Monday, February 15, 2010

Venezuela: Foreign firms win Orinoco bids

Venezuela’s government awarded two blocks available in the oil-rich Orinoco Belt to a pair of foreign firms.

Spain’s Repsol and U.S. company Chevron led a pair of separate consortiums in order to get permission to seek and drill oil in parts of the Orinoco area. The bids- which both totaled over $30 billion- grants Chevron and Repsol a 40% stake in the oil fields while state-run PVDSA holds 60%.

According to Reuters, oil firms aim to reap high rewards from the Orinoco belt though the risks are also great:
Companies are keen on low exploratory risk and manageable production costs offered by the three projects, which will produce 1.2 million barrels per day and hold total estimated 128 billion barrels of oil in place.

But developers also must build major infrastructure in isolated rural areas. Partners must provide nearly all financing for the $10 billion to $20 billion projects. And the government has mandated the fields must produce at more than double the rate of existing Orinoco belt projects.

"Convincing companies that these projects are viable has not been easy," acknowledged Baldo Sanso, an oil ministry advisor running the bidding, before receiving bids.
The auction was the biggest in eleven years and it attracted the attention of major international oil companies. One more Orinoco block remains open and it’s expected to fetch a steep price once the Venezuelan government decides to allow bidding on it.

Image- BBC News
Online Sources- MaarketWatch, Reuters, Business Week, Wall Street Journal

2 comments:

Tambopaxi said...

Who would (or could) trust the Chavez government to honor any commitment to a foreign oil company? Are these companies betting that Chavez won't be around until the end of whatever contract they might sign with Chavez?

Erwin C. said...

Chavez would not dare rock the boat with the foriegn oil firms since oil is such a vital part of Venezuela's economy. Barring a gross mistake by the companies it would make no sense to break the contracts.

Even if (and that's a mighty IF) Chavez gets defeated via coup or election, I think that the contracts will remain intact due to the mutual benefits for both the firms and the state.