September 29, 2011 / 1:53 PM / in 6 years

Concerns linger over Venezuela's Orinoco oil plans

* 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.     EARLY OUTPUT THIS YEAR     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), Gazprom (GAZP.MM), Surgutneftegaz (SNGS.MM) and Lukoil (LKOH.MM) 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) said its Carabobo Block 1, which includes India’s ONGC (ONGC.BO) 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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