Indian flagship overseas explorer ONGC Videsh Ltd and its partners have signed an agreement to develop a $20 billion oil project in Venezuela that will give energy-deficient India 3.6 million tonnes a year of crude.
On May 12, OVL and its partners inked an agreement with Venezuelan national oil firm Petroleos de Venezuela SA (PdV) for the development and production of hydrocarbons from the Carabobo project in the Orinoco region of Venezuela.
The joint venture agreement was signed in Caracas at a ceremony attended by the President of Venezuela, Hugo Chavez Frias, a statement by IOC, a member of the consortium, said.
Spain's Repsol-YPF SA, Petroliam Nasional Bhd (Petronas) of Malaysia and OVL, the overseas investment arm of state-run Oil and Natural Gas Corp, each hold an 11 per cent stake in the consortium that will produce 400,000 barrels of oil per day.
Indian Oil Corp (IOC) and Oil India (OIL) will each have 3.5 per cent interest in the joint venture firm to develop the Carabobo 1 Norte and Carabobo 1 Centro blocks (collectively called Carabobo-1), located in the Orino Heavy Oil Belt.
The Corporacion Venezolana del Petroleo (CVP), a unit of PdV, Venezuela's state oil company, will hold the remaining 60 per cent equity. About half of the production from the joint venture, called PetroCarabobo SA, will be upgraded into light crude oil for export.
"The project costs are estimated at $15–20 billion and is one of India's major investments in Latin America," the statement said. The joint venture company has a licence term of 25 years, with the potential for a further 15-year extension, to extract oil.
After the signing ceremony, Oil Minister Murli Deora met Chavez to explore the possibility of sourcing Venezuelan crude for new refinery capacities coming up in India.
"Discussions were also held on the possibility of award of the Junin Norte block, where new oil reserves are being certified by OVL (to Indian firms)," the statement said.
The Indian firms will invest $2.181 billion in the 400,000 bpd project between 2010 and 2015. Of this, OVL will invest $1.333 billion, while IOC and OIL will invest $454 million each.
Early output of at least 50,000 bpd is slated to start in 2012-13, before rising to its peak in 2016.
The project cost includes $12.8 billion for constructing a heavy crude upgrader that can turn Orinoco's tar-like oil into valuable synthetic crude. The 200,000-bpd upgrader may be built at Soledad, in Anzoategui state, to make synthetic crude of 32 degree API or higher by 2015-16.
Venezuela had offered seven blocks in the Carabobo area, with combined oil-in-place estimated at around 128 billion barrels. The blocks were grouped into three projects, with each project expected to produce a plateau of 400,000 barrels of 8 degree API oil per day for 40 years.
Of the three projects put up for auction, bids were received for only two - one by the consortium led by the Indians and the other by Chevron Corp of US.
The companies were required to pay a minimum signing bonus of USD 500 million to access the reserves and provide a $1 billion loan to PdV to begin operations.
In February, the Indian trio won the right to develop the Carabobo-1 project along with Repsol-YPF and Petronas after committing themselves to pay a signing amount of $1.05 billion and making an equivalent amount available to Venezuela's state-run PdV as a loan.
The Carabobo projects, along with similar ventures with Italy's Eni SpA, China National Petroleum Corp and a group of Russian companies in the neighbouring Junin field, are central to Venezuela's plans to boost waning oil output by 2.9 million barrels a day by 2017.
Financing for the blocks will be covered 30 per cent through international loans, 40 per cent from the minority partners and the remaining 30 per cent from initial output.
The Carabobo area, located in the eastern section of the Faja, has a massive resource potential and is part of an extensive reserve certification process led by PDVSA. The US Geological Survey, in a recent report, has estimated the mean volume of recoverable heavy oil in Faja to be as high as 513 billion barrels, which is one of the few global opportunities open to private investment.
