ARCAYA & ASOCIADOS
26 de abril de 2007
Global Insight Perspective
Significance: With the exception of ConocoPhillips and Eni, all of the companies operating in the Orinoco Belt have agreed in principle to new contracts, although the details are still to be worked out.
Implications: Those companies that decide to stay will see their revenue fall as PDVSA takes a larger share of production. This is a risky strategy given the higher costs associated with developing extra-heavy crude reserves.
Outlook: Since the Orinoco Belt is regarded as an area with considerable untapped potential and is important if Venezuela is to see any significant oilproduction increase in the coming years, the country is taking a risk in increasing state control and making terms less favourable for nonconventional oil production.
Nationalisation of Orinoco Projects Moves Forward
Ten companies operating in the Orinoco Belt have signed MoUs with the Venezuelan state oil company PDVSA for the transfer of operating control to the state, according to a statement by PDVSA. The companies that signed the MoUs were Total, ChevronTexaco, Sinopec, CNPC, Ineparia, Veba Oil and Gas, BP, ExxonMobil, and Statoil. Representatives from ConocoPhillip and Eni did not attend the ceremony, however, Dow Jones quoted a spokesperson from ConocoPhillips as saying that it was continuing discussions with the government. Meanwhile, Sinopec agreed to migrate its risk exploration contract for the Posa area in the Gulf of Paria East to a mixed company.
The MoUs will allow PDVSA to take control of the fields by the 1 May deadline set by President Chávez in compliance with an executive decree signed in February ordering the “nationalisation” of the existing strategic associations for the Sincor, Cerro Negro, Petrozuata, and Ameriven extraheavy crude projects in the Orinoco Belt. Under its nationalisation drive, the government wants to convert the existing strategic associations in the Orinoco Belt to mixed companies, in which PDVSA has a controlling stake, just as it did earlier for operating agreements for conventional oil production. Companies have been told to accept the new contracts or leave the country.
According to the timetable, companies have until 26 June to reach agreements over new contracts and resolve issues such as establishing the exact size of PDVSA's stake in individual projects, compensation payments, and restructuring any debt held by the projects.
Outlook and Implications
Discussions with foreign companies over the conversion of the four existing strategic associations in the Orinoco Belt into mixed companies in which PDVSA has at least a 60% stake had begun in 2006, but the government had failed to meet its own target of completing the migration of contracts by the end of the year because of complications caused by certain legal clauses in financing deals for the projects. However, since the start of the year the government's plans to complete the “nationalisation” of the oil sector has acquired a new momentum.
The Orinoco Belt is regarded as an area with considerable untapped potential and, if Venezuela is to see any significant oil-production increase in the coming years, this is where it would be most to likely come from. PDVSA aims to confirm the potential of this area under the “Magna Reserva” project: a project to quantify and certify the reserves in the Orinoco Basin that Venezuela hopes will allow it to incorporate an additional 235 billion barrels of oil by the end of 2008, on top of the country's 80 billion barrels of 3 proved conventional reserves. If confirmed, the total recoverable reserves figure of 315 billion barrels would allow Venezuela to displace several other countries in the ranking of oil reserves and, if Saudi Arabia does not see its own reserves increase, convert Venezuela into the country with the largest volume of reserves in the world.
Confirming the potential of this area will be a fruitless exercise unless Venezuela has the technical and financial capability to develop its extraheavy reserves. Most of the state-owned companies that have been helping PDVSA to certify reserves in the Orinoco Belt lack experience in extraheavy oil production and international oil companies like Shell that have been active for many years in oil sands projects in Canada or extra-heavy crude oil ventures in Venezuela may be deterred from making new investments if new projects are not seen to be profitable.
However, despite uncertainty about the future rate of expansion of production from the Orinoco Belt, the MoUs show that, as was the case with the operating agreements that were taken over by PDVSA last year, companies that have already made large investments are for the most part willing to accept less favourable terms in order to remain in the country.