record highs is partly to blame, as oil sales account for more than half of government revenue and about nine-tenths of exports.  

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

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