Foreign oil companies are weathering Peru's political crisis, and the outlook for increased foreign participation in Peru's petroleum sector remains promising.
There has been improvement in the political turmoil and soured international relations that followed President Alberto Fujimori's Apr. 5 suspension of Peru's Congress, charging political corruption and attempts to block his fiscal reforms. But there are fresh concerns over an increase in terrorism aimed at oil industry facilities by antigovernment guerrilla groups in Peru.
Meanwhile, state-owned oil company Petroleos del Peru (Petroperu) continues efforts to sell assets as part of Fujimori's mandated privatization program. And foreign companies continue to grapple with uncertainty and bureaucratic red tape in chasing investment opportunities in Peru's beleaguered but opening petroleum sector.
POLITICAL CRISIS UPDATE
Fujimori improved his weakened relations with the international community when he announced June 1 he will hold elections Oct. 18 for a constituent Congress.
That's seen as a first step towards restoring institutional democracy in Peru in the wake of his Apr. 5 action, and a shorter timetable than the 12 month program he established after the suspension.
Days earlier, Fujimori had said his emergency reconstruction government will hold a referendum July 5, to be followed by the election of a constituent Congress in 5 months. Under the program, half the Congress was to legislate and oversee the executive branch and the other half was to draft a new constitution. The Organization of American States then pressed Fujimori to abandon the referendum and set a firm date for elections. OAS and the U.S. have offered technical and financial assistance to hold the elections.
At the time of the suspension, the consensus among oil companies operating in Peru was that they were more worried about security than whether Fujimori is a constitutional president. Despite the political uncertainties, a number of oil companies continued to discuss exploration and production contracts with Petroperu.
But the political turmoil did force two companies to at least postpone plans about pursuing a deal in Peru. ARCO International Oil & Gas Co. in mid-May canceled plans for talks with Petroperu, and Santa Fe Energy Resources, Houston, having started negotiations for an exploration contract at the time, postponed a visit to Lima for 2 weeks.
A bigger concern at the time was terrorist acts by the extreme Maoist Sendero Luminoso (Shining Path) group. A car bomb exploded in the midst of one of Lima's business/financial districts May 22, damaging Petroperu's office buildings and to a lesser extent other oil company offices.
PRIVATIZATION UPDATE
Oil companies are mainly concerned over the government's plans to include Petroperu in its broad campaign to privatize state companies.
Fujimori's emergency reconstruction government in late May launched an aggressive campaign to sell every state company that it could.
In a turnaround from earlier policy that limited privatization to nonstrategic companies, the government formed private investment committees to promote sale of big state companies such as Petroperu and Electroperu.
The government ended part of those companies' energy and oil monopolies last year (OGJ, Aug. 26, 1991, p. 38) but has yet to free oil and other energy prices.
Part of the policy turnaround includes use of a debt-for-equity exchange investment plan that earlier had been discarded.
Petroperu Chairman Jaime Quijandria in June said it is not clear how Petroperu privatization will be accomplished and that he's awaiting further information. He noted at the time that no foreign or private domestic company had shown an interest in buying Petroperu whole. Companies seeking contracts with Petroperu, however, are querying how privatization might affect them, and some believe the privatization announcement is part of the government's campaign to improve Peru's image abroad.
Quijandria says Petroperu's financial situation is improving because of the staff reductions and because the government is allowing it a higher percentage of oil revenues from domestic sales. He noted Petroperu made a profit of $40 million in the first quarter but attributed that mainly to a stable foreign exchange rate.
WHAT'S FOR SALE
Thus far, it appears that Petroperu will be sold piecemeal. The committee established to determine the method of the state oil company's privatization is headed by prominent mining executive Augusto Baertl and includes Quijandria.
Petroperu has begun to sell assets and reduce its activities but at presstime was still acting as the state oil company. It began in June to auction 83 service stations and to circulate prospectuses of subsidiaries, including its 8,000 b/d Conchan refinery and marketing facilities on the outskirts of Lima and the Solgas domestic gas marketing company.
In early May Petroperu had begun circulating a prospectus of its shipping unit Petrolera Transoceanica SA (PTSA), in preparation for privatization. The company's fleet includes four 25,243 dwt oil tankers and a small LPG carrier to move products from the Talara and La Pampilla refineries to distribution plants along the coast. Sale of PTSA would include a contract guaranteeing Petroperu would continue to transport at least part of its products on PTSA's vessels. Other shipowners contend, however, that the fleet is custom built for Petroperu operations, and PTSA's sale would not be viable without a guaranteed contract. Only one of the vessels, Isabel Barreto, launched in 1986, operates abroad-between Barranquilla and Buenaventura, Colombia.
Petroperu also decided to keep only six heavy drilling rigs for its own operations and sell off its eight pulling rigs and four swabbing units to private companies. And the company plans to sell its river tugs and barges, possibly to employees.
In addition, Petroperu continues to seek private contractors to operate fields on the northern coast where production has fallen to 16,000 b/d from an average 19,000 b/d last year and 23,000 b/d in 1986. It likely will farm out operations to private companies in other fields as well.
Domestic private contractors that are candidates for those operations are seeking foreign partners to supplement technology and financing.
Meanwhile, Petroperu was expected to cut staff by another 1,300 in June, slashing its work force to 6,000 from about 10,000 just 2 years ago.
PETROMAR STATUS
Quijandria says Hallwood Petroleum Inc., Denver, McAllister Corp., New York, and Oilex, Houston, are interested in possibly purchasing Petromar SA, Petroperu's offshore subsidiary.
Petromar operates offshore fields that had been operated by Belco Petroleum Corp. until those assets were expropriated in 1985. Since Petromar took over operations in 1986, production has fallen to 14,800 b/d from about 27,000 b/d. Quijandria notes that all three companies include ex-Belco personnel familiar with the Petromar operations.
Hallwood currently is a partner with American International Petroleum Corp., (AIPC) Denver, and Energy Development Corp. (EDC), Houston, in offshore exploration Block Z-1 adjoining Petromar's operating area off the northern coast. And McAllister subsidiary International Marine Co. provides Petromar with offshore transportation services.
The government authorized Petromar's privatization committee, headed by Quijandria, to make a direct sale provided it's completed by July. If that does not happen, it will have to call a tender.
Petromar earlier this year began seeking specialists to help quantify its reserves and evaluate installations and operations in a first step toward privatization (OGJ, Mar. 16, p. 35). Funds from sale of assets would go toward paying the $184.8 million Peru has agreed to pay Belco insurers American International Corp. (AIG) and Belco parent Enron Corp. (OGJ, Jan. 6, p. 28).
Petromar in May let contract to Peruana de Perforacion SA, Talara, Peru, Suits Drilling South America Inc., Enid, Okla., and Mallard Bay Drilling Inc., Lafayette, La., to lease and operate two drilling rigs for work on its Block Z-1 off the northern coast. The 2 year contract is valued at $15 million. The rigs were scheduled to arrive at Talara the second week of July.
Petromar also has called a tender to lease a directional drilling rig to service and work over wells in the same area. The rig must be rated to work on slant wells to 12,000 ft and at least up to a 60 angle. Petromar estimates cost at $2.8 million, including leasing, operation, repair and maintenance of well service equipment, related services, administrative costs taxes, and contractor profits. Petromar is to finance the project from its own resources.
PETROPERU'S 1992 OUTLOOK
Petroperu predicts its average crude production will rise by 400 b/d this year.
The company expects its average oil output to reach 115,300 b/d in 1992 compared with 114,900 b/d in 1991. Output in December fell to 109,300 b/d, its lowest level since northern jungle oil production started in 1975.
For the latest full month of data, Peru's oil production in April was 111,100 b/d. That was up slightly from 110,900 b/d in March. Petroperu's northern coast production fell to 14,500 b/d following heavy rains in March-April.
During March-April, Peru was a net importer of oil with an oil trade deficit of 25,000 b/d.
If the forecast is fulfilled, it will be the first increase in oil production since 1981, when output averaged 190,000 b/d to begin a 10 year slide.
Petroperu expects to import an average 40,400 b/d of crude to cover its refinery runs. It also forecasts imports of 9,780 b/d of refined products, mainly liquefied petroleum gas and diesel oil.
It plans to export 58,400 b/d of residual products.
Output should increase this year from Occidental del Peru's northern jungle fields in Block 1-AB by 2,800 b/d. But the increase will be offset by declining production from old jungle wells and from Petromar's dilapidated offshore operations.
OFFSHORE UPDATE
Petroperu is lining up $20 million in financing to stem the production decline in Petromar fields.
Petroperu is increasing the price it pays Petromar for oil supplied to it to $15/bbl from $10.17/bbl it had been paying the past 6 years. Quijandria says that the oil had cost Petroperu about $18/bbl by the time it paid Petromar's bills.
Petroperu is also guaranteeing a $2 million credit line from Cofide, the state development finance corporation, for Petromar to buy spare parts to keep operations going.
Serpetro, the state petroleum services company, is currently drilling in Petromar's area with one of the five former Belco rigs. The company earlier this year had hoped to get another rig in the field, but has little hope of repairing the other three.
Petroperu hopes to find a partner for Petromar to inject the necessary working capital to boost production.
Offshore output in the former Belco fields fell to an average 16,400 b/d last year. Petroperu predicts Petromar's output will fall to 13,700 b/d by yearend unless the offshore company is given funds to increase drilling and make urgent repairs.
Elsewhere offshore, Block Z-1 work calls for a minimum commitment of $19.5 million during a 6 year exploration phase with option to extend 1 year. Work is to include conducting 1,500 line km of seismic during the first 2 years plus reprocessing and interpreting existing data and field studies. The second 2 year stage covers drilling of two wildcats and the third three wildcats. If the AIPC group takes up its option, it must drill a sixth exploratory well.
The area was lightly explored with limited success in the early 1970s by a combine of Tenneco Inc. and Union Oil Co. of California.
AIPC is operator with EDC and Hallwood each holding 49%. AIPC will receive a 5% net profit if the project is successful.
NORTH COAST UPDATE
Petroperu expects average production at its own northern coast fields to fall by 300 b/d to 18,700 b/d by yearend. It expects production to increase, however, by an average 400 b/d from old north coast fields subcontracted to local companies GMP SA, Cavelcas-Geopet Asociados, and Vegsa Contratistas Generales SA.
GMP in June was preparing to spud a second wildcat in the Carpitas field area north of Talara. At the time, the company still was testing its first wildcat in the area, which came in at an initial flow of 80 b/d.
Cavelcas SA hopes to jump production at the old north coast field it operates to 800 b/d in 3 years from 400 b/d at the beginning of May. Cavelcas also has brought in a proposal by a joint venture it has with China National Petroleum Co., Beijing, for a secondary recovery project on the north coast.
Elsewhere on the north coast, Petroperu in June still was discussing a directional drilling project with Texas independent Clayton Williams in Lobitos field, which Petroperu would relinquish. The U.S. company would hold 75% of the venture and provide financing for Petroperu's 25%. If successful, it would recoup its investment in oil production.
At least 30 local and foreign oil companies presented proposals to Petroperu last fall covering ways to boost production in three north coast blocks-III, IV, and V.
Block V, north of Petroperu's Talara fields, includes Los Organos fields near the Oxy-Bridas secondary recovery project and produces about 6,000 b/d.
Block IV includes Alvares, Oveja, Bodega, and Zorro fields near Talara. Block III includes the Portachuelo-Lagunitas-LaBrea producing area north of Block Grau I, under negotiation with Cia. Petrolera San Juan, Lima.
CAMISEA PROJECT STATUS
Uncertainty remains the watchword for Peru's long delayed and controversial Camisea gas/condensate field development in the central southern jungle.
Proposed development of the 10 tcf field, discovered by a unit of Royal Dutch/Shell Group during a $200 million exploration campaign in the 1980s, has not gotten off high center since Shell agreed to a $1.8 billion project in 1988.
That project called for Shell and a partner to spend $400 million for field development and another $410 million for separation plants. In addition, Shell and partner were to spend $175 million toward a total cost of more than $700 million for a pipeline across the Andes to the Pacific Coast. Shell also had an option to contribute as much as one fourth of the $180 million expected outlay for fractionation and marketing facilities to be installed on the coast.
Further, Shell was to help Petroperu secure financing from other oil companies, multilateral development banks, Inter-American Development Bank, governments, and suppliers for the state company's $660 million contribution to the project.
The World Bank turned down the project, citing Peru's being in arrears on previous loans and a needed goodwill gesture in the form of an energy strategy program.
The preliminary agreement collapsed in March 1988 when the former administration of President Alan Garcia canceled Shell's contract, citing Shell's failure to raise funds within a specified timeframe-although the agreement specified the timetable could be extended by mutual agreement. Shell since then has maintained it has first refusal on Camisea development and awaits a market to justify development.
Petroperu last year invited Consolidated Eurocan Ventures, a unit of International Petroleum Corp., Vancouver, B.C., to form a joint venture with another company to come up with another proposal to develop Camisea.
Shell held technical meetings with Petroperu last October where they discussed potential markets for Camisea gas. Shell wanted a commitment from Electroperu for at least two 200,000 kw electric power plants before it would begin pilot development in the field. Even that would not be enough to justify full development without an additional market, however.
One possibility is a $600 million project that Braspetro, the international arm of Brazil's state-owned Petroleos Brasileiro SA, has proposed with Construtora Norberto Odebrecht, Salvador, Brazil, to build a gas pipeline to Inapari on the Brazilian border to fuel a 400,000 kw power plant.
Even with approval, it would take about a year to complete feasibility and environmental studies for the pipeline/power project.
The initial 360 km route would be extended another 40 km to bypass Manu National Park in Peru. From Inapari, Brazil would install high power transmission lines to carry electricity 700 km east to Porto Velho.
An alternative calls for building a buried gas pipeline the full 1,100 km to Porto Velho.
OXY'S PROGRAMS
Oxy last March started working a second drilling rig in block 1-AB to accelerate a 2 year, 20 well drilling program under a $60 million project agreement it signed with Petroperu last year (OGJ, Dec. 23, 1991, p. 23).
It spudded the fourth development well under the agreement in late May.
Oxy expects to take its jungle oil production to 58,000 b/d in the fourth quarter from 49,000 b/d in December, giving it an average of 54,700 b/d for 1992.
It hopes next year to produce an average 62,000 b/d from the northern jungle.
Meantime, Quijandria says Petroperu has ironed out all the snags to sign a new exploration agreement with Oxy for exploration on Block 4, also in the northern jungle. Oxy was expected to sign in early June.
Further, Petroperu has proposed that Oxy and partner Bridas Sapic extend and expand the contract covering the secondary recovery project on the north coast that is due to expire in 1995.
CHAMBIRA MOVING ALONG
Petroperu expects to begin gradually increasing production from its northern jungle Block 8 mainly by developing Chambira field, discovered 3 years ago.
Petroperu earlier this year signed an agreement with Andean Development Corp. (CAF) for a $24.8 million credit line for a $30.4 million Chambira project, based on reserves estimated at 18 million bbl.
The $24.8 million will give Petroperu funds to start the project. It needs the remaining $5.6 million to drill another six wells and build a personnel camp and related installations. Petroperu hopes to find a partner willing to put up the $5.6 million to speed operations.
Petroperu in January began moving equipment to the site of the first well. The company's planned six development wells follows four wells completed the past 2 years.
It is also plans to construct a 30 km pipeline from Chambira to the start of the North Peruvian Pipeline at San Jose de Saramuro to move Chambira oil to the Bayovar marine terminal on the north coast. Petroperu hopes to cut the delays common to international tenders by state companies by applying CAF's requirements to invite offers for pipeline construction only from qualified companies.
Quijandria says the field could start production within 4 months after project start-up, but oil would have to be stored in the area until the pipeline is completed. The pipeline construction is likely to take 12 months.
MARC RICH
Petroperu is about to begin a $15 million project to drill six development wells and to work over five wells in its northern jungle Corrientes and Pavayacu fields.
Marc Rich, the international trading company, and one of Petroperu's long-standing brokers, is putting up financing in exchange for fuel oil.
Petroperu is to deliver 1.98 million bbl of No. 5 fuel oil to Marc Rich in six biannual shipments of 330,000 bbl each.
The financing includes $7.8 million to drill and complete four wells in Corrientes field and $1.14 million to expand electrical power and flow lines in Corrientes. Power is to be increased to 5,800 kw from the current 4,800 kw. A further $690,000 is to be spent to expand power and flow lines at Pavayacu.
Petroperu expects to get an average initial production of 1,500 b/d from each Corrientes well after installing electric centrifugal pumps. It expects an average total production of 1.8 million bbl of crude from each well.
Work began in March in Corrientes and is to begin in the fourth quarter in Pavayacu.
The Pavayacu wells are also to begin production at 1,500 b/d using electric centrifugal pumps for a total recovery of 1.75 million bbl/well.
MOBIL WORK UPDATE
Mobil at presstime was expecting to complete by mid-June its required 1,600 line km of seismic survey in the Huallaga basin.
Mobil had not yet chosen a location for its next wildcat at presstime. The company in February plugged and abandoned its first Huallaga basin wildcat, 1 Ponacillo (OGJ, Nov. 4, 1991, p. 46). Mobil drilled the well to 8,980 ft but encountered tight formations and no hydrocarbons and halted drilling originally programmed to 16,400 ft.
The new seismic and geological studies are in the northern portion of the basin, where Mobil anticipates more favorable reservoir and source rock.
The area is just south of Petroperu's Block 8, where the state company produces 22,000 b/d.
Mobil is committed to drill two wildcats in the second 2 year phase of its 30 year exploration and development contract with Petroperu signed in September 1989.
OTHER WORK
The Geophysical Services Inc. crew conducting the Huallaga basin survey for Mobil will follow that with a move to Block 50 in the Santiago basin to begin a seismic survey for Petromineros del Peru SA, a unit of Edward Callan Interests, Houston. Petromineros signed an exploration contract for the block with Petroperu in October 1990.
Advantage Resources, Denver, in late May was holding talks with ARCO after Plains Resources International had pulled out of a proposed exploration joint venture on Block 62.
Great Western Resources, Houston, in early June signed an outline contract with Petroperu covering exploration and development on Block 65. Petroperu's board approved the contract and sent it to the administration for cabinet ratification.
Olympia Oil & Gas Co., in association with Peruvian company Cia. Petrolera San Juan SA, was to sign an operating contract with Petroperu for Blocks Grau 1 and Grau 2 on Peru's northern coast south of Talara oil fields. San Juan had been seeking a contract for the work the past couple of years but lacked financing.
Spain's Repsol SA in early June also was reported to be near signing with Petroperu as an operating partner offshore.
Consolidated Eurocan is reprocessing seismic data acquired on Block 16A, where it signed an exploration/development contract earlier this year (OGJ, Jan. 6, p. 92).
Petro Andes SA, Lima, working its block in the Titicaca basin, reported drilling equipment ordered from Russia's Volgograd Drilling Factory had been shipped and was to arrive in Peru by the end of June (OGJ, Mr. 23, p. 46).
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
