CAPITAL: Caracas

MONETARY UNIT: Bolivar

REFINING CAPACITY: 1,177,000 b/cd

OIL PRODUCTION: 3,175,000 b/d

OIL RESERVES: 71.7 billion bbl

GAS RESERVES: 143 tcf

Venezuela has embraced private, mostly foreign investment in its state oil industry in an effort to increase oil production capacity to about 6.6 million b/d by 2006. That would make Venezuela one of the world`s top three oil producers and exporters, a position it had not held for several decades.

While Venezuela was building on its open dealings with the rest of the world, it launched a restructuring of Pdvsa and affiliates. It hoped to save $10 billion over 10 years.

Pdvsa eliminated its main operating units Lagoven SA, Maraven SA, and Corpoven SA in January 1998 and formed three new units: PDV Exploration & Production, PDV Manufacturing & Trade, and PDV Services.

The Pdvsa restructuring also called for a 1998 initial public offering of state-owned Pdvsa affiliate Pequiven, which operates all of Venezuela`s state petrochemical assets.

Following that, Pdvsa planned to register for public trading its 10% stake in upstream joint ventures with international companies in Venezuela. The share was to be traded domestically at first and later on international markets.

Pdvsa president Luis Giusti also hoped for an increase in the domestic price of Venezuelan gasoline to the international fob level.

Upstream developments

Heavy oil superprojects began to dot the expansive Orinoco heavy oil belt, with an estimated 1.2 trillion bbl of oil in place, and significant conventional activity was increasing in Venezuela`s main basins.

No new joint venture work has been announced for the Machete area, the westernmost Orinoco segment.

- Zuata area: Maraven signed a $4.4 billion accord with Total, Norsk Hydro, and Statoil forming Sincor to produce 8.5° gravity Zuata oil, upgrade it at Jose to a 30° gravity synthetic crude, and market it in the U.S. and Europe.

Coastal Corp. and Maraven signed a memorandum of understanding to form a joint venture to produce and upgrade extra-heavy Zuata crude in Venezuela and ship the syncrude to Coastal`s 95,000 b/d Corpus Christi, Tex., refinery, likely to be purchased by the JV and upgraded.

- Hamaca area: Phillips, Corpoven, ARCO, and Texaco plan to produce extra heavy crude starting in 1999, with volumes reaching as much as 200,000 b/d by 2006.

Corpoven and Exxon signed a memorandum of understanding for a strategic association to invest up to $4.9 billion to produce, upgrade, and market extra-heavy 9° gravity Hamaca crude.

- Cerro Negro: Mobil, Lagoven, and Veba signed a joint agreement to upgrade extra heavy 8° gravity oil, with production starting in 1999 and reaching 120,000 b/d in 2001.

Outside the heavy oil belt, 91 companies from 15 countries bid $2.17 billion for 18 of 20 fields Pdvsa offered in a mid-1997 auction of marginal and inactive fields. They submitted 133 bids. Two Maracaibo tracts were unbid. Five fields were reserved for Venezuelan companies.

Pdvsa said operational contracts granted in previous tenders to reactivate marginal oil fields generated $956 million in investments during 1996 and by yearend had provided 190,000 b/d in additional production capacity.

Venezuela had 100-115 rigs running for most of the year, making it by far Latin America`s leading driller. About 40 of the rigs are offshore units.

Processing activity

Pdvsa, as part of its reorganization plans, linked its two largest refineries at Amuay and Cardon on the Paraguana peninsula northeast of Lake Maracaibo to create a refining powerhouse, Paraguana Refining Center (PRC).

PRC became the world`s largest refining center, with a combined capacity of 940,000 b/d. The refineries were interconnected via pipelines late in 1995.

Pdvsa started up what it called South America`s largest hydrogen plant, a 50 MMcfd plant at Amuay.

Koch Industries International, Venezuela`s Polar Group, Pdvsa unit Proseca, and Inelectra SA unit Inepropil, formed a joint venture to market about 132,000 metric tons/year of propylene. The group plans an initial investment of $70 million, primarily to build a propylene plant near the Cardon refinery. The complex was due to come on stream by January 1999.

Transportation

Conoco and Maraven`s Petrozuata joint venture let a $44.9 million contract to Venezuela`s Industria Mecanics Orion SA and Soldadura y Tuberiss de Oriente CA (Soltuca) to supply pipe for a new 125-mile, 36-in. crude oil pipeline.

The line will move extra-heavy crude from the JV`s 55,000-acre Zuata region block in the Orinoco heavy oil belt to a complex slated at Jose on the Caribbean. Completion was set for 1998. Brazil`s Confab was awarded a $16.6 million contract to supply pipe for a separate 125-mile, 20-in. diluent line. Diluent will be mixed with oil transported to Jose, separated from the oil, and returned in the 20-in. line for reuse.

Pdvsa remained interested in the proposed Cristobal Colon liquefied natural gas export project involving several large Caribbean fields north of the Paria Peninsula in northeastern Venezuela. It hoped to decide within 5 years whether to proceed.

Other energy

Venezuela hoped to export 14 million metric tons/year of its Orimulsion boiler fuel by 2000 vs. 4.17 million metric tons in 1996. This target is unrealistic unless Orimulsion penetrates the lucrative U.S. market.