VENEZUELA - Sincor II.

Negotiations for a $5 bn project to nearly double Sincor's capacity have been on hold until the partners resolve an outstanding $1 bn tax issue, it was reported on June 2. Sincor II would take five or six years to become fully operational and would increase the upgrader plant's capacity to 350,000 b/d. But last May, the Caracas government said Total and Statoil had produced over their legal limits at the Sincor plant, and it would be sending the companies a $1 bn bill for unpaid taxes.

Total and Statoil say they have only produced what is allowed under their contracts and by June had not received any formal bill for the tax allegedly owed, so there should be no change to Sincor II's status. But one source has said negotiations over Sincor II had been halted by the government and another says the companies would wait until the tax issue has been resolved before moving ahead with the project.

The Chavez administration has been pushing for tougher tax terms on private oil projects. Last year the Orinoco tax was raised to 16.7% from 1%, and the income tax rate on private oil operating contracts was lifted to 50% from 34% in April. (Chavez has vowed to redistribute the country's vast oil wealth to the poor through a series of social programmes and affordable financing for agriculture and small businesses. The programmes have pushed his popularity to record levels, but critics say they will only be sustainable as long as oil prices remain high).

Hamaca is the fourth SA for extra-heavy Orinoco oil, with the JV called Petrolera Ameriven (PA). This $3.7 bn venture is owned 30% by CVP (ex-Corpoven), 40% by ConocoPhillips (the operator), and 30% by Texaco (now part of Chevron). Its upstream production, begun in 1999, now averages over 220,000 b/d of 8.5[degrees] API crude oil from the Hamaca basin. Its upgrader at Jose went be on stream by mid-2004 to produce 190,000 b/d of 26[degrees] API of synthetic crude oil for export. But full capacity was reached in late 2004.

Like the other SAs, Hamaca has a field life of 35 years to recover 2.4 bn barrels of Orinoco extra-heavy oil. This is mixed with 47[degrees] API naphtha blend diluent to facilitate 165-km pipeline transport to the Jose industrial complex, where the diluent is recovered and the crude is processed.

Construction at the $ 1.1 bn Ameriven upgrader in the Jos[r1]e petrochemical complex was resumed in mid-2003 after being halted due to labour unrest. Labour peace was signed after clashes were bought on because of workers being fired by Alvica, one of the service companies contracted by Ameriven.

Ameriven resumed work in late 2003 after a group of workers from Alvica entered Ameriven installations in a violent way, complaining for lost wages during the two month nationwide general strike last December and January.

Hamaca field is producing over 220,000 b/d of diluted crude. It started full-scale production in late 2003 with the upgrader processing almost 220,000 b/d into about 190,000 b/d of 26.5[degrees] APi synthetic crude oil for exports which began in early August 2004. Cheveon has been happy with the Hamaca experience and is ready to expand it.