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THE WALL STREET JOURNAL: PdVSA Might Shun Partners On LNG Project: “Petroleos de Venezuela… officials have held drawn out discussions with Royal Dutch/Shell Group and Japan´s Mitsubishi Corp. hoping to jointly develop the offshore project which, government officials say, could help the Andean country cover its domestic natural gas needs and leave enough for exports.” (ShellNews.net) 6 Nov 04

 

DOW JONES NEWSWIRES

 

PUERTO LA CRUZ, Venezuela -- Venezuelan state-oil company Petroleos de Venezuela (PVZ.YY), or PdVSA, might move ahead to develop the Mariscal Sucre natural gas project without its standing partners if the government and the foreign companies can't agree on a joint venture, PdVSA Vice President Felix Rodriguez said late Friday.

 

PdVSA officials have held drawn out discussions with Royal Dutch/Shell Group (RD,SC) and Japan´s Mitsubishi Corp. (8058.TO) hoping to jointly develop the offshore project which, government officials say, could help the Andean country cover its domestic natural gas needs and leave enough for exports.

 

Shell and Mitsubishi officials said they´re still interested in cementing a deal with the government but they insisted the government has the power to make the deal happen.

 

In November 2003, Venezuela and the oil companies signed a preliminary agreement to develop the project where PdVSA would own 60%, Shell would control 30% and Mitsubishi would hold an 8% stake. It´s unclear why the parties haven't reached an agreement.

 

"The project already started up," said Rodriguez, referring to a number of studies that have already been done as part of the development plan. "If we cannot reach an agreement (PdVSA) will go it alone."

 

Joaquin Moreno, president for Shell in Venezuela, conceded that the government has the power to ignore potential partners, and said Shell is ready to agree to a deal "if (the government´s offer) makes strategic and economic sense. It´s just a matter of finding the best way to skin the cat," Moreno told journalists after the Rodriguez threatened to move ahead alone. "We don´t need pressure to go (ahead)," he said referring to PdVSA´s stance.

 

PdVSA´s Rodriguez noted that that the oil giant would like to drill the first gas wells late next year or, at the very latest, in early 2006. He didn't say, however, if PdVSA is setting a date for all parties to agree on a deal. "I don´t want to set a date limit because they´re good partners and we´re still discussing," the executive added.

 

Rodriguez noted that part of the discussions deals with the size of PdVSA´s share participation and also with the government´s insistence on separating upstream projects from downstream ones."But the game here is not stuck," Rodriguez insisted, noting that the deal is profitable so all parties remain interested.

 

Some observers of the deal note that the government´s insistence on selling the gas locally at below market prices makes the project less enticing to foreign investors.

 

Yasushi Iwamatsu, president for Mitsubishi Venezolana, makes clear, however, that the foreign companies knew that supplying the domestic market is a major goal of Mariscal Sucre.

 

Nonetheless, Iwamatsu pointed out, Mitsubishi will remain interested in the project if the government offers a "package deal" that includes selling gas domestically but also overseas at higher prices. He declined to say if he had a specific formula for that "package" agreement.

 

Rodriguez conceded that the government and the oil companies have lost precious time as the conversations have dragged on for a long period of time, but he could not say how much longer they will go on.

 

Mariscal Sucre is expected to tap a 10 trillion cubic feet reserve, located in the northern shore of the Paria Peninsula in Eastern Venezuela. Venezuela's proven gas reserves have been estimated at 148 trillion cubic feet.

 

    -By Raul Gallegos, Dow Jones Newswires; 58-212-564-1339;

raul.gallegos@dowjones.com


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