Venezuela's Oil Auction on Track



CARACAS (Dow Jones), Jan. 20, 2010

Final registration has ended for Venezuela's Carabobo oil-drilling auction, bringing the long-delayed bidding that's set for next week a crucial step closer.

The Carabobo auction is for the most-touted oil drilling project in this petroleum-rich South American nation since the 1990s, when Venezuela invited global oil majors to take part in its hydrocarbon sector under the Apertura, or "Opening" program.

President Hugo Chavez vowed to bring an end to that "Opening" during his victorious election campaign in 1998, claiming the deals signed with foreign oil firms "ran counter to the national interest."

Fast-forward to 2010, and the Chavez government now needs new foreign investment in its oil sector. The plan seems to fly in the face of Chavez' continuous nationalizations of other parts of his economy, from the cement and coffee industries to mining and even some areas of the oil sector.

But Chavez has little choice when it comes to oil production, the country's main source of revenue. Western fields around Lake Maracaibo that for decades gave Venezuela the bulk of its production are now maturing, meaning they produce less than they used to.

And the new, untapped fields in the eastern Orinoco region where the Carabobo blocks are located mostly contain extra-heavy, tar-like crude that requires experience, know-how and deep pockets to extract. Only foreign firms can provide all those needs.

The Monday registration deadline for consortiums or individual companies planning to make a bid on Jan. 28 has closed, a high-level official in the Oil Ministry confirmed Tuesday. "All the interested consortiums completed the registration, with one exception that was lacking a certain requirement," said the official, who asked not to be named. The official didn't provide details.

A source familiar with the process said one of the consortiums that registered includes Chevron (CVX), Mitsubishi and other Japanese firms. A Mitsubishi official who asked not to be identified would not confirm any consortium plan with Chevron or others, but did say Tuesday that the company "is very interested in Carabobo."

Chevron officials were unavailable to comment.

The results of the Carabobo auction are expected to be announced Feb. 10.

The bidding is for seven oil blocks where vast reserves have been discovered and verified. The government hopes drilling in the Carabobo fields will lift Venezuelan oil production by 1.2 million barrels a day by 2014, which could put the country's total production well above 4 million barrels a day, according to government estimates.

Venezuela says it currently produces around 3 million barrels a day, though independent estimates dispute that, and calculate output of as low as 2.2 million barrels a day.

Total investments in the Carabobo project, which could include the building of upgraders to improve the quality of the tar-like crude, would reach into the tens of billions of dollars.

Winning bidders would form a joint-venture partnership with state oil firm Petroleos de Venezuela SA, or PDVSA. The bidding firms would get a 40% stake to PDVSA's 60% stake.

If the auction is successful, it could help rescue the country's flagging oil-production levels and lead to much-needed growth for an economy mired in recession amid lower global oil prices.

Oil accounts for more than one-third of Venezuela's gross domestic product, more than half of government revenue and about nine-tenths of the country's exports.

The Carabobo auction was supposed to take place nearly a year ago, but lower oil prices sapped some interest in the project, leading the government and oil companies to seek new common ground on issues such as taxes and royalties.

It wasn't immediately clear what other companies may have registered and whether all would be consortiums, or if some firms would bid solo.

Companies that in recent months have shown interest in making a bid include China National Petroleum Corp., or CNPC, France's Total SA (TOT, FP.FR) Spain's Repsol YPF SA (REP, REP.MC), Royal Dutch Shell PLC (RDSA, RDSA.LN) and India's Oil & Natural Gas Corp., or ONGC (500312.BY).

Analysts say many foreign oil firms are willing to overlook the many political or operational risks related to dealing with Chavez' socialist government because the geological risk in the country is virtually nil.

Copyright (c) 2010 Dow Jones & Company, Inc.


RELATED COMPANIES
Company: Shell more info
Operates 27 Offshore Rigs
 - Shell Looks Beyond Road Fuels to Secure Future of Refining (Nov 06)
 - API Panel Member: Voluntary Methane Program Forthcoming (Oct 06)
 - Eni Bets Big on Zohr Explorer Finding New Treasure (Oct 06)
Company: Total S.A. more info
 - Total Starts Up Antwerp Refinery And Petrochem Complex After Upgrade (Nov 30)
 - Hoegh LNG: Pakistan LNG Import Project Consortium Folds (Nov 16)
 - France's Total Buys Engie's LNG Business For $1.5B (Nov 08)
Company: Chevron Corporation more info
 - ExxonMobil Jumping in to Mexico Fuel Market With First US Cargo (Dec 06)
 - Chevron To Study Mexican Oil Block, No Drilling Seen In First 4 Years (Nov 30)
 - Buying Texas Oil at New Mexico Prices: Majors Go West for Shale (Nov 14)
Company: ONGC more info
Operates 38 Offshore Rigs
Manages 8 Offshore Rigs
 - Venezuela's PDVSA To Tap Oil Customers To Pay $449MM To ONGC (Nov 15)
 - Sources: India ONGC Strikes 'Good' Offshore Oil, Gas Find (Sep 20)
 - India To Acquire Seismic Data Of 48,000 Line kms To Boost Oil, Gas Output (Sep 12)
Company: PDVSA more info
Operates 14 Offshore Rigs
Manages 26 Offshore Rigs
 - Union Leader: PDVSA's Amuay Refinery Halts Distillation Unit (Nov 30)
 - Venezuela's PDVSA To Tap Oil Customers To Pay $449MM To ONGC (Nov 15)
 - Venezuelan Oil Output Heads to 29-Year Low as Cash Crunch Grows (Nov 10)
Company: Repsol more info
 - Exxon Mobil Bets on Brazil, Buys 10 Oil Blocks in Auction (Sep 28)
 - Repsol Says Drilling Suspended On Vietnam Oil Block Disputed By China (Aug 02)
 - China Urges Halt To Oil Drilling In Disputed South China Sea (Jul 25)
Company: Mitsubishi more info
 - Mitsubishi Heavy Bets on New US Turbomachinery Demand (Feb 17)
 - Shell-Led Group Delays Decision On Canada Gas Export Plan (Jul 12)
 - Japanese Banks Expand To Ranks of World's Biggest Energy Lenders (Jun 09)
Company: CNPC more info
 - Petrobras CEO Says To Discuss Refining Partnership With CNPC CEO (Nov 15)
 - CNPC Plans to Cut Gas Supplies to Industrial Users-State Media (Nov 06)
 - China's CNPC Starts Third Natural Gas Pipeline To Shanghai (Oct 13)