Peru scrambles to re-assign oil block

OREANDA-NEWS. August 06, 2015. The Peruvian government yesterday cancelled a tender for the country's largest oil-producing block after potential bidders walked away from the offer for a 30-year license, the second time the process flopped.

Upstream promotion agency PeruPetro is now evaluating the possibility of a direct negotiation, instead of holding a third tender, to guarantee production on 10,000 b/d block 192 before the current license expires on 28 August.

The block accounted for close to one fifth of Peru's 55,800 b/d average crude production in July.

Argentina's Pluspetrol is the current operator with a 54pc stake. China's state-owned CNPC holds the balance. Pluspetrol?s contract cannot be extended, but it had been pre-qualified to bid in the tender. The other pre-qualified bidders were Canadian Pacific Rubiales and Anglo-French Perenco.

Pluspetrol has not commented on the possibility of having to shut in wells if no decision is made by the end of the month.

On 13 July, the three companies had asked for more time to evaluate financial commitments. PeruPetro postponed the tender deadline to 6 August and went through an internal shake-up, with Rafael Zoeger, former general manager of US independent BPZ Energy, appointed president in place of Luis Ortigas.

PeruPetro cut the minimum royalty for light crude to 20pc, from a previous 35pc in the original process, and 15pc for heavy crude, down from 25pc. Another change gave companies 20 years, up from 10 years, to pay for the block's physical assets, including wells, pipelines and storage facilities. The assets are valued at \\$345.5mn.

The three pre-qualified companies did say why they opted out of the process for block 192, which covers 512,000 hectares (5,120km2) on the border with Ecuador. The block has 138mn bl of proven reserves, but new structures could hold much more crude, Peruvian officials say. The block currently has 17 producing fields and 116 active wells.

PeruPetro says it is now considering directly negotiating a temporary two-year contract to a new operator, or a full 30-year license.

Energy minister Rosa Maria Ortiz raised the possibility that state-owned PetroPeru could operate the block, but there are legal issues that would need to be resolved first.

PetroPeru left the upstream 20 years ago after the government privatized most of its assets, including production wells. But it is now gradually returning upstream after receiving exploration block 64 in the northern jungle in April 2013. The company has said it will take a 25pc stake in a future contract for block 192.

Downstream, the company is undertaking a \\$3.5bn upgrade of its 65,000 b/d Talara refinery. The work will increase capacity to 95,000 b/d and allow the refinery to process heavy crude. The project is scheduled to end in 2017, but so far only preliminary work has taken place to ready the terrain for construction.

One of the conditions for the upgrade, approved by the congress in December 2013, prohibits PetroPeru from incurring additional debt until the Talara project is finished. PetroPeru is considering a bond issuance for \\$2.5bn in the fourth quarter to complete Talara.

Uncertainty surrounding the fate of block 192 could complicate PeroPetro?s separate planned bidding round for seven blocks in the Amazon jungle. Argentina's Tecpetrol, Spain's Repsol and US Chesapeake Energy are pre-qualified to bid. Contracts are to be awarded on 28 August.

The agency also hopes to launch bidding rounds for eight additional jungle blocks and six offshore blocks in the fourth quarter.