Jan. 26 (Bloomberg) -- Eni SpA, Italy’s biggest oil company, and Petroleos de Venezuela SA, the South American country’s state-owned oil company, agreed to develop almost $18 billion worth of projects to pump and refine oil in Venezuela.

The companies’ joint venture will start producing crude in the Orinoco Belt in central Venezuela, Oil and Energy Minister Rafael Ramirez said today on state television, at a ceremony attended by Venezuelan President Hugo Chavez and Eni Chief Executive Officer Paolo Scaroni.

The venture expects to pump 240,000 barrels a day after spending $8.3 billion to develop the Junin 5 block, Ramirez said. First oil will be pumped in 2013, Eni said today on its Web site. It will reach full production in 2016, Scaroni said.

“That gigantic oil reserve -- it could not be exploited by Venezuela alone,” Chavez said, referring to the roughly 235 billion barrels of reserves in the Orinoco Belt. “Foreign investment is absolutely necessary.”

Rome-based Eni is seeking oil projects abroad to maintain output. Venezuela, to make up for declining production in its aging Lake Maracaibo fields, is inviting foreign companies to become minority partners in the Orinoco.

Eni also plans to build a $9.3 billion, 350,000 barrel-a- day refinery to convert crude oil from the existing Petromonagas project in the Orinoco into higher-value products, Ramirez said.

Eni will pay a $646 million signing fee, the company said on its Web site. It will pay $300 million when the development joint venture is formed and the remainder will be paid later.

International Arbitration

Eni will hold 40 percent of the venture. PDVSA, as the state company is known, will own the rest.

Eni was granted access to the Orinoco after dropping an international arbitration case against Venezuela in 2008 over an oil field nationalization.

U.S. oil companies Exxon Mobil Corp. and ConocoPhillips continue to pursue arbitration against Venezuela for seizing operations of Orinoco Belt projects that began in the 1990s.

Venezuela expects to complete joint venture agreements with Chinese and Russian companies “soon” and to complete bidding for three projects in the Carabobo blocks, Ramirez said.

Eni also signed a memorandum of understanding to build a 1- gigawatt power plant to be powered by natural gas from the Delta Caribe Oriental offshore fields, Ramirez said, without giving a potential price tag.

To contact the reporter on this story: Steven Bodzin in Caracas at sbodzin@bloomberg.net.

Last Updated: January 26, 2010 15:25 EST