Peru stepping up pace of oil/gas privatization, E&D activity

A rig is drilling ahead on a well on Petroleos del Peru SA's (Petroperu) former Block 8 in Peru's northern jungle. Block 8 was privatized this year and since July has been operated by Argentina's Pluspetrol SA. Photo courtesy Petroperu.

The privatization of Peru's petroleum industry has marked a new turning point, with the recent sale of Petroleos del Peru SA's (Petroperu) last oil field.

In the fourth asset auction since June, Petroperu's privatization committee last month sold the Talara basin's Block X on the northern coast to Perez Companc SA, Buenos Aires.

It sold for an unexpectedly high $202 million-more than triple the minimum bid of $65 million.

Also auctioned this year were a 50% interest in the 102,000 b/d La Pampilla refinery at Lima (OGJ, June 17, p. 23), Petroperu's lubricants business, and northern jungle Blocks 8 and 8X. A fifth unit, the Talara refinery, was slated for auction by yearend, but those plans have now been delayed (see related story, p. 20).

In other activity, Peru's government has signed contracts for 13 blocks so far during 1996, and negotiations are under way for another four blocks. Among the largest to date, signed in May, was a contract with units of Royal Dutch/Shell Group and Mobil Corp., under which the companies will spend $2.7-2.8 billion to develop the giant Camisea gas fields in the central southern jungle (OGJ, June 20, p.38).

Perupetro SA, the state's regulatory agency, since has signed contracts with other firms for development of oil and gas fields in the northern and central jungles.

Recent developments

Among the most recent developments:

Perupetro signed contracts Nov. 6 with units of Denver-based Advantage Resources International and Barrett Resources Corp. for Blocks 55A, 55B, and 55C in the northern jungle and on Oct. 24 with a unit of Occidental Petroleum Corp. for an exploration license in Peru's northern jungle Block 72.
Pluspetrol SA, Buenos Aires, and partners took over operation of Petroperu's former northern jungle Blocks 8 and 8X and signed an exploration license with Perupetro for the first stage of development in the central jungle's Block 79, near the Aguaytia gas fields.
Shell Prospecting & Development (Peru) BV, operator of the Camisea fields, announced plans to drill appraisal wells starting early next year. In addition, Shell and partner Mobil Exploration & Producing Peru Inc. awarded exclusive rights to a group of U.S. firms to build and operate a 600-Mw power plant fueled by gas from the Camisea fields and selected contractors for the preliminary design of a gas plant, a fractionation plant, and pipelines connecting the fields to Lima.
Mobil Oil del Peru won the Aug. 15 auction held by Petroperu's privatization committee for Petrolube SA, the company's lubricants business.
Refinadores del Peru SA, a new company formed by a group led by Spain's Repsol SA, formally took over operations of the La Pampilla refinery and disclosed investment plans.

Block X Sale

Auction winner Perez Companc is no newcomer to Block X. The company operated the Laguna Zapatal fields on the block during 1984-88 under contract to Petroperu to reactivate shut-in oil wells in the area. Perez Companc is now committed to invest a minimum of $25 million on Block X the next 5 years. It is slated to take over operation in mid-December.

The block lies along the northern coast of Peru, covering about 96,330 acres. It contains proven reserves of 46.4 million bbl, but local geologists believe the fields could produce another 200 million bbl. The block has more than 1,200 producing wells, many yielding out only a few barrels a day. The oil, at 30-35° gravity, is lighter than jungle production and is transported via pipeline to the north coast refinery. The field's production in September averaged 16,000 b/d.

Perez Companc said it based its winning bid on confidence in the Talara fields. Runner-up China National Petroleum Co. America Ltd., a unit of China's state oil company, was close behind, with a bid of $190.18 million. Other bids were offered by Canada's Norcen Energy Resources Ltd. $131 million, Argentina's Pluspetrol and Lima's Grana Montero Petrolera SA (GMP) $103.3 million, and Pennzoil Peruana SA $93.5 million.

The contract extends 30 years for oil production and 40 years for gas development.

Camisea area action

Shell and Mobil are developing the Camisea fields under a contract in which Shell holds a 57.5% interest.

Shell discovered the world class natural gas fields in the mid-1980s. Camisea is 500 km east of Lima, across the Andes, in the Ucayali basin. The area includes Cashiriari, San Martin, and Miyapa fields. Estimated reserves are 11 tcf of natural gas and 600 million bbl of condensate.

Shell plans to drill three appraisal wells starting in February 1997. The wells will be drilled about 100 days apart, starting in the Cashiriari field, moving to the San Martin field, and then back to the Cashiriari field.

The license agreement provides 2 years to evaluate options for developing the reserves. As part of the project, Shell also is studying the size of the potential gas market in Lima. "We see the market as industrial," a company official said, adding that there would have to be demand of at least 200 MMcfd to justify full development.

Shell is in the early stages of previewing design options for future facilities, which would include one natural gas and one condensate pipeline-each about 500 km-between the Camisea area and Lima, a fractionation plant, and a gas plant.

The company recently selected two groups of firms for a 6-month design competition. The winning group would handle the final design and engineering, if a go-ahead for the full project is given within the 2 years allotted. One group is led by Bechtel Corp. and includes Cosapi, a Peruvian firm, and Odebrecht SA, Rio de Janeiro; the second is led by Fluor Daniel Inc., with partners GMP SA and Techint SACI, Buenos Aires.

The Shell/Mobil contract also provides an option to build a power plant at any time. The companies in August selected a group led by the U.S. firms International Generating Co. (Intergen) and Community Energy Alternatives (CEA) to evaluate construction and operation of a 600 Mw gas-fired power plant served by the Camisea fields.

A site for the plant has yet to be determined, according to Shell. Under current plans, the plant would feed electricity to the existing transmission system by late 1999, initially supplying 300,000 kw each to the central-northern and southern power grids.

The oil companies are in talks with the electricity group for a contract to supply gas from the Camisea fields to the plant by late-1999. The main gas and liquids project would be developed at the same time. This is slated to go on stream in 2002-03.

The companies will conduct joint studies, including environmental impact and technical evaluation, to decide on the location of the generating installations. The companies also are in contact with local communities and national and international nongovernmental organizations regarding siting of the plant and related matters.

Advantage/Barrett plans

Advantage Resources Selva LLC, a unit of an established player in Peruvian exploration, will team with Barrett Resources (Peru) Corp., a newcomer to Peru, in exploring northern jungle blocks 55A, 55B, and 55C in the most recent contract signed with Perupetro. The blocks cover more than 812,000 acres.

The companies will be working in areas where Amoco Corp., Phillips Petroleum Co., and Union Oil Co. of California (now Unocal Corp.) in the early 1970s drilled dry holes and several wells with shows of heavy oil. "This is a high risk prospect," acknowledged William J. Barrett, chief executive officer of Barrett Resources, at a recent conference in San Antonio.

However, Barrett added that one prevously mapped feature where early efforts will focus could contain 50-80 million bbl of oil. "If that pans out, there are four other features very similar to that...so the trend itself could have in the neighborhood of 400-500 million bbl of oil."

Work in the first 9 months will include reprocessing and interpreting 2,000 km of seismic lines and production engineering studies with new simulation methods on the wells. The second 15-month period will include the acquisition of 400 km of 2D seismic and drilling one exploratory well. A second exploratory well will be drilled within the next 12 months, and a third in the following year. The companies are expected to invest about $25.9 million during the minimum 4-year work period.

Oxy efforts

Occidental Petrolera del Peru added a third area to its active roster in the Andean nation when it acquired exploration and development rights on the nearly 2 million-acre Block 72 in the northern jungle.

The contract's exploration stage includes acquiring 100 km of 2D seismic lines, reprocessing and interpreting 100 km of existing seismic surveys, and drilling five exploratory wells.

Perupetro estimates a minimum $44.5 million investment by the Oxy unit. If successful, Oxy will pay royalties beginning at 18% on the first 40 million bbl of oil, rising gradually to 40% for output exceeding 250 million bbl.

Oxy, which has been operating in Peru for 25 years, continues producing oil from declining fields on northern jungle Block 1AB. Through September of this year, output averaged 52,957 b/d, or 44% of Peru's production of 119,754 b/d.

Occidental also is the operator in exploring northern jungle Block 54, in association with Pluspetrol (OGJ, Sept. 18, 1995, p. 40). It recently withdrew from Block 4, also in the northern jungle, after completing a 2-year exploration program that ended with a dry hole.

Pluspetrol group

Pluspetrol, the operator with 60%, and its partners Korea Petroleum Development Corp. (Pedco), Daewoo Corp., and Yukong Ltd., all of Seoul, have taken over the operation of Petroperu SA's former northern jungle Blocks 8 and 8X.

The companies won Petroperu's 20 and 25-year contracts for the blocks in a tender held June 11 at the same auction as the La Pampilla refinery.

As part of the deal on the northern jungle blocks, the Argentine and South Korean companies also acquired the oil field assets, which include 49 million bbl of proven oil reserves and an average 27,000 b/d of crude oil production. They will pay 25.5% royalties to the government on oil production.

The companies paid $117.2 million cash and $25 million in debt paper for Petroperu's exploration and production licensing contracts. They also presented a guarantee for a minimum $25 million investment the next 5 years, although Pluspetrol said it expects to spend as much as $50 million the first year and $85 million the next 7 years.

Block 8, in the Maranon basin, is formed by the oil fields that Petroperu found and developed after it started its jungle operations in 1971. Block 8X is made up of the rest of the area where Pluspetrol will continue Petroperu's earlier exploration.

Exploration and maintenance was stymied for many years by lack of funds for the state company's operations.

The new operator's expenditure will include maintenance and renewal of installations and equipment, drilling of development wells to maintain and increase production in Block 8, and seismic studies and drilling exploratory wells on Block 8X. It also will cover environmental remediation costs, especially in the Yanayacu fields, located in the Pacaya Samiria national ecological reserve. The cost of remediating environmental damage by earlier oil operations will be covered from privatization funds.

On another front, Pluspetrol will spend a minimum $29 million on the first stage of an exploration and development licensing contract signed July 22 with Perupetro for the central jungle's Block 79 in the Ucayali basin, near the Aguaytia gas fields.

Pluspetrol is the operator with 60% interest; partners are Pedco and Yukong.

The 7-year program includes a 400-km seismic study and five exploratory wells. The companies won the contract to the block in a tender called by Perupetro last year, in which they placed the sole bid last Nov. 23, followed by a final offer Dec. 11.

Royalties when the companies find and produce oil range from 19% for the lowest volumes of production at prices of as much as $15/bbl oil to 41% for the highest volumes of production with prices at more than $41/bbl.

Also in the Ucayali basin, Anadarko Petroleum Corp., Houston, estimates that it will spend $57 million on exploration and development of Block 84, for which it signed a license with Perupetro Sept. 2 (OGJ, Sept. 9, p. 38).

The 30-year contract can be extended to 40 years, if there is a gas find, and includes minimum work of a 600-km seismic study and drilling five exploratory wells.

Downstream privatization

Petroperu also moved ahead in its privatization of downstream assets this year, awarding the bid for Petro lube SA, the company's lubricants business, to Mobil Oil del Peru (Cia. Comercial).

Mobil won the lube operation with an offer of $18.85 million, two and a half times the $7.5 million base price. The purchase includes a 300,000 bbl/year lubes blending plant, a grease plant, and the brand name.

The runners up were Maraven SA with a $17 million offer and Chevron Corp. $15.8 million.

Mobil intends to continue marketing Petrolube products and will produce Mobil and Petrolube lubricants at the same plant. The company said both brands combined cover almost half the country's market.

Mobil already has a lube blending plant at Callao with capacity of 160,000 bbl/year. Mobil also has a 9% share in the group led by Repsol that bought a 60% stake in Petroperu's La Pampilla refinery.

Meanwhile, Refinadores del Peru SA, the new owners of the 60% stake in the refinery, formally took over operations Aug. 1, changing the company's name to Refineria La Pampilla SA, Relapasa. Empresa Repsol SA, the Peruvian subsidiary of Repsol, is the technical operator. Relapasa will continue to supply all domestic and foreign clients interested in its oil products.

The new owners of La Pampilla must invest a minimum $50 million upgrading the refinery the next 5 years, starting with $5 million the second year. The companies will first let contract for an engineering study to decide where to begin.

Petroperu's privatization committee will contribute $37 million to environmental remediation programs at La Pampilla the next 5 years. After that, it will be the responsibility of the new owners.

Repsol also announced that it will relaunch 25 service stations under the Repsol brand, which it earlier purchased from the local Petrol group and which it already operates. Together with partner GMP, which put up 15%, Repsol also will invest as much as $6 million/year installing new service stations, starting with five this year.