Eni to fund $1.5 billion PDVSA development of Orinoco block

Venezuela's state-owned Petroleos de Venezuela SA recently signed a $2 billion financing agreement with Eni SPA mainly for development of the two firms’ joint venture in the Orinoco heavy oil belt.

Eni agreed to finance PDVSA's share of development costs for Junín-5's early production phase up to $1.5 billion with the remaining $500 million to fund construction of a power station on the Güiria peninsula.

The development plan for the Junin-5 heavy oil block in the Faja of Orinoco calls for early production of 75,000 b/d starting in late 2013 and full production of 240,000 b/d in 2018. The plan calls for construction of a new refinery on the coast in Jose.

PDVSA and Eni also discussed options for an early production start in late 2012 using existing PDVSA facilities to transport an initial gross output of 7,000-10,000 b/d.

The partners expect to drill 10 wells this year. By yearend they plan to award the engineering contract for the refinery.

After signing the agreement, Eni's Chief Executive Paolo Scaroni said the company plans to invest $7 billion in Venezuela in the next 7 years.

Scaroni expects Junin-5 to begin producing heavy oil next year with early production of 50,000 b/d. He said the oil would be refined into diesel for European markets.

Venezuela’s Minister of Energy and Petroleum Rafael Ramírez said his country needs $80 billion investment to develop its Orinoco heavy oil belt and would soon sign a $4 billion deal with China National Petroleum Co. to develop another project.

Venezuela last month signed a $1.5 billion loan agreement with a consortium of Japanese banks, which may be repaid in oil shipments. Venezuela would repay the loan over 15 years in cash or oil at a rate of Libor plus 3.8 points, Ramirez said, adding that the loan will be used to finance expansion of the Puerto la Cruz and El Palito refineries.

Ramirez said Venezuela wants to nearly double production from the 140,000 b/d El Palito refinery, while Puerto la Cruz is slated to raise production to 210,000 b/d from 180,000 b/d.

Work on the upgrades is expected to start at yearend and to be completed by 2015, said Ramirez, who added the expansion project will allow diesel exports from El Palito to international markets.

Under the loan agreement backed by Japan Bank for International Cooperation and eight other Japanese banks, Mitsubishi Corp. and Itochu Corp. will receive Venezuela's light Santa Barbara crude as part of the repayment. The two firms said they will seek other crude grades and refined products from Venezuela as part of the repayment.

Earlier this year, Itochu Corp. won an order to supply four Aframax tankers to a shipping subsidiary of PDVSA, and it commissioned Sumitomo Heavy Industries to build the vessels (OGJ Online, Feb. 7, 2011).

Contact Eric Watkins at [email protected].