Dreaming of growth in a world of shrinking petroleum reserves, oil barons from France and Norway celebrated their first barrels from the world's largest hydrocarbon deposit this week, Venezuela's Orinoco oil belt.

After inspecting the gleaming new production facilities of the $4.4 billion Sincor heavy oil upgrading project, executives proclaimed a brave new world in South America's oil El Dorado. Jean-Luc Vermeulen, exploration and production chief at France's TotalFinaElf, which has a 47 per cent stake in the venture, said Sincor was key to his company's push for 40 per cent more production in five years.

"It is the largest investment we have at the moment in the world," he told Reuters after the inauguration on Wednesday. "So far only conventional oil has been developed and produced in the world. If we can start producing this heavy oil, particularly in Venezuela, that means a lot of additional reserves can be developed and it lengthens the lifetime of oil in the world," he added.

With 270 billion barrels of recoverable reserves, the oil reservoir on the northern banks of the Orinoco River is the world's largest. Alone, it could slake the planet's petroleum needs for the next 10 years.

Sincor, the second of four such heavy oil projects underway in eastern Venezuela, pumped its first barrels in December and should reach 200,000 barrels a day (bpd) by the end of this year. "You don't even have to explore for oil here because finding oil is as easy as firing a pistol into the ground," President Hugo Chavez, a former paratrooper, told the assembled executives on Wednesday.

The Orinoco deposit has remained untapped until now because the oil is viscous, highly polluting and very low quality. To convert it into a high-value oil, investors are building a giant refinery 300 kilometres to the north on Venezuela's Caribbean coast, now eight months from completion.

Technological developments in drilling technology, such as submersible pumps and horizontal wells, have brought the extraction cost down to $3.50 per barrel, according to field manager Mario Wyroslaw.

Including the cost of upgrading, Sincor has a "technical cost" of $7.00 per barrel, but the project requires a $10 per barrel minimum to break even, investors said. "The $10 per barrel environment would be burdensome for a project of this kind, but if you ask people they will say the same thing about any offshore project," said Staffan Riben, Venezuela manager for Norway's Statoil, which has 15 per cent of Sincor.

Venezuela's state oil company Petroleos de Venezuela (PDVSA) holds the remaining 38 per cent of Sincor. Vermeulen said Sincor compared favorably with its giant Girassol discovery in deep water off Angola's Atlantic coast, which has a $6.50 per barrel operating and capital cost.

After upgrading, Sincor's synthetic oil will be worth about five per cent more than the North Sea's Brent Blend, one of the world's highest value marker crudes, Sincor's Wyroslaw said.

"Everybody wants to find a giant field of light crude oil because that pays well and we know how to handle that. But those elephants are more scarce so we have to go to both ends of the gravity spectrum, and we see that in Venezuela," said Riben.

"Some companies talk about developing liquefied natural gas, to use some vast unutilized hydrocarbon resources this country possesses, and at the other end of the spectrum you see this," he added.

Venezuela gave the four Orinoco projects a nine-year royalty holiday of one percent, versus a normal 16.7 per cent rate, to clinch the capital-intensive deals - a strategy that has come under question from the Chavez administration.

The Chavez government has vowed to honor the existing agreements - but has made clear that any expansion will be on a new fiscal basis. The current four projects, which will pump about 600,000 bpd by 2003, have only used six per cent of the Orinoco deposits, so new deals are probably just a matter of time.

"We have done sensibility studies that show that any expansion of these projects could be profitable even without any concessions on royalty," said Andres Riera, PDVSA's head of Orinoco projects.