Andean Group - July 2009 (ISSN 1741-4466)

The upcoming 28 July bidding round for three Carabobo concessions in the Orinoco belt, the first in a decade, may be delayed yet again, as interested companies struggle to agree to the stringent conditions being set down by the Chávez government.

The Carabobo round, which is worth an estimated US$60bn-US$80bn in total, was previously postponed by three months from an initial 28 April deadline. Nineteen companies, including Brazil's Petrobras, the UK's BP, the US's Chevron, China's National Petroleum Corp and Norway's Statoil Hydro, paid US$2.0m each for bidding materials in late 2008. The round will create three new joint ventures between international majors and the state oil firm Petróleos de Venezuela (Pdvsa), with Pdvsa holding a majority stake of 60%.

Under the terms set down by the government, the successful bidders would be expected to produce 400,000 barrels of oil each per day, finance the entire US$18-US$20bn estimated development costs of each project, pay an upfront fee of US$500m or more, relinquish international arbitration rights and pay taxes on all income of at least 50%.  

While Venezuela is one of the few remaining oil producers still awarding commercial production rights over its oil (albeit in a minority share and with hefty taxes), the fluid legal environment is a major source of concern. Companies worry that once the fields are up and running, a process that might take a decade, the government will simply turf them out. Most are simply hoping that Chávez will be gone by then.

The Carabobo area contains an estimated 32bn barrels of proven oil reserves, some way above US reserves at end 2007 (21.3bn on US Energy Information Administration calculations). Venezuela hopes that increased heavy crude oil output from the Orinoco belt will replace its declining light crude output in older fields.  

• Pdvsa bonds and government debt

Pdvsa sold US$3.0m in US dollar bonds in the local market in July in an effort to meet financing needs this year. The company is aiming to pay off its pending debt with contractors and suppliers (at least US$7.0bn) shortly. Similarly, the Chávez government has issued BF13.3bn (US$6.18bn) in bonds to date this year, absorbed mostly by local banks. Venezuelan banks increased their holdings of government debt to BF88.6bn (US$41.3bn) to end-June 2009, up by more than 50% from a year earlier, according to local economists, who also estimate that the government may tap local banks for up to one third of its budget needs this year.