ONGC Videsh-Led Consortium to Invest $2.25 Billion in Venezuelan Oil Block Development

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Researched by Industrial Info Resources (Sugar Land, Texas)--A consortium of Indian energy firms led by ONGC Videsh Limited (OVL) (New Delhi) will make an initial investment of $2.25 billion to develop the Carabobo-1 oil block in Venezuela. The other Indian companies in the consortium are Oil India Limited (BSE:533106) (New Delhi) and Indian Oil Corporation Limited (BSE:530965) (IOCL) (Mumbai). OVL is the overseas investment arm of Oil and Natural Gas Corporation Limited (BSE:500312) (ONGC) (New Delhi).

The other partners in this venture are Petroliam Nasional Berhad (Petronas) (Kuala Lumpur, Malaysia), Venezuelan state-controlled Petroleos de Venezuela S.A. (PdV) (Caracas, Venezuela), and Repsol YPF S.A. (MCE:REP) (Madrid, Spain). The contract is expected to be signed in March this year. PdV will be the majority stakeholder in the Carabobo-1 project with a 60% share. OVL, Petronas, and Repsol YPF will each hold an 11% stake, while the remaining 7% will be split between Oil India and IOCL.

Earlier, the Indian consortium, in association with Petronas and Repsol, secured the rights to develop the Carabobo-1 project. The Carabobo-1 block, which comprises the Carabobo-1 Centro and Carabobo-1 Norte blocks, is in the extra-heavy crude oil belt of the Orinoco River Basin in Eastern Venezuela. The estimated reserves of the blocks are about 235 billion barrels of heavy and ultra-heavy crude oil. The project is expected to have a production capacity of 400,000 barrels per day, with initial output of 50,000 barrels per day by 2012-13. Production is likely to reach peak capacity by 2016.

The companies also agreed to pay a signing amount of $1.05 billion and extend a loan of the same amount to PdV. The partners are expected to pool their share of the signature bonus payment based on the shareholding in the venture. Deutsche Bank AG (NYSE:DB) (Frankfurt, Germany) is the fund arranger for this project.

The Indian consortium is seeking government approval on the proposed $2.25 billion investment. The consortium will first submit a proposal to the Empowered Committee of Secretaries, which will then be presented to the cabinet for approval. The initial investment will address the consortium's signature bonus share of $472.5 million, capital expenditure, and installment of its share of the loan to PdV. OVL's share of the total investment would be about $1.13 billion, while Oil India and IOCL's shares would be about $433 million to $435 million each. OVL, IOCL and Oil India are confident of future financing from revenues generated by this project. India is expected to initially receive 3.6 million tons per year of crude from the Carabobo-1 block. In 2008, OVL secured 40% rights to develop the San Cristobal project in the Zuata region of the Orinoco River Basin.

The total investment on the Carabobo-1 project is estimated at about $19 billion over 25 years. A part of the investment will be utilized to construct a 200,000-barrel-per-day crude-upgrading facility, which will convert heavy crude oil into synthetic crude of 32-degree API gravity or higher range. The facility, which will be at Soledad in Anzoátegui state, will begin operations by 2015-16.

Venezuela is one of South America's most urbanized countries. The country shares its borders with Colombia, Guyana and Brazil. The petroleum sector dominates Venezuela's economy, accounting for 80% of the country's exports, one-third of the GDP, and more than 50% of the national revenues.

Oil was discovered in Venezuela in 1922. Areas along the Orinoco River Basin, Lake Maracaibo, and the Gulf of Venezuela contain some of the biggest oil deposits in the country. In 2007, the Venezuelan government nationalized projects in the Orinoco River belt. Venezuela's current oil reserves are about 172.3 billion barrels. The country plans to develop the Orinoco region and increase its reserves to 316 billion barrels.

According to recent media reports, Venezuela has signed deals with foreign energy firms to develop the Orinoco River basin. The development is estimated to require about $80 billion in investments. The Junín 5 block development project has been awarded to Eni SpA (BIT:ENI) (Rome, Italy), while Russian and Chinese firms have secured rights to develop the Junín 6 and Junín 4 blocks, respectively. A consortium led by Chevron Corporation (NYSE:CVX) (San Ramon, California) will develop three blocks, spread across 215 square miles at Faja. The consortium includes Mitsubishi Corporation (TYO:8058) (Tokyo, Japan), Suelopetrol CA (CLS:SPT.B) (Caracas, Venezuela), and INPEX Corporation (TYO:1605) (Tokyo). PdV is the majority shareholder in this venture with a 60% stake.

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