Mitsubishi and Chevron Win Bid to Develop Venezuela’s Oil Belt
Merida, February 12th, 2010 (Venezuelanalysis.com) – In the largest oil investment decision since Venezuelan president Hugo Chavez was elected, the government announced on Wednesday that private companies from Japan, India, Malaysia, Spain, the United States, and Venezuela, making up two consortiums, won the bid to explore and exploit the Carabobo block of Venezuela’s Orinoco oil belt.
After reminding listeners that before his government, the petroleum industry had been in private hands without benefiting his people Chavez stressed, “We’ve formed joint companies [combined government-private companies] as the law demands, and [state owned oil company] PDVSA has majority stocks and control of at least 60% in all these companies…”
The bidding process began on 30 October last year, and PDVSA president Rafael Ramirez said that 21 international companies had participated and offered various amounts for the three blocks of the Carabobo section.
The Orinoco oil belt, the largest reserve of liquid hydrocarbons in the world with a total area of 55,314km2 and located in the Venezuela states of Guarico, Anzoategui and Monagas, is divided into four areas, which from west to east are, Boyaca, Junin, Ayacucho, and Carabobo, and is also partitioned into 29 blocks of around 500km2 each.
A consortium consisting of Chevron (U.S), Mitsubishi and Impex (Japan) and Suelopetrol (Venezuela) won Carabobo block 3, a section which will have the capacity to produce 450,000 barrels daily.
The second consortium which won Carabobo block 1, consisted of Repsol (Spain), Petronas (Malaysia) and three Indian companies. The estimated production capacity of this block is 480,000 barrels daily.
Block 2 has yet to be assigned, and it won’t be until March this year that the National Assembly official approves the constitution of the joint companies.
The winning bidders will pay a total of US$5.73 billion for the right to exploit the belt, an amount which includes a signing bonus, financing for the development of PDVSA and the construction of heavy crude upgraders to convert the petroleum to a lower density of 22 degreees API, Ramirez said, further explaining that the companies could note their share of the oil on their books, but could not use it as guarantees for debts and must also show a commitment to the social development of the Orinoco region.
Ramirez pointed out that such payment structures are distinct to the “handover model of the past.”
For example, the Chevron led consortium made a bid to pay US$ 500 million as a signing bonus to have access to the area, will pay another US$ 1 billion to PDVSA for financing, and has undertaken to build an upgrader in the area of Soledad on the Orinoco River.
Chavez said the government hoped to receive investments totalling $80 billion by 2016 from these companies and other companies investing in the Junin section, an investment which should at least double current production to 2 million barrels daily by 2016.
He said it was a historical move, “now that we have recovered our independence, we’ve made the Orinoco oil belt available to the world.”
He also said it refuted opposition claims that there was a lack of investor confidence in Venezuela.
“International participation is necessary for Venezuela, but you have to see it in another way, not like it was seen before. What motivated this move was that this investment by the transnational companies was philanthropic, as if they did us a favour,” Chavez said, adding that there was a “mutual interest… we are equals”.
He emphasised that Venezuela’s oil wealth is for the development of the country, and from there they could, “develop relations of cooperation, friendship and interchange of all kinds…with a range of countries and companies.”
According to the latest report conducted by the US Geological Service, Venezuela has over 500 billion barrels of petroleum reserves, which means it could be extracting it for 200 more years, Chavez said. Pointing out that the US is the main buyer of Venezuelan petroleum, he said he hoped its president Barack Obama would “rectify his policy towards us”.
“We offer our hand to the government and people of the United States, and hopefully we can rescue some hope of good relations,” he said.
Since he came to government, Chavez has raised foreign oil companies’ corporate income tax to 50 percent from 30 percent and increased royalties payable to the government from as low as 1 percent to 33 percent. He also gave oil companies the choice of being expelled or forming joint ventures with PDVSA holding the majority.