UPDATE: Venezuela Awards Two Oil Blocks, Leaves One Unassigned

CARACAS (Dow Jones)--Venezuela on Wednesday awarded two of the three oil blocks up for auction in its much-anticipated and long-delayed Carabobo oil auction, but was forced to leave the final block unassigned.

Energy Minister Rafael Ramirez said a consortium of companies that includes the U.S.-based Chevron Corp. (CVX) and Mitsubishi Corp. (8058.TO) and Inpex Corp. of Japan was awarded the "Carabobo 3" block. He said the consortium paid $500 million for drilling rights to the block, and another $1 billion for financing to state-run oil firm Petroleos de Venezuela SA, or PDVSA.

Ramirez also confirmed that a consortium that includes Spain's Repsol YPF SA (REP), India's Oil & Natural Gas Corp. (500312.BY), Malaysia's Petroliam Nasional Bhd. and some smaller firms from India was awarded the "Carabobo 1" block. The consortium paid a $1.05 billion signing bonus and will pay another $1.05 billion to PDVSA for financing. That block is considered the most promising of the three.

The third area up for bidding, "Carabobo 2," was not assigned, and Ramirez said Venezuela would have to wait until a later time to determine how it would be developed.

Ramirez did not mention if any other offers were made for the oil blocks, but sources have said the two consortiums that won were the only ones to submit official bids.

The three projects up for auction, all located in the oil-rich Orinoco region of eastern Venezuela, are expected to produce at least 400,000 barrels a day each when developed, and will require $15 billion in investments. Early production could begin in a couple years at the two awarded blocks, but peak production won't be reached for five years.

Even though it was unable to award all three open blocks, the fact that it awarded two, and that the consortiums included top-notch firms such as Chevron and Repsol suggested the auction will be viewed as a relative success.

Doubts have long swirled about whether any foreign companies, and especially oil firms, would make major new investments in Venezuela so long as Chavez, a recently declared Marxist, is at the country's helm.

During his 11 years in power, Chavez has nationalized the assets of scores of foreign companies, including those of U.S. oil majors Exxon Mobil Corp. (XOM) and ConocoPhillips (COP), which were operating in the same Orinoco region where the Carabobo drilling will take place. Both are pursuing international arbitration for redress of their seized assets in Venezuela.

Chavez addressed some of those concerns at the ceremony Wednesday to announce the results of the auction.

"They say there's no type of judicial security here in Venezuela, and stuff like this, but it's not true," Chavez said, addressing top executives from Chevron, Repsol and the other firms involved in the auction. "You have all the guarantees for your investments, your profits and the capital that you want to repatriate."

Chavez added, however, that it's a two-way street, and said companies simply can't ignore the massive amounts of petroleum underground in Venezuela.

"You need to be here," he told the leaders of the foreign oil firms.

For his part, Ali Moshiri, Chevron's chief for Latin America and Africa, expressed faith in his company's decision to invest in Venezuela.

"We have confidence in Venezuela," Moshiri said during the event at the presidential palace in Caracas.

Japan's Ministry of Economy, Trade and Industry said in a statement issued in Tokyo that it welcomes the choice of the Inpex-Mitsubishi Corp. consortium as a developer, as it will help the country to secure stable energy supplies.

The two winning consortiums will each enter into a 60%-40% arrangement with PDVSA, in which PDVSA will have the majority stake.

The winning bidders are each expected to build upgraders that can refine the tar-like crude found in the Orinoco into a more marketable, lighter crude. Each upgrader could cost $6.5 billion.

-By Dan Molinski and Darcy Crowe, Dow Jones Newswires; 58-414-120-5738; dan.molinski@dowjones.com

(Mari Iwata in Tokyo contributed to this article)