CARACAS/HOUSTON Oct 11 The exit of Malaysian
and Russian partners from key oil projects in Venezuela points
to long-running disputes that could force out other companies,
even as the government talks up its efforts to develop the huge
Orinoco extra heavy crude belt.
For years, state oil company PDVSA has made it the
responsibility of its partners in about 40 joint ventures to
boost stagnant national production of around 3 million barrels
per day, at times threatening to take away their licenses or
stop them repatriating dividend payments.
Those often fraught relationships are essential for the OPEC
nation's vital oil industry. Future growth hinges on a string of
ambitious projects in the Orinoco, one of the planet's last
largely-untapped major crude reserves.
Russia's second-biggest oil producer Lukoil said
this month it wants to sell its Orinoco stake, just weeks after
Malaysia's state oil company Petronas said it was
quitting one of the biggest projects.
Senior sources close to the deals said both companies were
fed up of repeated disagreements with PDVSA and the government.
The sources also said export income from early production at
key projects went to the state oil company, instead of the joint
ventures - adding to partners' cash flow problems.
The private companies that remain, which include U.S. major
Chevron and Spain's Repsol, have tough choices
to make. Various sources at Orinoco joint ventures said PDVSA
refused their repeated requests that it relax its conditions.
"There are companies which have decided to be in Venezuela
with a long term vision. There are others whose presence depends
strictly on the cash flow they get from the country," said Luisa
Palacios, analyst at Medley Global Advisors in New York.
"Their projects in Venezuela compete with their others,
especially under a scenario where oil prices don't guarantee a
clear return on investment."
PDVSA did not respond to questions from Reuters about its
dealings with foreign companies in the Orinoco. Despite the
recent departures, top officials are seldom anything but upbeat
about the area's long term appeal.
Petroleum Minister Rafael Ramirez said this week that new
output from the Orinoco meant Venezuela expects to produce a
total of 4 million bpd in 2014 - a huge, and unlikely, leap from
"We've got pipelines that are reaching design capacity, and
we brought in equipment from outside that will allow us to
accelerate the increase in production ... it is generating a lot
of interest (from investors)," Ramirez said.
In a rare acknowledgment of problems, however, he said the
provisional logistics set up for Orinoco projects under an
"accelerated early production" plan had created bottlenecks.
The late Hugo Chavez nationalized almost all of Venezuela's
oil industry, which the Venezuelan economy is almost entirely
reliant upon for foreign currency income.
Potential oil industry partners are torn between fears of
possible state takeovers and hoping for a share as the country
parcels out its estimated 296.5 billion barrels of reserves.
The departures come from countries including Russia that are
political allies of Caracas, and which were urged by Chavez to
work with Venezuela after ExxonMobil and ConocoPhillips
left amid disputes over state takeovers in 2007.
They add to an increasingly challenging economic situation
for the government of Chavez's successor, President Nicolas
Maduro, who faces shortages of consumer goods and annual
inflation that last month hit 49.4 percent.
Saying the Orinoco was not a priority anymore, Lukoil
announced last week it wants to quit a Russian consortium that
has a 40 percent stake in Junin Block 6, one of the richest
areas and forecast eventually to produce some 450,000 bpd.
Less than a year ago, Russia's fourth-largest crude producer
Surgutneftegaz also voted to leave the block.
The most likely buyer for Lukoil's stake is Rosneft
- a move that would give it almost complete dominance
of the Junin 6 consortium and add to the Russian state oil
producer's ever-wider operations in the South American country.
Igor Sechin, powerful deputy prime minister and Rosneft's
chief executive, has been a regular visitor to discuss energy
deals and arms sales - even donning a Chavez T-shirt to pose
with PDVSA workers in the run-up to last year's election.
Alongside China's CNPC, Rosneft has become the biggest
foreign player in Venezuela, buying the interests of TNK-BP
including a stake in a heavy crude upgrader, while
also being unexpectedly awarded another Orinoco block to run,
Carabobo 2, and a role in PDVSA's fledgling offshore gas plans.
Almost from the start, executives with foreign companies
complained about work in the Orinoco being held up by lack of
infrastructure, uncertainty over taxes, delays in payments from
PDVSA, and what they called its autocratic behavior.
Unless PDVSA softens its terms and listens more to its
partners, other companies could leave, foreign executives say.
"There's no governability ... PDVSA wants the joint ventures
to function as appendages of itself," said the president of one
foreign oil company working on new projects in the Orinoco.
Those issues were among the reasons for the departure of
Malaysia's Petronas last month from its 11 percent stake in a
flagship Orinoco project called Petrocarabobo that has planned
investments of about $20 billion over 25 years.
The foreign executive said top Petronas leaders visited
Venezuela but left disappointed, saying PDVSA repeatedly refused
to involve its foreign partners in decision-making.
That consortium also has investment from Repsol, India's
ONGC, and two smaller Indian companies.
Eventually, the Orinoco developments aim to add more than 2
million bpd to Venezuelan output - twice the rise Ramirez
forecasts for next year - for total investment of $80 billion.
Two senior sources involved in the deals said export income
from early production at key projects such as Petromiranda, with
the Russians, and the Junin blocks where ENI and Petrovietnam
operate, went to PDVSA instead of to the joint ventures, causing
cash flow problems from the start for the smaller companies.
Those financial difficulties will only get harder in later
stages of the projects, such as the construction of upgraders.
The amounts involved now are relatively small - some 25,000
bpd - but it is seen as a sign PDVSA may again be behaving in a
way that starves the joint ventures of funds - something the
sources said PDVSA had repeatedly promised to avoid this time.
More surprising is the failure to begin production at
Carabobo 3, a joint venture with Chevron and several
Japanese firms, and at Petrourica, a joint venture with China's
CNPC. Maduro's government is meanwhile seeking to renew a $20
billion credit line with Beijing.
Foreign executives said Ramirez recently softened his stance
towards private companies working in the Orinoco.
"It's not enough. The rival factions within PDVSA slow
everything down. There are lots of sudden changes of opinion,"
said one foreign oil company president, adding he was in no rush
to pour funds into the project. "We're proceeding with our
project, but step by step. We're not forcing the pace."