Joaquín Moreno

We have made very important investments in Venezuela, and are willing to keep investing. We have confidence in the legal framework, says Joaquín Moreno, president of Shell Venezuela.

Indeed, this English-Dutch company; a partner of Pdvsa, the Venezuelan state owned oil corporation, and the Japanese Mitsubishi, in the Mariscal Sucre condensed gas project (which represents 2.7 billion U$), is holding discussions with the Ministry of Energy and Mining(MEM), the Venezuelan Oil Corporation(CVP, a Pdvsa subsidiary), and Mitsubishi, with the purpose of approving the development of synthetic oil in the Orinoco Belt; a deal of up to 8 billion U$ in investment. This would be the fifth project of this type after Petrosuata, Cerro Negro, Sincrudos de Oriente, and Ameriven

- You have much insisted on Shell’s intention to aggregate value to the country’s natural resources. A few weeks ago, the OPIC ruled against Pdvsa, a decision that according to some sectors will have a negative influence on the flow of investments towards the country. Will this decision affect your company’s plans in the country?

- There is no doubt that in a financial world that, for better or for worse, is globalized, there is no news of relevance that one should not understand. We are all interested in knowing whether the decision in that case is transparent and within the international legal framework. We have had relations for a long time with Venezuela, and have recently made very important investments. We are willing to continue making them. We are in the Mariscal Sucre project and have announced further investments in Lake Maracaibo. Our interests are not different from those we’ve had for many years. There is confidence in the Venezuelan legal framework; which is regulated, and decided on, by those who are supposed to do it: the legislators and all those who are in charge of making decisions. We are sure that a framework that guarantees a minimum of confidence will prevail. We have examples from our own experience that have been solved in the Venezuelan courts. A recent case that lasted many years, was that of one of Shell’s buildings; in San Bernardino, Caracas, which after the oil nationalization was turned over to the Navy, and is now the site of its headquarters. Shell appealed the measure then. Two years ago, we received a compensation check, and immediately transferred the ownership of the building formally to the Navy. This was very meaningful to me and to our corporation, because although we went through many instances, justice prevailed in the end.

- Do you think the Law of Hydrocarbons should be made more flexible?

- We believe that legislating is a task of the legislators, and that the task of the governments is to make decisions within the legal framework; especially when it comes to administrating natural resources, an issue with a very clear content of sovereignty and sensitivity to public opinion. Once the laws are passed, what a company like ours does, respectful of the principles of sovereignty and of the legitimate authorities, is to analyze the legal framework. If the company is still interested, it seeks to find opportunities for investment. If we have investment proposals or suggestions to make, we make them. If they don’t work out, they just don’t. It is not our role as a company to go beyond that. Now, in the case of the Law of Hydrocarbons, we go along with the request by the executive director of the Venezuelan Hydrocarbons Association that this Law be regulated.

There is lacking information, and once the regulators regulate, we will have an idea of its limits, and of its flexibility. Perhaps there are projects for which this law works out and others for which it doesn’t. But at the end of the day, one must also keep the laws of the market in mind. If the regulations make projects feasible, it is good. If it doesn’t adjust to the country’s needs, then most likely the legislators will go through it again. But I think it is still too early for that.

- The Mariscal Sucre project is supposed to abide by the Law of Gas Hydrocarbons, but the share distribution seems to abide more by the Law of Hydrocarbons. Shouldn’t there be a single legal instrument for both sectors?

- We don’t see any problem in the existence of one law for gas and another one for liquid resources. This happens in other places throughout the world. In the particular case of the Mariscal Sucre project, and as for our participation in the previous project, we have always talked about more or less one third. It is up to the MEM and Pdvsa to decide whether they want a majority, although the Law allows them not to have it.

- What would happen in case the investment agreement is not finally signed? You have talked about extending the areas to be explored. Is the project being held back because this proposal is being revised?

- Carrying out a project that is integrated in all of its phases takes a long time; we are the most interested in shortening it. Some people add the previous project (Cristóbal Colón) as another phase, but in truth, the Mariscal Sucre project has been underway for only two years. It started out with the signature of the basic agreement in 2002. The next stage was the signature of the preliminary agreement in November of that same year. But the most important stage will be the construction of the first unit for the local market and the production for the first gas export delivery, which we expect to accomplish by 2009.

- There have been discussions over the extension of exploration activities for more natural gas reserves in the Mariscal Sucre project. Do these discussions involve new reserves that are within the limits of the concession or beyond these limits?.

- The area of the concession includes four proven reservoirs; but there are also areas, to the north and to the south, that have not been sufficiently explored.

- What would be the additional investment to perform these tasks?
At least between 40 and 100 million U$. This would be a complimentary advance investment. How else has the state been holding back the project?

- There are several nuances yet to be clarified in the analysis that the state has been making to assign the exploration and operation licenses. The fact that the area in question is a new offshore area with natural gas reservoirs, is one of the reasons for the need of more specific definitions. Furthermore, there is a diversity of criteria; ranging from granting complete licenses that include regulations or terms of reference for extraction, to granting licenses that are mere documents, through which the state establishes with the companies a minimum of compromises that, within the parameters of the Law, make it possible to develop a project. This discussion has taken the MEM some time. The license granted in Plataforma Deltana is of a certain type, and for this case it is necessary to create a new one. But that is not up to Shell or Mitsubishi. Both models seem manageable to us; but what we would like is greater celerity in the process. The agreement should be signed by the end of this year.

- Shell has production expansion plans in its Urdaneta Occidental operational agreement. The contract with Pdvsa expires in 2013. Are you negotiating with MEM to change to gas operation under the Law of Gas Hydrocarbons?

- We are aware of the fact that it has been said. But what we specifically refer to, is the possibility of using the technology and the solutions we have developed in neighboring areas. These contracts are based on a legislation and on some “laws of the game”. There is the possibility and an invitation for the contractees to change to other types of agreement. But we know that if this matter does not reach a win-win situation, the contracts in force will be honored.

- What fields do you have in mind?

- We are interested in the Lake Maracaibo and the Urdaneta Norte reservoirs. These negotiations will be under the terms of the Law of Hydrocarbons.

- Then there’s no objection on behalf of Shell to the participation of the Venezuelan state with no less than 51% of the capital?

- No. As long as there are an economic context and a formula that make it possible to bring technology and operate efficiently.

- Has the fact that oil prices are so high at the moment, and that they may remain close to 28$ per barrel in the near future made Shell pay more attention to Orinoco Belt?

- Even without considering a situation that we think is not sustainable in time, we have been considering the Orinoco Belt with much interest, and have developed very advanced technologies that we are ready to bring to Venezuela.

- Is it technology for crude improvement at the reservoir?

- Improvement at the reservoir, with much higher recovery levels than those of the conventional methods.

- Will this kind of project be feasible under the conditions for royalties established under the Law of Hydrocarbons?

- The preliminary analyses suggest that it is feasible. We have made presentations for the MEM, Pdvsa, and CVP under a technology confidentiality agreement.

- Will Shell go alone or with a partner on this project?

- Shell always likes to have business partners as long as they aggregate value to the operations, complement our work, and pursue the same objectives.

- How does Shell like the fact that Qatar has been invited to the Mariscal de Ayacucho project?

- The national oil company of Qatar has a 5 billion $ investment with Shell in a project of high degree purity gas conversion.

- The MEM has announced the opening of gas license rounds in the west of the country...

- We have been invited. We have been told that it is a 7 bloc project; but we have no further details. My company is interested in finding out about the project, but until we do so we can not say we are going to compete.

- The vice-minister of Hydrocarbons, has said that it is not possible to give green light to production increase projects without increasing the refining capacity in the country or out of the country.

- We want to go to the end of the chain with the crude in the Orinoco Belt. It would require an investment between 4 and 8 billion $. We are talking about crude improvement, and also about production of a menu of products. We have already assigned a team that is holding discussions with the MEM, Pdvsa, and the CVP. We are going to take a visiting committee to an experimental plant in the United States. We can extract crude and process final products in an economic way.

Published in Quantum No 28