Malaysia's Petronas exiting Venezuela crude project

Reuters

(Adds India's ONGC, Oil India, unlikely to take stake)

By Marianna Parraga and Brian Ellsworth

HOUSTON/CARACAS, Sept 10 (Reuters) - Malaysian oil companyPetronas said it is exiting one of the biggest petroleumprojects in Venezuela's Orinoco belt, after what sources closeto the venture and within the firm said were disagreements withVenezuelan authorities and state-run PDVSA.

The flagship project, called Petrocarabobo, has plannedinvestments of about $20 billion over 25 years and calls forbuilding a 200,000 barrel per day upgrader to convert heavycrude into light crude oil.

When the venture was formed in 2010, Venezuela touted it asa sign that oil companies were willing to put up with demandingfiscal conditions in exchange for access to the world's largestoil reserves.

Petroleos de Venezuela (PDVSA) has 60 percent of theproject. Petronas belongs to a consortium that holds 40 percent.Its other partners are Spain's Repsol, India's ONGC and two smaller Indian firms, Oil India and Indian OilCorp. Petronas holds an 11 percent stake.

Sources close to ONGC and Oil India said on Wednesday theywere unlikely to buy the stake being shed by Petronas.

Petronas confirmed on Tuesday Reuters' report thatit was withdrawing from the project, saying that the decisionhad been conveyed to Venezuela's government on Aug. 27. Petronassources later told Reuters the move was part of its strategicreview of global assets.

Venezuela's Petroleum Minister Rafael Ramirez declined toaddress the issue on Monday and urged reporters in Caracas toconsult Petronas.

A Petronas company source in Kuala Lumpur said thewithdrawal was due to unspecified problems in dealing withVenezuelan authorities and because the state giant preferred to"play it a bit more safe" by focusing on established marketssuch as Canada and Australia.

"This should not come as a surprise. We have not beenexcited about this project for the past two years because of thedealings with the government," said the source, who requestednot to be identified as he was not authorised to speak to media.

"We have run in to quite a few roadblocks when it comes toSouth America."

Petronas entered Venezuela's oil sector in 2010, three yearsafter an expanded nationalization in the oil industry undersocialist leader Hugo Chavez, who died in March. ThePetrocarabobo project started production in late 2012 and has acapacity to produce 400,000 barrels per day (bpd).

One source close to the project told Reuters that frequentchanges in the fiscal framework, disagreements with thegovernment of Chavez's successor - Nicolas Maduro - about thebusiness terms, and long delays led to the decision to withdraw.

Petronas planned to feed a new $19 billion refinery andpetrochemical complex in southern Malaysia with Venezuelan crudeproduced at its joint venture, but company sources said thatproject would not be further delayed by the withdrawal.

PETRONAS PRESSURED BY COSTS

Petronas had begun talks with its consortium partners,including Repsol and ONGC, to take over its stake, the firstcompany source said. Under Venezuelan law, the government has toapprove the departure and the new ownership structure of theventure.

A source close to ONGC, which also holds an 11 percent stakein the project, said it would study the option to buy thePetronas stake, but a second source said the company might notexercise the option because it was already raising debt to fundacquisitions in Mozambique.

Oil India, which has a 3.5 percent stake, was informed ofPetronas's decision a week to 10 days ago, a source said, but "Idon't think we will be taking". The sources at both Indiancompanies said they remained committed to the Venezuela project.

The consortium paid $1.05 billion to the Venezuelangovernment in May 2010 to become a partner in the project and ithas to deliver an extra payment of $1 billion to finance PDVSA'sstake, according to the terms of the deal.

Petronas was also exploring several natural gas projects inVenezuela, after being invited by the government to become itspartner in some delayed developments for exploring and producinggas offshore. But it never formalised its participation.

Venezuela is struggling with a slow, long-term decline inoil and natural gas production and a recent refining crisis thatis affecting its balance of payments.

The move by Petronas could raise more questions aboutVenezuela's ambitious plans to boost output that has beenstagnant for years and the ability of the government to turn thepromise of the Orinoco Belt into a reality.

Petronas chief executive Shamsul Azhar Abbas said last monththat rising costs and weaker crude prices may prompt the companyto review some strategic projects, without giving details.

Petronas has held off on the planned $850 million purchaseof a 40 percent stake in a Brazilian oilfield, saying thattroubled local oil producer OGX Petroleo Gas Participacoes SA must first complete a debt restructuring.

The firm also plans to sell down its stake in a $20 billionCanadian liquefied natural gas (LNG) export project in order toshare the cost of bringing cheap energy to Asia. Petronasacquired Progress Energy for C$5.2 billion ($4.9 billion) lastyear in a deal that gave Malaysia's only Fortune 500 firm accessto shale properties in northeastern British Columbia. (Reporting by Marianna Parraga in Houston and Brian Ellsworthand Deisy Buitrago in Caracas; Niluksi Koswanage and YantoultraNgui in Kuala Lumpur; Editing by Terry Wade, Stuart Grudgingsand Alex Richardson)

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