By Alexandra Ulmer and Nidhi Verma
CARACAS/ NEW DELHI (Reuters) - India's Oil and Natural Gas Corp and Venezuela's state oil company PDVSA are seeking around $1 billion in credit to stem an output decline at their San Cristobal joint venture, two sources close to the negotiations told Reuters.
Indian banks are poised to lend the money to the joint venture, the sources said, though ONGC would provide the guarantee and the breakdown of the loan's repayment has not yet been decided.
The deal is expected to ensure state-owned ONGC receives between $400 million and $500 million of unpaid dividends that have accrued over five years.
"This could come together next year," one of the sources said of the deal, which seeks to stem San Cristobal's production fall from a peak of over 40,000 barrels per day to around 30,000 bpd.
It is also likely to involve creation of an offshore account, probably in Asia, to receive the export income, guaranteeing ONGC will receive money.
With oil prices tumbling, the likely deal underscores a broader shift toward pragmatism in financially-strapped PDVSA [PDVSA.UL] under new boss Eulogio Del Pino.
The sides have negotiated for more than a year and are close to a deal to overhaul wells, machinery and other items over three to four years to shore up output and change the terms of sales. Crude would be sold to a handful of buyers, likely Indian and Asian, under 10-year agreements, one source said.
The offshore account "will be a like a waterfall mechanism, whereby the revenue from the project ... will then be distributed among partners," said the second source.
Venezuela awarded ONGC its stake in the field in 2008.
Under the venture's original terms, India's largest oil and gas explorer is due to receive dividends, though it does not control the crude's marketing or receive revenue from sales.
Both sources declined to be identified because of sensitivity of the issue.
ONGC Videsh Managing Director N. K. Verma declined to comment. PDVSA did not respond to a request for comment.
JOINT VENTURE PAINS
As of the close of 2013, PDVSA says, it owed around $2.5 billion dollars in dividends to joint venture partners.
The company has sought creative solutions to the dividends issue, and has paid back some debts to contractors, according to industry sources.
Fresh investment could help Venezuela, home of the world's largest crude reserves, shore up flailing oil production. For years, the country has been pressuring some 20 joint ventures between PDVSA and foreign partners to find extra funding.
The socialist government has threatened to cancel the ventures' permits if they fail to reach higher goals.
Financing deals estimated to be worth $9.25 billion have been taken out for investment in the JVs in the last two years or so.
A major agreement with Chevron secured $2 billion in financing to boost production at the Petroboscan JV. The China Development Bank approved a $4 billion credit for the Petrosinovensa JV with China National Petroleum Company.
Deals have also been reached with Russian and other JV partners.
ONGC Videsh, ONGC's overseas investment arm, has a 40 percent stake in the San Cristobal oilfield. PDVSA subsidiary CVP has the rest.
(Additional reporting by Marianna Parraga; Editing by David Gregorio)