Venezuela holds greatest oil auction on earth

Oct 31, 2008 01:00 AM

Venezuela initiated the biggest and most prominent oil auction in the world and the only oil round in the last ten years in Venezuela. Venezuela is looking for partners to its oil company to develop the first phase of 1.3 bn extra heavy oil barrels, in an area of 55.314 sq km on land that with present technology will yield 415 bn of barrels.
Rafael Ramirez, oil minister and Venezuela's PdVSA oil company president, addressed around 200 oil executives from 75 companies, of which 47 companies were oil operators selected by PdVSA to participate in the auction.

The 47 companies were Ancap, BP, Chevron, CNPC, Ecopetrol, Enarsa, ENI, Galp Energia, Gazprom, Harvest Vinccler, Inpex, Itochu, JGC, Jogmec, Kanoc, LUKoil, Marubeni, Mitsui, ONGC, Perenco, Petrobras, Petropars, PetroSA, PetroVietnam, Pluspetrol, PTT, Repsol, Shaanxi Yanchang, Shell, Sinochem, Sinopec, StatoilHydro, Suelopetrol, Sumitomo Tecpetrol, Total, Vinccler, and ZhenHua Oil, Ramirez told the audience.
Venezuela opened the auctionfor four blocks in the Carabobo area of the Orinoco Faja basin (one of four areas), the four blocks have 61.9 bn certified barrels of oil in place, Ramirez said.

"We made a selection of companies that could be here," Ramirez said during its project presentation. We believe company consortiums can also participate," in the process.
Ramirez explained the details of the blocks are:
Carabobo 1 North has an extension of 80,703 sq miles and reservations of original petroleum in the place of 15.6 bn barrels.
Carabobo 1 Central has an extension of 69,147 sq miles and reservations of original petroleum in the place of 14.5 bn barrels.
Carabobo 2 North has 134,034 sq miles and some reservations of original petroleum in place of 14.1 bn barrels.
Carabobo 4 West has an extension of 80,713 sq miles and reservations of original petroleum in place of 17.4 bn barrels.

Ramirez said Venezuela is requiring the bidders to plan on recovering at least 20 % of that, or 12.5 bn barrels. The areas comprise about 1 % of the oil reserves in the world. He explained that the areas will be associated with two oil upgraders with the production of two blocks going to one upgrader each.
The technology used in the upgraders will be similar to the one used at present in PetroCedeno (former Sincor) were they are producing today around 200,000 bpd of synthetic crude of extra-heavy oil with a gravity of between 8 and 8.5 degrees API upgraded to 32 degrees with low sulphur content. PetroCedeno partners are PdVSA (60 %), Total, the project leader with a 32 % interest, alongside Statoil with 7 %.

"Our present cost in the Faja area for extra heavy oil are just $ 1 to $ 1.5 for production and our upgrader costs are from $ 2 to $ 2.5, this make it very attractive to potential participants," Ramirez said.
The expected production of the two upgrades in the year 2014 is of 400 mm bpd. Also there will be an early 100 mm bpd production by 2011, Ramirez added. Upgrader development should commence by late 2009. The two facilities will be installed close to the Orinoco river near the town of Soledad, in the state of Anzoategui, by the first Orinoco bridge, the other side of the Orinoco from Ciudad Bolivar, in the state of Bolivar.

Between, the years 1995 and 2004, Venezuela developed four heavy oil upgraders with different technologies (Exxon, Conoco, Chevron and Total) now considered the country's most important oil ventures. There will be a 400 km oil pipeline that will take the upgrade oil to a terminal to the Venezuelan east northern peninsula of Araya were an oil terminal will be build.
The solid residuals, 12,000 tons of coke and 2,000 tons of sulphur per day, will be sent by barges trough the Orinoco river to a maritime terminal in from of Puerto Ordaz, were they will be shipped customers via the Atlantic sea, Ramirez explained.

Partnership selections
Ramirez explained that companies will be selected to join PdVSA as partners in two joint venture companies where foreign partners would not take more than 40 % stake. They will produce the crude and build upgrading plants to produce the 32 degrees API synthetic crude.
Ramirez pointed out the time table follows:
2008
-- Nov. 21: Oil companies will confirm their interest
-- Nov. 27: Data package
-- Dec. 1- 30: Data room open

2009
-- Jan. 9-26: Presentation of consortiums
-- March 26: Documents presentations
-- April 16: Offers
-- May 7: Announcement of winners
-- May 28: Formalization of requirements
-- June 4: Signatures of the licenses

The principal criteria that will be consider in the selection of the consortiums, Ramirez explained, will take in consideration 3 main points, among others: Bonus amount to be paid to join the project, financing and ability to commercialize the crude. The project from the start will have its final refinery clients. This is very important, Ramirez stressed.
"We want to know where that crude would be going, what markets and what refineries," said Ramirez. "We don't expect this output to be sold in the spot market." The rules are very clear, the investment will be ruled by the 2001 Hydrocarbons Law that has a take of 30 % royalties and 50 % income tax, Ramirez added.

After the presentation of the project, various CEOs of the local operations of the major oil companies said they all were impressed with the project.
Wes Lohec, president of Chevron's Venezuela unit told: "I think it looks to be very successful."
"An outstanding project, we are looking to evaluate the data," Luis Prado, president of Shell Venezuela told.

Other companies that may take part include Total, StatoilHydro, Petrobras, CNPC, ENI, BP, Repsol, LUKoil, Gazprom, and state oil companies from Asia, India, and South America.
Currently in the four extra heavy oil Orinoco projects PdVSA is partnered with Chevron, BP, StatoilHydro and Total Oil.

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