Enigmatic Orinoco JV comes to light in Venezuela

A new Orinoco crude joint venture surfaced in Venezuela late yesterday, but the identity of state-owned PdV's minority partner is under wraps.

Venezuela's supreme court yesterday announced the creation of the venture called Petrosur, ignoring the 1999 Bolivarian constitution's explicit text that only the elected national assembly can approve joint ventures involving energy and other strategic sectors.

State-owned PdV's affiliate CVP will hold a 60pc stake in Petrosur, with 40pc held by a Dutch shell company called Stichting Administratiekantoor Inversiones Petroleras Iberoamericanas (SAIPI).

Stichtings are Dutch entities that make it possible to legally separate ownership and control, so that the identities of the actual owners or beneficiaries can remain hidden from public scrutiny.

Petrosur will develop and operate an upstream extra-heavy crude venture in the Orinoco oil belt's Junin section.

PdV has multiple Orinoco joint ventures with foreign partners, but only four dating back to the late 1990s are fully operating. A handful of the newer projects with partners such as Spain's Repsol are producing token volumes, but most are dormant, mainly because PdV cannot provide its share of investment and existing upgrading and blending capacity in Venezuela is limited.

The announcement of the new Orinoco venture coincides with controversial assertions by senior political figures close to the government that a planned constituent assembly will adopt legal measures to take full control of PdV's joint ventures. PdV pushed back this week, telling its partners in a statement obtained by Argus that its partnerships will be honored and respected.

The birth of Petrosur also comes to light as PdV works to convert a refinery on the nearby Dutch-controlled island of Aruba into a heavy crude upgrader. The facility which is currently mothballed would receive diluted Orinoco crude and process it into an intermediate grade for further processing at PdV subsidiary Citgo's refinery system in the US.

The Venezuelan supreme court's ruling approving the creation of Petrosur was issued by the court's constitutional division which last March stripped the elected and opposition-controlled national assembly of its constitutional powers.

The court announced through its Twitter account last night that it approved the creation of Petrosur because the elected national assembly has been in "constitutional contempt" since July 2016.

SAIPI was registered legally in Holland on 19 April 2017 with an address in The Hague. The company's largest corporate asset appears to be a British Virgin Islands company called Arazen Investments Ltd.

A senior aide to national assembly president Julio Borges tells Argus that Petrosur's approval by the supreme court is "illegal and unconstitutional." The senior legislative aide warned that Petrosur will "never be recognized legally by the government that eventually replaces (current president Nicolas) Maduro."

"All capital investments and loans made by or arranged through Petrosur's secret foreign partners will be disavowed and repudiated," the legislative aide added.

Article 187 of the 1999 Bolivarian constitution states explicitly that only the elected national assembly has the constitutional authority to "authorize the national executive to enter into contracts in the national interest" and to "authorize contracts in the municipal, state and national public interest with foreign states or official entities or with companies not domiciled in Venezuela."

The energy ministry and PdV declined to comment.