Russia’s Rosneft to invest $16B to develop Carabobo 2 extra-heavy crude in Venezuela; first oil from Junin
29 September 2012
Russian oil and gas major Rosneft, 75% owned by the government, will invest $16 billion in a planned joint venture project with Venezuela’s state oil and gas company PDVSA to develop the Carabobo 2 block in the southern Orinoco extra-heavy crude belt in Venezuela, according to Rosneft CEO Igor Sechin. Rosneft will hold a 40% stake in the joint venture. Daily crude oil production is expected to be approximately 450,000 barrels per day, according to Rosneft.
The Carabobo-2 project comprises the Carabobo-2 North and Carabobo-4 West blocks in the Orinoco belt. Oil-in-place at the blocks is approximately 6.5 billion tonnes.
The Orinoco Belt contains heavy and extra-heavy oil with a range of gravities from 4 to 16 degrees API (a measure of density) as well as large deposits of natural bitumen (i.e., oil sands). The US Geological Survey (USGS) characterizes extra-heavy oil as having an API gravity of less than 10°. Natural bitumen shares the attributes of heavy oil but can be yet more dense and viscous. According to the Government of Alberta, Canada, Athabasca bitumen has an API gravity number of less than 10°. (Earlier post.)
The parties also initialled a memorandum of understanding and signed agreements under which Rosneft is to pay a bonus of $1.1 billion, as well as an agreement on the provision of a $1.5 billion 5-year loan. The bonus will be paid in two parts. The first part will be paid within ten days of the creation of the joint venture, with the balance to be paid once Rosneft takes its final decision on the project. The loan will be provided in tranches of no greater than $300 million a year at LIBOR + 5.5%.
The agreement on the creation of a joint venture includes a development plan and the charter. Before the JV can begin operations, a ruling from the National Assembly of Venezuela must be obtained, as well as a resolution from the Oil and Mining Industry Ministry and a corresponding decree from the President of Venezuela.
|The Orinoco oil belt in Venezuela. Source: EIA. Click to enlarge.|
Rosneft is one of several Russian oil companies that earlier formed the National Oil Consortium (NOC) to develop the Junin bloc 6 of the Orinoco belt in Venezuela. The NOC comprises Gazprom Neft, Rosneft, TNK-BP, Surgutneftegas and LUKoil. In March 2010, NOC and PDVSA registered a joint venture, PetroMiranda, to develop the Junin-6 block, in which PDVSA holds a 60% stake. Surgutneftegas plans to sell its stake in the NOC project to Rosneft, making Rosneft the managing company of Junin 6.
Oil-in-place at Junin-6 amounts to 8.5 billion tonnes. Crude is currently produced at Junin-6 at three wells. The joint venture plans to increase production to 20,000 barrels a day by the end of the year and subsequently to 50,000 barrels a day by mid-2013. Oil production is expected to peak at 450,000 barrels a day.
To achieve this, more than 3,000 new wells will be constructed, as well as new infrastructure. Once the investment decision is taken, construction work will begin on a special processing facility (upgrader) with a capacity of 200,000 barrels a day to bring extracted heavy oil up to commercial quality. Agreements were also reached on the construction of a thermal generating set that will run on waste produced during oil production and provide electricity for the project.
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