A consortium of Indian Oil Corporation (IOC), ONGC Videsh Ltd, Oil India Ltd, Spain’s Repsol and Malaysia’s Petronas have acquired a 40 per cent interest in a company that will develop two major blocks in the Orinoco Heavy Oil Belt in Venezuela.
The right to acquire the interest was awarded by the Venezuelan government and comprises the development of the Carabobo 1 North and Carabobo 1 central blocks in the Orinoco Belt which has an estimated oil-in-place of over 1 trillion barrels.
The project size is estimated at $15 billion of which the equity portion of the consortium will be about $2.5 billion. The consortium has pledged a $1.05 billion bonus to the Venezuelan government, which will come payable on the achievement of certain milestones.
CVP, a subsidiary of Venezuela’s state oil company, will hold 60 per cent interest in the mixed company which will construct production facilities and other associated infrastructure, said an IndianOil statement. The Indian companies will also extend a credit facility of $1.05 billion to CVP.
Indian Oil chairman Sarthak Behuria said, “The good news from Carabobo is surely a major boost to our continued efforts in building a bountiful portfolio of oil assets and has given us a unique opportunity to develop the massive oil resources stored in one of the world’s richest oil regions.
“Increasingly, the utilisation of heavy oil is seen as the key to future exploration and production (E&P) and development, and such successes will go a long way in establishing IndianOil as a serious E&P player.”
Heavy crude oil has a higher density than light crude oil and is cheaper. It is difficult to transport due to its high viscosity but it is generally believed that the days of light crude oil are over and new discoveries will be producing heavy oil. The largest reserves of heavy oil are located in Venezuela.
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The contract was awarded after a selection process conducted by Venezuela’s Ministry of Energy and Petroleum. The mixed company contract between CVP and the consortium is scheduled to be signed in March 2010, subject to the fulfillment of certain predetermined conditions, including investment approvals by the government of India.
"The size of the project makes it unique; this is the first time that all the public sector companies have come together to develop a project of this size," said Amrit Singh, managing director and head, merger and acquisitions, Deutsche Bank. The bank was the sole financial advisor to the three Indian companies for the transaction.
Singh said the venture will include upstream facilities which will produce up to 400,000 barrels of oil per day and heavy oil upgrading facilities which will process around 200,000 barrels per day of crude oil.
Reliance Industries Ltd (RIL) had initially planned to be part of the bidding consortium for the oil field but pulled out later.
OVL already has a presence in Venezuela when it acquired a 40 per cent participating interest in the oil producing San Cristobal Project in Venezuela about two years ago.