SOUTH AMERICA

Competing for foreign investment

Good discoveries and huge gas development plans require ample investment. Nearly every country is making contract terms a little sweeter

All countries by Stuart Wilkinson, Contributing Editor

Venezuela

Since taking office, President Chávez has reversed the OPEC quota-busting policy to raise prices. So far, the policy change has been successful, with the country’s basket of petroleum prices pushing up to $30/bbl. However, these cuts contributed to a heavy economic recession and, even now, the economy has not responded to what would previously have been an oil boom for the country.

The "Mega-Elections" – which were to be held on May 28th – did not happen as a result of technical problems. They were postponed and split into two parts; the main one included the presidential election at the end of July.

The primary contender for president is Francisco Arias Cárdenas. He participated with Chávez in the 1992 failed coup against then-president Carlos Andrés Pérez. An opinion poll published on July 4th indicated that Chávez and Arias were more or less level, with Chávez leading by four points. However, Chávez on July 30 easily won re-election, posting a 21-percentage point margin over the nearest challenger, Arias. His coalition also won about 60% of the new 165-member legislature, sparking violent protests by opposition supporters. Arias had stated that the oil policy pursued by the present government has not been beneficial to the country.

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Exploration. Later this year, 11 areas will be put up for bids for exploration and development of non-associated gas reserves: North Ambrosio, Zulia state, with reserves estimated at 2 to 6 Bcf; Yucal Placer, Guarico state, two areas with proven reserves of 2 Bcf; seven areas in Guarico, Aragua and Cojedes states, with possible reserves of 2 to 8 Bcf; and Barrancas in Barinas, Portugesa and Trujillo states, with probable reserves of 2 to 6 Bcf. It is planned to grant licenses in mid-December this year.

Seismic work last year totaled 899 mi of 2-D and 1,265 sq mi of 3-D surveys, up 33% and down 36%, respectively. This year, the forecast is for 1,411 mi of 2-D and 983 sq mi of 3-D seismic surveys. There were only 28 wildcats and appraisals drilled, equal to about 3.5% of all of 1999’s drilling. Exploration drilling should remain at that percentage this year.

Development/drilling. Wells drilled were down 23% last year, and footage declined 18%. State firm PDVSA this year forecast a 54% rebound in wells. Late last year, Benton Oil and Gas entered into a letter of intent with Schlumberger to form an alliance to further develop the South Monagas Unit, which is the company’s main oil-producing asset. The partners would begin infill drilling and optimizing operations with the aim of achieving increasing production rates over the next two to three years. Helmerich & Payne won the drilling contract, and production has stabilized at the unit near 25,000 bopd.

TotalFinaElf started to negotiate its withdrawal from Punta Pescador – there were not many possibilities for success there. PDVSA Gas, Shell, Esso and Mitsubishi signed a preliminary agreement for development of Venezuela’s GNL Project, which encompasses exploitation and export of free gas from the Norte de Paria fields. Initial production is planned for 2005.

Orinoco heavy crude. By late 1999, the Petrozuata heavy oil project was about 80% complete – it comes into operation later this year. More than 60% of the $550-million cost overruns were related to an overvalued Bolívar – past overruns of $250 million and estimated future overruns of $100 million. Another $110 million in overruns arose from labor costs doubling in response to a new, PDVSA employee contract. Once fully operational, Petrozuata will produce 120,000 bpd of heavy crude and 103,000 bpd of syncrude.

Production from Cerro Negro field in the Orinoco Belt began at the rate of 60,000 bpd of diluted, extra-heavy crude – the oil is blended with condensate to allow it to flow to storage and loading facilities at José Industrial Complex. Production is expected to double to 120,000 bopd in 2001, when a new coker unit is completed at José.

The strategic associations – Sincor, Hamaca, Petrozuata and Cerro Negro – will produce 16°-to-32°API-gravity synthetic crudes. Estimated production is 557,000 bpd for 2004 and 622,000 bpd for 2009.

Chávez’s Asian tour resulted in a memorandum of understanding between the China National Petroleum Co. and PDVSA, whereby China will buy 2 million t/yr of Orimulsion after 2002. PDVSA thus has a chance to build a new 5 million t/yr drilling and conversion unit, doubling current capacity, and China will be able to convert its power plants to the fuel.

Another part of the deal called for potential expansion of the supply agreement, to an additional 5 million t/yr, with China being involved in construction of a plant in Venezuela. Orimulsion exports rose 39% in 1999. Plans are to produce 13 million t in 2003 and 20 million t in 2006.

Production. Combined output of crude and condensate was down 6%; most of that due to lower production rates after OPEC’s quota reductions took effect in April 1999. Condensate accounted for 2% of the total. Natural gas production was about 3% lower at 5.7 Bcfd.

Venezuela plans to increase oil production capacity to 5.8 million bpod in 2009. E&P spending will amount to $38 billion out of $50 to $55 billion total investment in the petroleum sector. Emphasis will be placed on increasing reserves of lighter crude.