Petrobras, Venezuela Plan $4.7 Bln of Joint Ventures (Update2)

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Petrobras, Venezuela Plan $4.7 Bln of Joint Ventures
(Update2)
Sept. 29 (Bloomberg) -- Brazil's and Venezuela's state oil companies will spend more than $4.7
billion on oil, natural gas and refining ventures as they strengthen ties to promote economic
independence from the U.S.
The projects include a $2.5 billion oil refinery in Pernambuco state in Brazil's northeast, and a $2.2
billion gas field off the Venezuelan coast, according to an e-mailed statement from Petroleo Brasileiro
SA, Brazil's state-controlled oil company. Petrobras, as the Rio de Janeiro-based company is known,
and Petroleos de Venezuela, that country's state producer, also agreed to look for oil in Venezuela's
east.
``There are good commercial reasons for these agreements, but there's also a lot of politics,'' Gina
Montone, oil and gas analyst at the Sao Paulo unit of ABN Amro Bank NV said in an interview. ``For
instance, while Petrobras needs a partner for the refinery, so far there's no compelling reason why it
has to be Petroleos de Venezuela, except perhaps regional solidarity.''
Brazilian President Luiz Inacio Lula da Silva, 59, and Venezuelan President Hugo Chavez, 51, won
election promising to strengthen the region's economies and reduce the influence of the U.S. In
meetings in Brazil's capital Brasilia with other Latin American leaders Aug. 12, Chavez and Lula said
they would expand road, rail, energy, trade and security links.
Chavez in 2003 proposed the creation of a regional oil company, Petroamerica, linking the state
producers in the region and said this year he is considering selling Citgo Petroleum Corp., Petroleos
de Venezuela's U.S. refining and fuels distribution company.
` Bolivarian Dreams'
``Integration is not new and was strong in the previous Brazilian government,'' said Murillo de
Aragao, senior analyst at Arko Advice, a Brasilia political risk company. ``Still, Venezuela and Brazil
ignored each other until Chavez, with his Bolivarian dreams, turned away from the U.S. and looked
south and Lula with a similar ideology looked north.''
Petrobras, has long planned a refinery in the country's northeast. The plant would help solve a
shortfall of diesel fuel, expand Brazil's capacity to refine the heavy grades of crude from its new
offshore production and provide bunker fuel for power plants the government wants built.
The proposed refinery is expected to process 200,000 barrels a day of crude, Chavez said yesterday.
It is expected to start operations in 2011.
Petrobras, the owner of 98 percent of Brazil's refining capacity, was under pressure to find an outside
partner for any new plants, Montone said.
``We just don't know why it has to be the Venezuelans,'' she said. ``Petrobras has the money, the
technology and even the heavy oil technology that Petroleos de Venezuela has, to do it on its own,''
she said.
Offshore Expertise
Chavez interest in selling Citgo, she added, may be behind the agreement, with Petroleos de
Venezuela trading U.S. Citgo assets to Petrobras, which has long sought a refinery on the Gulf of
Mexico, in exchange for activity in Brazil.
In the case of the Venezuelan joint ventures between the companies, the commercial reasons are
clearer, she said. Venezuela is looking for ways to develop offshore fields, a Petrobras specialty. In
the last three decades, Petrobras has developed floating exploration and production systems and
holds the world record for successful drilling and oil production in deep water.
Petrobras, in its latest strategic plan, said it wants more production outside of Brazil, particularly in
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and around the Gulf of Mexico and in Nigeria.
``This accord is very good for both companies,'' said Juan Carlos Sosa, president of Grupo Petroleo
YV, a Caracas oil consultant. ``Petroleos de Venezuela is bringing the reserves, and Petrobras the
know-how.''
Natural Gas
The Venezuelan oil and gas projects include developing an offshore natural gas project in the Norte
de Paria field and the Carabobo 1 field in the Orinoco heavy-oil belt of eastern Venezuela. Carabobo
is to be a joint venture 51 percent owned by Petroleos de Venezuela and 49 percent owned by
Petrobras.
The two companies also signed a prelminary agreement to drill for oil in Venzuela's Lido, Limon,
Nieblas, Adas and La Paz fields that have an estimated 437 million barrels of oil and 1.4 trillion cubic
feet of natural gas.
Petrobras also said it has a preliminary agreement on new contract terms with the Venezuelan
government for its Mata, Acema, La Concepcion and Oritupano-Leona projects.
Those contracts are being converted under new Venezuelan rules forcing all foreign companies that
operate oil fields for PDVSA to convert their contracts from one that pays the operator a fixed fee per
barrel of oil pumped into joint venture agreements where Venezuela owns a majority stake.

To contact the reporter on this story:
Jeb Blount in Rio de Janeiro at jblount@bloomberg.net
Peter Wilson in Caracas at pewilson@bloomberg.net.
Last Updated: September 29, 2005 14:28 EDT

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