Venezuela ready to license rights to offshore gas

Nov 20, 2002 01:00 AM

Sitting on the world's largest oil reserves outside the Middle East, Venezuela has been high on the wish list of global energy companies for years. But hopes were dashed when President Hugo Chavez was elected in 1998, with his stridently nationalist talk and his pledge to keep Venezuela's oil Venezuelan. Soon, however, several of those companies are expected to go into business with Mr Chavez -- not in oil, which remains a nationalist symbol, but in natural gas.
Mr Chavez, facing a deep recession, a growing budget deficit and an increasingly unstable political situation, needs the licensing fees the companies will bring. And while the global energy companies would rather drill for oil, where profit margins are much higher, they seem willing to settle for a chance to exploit Venezuela's natural gas deposits, the largest in Latin America.

Earlier this month, after lengthy private negotiations, Mr Chavez announced plans to start granting licenses to exploit the Deltana Platform, a set of offshore natural gas fields on the maritime border with Trinidad and Tobago. Licenses for the first four blocks are expected by the end of the year. A fifth license is to follow in 2003.
The $ 4 bn that the energy companies are expected to invest in the venture would be the largest foreign investment in Venezuela since Mr Chavez was elected. A number of major energy companies have been selected to vie for the Deltana Platform licenses, with some contracts likely to be shared through joint ventures. The bidders include British Gas, ChevronTexaco, ExxonMobil, BP, TotalFinaElf of France and Statoil of Norway.
"The foreign oil companies are very much interested in the project," said Gloria Uribe, a gas analyst in Caracas, "especially the ones that are already active on the Trinidadian side, like British Gas, because they already have much of the infrastructure in place."

Petroleos de Venezuela, or PdVSA, Venezuela's powerful state-owned oil monopoly, will hold a minority stake in each of the five contracts.
Though PdVSA is legally bound to hold a controlling stake in all oil projects, foreign companies are permitted to control gas ventures. With 147 tcf of proven reserves, Venezuela accounts for 28 % of the Western Hemisphere's natural gas and has the eighth-largest reserves on earth. And executives at PdVSA have started talking about natural gas, a resource that has been ignored here for decades, as a way of reducing the country's dependence on the volatile oil market.
"For the first time, PdVSA and the government are recognizing the importance that gas has always had," says Jairo Rincon, chairman of the advisory council for the Venezuelan Association of Gas Processors. "Finally, we're moving forward with a project that's spent four or five years on the drawing board."

The Deltana Platform, a 4,000-square-mile area off Venezuela's Atlantic coast, holds proven reserves of 4.4 tcf, but exploration has only recently begun. The Ministry of Energy and Mines says probable reserves at the site total 18 tcf. The first gas shipments from the area to the United States are expected by 2007, with exports reaching a bn cfpd by 2011.
The project follows a hugely successful push to expand gas production in Trinidad and Tobago, just seven miles across the water. Until a gas processing plant on the Venezuelan side of the maritime border is completed in 2007, the Deltana Platform gas will be processed at a complex in southern Trinidad.

To choose the winning bidders, the ministry has departed from the standard auction format and instead set up a complicated selection system with three criteria: how much business the company intends to give to local contractors; how big a fee it is willing to pay for the license; and how much it will contribute to an industry development fund.
Some industry experts say the system is too complex and leaves too much discretion in the hands of ministry officials negotiating the deals. Others do not see it as a problem. "It's an unusual, atypical procedure, certainly," Mr Rincon of the gas processors group said, "but if it allows the project to finally go ahead, that's very positive."

The Deltana Platform is the largest piece in a drive to open the gas sector to foreign capital. So far, the ministry's efforts have had mixed results. Last year, it tried to auction off 11 land-based exploration blocks, but just 6 drew bids. Only one is now in production, and labour problems have dogged the project. The ministry will try to auction off the remaining five blocks next year.
Meanwhile, Shell, Mitsubishi and Qatar National Petroleum recently signed a deal with PdVSA on a separate offshore gas project. The companies are negotiating over whether the $ 2.7 bn venture will be majority public or majority private. Eventually, the gas from it will be shipped to the same processing plant that will serve the Deltana Platform project, 150 miles to the southeast. Another, land-based gas venture run entirely by PdVSA is expected to start exporting natural gas to the United States as early as 2005.

Source: The New York Times Company
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