Archive for February 14th, 2010

Thinking about what happened with Globovision…

February 14, 2010

PDVSA finds only two partners for three projects in the Orinoco Oil belt

February 14, 2010

While President Chavez and the President of PDVSA tried putting on a cheerful face, the truth was that the sale of the Carabobo oil field projects did not go as well as planned. After a year and half of delays due to the refusal by the Chavez Government to make the terms comparable to international ones, some of them were relaxed, but the refusal by the Government to allow international arbitration in the end was costly. While Chavez had said that there were bids for all three projects, the truth was that one of the consortia had bid for two projects with the condition that it only wanted one. Thus, after 19 oil companies registered to bid in 2008, only two of the projects were assigned in the first new oil project in almost 12 years to be started in Venezuela. In some sense that’s progress, but it still is bad execution, as usual.

Thus, Carabobo 1 was won by a consortium led by India’s INGC, Repsol, Petronas and two other Indian companies, while Carabobo 3 was won by the consortium led by the Empire’s Chevron, Mitsubishi, Inpex and Venezuela’s Suelopetrol. Chavez Russian and Chinese buddies did not bid and Italy’s ENI which had suggested it would also bid for Carabobo after it got a Junin block, did not bid either.

People should not read too much into Chevron winning a field, it is not a gesture towards the US or any such thing, simply put if Chevron was not assigned the field, only one out of the three projects would have been assigned and the process would have been considered a gigantic failure. Carabobo is supposed to be the prime real state of the Orinoco Heavy oil belt. If only three of the projects could be sold, it just would not look good at all, after Chavez’ Chinese and Russian buddies did not particiapte. (Yes, they will have chunks of Junin, but Carabobo is supposed to be much better)

The two projects assigned yesterday, will produce 200,000 of blended heavy crude with light crude by 2012 and an additional 200,000 after the upgrader is built to process heavy crude and turn it into lighter (still fairly heavy) oil. The upgraders are unlikely to be ready before 2017.

The conditions were eased somewhat. The Royalty was reduced to 20% from 30%, a signing bonus spread out in time had to be paid (Which turned out to be US$ 1.05 billion for Carabobo 1 and US$ 500 million for Carabobo 2). In addition, the company winning the “right” to own 40% of the project will have to provide at least US$ 1 billion in financing for PDVSA’s share of the project. An additional condition that was relaxed was that the contract allows for international arbitration on the financing conditions of the projects. PDVSA ahs also promised that the windfall oil tax will not be applied to these projects, but the Assembly has not acted on it.

The question is how all of this would be financed. PDVSA can not issued debt to finance its end, it will simply be too expensive, as PDVSA bonds currently yield to maturity around 14-16%. PDVSA owns 60% of all projects and between Caraabobo and Junin it will have to come up with nearly US$ 20 billion for its end of the projects in the first five years. The partners, who will be able to include the oil as part of their reserves (so much for sovereignty again) can not pledge them for financing. Thus, the only viable option seems to be that the projects will issue debt guaranteed initially by the partners until oil production begin. Thus, they will look more and more like the old oil partnerships of old.

Thus with a year and a half delay and 66% success rate, the Carabobo field was finally assigned. Contracts will be signed in March and infrastructure work will begin by the end of the year. Hope it happens.