PdVSA to Pay $56M in Compensation to Paria Gulf Partners

CARACAS, July 03, 2008 (Dow Jones Newswires)

Venezuela has agreed to pay $56 million in compensation to Italy's ENI SpA (E), China's Sinopec and one local oil company operating in the offshore Paria Gulf ventures that were nationalized last year.

Petroleos de Venezuela SA, or PdVSA, converted the Paria Gulf deals into state-controlled joint-venture companies and agreed to compensate the partners once the fields become commercially viable, according to copies of the unpublished joint-venture contracts reviewed by Dow Jones Newswires.

Under the new agreements, PdVSA would pay ENI, China Petroleum & Chemical Corp. (SNP), known as Sinopec, and Ine Paria, a unit of Caracas-based engineering firm, Inelectra SA, a total of $56 million for their investments in three off-shore ventures, the documents show.

PdVSA, ENI and Inelectra officials declined to comment for this article. Sinopec executives could not be reached for comment.

The Paria Gulf developments as originally envisioned were designed as risk and profit sharing agreements between PdVSA and mostly foreign companies. The initial deals gave partners control over the exploration projects. Prior to the nationalizations, PdVSA retained the right for up to a 35% in each venture once production began.

For President Hugo Chavez's administration, however, the deals fell far short of a controlling share for PdVSA. In 2007, Chavez ordered PdVSA to convert all heavy-oil upgrading projects in the Orinoco basin as well as the Paria Gulf ventures into "mixed companies" with the state firmly in control.

PariaGulf Ventures Revamped

As a result, the West Paria Gulf area where ConocoPhillips (COP) and ENI held the largest share, became Petrosucre SA. PdVSA took a 74% stake in that venture and ENI kept the rest, after Conoco rejected the terms of the nationalization. The Petrosucre contract says PdVSA will forego $30.76 million plus interest of its future dividends to compensate ENI for money invested in exploration.

Similarly, the East Paria Gulf area became Petrolera Paria SA. PdVSA now owns a 60% stake in that venture, while Sinopec keeps a 32% stake, and Ine Paria owns 8%. The Petrolera Paria gives both partners the right to a total of $10 million plus interest from PdVSA's dividends as compensation, once the venture becomes commercially viable, the contract shows.

In the Central Paria Gulf, the third venture in the region, now renamed Petrolera Guiria SA, PdVSA now controls a 64.25% stake, while ENI holds 19.5% and Ine Paria 16.25%. In that venture, PdVSA agrees to surrender future dividends worth $5.93 million to ENI and $9.31 million for Ine Paria to cover "costs incurred during the exploration phase," the document states.

It remains unclear how soon PdVSA could declare the commercial viability of these projects needed to begin the compensation process.

PdVSA's remaining partners in multi-billion dollar heavy-oil projects along the Orinoco basin have also settled on compensation packages. Dow Jones Newswires reported in late January that PdVSA had agreed to pay Total Oil (TOT) and Norway's StatoilHydro ASA (STO) a combined $1.1 billion for their reduced stakes.

U.S. companies Exxon Mobil Corp. (XOM) and Conoco are still facing off with PdVSA in separate international arbitration cases, seeking compensation.

Chavez's quest to gain greater control over the country's oil sector in recent years began in earnest in early 2006 when the state forced operators of 32 conventional oil fields to convert their operating contracts into state-controlled joint ventures.

Back in 2006, ENI initially refused the terms but then backtracked and kept doing business with PdVSA. The Venezuelan oil company agreed in February to pay ENI $960 million in compensation for the Dacion field it lost to the 2006 contract overhaul. PdVSA had paid off $230 million of that debt, with $730 million left to cover as of March 31, according to PdVSA's first quarter financial report.

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