Peru promotes upstream rounds amid falling output

OREANDA-NEWS. June 25, 2015. Peru is promoting upstream investment in new acreage amid falling production and exploration activity.

Upstream promotion agency, PeruPetro, is advancing two bidding rounds, one for seven blocks in the country's vast Amazon region and a second for block 1-AB, historically the most productive crude block in Peru.

The final quarter of the year could see two more rounds, one for six offshore blocks and another for eight additional jungle blocks.

"We are very optimistic. While the market is tough right now, we are going to offer blocks that present good opportunities," PeruPetro president Luis Ortigas told Argus.

Three companies, Argentina's Tecpetrol, Spain's Repsol and US Chesapeake Energy, registered to bid on the jungle blocks by the 25 June deadline. Bids will be accepted 17 July and the winners announced 28 August. Six of the blocks are in the northern jungle, in the Loreto and Ucayali regions, while one is in the southern Madre de Dios region. The blocks cover 340,703-638,650 hectares.

Argentina's Pluspetrol license to operate block 1-AB expires on 29 August. PeruPetro has repackaged the block and doubled its acreage to 512,350 hectares, rechristening it block 192. The block produced 10,000 b/d in May, down from nearly 14,000 b/d last year. The energy ministry estimates the block to hold more than 725mn bl of reserves.

Canada's Pacific Rubiales, France's Perenco and Pluspetrol itself have registered to bid. While Pluspetrol's contract could not be extended, the company is allowed to vie for a new 30-year license. It is partnered on the block with China?s state-run CNPC, which has a 46pc share.

PeruPetro will announce the winning bid on 15 July with a goal of signing the contract on 28 August.

Ortigas acknowledges a risk that requisite indigenous consultations, albeit non-binding, could set back the process. "This is a big risk on our part. Any delay with the consultation could throw off the schedule. We have confidence that it will get done, but there is a lot of risk because there are high expectations," said.

The block has been embroiled in repeated protests over alleged contamination, with the last protest earlier this year forcing Pluspetrol to suspend production for a month. Pluspetrol reached an agreement 25 February with indigenous communities to pay around \\$360,000 in compensation for land use.

Ortigas said PeruPetro is ready to launch two more bidding rounds for offshore and jungle blocks, but will wait until it finishes the current process to move ahead.

In December 2013, the agency cancelled a bidding round for offshore blocks after only one company expressed interest. The agency has been working since then to make the blocks, which extend from the central south to the south, more attractive. It hired UK-registered Spectrum to review 13,000km of existing seismic data and US-based GX Technology to lay 12,000km of new seismic lines.

"The results we have received from Spectrum and GX Technology are very good. We will be able to present potential bidders with technological information that will make the blocks much more attractive. The lack of information makes the risk much greater," said Oscar Miro Quesada, PeruPetro's promotion manager.

Ortigas said the agency would also be ready to present eight new jungle blocks in the final quarter of the year. PeruPetro has concluded prior consultation on three blocks and will finish with five others in July. Another 11 jungle blocks could be ready for a fifth bidding round in first quarter 2016.

"We understand that Peru presents a risk, because it is under-explored, but we are convinced reserves are there," said Ortigas.

Peru, like other countries in the region, has suffered since crude prices collapsed last year. Only three exploration wells have been drilled this year and only one, on Camisea's block 88, is planned for the rest of the year. PeruPetro has initially forecast 15 exploration wells this year.

Production is also down, with the country producing an average of 59,000 b/d in the first five months of the year, compared to 70,000 b/d in the same period in 2014.