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Tuesday, March 11, 2014
- Russian state oil firm Rosneft and Venezuela’s PDVSA (Petróleos de Venezuela S.A.) have agreed to form a partnership to exploit an oilfield with estimated reserves of 40 billion barrels, strengthening the alliance between the two countries.
For 1.5 billion dollars, the Russian company will take over 40 percent of a project at a Venezuelan deposit expected to produce 400,000 barrels per day (bpd) of crude in five years’ time, executives from the two companies said.
“It is an attractive deal for Rosneft to buy, or gain access to, reserves at a very low price. That 40 percent interest ‘buys’ 16 billion barrels at a cost of 10 cents of a dollar per barrel,” Víctor Poleo, a professor of graduate studies in oil economics at the Central University of Venezuela, told IPS.
The cost of a barrel of oil on the international market is between 90 and 110 dollars.
The crude in question is in the Orinoco oil belt, an area of 55,000 square kilometres in the southeast of Venezuela which is estimated to contain reserves of 1.2 trillion barrels, of which 240 billion barrels are technically recoverable, according to the Ministry of Petroleum and Mining.
The government of Hugo Chávez (1999-2013), who died Mar. 5, named the oil blocks in the Orinoco belt after battles in the 1810-1824 war of independence and parcelled them out as concessions to mixed companies with PDVSA holding a minimum stake of 60 percent.
The Hydrocarbons Law of 2006 replaced the service contracts that were formerly extended to foreign operators, which were now invited to become partners. Legally the oil reserves belong to the nation.
Rosneft will pay PDVSA a bonus of 1.1 billion dollars for the rights to the new partnership in the Carabobo block, which has already been endorsed by the Venezuelan parliament. In April, the two companies will fine-tune the details of the formation of the new mixed company, named PetroVictoria.
The Russian firm also took over 40 percent of the mixed company that is operating the nearby Junín block, when it bought the Russian-British consortium TNK-BP in October.
The Junín reserves are estimated at 53 billion barrels, and Rosneft’s 40 percent share is greater than the 18 billion barrels it owns in Russia. With the addition of the Carabobo operation, “the book value of (Rosneft’s) shares is revalued at very low cost,” said Poleo, a critic of mixed companies because he considers they “relinquish our rights over the reserves.
“At the end of the day, it means that for every 100 barrels produced from the Junín or Carabobo blocks, 40 will belong to Rosneft, which will also get 40 percent of the oil revenue,” said Poleo, who was vice minister for energy in the first three years of the Chávez administration.
José Suárez Núñez, of the specialist publication Petrofinanzas, highlighted Russia’s inroads in the Orinoco belt, although he said “volumes for now are minuscule, and the crude is extra heavy and very costly to refine.” This contrasts “with deposits of lighter oil and (Russia’s) lead in production volumes, at 10 million bpd,” he told IPS.
Most of the crude in the Orinoco oil belt is extra heavy, less than 10 degrees API (American Petroleum Institute classification), compared to over 30 degrees API in oil from the Middle East, Russia or the North Sea. Before distillation, this extra heavy oil must be improved in a process equivalent to partial refining.
“Rosneft’s agreements with PDVSA are part of Russia’s projection towards Latin America, a region that has traditionally been in the sphere of influence of the United States,” said Kenneth Ramírez, an expert on oil geopolitics and president of the private Venezuelan Council of International Relations.
This projection is part of “Russia’s grand strategy to re-emerge as a global power and replicate the advance of Washington over what was once its zone of influence, in central and southern Asia, the Caucasus, the Balkans and the Black Sea,” he told IPS.
“Among its strategies is strengthening its ties with Brazil, the BRICS group (Brazil, Russia, India, China and South Africa) and making advances to ALBA (the eight-member Bolivarian Alliance of the Peoples of Our America) which is led by Venezuela,” Ramírez said.
Russian President Vladimir Putin sent the head of Rosneft, Igor Sechin, as his special representative to the state funeral for Chávez on Mar. 8.
Sechin met with Nicolás Maduro, the acting president of Venezuela and the candidate expected to win the Apr. 14 elections, to smooth over obstacles in the bilateral oil relationship.
Local media indicate PDVSA is having difficulties meeting its financial commitments, pointing to delays in its obligations to Brazilian state oil company Petrobras for the construction of the Abreu e Lima refinery.
But oil minister Rafael Ramírez, who is also head of PDVSA, confirmed “the commitment to continue the energy policy begun in 1999″ by the late president Chávez.
“The strategic relationship with China and Russia will be deepened, in concordance with the multipolar scheme that has been the basis of the foreign policy of the revolution,” said the minister.
As the projects are developed, the Russian-Venezuelan alliance will invest 46 billion dollars in the Orinoco belt, of which Moscow will contribute 17 billion dollars, he said.
Kenneth Ramírez highlighted that Rosneft is also working in mature fields (those in which production has passed its peak) in areas other than the Orinoco belt, and has signed agreements to participate in future gas production and to supply drills for crude extraction.
“Moscow isn’t seeking supplies of oil, since it has reserves of 88 billion barrels, but it’s looking for deals to leverage a strategic alliance,” he said.
In Poleo’s view, “it is good business for the new Venezuelan nomenklatura (people in key administrative positions) to build alliances with Putin and his ‘siloviki,’ high level members of the KGB (the former Soviet Union’s intelligence and security agency) who took over the management of large companies after the fall of the old regime.”
Venezuela’s military purchases from Russia appear to fit in the context of this alliance.
Since 2006, Caracas has bought at least nine billion dollars’ worth of aircraft, helicopters, rocket launchers, tanks, armoured vehicles and assault rifles from Moscow, according to Control Ciudadano para la Seguridad, la Defensa y la Fuerza Armada Nacional (Citizen Control of Security, Defence and the Armed Forces), a local NGO.