Baker Hughes to partner with Venezuelan contractor to tap Orinoco belt

By Nathan Crooks on 9/28/2016

CARACAS, Venezuela (Bloomberg) -- Y&V Group, the only Venezuelan contractor selected to participate in a multi-billion-dollar drilling project in the country’s Orinoco belt, is relying on an alliance with Baker Hughes to start drilling more than 200 wells.

Baker Hughes, which has worked with the engineering contractor that’s seeking drilling opportunities over the past year, will be hired by Y&V to help develop the prospects for PDVSA, and the state-owned producer’s partners Rosneft and Repsol, Y&V CEO Cesar Chacon said in an interview at his office in Caracas.

“We’d been working on a strategic alliance with Baker Hughes for the past year, and while we were looking for other projects, the PDVSA tender was announced,” said Chacon, who studied seismic engineering at Stanford University in California. “It’s not a joint venture. Baker Hughes will be subcontracted by Y&V, but they had an essential and fundamental role in this proposal.”

Venezuela, which holds the world’s largest crude reserves, has been pushing to revive exploration and production after service companies pulled back from the country amid more than $1 billion in unpaid bills for services and supplies. Baker Hughes has said it was altering its business model in Venezuela by partnering with local providers to reduce its exposure.

Joint Ventures

Y&V was awarded a project worth more than $1 billion to drill and complete 98 wells at the PetroVictoria joint venture between PDVSA and Russia’s Rosneft, as well as another 107 wells at the PetroCarabobo joint venture between PDVSA and Spain’s Repsol.

PDVSA dubbed the $3.2-billion plan to add 250,000 bopd of output in 30 months “one of the world’s largest drilling projects,” also granting contracts to Schlumberger and Oklahoma-based Horizontal Well Drillers. The project, the first of a new type of contract that will save the state-run producer initial financing costs and give drillers more independence, represents a turning point for PDVSA, Chacon said.

“What’s new is that PDVSA won’t have to disburse any funds,” Chacon said, adding that Y&V will fund the works and then be paid by PDVSA once production starts. “What’s attractive about this is that the contractor is in control. Your activities aren’t determined by others. The joint ventures will tell us where to drill, and we’ll do it. There’s not as much bureaucracy. You own the project from the depths of the well to the surface connection with the export piping.”

Y&V has committed to bring in at least six rigs to produce the Merey 16 heavy crude and will most likely source them from Colombia, where there is a lot of availability at the moment, Chacon said. The company has an offer for financing that’s being worked on, he added, without providing more information other than saying it isn’t from a U.S. company.

Founded in 1985, privately held Y&V has worked with PDVSA for almost 30 years and has recently gained relevant oil experience in Canada, Colombia and Mexico, where it worked with companies including Canadian Natural Resources, Ecopetrol and Petroleos Mexicanos, Chacon said. While it has participated in larger projects, the recently announced PDVSA tender will be the company’s largest individual project ever, he added.

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