Venezuela aims to complete the bidding round for the Carabobo oil blocks in the Orinoco heavy crude belt by the end of 2009, the Venezuelan Oil Minister Rafael Ramirez said. Recently, the South American country postponed the auction date indefinitely as oil companies were reluctant to make strong bids owing to lower international oil prices. The government is yet to set a new date.
Prior to the bidding announcement, Venezuela and Russia signed an energy cooperation deal in June 2009 to develop two oil fields in the Orinoco region that are currently up for licensing. This includes the formation of a joint venture company for developing the Carabobo 1 north and Carabobo 1 center oil fields, which form two of the seven areas offered to foreign oil companies, according to a copy of the agreement published in the latest Official Gazette.
Lukoil Holdings, TNK, OAO Rosneft and OAO Gazprom have formed a consortium that is expected to develop fields jointly with Petroleos de Venezuela (PdV).
Over the past several months, 19 companies including BP, Chevron, China National Petroleum, Ecopetrol, Eni and Galp Energia and several Japanese companies have shown interest in the tender. These companies are assessing the scale of investments and forming consortiums to present bids for the three areas on offer.
A number of potential partnerships are being worked out. As announced earlier in April 2009, ONGC Videsh, the overseas arm of Oil and Natural Gas Corp(ONGC), is in talks with Reliance Industries, Indian Oil and Oil India to jointly bid for a 40% stake in a field in the vast Orinoco heavy crude oil belt.
China National Petroleum (CNPC) plans to bid for two large oil blocks in partnership with Total. It may be recalled that in March 2009, CNPC and Sinopec jointly bid for stake in the Carabobo oil blocks.
The US-based Chevron is evaluating a partnership with Venezuela-based Suelopetrol. Other probable partnerships include Colombia’s Ecopetrol with Malaysia’s Petronas, Spain’s Repsol with Portugal’s Galp Energy and Brazil’s Petrobras with Norway’s Statoil.
The Carabobo project aims to build three upgraders to turn the Orinoco belt’s tar-like crude into oil for exports and produce around 200,000 barrels per day. Initial investment is likely to be between $10 billion and $20 billion per area depending on complexity of the respective blocks. The upgraders are likely to cost $6 billion or $7 billion, but the cost of technology that is required to meet the ministry’s demand of allowing the companies to extract 20% reserves in each field will vary.
Fields in the Carabobo region of the Orinoco belt will produce tar-like oil, which needs to be upgraded to higher-quality synthetic crude. Each of the three fields on offer can produce 200,000 to 400,000 barrels of oil per day (10-20m tonnes a year).
In another development, Japan and Venezuela are also planning for a joint venture to develop an oil block in the Orinoco region that is not under Carabobo bidding. The plans may be finalized by the end of 2009.
As per the rules of the Carabobo field licensing round, state-owned company PdV will retain at least 60% in each block. Bidders need to pay Venezuela’s government an upfront bonus based on expected future output, and explain their oil distribution plan while retaining a minority stake in the venture. The companies must also pay a one-off premium of between $500m and $1 billion to operate the projects, along with royalties and taxes, which the companies hope will be lowered.
The Venezuela government launched the bidding round for Carabobo heavy oil blocks in October 2008. Initially, four blocks were offered in the Carabobo fields located in the Orinoco heavy oil belt. Later in November 2008, the Venezuela’s energy and oil ministry (Menpet) added three more blocks to the Carabobo tender bringing the total number of blocks offered to seven.
Venezuela has carved out seven heavy oil Carabobo blocks in the Orinoco belt. According to the Venezuela government, the area contains 272 billion barrels of recoverable reserves. About 10 to 20% of these reserves can be recovered.
In June 2007, a total of 129.14 billion Original Oil in Place (OOIP) was determined in the four blocks in the Carabobo Area. Of this number of OOIP, 45.548 billion were found in the Carabobo I Block, 30.660 billion barrels in the Carabobo 2 Block, 28.650 billion barrels in the Carabobo 3 Block, and 24.291 billion barrels in the Carabobo 4 Block. Based on the total number of OOIP, reserves are estimated to amount to 4.952 billion barrels of crude expected to be exploited with a 20% recovery factor.
The Carabobo Project is within the framework of Plan Siembra Petrolera (Oil Sowing Plan) under the strategic guidelines of the Bolivarian Government, in order to ensure the state control over energy resources and development of the Orinoco Oil Belt.