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Interview

with Douglas Reichenbach, Andean Region Manager, Geokinetics Peru

02.05.2011 / Energyboardroom

As you mentioned, Geokinetics recently acquired PGS Onshore which has proven a great asset for the company. How has this affected the company’s position in the Peruvian market and how have you managed to integrate both companies?

The move has undoubtedly strengthened Geokinetics’ position. Since 2007 PGS Onshore has completed four different seismic projects in Peru, both in the jungle and on the coast. The two jungle projects were conducted in blocks 106 and 107 for Petrolifera and on the coast a project on Block XIX for BPZ and a test program on Block IV for Interoil. This meant that PGS already had two crews operating in the country and this increased our strength in terms of manpower and expertise. Geokinetics had also been awarded a project with Repsol and we are now just starting this project. In terms of bringing the two companies together, there was a shared focus on strong HSE and community standards and common philosophies regarding providing the highest quality final product that made it easier to conduct the integration.

Even though you had shared values I am sure there were some difficulties in bringing two competing companies together under the same management. In this sense, as the General Manager of the Geokinetics, what would you say was your greatest challenge in this process?

Perhaps the biggest challenge was aligning the priorities of the two companies, especially because at that time Geokinetics was just beginning a project and PGS had two others in their early stages. Ensuring that these projects were not interrupted while we managed the integration of operations and administration was certainly a difficult task. Aside from that, as I mentioned before, it was easy to align the values of the two companies. I would also say that the seismic industry is somewhat “tribal” in the sense that you must have a certain mentality and be a specific kind of person to work in this industry. It is also an industry in which people that have been around for a long time all know each other, so many of us at Geokinetics and PGS had already worked together and this made it easier to transition the integration.

About one year ago, Peru was highlighted by your colleague Mr. Darci Matos as an interesting showcase of how stable investment-friendly rules and a largely unexplored sector can attract major investments in the long-term. As the one sitting here, how do you assess Peru’s transformation as Latin America’s dearest energy investment hub?

If you look at a map outlining the blocks that were operating in Peru in November 2010 as compared to one of 2007, the difference is simply staggering in the amount of new blocks that have been opened for exploration. With that kind of growth of course there will be a lot of challenges, especially when one of our priorities is to maintain the same environmental standards across all of our projects. This is a very time-consuming process and obtaining the environmental permits sometimes takes longer than the actual duration project. The other challenge of exploration here in Peru is the remoteness of most of the projects and the complex ogistics that are required to carry them out. Additionally, the economics of oil pricing has an impact on the number of seismic projects to be carried out, especially in the areas of heavy crude. When the price of crude was at its peak in early 2009, there was an emphasis in exploring the heavy oil in the northern part of the country. After the worldwide economic crisis some projects were put on the backburner because they were no longer economically viable.

Both Mr. Gonzalez Talledo from DGH and Ms. Isabel Tafur from Perupetro highlighted Peru’s vastly unexplored areas as a major incentive to companies come and untap the nation’s vast potential. In this context, can you speak about specific projects with which you have been capitalizing on the Peruvian opportunities?

As I mentioned, PGS Onshore had a previous project with BPZ in block XIX and now as Geokinetics we have three additional projects with BPZ in blocks XXIIand 2XXIII also on the north coast. also In addition, we carried out 2 projects with Petrolifera that we completed in early 2009 and are currently working on others with Gran Tierra in the Iquitos area. Currently we are also working for Repsol but don’t have any confirmed projects after that; From the time that an oil company signs an agreement with PeruPetro until the time begin a seismic project takes about 2 years.

With such strict environmental standards there must be a high demand for human resources knowledgeable regarding the legislation and the different procedures. How is the industry coping with this sudden surge?

If you consider that there are 50 foreign oil companies coming to Peru and each one has their exploration block and each one needs personnel who are experts in the field of environmental affairs. As such, there is a premium for local environmental experts..

How has Geokinetics been coping with the fact that the Peruvian market is so fragmented into many different companies?

What we have done on a strategic level is that we approach this market in the scope of the Andean region that includes Ecuador, Peru and Bolivia. We try to have our structure so that we can easily move our crews, including equipment and personnel, throughout the region efficiently. For example we expect that the first half of 2011 in Peru will be rather slow but we have some big bids pending in Bolivia for PetroAndina and Chaco, so on a regional level these balance out and this is what we always try to do.

Geokinetics is a leader in the onshore segment and has a lot of great technologies. What specific solutions and/or technologies do you offer to local companies due to Peru’s unique geography and the remote location of its major reserves?

There used to be a rule of thumb that companies did not operate in those regions during the rainy season, but the market has become so competitive that now we are pushed to work year round. Of course we assume lower levels of productivity in those regions and we outfit the crews with the appropriate equipment and training in order to ensure that our personnel to operate safely even under these adverse. This also means that we adjust our prices accordingly.

When thinking about the future for the next 3 to 5 years what would you say are your main ambitions to gain leadership in the Peruvian market?

It is essential that we can be flexible in terms of being able to move back and forth between this market and other ones within the region. It’s difficult to foresee the future because you never know when a new player will be entering the market. Our long-term vision involves continually improving our community relations and social responsibility while becoming more efficient and maintaining our HSE standards and convincing our clients that these are also in their best interest in the long run.

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