Privatization of Peru's state petroleum sector will get under way in earnest this year.
Peru in recent years has stepped up the pace of privatization in its petroleum sector. The campaign is paying off in an influx of hard currency, increased exploration and development, and an easing of the country's oil production decline.
Much of the upstream and downstream petroleum interests held by state owned Petroleos del Peru SA (Petroperu) are to be put up for auction this year.
At the same time, Perupetro SA, the state oil regulatory agency, is redrafting Peru's oil and gas map as it prepares to call licensing rounds for areas not under contract or negotiation. Perupetro hopes to call the first tenders this month.
Meantime, the auction of Petroperu's interests in its oil fields has been postponed until after the general elections this spring. Further, the committee set up to oversee Petroperu's privatization has tentatively set Jan. 23 for the sale of the company's 62,000 b/d Talara and 102,000 b/d La Pampilla refineries.
Sale of an operating concession for Petroperu's 200,000 b/d capacity North Peruvian pipeline, which transports most of Peru's jungle oil production, will precede the sale of oil fields to establish tariffs for shipping oil from the jungle to the coast.
Petroperu plans to retain a 40% interest in its refining and oil production operations as well as full ownership of the North Peruvian pipeline.
ECONOMIC STRENGTH
Peru's drive toward privatization and deregulation are helping to fuel a dramatic resurgence in the Peruvian economy under the leadership of President Alberto Fujimori.
Peru's economic growth was estimated at 16-17% in 1994, topping even the most optimistic early forecasts for the year. The government predicts further growth in 1995, with an increase of 7-10% likely.
Lima consulting group Apoyo predicts economic growth of more than 10% in 1995, followed by 6.7% in 1996, However, Apoyo contends that growth will be substantive, not the kind of growth that was underlain by hyperinflation during the late 1980s under the regime of President Alan Garcia.
The government estimated the rate of inflation at 17% in 1994 and predicts it will fall to 10% in 1995.
Other regulatory barriers are due to fall as well as South America continues to undergo a continent-wide trade revival. This month, Peru will eliminate import tariffs, previously an average 10%, for trade with Andean Pact partners Colombia, Venezuela, Ecuador, and Bolivia.
On the downside, an import-led economic boom is likely to widen Peru's trade deficit to more than $500 million. And there are some who contend Peru's currency is overvalued and possibly headed for a steep devaluation, as was the case recently with Mexico.
SALE TIMING
Petroperu Chairman Emilio Zuniga denied the sale of Petroperu's oil field interests was postponed for political reasons.
Peru will conduct elections for president and members of congress Apr. 9. A second round of voting for president will be held within 60 days if none of the candidates receives more than 50% of valid votes.
Opposition candidates have been calling on the government to wait until after the elections for further debate before privatizing key units of Petroperu. But the sale of the refineries, which require big investments, is less sensitive than those of Petroperu's oil fields, which produce one third of Peru's total crude production of about 128,000 b/d.
Zuniga, also president of the privatization committee, said the auction of Petroperu's refineries, originally slated for last October, was to be followed in December by sales of interests in the North Peruvian pipeline and the oil fields. Those sales had fallen behind schedule.
After the pipeline interests are put up for sale, some of Petroperu's interests in northern coastal Block XI and northern jungle Block 8, where Petroperu will retain a 40% interest in a joint venture, will be sold. Winning bidders will operate those blocks.
PETROPERU'S FUTURE
A Sample of What's Happening With Peru E&D (28460 bytes)
"Petroperu will not disappear," Zuniga said. Apart from retaining interests in the refineries and oil fields, Petroperu will continue to own-if not operate-the 200,000 b/d capacity North Peruvian pipeline.
In addition, the state company will work on a project to develop gas reserves on offshore Block Z-1, recently relinquished by American International Petroleum Co. (AIPC), Denver. Gas production will fuel a 30,000 kw power plant on the northern coast.
Zuniga noted that about 20 companies from the U.S., Canada, Europe, and Argentina have expressed interest in the oil producing blocks. He said the doors remain open for more companies to look over the acreage.
Petroleum industry sources said the delays in the privatization schedule are of little concern, in fact giving the companies more time to review data.
Winning bidders will operate license contracts that Petroperu signed in 1994 with Perupetro.
Meantime, Petroperu is proceeding as planned with its 1995 budget, with the current year's program following 1994 spending trends but without taking into consideration the effects of privatization.
Petroperu last year signed a draft contract with Perupetro covering operations in Block 8X which essentially involves exploration rights to Block 8 except for producing oil fields. The contract is awaiting approval from the ministries of economy and finance and energy and mines. Petroperu will seek a 60% partner for Block 8X.
Petroperu in 1993 sold its Petrolera Transoceanica shipping subsidiary as well as the operating contract its former subsidiary Petromar SA held covering several offshore fields. During 1993-94, Petroperu also sold its service station network and Solgas liquefied petroleum gas bottling and distribution company.
In addition, Petroperu in 1993 cut its staff to 5,800 from 9,300 in 1990.
MAPLE UPDATE
A watershed in the campaign to privatize Peru's oil sector came in 1994, when Maple Gas Corp., Dallas, signed contracts with Perupetro to develop the Aguaytia project, a $150 million integrated oil and gas and electric power project in the Ucayali region of Central Peru (OGJ, May 9,1994, p. 27).
When Maple assumed operation of the Maquia and Agua Caliente oil fields and the 3,250 b/d Pucallpa refinery and associated refined products distribution center in April 1994, it became the first private company to operate a refinery in Peru, the company said.
If all goes as planned, by yearend 1995, Maple also will become the first private company to produce and sell nonassociated gas and electricity in Peru.
Maple on Jan. 6 updated the status of the Aguaytia project:
- Oil and gas development is on track, with a workover and drilling program in the Maquia and Agua Caliente oil fields started Sept. 28, 1994, with a target of increasing combined oil production to 2,000 b/d from 700 b/d. Aguaytia gas field development is expected to begin in about 6 months. This includes drilling more wells and constructing gas processing and natural gas liquids fractionation and storage facilities as well as laying two gas pipelines and one NGL pipeline. Maple was to begin in 1994 testing integrity and productive capacity of two existing wells in the gas field, 80 km west of Pucallpa, to reconfirm reserves estimates at 302 bcf.
- Refining at Pucallpa had a brief setback when initial efforts to produce gasoline proved impractical. The cost of production required Maple to raise the price of gasoline about 20%, causing a local protest. Soon thereafter, Maple stopped producing gasoline at Pucallpa and began buying it from Petroperu in Lima for distribution in the Pucallpa area, thus enabling Maple to lower the price. Plans call for upgrading the refinery to produce Turbo A-1 aviation fuel. The plant also produces diesel fuel, kerosine, and residual fuel oil that Maple markets locally. Maple also distributes lubricants and motor oil in the Pucallpa area.
- Construction of a 140,000 kw, gas fired power plant will begin simultaneously with development of Aguaytia gas field as well as construction of related electric substation and transmission facilities. The power plant will provide electrical power to consumers in Central Peru and Lima via a connection with the country's main power grid.
PETROLUBE SA
The sale of Petroperu's lubricants company, Petrolube SA, is expected to get under way early this year.
The privatization committee last year started selling bid documents at $5,000 apiece in preparation for the Petrolube auction. That includes access to Petrolube's data room and visits to the Petrolube lubricants plant at Callao and grease plant at Talara. Among other company assets are the Petrolube trademark and a country-wide marketing network.
Investors will be able to buy at least 90% of Petrolube shares, with company workers retaining the right to purchase as much as 10% of the shares.
The lubricants plant, built in 1960 with a capacity of 7.8 million gal/year, has been expanded since then to a capacity of about 12 million gal/year. The grease plant, built in 1954 as part of the Talara refinery, also has been expanded, to 10.5 million lb/year from 6.4 million lb/year.
The committee said Petroperu also will take responsibility for cleanup of any existing environmental damage.
Petrolube supplies about one third of Peru's market, competing mainly with Royal Dutch/Shell Group, Mobil Oil Corp., Texaco Inc., and Burmah Castrol plc.
That downstream competition is certain to increase as privatization proceeds. At yearend 1994, Shell and Mobil together applied for 15 licenses to build or upgrade service stations in Lima. Each plans to spend more than $6 million on the retail program.
LICENSING ROUNDS
Perupetro has erased dozens of blocks that government designated for exploration in 1970 when it opened the country to foreign investment in its upstream sector (see map, OGJ, May 7, 1990, p. 43).
New maps (see p. 15) show only blocks that contractors are operating and where companies are negotiating new licenses, as well as a few open areas. No specific areas have been designated for licensing rounds.
Still operating blocks in Peru are:
- Occidental Petroleum Corp., Blocks 1-AB and Block 4, northern jungle.
- Mobil Exploration & Producing Peru, as operating partner with Advantage Resources International, Block 62, northern jungle.
- Petroperu, Block 8, northern jungle.
- Western Geophysical Services, Block 65, northern jungle.
- Maple Gas Co., Dallas, Blocks 31-B, 31-C, and 31-D, all in the central jungle.
- Murphy Oil Corp., Block 71, central jungle, where exploratory work is scheduled to get under way soon.
- Petroandes SA, Block S-2, Titicaca basin, where the local company relinquished Block S-3 to Perupetro.
- Petrotech International Corp., offshore Block Z-28.
In addition, Perupetro has eliminated these blocks:
- Central jungle Block 16-A, recently relinquished by Consolidated Eurocan Ventures (Bermuda).
- Block 66 in the Ene basin, where Eurocan had completed a technical evaluation but failed to reach agreement on an exploration agreement with Perupetro.
- Block Z-1, offshore, formerly operated by AIPC, which failed to reach agreement with Perupetro on renegotiating its contract under the 1993 petroleum law (OGJ, Dec. 13, 1993, p. 66).
NEGOTIATIONS UNDER WAY
Meanwhile, Perupetro continues to negotiate with companies for 11 new contracts, mostly in jungle areas.
Minister of Energy & Mines Daniel Hokama recently said four companies were expected to sign contracts by yearend 1994. They are ARCO Oil & Gas Co., seeking northern jungle Block 64; Spain's Repsol SA, offshore Block Z-29 in the Trujillo basin; and a joint venture of Royal Dutch/Shell Group and Mobil.
Shell and Mobil are bidding 50-50 for Shell's former Blocks 38 and 42, where the venture will continue exploration that Shell started in the 1980s when it found Camisea natural gas fields. Perupetro has carved out of Block 42 the Camisea fields, on which Shell and Perupetro are conducting a feasibility study of developing huge gas reserves. The study, progressing on schedule, is due for completion by May 31.
Mobil, in association with Elf Aquitaine, also has sought license contracts for two large blocks, M-A and M-B, in the Madre de Dios basin, where it began a technical evaluation in 1993.
Oxy is negotiating for Blocks 54 and 72, the latter in the Huallaga basin, partly covering an area explored earlier by Mobil. Coastal Corp. has requested the adjoining Block 74. Chieftain International Bermuda, partner with Mobil and Advantage in Block 62, is seeking a license for Block 73, another new area near Blocks 62 and 67 in the northeast jungle. In addition, Advantage is negotiating for rights to Block 67.
NEW CONTRACT
Quintana Minerals Corp., Houston, and YPF SA, Buenos Aires, have signed a draft contract with Perupetro covering exploration on Block 50 in the sub-Andean Santiago basin of Peru's northern jungle.
The contract was sent to the Ministry of Energy & Mines for review and approval last November.
Quintana and YPF won the block in competition with Elf and Texaco. Quintana will be operator.
The partners have committed to drill nine wildcats-four during the first 2 years, followed by one each year in next 5 years. Royalty starts at 19% of income less costs, rising in phases to 38.5%.
Block 50 had been operated by Petromineros del Peru SA, a unit of Edward Callan Interests, Houston. Perupetro turned down Petromineros' request for a second extension of its work program. Petromineros completed geophysical surveys on the block before dropping it without drilling.
CHAMBIRA
Petroperu projects a March start-up for its Chambira oil field.
The company signed a $10.5 million contract last October with Cilloniz Olazabal Urquiaga SA (Cousa), Lima, and Coest Construtora SA, Sao Paulo, to drill and place on production two appraisal wills in Chambira field in northern jungle Block 8.
Petroperu found oil at Chambira in 1989. It did not, however, have the cash to develop the project until 1993, when it obtained a $24.8 million credit line from Andean Development Corp.
Cousa-Coest is leasing a Parker Drilling Co. rig from Servicios Petroleros SA, Pucallpa, Peru, a joint venture formed by Serpet Group, Lima, and Parker, Tulsa.
Petroperu expects the two new wells, each to be drilled to 13,000 ft, to increase its Block 8 production of 30,000 b/d by 4,000 b/d. Chambira started producing about 1,200 b/d from the first two wells in early 1994, when Cousa-Coest started work on the first development phase.
The new contract follows a $10.5 million contract signed in early 1994 by Cousa-Coest to build a personnel camp, production facilities, and a 6 in., 35 km pipeline to carry oil from Chambira to the Trompeteros tank farm for further transport to the North Peruvian trunk line. The project includes completing a gathering line to carry produced water from wells to storage tanks to avoid further contamination of the surrounding rain forest.
Petroperu expects to develop 6.3 million bbl of reserves in the first stage. It would need to drill another six wells in a subsequent stage to develop another 15.4 million bbl.
PERUVIAN PRODUCTION
Peru's oil production slipped for the fifth month in a row last October, with output falling 4% year to year to 123,830 b/d.
Even so, average 1994 production through October was ahead of the same 1993 period at 128,000 b/d vs. 126,170 b/d. Peru's target for average oil production in 1994 was 132,000 b/d.
Production fell from all fields, except Petroperu's northern jungle fields, reflecting natural decline.
Production last October included 80,700 b/d from the jungle, 19,270 b/d Offshore, and 23,800 b/d from the north coast. Top producers were Oxy 55,770 b/d, Petroperu 55,840 b/d, and Petrotech 19,270 b/d, The remainder was produced by companies working marginal fields, notably Maple Gas, which produced 580 b/a from central jungle fields Maquia and Aqua Caliente.
Similarly, Peru's oil production slipped 2.3% to 126,828 b/d in September 1994 from the prior year. Top producers were Oxy, with 42.5% of the month's output, Petroperu 34%, and Petrotech 14.8%. Production last August averaged 128,382 b/d.
In the first 9 months of 1994, Peru's oil production rose 3.5% from the prior year period.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.
