BPZ Energy Develops Cross-Border Gas, Power Project

Houston-based oil and gas company BPZ Energy is developing a US$250mn-300mn project to supply some 200 million cubic feet a day (mcf/d) from northern Peru to power generators in Ecuador, BPZ Energy president Manolo Z˙˝iga told BNamericas.

Plans include drilling 20 wells and building a 100MW power plant in northern Peru, as well as a 150-mile gas pipeline from the Peruvian blocks to Guayaquil in Ecuador.

BPZ is talking to various companies about a probable joint venture, whose partners would be defined in three months, Z˙˝iga said, adding that BPZ would operate the consortium, and its partners - probably exploration and production companies - would take equity stakes.


BPZ is in the process of becoming 100% operator of northern Peru's block Z-1 after US-based Nuevo Energy (NYSE: NEV) relinquished its 95% stake in the block when it was bought out by Plains Exploration & Production Company (NYSE: PXP) in May, Z˙˝iga said.

BPZ expects to complete the deal and sign a new contract with Peru's government in the next three months, Z˙˝iga said.

Estimated gas potential on Z-1's Corvina and Piedra Redonda structures are 2 trillion cubic feet (tcf). BPZ Energy also has a 100% stake in block 19, where estimated gas reserves are 0.5tcf.

The company plans to drill about two thirds of the 20 new wells on block Z-1 and the remainder on block 19, Z˙˝iga said.


The gas would be used to generate power in Peru and Ecuador in three simultaneous stages. In the first stage, BPZ Energy would build and supply 20mcf/d of gas to a 100MW capacity project in Tumbes, in the north of Peru.

Because transmission capacity from there to central Peru is limited, the Tumbes plant would mainly dispatch to Ecuador through an interconnection that is currently under construction and is expected to start up in September-October.

"The idea is to have the plant running by the middle of 2005," he said.

"We are doing the pre-engineering right now and we need to see how the markets are behaving," Z˙˝iga said, adding BPZ could call for bids or form a joint venture to build the generation plant.

Investment in this stage is estimated at about US$50mn, which BPZ plans to finance through funds raised by taking the company public on the American Stock Exchange following a merger with Nasdaq listed US company Navidec, Z˙˝iga said. The merger is expected to close in the first week of August (see below).

The Peru-Ecuador bi-national development fund is expected to coordinate the financing of the project's second and third stages. The Andean Development Corporation (CAF), the Inter-American Development Bank (IDB) and the World Bank's International Finance Corporation (IFC) could participate, Z˙˝iga said.

"The financing should fall into place given the urgency of Ecuador to bring cheaper power into the country," Z˙˝iga said.


The second stage, estimated at US$60mn, involves building a gas pipeline interconnecting Tumbes with the Ecuadorian town of Arenillas, about 10 miles north of the border. BPZ already has preliminary agreements to supply up to 20mcf/d to state-owned Ecuadorian generator Termopichincha and 27mcf/d to private company Intervisa from early 2006.

Neither company is presently located in Arenillas, but would transfer their respective plants - the 51MW Santa Rosa plant, and a 105MW power barge - to Arenillas to be able to use the gas.

The third and final stage would extend the pipeline north from Arenillas to supply power generators in Guayaquil, the statement said. Investment in the pipeline and wells would be about US$170mn-180mn, Z˙˝iga said, adding that operations would start in the second half of 2006.

"Right now Guayaquil is generating about 600MW using diesel, so there is a drive in Guayaquil to bring in a better source of fuel, and that will be gas," Z˙˝iga said.

BPZ Energy already has a preliminary agreement to supply 50mcf/d to Electro Guayaquil's plant on the outskirts of Guayaquil.

Between that, the 47mcf/d in Arenillas and another two agreements BPZ expects to sign in the next few weeks, potential gas sales of the whole project are some 200mcf/d, Z˙˝iga said.

Final 10-year take or pay contracts with power companies in Arenillas and Guayaquil will be signed in early 2005, subject to confirmation of BPZ Energy reserve estimates which the company expects to complete in September this year, Z˙˝iga said.

The initial wellhead gas price has been agreed at US$1.30/mBTU, with provisions for price increases based on inflation or other energy indexes.


BPZ Energy and Colorado-based Navidec have executed a merger agreement, under which BPZ will become a wholly owned subsidiary of Navidec in a tax-free share exchange and Navidec will change its name to BPZ Energy, a BZP statement said.

The merger, which is subject to the successful completion of at least a US$3mn private placement of Navidec shares, is expected to close in the first week of August, Navidec's president and CEO John McKowen told BNamericas.

Upon closing, BPZ Energy expects to file an application for listing on the American Stock Exchange.

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