By Daisy Johnson

Oil block auction in Peru scheduled to begin in late October – significant challenges await successful bidders

At the end of October 2012 the license agreement for the exploitation of hydrocarbons in Block 192 (formerly Block 1-AB) in the northern Amazon region of Loreto will be awarded. This will be the first of 36 bids expected to be initiated by the end of 2012 for both new and fully operational sites where existing contracts have expired. The remaining blocks are located in the hydrocarbon basins of Ucayali (to the east of the country), Madre de Dios (to the south east), Marañon (to the centre north), and Trujillo, Lima, Pisco, and Mollendo (offshore). State-owned energy company Petroperu SA will take a minimum stake in all contracts due to be auctioned. The successful bid will be that which offers the highest shareholding, total investment and royalty payments.

For foreign oil and gas companies Peru has broadly investor-friendly laws, and the risk of the nationalisation of assets is low despite an increasing state presence in the industry. Nevertheless, investors entering a joint venture agreement with Petroperu SA will be 100% responsible for both the costs and risks associated with exploration, and Petroperu SA will only enter at the exploitation stage. This is largely on account of Petroperu SA’s absence from upstream production for 15 years (attributed to the privatisation of the sector in the 1990s), and its attempt to gradually re-enter the industry. (more…)