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Hugo Chavez speaks with the Venezuela's Minister of Energy and Petroleum Rafael Ramirez - Source: Reuters -
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Venezuela awarded 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.
US-based Chevron and Spain's Repsol 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-US
politics, spent several minutes lambasting US President Barack
Obama, even requesting that Chevron's regional chief help Venezuela
improve ties with Washington.
"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
know-how, 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 three million bpd in 2001, according to
the US Department of Energy, due principally to limited oilfield
investment and lack of qualified personnel.
PDVSA's own official statistics show output above three 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% in its project, the same stake as consortium
partners Petronas of Malaysia and ONCC of India.
State oil firm PDVSA will take 60%, 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, plus Venezuela's
Suelopetrol.
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 and
Gazprom.
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 US Geological
Survey released a study that reached a similar conclusion.
In 2007 Chavez took over operations of four Orinoco projects,
leading US giants Exxon Mobil and ConocoPhillips 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 infrastructure isolated rural areas that in some
cases do not even have roads, shoulder nearly all the financing for
the $US10 billion to $US20 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.
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.
