The Venezuelan government is reported to have delivered the final terms for its long-awaited, 1.2 million barrels per day (bpd) Carabobo ultra-heavy oil crude auction. Significantly, it is the government's first tender in more than a decade. While the terms include several regulatory sweeteners intended to whet investors' appetite, most of the concessions have been expected all along. However, despite the concessions, a number of grey areas surrounding any deal with a successful bidder still remain, namely windfall taxation and rights to arbitration. Unless Caracas intends to negotiate these issues on a bilateral basis with the bidding oil firm, then remains a sizable doubt over whether the multi-billion dollar investments the government is hoping for will ever be signed.
The Carabobo round, which is offering up to seven blocks in the Orinoco heavy oil belt, had been delayed several times since its initial launch back in 2008. The leading culprits for this series of delays are the global economic downturn and the regulatory issues surrounding the auction. Under the final terms, the government has reduced the royalty rate from 30 to 20% (the minimum permitted by law) and agreed to receive royalty payments (set at $0.5-1 billion per block) in three instalments.
At present, 17 oil companies from across the globe are thought to be in the running for the Carabobo Bidding Round, including most major private and state-run companies. While the softening of Caracas' stance over the licensing terms can only accelerate interest in the auction, in the current economic climate the conditions will out price many firms from competing. Under the original terms of the tender, the successful bidders would have to raise oil production at each block to a minimum of 400,000 bpd, to finance the entire $10-20 billion cost of each project themselves, and to pay income taxes of at least 50% on top of that. As a result, interested companies seemd to be making the necessary step in order to mitigate the risk involved - forming consortia. And according to reports, at least five consortia are thought to be in the running to bid for the Carabobo blocks. Joining forces will allow the pools of firms to boost their bargaining power and maximise fundraising capabilities.