Peru restructuring hydrocarbons regulator

Peru's government is finalizing plans to overhaul its hydrocarbons agency PeruPetro to boost efficiency and better promote investment.

Seferino Yesquen, appointed as head of the agency in mid-May, told Argus that PeruPetro needs to overcome its disappointing performance and get reforms into place by September.

"We have fewer contracts, less production, fewer wells drilled and less investment. These are the basic indicators of success and they are not good, so Perupetro has not been efficiently managed," he said.

Peru currently has 17 exploration blocks, down from 60 in 2012. Investment that year was $1.9bn, a record, falling to $487mn last year. Investment in 2012 was roughly 52pc for production and 48pc for exploration, while in 2017 only 4pc went to exploration with 96pc for production.

Crude output in May averaged 52,200 b/d, down from 65,500 b/d in 2012.

Yesquen, an engineer who used to work in the Peruvian upstream operations of Chinese state-owned CNPC, is focusing on core regulatory issues, including maximizing production on existing fields, creating conditions for new exploration, and dealing with problems that have slowed development of blocks where oil or gas has been found. "Problems are not supposed to be infinite. We need to start resolving issues," he said.

Among the changes underway is possible consolidation of existing blocks. This is the case with block 67, operated by France's Perenco, and nearby block 39, also held by Perenco. The company did not respond to a request for comment.

Perenco´s upstream experience in Peru highlights the industry´s challenges. The company stopped production in June 2016, because of problems with the 1,100km northern pipeline, operated by the state-owned PetroPeru. The pipeline was closed earlier that year and shut for nearly 18 months, resuming operations in September 2017.

It was closed again at the end of May, when a new leak was discovered in the northern jungle region of Loreto. It will likely be closed for three to four months.

"Our infrastructure, the way we get crude from the jungle to the coast, is inoperable. We need infrastructure that companies can trust. This is not the case today," he said.

Yesquen also said the transport price keeps potential clients in Peru, as well as across the border in Ecuador, from using the pipeline.

"The cost is $11.8 to transport a barrel of crude, while in Ecuador it is $3.7/bl in the OCP (heavy crude pipeline). So, we have a problem with infrastructure and cost. We need to think of incentives to get companies interested," he said.

Yesquen also says PeruPetro has an image problem because of its name, which he wants to change. The congressional energy committee has proposed changing the name to the Peruvian Hydrocarbon Agency.

"Every country has an agency and we need to change the name to show that we are also an agency. People have confused us with PetroPeru for more than 20 years," he said.