PERU TURNAROUND TIED TO PRIVATIZATION

Petroleos del Peru predicts a 10% increase in Peru's oil production this year and a further increase in 1994.

Petroperu also forecasts a sharp increase in drilling in Peru this year.

After several years of declining oil production, a gradual turnaround in the cash strapped country's petroleum industry is largely tied to its progress in privatization. The government last year began a campaign to privatize all state owned companies by the end of July 1995.

In February, Peru's government let a $360,000 contract to Booz Allen & Hamilton, New York, to develop a strategy to privatize Petroperu and study the petroleum law the government is drafting.

The government is considering a law to grant domestic and foreign petroleum companies concessions instead of the current approach of awarding operating contracts. Consultants are expected to present their proposal to Petroperu in about 30-45 days. Under such a law, Petroperu would lose its monopoly and must compete with other companies on equal terms, and those other companies would be allowed to freely dispose of their production.

Daniel Hokama, Minister of Energy and Mines and head of the government's privatization commission, said he expects soon to announce the privatization date for Petrolera Transoceanic SA, Petroperu's coastal marine transportation subsidiary.

Meantime, Hokama late last month said the government has decided to postpone until 2000 plans to develop the giant Camisea gas field. Hokama said Peru does not have a market big enough to justify the project's $1.8 billion investment and will continue to expand its electric power grid with oil fired plants. The government also dropped a proposal to sell Camisea gas to Brazil as infeasible.

Among other developments in Peru's petroleum industry:

• Occidental Petroleum Corp. signed a risk service contract with Petroperu to explore the 2.2 million acre Block 4 in the Maranon basin east of the Andes.

• Peru's privatization commission let a 20 year contract to Petrotech International Corp. of Delaware to operate a former Belco Petroleum Corp. offshore block currently operated by Petroperu unit Petromar SA, slated for liquidation under the privatization program.

• Great Western Resources, Houston, signed a 30 year exploration and development contract with Petroperu for Block 65 in the Maranon basin.

• Petroperu prequalified companies from the U.S. and Mexico bidding under an international tender to develop Aguaytia gas field and operate two small producing oil fields in the north central jungle.

• Petroperu expects to call tenders for additional toll contracts to operate its La Pampilla and Talara refineries, similar to the 1 year contract it has implemented with Marc Rich Co., Zug, Switzerland, for processing crude at La Pampilla.

PETROPERU FORECASTS

Petroperu estimates Peru's oil production will rise to 127,200 b/d this year and 133,200 b/d in 1994 from 115,900 b/d in 1992.

Most of the 1993 increase will come from jungle fields operated by Oxy and offshore fields operated by Petromar (see table).

The 4% increase in 1994 is to come mainly as a result of development drilling in Petroperu's Pavayacu-Corrientes and Chambira fields in the jungle.

Peru's oil production profile began to improve in fourth quarter 1992 after Oxy and Petromar boosted output. Average production in December was 123,500 b/d compared with 106,000 b/d the start of 1992. Production early in January 1993 averaged 124,200 b/d.

Petroperu expects 15 wildcats to be drilled in Peru this year, compared with only two-both by Petroperu -in 1992. Of those 15, Petroperu will drill five wildcats-two on the north coast and three in the northern jungle.

Private companies will drill the remaining slate of wildcats. Grana y Montero will drill two on the northern coast, Petromineros one in the northern jungle, Vegsa two on the northern coast, Mobil Oil Corp. one in the northern jungle, Eurocan Ltd. two in the central jungle, and Advantage Resources Inc. two in the northern jungle.

In addition, Petroperu plans to drill 52 development wells, mainly on the northern coast. It expects contractor companies, including Petromar, to drill 93 development wells this year.

Meanwhile, Petroperu expects exports of refined products to exceed oil imports, although the cost of imports will exceed that of exports. Crude oil, at an average $19.30/bbl last year, accounts for 60% of imports. Petroperu projects oil imports in 1993 at 45 million bbl, including 27.8 million bbl of crude. It pegs 1993 exports at 53.4 million bbl, including 50.2 million bbl of fuel oil.

OXY CONTRACT

Occidental del Amazonas Inc.'s 100% owned Block 4 is 150 miles southwest of Oxy's Block 1AB, which currently produces 62,000 b/d of oil.

The Nor-Peruano pipeline, which transports crude over the Andes to the port of Bayovar, crosses Block 4 and has the capacity to accommodate additional production from new discoveries.

Oxy will conduct a 400 line km seismic survey on the block and could drill as many as five exploratory wells there. Work is to begin immediately.

Oxy has successfully completed 12 wells of a 20 well development program it began last year on its 100% owned Block 1AB. In addition, the company has a 63% interest in a waterflood on Peru's northern coast at Talara, which produces more than 5,000 b/d of oil.

PETROMAR PRIVATIZATION

Petrotech's contract for Block Z-2b is expected to be wrapped up after a 60 day grace period under which the government negotiates details of settling its $188.4 million debt to American International Group (AIG), New York, Belco's insurers.

Petromar has operated the block since yearend 1985, when Belco's contract was canceled and its oil field assets expropriated by the Garcia administration.

Petrotech is to lease the former Belco assets at a cost of $10 million/year for 20 years to help the government pay its debt to AIG. Peru in December 1991 reached agreement with AIG to pay the debt in 7 years but was unable to raise the required bank guarantees. Once Petrotech's operating contract is signed, Petromar will be liquidated under the privatization program begun by Peruvian President Alberto Fujimori.

Petromar in January increased crude production to 17,000 b/d from 15,400 b/d the prior year. The offshore fields produced as much as 30,000 b/d under Belco. Petromar's proved reserves are estimated at 86 million bbl, but the company has conducted almost no exploration the past 7 years.

GREAT WESTERN'S CONTRACT

Great Western agreed to spend at least $23.7 million under the contract's 6 year-with a 1 year extension option-exploration phase.

Most of that money will be spent the first year, including outlays for spudding the first wildcat. If it finds and develops gas, Great Western's contract will be extended to 40 years.

Great Western said it has identified several structures of interest from existing seismic data that will be the focus of new seismic surveys. Great Western plans to reprocess 1,500 line km of seismic records, shoot another 400 line km, and conduct geological, geophysical, and geochemical studies in the area.

It also plans to drill four wildcats.

Block 65, near Petroperu's Corrientes producing fields, was formerly part of Petroperu's Block 8, where the company produces an average 19,300 b/d. The Nor-Peruano pipeline traverses the southwest part of Block 65.

Other companies awaiting signature on exploration/development contracts with Petroperu are Clayton Williams Co., Houston, for a joint venture on the northern coast, Olympia Oil & Gas Co., Houston, and Cia. Petrolera San Juan, also for a venture on the northern coast, and Santa Fe Energy Resources Inc., Houston, for northern jungle Blocks 63 and 674

AGUAYTIA DEVELOPMENT

Petroperu prequalified Construcciones Protexsa SA de CV and Maple Gas Corp., Dallas, to bid on delineation and development of Aguaytia gas field and operation of Maquia and Agua Caliente oil fields in Peru's north central jungle.

The contract is to include leasing the 2,500 b/d refinery and sales terminal at Pucallpa. The two oil fields currently produce about 800 b/d.

Petroperu in December 1992 ended 6 months of direct negotiations with Maple over the Aguaytia contract, opting instead for an international tender for a contractor.

Industry sources estimate the cost of developing Aguaytia at $25 million. The field was discovered in 1961 by Mobil in conjunction with Cia. Peruana El Oriente SA, a local company participating in a Peruvian joint venture of Gewerkschaft Elwerath, Deutsche Texaco AG, and Wintershall AG.

The discovery was not developed for lack of market, although a number of projects were discussed. In 1989, Petroperu expected to begin development of Aguaytia by itself with Mexican financing, but those efforts collapsed because of Peru's debt crisis.

El Oriente and the German combine developed Maquia/Agua Caliente in the early 1950s. The joint venture was operating a 27,181 acre concession with 15 wells producing an average 1,050 b/d of oil when the government in 1974 canceled the concession.

In December 1975, the venture sued the government for $800 million. In November 1987, Peru's supreme court ruled that $25 million was fair compensation for the venture's oil field assets. Petroperu said the pending payment does not affect the tender.

REFINERY CONTACTS

The La Pampilla refinery in mid-November began processing 20,000 b/d of crude for Marc Rich under a 1 year contract.

Under the contract, Rich at first will export all bunker oil and sell all other products, mainly gasoline, kerosine, and diesel oil, to Petroperu. Rich did not, however, take delivery of the products until mid-January. The oil trader will pay a little more than $1/bbl for processing,'with the price varying according to the quality of each shipment.

Petroperu is to pay Rich international market prices for the products but will save freight and import tariffs. Rich won the first contract in an international tender involving eight oil traders.

Petroperu Pres. Jaime Quijandria said toll contracts are a step toward a free market in which private oil companies will be able to compete in Peru's domestic products market. Meantime, continued government controls on domestic fuel prices mean Petroperu will receive after tax prices 25% below international market levels.

Copyright 1993 Oil & Gas Journal. All Rights Reserved.