PDVSA Aims For $5.7B Investment In Former Exxon Venture

Venezuela plans an ambitious development program for Petromonagas, a heavy crude upgrader at the heart of the country's legal dispute with Exxon Mobil Corp.

With Exxon now out of the oil-rich Orinoco basin, state-owned Petroleos de Venezuela, or PdVSA, and Britain's BP Plc have crafted a $5.7 billion joint plan to operate and expand Petromonagas, a venture formerly known as Cerro Negro, according to a copy of the project's unpublished business plan reviewed by Dow Jones Newswires.

For the 25-year life of the new "mixed company" project, the partners will set aside $1.29 billion in capital expenditures and $4.4 billion in operating costs as a base scenario, the plan showed. Almost half of the capital investment, or $535.7 million, will come in the first five years starting in 2008. PdVSA and BP officials both declined to comment for this article.

President Hugo Chavez ordered PdVSA to take majority stakes in four Orinoco region heavy crude upgrading ventures last year, and left foreign companies with minority stakes. Most partners went along, but U.S. companies ConocoPhillips (COP) and Exxon rejected the terms and have separately sought international arbitration.

Early this year, Exxon obtained court orders freezing more than $12 billion in PdVSA's overseas pending the outcome of the arbitration, a move that PdVSA is now appealing in court. Exxon has demanded $5 billion in redress for its assets, but PdVSA claims $750 million would be fair compensation.

Prior to the project's nationalization last summer, Exxon owned 41.67% of Cerro Negro, PdVSA owned 41.67% and BP held 16.66% of the project. After the takeover, BP kept its share while PdVSA took the rest.

The two partners now aim to expand the 120,000-barrel-a-day upgrading unit's capacity to 145,000 barrels a day, through accelerated oil well perforation and expanding the upgrading processing plant as well, according to the plan's goals. Petromonagas has estimated expansion costs of $95 million.

In 2008 and 2009, Petromonagas plans to perform technical studies to figure out a way to eventually push the venture's production to 300,000 barrels a day.

The four Orinoco heavy oil projects, considered the jewels of Venezuela's oil industry, together produce roughly 580,000 barrels of crude a day, below its 620,000 capacity.

Venezuela's full production, however, is a matter of debate. The Chavez administration contends production amounts to 3.2 million barrels a day, but the Organization of Petroleum Exporting Countries and other institutions put production closer to 2.4 million barrels a day.

Copyright (c) 2008 Dow Jones & Company, Inc.