NEW OFF-SHORE OIL & GAS ROUND IMMINENT

C O N F I D E N T I A L CARACAS 000874

SIPDIS


NSC FOR CBARTON
ENERGY FOR DPUMPHREY AND ALOCKWOOD
TOKYO FOR SFLATT

E.O. 12958: DECL: 03/22/2015
TAGS: EPET VE
SUBJECT: NEW OFF-SHORE OIL & GAS ROUND IMMINENT

Classified By: Economic Counselor Richard Sanders; for reasons 1.4 (b)
and (d)

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SUMMARY
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1. (C) After more than a year of delays, it appears the GOV
is ready to launch a new bid round for oil and gas
exploration blocks in the Gulf of Venezuela and off Falcon
state. ChevronTexaco de Venezuela confirmed March 23 that it
had received an invitation to an April 4 ceremony launching
the round. The Ministry of Energy and Petroleum (MEP) has
approached the Embassy to confirm contact information for a
number of U.S. independents. The Chavez administration has
not had much success running such rounds; thus, there will be
a lot riding on this for Minister of Energy and Petroleum
Rafael Ramirez_ and his team. End Summary.


2. (C) It appears that a long-awaited bid round for oil and
gas exploration blocks located in the Gulf of Venezuela and
off Falcon state may finally be imminent. The GOV has said
publicly for more than a year that the round would be held
shortly. Most recently, Energy Minister Ramirez_ said it
would be launched on March 28. In an interesting commentary
on President Hugo Chavez's involvement in such details, an
Energy Ministry staffer informed a Commercial Section FSN on
March 21 that the launch had been delayed once again because
Chavez had instructed the Ministry to doublecheck company
contact information.
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U.S. INVITEES
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3. (U) The Ministry of Energy and Petroleum (MEP) contacted
the Embassy Commercial Section March 21 to verify contact
information for a number of U.S. independents including:
Anadarko, Apache, Devon Energy, El Paso, and Occidental
Petroleum Co. Texas International Petroleum, which we
believe may be a new start-up, was also mentioned by the
Ministry staffer. ChevronTexaco de Venezuela subsequently
confirmed to econoff March 23 that it had received an
invitation to attend an April 4 ceremony launching the round.


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BIDDING ON WHAT?
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4. (C) Hard information on what the round will consist of has
been impossible to obtain so far. Although the press is
discussing the possible auction of 32 off-shore blocks, we
believe this may be the beginning of a multi-tranche process.
PDVSA Vice President for Exploration and Production Luis
Vierma told econoff February 3 that the round will focus on
950 square kilometer blocks in the Gulf of Venezuela and off
Falcon state. (Note: In February 2004, PDVSA announced that
these tracts could hold as much as 18 billion barrels of oil
and 100 trillion cubic feet of natural gas.) He emphasized
that the blocks in the Gulf of Venezuela will not include any
areas contested by Colombia. Vierma said the MEP was
considering a multi-tranche approach, i.e., offering 6-7
blocks in a first round and following it up a month or two
later with a second round.

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THIRD BID ROUND UNDER CHAVEZ
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5. (C) The Chavez administration's experience with bid rounds
has been somewhat less than fully successful. An auction of
on-shore gas blocks in June 2001 met with a lukewarm response
while the December 2002 offering of four blocks in the
off-shore Deltana Platform natural gas project resulted in
three bids on two blocks. While this result could be
explained by the effects of the December 2002 national
strike, a subsequent effort in September 2003 to re-bid
Blocks 3 and 5 of the Deltana Platform yielded one bid on
Block 3 by ChevronTexaco. While there has been most emphasis
on the possibility of natural gas in the Gulf of Venezuela

and Falcon blocks, it is clear that exploration could also
yield oil or condensates. Such a discovery would shift the
legal status of the block out of the purview of the more
flexible Gaseous Hydrocarbons Law to the 2001 Hydrocarbons
Law. No deals have yet been negotiated by the Chavez
government under this law.

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COMMENT
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6. (C) The Ministry staffer who contacted the Commercial
Section slipped and included the name of an Indian oil
company in the list she gave the FSN. It appears that the
invitation list is a long one that will include many
companies from countries that have now been annointed by
President Chavez as Venezuela's favored partners. So far,
with the exception of ChevronTexaco, we have not been able to
verify that any other U.S. company has received an
invitation. Given the delays that have attended Chavez
Adminstration efforts to get this process off the ground and
the relative lack of success of earlier rounds, there will
doubtless be a lot riding on this for Minister of Energy and
Petroleum Rafael Ramirez_ and his team. High expections of
the yield of this round, coupled with the current high oil
price environment, may lead the GOV to drive hard bargains,
imposing onerous national partnership or content requirements.
Brownfield


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2005CARACA00874 - CONFIDENTIAL