Venezuela Asks Chevron to Hike Oil Output

CARACAS, Venezuela – Venezuela is asking Chevron Corp. to increase heavy oil production by 16.6 percent under a plan to pay royalties with crude instead of cash, the company’s top executive for the region said Wednesday.

Oil Minister Rafael Ramirez said last week he was looking to “optimize” heavy oil operations, which pump around a fifth of the nation’s oil, by offering the deal.

“What the minister has signaled is increased capacity and paying royalty from incremental production,” said Ali Moshiri, the head of Chevron’s exploration and production operations in Latin America.

In 2004 Venezuela scrapped low royalty taxes on heavy oil operations, hiking the rate to 16.6 percent from 1 percent.

To pay for the increase with additional crude, Moshiri said Venezuela will have to expand drilling acreage at the Hamaca heavy crude project in the eastern of the country.

Chevron owns 40 percent of the Hamaca project in the Orinoco River Basin, with partners ConocoPhillips and state-run Petroleos de Venezuela SA each holding 30 percent stakes.

Exxon Mobil Corp., British Petroleum PLC, France’s Total S.A. and Norway’s Statoil ASA have stakes in other Orinoco ventures. The projects, four in total, collectively pump around 600,000 barrels of tar oil which is converted into synthetic crude at specialized refineries, known as upgraders.

Moshiri said Chevron is preparing a plan to increase production, but said it does not involve adding capacity at the project’s upgrader. Orinoco crude, too heavy for conventional refineries, must be mixed with lighter grades of oil to become marketable if they are not processed at the upgraders.

The Orinoco projects were designed under low oil price scenarios in the 1990s, and the price boom in recent years prompted the government of President Hugo Chavez to hike royalties in 2004. Congress plans more tax hikes for the projects under a legal review later this year.

Petroleos de Venezuela has teamed up with companies from Iran, Spain, Russia and other countries to calculate the Orinoco’s crude reserves, the first step toward launching new projects. Venezuela says there are more than 230 billion barrels of recoverable reserves in the area.