Watch Peru. In the next few years, the resource trove on South America's northwestern coast can become a model for dealings between developing-nation governments and international oil companies. It might also turn into the type of political and economic quagmire that makes international work risky.
Peru took another in a series of constructive steps last month when it signed an agreement with two international companies for development of the Camisea complex of natural gas and condensate fields in the central southern jungle. The deal rewards patience of the companies, units of Royal Dutch/Shell Group and Mobil Oil Corp.
Marking time
Shell discovered the fields during an exploration program it conducted during 1981-87 under a service contract. Unable to come to terms with state-owned Petroleos del Peru SA, the company had to watch as Petroperu negotiated a replacement deal with a unit of Mexico's Pemex, which couldn't finance the project.
Shell marked time and resumed negotiations with state regulatory company Perupetro SA in 1995. Mobil, at the time bidding with Shell for exploration rights around the Camisea complex, entered the development venture with a 42.5% interest. A long-time Peru explorer, Mobil had endured bumps of its own. In December 1990, it suspended an exploration contract in the central jungle after guerrillas routed a seismic crew under contract to it from a camp on the Biabao River.
Shell and Mobil aren't the only companies with tales of Peruvian misadventure. In 1985, the government nationalized offshore producing properties of Belco Petroleum Co., which eventually became part of Enron Corp. In years following, Occidental Petroleum Co. often had to curtail operations on its northern jungle blocks because the financially strapped government couldn't make remittances under its service contract. None of this made Peru an appealing place in which to explore for and produce oil and gas.
In the 1990s, two things have happened to restore Peru's allure. In July 1990, President Alfredo Fujimori took office determined to set the country on a course toward economic growth based on market economics. And the military captured and jailed the leader of the Shining Path guerrilla network. To oil companies, those developments created hope for the chance to work relatively free from the threat of physical danger under terms that make the exertions and risks worthwhile.
Progress has been spotty. Privatization of Petroperu is taking too long. But the government at least has a reasonable plan for the process, which includes sale of all but minor interests in Petroperu's refineries.
Peru also now offers flexible licensing terms that international oil companies apparently find attractive. Several companies have bid on licenses or bought data packages recently (OGJ, Apr. 1, p. 30). They include not just Shell, Mobil, and a handful of other stalwarts that rode through Peru's era of decline, but also newcomers and companies returning to the country after long absences.
Elements of success
It is far too soon to call Peru a success story. Such an assessment depends on completion of a significant number of upstream licensing deals and transfer of refining interests into private hands. Next, all sides must live up to their commitments. Then a reasonable number of the private parties as well as the government need to make money, which will make them want to maintain relations.
Finally, benefits of all this economic promise must find their ways to Peruvians. That means all Peruvians, not just a select few in the politically poisonous pattern that has bedeviled other countries and companies working in them. Peru can have prosperity born of resource development and broad participation in consequent economic value. Or it can slide back toward subsistence economics, political unrest, and narco-terrorism. At this stage, it's the government's choice to make.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
