Open policy creates new E&P opportunities in Peru

Paul Boughton

Is the current high oil price the only reason for a new wave of exploration in Peruasks Antonio Cueto.

Recently Peru has been recognised for its solid and competitive scheme to attract investment in the hydrocarbons E&P sector. This scheme was created in 2003 when new royalties and a new contract model were approved.

Since the end of 2003 and during 2004 and 2005an aggressive promotional campaign was developed by Perupetro SAthe Peruvian government agency in charge of promoting investment in hydrocarbon exploration in Peru. This promotional campaign was leveraged by high oil prices and was crowned with important new discoveries last year that now identify Peru as an exploration target for oil and gas enterprises.

Last year Peru signed 15 new E&P contractsa record in its contract history. This tendency has continued during the first months of 2006; seven contracts have been signedcovering more than 70million acres in exploration and production in Peru. Currently Peru has more than 50 exploration and production contracts in operation.

World classindependent and local companies such as PetrobrasRepsolHunt OilAmerada HessOxyPluspetrolPetro TechBPZ EnergyMapleAguaytía EnergyGraña y Monteroamong othersare presently operating and newcomers continue to arrive.

The hydrocarbons shortage puts Peru in a different position from other countries that have surplus or big reserves and this situation has made Peru reaffirm its challenge to establish an ideal environment for doing business on a long term perspective.

Is just the current high price of oil the trigger for a new wave of exploration in Peru? Or is it the whole competitive package provided by Peru combined with these high prices that has created the right environment that merits looking at and taking the risk for exploration in Peru?

One point to consider is that the oil price is a feature that affects the whole world; somore than a competitive factorthe price is just a condition. Peru’s competitive advantage is due to the whole package created by Perupetro SA and also because of one ‘key feature’ stability for investments in Peru.

This package offered by Peru has three components: a competitive scheme of royalties; a flexible contract model and a technical data policy which establishes that complete technical information and studies are available to oil companiescompletely free of cost.

Peru has stated that its business is not ‘to sell data’; its business is to attract new investment to develop resources that are still undiscovered under the surface.

This new environment for doing business in Peru provides investors the elements to have success in exploration but with an important elementwhich is caring for the Peruvian environment and a special relationship with native communities.

Peru’s new age for doing ‘green hydrocarbon exploration’ activities is based on a legal framework with clear rules to follow.

Perupetroas a part of its role to encourage investmentsdevelops a whole workshop program to instruct people from communities about the new exploration and production activities developed by oil companies. Then Perupetrotogether with other authorities and the oil company’s representatives go and present the project to the communities and finally helps the communities to talk with the oil companies which will be working in their land. This new way of doing such activities is based on strict regulations.

Under this schemethe statethe civil society and the oil company conform a trilogy for success.

This scheme complements the technical commitment of oil companies and represents a whole real commitmentso creating a key element for a new dawn of hydrocarbon exploration in Peru.

Peru started production in the Camisea Project in 2004a US$1.5billion project to bring gas from the jungle to the coast. Today the second stage is in progressa US$3.5billion LNG project for exporting natural gas.

Last year discoveriesone offshore and two in the jungleprovided a new horizon for exploration in Peru. Surrounding areas to Camisea and to a new Heavy Oil area in the Marañon Basin are under exploration as well.

Peru’s lack of explorationan old weaknessis now an opportunity for those oil companies that are looking for countries with open acreage and competitive conditions; oil companies that now have additional revenues coming from high oil prices that can be used in new exploration ventures.

In view of the great interest shown by oil industry this yearPeru has developed two Classification Processes to select companies for areas in the jungle and the coast.

Peru still has open areas for oil companies both offshore and onshore. At this moment Peru is working on its next campaignbased on a study of Onshore Exploration Areas and a study of Petroleum Systems which includes the construction of a geochemical database. These studies are funded by the Trade and Development Agency (USTDA) and are to be presented to the industry as a part of the next promotional campaign.

Antonio Cueto is Chairman of the Board of DirectorsPerupetro SALimaPeru.


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