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Interview

with Nelson Castaneda, COO, Savia Peru

04.03.2011 / Energyboardroom

SAVIA Peru has just celebrated its first year under this new name, even though the company has been active in the Peruvian market for decades. Was this change just a marketing strategy or did it mean deeper transformations?

The relevant factor behind the brand change was to establish a medium and long-term strategy in line with our new future investment plans of more than $2.5 billion. The idea was to restructure the company with the goal to produce more than 50.000 barrels of oil equivalent per day (BOE/D) until 2016. This implied to work hard with the training and motivation of our workforce and to nurture leadership, team-work and result-driven values inside the company. We are focused to make SAVIA Peru the best place to work on the country.
SAVIA Peru in its new identity is very focused in satisfying not only our shareholder’s needs but also the communities under our influence. The company understands that if our developments turn positive the benefits will be spread to those close to us, since local governments will get considerable extra revenues and, as usual, SAVIA Peru will favor the local community in providing them with jobs and attract further investments to the producing regions. By producing more than 15.000 BOE/D and generating around 5.000 daily jobs, SAVIA Peru is surely the best partner of both public policy-makers and local communities.
When we took the control of SAVIA Peru in 2009 we had three drilling teams working with a total of seven wells drilled per year. In 2010 we drilled seventeen wells and for 2011 we are planning 34. From three drilling rigs SAVIA Peru will have nine drilling teams and it will invest $320 million in 2011 alone. In 2009 the company invested $50 million, in 2010 it tripled that amount to $150 million and this year it is more than doubling it, investing in twenty-two development wells and twelve explorations ones. As you can see, this is a major change not only in the name, but also in the structure of the company and SAVIA Peru hopes that with all these investments, 2011 will bring very interesting findings.

Where exactly is SAVIA Peru planning to invest $2.5 billion in the coming five years?

The major focus of our investments is on the producing block Z-2B, the other blocks are in different exploratory phases according to the working plans we have commitment with Perupetro. Most of the amount invested in the next two years, 80%, will go to block Z-2B, which still has many exploratory wells yet to drill. The remaining 20% will go to blocks such as Z-6, close to Z-2B, where the company is drilling the Santa Teresa well. Towards the end of the year we will also drill on block Z-33, which would be located over that 15 km of the coast of Ica, in the south of Lima. SAVIA Peru is opening these unexplored frontier areas with an interesting prospectivity, which we hope to disclosure with the drilling of at least three new exploratory wells.

Two of your current blocks, Z-51 and Z-52, were acquired last year at Perupetro’s bidding round. Now that PeruPetro has confirmed its desire to bid more than twenty new blocks, what are SAVIA Peru’s expectations to keep on expanding its block ownership?

SAVIA Peru is a dynamic company of continued growth and it will analyze the right opportunities when the moment comes. Hence, we will see if the blocks offered can provide synergies with the blocks that we are already developing, and in case they do we shall bid. These exploratory blocks are the raw material for the future development of SAVIA Peru’s reserves and the company has to be attentive to analyze all offers that will be made.

As you said, 80% of SAVIA Peru’s investments will be on block Z-2B, a block that has already produced for decades but has yet a lot of potential to be explored. How are your projections to go from 15,000 to 50,000 BOE/D advancing?

These projections are based on SAVIA Peru’s current proven reserves, which will give at least 30.000 barrels of oil; the gas commercialization, which is expected to reach 60 million cubic feet and would give around 10.000 BOE/D; and new discoveries would give at least another 10.000 barrels of oil by 2016.

As the pioneer in offshore exploration and production in Peru, how is SAVIA Peru overcoming the challenges to get the necessary technologies and services of a yet undeveloped offshore value-chain?

The methodology we are using to bring the best service providers is to sign medium and long-term contracts so they can establish themselves in Peru. For instance, SAVIA Peru normally closes at least two-years contracts in all variables we need for the drilling of wells.
At the moment we have eight drilling rigs representing more than 70% of the drilling activity in Peru. Because of that, companies such as Halliburton and other service providers that were out of the country are now once again established in Peru.

SAVIA Peru is a unique JV between Korea National Oil Company, KNOC and ECOPETROL from Colombia. How do you build the necessary synergies between the two shareholders and don’t overlap their well established local operations?

Both KNOC and ECOPETROL have a very practical and transparent shareholder agreement which states that decisions are taken in a structured and unanimous way. Naturally, this is possible because the development of SAVIA Peru is of common interest for the two shareholders. Each one has its cultural characteristics respected by the other side and SAVIA Peru has a results-driven approach.
Regarding the overlap of our activities, SAVIA Peru and our shareholders have different responsibilities. SAVIA Peru is focused on offshore exploration and ECOPETROL has its focus onshore. Both company managers of Ecopetrol and KNOC are aware of what’s happening in the company and we all respect our areas of action accordingly.

Peru has become quite successful in attracting private investors for its hydrocarbons sector and investors praise the country for that. However, many perceive the local environmental rules and general social perception too strict on the oil and gas activities. How is SAVIA Peru responding to that?

The company is very respectful of the Peruvian environmental laws and of the rights of local communities. We have an important project of informing stakeholders the added-value of our projects, showing the benefits that our activities generate and that in the 40 years of offshore activity in Peru there hasn’t been any negative impact to the environment. On the contrary, this activity has greatly benefited local governments, which in most cases have more than 50% of their revenues from oil related activities. As partners from both the communities and their public instances, SAVIA Peru always starts its projects by showing what will be the mutual benefits, what will be the added value of our activities, and how they will improve the quality of life of everyone involved.
For instance, we have created a non-profit organization called SAVIA Peru Association, which we decided to capitalize with $15 million to generate projects of infrastructure and work-force training. The company is conscious that we are dealing with a non-renewable industry that will decline in some areas and we want to leave long-term sustainable development wherever we operate. SAVIA Peru Association expects to invest $3 million per year in the next five years, also trying to attract further international funds to help local municipalities to have mature and productive projects so locals can really capitalize on the resources that the oil industry leaves with them. We don’t intend to replace the State; our style of action is to act in a tripartite way with State, community and the company. This is the best way to work responsibly both with the environment and with local communities.

What role do you expect SAVIA Peru to have in the Peruvian oil and gas industry in the coming years?

We want SAVIA Peru to be among the leaders of the Peruvian oil and gas industry, generating more than 50.000 barrels of oil and gas equivalent per day. This will take us to the top two or three producers in Peru.
The company believes in the development of Peru’s oil and gas industry thanks to the country’s high prospectivity and we are committed to develop the local industry with the highest socio-environmental and technological standards available. SAVIA Peru is convinced that the oil and gas industry is a major partner for the promotion of Peru’s development. For those who seem skeptical, look at SAVIA’s operations and you will change your mind.

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