PDVSA LAUNCHES BID ROUND FOR MARISCAL SUCRE

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000828 SIPDIS ENERGY FOR CDAY AND ALOCKWOOD, DOE/EIA FOR MCLINE HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR RJARPE COMMERCE FOR 4332/MAC/WH/JLAO NSC FOR RKING E.O. 12958: DECL: 07/01/2019 TAGS: EPET EINV ENRG ECON VE SUBJECT: PDVSA LAUNCHES BID ROUND FOR MARISCAL SUCRE NATURAL GAS BLOCKS REF: CARACAS 495 Classified By: Economic Counselor Darnall Steuart, for reasons 1.4 (b) and (d). ¶1. (C) Mitsubishi's Venezuela Projects Director, Yasuyuki Ozaki (strictly protect throughout),told Petroleum Attache that PDVSA launched a "Second Bid Round" for commercial development of the Mariscal Sucre natural gas blocks the morning of June 30. The Mariscal Sucre offshore blocks are located north of the Paria Peninsula in northeast Venezuela. Until President Chavez's April trip to Tokyo (Reftel), upstream development for this project had been closed to third party investors. Ozaki stated that these are the same blocks that PDVSA signed MOUs to develop with Mitsubishi, Mitsui, Itochu, and Marubeni in Tokyo. PDVSA apparently has labeled the Tokyo trip as "Round 1" and was seeking increased competition in round two. According to Ozaki, the Japanese firms are not concerned, as the MOUs were not legally binding. In fact, the Japanese firms welcome the opportunity to share the risk with other partners. He claimed that with the current terms and conditions for this round, Mitsubishi is unlikely to submit a proposal. ¶2. (C) According to Ozaki, there are four blocks in Mariscal Sucre up for bid, two for domestic natural gas consumption and two for commercial LNG exports. In order to be awarded a block for commercial LNG exports, a firm has also to be awarded and develop one of the domestic natural gas blocks. Ozaki noted that others share Mitsubishi's assessment that based on the structure of the Venezuelan domestic market and subsidized natural gas prices, it is unlikely many companies will find a bid model that makes economic and financial sense. PDVSA announced the cost of the data package is $600,000, due on July 10 along with a letter of interest. The deadline for proposals is ninety days later. PDVSA expects to announce winners after a two month review of proposals. As a side note, Ozaki confirmed that PDVSA had indefinitely postponed the Carabobo heavy oil bid round. ¶3. (C) Ozaki shared that proposals must include three elements. First, companies will have to pay 40% of PDVSA's expected $800 million 2009 capital expenditures cost (capex), or $320 million. Second, companies, which will have 40% ownership in the eventual joint venture with PDVSA, will be expected to front 100% of the expected 2010 capex (thus, finance PDVSA's 2010 capex costs). Third, companies will need to offer an undefined bonus to PDVSA as part of the proposal. Finally, Ozaki shared that Ruben Figuera of Corporacion Venezolana del Petroleo (CPV),PDVSA's subsidiary that oversees joint ventures, is managing the bid round rather than PDVSA Gas due to the expected involvement of joint ventures in developing the fields. Ozaki also noted that to his knowledge, one exploratory well is currently being drilled in the Dragon block, but it is nearly six months past its deadline and not yet near terminal depth. He underlined that PDVSA's terms and conditions reflect desperation to raise money rather than a sound business plan to develop the fields. ¶4. (C) COMMENT: This surprise June 30 announcement by PDVSA does indeed reflect desperation by the cash-strapped national oil company. According to the current bid parameters of the Carabobo heavy oil round, PDVSA expects to announce winners within two weeks of bid submission. The Mariscal Sucre plans are to get the money in hand and then announce winners at some future date, a couple of months away. With the postponement of the Carabobo round and the hastily announced PDVSA bond issuance, it appears PDVSA is looking to have a CARACAS 00000828 002 OF 002 quick, successful bid round that will provide a cash infusion. END COMMENT. CAULFIELD