Venezuela improves terms for Carabobo oil project

* Venezuela plans production from Orinoco tender by 2012

* Caracas sets more favorable financial terms

* Moving initial output forward could boost oil cash flow

By Marianna Párraga

CARACAS, Oct 30 (Reuters) - Venezuela has extended the timeline for production from Carabobo oil project so that participation in the Orinoco belt tender would be more attractive for companies interested in bidding, sources close to the process said.

Conditions given by the Energy Ministry to investors set a timeline for finishing the initial stages of the Carabobo project and producing crude blends by 2012, the sources told Reuters on Friday.

The change in terms of the much-delayed Carabobo project, which is now due to be auctioned in January, is part of Venezuela's ongoing effort to attract interest in the project as the OPEC nation faces lower oil revenues due to the global recession and weaker prices of crude oil.

The new timeline allows companies producing from the Carabobo two years of "early production"-- that is, without using an upgrader to refine the Orinoco's tar-like heavy crude -- compared with the one year allowed under previous terms.

The new terms also allow four years, as opposed to three previously, for the completion of a crude upgrader, they said.

"The previous timeline was too tight to meet the conditions set by the Energy Ministry," said a manager at one of the 19 companies thinking of bidding. He said the longer period allowed for initial oil output will increase the cash flow of the projects.

A slew of oil industry nationalizations by socialist President Hugo Chavez's government have made potential investors reluctant to participate in the tender.

Venezuelan authorities have also taken other steps to boost interest in the tender, including possibly lowering royalties to 20 percent from the current 30 percent depending on the profitability of the project.

Successful bidders will be announced in February 2010 and will then be required to present a blueprint of the project, including the heavy crude upgrader, to help the state determine whether or not to implement the 20 percent royalty rate.

The Carabobo tender is expected to result in three projects each producing up to 400,000 barrels per day. Every one of the projects is expected to have an investment of between $10 billion and $20 billion dollars, of which at least $6 billion will be spent on an upgrader for the heavy crude produced in the Carabobo.

Despite government optimism, analysts fear it could be five years before investors see any production from Carabobo due to investor jitters and what critics see as PDVSA's inefficient management of resources.

Among those interested in the Carabobo tender are Britain's BP (BP.L), U.S.-based Chevron (CVX.N), China's state oil company CNPC, France's Total (TOTF.PA), Italy's ENI (ENI.MI) and Portugal's Galp Energia (GALP.LS), as well as consortiums of Russian and Japanese businesses. (By Marianna Párraga; Writing by Rebekah Kebede; Editing by Marguerita Choy)