RUMORS OF A RUSSIAN FAVORED BID IN CARABOBO AND INCREASING SINOVENSA PRODUCTION

CONFIDENTIAL C O N F I D E N T I A L CARACAS 000149 SIPDIS ENERGY FOR CDAY AND ALOCKWOOD, DOE/EIA FOR MCLINE HQ SOUTHCOM ALSO FOR POLAD TREASURY FOR RJARPE COMMERCE FOR 4431/MAC/WH/JLAO E.O. 12958: DECL: 01/29/2019 TAGS: EPET, EINV, VE SUBJECT: RUMORS OF A RUSSIAN FAVORED BID IN CARABOBO AND INCREASING SINOVENSA PRODUCTION REF: A. (A) CARACAS 00104 B. (B) CARACAS 00106 C. (C) 08 CARACAS 1540 D. (D) 08 CARACAS 1712 Classified By: Economic Counselor Darnall Steuart, for reasons 1.4 (b) and (d). 1. (C) SUMMARY: A well-connected industry source asserts that PDVSA has offered to form a mixed company with a newly formed Russian consortium for direct award of one of the Carabobo bid round blocks. The consortium was reportedly not required to pay for the data pack (for $2 million) despite public reports that it did. PDVSA is also reported to be taking advantage of the shut-in of the PetroMonagas field (due to OPEC quota cuts) to upgrade Sinovensa (CNPC) crude at the PetroMonagas upgrader. END SUMMARY. 2. (C) EconCon and Petroleum Attache met on January 28 with a well-connected petroleum industry expert who shared insights into current Russian and Chinese activities of interest. According to this source, PDVSA has offered to form a mixed company with a newly formed Russian consortium for direct award of one of the Carabobo bid round fields. He also asserted that the consortium (Per press reports the consortium includes: Gazprom, Lukoil, Rosneft, TNK-BP, and Surgutneftegas) was not required to purchase the data pack for the bid round (for $2 million) and is also being given special access to the data room. The five companies will share 40% of the proposed mixed company (with PDVSA receiving majority ownership of 60%). According to the petroleum industry expert, the Russians believe the Venezuelans do not understand the complexity of financing these new projects and that negotiations to form a mixed company agreement will break-down resulting in further delays. 3. (C) The industry expert also confirmed that, despite the fact that the PetroMonagas (Cerro Negro) field production has been shut-in, PDVSA continues to operate the upgrader, processing Sinovensa crude. Sinovensa is a joint venture between PDVSA and the Chinese National Petroleum Corporation (CNPC) which was originally created to provide China with Venezuela's patented boiler fuel Orimulsion. Since PDVSA's decision to cease production of Orimulsion, Sinovensa has continued to produce extra heavy crude which is then mixed with lighter oil and sold as a crude blend. PDVSA announced to the press in May 2008 that Sinovensa would boost output from 65,000 to 110,000 b/d within three months. According to our source, Sinovensa wishes to increase its production to 300,000 b/d which would be impossible without access to an upgrader. He also speculated that PDVSA might be laying the groundwork to bring CNPC into PetroMonagas and to remove the existing partner, BP. He added that it is possible that BP will not be compensated for the continued upgrader operations as there is no tolling facility to monitor how much Sinovensa crude is being pumped through the pipeline to the PetroMonagas upgrader. Finally, our source commented that a CNPC official had told him that CNPC has a directive to secure reserves, and that the company does not care whether it or PDVSA is responsible for operating. 4. (C) COMMENT: As the Carabobo Round progresses it appears PDVSA's political interest in seeing Russian and Chinese companies succeed is tempered only by its need to ensure that the project succeeds. There are indications that other companies that did not purchase the bid packet are also quietly being considered as PDVSA seeks to engineer favored bidder consortia. CAULFIELD