ONGC/Petronas consortium wins Venezuelan oil project

Three Indian oil companies, Malaysia's Petronas and Spain's Repsol are awarded the mandate to partner with the Venezuelan state oil company on a multi-billion dollar oil project in Venezuela.

India's Oil & Natural Gas Corporation (ONGC), Malaysia's Petroliam Nasional (Petronas) and Spanish firm Repsol are part of a consortium which has emerged the winner to develop a multi-billion dollar integrated oil project in Venezuela.

The consortium holds a 40% interest in a discovered oil resource in the Orinoco Heavy Oil Belt in Venezuela, an area that is estimated by industry experts to have recoverable heavy oil of up to 513 billion barrels.

ONGC, which holds an 11% stake in the project, is joined by two other Indian oil firms -- Indian Oil and Oil India with 3.5% each. Repsol and Petronas own 11% each, while the remaining 60% is held by Corporacion Venezolana del Petroleo (CVP), a subsidiary of Venezuelan state oil company Petroleos de Venezuela.

The Venezuelan government offered seven blocks in the Carabobo area in the Orinoco Heavy Oil Belt with an estimated combined oil-in-place of approximately 128 billion barrels. ONGC has been looking at this opportunity since 2008 and as many as 80 companies are said to have shown a preliminary interest in the project. ONGC decided to partner with Petronas and Repsol along the way.

The Indian oil major is very pleased with the outcome, said sources close to the situation, as the Carabobo 1 Norte and Carabobo 1 Centro blocks which it has been awarded were the ones it is most interested in. The process was highly competitive and often the schedules were tough to meet, added the sources. It is to ONGC's credit that the majority state-owned firm was able to navigate this complex process.

The total project cost is estimated at somewhere between $10 billion and $15 billion. The consortium will pay the Venezuelan government a bonus of between $1 billion and $5 billion in stages upon the achievement of certain project milestones. The consortium will also extend a credit facility of $1.05 billion to CVP. The partners have not yet announced how they will finance their contributions. The ONGC-led consortium of Indian companies is expected to raise debt from a consortium of lenders that will include Indian banks.

The venture will include: upstream production facilities that will produce up to 400,000 barrels of oil per day, and heavy oil upgrading facilities, which will process around 200,000 barrels per day of crude oil. Winning the bid is only the first part of this ambitious project and the size of it means it will be a challenge for all the partners to ensure it is successfully financed and completed. Project risk will be shared pro rata between the partners in proportion to their equity ownership.

The deal cemented the relationship between Deutsche Bank and ONGC, with the German bank acting as the exclusive adviser to the Indian companies in the consortium. Deutsche has previously advised ONGC on its $2 billion takeover of UK-based Imperial Oil, which closed early last year. Unexpectedly, neither Repsol nor Petronas has worked with an adviser with regard to this project so far, though sources expect they will now appoint banks to assist them to raise financing.

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