Venezuela Bets on Successful Carabobo Auction

CARACAS (Dow Jones), Jan. 27, 2010

Venezuela is ready to receive bids Thursday on the long-anticipated Carabobo drilling round, where seven promising extra-heavy crude blocks are on auction, according to an oil ministry official.

Baldo Sanso, the Carabobo project's coordinator for the ministry, said in a conference Wednesday that the ministry will receive envelopes containing the bids and said they will be opened in front of oil companies participating in the auction.

Results would not be made announced publicly until Feb. 10, he added.

Venezuela is banking on a successful auction, the first such bidding since President Hugo Chavez took power in 1999, to lift declining crude oil output. It says the Carabobo fields will boost production by some 1.2 million barrels a day starting in 2015.

Venezuela's current crude output is about 3 million barrels a day, according to the government, though independent estimates say it is only 2.3 million barrels a day, from about 3.4 million barrels a day a decade ago.

The seven blocks will be divided into three areas, and Sanso said companies are being expected to offer at least $1 billion each as an early payment for areas 1 and 2, and $500 million for area 3.

The first area would be made up of Carabobo blocks 1 Center and 1 North, while the second area would be Carabobo blocks 2 North and 4 West. The third area is for blocks 2 South, 3 North and Carabobo Block 5

Some companies have expressed reluctance about the project due to, among other things, a windfall tax in which levies would be ratcheted up significantly if oil prices spike higher.

But Sanso said Wednesday that the ministry plans to make changes to the windfall tax.

"My understanding is that the windfall tax is going to be modified," he said. "If it's not eliminated, it will at least be modified."

Spain's Repsol has confirmed plans to participate in the auction, as has Japan's Mitsubishi. Others that have expressed interest in the past include the U.K.'s BP Plc and Chevron.

Ministry officials said last week that at least two consortiums have been formed to bid as a team.

Sanso said he couldn't divulge what companies are signed up for the auction.

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