Russians to Pay $600MM, Not $1B, to Start Venezuela Oil Drilling

CARACAS (Dow Jones), Oct. 6, 2009

A Russian oil consortium will only have to pay $600 million, not the $1 billion Venezuela previously said, as a down payment for its participation in exploiting Venezuela's Orinoco oil fields, a top lawmaker indicated Tuesday.

A group of five Russian firms -- OAO Rosneft (ROSN.RS), Lukoil (LKOH.RS), OAO Gazprom (GAZP.RS), TNK-BP and OAO Surgutneftegaz (SNGS.RS) -- are planning a joint venture with state energy firm Petroleos de Venezuela to develop the Junin 6 block in eastern Venezuela.

President Hugo Chavez and other administration officials said last month the Russian firms already paid a $1 billion bond to have access to the oil block, which officials say has huge proven reserves and could produce 450,000 barrels of crude a day.

But in a statement Tuesday, Angel Rodriguez, a senior Venezuelan lawmaker and head of the congressional energy commission, said the $1 billion bond will be paid 10 days after the joint venture is finalized. He also said Venezuela would shoulder $400 million of that, with the Russians paying the other $600 million.

Officials have estimated an overall investment of anywhere between $14 billion and $26 billion will be needed to develop the Junin 6 block.

Rodriguez did not indicate when the joint venture deal would be finalized. The $1 billion would go toward the building of highways, schools, housing and other social or infrastructure projects, he said.

PdVSA would control 60% of the joint venture, with the Russians owning the other 40%.

The Chavez-led government has talked about plans for nearly $70 billion in oil investments over the coming years as this oil-rich nation seeks to ramp up dwindling production numbers and boost its sagging economy.

But so far, nearly all those plans are based only on memorandums of understanding, with no solid investment commitments from foreign oil companies.

Lower global oil prices amid a weak worldwide economy may be one reason for less-enthusiastic foreign oil investment in Venezuela. An uncertain regulatory environment in this Socialist-leaning country is seen as another cause.  

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

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