Hamaca-Ameriven Syncrude Project

The Hamaca ‘heavy crude’ upgrade project is one of the four projects exploiting the Venezuelan extra-heavy crude oil and bitumen deposits situated in the Orinoco heavy-oil belt, in Central Venezuela. Estimates of the recoverable reserves are in excess of 1.3 trillion barrels of heavy and extra-heavy oil in a large stratigraphic trap on the southern flank of the Oriente basin.

If the price of oil remains high (more than $50 a barrel), the extraction of extra-heavy crude would remain viable as Venezuela’s oil reserves are actually greater than the reserves of Saudi Arabia (only cost-viable reserves are counted in any estimation).

There are four government-approved joint venture projects between Petroleros de Venezuela SA (PdVSA), the state oil company, and foreign partners to extract and upgrade extra-heavy crude oil: Petrozuata, Cerro Negro, Sincor and Hamaca.

The four projects convert the extra-heavy crude from approximately 9° API density crude to lighter, sweeter synthetic crude, known as syncrude (26° API), at the Jose refinery complex on the northern coast of Venezuela.

In 2003, the total production from these projects was about 500,000bpd of synthetic crude oil (this was increased to 600,000bpd in 2005). The upgrading process also produces marketable by-products, such as coke and sulphur.

HAMACA CONCESSION

At the start of the project, the Hamaca partners were: Corpoven, a subsidiary of PdVSA (30% of the project); Chevron Texaco (30% of the project); and Conoco Philips (40% of the project). These companies were known collectively as the Hamaca Strategic Association or Ameriven. Finance for the project was lent to Hamaca Holdings LLC and Corpoguanipa SA over a period of 17 years.

The Hamaca concession area, which covers 160,000 acres, contains 8° to 10° API gravity oil trapped in shallow fluvial-deltaic reservoirs of the Oficina formation (Miocene Age). Ameriven has been extracting extra-heavy crude oil from this area of the Orinoco heavy oil belt since the fourth quarter of 2001 when they produced around 80,000bpd of extra-heavy crude, which was then blended with lighter crude for export (160,000bpd).

The project, which is operating under a 35-year franchise, started development drilling in early 2001. By October 2004 the project was in full production, with over 200 wells having been drilled. The most recent area of investment in the project, which is estimated at $3.8bn in the last five years, is in the construction of an upgrading facility at the Jose industrial complex on the North east coast of Venezuela.

The facility was completed and in full production in October 2004 with an initial production capacity of 120,000bpd. The upgrader, at full production, allows Ameriven to produce 180,000bpd of 25.9° API syncrude from 190,000bpd of heavy crude (this removes the need for blending in lighter crude for export).

HAMACA WELLS

The reservoir properties for the Hamaca wells are excellent, with porosity values of up to 36% and permeability values of up to 30 darcies. Hamaca crude is considered ‘foamy’ and is generally saturated with gas at reservoir conditions. Over the 35-year life of the field, more than 1,000 horizontal laterals are planned to deliver the required 190,000bpd to the upgrader facility.

Oil is produced under ‘cold production’ methods (no need for heated steam to mobilise the deposits) using progressing cavity pumps to bring oil to the surface. Cold production is possible because of the extended length of the horizontal wells (5,000ft), excellent reservoir properties, and the foamy-oil nature of Hamaca crude.

The heavy oil is mixed with diluent just downstream of the wellheads to facilitate transport to the upgrader facility.

Over the 35-year duration of the Hamaca project it is hoped to extract 2.1 billion barrels of extra-heavy crude oil.

UPGRADER PROJECT

The design of the facilities for the Hamaca project was carried out by Fluor and Tecnofluor in 1998. The infrastructure development contracts for the heavy oil upgrader, pipelines and associated production facilities were awarded in 2000.

Companies awarded contracts for engineering, procurement and construction were: Fluor Daniel of the US, Tecnofluor of Venezuela and Inelectra SA of Venezuela. These companies, headed by Fluor Daniel formed a joint venture partnership called Grupo Alvica for the purposes of the project. The independent engineer for the project is Pace Consultants Ltd.

The upgrader section of the project was worth $1.12bn out of the total investment of $3.8bn. The upgrader now accepts extra-heavy sour crude oil mobilised with diluent (high in sulphur compounds and carbon) and processes it by the use of a combination of diluent removal and recycling, hydrocracking, high-temperature gasification processes, desulphurisation and coking. The final products are syncrude (API 25.9°), coke (high carbon) and sulphur.

The sulphur and coke are stored onsite until transported to market and the syncrude is piped to an export terminal on the coast. The sulphur and coke handling facilities were designed and constructed by the Roberts & Schaefer Company of the US. They were awarded the contract for this part of the facility in 2001.

The sulphur storage system consists of 31t/hr pocket type-high angle conveyors fed from an existing conveyor system to transport the sulphur pastilles to two 300t storage bins. The sulphur pastilles can then be loaded into trucks when required.

The coke system has a new front-end loader fed feeder breaker and a 350t/hr conveyor to four 175t storage bins. The coke can then be loaded from the bins into trucks. Ancillary systems for this part of the operation include dust collection, PLC control systems and belt scales.

THE DETERIORATING SITUATION IN VENEZUELA

The President of Venezuela, Hugo Chavez, has become the scourge of large oil companies operating in Venezuela. Several times since the Hydrocarbons Law of 2001 he has suggested higher taxation on oil revenues paid to foreign oil companies from sales of Venezuelan crude.

Chavez has continued a hard policy toward private and foreign hydrocarbon producers in Venezuela. In mid-2004 the Venezuelan Ministry of Energy and Mines was working on a new licensing round to offer up new blocks for exploration and production in the Orinoco belt.

Any new heavy-crude projects would fall under the 2001 Hydrocarbons Law, which required the PdVSA to have a controlling 51% stake in oil projects; this has understandably hindered new investment in the Venezuela oil industry.

The Venezuelan minister of energy and mines also announced that many of the foreign oil companies in the country owe tax and royalties to the government and that many companies were operating outside the land and area franchises they were assigned to at the start of their contracts.

HYDROCARBON PROBLEMS

In May 2006 the Venezuelan National Assembly amended the Organic Hydrocarbon Law of 2001 to levy a new oil extraction tax at the rate of 33.33% on the strategic associations for the development of extra-heavy crude oil of the Orinoco Basin (this affects the Hamaca project).

The Venezuelan government also announced an intention to restructure the association agreements between Petroleos de Venezuela SA (PDVSA) and the foreign producers participating in the projects as ‘mixed enterprises’. This restructuring and hard government policy it is suggested could seriously impair the projects operations, assuming that the legal and economic hurdles to affect it are overcome.

This has also affected the credit rating and financial status of Venezuelan projects, which have been effectively downgraded and put on negative watch status.

WITHDRAWAL FROM THE PROJECT

In June 2007 following the ongoing problems in Venezuela ConocoPhillips, the largest investor in all of the four major Venezuelan heavy oil projects, failed to reach an agreement with the country’s government over relinquishing control of its projects to the state-owned oil company.

Petróleos de Venezuela SA (PdVSA) will take over running the three projects in which Conoco has stakes – 50.1% interest in Petrozuata, Hamaca (40%) and Corocoro (32.5%).

The two parties are still negotiating final compensation, but Conoco’s move signals its dissatisfaction with the compensation and minority status that PdVSA has previously offered foreign operators.

ConocoPhillips commented: “Although the company is hopeful that the negotiations will be successful, it has preserved all legal rights including international arbitration.” Conoco says it will take a $4.5bn impairment charge related to the operations. Four other operators with heavy oil investments – Total, BP, Chevron (Hamaca) and Statoil – have all agreed to reduce stakes in their ventures.

COMPENSATION AND DEBT

Exxon and Conoco are likely to pursue claims against the expropriation of their equity stakes through the World Bank. While the bank’s new president, Robert Zoellick, has reacted with calm to Venezuela’s threat to leave, he has also suggested that their economy is suffering mounting problems.

Moody’s has downgraded the debt of Hamaca, Sincor and Petrozuata from B1 to B2 in the wake of the renationalisation. Moody’s has noted that PdVSA has said that the projects will stay current on their debt, and that revenues from the projects are trapped offshore.

But it also highlights the projects’ very real exposure to refinancing risk, the fact that the foreign-owned stakes had previously been pledged to lenders and now are not available as security, and that the Venezuelan government might also want to impose taxes on the projects before they have serviced their debt. These could both be very real problems in the financial world.

In April 2004 PdVSA put forward a ten-year business plan for government approval that calls for more than $53bn in capital investment in Venezuela’s oil infrastructure and development. Over 60% of this is expected to come from the private sector and in particular foreign oil concerns. Whether this will happen or not in the current climate is a matter of serious contention.

REDUCTION IN OUTPUT

In January 2007 the Venezuelan government instructed the four Orinoco crude oil projects to reduce synthetic crude exports by 3.3 million barrels a month, or 110,000bpd. Rafael Ramirez, the Energy and Oil Minister, said: “The move is aimed at boosting oil prices and comes in the wake of the new government policy announcement involving the nationalization of Orinoco projects.”

The reduction is part of Venezuela’s compliance with OPEC cuts. In 2006 OPEC countries agreed to reduce production a combined 1.7 million barrels a day in two tranches. The reduction will focus on the synthetic crude exported after upgrading takes place rather than the heavy crude produced. Hamaca Ameriven will have to reduce synthetic exports by 800,000bpm.