Feb. 19 (Bloomberg) — Venezuela plans to boost oil output at least 12 percent in a joint venture with foreign investors that will cost more than twice what the government previously estimated, a confidential document shows.
The project would increase Venezuela’s daily output of 3 million barrels a day by 400,000 barrels a day within seven years, according to the document, which was obtained by Bloomberg News. The project would cost $18.4 billion, the report says, up from Energy and Oil Minister Rafael Ramirez’s June estimate of $8 billion.
The new estimate follows a 76 percent drop in oil prices from record highs in July and decisions by companies to delay exploration and drilling efforts from Canada to Kuwait amid the global credit squeeze. State-owned Petroleos de Venezuela SA wants the project and two others in the Orinoco oil belt to be the government’s first ventures with outsiders since President Hugo Chavez nationalized crude assets in 2007.
“It will be very tricky for companies, big or small, to get that level of funding,” said David Thomson, a Latin America energy analyst for Wood Mackenzie in Edinburgh. “Even if there wasn’t a credit crunch on, raising $10 billion to $20 billion for Venezuela wouldn’t be the easiest.”
Given past nationalization moves by Chavez, a self-avowed revolutionary socialist, Thomson said, “Banks aren’t going to touch it with a bargepole.”
The document, marked confidential, was posted on and later removed from a Web site, fajadelorinoco.com, that the government uses to provide information to possible partners. Dated Feb. 6, it is described as a preliminary development plan for the last of three Orinoco projects announced by Ramirez in June.
Eulogio del Pino, president of Corp. Venezolana de Petroleo, said in a text message that the document is authentic. His company is a unit of Petroleos de Venezuela, also known as PDVSA.
The costs include $4.41 billion for drilling, $2.2 billion for steam injection to increase production and $6.51 billion for equipment to convert that region’s tar-like oil into a free- flowing, low-sulfur crude oil for export, according to the plan. The project is located in the Carabobo area of the Orinoco belt, about 450 kilometers (280 miles) from Caracas.
Venezuela aims to produce 4.94 million barrels a day by 2013. On Oct. 30, PDVSA opened bidding to find partners for the ventures in the Orinoco, which rivals Saudi Arabia’s reserves and Canada’s tar sands among the biggest petroleum deposits.
The country is seeking billions of dollars as oil companies including Marathon Oil Corp. and Hess Corp. rein in spending because of slumping prices and demand. Oil has dropped more than $100 a barrel from a record high of $147.27 a barrel on July 11.
Exxon Mobil Corp., the largest U.S. oil producer and ConocoPhillips, the third largest, are banned from bidding after pursuing arbitration against Venezuela over assets seized by Chavez’s government in 2007. Exxon wrote off $750 million and Conoco $4.51 billion.
Italy’s Eni SpA settled an arbitration case a year ago to regain access to the country’s oil fields.
“Investors and suppliers will be very cautious of investing in a country where the private sector is being squeezed out,” said Gianna Bern, president of Brookshire Advisory and Research Inc., an energy economics and corporate finance research company in Flossmoor, Illinois.
Venezuela said it produces 3 million barrels a day of oil. According to a Bloomberg News survey of oil companies and analysts, output has fallen to 2.15 million barrels daily, from 2.61 million barrels in 2004. In 2003, PDVSA forecast that it would be producing 4.4 million barrels a day by 2008.
The country reaped $34 billion in royalties and taxes in the first nine months of 2008, more than half the national budget. Such funds have enabled Chavez to provide education, health care and low-cost food for what he terms the “Bolivarian Revolution” social movement in Venezuela.
Chavez won a referendum on Feb. 15 that will allow him to run for re-election indefinitely after voters approved an amendment to the constitution scrapping presidential limits.
PDVSA is offering partners a 40 percent stake in a joint venture to develop the project, according to the development plan. The contract would be for as long as 40 years.