Consortium of Indian Oil Companies to Bid for Heavy Crude Oil Blocks in Venezuela

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Researched by Industrial Info Resources (Sugar Land, Texas)--A consortium of four leading Indian oil companies will bid for a minority stake in one of Venezuela's heavy crude blocks in the state of Carabobo in the Orinoco Petroleum Belt. The consortium is led by Oil and Natural Gas Corporation Limited (BSE:500312) (ONGC) (New Delhi) and includes Reliance Industries Limited (BSE:500325) (Mumbai), Indian Oil Corporation Limited (BSE:530965) (IOCL) (Mumbai) and Oil India Limited (OIL) (Duliajan, Assam).

State-owned Petroleos de Venezuela SA (PDVSA) (Caracas, Venezuela) is looking for overseas investors to share the costs of extracting the heavy, sulfurous oil. In December last year, PDVSA released geological information on seven blocks in the Carabobo area of the Orinoco belt in the hope of attracting investors. Potential investors will bid for a 40% share in the blocks, while PDVSA will retain the remaining 60%.

The seven blocks on offer contain estimated reserves of 272 billion barrels, including proven reserves of 80 billion barrels of the tar-like heavy crude. The investment required to exploit the Carabobo oilfield is estimated to be between $16 billion and $18 billion. As the oil is heavy grade, it will require initial upgrading to convert it into synthetic crude, which is more marketable. Investment in the upgrade process alone is likely to cost between $6 billion and $8 billion.

Within the Indian consortium, IOCL is expected to take a 2.5-5% share, while OIL will take a share of 2.5%. The remaining stake of 32.5-35% will be shared equally between RIL and ONGC. The consortium is carefully studying three of the seven blocks on offer and will place its bid shortly. Each of the blocks is capable of producing about 200,000-400,000 barrels per day (BBL/d) of crude oil.

The agreement between PDVSA and foreign investors calls for bidders to indicate where the oil produced would be used. The Indian consortium is planning on shipping the synthetic crude to RIL's refineries in Jamnagar, Gujarat, on India's west coast and to IOCL's refinery being set up in Paradip, Orissa, on the east coast. The Paradip refinery is scheduled for commissioning by 2011, well before oil would start to flow from the Orinoco project.

In April 2008, ONGC obtained a 40% share of the San Cristabal oilfield in the Venezuelan state of Tachira for an estimated $355 million. The oilfield contains an estimated reserve of 232 million barrels. ONGC plans to raise production to 40,000 BBL/d by increasing the recovery rate from 22% to 35%.

The Brazilian company Petroleo Brasileiro SA (NYSE:PBR) (Petrobras) (Rio de Janeiro) has already placed a winning bid for one of the Carabobo blocks that contains certified reserves of 10 million barrels. Other bidders interested in the Orinoco blocks include state-owned China National Petroleum Corporation (Beijing) and China Petroleum & Chemical Corporation (NYSE:SNP) (Sinopec) (Beijing).

BP plc (NYSE:BP) (London, England) and Chevron Corporation (NYSE:CVX) (San Ramon, California) are also known to be interested in the Venezuelan offer. In March this year, Japan signed an agreement with Venezuela to jointly develop projects in Venezuela, ranging from oil exploration to refining and petrochemical plant expansions.

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