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PSU oil companies’ joint venture Carabobo project in the oil-rich Orinoco belt of Venezuela has underperformed compared with the expectation as the stressed economy of the Latin American country has hit the local partner in the JV. The three India government-owned firms — ONGC Videsh (OVL), Indian Oil Corporatiion (IOC) and Oil India (OIL) — had spent a whopping $2.18 billion together to pick up 18% stake in 2010.
When the project was approved by the Cabinet, it was seen as one of the prolific assets to meet the ballooning demand at home. It is currently producing just 16,000 barrels per day (bpd), just 18% of the envisaged output of 90,000 bpd. The hydrocarbon production is expected to touch 30,000 bpd by end of this fiscal, officials privy to the scenario told FE.
A director on the board of OVL told FE that ‘operational hazards’ are responsible for under-performance of Carabobo project and its is not comparable to Imperial Energy. “Both are different cases. Output from Carabobo project has fallen because no drilling and exploration activity could be carried out due to crunch of funds,” he said.
The problem started since late Venezuelan president Hugo Rafael Chávez Frías started appropriating earnings from its national oil company Petróleos de Venezuela, S.A (PDVSA) to finance the economy. This lead to drying up of funds to spend on exploration. Moreover, the Venezuelan currency Bolívar has drastically devalued against the dollar, which prevents international oil field services’ company to work in the Latin American nation.
According to the deal, the Indian consortium partners (OVL-IOC-OIL) would have equity access to about 70,000 bpd (18% of 400,000 bpd) and marketing access to about 180,000 bopd (45% of 400,000 bpd) for the next 25 plus possibly 15 years more. In order to buy the equity and provide additional reserve accretion of hydrocarbons and facilitate production and marketing of crude, OVL was to fork out $1.3 billion and IOC and OIL another $424 million each between 2010 and 2015.
Interestingly, Carabobo has been a double whammy for OVL. In 2009, the PSU explorer bought Imperial Energy for $2.1 billion. The acquisition turned out to be the worst buy for OVL in recent times, where the output has drastically dropped to just 7,000 barrels per day now against forecast of 80,000 barrels per day.
On August 19, a CNN report said Venezuela’s economy is in shambles and basic goods like napkins are hard to come by. Earlier this year, officials from Trinidad and Tobago allegedly offered to send tissue paper to Venezuela in exchange for oil.
PDVSA owns 71% stake in the Carabobo project, while OVL and Spain’s Repsol holds 11% each, and IOC and OIL has 3.5% stake each. The consortium members have urged PDVSA to create an offshore account, where revenues from the Carabobo project would be credited. The funds would also be utilised to hire oil field services’ companies, who may be paid in US-dollars. Without further drilling and exploration, output from Carabobo cannot be ramped up.
Recently, Eulogio Del Pino, president of PDVSA visited New Delhi, when petroleum minister Dharmendra Pradhan urged Pino to ensure that all issues between the two sides are resolved and opportunities for further investments are opened up.
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