Concerns linger over Venezuela's Orinoco oil plans

Thu Sep 29, 2011 1:51pm GMT

* Orinoco holds some of world's biggest oil reserves
    * First early output from projects expected this year
    * Companies worry about windfall taxes, infrastructure
    By Marianna Parraga and Enrique Andres Pretel
    PUERTO LA CRUZ, Venezuela, Sept 29 (Reuters) - Venezuela is
due to begin pumping oil from new projects in its vast Orinoco
belt by the end of the year, but some of the companies involved
remain concerned about taxes and infrastructure.
    The South American OPEC member is pinning its hopes on
deals with several foreign companies for projects in the region
that are slated eventually to add 2.1 million barrels per day
of new production and bring some $80 billion in investment.
    Despite assurances from senior officials from state oil
company PDVSA, which has a controlling stake in each project,
executives at a conference in Puerto La Cruz said outstanding
uncertainties could put the brakes on early output schedules.
    "There aren't positives signs regarding the conditions for
investing. The exoneration of taxes is not firm," said one
executive for a company partnering with PDVSA in the Orinoco.
    Earlier this year, the socialist administration of
President Hugo Chavez hiked taxes on what it calls "excessive"
profits from private sector oil sales. [ID:nN26262110]
    Government officials have repeatedly said the higher tax
rates will not apply to the new Orinoco projects until joint
ventures formed by PDVSA and foreign companies have recouped
their investments. But some of those involved are still wary.
    A long-standing concern has been lack of infrastructure.
    The Orinoco crude is particularly thick and tar-like, and
costs much more to pump and transport than light, sweet oil.
The Venezuelan fields are also mostly found in rural areas that
have little in the way of even basic facilities.
    In an effort to address some of these shortfalls, PDVSA has
extended until the end of the year a state of "emergency" that
lets it expedite the normally tortuous bidding processes state
bodies must go through to buy equipment or contract services.
    Another source involved in the projects told Reuters that
move had triggered fierce competition between the various
contractors working in the Orinoco, adding to the tensions.
    PDVSA officials say the first early production from new
projects in the region will come by the end of the year from
the Junin Block 2 venture with Petrovietnam. [ID:nS1E78Q22D]
    A Russian consortium of TNK-BP TNBPI.RTS, Rosneft
(ROSN.MM: Quote), Gazprom (GAZP.MM: Quote), Surgutneftegaz (SNGS.MM: Quote) and
Lukoil (LKOH.MM: Quote) hopes to see early output begin in 2012 at
between 10,000 bpd and 25,000 bpd from Junin Block 6.
    "But it depends on the results of the evaluation work we
are doing. The problem is not drilling the well, the problem is
infrastructure, how to transport the crude," said Sergey
Funygin, president of TNK-BP's Venezuelan subsidiary.
    The Russian consortium has a 40 percent stake in Junin
Block 6, one of the richest areas which is forecast eventually
to produce some 450,000 bpd. PDVSA has the other 60 percent.
    But Funygin said the terms of future investment were
unclear: "We have to define it well ... Will these projects
have the same treatment as projects that start from scratch?"
    A spokesman for Spain's Repsol (REP.MC: Quote) said its Carabobo
Block 1, which includes India's ONGC (ONGC.BO: Quote) and Malaysia's
Petronas, was due to start production of between 20,000 bpd and
40,000 bpd by the last quarter of next year. That consortium
also expects to agree more investments by the end of 2012.
    Despite the risks of working in Venezuela, where Chavez has
nationalized most of the oil industry, many companies still
want to work in the Orinoco. The reason is its huge reserves.
    OPEC said in July that Venezuela leapt ahead of Saudi
Arabia in 2010 to become the world's No. 1 holder of reserves
with 296.5 billion barrels, most of them in the Orinoco belt.
    Venezuela's Oil Minister Rafael Ramirez congratulated
Petrovietnam on its speed and "willingness to advance".
    "We don't want passive companies (in the Orinoco)," Ramirez
told the meeting in Puerto La Cruz. "We are demanding that they
accelerate their work."
    For full coverage of the conference in Puerto La Cruz,
click on: [IDnS1E78Q22G]
    For a factbox on Venezuela's Orinoco belt developments,
click on: [ID:nN11230969]
 (Writing by Daniel Wallis;editing by Sofina Mirza-Reid)
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