Petroperu sale on track for 1996-97-finally

Petroperu SA's on again, off again sale to private investors seems finally to be going ahead.

The company's privatization committee has set a tight timetable for sale of the state oil company's business units. This is slated to begin in March with lubricants unit Petrolube SA and to end in 1997.

If everything goes according to schedule, the committee will follow Petrolube's auction with the sale of a 60% interest in the La Pampilla and Talara refineries and licensing contracts for Petroperu's northern jungle and northern coast oil fields.

Petroperu also will sell the North Peruvian pipeline, marine terminals, and Conchan refinery. That will leave only the Iquitos refinery and the remaining 40% interest in the La Pampilla and Talara refineries to be sold next year.

There still is opposition to the privatization program, mainly among Peruvian oil workers, many of whom will lose their jobs in the process.

Elsewhere in Peru, foreign and local private operators continue to press exploration and production work. In addition, Petroperu has earmarked funds for selected projects to boost Peru's flagging oil production.

Workers' concerns

Peru's association of engineers (Colegio de Ingenieros) has asked the government, in a published communique, to keep Petroperu as an integrated company in which private investors would invest capital and the government would continue to control decisions. In addition, Petroperu's labor unions threaten a series of protest strikes unless the government halts the state oil company's privatization.

President Alberto Fujimori said the delay in privatizing Petroperu had been favorable because it produced a national debate in search of a consensus. He added that the government will not accept any type of pressure in the privatization process because it is being undertaken with an eye to benefiting the nation by obtaining the best terms and prices.

The Peruvian government has authorized Petroperu to offer workers incentives to leave the state oil company to reduce surplus staff in the business units it will privatize.

Workers also will be able to take advantage of job retraining programs organized by government privatization commission Copri, graduate business school Esan, and the Inter-American Development Bank. Petroperu employs about 5,500 persons and needs to shed at least 1,000, mainly at Talara, the 100 year old oil field complex on Peru's far northern coast.

Workers at Petrolube have the option to buy as much as 10% of shares in the unit to be privatized in March.

Petrolube includes a 12 million gal/year lubricants production plant at Lima's port of Callao, a 1.4 million gal/year grease plant at Talara, and a sales plant at Ica, south of Lima.

Few changes in sale

Amado Yataco, minister of energy and mines and head of Copri, said there will be no further postponements. Petroperu is responsible for making sure the target dates are met.

Despite the past year's controversy over breaking Petroperu into units for sale, there are few changes in the original scheme. This had been put on a back burner in 1994 in the runup to presidential elections.

One of the main changes in the privatization process gives bidders the option of buying a 60% interest in the La Pampilla refinery in tandem with northern jungle Block 8/8X. Previously, bidding for those assets was limited to the refinery or the oil fields alone.

The same applies to the Talara refinery and northern coast Blocks X and XI. Block XI is a new name for the Oxy-Bridas secondary recovery project area license, which expires in June. The two blocks together produce about 17,000 b/d of oil. The same company or group cannot buy the La Pampilla and Talara refineries or the Callao refined products terminal. Neither can the same investors buy neighboring terminals.

Petroperu is offering a concession for a minimum 10 years for the North Peruvian pipeline and a management contract for at least 10 years for the Iquitos refinery. The life of those operations depends on companies developing additional oil reserves and increasing production in the northern jungle.

The 200,000 b/d pipeline currently operates at slightly more than one third of its capacity, and oil reserves in the region are gradually being depleted with no new finds to date.

Potential bidders

Alberto Pandolfi, president of Petroperu's privatization committee, said bid documents are still available to investors.

To date, 10 companies have bought information on Petrolube, 12 on marine terminals, 13 on refineries, 23 on oil fields, and six on the North Peruvian pipeline. Most companies bought documents, often for more than one business unit, in 1994.

Companies that have shown interest in Petrolube's purchase include Mobil Oil Corp., YPF SA, Chevron Corp., and Repsol SA.

Companies showing an interest in downstream units include Mobil, Chevron, Repsol, YPF, Texaco Inc., Maraven SA, Pennzoil Co., Murphy Oil Co., Coastal Corp., Bridas Sapic, Diamond Shamrock, Vitol Holding, and Royal Dutch/Shell Group.

Companies that bought bid documents related to upstream units include Chevron, Coastal, Repsol, Texaco, YPF, Ampolex Ltd., ARCO, Perez Companc, Elf Aquitaine, Enron Oil & Gas Co., Enterprise Oil plc, Fletcher Petroleum, Mobil Exploration & Production, Norcen International, Occidental Petroleum Corp., Pecten International, Pluspetrol SA, and China National Petroleum Corp. unit Sapet Development Peru.

Local company interest

Foreign companies so far are the only potential buyers, but local companies hope the government will give them a break-as yet unspecified-that will allow them to compete with international firms.

GMP SA, the petroleum arm of the Grana y Montero group; and Vegsa SA, of the Vera Gutierrez group; are looking for a third partner, preferably a local bank, to bid for Block X. The companies say they want the opportunity to grow in the oil business as Argentine companies such as Pluspetrol, Perez Companc, and Bridas have done in their country.

GMP and Vegsa operate small producing fields ceded during the past 4 years by Petroperu to private companies on the northern coast.

GMP also is conducting exploration in the area of the old Carpitas-Zorritos fields north of Talara. The company, in association with Mexpetrol SA, in early January spudded its first wildcat, Papayal X-3. Two previous wildcats in the area were dry.

Camisea talks extended

State petroleum agency Perupetro extended to Feb. 29 talks with Shell Prospecting & Development (Peru) BV and Mobil Exploration & Producing Peru Inc. on development of the Camisea gas/condensate fields. The companies originally were scheduled to reach agreement by last Dec. 25.

Perupetro said negotiations had progressed well, but the complexity of the project and the different aspects involved had delayed an agreement. The key points still under discussion are the amount of royalties the companies should pay on production and the timetable for completing installations.

Mobil and Shell reportedly maintain that the market for gas is still small, while Perupetro maintains that the need for gas to fire power plants, especially for mining operations, is growing rapidly. Neither Mobil nor Shell have commented on the extension of the talks.

Mobil will hold a 42.5% interest in the operation in which operator Shell holds the majority interest.

Shell found Camisea gas during a 1981-87 exploration campaign on Peru's Blocks 38 and 42 in the central southern jungle's Ucayali basin.

The company at the time estimated reserves at 10.8 tcf of gas and 725 million bbl of condensate. When talks started, Shell said the gas at first will stay in Peru to fire power plants and for heavy industrial users.

Advantage license

Advantage Resources International, Denver, in association with three South Korean companies, signed an exploration and development licensing contract with Perupetro.

Advantage's partners include Korea Petroleum Development Corp. (Pedco), Hanwha Energy Co. Ltd., and Hyundai Corp., all of Seoul.

The companies will spend at least $31 million to shoot 700 line km of seismic survey and drill five wildcats on Block 67 in Peru's northern jungle Maranon basin.

Operator Advantage holds a 60% interest in the partnership, with other interests held by Pedco 20% and Hanwha and Hyundai 10% each. The companies will pay an 18% royalty at the lowest level of a sliding scale pegged to the volume of production and international oil prices and 38% at the top of the scale.

Advantage 3 years ago signed a contract with Perupetro for neighboring Block 62, later farming it out to other companies, including Murphy and Mobil. Murphy and Mobil each drilled a dry hole and have returned the block to Perupetro.

Advantage Chairman James Dean said although the two wells drilled on Block 62 had not produced expected results, they showed that oil exists on the outskirts of the block. An industry source said the quantity and quality of possible reserves were poor.

Also exploring the Maranon basin are Oxy and Pluspetrol on Block 54, sandwiched between Petroperu's Block 8 and ARCO's Block 64.

Great Western Resources, Houston, in association with Enterprise Oil Exploration Ltd., London, holds Block 65M. Occidental del Amazonas Inc. is evaluating results of exploration in Block 4 and probably will hand it back to Perupetro, local industry sources said.

Meanwhile, on the northern coast Vegsa has signed a production licensing contract with Perupetro for Block II. Vegsa, which operates the block under a service contract, last November produced a little less than 700 b/d compared with 570 b/d a year earlier.

Maple project

A group of six U.S. companies led by a unit of Maple Gas Corp., Dallas, is set to start construction on a $200 million gas development and power generation project in Peru.

Work is to begin in the first quarter on facilities in the Ucayali region.

Details of the integrated project have changed little since last summer, when units of three U.S. firms agreed in a letter of understanding to join Maple Gas Corp. del Peru in the deal (OGJ, Aug. 21, 1995, p. 30).

However, participants in the formal agreement disclosed last month include three new parties.

The gas portion of the project involves ownership of production from 223 bcf Aguaytia gas field and drilling of five wells in the field, as well as construction and operation of gas processing facilities, about 125 miles of gas pipeline, 65 miles of natural gas liquids pipeline, and NGL fractionation and storage units.

The project's power program calls for building and operating a gas fired power plant with capacity of 140,000 kw, related power substations, and 246 miles of power transmission facilities.

Parties to the formal agreement are Maple del Peru, PanEnergy International Development Corp. (PEID), El Paso Energy Development Co., Power Markets Development Co., Scudder Latin American Power I-P LDC, and Illinova Generating Co. The last three have joined Aguaytia project since last summer.

PEID, formerly Panhandle International Development Corp., last year agreed in a letter of understanding to provide Maple del Peru technical help on the gas portion of the plan. The company's parent firm since then has changed its name to PanEnergy Corp. from Panhandle Eastern Corp., and PEID followed suit.

Also, Entergy Power Development Corp., New Orleans, in the letter of understanding agreed to operate Aguaytia's power components but was not a party to the formal agreement.

In disclosing formal agreement on the deal, the Aguaytia group did not identify specific roles to be played by members in the group. Maple del Peru conceived the Aguaytia gas/power project and in first half 1994 laid the groundwork to carry it out.

The company in spring 1994 received government permission to proceed with the plan through three long term contracts with Perupetro (OGJ, May 9, 1994, p. 27). Perupetro is the state agency formed under Peru's recently revised hydrocarbon law to negotiate and administer oil and gas deals with private companies.

The August 1994 letter of understanding covered Aguaytia's gas and power components and upgrades of the 3,250 b/d Pucallpa refinery. Those facilities are included in the project's second and third phases.

Maple del Peru produces and refines oil from Maquia and Agua Caliente fields and markets refined products under phase one of the integrated Aguaytia plan, the first privately owned firm to do so in Peru.

Petroperu spending

Petroperu plans to spend $129 million this year to boost output in its two remaining oil producing areas, northern jungle Block 8 and northern coast Block X.

This year's budget includes completing development of the small Chambira oil field on Block 8.

Petroperu took over work at Chambira last year after the combine it had signed a service contract with-Cilloniz Olazabal Urquiaga SA, Lima, and Coest Constructdora SA, Sao Paulo-failed to complete the first of two wells originally scheduled to go on stream in March 1995.

Petroperu last year had a $112.1 million budget for expanding production and marketing operations compared with $106.9 million in 1994.

Peru production

Peru's crude oil production averaged 121,762 b/d in 1995, down 4.4% from 1994.

Perupetro predicts average production of 122,500 b/d this year, although output last December averaged only 115,392 b/d.

Most of Peru's oil comes from declining fields operated by Oxy and Petroperu in the northern jungle, Petroperu's northern coast fields, and fields operated by Petrotech International off the northern coast.

In 1995, average production included 52,262 b/d produced by Oxy and 26,780 b/d by Petroperu in the northern jungle, 14,620 b/d by Petroperu on the northern coast, and 19,434 b/d by Petrotech offshore.

Oxy and Bridas averaged 4,295 b/d from their northern coast secondary recovery project. The rest is produced from small north coast operations.