VENEZUELA - Strategic Orinoco Associations.

One surviving phase of the old programme features "strategic associations" which were signed between foreign companies and PDVSA's three producing subsidiaries, Lagoven, Maraven and Corpoven, to develop extra-heavy oil in the high-cost Orinoco belt and to process them into 700,000 b/d of marketable fuels by 2006. The three producing subsidiaries were merged under PDVSA E&P and the latter came under PDVSA-Oil & Gas in a restructuring process completed in early 1998.

The main terms in the strategic associations (SAs) are a 16.67% royalty with a temporary relief, a 34% income tax, and an agreed operating cost of $3.3/barrel of extra-heavy oil produced. Now there are four SAs:

Petrozuata, a $3 bn JV of PDVSA E&P (formerly the state partner was Maraven) and Conoco (operator with 50.1%) to produce synthetic fuel oil, for export. Conoco was to drill over 500 horizontal wells to recover 1.5-2 bn barrels of extra-heavy oil over 35 years. Conoco has already begun peak production (see Part).

Cerro Negro, a $2 bn JV of PDVSA E&P (ex-Lagoven - 41.6%), Mobil (the operator with 41.6%) and Veba Oel (16.8%), to produce synthetic fuel oil for export, with the first output begun in November 1999 (see Part 2).

Sincor, a $4.2 bn JV of PDVSA E&P (ex-Maraven - 38%), TotalFina (operator with 47%) and Statoil (15%), to produce 30[degree sign] API synthetic fuel oil for export. In 1998, Sincor managed to obtain financing for $2.7 bn from commercial banks and the project partners. Now, PDVSA E&P is offering to sell 15% and thus reduce its equity to 23%.

Hamaca, a $3.9 bn JV called Petrolera Ameriven (PA) between PDVSA E&P (ex-Corpoven (30%), Phillips (operator with 40%) and Texaco (30%), to produce 180,000 b/d of 25[degree sign] API synthetic fuel oil for export. Arco pulled out of this venture in mid-1999. In 1998, PA completed the basic engineering for its crude production and upgrading facilities. In 1999 it concentrated on engineering resizing in order to reduce investment and operating costs, with the first 36,000 b/d output of 8.5[degree sign] API crude from the Hamaca basin to begin in early 2000.

A $2 bn Corpoven-Exxon JV to produce 160,000 b/d of synthetic fuel oil from the east Hamaca basin for export from 2001 failed to materialise. A JV involving Coastal as operator under a letter of intent signed in November 1997 to produce synthetic fuel oil for export from one of the Orinoco belt fields was cancelled in 1998. (But PDVSA has continued to negotiate a share in Coastal's refining assets in the US).

Similar strategic partnerships to produce extra-heavy Orinoco oil have been negotiated by BP Amoco, Shell, Marathon, Amerada Hess and other companies. But no agreement has been reached so far.