Jul. 7, 2015


Luis Ortigas

Peru

Luis Ortigas

President, Perupetro

"Exploration in the jungle is expensive, and different from the exploration on the coast."

BIO

Luis Ortigas is an Industrial Engineer from the Universidad Nacionalidad de Ingenieria(UNI), and has a Master’s in Management at Escuela de Administración de Negocios para Graduados (ESAN). With experience in promotion processes for private investment, electricity, and hydrocarbons at national and multinational companies. He worked at the Agency for Promotion of Private Investment (Pro Inversión) for 16 years in various positions. He currently serves as Chairman of Perupetro, the state company responsible for promoting investment in exploration and exploitation of hydrocarbons in Peru.

The Peruvian hydrocarbon sector has seen major changes over the past decade, with more than 10 times as much investment in E&P in 2014 than in 2004. What role did Perupetro play in this process and what's the current state of investment in E&P in Peru?

Perupetro is the state agency in charge of promoting the exploration and exploitation of hydrocarbons. We have increased the number of contracts we have in Peru from 2003 to 67 contracts for exploration and exploitation, 24 of which are exclusively for exploitation, and the remainder for exploration. Unfortunately, production of oil is currently at around 70,000 bpd. We should ideally undertake 20-30 exploration drills per year, but we currently have only 10-12. Here we are facing delays, and waiting for approval from environmental studies and for social programs. As a result, a significant portion of our contracts are delayed, idle, or awaiting approval. Investment currently stands at about $1 billion per year, which is less than the ideal amount. Investment needs to increase, as do the number of contracts. We are calling for new tenders to attract more investors for exploration and exploitation in Peru. We have 26 blocks in the jungle, six blocks offshore, and an exploitation contract that will finish in August (block 192, which includes current block 1AB). We need to replace the operator in that block. We have called for two bidding rounds, one for seven blocks in the jungle (part of the 26 mentioned blocks) for exploration activities and the other for block 192.

How have falling petroleum prices affected investment?

Many investors want to postpone the dates they have committed to for exploration. This is because it is difficult for them to get money from their financial backers, and this has become our main problem now. These conditions undermine the tenders that we are going to call in the upcoming months, because it will be difficult for us to attract companies for investment. Most of them are reducing investment in exploration, not just in Peru, but throughout the world. Our job now is to convince them to come to Peru. To achieve this we are promoting the investment in some of the under explored sedimentary basins in our country, which will encourage companies to undertake medium- and long-term exploration projects. Right now prices are around $60. Many companies have asked us for help to continue their operations. Some companies might even stop their work in Peru. Meanwhile, exploration in the jungle is expensive, and different from the exploration on the coast. While drilling a well on the coast can cost $5 million or less, in the jungle it could cost $100 million for one well.

Given Peru's natural gas resources, do you see potential for Peru to become a major LNG exporter?

We are already exporting about 600 million cubic feet per day, and producing about 1.2 billion cubic feet per day of natural gas. There are large reserves in Peru, and the possibilities of finding more natural gas are very high. There is a block in the jungle of Madre de Dios basin, where we expect to have reserves close to Camisea project. The natural gas is one of our strengths, and can often be used as a substitute for oil. For example, 50% of power generation in Peru is with natural gas, and the other 50% is hydroelectric. Before the use of natural gas, we used to generate with diesel, which was costly.

Is Peruvian LNG competitive in the international market at current prices?

Yes, we are competitive sending our LNG to international markets. For example, if we export to Europe, which uses the UK National Balancing Point (NBP) reference system or Asia where they use the Japan Korea Gas Marker (JKM) reference, we will get better prices.

One of the major challenges for investors in Peru is obtaining the social license to operate. What do you do to facilitate that process?

We have introduced the process of prior consultation, which is consultation that needs to be done before hydrocarbon exploration can commence. The government has also recently made a commitment to invest in education, security, health, and other services for communities near hydrocarbon extraction sites.

What are your goals for E&P in Peru?

We are planning to have between 20-30 exploration drills per year soon and reach between 50 and 60 exploration drills per year in the medium and long term, instead of the current 10-12. That is the only way for us to discover new reserves, and it will mean that we are going to have more production. Our demand is about 200,000 bpd, and we produce only 70,000 right now. Natural gas will help in this effort, but is not enough to meet demand. We need to increase oil production.

What makes Peru a good destination for E&P investors?

Our law contracts mean that only the signing parties can change contracts. The contract cannot be changed by legal amendment. That is important because the investors can be confident in the long-term viability of their projects. This also means that there is stability, legal continuity, and free movement of capital. This law is important for all sectors, not only hydrocarbons. Pro Inversión has its own promotion law, and it uses that law for a broad spectrum of projects.

Where do you hope to see the production of oil and gas in Peru by 2020?

That depends on the price. If prices hold at below $50 per barrel, it will be difficult for us to increase production, but if the prices rise to $75 or more per barrel, we have the potential to reach more than 100,000 bpd and increase our actual production by 40%. But what we aim for is 200,000 bpd.

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