Oct. 2000 Vol. 221 No. 10  International Politics

Stuart Wilkinson,  Contributing Editor

Venezuela unveils its natural gas licensing program

CARACAS – Venezuela is in a hurry to initiate robust development of natural gas, to be conducted exclusively by private shareholders. Eleven areas comprising a total of 13,500 sq km are on offer, ranging from Zulia state to Guárico state in central Venezuela. Winners will be announced during first-quarter 2001. E&P licenses will be granted 30 to 45 days later.

Licensees will explore and exploit gas at their own expense and risk. They will have title to the gas produced, and the right to commercialize production according to license conditions and existing law. Each license is for 35 years and can be extended for 30 more years. This is "a modest first step," said Domingo Marsicobetre, vice president at state firm PDVSA, and it should be seen in the context of an official "push" to encourage participation of Venezuelan-controlled companies in gas development.

Looking at the table of areas under offer, the only tracts with proved reserves are Yucal-Placer North and South, in the northern part of Guárico state. Proved reserves in these tracts are 2 to 3 Bcf, and there are 29 wells and 13 deposits. Detailed seismic information is available, and the areas are partially developed.

In these two tracts, certain rules apply that give special treatment to Venezuelan companies. For instance, no more than 70% of the licensed companies can be formed through "Class B" shareholdings, i.e. without Venezuelan-controlled capital. The remaining 30% or more must be Venezuelan-controlled companies. The firms involved will then structure an operator that will be Venezuelan-controlled ("Class A" shareholdings) and represent at least 30% of the license. There is little risk in these two areas, because they already have been partially developed by PDVSA.

This special treatment may sound rather biased, but many people in key positions of power and national responsibility believe that the "oil opening" (Apertura Petrolera), undertaken by the previous government, was a sell-out to foreign interests. Now, policy emphasizes "national" aspects and benefits to the country. Companies will invest up to $300 million in Yucal-Placer, mainly early in the 20-year period.

Other tracts. The nine other areas grouped into Ambrosio North (Zulia state), Barrancas (Barinas, Trujillo and Portuguesa states) and the Central Foothills (Piedmonte Central, in Guárico, Aragua and Cojedes states) have more-open participation, where Class A and B companies, or any associations between them, are equally valid. If a discovery is made, the license-holder will be given an incentive to promote Venezuelan companies’ participation in the association.

All nine of these areas are exploratory. Ambrosia North and Barrancas are in zones of Venezuela that have energy "deficits." Ambrosio North has semi-detailed seismic information available. There are 13 wells with gas indications, high prospectivity and potential gas resources of 2 to 6 Bcf. Barrancas has good seismic coverage. Exploratory potential is considered good, and potential gas resources are also 2 to 6 Bcf. The seven Guárico-Aragua-Cojedes areas cover 9,201 sq km. There is high prospectivity but little regional seismic information. Resources may be 2 to 8 Bcf of gas.

A sense of urgency. But why the rush? Among the reasons are that officials want to flip over the country’s primary energy mix by 2010, clarify territorial and maritime borders, help the economy pick up speed and improve social conditions. Looking first at the primary energy mix, hydroelectricity (31%) and liquid hydrocarbons (27%) make up 58% of the total for year 2000; natural gas accounts for the remaining 42%. For 2010, this balance is to be reversed, with hydropower (27%) and liquids (19%) accounting for 46% and gas contributing 54%. In the same period, natural gas demand will at least double, to 5.13 Bcfd from 2.45 Bcfd.

Studies have shown that hydroelectricity cannot grow significantly, because its potential is already almost fully developed. Liquids growth cannot be significant, because these sources will always be more expensive than gas. Liquids also can be transported more easily than gas, so national energy policy requires that they be exported rather than consumed. It appears that Venezuela’s growing energy needs will have to be satisfied mostly by natural gas.

Final, permanent clarification of territorial and maritime borders is a serious issue. Problems first occurred years ago in the Gulf of Venezuela, when Colombia claimed maritime rights. There also is the long-standing dispute with Guyana over the Esiquibo area and more-recent problems between the two nations over maritime borders off the Orinoco Delta.

To sort out this problem, an exploratory campaign for new gas and crude deposits has been approved along Venezuela’s entire coast. PDVSA has "every intention to exercise its rights to explore our territorial waters for oil and gas," said Marsicobetre in mid-July. President Hugo Chávez was also emphatic about this aspect.

Stuart Wilkinson is a Caracas-based journalist with extensive experience covering Venezuela’s petroleum industry. He currently is editor of the English section of the magazine, Enfoque Petrolero. He is a regular contributor to this column.