Falling oil output adds sense of urgency in Peru

OREANDA-NEWS. July 03, 2015. Peru's upstream promotion agency PeruPetro is trying to stimulate interest in the oil sector amid lacklustre exploration and falling crude output.

Argentina's Pluspetrol, Canada's Pacific Rubiales and UK-French firm Perenco have registered to bid for a new 30-year contract covering block 192 — Peru's most productive upstream asset. The winning bid will be announced on 15 July.

Pluspetrol is the operator, but under present bidding rules cannot extend its contract, which ends on 29 August. PeruPetro has repackaged the block, formally known as 1-AB, and doubled its size to 512,000 hectares (5,120km?). The block produced 10,000 b/d in May, down from nearly 14,000 b/d last year. The new, larger asset could hold around 725mn bl of reserves.

Argentina's Tecpetrol, Spain's Repsol and US group Chesapeake Energy registered to bid for seven jungle blocks by a 25 June deadline. Winning bids will be announced on 28 August. Six of the blocks are in the northern jungle, in the Loreto and Ucayali regions, and one is in the southern Madre de Dios region. Two more rounds could take place in the fourth quarter, one for six offshore blocks and another for eight additional jungle blocks.

Peru, like other Latin American countries, is feeling the effects of lower crude prices. Just three exploration wells have been drilled this year, and only one, at Camisea block 88, is planned for the rest of this year. Peru produced 59,000 b/d in January-May, down from 70,000 b/d a year earlier.

"We understand that Peru presents a risk, because it is underexplored, but we are convinced reserves are there," PeruPetro president Luis Ortigas says.

Ground down

Peru has had to deal with its share of above ground problems. Block 192 has been at the centre of periodic protests by indigenous communities over environmental and community rights for more than a decade. The most recent conflict, which ended in late February, forced Pluspetrol to shut in 14 wells.

The month-long dispute reduced crude output by 3,000 b/d. The standoff ended after Pluspetrol said it would pay communities some \\$350,000 for land use, and the government agreed to create an environmental remediation fund. The fund was formally established by law in May, with an initial \\$16mn. Peru's environmental evaluation and oversight agency Oefa has issued Pluspetrol with 12 fines over the past three years, totalling \\$13mn, for alleged environmental contamination.

PeruPetro is organising a prior consultation process with indigenous communities as part of the current tender for block 192, as required by law. The process is non-binding, but a negative response from communities could make it impossible for a new operator to take over the block when the current 30-year contract expires.

PeruPetro accepts that the schedule is tight. The agreement to hold the consultation was finalised in May and authorities will meet representatives of four indigenous federations on 7-17 July. "This is a big risk on our part," Ortigas says. "Any delay with the consultation could throw off the schedule."

A final obstacle in the tender for block 192 involves the possible participation of state-owned oil company PetroPeru. PetroPeru has the right to take up to 25pc in new contracts awarded by PeruPetro. It has so far turned down the option for six production blocks on the northern coast, but appears ready to take a stake in block 192. Ortigas does not expect PetroPeru's possible involvement to deter bidders. Instead, securing a new operator for block 192 should help boost participation in Peru's other upstream rounds, he says.