IOC for 4 pc stake in Venezuela oilfield

Indian Oil Corp (IOC) will take just one-tenth of the 40 per cent stake the grand alliance of Oil and Natural Gas Corp (ONGC) and Reliance Industries along with the state refiner is eyeing in a vast oilfield in Venezuela.

ONGC Videsh, the overseas arm of the state explorer, is talking to Reliance, IOC and Oil India to jointly bid for 40 per cent stake in fields in the vast Orinoco heavy crude oil belt of Venezuela, an official said.

Development of the field will cost USD 16-18 billion and 40 per cent share worked out to USD 6.4-7.2 billion. However, Venezuela wants the potential investor to also contribute for the remaining 60 per cent share of its oil firm PdVSA. This amount will be treated as loan and returned from oil sale.

"IOC's finances are in a precarious state and cannot take such a huge exposure. Four per cent is all that it can commit," the official said.

The company may post first ever net loss in 2008-09 fiscal if it does not get more oil bonds from the Government to make up for the losses it incurred on selling fuel below cost.

OIL too is keen only on 2.5 per cent stake but OVL is pressing for both IOC and OIL to take a minimum of five per cent each. OVL and RIL would then take 15 per cent a piece.

Each of the three to seven fields Venezuela may put on offer can produce 200,000 to 400,000 barrels per day of oil (10-20 million tons a year).

Venezuela is offering 40 per cent stake in massive projects in the Carabobo region of the Orinoco belt that would produce tar-like oil that would need to be upgraded into higher-quality synthetic crude. Its state oil firm Petroleos de Venezuela SA (PdVSA) will retain the remaining 60 per cent. The Latin American nation has, however, not fixed any bid dates as yet.

"The investment required is massive. A refinery like plant that will upgrade the crude alone will cost USD 6-8 billion and so OVL was looking at partnership with other companies," the official said.

The projects offer low production costs and limited exploratory risks.

"Venezuela requires bidders to indicate where they intend to use the oil. We plan to ship the oil to Reliance Industries' twin refineries at Jamnagar in Gujarat (on the west coast) and IOC's proposed Paradip refinery in Orissa (on the east coast)," he said.

The under-construction Paradip refinery will be ready by 2011, much before oil would begin to flow from the Venezuelan fields.

Companies ranging from US giant Chevron to China's CNPC have been evaluating the offer. China National Petroleum Corp, the nation's top oil and gas producer and the parent of PetroChina Co (PTR), and China Petrochemical Corp, or Sinopec Group, have already made bids.

The tar-like Orinoco oil would then be turned into lighter synthetic crude through multi-billion dollar upgraders. Venezuela has carved out seven heavy oil Carabobo blocks in the Orinoco belt. Venezuela's government says the area contains 272 billion barrels of recoverable reserves. About 10 to 20 per cent of these reserves can be recovered.

Under the rules of the Carabobo field licensing round, foreign partners are required to plan and finance the oil pumping and processing of heavy oil, while retaining a minority stake in the venture.

Since last year, OVL has been seeking a stake in one of the four oilfields in the Carabobo and a piece in the Junin Norte Block in the Orinoco heavy oil basin.

The Junin area is believed to hold some 500 billion barrels of in-place oil reserves, off which Junin Norte may have about 7-8 billion barrels.

These would be in addition to the 40 per cent share OVL has in the San Cristobal oilfield. OVL and its 60 per cent partner PdVSA will produce 40,000 barrels per day of oil from the field over an 8 year plateau period after investing over USD 446 million.

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