with Isabel Tafur, General Manager of Perupetro, Perupetro
Perupetro was created eighteen years ago with a major task of modernizing Peru’s oil and gas upstream sector in a time when the country was famous by its major inefficiencies. Petroperu, for instance, was one of the biggest drainers of Peru’s public coffers. How did Perupetro come into scene and changed this scenario radically?
When the privatization of Petroperú took place in the early 1990s it was clear that part of its activities could not keep on being carried out by them, because, if so, they would be both the regulator and the regulated in a system now open to competition.
Hence, it was decided to create an independent organization – Perupetro – solely in charge of promote, negotiate, subscribe and supervise the license contracts between oil and gas companies and the Peruvian State. I had the honor to work in the hydrocarbons’ law for two years and I believe this law was one of the main tools that allowed the current high level of investment in Peru. The hydrocarbons’ law gives a lot of guarantees to investors. The signed contracts are law-binding, they give tax stability and exchange rate guarantees, as well as guarantees of remittance of foreign currencies by the Peruvian Central Bank and tax return on investments in exploration. In sum, a whole investors-friendly environment was created so that investors were sure that their investments would be respected and promoted by the national government.
Perupetro follows the laws and policies dictated by the Ministry of Energy and Mines to regulate the sector under the investors-friendly framework previously mentioned. The company is independent from the Ministry on the appliance of those laws and policies, since our area of scope is purely technical. We work in a rather autonomous way with the industry in all areas involved in E&P investments, and the environmental and social issues related to it, always keeping in mind that Perupetro’s main objective is to bring further investments into Peru’s oil and gas industry.
Looking at Perupetro’s recent years, what do you consider to be its main progress in attracting further investments to Peru’s oil and gas industry?
More than specific reforms, the main change that Perupetro has experienced was its new-found proactivity in going out there and convincing investors to come to Peru. In previous governments the promotion of the opportunities present in Peru was very small and Perupetro didn’t have an aggressive promotion program. We expected investors to come to us and only then Perupetro would deliver the geological information we had available.
Now Perupetro has an active and aggressive promotional program where we are the ones who look for prospective investors in many international events the world over, with stands in conferences and talks to interested audiences. Perupetro is now actively meeting with investors in many countries in the main oil and gas capitals such as London and Houston and in countries such as Canada – with many companies already established in Peru – China, Korea, India, amongst others.
Once these investors have already entered the Peruvian oil and gas market, how Perupetro helps them to retain their investments here, overcome usual local issues and further invest their resources in Peru’s still vastly unexplored oil and gas basins?
Perupetro has done a lot of work in this direction. Firstly, our policy is to defend the common interests of companies already established in Peru. We want our partners to keep on investing and on complying with their work plans so the Peruvian people and economy can benefit the most out of these investments.
Aside all the advantages given by law and the technical support we give to companies, Perupetro also helps them to overcome the social complexities involved in some of their projects. As a general manager of a local oil company put it: ‘the technical and economic problems I can solve, but the social problems I can only solve with you’.
Perupetro has recently invited the shareholders from the Camisea project to voluntarily renegotiate the discrepancies between the national price of Camisea’s national gas and its exports, which are now cheaper. Don’t you fear this call for renegotiation might be understood as a political action against previously agreed contracts?
The hydrocarbon law states clearly how prices must be established. They must correlate to international market prices. Perupetro has to follow the rules agreed on the contracts in accordance to national laws regarding these activities regardless of specific interests; otherwise we will be called to court. There are no double standards, no gray lines. This is what made Peru the successful economic example that it is nowadays and this is not about to change.
One of the major challenges of Perupetro – and Peru as a whole – is to conciliate the country’s fast economic growth with a very sensitive environment and society. How is Perupetro guaranteeing that the local oil and gas industry is contributing not only to the economic development, but also to the social improvement and environmental protection of Peru?
Regarding environmental concerns, Peru is in a privileged position because all relevant issues are regulated and our environmental standards are in pair to the world’s highest. For instance, the water from exploratory wells cannot be disposed in rivers or wherever, they have to be reinjected. The burning of gas needs a resolution from the DGH, which states that only in extreme cases gas burning is allowed, under strict limits.
In social-related areas there are also rules that state that we have to make many workshops before a bidding-round so local communities are well informed about the characteristics of the projects close to their communities. But independently from such rules, Perupetro has a policy of meeting directly with regional governments and local authorities, with native federations and native communities themselves. Often their main concerns are around the environmental impacts that the exploration can cause them, Perupetro is there to answer all their doubts and concerns.
Following this line, Perupetro started a close work with companies, authorities and communities to develop inclusive projects since last year. For instance, Repsol, to highlight one case among many, has a number of inclusive projects. They are revising a similar work they do in Ecuador promoting the plantation of cocoa, which permits the economic independency of local communities.
These local communities normally are not opposed to the oil and gas activity, when they speak up its normally because they need to call the attention to the fact that they are missing something. For instance, in the case of Pluspetrol in the Block 1-AB they are also working in a project of local poultries. The company will buy all production generated by the local community. These projects have a multiplying effect and now most oil and gas companies are trying to do the same.
In order to be closer to the industry and communities, Perupetro has decentralized some its operations to offices in Tarapoto, Iquitos, Pucallpa, Talara and our people in these offices have direct contact with the native communities.
Even though Peru’s current production of oil and gas is relatively small, the country boosts a very interesting potential with large areas with good prospects still unexplored. After 2010’s successful bidding-round, what is Perupetro doing to further incentivize the exploration of Peru’s basins and where do you see most potential for discoveries?
2011 will witness another Perupetro bidding-round. We currently have 22 blocks, but that could reach 25. About the prospectivity of these fields, what we can anticipate is that the south part of Peru is very attractive because there is a better prospectivity to find gas, with important on-going projects and new discoveries such as the ones from Petrobras in the fields 57 and 58, and Camisea in block 56.
Selva Norte it is identified as an area with light and heavy oil. The North-West also gave us a great surprise; for decades I’ve been listening that in a few years there wouldn’t be more oil in Peru, and instead the production of the North-West has increased significantly and it now equals the production in Selva. So no, Peru’s oil production will not finish tomorrow, neither the day after.
Is Peru any close to reach its hydrocarbons’ self-sufficiency and eventually become a net exporter of oil and gas?
I am very optimistic about that; I believe that Peru will have interesting new discoveries soon that might answer your questions in a very positive way. Maple has also discovered unconventional gas in Peru, opening an entire new area for exploration in the country. Perupetro has have signs that there is shale gas potential in all the northern and northwestern basins of Peru. Perupetro is now working to establish the appropriate regulatory framework to introduce shale gas exploration in large scale in Peru as well.
What are your main ambitions and expectations to Perupetro and to Peru’s oil and gas industry in the coming years?
Firstly, I am confident Perupetro will have much more contracts with royalties established by the market superior to 25%, meaning more revenues to the State. I believe the relationship between the companies and the Peruvian State will improve even more and the private sector will contribute even more to the development of the communities respecting both the environment and Peru’s diverse cultures.
What is your final message to the readers of the Oil and Gas Financial Journal who are eager to find more investment opportunities in Peru’s vast shores and jungles?
Invest in Peru. a country that gives all the guarantees that investors require and an extremely welcoming population, with a unique culinary and an outstanding scenery. This is what Peru is all about, great investment opportunities, stable and safe environment, and a increasingly higher quality of life.