ONGC team to invest $2.25 bn initially in Venezuela

Oil and Natural Gas Corp (ONGC) and partners Indian Oil Corp (IOC) and Oil India Ltd (OIL) will invest around $2.25 billion initially, in development of a giant oil project they bagged in Venezuela last week.

The Carabobo-1 project of the Orinoco extra-heavy oil belt of Venezuela would involve a total investment of $19 billion over 25 years. The three firms have for the time being sought government nod for investing $2.25 billion.

Official sources said, ONGC Videsh Ltd, the overseas arm of state explorer, IOC and OIL may be able to fund most of the future investment from the revenues they will start earning when the project goes on stream in three years.

Last week, the three won rights to develop Carabobo-1 project along with Spain's Repsol-YPF and Petronas of Malaysia after committing a signing amount of $1.05 billion and an equivalent to Venezuela's state-run PdV in loan.

Repsol-YPF, OVL and Petronas will each hold 11 per cent stake in Carabobo-1, with 7 per cent being split between IOC and OIL. Balance 60 per cent will be with PdV.

The project will give India 3.6 million tons of crude oil annually out of the envisaged output of 400,000 barrels a day.

Sources said the $2.25 billion investment would cover OVL-IOC-OIL's share of $472.5 million in the signature bonus as also their initial instalments of the loan to PdV and capital expenditure in the project.

The entire signature bonus is to be borne by Repsol, Petronas and the three Indian firms in proportion to their shareholding.

Of the $2.25 billion initial investment proposed, $1.13 billion would come from OVL while IOC and OIL would put in about $433-435 million each.

Sources said the investment proposal would first go to the Empowered Committee of Secretaries (ESC) before going to the Cabinet for final approval.

The Carabobo-1 project, comprising Carabobo-1 Central and Carabobo-1 North blocks, would develop extra-heavy crude production capacity of up to 400,000 barrels per day (20 million tons a year). Early output of at least 50,000 bpd is slated to start in 2012-13, rising to peak in 2016.

The project investment of $19 billion includes cost of constructing a heavy crude upgrader that can turn Orinoco's tar-like oil into valuable synthetic crude. The 200,000-bpd upgrader may be built at Soledad in Anzoategui state to produce synthetic crude of 32 degree API or higher by 2015-16.

Since signature bonus is to be paid by only foreign firms, the share of OVL, IOC and OIL would be $472.5 million or 45 per cent of $1.05 billion. They will also contribute a similar amount to PdV as their share of credit.