PdVSA Hits Snags in Takeover of Corocoro Development

CARACAS (Dow Jones)

Production at the Corocoro oil field in Venezuela has been delayed a few months until September as the state oil company, Petroleos de Venezuela SA, takes over operations at the complicated formation, said an industry executive familiar with the drilling program.

The delays underscore the challenges facing PdVSA as it starts managing projects that were set up by international oil companies in the 1990s.

ConocoPhillips (COP) managed Corocoro until May, when President Hugo Chavez's nationalization decree took effect. Initial production was set for June, but PdVSA is currently completing the fourth of 10 wells needed to start pumping oil, said the executive.

Aside from taking over operational control, PdVSA is also demanding a 60% stake in all private oil projects, and has set a June 26 deadline for negotiating the new terms. The original Corocoro contract gave PdVSA the option to buy a 35% stake in the venture. Italy's ENI (E) is also a minority partner.

One loose end for PdVSA is the floating storage barge needed to get the oil from the platform to pipelines, said the executive, who asked to remain anonymous because he is not authorized to speak to the media.

The barge on site belongs to Conoco, and the company could theoretically pull it out of the country and force PdVSA to find replacement equipment if contract talks fall apart, causing more delays. Another industry executive said Conoco could be leveraging the storage issue to get better terms out of PdVSA.

A Conoco spokesman did not immediately return a call on Wednesday seeking comment. A PdVSA spokesman said he had no new information on the field.

Conoco split its 14-well Corocoro drilling program into two phases, hoping to get cash flow to help pay for the remaining four wells.

In 2006 Conoco decided to drill horizontal wells instead of cheaper vertical wells to access the oil, an estimated 500 million barrels in reserves.

"There were some geological problems with the formation," said the executive, when explaining the change in drilling strategy.

The remaining four wells should be completed by the end of this year.

Venezuela's oil production has been in decline for years as Venezuela focuses more on controlling oil projects than increasing production volumes.

According to the International Energy Agency, or IEA, Venezuela's total crude production slipped to 2.37 million barrels a day in May, nearly 1 million barrels a day below official estimates.

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