Eni inks Venezuela heavy oil development deal

The pact signed in Caracas on Tuesday makes Eni the first Western oil firm to sign a heavy oil deal since Venezuela nationalized its oil industry in 2006.

Eni said commercial production from the giant field, with certified reserves of 35 billion barrels, is set to start in 2013. 

The Italian firm said output will start at 75,000 barrels per day but reach 240,000 b/d, once a new refinery is built in the port town of Jose to process the crude.

PDV will be formally in charge of the project and will have a 60% stake in a special joint-venture company that will be set up for the purpose. Eni will own the remaining 40%. Eni says it will pay PDV a $646 million “bonus,” with the first payment of $300 million to be made once the joint venture is set up. The remaining funds will be disbursed when the project meets agreed benchmarks.

The two companies have agreed to explore advanced technologies that use natural gas to eliminate refinery residues and convert all of the heavy crude produced into lighter refined products.

The Junin 5 project is expected to be bigger than the largest of Orinoco’s four existing heavy oil joint ventures, Petrocedeno, which produces around 200,000 b/d.

The latest joint venture is part of Venezuela’s efforts to further unlock its huge heavy oil resources in the Orinoco Belt through a series of new deals with foreign oil companies. A recent report by the US Geological Survey estimated that the Orinoco Belt holds 513 billion barrels of technically recoverable crude, making it one of the world’s largest oil deposits.

Venezuela also has a memorandum of understanding with a group of Russian oil companies to produce and upgrade 450,000 b/d of oil from the neighboring Junin 6 block. That consortium, which includes Gazprom, Lukoil, TNK-BP, Rosneft, and Surgutneftegas, is set to sign a similar joint-venture agreement with PDV in the future.

PDV also has less advanced agreements to develop sections of the Orinoco in conjunction with state oil firms from China, Vietnam, and Belarus. At the same time, Venezuela is preparing to launch a much-delayed licensing round for the Orinoco’s Carabobo area this week, which is expected to attract several major Western oil companies.

The Carabobo round was originally set for last April but was postponed. The government says the round will definitely be held this time, but many observers remain sceptical.

Eni has been discussing the Junin 5 project with Venezuelan officials since at least 2008, when it agreed to help PDV assess and certify the reserves and devise a development program.

However, that agreement came only after Caracas agreed to pay $700 million in compensation for the 2006 nationalization of Eni’s Dacion oil field.

Jason Fargo © 2010 Energy Intelligence Group. All rights reserved.