CVX, Repsol Lead Consortia for Venezualan Heavy Crude
[Why would an oil company—or *any* company for that matter—want to invest huge amounts of money in Venezuela while a dictator like Chávez is running the show? I don’t get it.]
CARACAS, Feb 10 (Reuters) - Venezuela awarded on Wednesday the largest oil investment of President Hugo Chavez's 11-year rule, drawing tens of billions of dollars of much-needed foreign finance to the Orinoco Belt just three years after the leftist leader nationalized operations there.
U.S.-based Chevron <CVX> and Spain's Repsol <REP.MC> led groups that looked beyond the risks of operating in Venezuela to tap into the OPEC member's 100-plus billion barrels of reserves, a sign oil giants need to replenish crude reserves that are increasingly under control of producer nations.
The results show victories for both sides. Oil companies agreed to tough conditions laid down by Caracas while Venezuela softened fiscal terms in another sign resource nationalism around the world has been weakened by falling oil prices.
"This international investment is absolutely necessary for us, we could not develop the Orinoco Belt alone," Chavez told oil company officials during a ceremony in the Miraflores presidential palace.
"This is mutually beneficial. You are here because you need to be here. These are relationships of equals, of friendship," said the president, who has nationalized many of the South American nation's industries in a drive to socialism.
Chavez, known for his jocular manner and combative anti-U.S. politics, spent spent several minutes lambasting U.S. President Barack Obama, even requesting that Chevron's regional chief help Venezuela improve ties with Washington[rotflmao].
"Maybe Obama will come to the Orinoco Belt, bring him," Chavez said.
'PRAGMATISM'
Analysts say the world's reserves of easy-to-produce light oil are quickly running out, meaning the future of the industry is in difficult production areas such as the Orinoco Belt, Brazil's deep water fields or Canada's tar sands.
"It is pragmatism on the part of the Venezuelans and international oil companies," said Jeremy Martin, director of the energy program at the Institute of the Americas in California.
"The Venezuelans know they can't do this without major capital and knowhow, and (companies) know there's nowhere else in the world where they would have access to world class reserves like these."
Venezuela's oil production has fallen below 2.5 million barrels per day (bpd) from more than 3 million bpd in 2001, according to the U.S. Department of Energy, due principally to limited oilfield investment and lack of qualified personnel.
PDVSA's own official statistics show output above 3 million bpd, though even those numbers have been flat for five years. The company has twice in the last five years pared down aggressive production increases.
Repsol will take 11 percent in its project, the same stake as consortium partners Petronas [PETR.UL] of Malaysia and ONGC <ONGC.BO> of India. State oil firm PDVSA will take 60 percent, with two other Indian companies taking the remainder, a Repsol official said.
Chevron will lead a second project along with consortium partners that include Japan's Mitsubishi and Inpex <1605.T>, plus Venezuela's Suelopetrol <SPTb.CR>.
The government did not receive offers for a third project and did not receive bids from several companies Chavez has openly courted, including China's CNPC and Russian firms such as Lukoil <LKOH.MM> and Gazprom <GAZP.MM>.
This may be in part because Venezuela is running a parallel process of direct adjudication for blocks in the Junin area of the Orinoco belt.
BIG REWARDS, BIG RISKS
Venezuela holds the world's fifth-largest oil reserves at an estimated 100 billion barrels, according to the BP Statistical Review.
The Venezuelan government says it holds at least 210 billion barrels that could yet be produced and last month the U.S. Geological Survey released a study that reached a similar conclusion.
In 2007 Chavez took over operations of four Orinoco projects, leading U.S. giants Exxon Mobil <XOM> and ConocoPhillips <COP> to leave the country and sue Venezuela.
For years he led oil producing nations in seeking greater control over their industries, but the 2008 collapse in oil prices forced Venezuela -- along with other major producers such as Russia -- to more aggressively seek private investment and offer more flexibility in taxes and royalties.
Companies still face a host of risks.
They must build [in] infrastructure-isolated rural areas that in some cases do not even have roads, shoulder nearly all the financing for the $10 billion to $20 billion projects, and ensure delay-prone PDVSA executes the projects on time.
They must produce oil from the Orinoco belt at more than twice the rate of existing projects. This will be a crucial technical challenge for companies, but one Venezuela insisted on -- precisely because it will help demonstrate to markets how much oil the Orinoco belt holds.
And they face the latent risk that Chavez -- who recently declared himself a Marxist -- could again embark on a nationalization crusade[duh]. On Wednesday he did not rule out changes to contract arrangements, but said any changes would be discussed with the companies.
"You, partners, allies, know that you have all the guarantees for the investments you're making," he said.‹
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