PDVSA confirms upstream/downstream eastern gas project split

- Monday, April 11, 2005

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Venezuela's state oil firm PDVSA has confirmed the reorganization of three high profile natural gas projects off the coast of eastern Venezuela into upstream and downstream projects, company president and energy and oil minister Rafael Ramírez announced this week.

The Mariscal Sucre gas project will be integrated with the offshore Deltana platform and Gulf of Paria projects. All three projects are located in a gas-rich area off the northeastern coast of Venezuela near Trinidadian waters.

The resulting integrated project will then be split along business lines: upstream, including exploration and production in natural gas and crude; and downstream, including processing, commercialization and the construction of Venezuela's first natural gas liquefaction plant facility.

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Most of the gas produced from the Deltana, Paria and Mariscal Sucre fields will be piped to the mainland to meet the growing domestic demand for natural gas. The rest will be liquefied for export at the Cigma industrial complex at Guiria in the northeastern tip of Venezuela pending an export permit from the energy and mines ministry.

Anglo-Dutch company Shell (NYSE: SC) is developing the Mariscal Sucre project and has been negotiating the details with PDVSA for years. According to a preliminary agreement, Shell would have a 30% stake in the project, PDVSA 60% and Japan's Mitsubishi 8%.

However, PDVSA signed a memorandum of understanding with Brazil's federal energy giant Petrobras (NYSE: PBR) last month, allowing it access to participate in Mariscal Sucre, but it is unclear if the other partners' interests would be affected by the entrance of a new partner.

In Venezuela there is more scope for private sector participation in natural gas projects than oil projects. This is because the natural gas law allows for a maximum state participation of 35% in natural gas projects, while the hydrocarbons law requires the government to have at least 51% in every onshore oil project.

In the Deltana platform project, US oil company ChevronTexaco (NYSE: CVX) has 100% of block 3 and it a 60% stake in block 2 in partnership with US company ConocoPhillips (NYSE: COP), which has the other 40%.

ChevronTexaco recently announced a commercial natural gas discovery in block 3 and has drilled several successful wells in block 2.

Norway's Statoil and France's Total are developing block 4 in a 51:49 partnership. The first well was spudded in January this year.

In the Gulf of Paria East exploration block, ConocoPhillips is operator with a 37.5% stake, Italy's Eni has 30%, the Overseas Petroleum and Investment Corporation (Opic) subsidiary of the Taiwanese China Petroleum Company (CPC) has 10% and local firm Inelectra has 25%.

In the Gulf of Paria West exploration block ConocoPhillips is also operator with a 32.5% stake, PDVSA has 35%, Eni has 26% and OPIC has 6.5%.

SHELL OPTIMISTIC

Venezuela's decision to roll the three natural gas developments into a single project does not deter Shell from pursuing new opportunities in natural gas in the country or from pressing ahead with existing plans, Shell Venezuela president Sean Rooney told reporters last week.

Shell will likely maintain its 30% stake in Mariscal Sucre, he said. "We haven't heard otherwise." As to the entrance of new partners such as Petrobras, "we are willing to work with any partner."

"Our position hasn't really changed. We continue to talk and we are hopeful of closing a deal," Shell spokesperson Andy Corrigan told BNamericas.

"In terms of the split [of Mariscal Sucre into upstream and downstream projects], we haven't commented on that, it's a matter for PDVSA and the government," he added.

Shell was one of 37 private companies invited by PDVSA to bid on new natural gas deposits in the Rafael Urdaneta project in the Gulf of Venezuela. Bids on the first six blocks to be tendered are due July 27.

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