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Interview

with Rafael Ford, Corporate Representative, Petrominerales

10.03.2011 / Energyboardroom

After covering a number of emerging international oil and gas markets, it is very interesting to see how active Canadian juniors are in pioneering in international frontier areas – be it North Sea’s marginal fields, where majors are giving place to juniors, be it Peru’s vastly unexplored Amazon basins. How can a new Canadian player bring value to Peru’s fast growing upstream sector?

The first asset Canadian juniors can bring is our best-in-practice philosophy, which is what Petrominerales employs. We believe that Western Canadian sedimentary basin experience, combined with local knowledge and the local desire to learn and improve, are key attributes, especially when expanding in a country like Peru. There are a lot of similarities from a technical (geological and geophysical) point of view between the Western sedimentary basins in Canada and those in Peru.
For any junior company looking to come into Peru, the key is to bring your experience and knowledge, which is what’s lacking here, but also to be open-minded to integrate local technical and up-and-coming people. There is a very intelligent local workforce with the desire and willingness to learn, ready to grow, but there are no resources, no money, which is what a Canadian company can generally offer. There is also the Canadian mentality, we are very good at working multiculturally, being integrationists with other cultures and people and that’s one of our strengths.

Why did Peru become such an important investment pool for Petrominerales and how is its local expansion integrated within Petrominerales’ global strategy?

Petrominerales had a lot of success in Colombia, our Latin American base. A lot of the knowledge and the way you operate in Peru is similar to Colombia and we have already learned from that experience. There is a lot of easy transfer of knowledge and technical skills, even in some cases using Colombian professionals to come here and help get things going. The fact that the cultures and the language are very similar makes things even easier.
The Colombian sucess is where Peru wants to go in terms of their natural resources exploration development. Hence, it motivates and provides Peruvians a will to cooperate with our Colombian offices. Petrominerales Peru is very integrated with Colombia, but we are in an effort to Peruvianise our organization in the long-term, increasingly using Peruvian skills for our local operations. So application and adaptation are the two most important things about what we take from Colombia and bring here.
Peru is the new frontier for Petrominerales, we know there is something here, we know this is a hydrocarbons rich country, it has been proven in the north, the Talara basin has been producing for over 100 years. Occidental found traces of hydrocarbons when they first explored Block 126, and with new technologies Petrominerales can now research better then they could. We have to give credit to Occidental, who was in Peru back in those days when it opened up the eyes of the world that there was a high potential yet to be explored in Peru.

Late last year Petrominerales has acquired an extra 25% interest from Veraz in Block 126, summing to its four exploration blocks acquired from PanAndean takeover. With 9.5 million gross (5.4 million net) acres in the Ucayali and Titicaca Basins, how would you profile your current Peruvian assets?

Regarding block 126, Petrominerales initially acquired 10% participation from True Energy and 45% from Veraz’ working interest. Since then, we acquired an additional 25% from Veraz, which gave us 80% working interest on Block 126, Veraz still has the 20% remaining. As you mentioned, Petrominerales also acquired Pan Andean, both in Colombia and in Peru. These acquisitions increased our Peru acreage to 9.5 million gross acres , the majority in Ucayali. In blocks 114 and 131, Petrominerales is partnered with CEPSA and CPP, CEPSA is the operator. And on the other two blocks Petrominerales has 80% interests. Petrominerales acquired these assets to enter Peru. Unfortunately, getting in with the bidding-round isn’t easy. We are not a company that believes in coming in, trying a couple of things out and then leaving. Petrominerales wants to firmly establish itself in Peru to do honest exploration. We want to be actively involved in Peru, and a quick way to do so was by acquiring existing blocks from other companies. The company didn’t participate in the 2010 bidding round for technical reasons, quite honestly we already had our hands full with the assets we had.

2011 will be quite a hectic year for you, with many exploration wells to be installed. Where do you want Petrominerales Peru to be in the 31st of December 2011?

Basically, we want to find oil (laughs)! I’d like to have a successful exploration venture this year. Petrominerales will drill its first well in Peru later this year. We should know the results by the November – December timeframe. . So yes, by the end of this year I want Petrominerales to have a successful well. I’d like to have a commercial plan to convert our exploration success into production and cash flows which will show evidence that we’re growing.
I’d also like to keep on building on our good relation with the local communities. I’d like Petrominerales to have a positive reputation in Peru. I’d like us to have a positive relationship with the government. I’d like us to be able to have a good environmental reputation. That’s what I want for Petrominerales, to be considered a positive player in the Peruvian market. I’d like us to be looked upon as what a good foreign company can do for this country.

Petrominerales’ assets are located in the Amazon and Titicaca regions, both environmentally and culturally sensitive zones. How challenging is it to start exploring in such delicate environments?

Firstly, locals know better than we do about the local environment. Petrominerales’ focus is to get these communities involved, to make them understand that they are part of the team and not people we have to work around. They are not obstacles. One thing that Petrominerales has done very well in Colombia is to work with communities so they could understand things like the royalties that the government received. We tried to help these communities understand things such as investments in infrastructure and schools and we tried to provide them with jobs.
Both True Energy and Veraz did a wonderful job of developing a good relationship with the local communities in Peru before us, which we leverage today. When Petrominerales talks to locals they don’t ask us for money, they ask us for jobs. On the other front, the company tries to involve the ministers and departments to make sure local communities get the benefits from the royalties paid. For instance, in the last workshop Petrominerales had, one of the requests we had for the government was on how to get ID numbers for these communities. It’s no secret that a lot of people are simply not registered to work in Peru, even though they are nationals. This is important for Petrominerales because we make a big effort to employ the local population during exploration in whatever capacity we possibly can, and for that they need their papers.

What’s behind Petrominerales successful partnerships with industry counterparts such as Veraz, and also with local communities and government?

Petrominerales has proven success with an excellent management team above me. The company is very fiscally responsible, it has capital and cash available. Something that we pride ourselves on is that we make good decisions, we take responsible risks. Beyond that, it is how we treat people, something that is in our vision and values: we treat our employees and their families with the respect they deserve, our people are our key asset.
For Petrominerales, safety, environment, social care are not things we do because we have to. We do those things because we believe in it. There is no secret that looking for oil has an impact both on the community and on the environment. We don’t hide that, what we do is to work with the people and say ‘look, we want to affect as few people as possible in a negative way and provide as much benefit to as much people as we can’. And that’s simply what it comes down to. This is why Petrominerales is a good partner, the company truly believes in that and everything it does is based on it.

What are your main ambitions and expectations for the next three to five years?

No different than those for the end of this year: to grow, to be a producer – being a producer is not only important for us to make money, it is also important for us to give back. Having cash flow means that the country is making money on royalties, the community is benefitting and we are creating jobs. It also means that we are training local people. We are able to bring people in and provide technical skill – at Petrominerales everybody is mandated to take courses here, from the receptionist up.

What is your final message to the readers of the Oil and Gas Financial Journal about Petrominerales’ commitment to the Peruvian market?

Petrominerales is long-term focused, working in Peru is not easy, it’s a difficult environment, infrastructure is limited, but these challenges bring opportunities. Peru is willing to boom— there is a lot of interest from companies trying to capitalize on this potential. If you look at the long-term perspective for Peru, you will see a lot of positive success waiting. If we get more service companies locally that would be nice, but outside of that, Peru is a very positive place to work, the government wants to work with you. They understand they need to work with the private sector to keep developing the country.
If you look at what Perupetro is doing, they are working hard with the companies to improve the local framework, taking our feedback to the Minister of Energy and Mines and trying to find solutions that benefit both the country and the private sector. In all our dealings with all the departments we have seen that they really want to work with Petrominerales. We are in an environment where change is coming in a positive way.
Peru is also a country that has a major focus on environment; they don’t just let companies do whatever they want to do. And I respect that, they are very active in protecting their environment – they care about the people, the effect that companies are having, they care about the rain-forest, up to the point where they might make it difficult to explore. We hope this will discourage irresponsible exploration in highly sensitive, controversial areas. And this is ok, they will find the balance eventually and that’s what’s positive here. In the end of day, sustainable development is on the interest of all stakeholders, companies, government, and society.

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