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PdV eyes new Orinoco Belt production

Venezuela’s state-owned PdV is on track to start production at a number of heavy-oil projects this year in the Orinoco Belt

But the national oil company appears to have lowered its expectations for output this year, from a region that will be critical to future production growth.

The head of PdV and Venezuela’s oil minister, Rafael Ramirez, visited the Orinoco region in late January to lay out PdV’s strategy to meet President Hugo Chavez’s ambitious plan to increase oil production in the South American country by 500,000 barrels a day (b/d) in 2012, to around 3.5 million b/d. Central to this effort, according to Ramirez, are plans to increase output from the heavy-oil Orinoco Belt by around 40%, or around 470,000b/d.

Much of that increase will come from projects where PdV is working with foreign partners in joint ventures, or so-called mixed companies. In touting plans for various projects to start production this year, however, Ramirez also appeared to be setting out 2012 production targets that were lower than previously announced.

PdV and its Russian partners have started drilling at the Junin-6 project and plan to start production in June, before ramping up output to 20,000 barrels a day (b/d) by December, according to Ramirez.

That estimate is lower than previously outlined by Ramirez. In a visit to the project alongside his Russian counterpart, Igor Sechin, in October last year, Ramirez said that the companies were targeting production of as much as 50,000 b/d by the end of this year.

The Russian companies previously said that they could invest more than $10 billion in the Junin-6 project – which is a joint venture between PdV and Rosneft, Gazprom, Lukoil, TNK-BP and Surgutneftegaz – to reach peak production of 450,000 b/d.

PdV also appears to have lowered its expectations for the Junin-2 block, which is being developed by the Petromacero joint venture with state-run PetroVietnam. Ramirez confirmed that drilling had begun on the project, but, as with the Junin-6, appears to have lowered projected end-of-year output from 50,000 b/d to 20,000 b/d.

Peak production from the block, which holds proved reserves of 7.5 billion barrels, is expected to reach 200,000 b/d, with much of that output to be shipped to Vietnam. As part of the development agreement, PdV has committed to helping PetroVietnam add 100,000 b/d of processing capacity at the Dung Quat refinery in Vietnam to process the heavy oil from Junin-2.

Ramirez also confirmed earlier reports that PdV had started drilling at the Junin-10 project and that production was expected to reach 20,000 b/d by the end of the year. Junin-10 holds proved reserves of 10.5 billion barrels and peak production from the field is expected to reach around 300,000 b/d over the coming years.

PdV is developing Junin-10 on its own after failing to reach an agreement to develop the field with France’s Total and Norway’s Statoil in early 2010. It is the only Orinoco project that the cash-strapped firm will execute without foreign capital.

Meanwhile, work has also begun on the Petrocarabobo project, where production is expected to reach 35,000 b/d by late 2012. Petrocarabobo is being developed by PdV alongside Spain’s Repsol YPF, Malaysia’s Petronas and Indian companies ONGC, Indian Oil Corporation and Oil India. The project is expected to produce 200,000-240,000 b/d after an upgrader is completed for the field.

The Orinoco Belt projects are central to turning around Venezuela’s flagging oil industry. Development of the region over recent years, however, has been plagued by delays, staff shortages and underinvestment.

PdV’s initial development plan for the region, released in 2005, envisioned new heavy-oil projects lifting the Opec country’s total production capacity to 5.4 million b/d by 2012. According to PdV data, however, 2011 production was around 3 million b/d. Other data sources put that figure much lower. The International Energy Agency puts 2011 production at 2.52 million b/d, down from 2.53 million b/d in 2010.

President Chavez is keen to see progress in the Orinoco Belt this year to help him fend off criticisms that mismanagement of PdV has been responsible for the country’s falling oil production, which is vital to the country’s economy. Increased output in the middle part of the year would also help Chavez fund what is expected to be a tough re-election campaign. Venezuelans will vote in presidential elections in October.

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