Venezuela approves China's joint Orinoco heavy oil belt development

By Phaedra Friend Troy

According to a report from Reuters, Venezuela has approved the involvement of China in a joint venture in the South American country’s Orinoco heavy oil belt. Chinese producer CNPC will join PDVSA to develop some 400,000 barrels of oil per day from the Junin Block 4 in the OPEC-member country.

Venezuelan President Hugo Chavez signed a number of agreements with foreign firms in an effort to move Orinoco development forward. According to Reuters, the recently ratified projects will bring 2.1 million barrels of oil per day into production, as well as $80 billion in investments into the cash-strapped country.

In each of these projects, the state-run oil company PDVSA holds 60 percent interest in the development.

On the Junin Block 4 project, Chinese producer CNPC holds the remaining 40 percent interest. Following development, production is expected to start-up at a rate of 50,000 barrels of oil per day in 2012 and ramp-up to peak production by 2016 after a new upgrader has been installed.

According to a report in the Venezuelan government’s Official Gazette, the Chinese firm will pay a $900 million bonus fee in eight payments, the first of which is scheduled to be received after the formal approval of the development.

The agreement is for 25 years and can be extended for another 15 years if all investment requirements are met.

With a rapidly growing population, burgeoning industrialization and insatiable demand for energy, China has been investing billions in foreign oil and gas, including investments in Canadian oil sands and Brazil’s massive oil reserves.

On the other hand, the many Chavez-instituted social programs in Venezuela are primarily supported by monies garnered from its vast hydrocarbon development and production. With the drop in the price of oil, the OPEC-member nation has been experiencing financial troubles as of late.

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