Analysis - Lukoil to donate block to Venezuelan venture

London, 24 September (Argus) — Russian oil group Lukoil is ready to cede rights to Venezuela's Junin-3 block to the consortium of Russian firms formed to develop projects in the South American country.

It has been frustrated by the lack of progress in securing a deal over the field in the Orinoco heavy oil belt.

The firm says it will seek compensation from its partners in the National Oil Consortium, a joint venture in which Lukoil, Rosneft, TNK-BP, Gazpromneft and Surgutneftegaz each have 20pc stakes. “Maybe this arrangement will advance the project,” a Lukoil spokesman says. No deadline has been set for the joint venture between the consortium and Venezuela's state-owned oil firm PdV to start work.

Deputy prime minister Igor Sechin first put forward the idea of consortium members pooling individual projects, Lukoil says. The firm had intended to develop Junin-3 on its own, while developing another block, Junin-6, as part of the consortium. TNK-BP says it is considering donating its Ayacucho-2 block to the consortium.

But not all consortium members welcomed Sechin's proposal. Surgutneftegaz is opposed to taking on any further projects, pointing out that the 30bn bl Junin-6 block will already require massive investment from each participant, a consortium source says.

Sechin said earlier this month that a Russian-Venezuelan joint venture could begin work before the end of this year. But it is more likely that joint work will start in the spring, once all the agreements have been concluded, the consortium source adds.

A number of documents relating to development of Junin-6, including an initial deal on the creation of a joint venture, were signed in the presence of Russian president Dmitry Medvedev and his Venezuelan counterpart Hugo Chavez during the latter's visit to Moscow earlier this month. But the Russian side says Venezuela has yet to approve a number of documents.

The Russian firms formed the consortium last summer. It could invest up to $30bn in the 270bn bl Orinoco belt, Sechin said last month.

Lukoil has been working on Junin-3 since 2005, when its overseas arm signed a deal with PdV subsidiary CVP. The Russian firm has since completed what it describes as preparation work for exploration drilling and development, spending “dozens of millions of dollars”, Lukoil Overseas says.

Lukoil assessed Junin-3 reserves at 4.4bn bl last year. US engineering firm Ryder Scott certified this figure, which has now been approved by the Venezuelan energy ministry. Also last year, Lukoil extended its 2005 deal for two years. It had hoped to create a joint venture with PdV to develop Junin-3, saying it would be content with a 40pc stake, with the rest reserved for PdV.