Igor Sechin, President and Chairman of the Management Board at Rosneft, took part in a ceremony celebrating first oil produced at the Junin-6 block as part of his visit to Venezuela. The block is currently under development by Venezuela’s PDVSA and Russia’s National Oil Consortium, which comprises Rosneft, Gazprom Neft, Lukoil, TNK-BP and Surgutneftegaz.
The National Oil Consortium (NOC) was set up in October 2008 as part of efforts to expand economic cooperation between Russia and Venezuela on the initiative and with the direct involvement of Igor Sechin, who at the time oversaw Russia’s fuel and energy industry in his role as Deputy Prime Minster. In March 2010, NOC and PDVSA registered a joint venture, PetroMiranda, to develop the Junin-6 block. PDVSA holds a 60% stake in the JV, while NOC owns 40%.
Oil-in-place at Junin-6 amounts to 8.5 billion tonnes. Crude is currently produced at Junin-6 at three wells. The joint venture plans to increase production to 20,000 barrels a day by the end of the year and subsequently to 50,000 barrels a day by mid-2013. Oil production is expected to peak at 450,000 barrels a day. To achieve this, more than 3,000 new wells will be constructed, as well as new infrastructure. Once the investment decision is taken, construction work will begin on a special processing facility (upgrader) with a capacity of 200,000 barrels a day to bring extracted oil up to commercial quality. Agreements were also reached on the construction of a thermal generating set that will run on waste produced during oil production and provide electricity for the project.
Commenting on the launch of production at Junin-6, Igor Sechin said: “For Rosneft this is a very good business we are operating for the benefit of the Company’s shareholders,” noting that oil at this block is located at a depth of between 120 and 600 metres, which is incomparable with the challenges of producing oil in Eastern Siberia.
President Hugo Chavez was present as Igor Sechin and Venezuelan Energy Minister and head of PDVSA Rafael Ramirez signed an agreement to set up a joint venture to develop the Carabobo-2 project. Rosneft will hold a 40% stake in the joint venture.
The Carabobo-2 project comprises the Karabobo-2 North and Carabobo-4 West blocks. They are situated in the Orinoco heavy oil belt. Oil-in-place at the blocks is approximately 6.5 billion tonnes. Daily crude oil production is expected to be approximately 450,000 barrels per day.
The parties also initialled a memorandum of understanding and signed agreements under which Rosneft is to pay a bonus of $1.1 billion, as well as an agreement on the provision of a $1.5 billion 5-year loan. The bonus will be paid in two parts. The first part will be paid within ten days of the creation of the joint venture, with the balance to be paid once Rosneft takes its final decision on the project. The loan will be provided in tranches of no greater than $300 million a year at LIBOR + 5.5%.
The agreement on the creation of a joint venture includes a development plan and the charter. Before the JV can begin operations, a ruling from the National Assembly of Venezuela must be obtained, as well as a resolution from the Oil and Mining Industry Ministry and a corresponding decree from the President of Venezuela.
Rosneft’s active involvement in production projects in the rich Orinoco oil belt, which is estimated to contain resources of 195 billion tonnes, is a practical step in implementation of the Company’s plans to globalize its business and enter the promising Latin American market.