PERUVIAN E&D AIMING TO GET OFF HIGH CENTER

State owned Petroleos del Peru is likely to sign 12 oil exploration contracts with private companies this year, the most since the peak days of the 1970s.

That's the view of Peruvian Minister of Energy and Mines Fernando Sanchez, who adds a proviso: if there is enough time to process them all.

In other Peruvian upstream action, a Mobil Corp. unit is preparing to resume work in Peru's Huallaga basin.

In addition, Occidental Petroleum Corp. has offered an infill program to boost production in Peru's northern central jungle and proposes to drill a wildcat there.

Meantime, Petroperu has earmarked $174 million for 1991 operations, with most of that budget targeting a revival in flagging oil production.

Petroperu expects Peru to produce an average 133,800 b/d in 1991, up from about 128,000 b/d in 1990.

PETROPERU'S WOES

The state oil company has struggled in recent years to maintain oil production and exports. A lack of cash often caused it to fall behind in payments to service and supply companies as well as to foreign operating companies under contract to operate oil fields (OGJ, Jan. 14, p. 41).

Peru's average production for January was 115,200 b/d, down from 123,000 b/d last October and 118,000 b/d last November. Petroperu estimates Peru's reserves at 330 million bbl, in addition to about 650 million bbl in estimated condensate reserves associated with the undeveloped Camisea gas/condensate complex.

The cash squeeze stems largely from Petroperu's subsidy of domestic fuel prices. Although the government late last year implemented fiscal reforms, Petroperu contends they won't suffice to solve the company's financial woes.

CONTRACTS

Sanchez noted that the 12 contracts expected to be signed this year are the most since 18 "model" contracts were in effect in Peru in the early 1970s.

But the contracts may be stymied by continuing delays in approvals. The company closest to signing a contract, Texas Crude Inc., Houston, has been negotiating an agreement covering Block 61 in Peru's northern jungle with Petroperu since the end of 1989. A preliminary agreement reached in January still remained unsigned at presstime last week.

The latest delay stems from environmental opposition to exploration on Block 61 because of its location within part of Pacaya-Samiria national wilderness reserve.

Petroperu contends Peruvian law allows companies to explore in protected areas if the contract provides for reimbursement of jungle restoration costs.

A joint venture of American International Petroleum Corp., Hallwood International, Pelto Exploration Co., and Rosewood International is negotiating a contract for Block Z-1 off Peru's northern coast near the border with Ecuador.

It is reported to be in final negotiations.

Also negotiating a contract with Petroperu is Santa Fe Energy Resources Inc.

In addition, Total Cie. Francaise des Petroles has expressed interest in state owned Petromar's offshore fields.

American International Group, insurers for the expropriated Belco Petroleum Co. oil field assets, have not yet followed up on a letter of intent covering a possible joint venture with Petromar signed late last year.

TALARA FIELDS

Petroperu in mid-February called an international tender for contract services covering operations in Golondrina, Ranchudo, Hualtacal, and Coyonistas fields on Block 2 in the Talara area.

Petroperu previously had tendered three blocks in the area, including Block 2, in late 1989. It received bids from Peruvian and Argentine companies but never reached agreement. A contract covering Block 1 negotiated with a combine of local companies Cavelcas del Peru and Geopet Asociades SA remains unsigned more than a year later.

The Talara blocks hold old, declining fields. Contract provisions call for drilling 11 wells and boosting production with workovers or enhanced recovery.

Talara fields produced 17,600 b/d of oil in January, down from about 26,000 b/d in 1985.

MOBIL'S PLANS

Mobil Exploration & Producing Peru Inc. plans to resume Huallaga basin work as soon as government armed forces guarantee security in the area.

Mobil late last year suspended exploration operations on the 8.9 million acre block after guerrillas attacked a Halliburton Geophysical base camp at Barranca on the Biabo River Dec. 11. Seismic equipment, computers, and communications equipment were damaged in the attack.

Halliburton's Peruvian unit Sereal had completed 578 line km of seismic survey in the area, and Mobil was aiming for a September 1991 spud date for a wildcat.

The area was expected to be made secure late last month, Sanchez said. It isn't certain whether drilling will be postponed.

Mobil soon will let contracts for repairing a road and building a 38 km access road to its first wildcat site northeast of the base camp 125 km south of Tarapoto. Combined cost of the road jobs will be about $8 million.

Before that work can proceed, more environmental impact studies must be completed covering the road construction and drilling areas. ENSR, Fort Collins, Colo., completed an environmental impact study prior to start of seismic surveys.

OXY PROPOSALS

Oxy proposes to boost production in its northern jungle Block 1-AB by 10,000 b/d, part of its latest negotiations on oil prices and taxes with Petroperu and tax authorities.

The infill program would add about 26 million bbl of oil recovered from the block during an indefinite timespan.

Oxy's jungle production fell to 50,000 b/d last January from 64,000 b/d in January 1989. Oxy also produced 5,800 b/d from a waterflood program on the northwest coast at the first of the year.

In addition, Oxy proposes to spud a wildcat in the northern jungle near the North Peruvian Pipeline. Its 1986 exploration contract for central jungle Block 38 calls for Oxy to drill a third wildcat by March 1991, but the company can switch that obligation to another block if Block 38 prospects don't warrant another well.

Oxy has spent $74 million on Block 38 exploration, including the drilling of two dry holes, since it started work there 4 years ago. The company has reported $200 million in losses in Peruvian operations the past 4 years.

PETROPERU BUDGET

Of its 1991 budget, Petroperu expects to fund about $100 million from cash flow and borrow the rest in Peru and abroad.

Petroperu expects to obtain credit lines from the Interamerican Development Bank and CAF, the Andean Development Corp., although details aren't disclosed. It also is awaiting a $20 million credit line from local banks to finance a workover program to boost production from its jungle blocks by 7,500 b/d.

In all, Petroperu will spend about $100 million this year on upstream operations, including $86 million for exploration and production. That includes $41 million to develop Chambira field in Block 8. Energy World Trade Ltd. has expressed interest in Chambira development.

Petroperu has earmarked $8 million for exploration in the northern and central jungles and $4 million to repair the oil terminal at Talara.

In addition, Petroperu plans to spend about $7.5 million on refinery maintenance in 1991.

CASH SQUEEZE

In addition to capital spending needs, Petroperu needs funds to repay $131 million in debt to contractors and suppliers through October 1990.

Petroperu's cash squeeze is worsening because of a heavy tax take and the fuel subsidies, contends Petroperu Pres. Jaime Quijandria.

Peru's government increased domestic fuel prices by 49% last Dec. 16 to compensate for devaluation of the inti and rising inflation since the last fuels price increase on Aug. 8.

The increase brought Petroperu's average price on the fuels it markets to 58/gal.

Minister of Finance and Economy Juan Carlos Hurtado, noting Petroperu had been losing $11.5 million/month because of the fuel subsidies, said the company's situation should improve with the increase.

But Quijandria said the government still takes about two thirds of the marketing revenues in taxes, and the higher prices still don't solve Petroperu's problems.

A 25% devaluation of the inti in first half December sliced Petroperu's average price for domestic fuel sales to 35/gal from the 44/gal it had been receiving through November.

The company requested 60/gal before the devaluation.

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