Peru ratifies 30% cut in royalties

President Alejandro Toledo this month authorized state oil agency Perupetro to allow a 30% cut in royalties for oil and gas production from companies that make a discovery within the next 4 years.

By an OGJ correspondent

LIMA, Oct. 23 -- President Alejandro Toledo earlier this month authorized state oil agency Perupetro to allow a 30% cut in royalties for oil and gas production from companies that make a discovery within the next 4 years.

Royalties may not fall below 13.8% because legislation requires that Perupetro transfer 12.5% to the hydrocarbon-producing regions.

Perupetro's board approved the royalties' reduction last year, but the measure stalled in the economy and finance ministry, despite 10 requests from companies waiting to modify their contracts for the new regulation.

The measure is aimed at attracting new exploration contracts and boosting Peru's 97,000 b/d average oil production.

Perupetro signed one exploration contract this year—with Peruvian company Petrotech— for an exploration contract for offshore block Z-6 (OGJ Online, Jan. 28, 2002). Perupetro is awaiting final approval for a contract with US company Burlington Resources Inc.

In another move to spur exploration, Perupetro has proposed royalties of 5% during a 6-year period for companies investing in new blocks in the future, but that measure has yet to be approved by two ministries and President Toledo.

Perupetro Pres. Antonio Cueto said the 5% royalty would apply to new investors and also to companies already working in Peru that invest in exploring new areas.

Cueto wants to encourage new exploration because the last major discovery in Peru was in the mid-1980s with the finding of Camisea natural gas fields (OGJ Online, July 11, 2002). Operators of the $1.3 billion Camisea project, 500 km east of Lima, expect to begin producing and transporting natural gas and liquids to Lima by early August 2004.

Perupetro expects the 5% royalty measure to pass but acknowledged it could be delayed while the economy and finance ministry considers how to find the resources to pay 12.5% to oil producing regions.

More in General Interest