Petronas pulls out of Venezuela heavy oil project Carabobo-1

Petronas, the Malaysian state-owned oil company, is withdrawing from a multibillion-dollar oil project in Venezuela, in a fresh sign of the challenges facing investors in the Latin American country's state-dominated oil sector.

The world's sixth-largest oil and gas group by reserves said in an emailed statement that its subsidiary, PC Venezuela Ltd, was pulling out of the flagship Carabobo-1 project, in which it has an 11 per cent stake. It said it informed the Venezuelan authorities of its decision on August 27.

Carabobo-1 is one of a number of joint ventures between Venezuela's state company PDVSA and a group of foreign partners to develp the Orinoco Belt, one of the world's largest accumulations of heavy oil.

But the projects have been slow to get off the ground, with production falling far short of targets. They have also failed to arrest the decline in Venezuela's oil production, which has now fallen every year since 2007, according to the BP Statistical Review. It stood at 2.7m barrels a day last year - down 18 per cent since 2006.

The Orinoco Belt projects have also been overshadowed by legal disputes. ExxonMobil and ConocoPhillips left Venezuela after the government of Hugo Chavez stripped them of their leading role in Orinoco joint ventures. They continue to seek compensation in arbitration proceedings.

Petronas' withdrawal from the Carabobo venture can be seen as part of a strategy the company has pursued since 2010, when its chief executive Shamsul Azhar Abbas took office, of pulling out of exploration projects it deems marginal or lossmaking.

The company had previously invested in prospects that helped it look like a global operator, but with 42 per cent of its revenues from overseas delivering only 10 per cent of its earnings when he took over, Mr Abbas decided to shift away from the pursuit of a global footprint and instead focus on profitability. Fields in Ethiopia, Pakistan and Greenland have since been closed.

Other partners in the Carabobo project are PDVSA with a 60 per cent stake, Spain's Repsol and India's ONGC, each with 11 per cent, and Oil India Ltd and Indian Oil Corp each with 3.5 per cent.

The project, which started production in December, is forecast to produce up to 400,000 barrels a day of extra heavy crude oil, and also involves the construction of an oil upgrader which will convert the crude to lighter, higher-quality oil better suited to standard refineries.

© The Financial Times Limited 2013. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation