Sapet to Invest US$11mn in Block VI/VII in Peru

Chinese oil company Sapet will invest US$11mn in its block VI/VII concession in northwest Peru's Talara basin over three years, following government approval of a supreme decree that reduces royalties on new production, newspaper Gestion reported.

Perupetro expects to sign contracts with Sapet in the week of June 2-6, Perupetro's Sapet contract coordinator Victorino Siu told BNamericas, adding that the terms of the contract would come into effect immediately. Perupetro is the hydrocarbons sector investment regulator.

According to the terms, Sapet will invest US$11mn to drill new wells, recondition old wells, and start two pilot water-injection projects. In exchange, Perupetro will charge Sapet a reduced royalty rate on incremental production, which is "very favorable" for Sapet, Siu said.

Siu declined to say what Sapet's new royalty rates will be, but Sapet technical division chief Juan Cuan was quoted in previous reports as saying that royalties of 30% would allow Sapet to recover is US$100mn investment to date and double current production levels of 4,000 barrels a day. Perupetro currently charges royalties of about 46%.

A 2001 Supreme Court ruling attempted to promote investment in the Talara province by offering royalty breaks on new production in marginal fields. Most companies have renegotiated their contracts to take advantage of the ruling, but Sapet, Argentina's Perez Companc and local company Petrolera Monterico held out for lower royalties on total production. "These negotiations [with Sapet] have been very difficult and have dragged on for more than a year," Siu said, adding that the agreement does not prevent Sapet from negotiating with congress for lower royalties on total production from the block.

Meanwhile, Petrolera Monterico and fellow Peruvian oil company Unipetro have not renegotiated their exploration and production contracts for their respective lots, II and IX, Siu said. Unipetro does not plan to invest more money in lot IX and Petrolera Monterico is still holding out for a royalty break on total production, Siu said.

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