First contracts under Venezuela's new profit sharing program to allow private companies to explore for and produce oil and gas are likely to be signed within 5 months.
State owned Petroleos de Venezuela SA (Pdvsa) passed the last major hurdle in getting approval for its profit sharing program when a joint session of Venezuela's congress approved the program July 4 (OGJ, July 10, Newsletter).
It will be the first time since Venezuela nationalized its petroleum sector in 1976 that private companies will be allowed to conduct E&P programs as equity owners.
PROPOSAL DETAILS
The plan calls for international tenders on 10 blocks-two offshore-to be explored under risk contracts.
If oil or gas is discovered in commercial volumes, the private company or group will be able to set up a joint venture (JV) with one of Pdvsa's three main operating units: Corpoven SA, Lagoven SA, or Maraven SA. The Pdvsa units may hold as much as 35% of equity in the JVs.
Winners of the first stage of the process-exploration under risk contracts-will be companies that offer Pdvsa and the government the biggest share of after tax profits. Those companies then will work out an exploration program to be approved by Pdvsa.
Recently, reports have indicated private companies eventually may be left with only 9-10% of after tax earnings. That is quite small in comparison with profit and/or production sharing agreements in other countries.
A full version of the model agreement congress approved has not been made public.
Pdvsa Pres. Luis Guisti said his company soon will begin to promote the profit sharing plan internationally. Presentations are scheduled for July 21 in Caracas and July 24 in Houston.
Companies will be invited to purchase information packages, and potential bidders will have 120 days to prepare and present their offers.
Blocks to be awarded will cover about 2,000 sq km each. Projected reserves in these areas are 6-23 billion bbl of oil and 10 tcf of natural gas, Guisti said. Other Pdvsa officials placed the estimate of potential oil resources even higher.
PROGRAM RATIONALE
Pdvsa decided to open exploration areas to private bidders because it calculated it would take the company 25 years or more and capital outlays of $6-8 billion to explore these sectors by itself.
Pdvsa will, however, continue to spend about $300 million/year on its exploration programs.
With risk exploration investment coming from outside, Pdvsa's costs in the first stage will be zero, and exploration time for these areas can be reduced to about a decade.
Total development costs for commercial finds in the target areas are estimated at $8-10 billion.
Exploration contracts will be awarded for 3-5 years with a possible extension of 2-4 years. Production contracts will run for 20 years with a possible extension of 10 years.
If private companies find commercial volumes of oil and gas during the exploration period, they can set up joint development and production ventures while continuing their exploration programs.
Pdvsa hopes to boost the country's crude productive capacity to more than 4.5 million b/d by 2003, with profit sharing contracts expected to provide an average 500,000 b/d of light and medium crude.
Venezuela's crude and condensate productive capacity at yearend 1994 was 2.975 million b/d compared with production for the year of 2.72 million b/d.
CONCERNS
The profit sharing proposal Pdvsa presented congress included several areas of concern for international petroleum companies as well. as for Venezuelan congressmen.
Those concerns included questions about:
- Ultimate control of projects, with Pdvsa taking the reins and reserves still owned by the nation.
- Whether to apply Venezuelan or international law to solve major disputes, with the likelihood that the rules of the International Chamber of Commerce will apply.
- Taxes imposed on oil activity by local governments.
- Participation of Venezuelan investors.
- Costs incurred by companies that find relatively small deposits of oil and gas a great distance from present infrastructure.
It is not clear how all of those questions will be answered.
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