Venezuela: Carabobo Round Closes, Winners to be Announced on

C O N F I D E N T I A L SECTION 01 OF 02 CARACAS 000137

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E.O. 12958: DECL: 2020/02/03
TAGS: EPET EINV ENRG ECON VE
SUBJECT: Venezuela: Carabobo Round Closes, Winners to be Announced on
February 10

REF: CARACAS 11

CLASSIFIED BY: Darnall Steuart, Economic Counselor, DOS, Econ;
REASON: 1.4(B),(D)


1. Summary: Two international consortia bid on two of the three
Carabobo extra heavy oil projects in Venezuela. Companies from
countries (Russia, China, and Brazil) with ideological affinities
to Venezuela, reportedly abstained from the bid round. There is
some speculation in Caracas that Iraq's recent bid round diluted
international interest in the Faja. PDVSA is expected to announce
the Carabobo winners by February 10. END SUMMARY.




2. (C) Petroleum AttachC) met with Mitsubishi Venezuela Director of
Project Development Yasuyuki Ozaki (protect) on January 29, 2010.
Ozaki spoke freely on a wide range of issues affecting the energy
sector which are reported in septel. This message focuses on the
extra heavy oil Carabobo bid round which PetAtt also discussed on
January 29 with Chevron President for Latin America Wes Lohec
(protect).




3. (C) Ozaki and Lohec confirmed that the Japanese consortium
(Mitsubishi, Jogmec and Inpex) bid with Chevron and Venezuela's
Suelopetrol on project 3 of the Carabobo bid round. India's ONGC,
Spain's Repsol, and Malaysia's Petronas collaborated on a bid for
project 1. Ozaki did not know of any other competition in the bid
round and thought that project 2 might be divided between the two
consortia that bid on projects 1 and 3. [NOTE: Project 1 includes
blocks C1 North and C1 Center. Project 2 includes block C2 North
and C4 West. Project 3 includes blocks C2 South, C3 North, and C5.
END NOTE.]. Bidding companies gathered together with PDVSA on
January 28 to register bids collectively. Thus, press reports that
suggest PDVSA received a bid on all three projects are likely
false. Lohec noted that PDVSA slightly modified two finance terms
prior to the bid deadline, moving the date of the first bonus
payment from two weeks prior to signing the agreement to form a
mixed company to an unspecified date after the mixed company is
formed. PDVSA also relaxed the depreciation schedule which
positively changed the local tax implications for the projects.




4. (C) PDVSA is expected to announce the bid round winners on
February 10. Ozaki stated that PDVSA intends to finalize the mixed
company agreements for the new projects by the end of March, but
Mitsubishi hopes to stretch negotiations out until the end of 2010.
Lohec agreed that even post-award, negotiations on the creation of
the mixed company would take several months.




5. (C) Ozaki confirmed that major international oil companies that
had been expected to submit bids but did not included BP, Shell,
Statoil, Petrobras, and the Total/CNPC consortium. Lohec suggested
that the recent Iraq bid round and PDVSA's direct award of Junin
blocks to a number of national oil companies had mitigated interest
in the Carabobo round. On the margins of a VenAmCham event on
January 27, Petrobras' General Counsel in Venezuela, Diogenes
Bermudez (protect) confirmed to PetAtt that the Brazilian national
oil company did not plan to bid on Carabobo. He shared that
Brazilian President Lula had issued strict guidance to senior
PetroBras leadership that a possible bid had to make economic sense
and that Petrobras would need operational control of the joint
venture.




6. (C) COMMENT: The mixed results from the Carabobo heavy oil
round and the failure of the Mariscal Sucre natural gas round to

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gain any bidders at all indicate that the private sector is
weighing Venezuelan political risk as significant, especially as
these are long-term projects spanning upwards of four decades.
Post had expected a couple of other international oil companies to
register bids in the Carabobo round just to get their foot in the
door to book some of Venezuela's extensive reserves. The small
number of bidders may also suggest a calculation that companies can
wait longer, knowing that PDVSA cannot develop these resources on
its own given its current financial position and human resources
constraints. END COMMENT.
DUDDY