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Royal Dutch Shell Plc .com: Shell, Petroleos Venezuela Agree on Oil Concession

FROM BLOOMBERG

Royal Dutch/Shell Group, Europe’s second-largest oil company, reached agreement with Venezuela’s state oil company to explore a heavy oil block in the South American country.

A memorandum of understanding may be signed as early as today between the two companies, said a spokesman for Caracas-based Petroleos de Venezuela. Shell may be given a block in the Ayacucho field in the Faja, or heavy oil belt, to explore and certify the reserves, the spokesman said.

The companies may release details of the agreement later tonight, said the spokesman. The accord is expected to be signed during a meeting between visiting Shell Chief Executive Officer Jeroen van der Veer and Petroleos de Venezuela President Rafael Ramirez.

Petroleos de Venezuela is granting companies such as Shell, Repsol YPF SA, Petroleo Brasileiro SA and OAO Lukoil, blocks in the Faja to explore as a prelude to development. Venezuela’s heavy oil-deposits may rival Canada’s tar sands as an alternative source of crude to satisfy increasing global demand. Rising oil prices have made the Faja and tar sands more feasible economically.

President Hugo Chavez has said that the Faja may hold up to 235 billion barrels of oil. Sean Rooney, Shell’s Venezuelan manager, declined comment on a possible agreement.

Shell proposed creating a heavy oil joint venture with Petroleos de Venezuela in 2004, using new technology. At that time, Shell officials said the venture would require an investment of between $4 billion and $8 billion.

Faja Development

Venezuela stopped development of the Faja in July 2005 to allow for exploration and certification of the area’s crude reserves.

The certification process, which includes third-party verification, will take up to two years, Petroleos de Venezuela said. The heavy-oil belt has been divided into 27 blocks. Petroleos de Venezuela and its partners are working on geological surveys and exploratory drilling to determine the area’s reserves.

Blocks will be auctioned when the certification process is finished, Ramirez said last month. Companies that are undertaking the exploration and certification will have an inside track due to the knowledge of the fields, he said.

Foreign Developers

Venezuela has relied on foreign oil companies to help develop its extra-heavy oil reserves in the Faja, a region above the Orinoco River in the eastern states of Monagas and in Anzoategui.

Petroleos de Venezuela has four joint ventures with foreign producers to pump crude oil from the Orinoco Belt to the Caribbean coast for export to refineries in the U.S. and other countries. The four produce about 600,000 barrels a day.

Partners include Chevron Corp., Total SA, and ConocoPhillips.

BP Plc is Europe’s largest oil company.

To contact the reporter on this story:
Peter Wilson in Caracas at  [email protected].

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