UPDATE: Venezuela, Russia Joint Oil Venture Seen Producing By May

--Orinoco's Junin 6 bloc expected to produce 50,000 barrels per day, has potential for 450,000 barrels per day

--President Chavez says project is latest example of strengthening ties with Russia

--Chavez proposes creating new oil alliance, says won't conflict with OPEC

(Adds details on production in third paragraph; details on ownership in fourth paragraph; and Chavez comments on oil alliance proposal in seventh and eighth paragraphs.)

SAN DIEGO DE CABRUTICAS, Venezuela (Dow Jones)--A joint venture between state oil company Petroleos de Venezuela and a consortium of Russian companies is expected to begin producing crude in the Orinoco heavy oil belt by May, officials said Thursday.

"The physical work has begun," said Igor Sechin, deputy prime minister of Russia, during a tour of the oil fields with Venezuelan Oil Minister Rafael Ramirez.

Eventually, 34 wells will be drilled at the Orinoco's Junin 6 bloc, which is slated to begin producing 50,000 barrels of crude by next year. "It's one of the biggest fields we have," Ramirez told reporters, adding that it has potential for 450,000 barrels per day.

The Junin 6 bloc is 60% owned by PdVSA, as the state energy monopoly is known, while the Russian consortium made up of OAO Rosneft (ROSN.RS), Surgutneftegaz JSC (SGTZY), TNK-BP Holdings (TNBP.RS), Lukoil Holdings (LUKOY) and Gazprom Neft (GZPFY) holds the remaining 40%.

Venezuela is pushing foreign oil partners to increase investment into developing its crown jewel Orinoco belt in a bid to raise the country's crude production levels to 4 million barrels a day by 2014, up from just under 3 million presently. Some analysts say President Hugo Chavez's government, which relies heavily on oil revenue to fund large social programs, is aiming to increase production to safeguard against a potential drop in the price of the commodity.

Speaking on state television, Chavez said the project is the latest example of strengthening ties with Russia as the socialist leader looks to move away from his ideological foe, the U.S.

Chavez also briefly proposed creating a new organization that would protect the interests of large oil exporters, but said it wouldn't conflict with the Organization of Petroleum Exporting Countries, of which Venezuela is a founding member.

"The thought occurred to me of how we could create a new organization of this new world that is emerging of the oil giants. There aren't too many oil giants in the world, maybe four or five, and Venezuela and Russia are two of them," the president said.

While Venezuela's Orinoco region holds one of the largest and mostly untapped deposits of crude in the world, billions of dollars will have to be poured into converting the region's tar-like heavy oil into a usable and exportable commodity. The South American country aims to bring in $80 billion in investment over the next several years to develop the fields.

At an oil conference in Venezuela last week, officials from various energy companies stressed that financing the large-scale production projects may still prove challenging along with bringing the required technology into the country's vastly underdeveloped eastern regions.

-By Ezequiel Minaya, Dow Jones Newswires; 58-414-120-5738; [e-mail]

--Kejal Vyas contributed to this article.