Revival of Peru's moribund oil and gas industry in the 1990s hinges on whether the new administration of President Alberto Fujimori is successful in attracting foreign investment to Peru.
Fujimori's success would mean Peru pushing ahead into stepped up exploration and major development projects, such as the huge Camisea gas/condensate field discovered 2 years ago. His failure could mean Peru continuing to fall further behind in its already lagging low oil production.
Huge sums of money will be needed. Peru also needs to succeed in its efforts to become creditworthy again for international agencies, foreign governments, and commercial banks.
Meanwhile, Petroleos del Peru SA (Petroperu), the state oil company, will have to transfer an increasing share of its operations to private investors. But the company is likely to try to hold onto producing fields, even though it is unable to maintain full output.
BARRIERS TO BE LIFTED
The government is preparing to lift two barriers to investment: the lack of an international arbitration agreement to guarantee against nationalization, and Petroperu's monopoly on oil refining and distribution with the consequent price controls.
The Fujimori administration's declared policy is to seek foreign investment for exploration and development and possibly also for refining and marketing.
Opposition to foreign investment is expected to remain strong. Left wing political opposition, coupled with difficulties in raising credit, played a big part in stopping Camisea development in 1988.
Minister of Energy and Mines Fernando Sanchez, a member of Izquierda Socialista party, has accused the far left Izquierda Unida party of trying to undermine the government by blocking investment in Camisea through harassment of major oil companies operating in Peru.
The remote Camisea field, in the Amazon jungle out of reach of roads or rail lines, could cost about $2.2 billion to develop.
Sanchez says that even for less costly projects, there is no alternative but to bring in foreign investment to the oil industry.
Foreign investment poses a thorny problem for Petroperu, which seeks to maintain its dominance of Peru's petroleum sector but is crippled financially by domestic fuel subsidies.
Petroperu has been allowed hefty increases in domestic fuel prices, but it still must hand over two thirds of its revenue from local fuel sales to the treasury while it remains encumbered with $175 million in overdue debt to local contractors.
This means that Petroperu's average revenue on local sales, equivalent to 43/gal at the beginning of December, does not cover operating costs that the company now puts at 60/gal. This doesn't include capital investment.
In mid-December, Petroperu was receiving 35/gal as the inti fell against the dollar.
Finance Minister Juan Hurtado said the government will increase domestic fuel prices in 1991.
NEAR TERM OUTLOOK
Petroperu expects oil production in 1991 to remain close to the average 130,000 b/d produced in Peru the past 2 years.
The state oil company estimates domestic demand next year will average 110,000 b/d, leaving a 20,000 b/d surplus for export.
Export revenue will be offset, however, by the cost of importing about 18,000 b/d of light crude to cover refinery runs.
Exports through the end of August 1990 were valued at $121.5 million. But oil imports during the period cost $172.2 million. Petroperu had expected a deficit of only $5 million during September-December 1990 following a fall in local demand from first half 1990 levels.
Domestic demand rebounded to 100,000 b/d the first week of November after falling to 40,000 b/d following August price hikes.
If the government succeeds in reviving the economy next year to 1986-87 levels, it would, however, take demand back up to 132,500 b/d, according to Petroperu estimates.
Crude oil production was down to 123,000 b/d by October vs. 142,000 b/d in October 1989. Output fell still further in November to 118,100 b/d.
Flow could also fall further in 1991, following the trend of the past 8 years (Chart).
Production averaged more than 190,000 b/d in 1980-82 at the peak of jungle oil output but has fallen since then as fields declined and no new ones were developed.
Petroperu estimates Peru's current oil reserves, excluding Camisea condensate, at 330 million bbl.
Private oil companies may boost production if Petroperu subcontracts the fields it can no longer afford to operate. Petroperu announced this possibility last year. To date, however, it has signed only two small contracts with local companies after lengthy negotiations.
CASH SHORTFALL
Petroperu's cash squeeze continues to plague the company.
Petroperu is asking the government for $100 million to make urgent repairs to the Talara oil terminal and the La Pampilla refinery.
Industry sources doubt, however, that Petroperu will get the funds next year. Financing for specific new projects from the World Bank or the Inter-American Development Bank also is unlikely to be disbursed before early 1992.
The World Bank may disburse sector adjustment loans of as much as $300 million before then in order to finance import of all goods except luxury items in an effort to move the economy to more of a free market footing. This could, for example, allow the government to eliminate Petroperu's monopoly on wholesale marketing so that products could be imported and marketed at the best available prices.
Neither organization can disburse funds to Petroperu until Peru pays its debt of about $500 million.
Petroperu expected to sign in early December an agreement with a syndicate of local banks headed by Banco de Credito del Peru for a $20.7 million loan to finance work in the northern jungle aimed at increasing output in the area by 3,000 b/d. It wasn't clear at the time if the funds are for its 1991 operational program or for a joint venture to develop Chambira field.
RED TAPE CONCERNS
Companies operating in Peru, including Petroperu, complain of bureaucratic red tape snarling approval of new contracts.
Petroperu Pres. Jaime Quijandria says that what the company needs is a model contract suitable for all ventures.
Petroperu has had only moderate success in reaching agreements with private companies to renew maintenance and drilling in areas on the northern coast abandoned over the years because of low production.
Private companies, without Petroperu's high fixed costs, can work the fields profitably.
RENEWED EXPLORATION INTEREST
Petroperu reports revived interest in Peruvian exploration by foreign companies in the wake of the Fujimori administration's reforms (OGJ, Nov. 26, P. 24).
Much of the interest is focused on or near the large Block 8, which Petroperu wants to carve up for operating contracts for private companies (see map, OGJ, May 7, 1990, P. 43).
The company says it is negotiating with Occidental Petroleum Corp. for a new contract in modified Block 40-to include part of Block 43 outside Manu National Park-in the Madre-de Dios basin, although Occidental earlier withdrew from Block 43 because of environmental concerns.
A local company, Cia. Petrolera San Juan SA, has renewed negotiations for Blocks Grau 1 and Grau 2 south of the Talara and Secura basins along the northern coast.
ER Operating Co., Dallas, is negotiating an exploration and development contract in the Lobitos area and the Block B area of the Talara basin.
Energy World Trade Ltd. is interested in exploration and development in the Maranon and Ucayali basins. It also has shown interest in participating in developing Chambira field in Block 8.
Santa Fe Energy Resource Inc. requested information on the Maranon basin apparently also in or near Petroperu's Block 8.
Chevron Corp. is interested in the Ucayali and Madre de Dios basins and has held preliminary talks with PetroPeru.
Tripetrol requested information on the Maranon basin.
American International Group, insurers for the expropriated Belco oil field assets,
seeks data on offshore Blocks Z1 and Z28, where it hopes to recoup compensation paid to Enron Corp., Belco's present owners.
Total CFP has requested information covering possible exploration and development work on offshore Blocks Z1, Z2A, and Z28.
PETROPERU 1991 PROGRAM
Petroperu has scheduled a modest exploratory drilling program for 1991, subject to funding.
Along the northwest coast, the company plans to drill five wells at a cost of $3.5 million targeting Postulated reserves potential of about 2 million bbl.
In the northern jungle, Petrperu plans a step-out on the Pavayacu structure at a cost of $3.5 million to prove additional postulated reserves estimated at 10 million barrels. The field currently has 7 million bbl of proven reserves.
If the first well is successful the company will drill five more wells.
In the central jungle, the state company will drill two wildcats at a cost of $3 million targeted structures with a combined postulated reserves of about 7 million bbl.
In addition, Petroperu plans extensive exploratory work to gauge potential of deeper prospective horizons in key producing areas. Involved are geological and geophysical studies of Blocks 8, 31, and 35, including aeromagnetic surveys and regional and detailed seismic surveys.
Cost is pegged at $30 million.
MOBIL EXPLORATION
Mobil Oil Corp.'s plans to step up Peruvian jungle oil exploration after it moved into a fourth block in the central jungle suffered a setback from a guerrilla attack last month.
Mobil suspended its contract with Petroperu for exploration covering almost 9 million acres in the northern Peruvian jungle after guerrillas attacked a seismic crew camp at Barranca on the Biabao River Dec. 11.
The contract will be renewed once Mobil and contractor Sereal, a unit of Halliburton Co., replace seismic equipment, computers, and communications equipment damaged in the attack and receive government assurances the area is secure again. Damage is expected to run several million dollars.
Mobil's 6 year exploration program in the Huallaga basin, covering Blocks 28, 29, 30, and 53, entails conducting 3,600 line km of seismic surveys and spudding five wildcats.
If Mobil extends the exploration stage for a seventh year it must drill at least one more wildcat. Mobil is committed to spend a minimum $107.5 million in the exploration stage.
This includes a minimum 1,600 line km of seismic and one wildcat in the first 2 years. The first wildcat is scheduled for September 1991.
In the subsequent 2 years Mobil plans to shoot 1,300 line km of seismic and drill two wildcats. In the last 3 years of the term, Mobil is committed to 700 line km of seismic and two wildcats.
As of early 1990, Mobil had spent $15 million on aeromagnetic and surface exploration studies, including seismic surveys. It had completed 474 line km of seismic by the first week in November.
ECI PLANS
Petromineros del Peru SA, a unit of Edward Callan Interests, Houston, soon will start exploring near Peru's border with Ecuador.
The company in mid-November had reprocessed additional data received from Petroperu and was seeking a consultant to perform an environmental impact study before starting field exploration work.
Petromineros expects to begin its 6 year exploration program in early 1991.
In the first 21 months it is to complete 6,000 km of aeromagnetic coverage, reprocess existing seismic lines, conduct geological and geochemical studies, and shoot 140 line km of seismic surveys.
In the subsequent 27 months, Petromineros must shoot 200 line km of seismic and drill one wildcat. In the third stage, covering 3 years, it is committed to shoot 200 line km of seismic and drill 3 wildcats.
If it takes up an optional 1 year extension, it must spud one more wildcat.
Petromineros is committed to spend a minimum $42.2 million on this program.
LOCAL COMPANIES' EXPLORATION
Local companies GMP, the oil subsidiary of Grana y Montero SA, and V&G Exploraciones, a unit of Vera Gutierrez SA Contratistas Generales, are working to prove new production on the northern coast and the Titicaca basin respectively.
GMP is to start seismic work after May 1991 following completion of surface geological mapping and a geochemical study of the Carpitas-Zorritos fields area by Sofjuskarta of Moscow. A report on samples sent to the Moscow laboratory is scheduled for completion in March.
GPM is due to move into the second stage of exploration at the beginning of May. Over the next 3 years it is to shoot a minimum of 200 line km of seismic and drill four wells.
Sofjuskarta also is doing oil field studies for V&G in the Titicaca basin, where VG is expected to begin second stage exploration in May.
A third concern, a combine of Cavelcas del Peru and Geopet Asociades SA, said that it had so far not been able to reach a contractual agreement with Petroperu to start work, though it had been awarded the tender early in 1990.
OXY'S DISPUTE
Oxy could renew vigorous exploration activities if it reaches a new agreement with Petroperu.
Oxy has until March to decide whether to drill a third wildcat in Block 36 in the central jungle or move exploration to another block.
Meantime, the company still is trying to resolve a long running dispute with Petroperu over payment for crude received from existing operations.
Oxy has told Petroperu it could increase output from its fields by as much as 10,000 b/d next year if it receives regular payment for the oil it delivers.
Oxy produces about half of Peru's 130,000 b/d output, mainly from its wells in the northern jungle.
The two companies, however, are disputing interpretation of terms under their 1985 contract covering prices, fees, and taxes.
DEVELOPMENT PROJECTS
Petroperu also will bolster efforts in 1991 to find a partner for a joint venture to start up flow of 20,000 b/d from Chambira oil field.
Petroperu discovered the 50 million bbl oil field in its northern jungle Block 8 in March 1989.
The Chambira discovery well, Petroperu's first jungle wildcat since 1986, flowed 5,680 b/d of 26.5 gravity oil.
The Chambira project entails drilling three step-outs and 11 development wells. Petroperu plans to lay a 6 in., 34 km pipeline between Chambira and Corrientes to tie into a line from Corrientes to the North Peruvian trunk line.
There is also a treatment plant at Corrientes to desalt the crude oil.
The Chambira-Corrientes line is to have initial capacity of 11,000 b/d.
The company estimates Chambira's development cost, including drilling, installing gathering lines, and infrastructure, at $65 million.
Development of the Aguaytia gas/condensate field in the Pucallpa area of the central jungle is unlikely to get underway in 1991 unless the armed forces dislodge guerrillas and drug traffickers that occupy the area.
Production would reach 30 MMcfd and an undisclosed volume of condensate. Cost is pegged at $65 million, including pipelines and gas processing facilities.
Production from fields off Peru's northern coast will increase this year if the government's preliminary agreement with AIG goes through.
Most of the increase, however, will go towards reimbursing AIG for payments made to compensate Belco parent Enron for expropriation of Belco's Peruvian oil field assets under a political risk insurance policy.
Output from the former Belco offshore fields has fallen to about 20,000 b/d from 27,000 b/d before the 1985 takeover.
CAMISEA DEVELOPMENT
The biggest project in Peru, Camisea gas condensate development, has been stymied by financing and political problems.
Royal Dutch/Shell Group, which discovered gas/condensate in San Martin/Cashiriari fields in the Camisea area after a $175 million exploration campaign during 1982-88, shelved development plans after a dispute with Petroperu on financing.
Petroperu has revised its estimate of Camisea reserves, cutting the field's estimated gas reserves to 10.8 tcf and boosting condensate reserves to 725 million bbl.
Initial development would entail producing about 900 MMcfd of gas and as much as 50,000 b/d of liquids. At first, some of the gas will be used to back out residual oil in power generation in Central and Southeast Peru and in industrial facilities near a gas grid installed in the Camisea area.
Several alternative projects have been proposed but nothing definite has taken shape.
The price tag for the Camisea project, including development, gas and liquids pipelines, and processing plants, has been put at $1.861 billion. Officials say costs could run to as much as $2.2 billion.
MAINTENANCE PROGRAMS
Petroperu has several critical projects aimed at rehabilitating Peru's aging oil transportation infrastructure.
It plans a $37 million project to replace a dilapidated liquid fuels terminal at Talara. The two loading facilities there were built in 1915-27 for loading gasoline, diesel, resid, kerosine, and LPG.
Petroperu wants to construct a main loading facility to accommodate vessels of as much as 35,000 dwt and an auxiliary facility to handle 25,000 dwt vessels.
The project also includes installation of a plant to separate hydrocarbons from ballast water and acquisition of two 1,500 hp tugs.
Petroperu also plans a $30 million project to rehabilitate the North Peruvian trunk line with pipe repair and maintenance programs. The system moves crude from the jungle to the marine terminal at Bayovar.
REFINERY PROJECTS
Heading Petroperu's downstream projects is an upgrading project at its 93,900 b/d La Pampilla refinery at Ventanilla, near Lima.
Petroperu recently said it call an international tender for installation of three conversion units at the refinery (OGJ, Nov. 26, 1990, p. 24).
The state company is trying to meet domestic demand for light products while reducing crude runs.
Petroperu also plans a $60 million project to hike yield of gasoline, kerosine, diesel, and LPG at its Talara refinery.
Involved is expansion of the primary distillation unit to 75,000 b/d from 62,000 b/d, the vacuum distillation unit to 28,700 b/d from 24,000 bpd, and the catalytic cracking unit to 23,000 b/d from 16,600 b/d.
Petroperu hopes to boost product yield at Talara enough to generate exports.
Copyright 1991 Oil & Gas Journal. All Rights Reserved.
