Royal Dutch/Shell Group and Mobil Oil Corp. late last week were to sign a contract with Peru's government for the long delayed development of the giant Camisea gas field complex in Peru's central southern jungle.
Under a contract slated to be signed May 17, Shell/Mobil will invest $2.7-2.8 billion in the project.
In an initial 2 year stage, the companies will drill 10 wells to further appraise and initially develop the gas fields.
This stage includes construction of a 600,000 kw gas fired power plant fed by Camisea gas, instead of the 450,000 kw plant originally envisioned. The combine is discussing participation in this part of the project with power companies, mainly in the U.S.
The power plant and two power transmission lines will account for $500 million of project cost. One of the lines will carry power to the central northern power grid, the other to the southern grid.
The second stage of development calls for installation of a gas gathering and reinjection system, condensate separation and gas treating plants, and gas and condensate pipelines crossing the Andes to the coast.
This stage includes a fractionation plant to produce liquefied petroleum gas as well as other projects.
The companies expect the development project to take about 7 years to complete, although the timing of arrival of gas in Lima will depend on results of a feasibility study of its profitability.
Royalty structure
The Shell/Mobil combine will start paying a royalty of 17% in the first stage of production until it recovers its original investment.
After income exceeds that amount, royalty will rise with the value and volume of sales to 22% upon recovering as much as 150% of the original investment.
The royalty will rise to 27% when the companies recover 200% of original investment, 37% at threefold recovery, and 40% at fourfold recovery, reaching a maximum 47% once the companies recover more than four times the original investment.
President Alberto Fujimori, who released preliminary information on the contracts May 12, said the Peruvian treasury should receive as much as $6 billion in royalties during 25 years.
Shell reportedly had hoped to start paying royalties at only 13% in consideration of the fields' remote location. Although the investment was originally disclosed as $3.3 billion, costs were adjusted during negotiations.
Background
Shell found the Camisea fields during a $200 million oil exploration campaign in the Ucayali basin during 1981-87 (see map, OGJ, Jan. 16, 1995, p. 15).
The company at the time estimated reserves at 10.8 tcf of gas and 725 million bbl of condensate.
However, negotiations with the government over a $1.3 billion project to develop the fields were dropped, and Shell's contract was unilaterally canceled in August 1988 in a political decision by the Garcia administration.
Shell claimed its option to Camisea from the Fujimori administration as soon as the president took office in July 1990 and was later encouraged by deregulation of the oil industry and other measures promoting foreign investment the government gradually enforced.
In the runup to the contract signing, the government in the past month also approved legislation for long term investments that favor the project.
The negotiations leading up to the present contract began early in 1994, when Shell and Perupetro SA, the state owned oil regulatory company, started a 14 month study of the feasibility of developing the fields.
Shell is project operator with a 57.5% interest in the contract. Mobil holds the remaining 42.5%.
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