Perupetro seeks flexibility to boost exploration

Peruvian oil regulator Perupetro SA, formed in 1993 to promote, negotiate, sign, and supervise oil and gas contracts, is asking the government to give it greater flexibility in dealing with contractors. The proposal to make standard model contracts more flexible is backed by Energy and Mines Minister Jorge Chamot.


LIMA�Peruvian oil regulator Perupetro SA, formed in 1993 to promote, negotiate, sign, and supervise oil and gas contracts, is asking the government to give it greater flexibility in dealing with contractors. The proposal to make standard model contracts more flexible is backed by Energy and Mines Minister Jorge Chamot.

Peru now has 15 oil exploration contracts with companies, compared with 26 in July 1999. Perupetro signed 47 exploration contracts during 1993-99, but few companies have stayed beyond the initial exploration stage.

Bureaucracy is one of the problems causing companies to give up blocks early. Executives of those companies would prefer that the country allow oil firms to sign contracts directly with Perupetro, rather than going through the Ministry of Economy and Finance, Ministry of Energy and Mines, other offices, and the Peruvian president before Perupetro can sign a new contract or amend an old one. This process reportedly can take as long as a year in the most extreme cases.

It is not clear, however, whether the ministry would be willing to accept all the proposals that arose during a roundtable held by Perupetro Pres. Rafael Samaniego with petroleum executives on July 17.

Lack of major finds
Part of the problem is a lack of major finds since operator Royal Dutch/Shell Group discovered the Camisea natural gas fields in the mid-1980s, although 35 exploration wells have been drilled in jungle regions.

Over the past 5 years, discoveries were made by Barrett Resources Corp., which recently found heavy oil on Block 67 with three wells; by a consortium of Shell and Mobil Corp., which found gas in the Pagoreni prospect on Block 75, on the same trend as Camisea; and Mobil with Exxon Corp. and Elf Aquitaine, which is still testing a natural gas discovery on Block 78 in the Madre de Dios basin.

Several companies have found oil shows, including Repsol-YPF SA, which last year drilled two exploration wells on offshore Block Z-29, but reportedly in poor reservoir conditions.

Geologists say, however, that there are still many zones which have not been drilled and areas where there has not been much drilling.

Chamot claims Peru's oil reserves are in the order of 310 million bbl. He added that production averages 100,000 b/d, but Peru has a $400 million deficit in its oil trade.

Observers say the country needs to drill at least 8-10 exploration wells/year, but companies return blocks often, citing various reasons for dissatisfaction.

Foreign companies' complaints
Perupetro has offered to analyze all complaints received and to seek solutions where possible, preferably with the backing of the companies� executives.

One complaint is that companies return blocks that they might otherwise continue to explore because rigid work programs do not give them enough time to analyze results. The companies also say they need more time than they are often allowed to find new partners when head offices abroad buy and sell properties or merge, which also leads to releasing blocks ahead of schedule.

Other complaints include exorbitant royalties in old northwest coastal fields where blocks are small and production low, too many regulators interfering with operations and with one another, and unexpected taxes and fines claimed by local authorities.

A major complaint is the payment of a general sales tax on the purchase of exploration equipment and services. In theory, companies should be able to claim its return, but only in the case of high-cost capital goods listed in the contract. Further, the claims can only be drawn on twice a year. The tax is later deducted from production, and companies that fail to produce must return the funds.

So far, Camisea has been the only project that received a tax refund. It then had to return the refund because the project did not move into production.

Another complaint is that, in recent years, authorities have been reluctant to supply information, such as the latest data on oil reserves, and failed to publish exploration and production contracts signed. Perupetro said, however, that it has now dropped prices on packets of information�which previously had an average cost of $100,000 per block�to $2,500-25,000.

Tax stability is a major issue following approval in Congress of a bill to eliminate tax stability in future hydrocarbons and mining contracts. The bill, however, has yet to be signed by the country's president, and oil executives said it could be returned by the president to Congress for modification.

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