PERU MARKS PROGRESS IN PRIVATIZING PETROLEUM

Peru continues to make strides in privatizing its petroleum sector. Effective Nov. 18, the country has a new state petroleum company, Perupetro SA, set up to oversee new and existing contract responsibilities of Petroleos del Peru SA (Petroperu), which is to be privatized next year. Until privatization is complete, Petroperu will continue to operate its oil field, refining, transportation, and marketing assets.

Dec. 13, 1993

4 min read

Peru continues to make strides in privatizing its petroleum sector.

Effective Nov. 18, the country has a new state petroleum company, Perupetro SA, set up to oversee new and existing contract responsibilities of Petroleos del Peru SA (Petroperu), which is to be privatized next year. Until privatization is complete, Petroperu will continue to operate its oil field, refining, transportation, and marketing assets.

Meantime, Petroperu Nov. 16 signed its final contract, a 30 year exploration and production agreement with a Peruvian subsidiary of Petrotech International Corp., a unit of McAlistair Towing & Transportation, New York., covering Block Z-2B off Peru's northern coast.

In addition, Petroperu's board last month approved terms of contracts with Maple Gas Corp., Dallas, for the $150 million development of Aguaytia gas field and operation of Maquia and Agua Caliente oil fields in Peru's central jungle.

NEW COMPANY, NEW REGS

Under detailed regulations covered in legislation passed this month, Perupetro is to replace Petroperu in promoting, negotiating, and supervising exploration and production contracts with private oil companies in Peru.

Petroperu Chairman Emilio Zuniga will continue to head Petroperu and the company's privatization committee. Perupetro's board will have five directors, three representing the Ministry of Energy and Mines and two representing the Ministry of Finance and Economy.

The government also approved regulations covering a new licensing system under which private companies will own and freely market oil and gas production, for which they will pay the government a royalty. Previously, Petroperu retained ownership of production and paid operating companies contractor fees.

New regulations include tighter controls on environmental protection. Companies now must prepare an environmental impact statement (EIS) before each stage of exploration and production.

Regulations published Nov. 12 limit the width of trails cleared for seismic surveys to 2 m. Contractors must avoid felling trees of commercial value. Use of dynamite and other explosives in the ocean, rivers, and takes will be allowed only when justified by an EIS. Jungle clearings for drillsites are to be limited to a maximum 4.9 acres for the first well and 1.2 acres for each additional directional well in the same area.

OFFSHORE CONTRACT

Petrotech Peruana SA's contract for Block Z-2B will be extended to 40 years if it also develops nonassociated natural gas underlying the block.

The block was operated by Belco Petroleum Corp., New York, from 1958 to December 1985, when its contract was canceled and its Peruvian assets expropriated by the administration of President Garcia. Since then, the assets have been operated by Petromar SA, Petroperu's offshore subsidiary. Petromar currently is being liquidated in the run-up to Petroperu's privatization in 1994.

Petrotech was to begin exploration and take over production immediately upon signing the contract.

The company will make a minimum $65 million investment the next 7 years in the fields on the 988,400 acre block. It will drill 40 development wells in the first 3 years under the required minimum production program. It also will pay $10 million/year for 20 years to lease the ex-Belco equipment. The exploration stage calls for a 6 year term plus an option to extend for 1 year.

Petromar estimates proved reserves underlying Block Z-2B at 86 million bbl. In October, the block produced 20,700 b/d of oil, up from 16,600 b/d a year ago. Zuniga said Petrotech will take production to at least 30,000 b/d. Petrotech will receive a share of the hydrocarbons it produces pegged to a formula based on volumes produced.

The government will apply part of the income it receives from the Petrotech contract to pay a debt to American International Group (AIG), New York, Belco's insurers. AIG is owed $184.8 million in compensation for the expropriation of Belco's Peruvian assets. The government made an initial $30 million payment to AIG in late September upon signing an agreement to pay the debt during a 7 year period.

JUNGLE CONTRACT

Maple will sign final contracts with Perupetro, once approval comes from the Ministry of Energy and Mines, probably by yearend. The three contracts cover a 30 year operating agreement for Aguaytia field, a 20 year operating contract for nearby Maquia and Agua Caliente fields, and a 20 year rental contract for a 3,000 b/d refinery and fuel sales terminal at Pucallpa, 480 km northeast of Lima.

Aguaytia holds proved reserves estimated at 225 bcf of gas and 21 million bbl of natural gas liquids.

Petroperu estimates production could reach 16 MMcfd of gas and 2,450 b/d of NGL for industrial users and an electric power plant at Pucallpa and a combined heat and power plant to be built at Tingo Maria.

Maquia and Agua Caliente produced an average 815 b/d of oil in 1992, down from 1,286 b/d in 1991.