Peru Camisea Contract Talks to Wrap Up Soon

Contract talks between government officials and representatives from the consortia developing the Camisea natural gas project could be wrapped up early this week, Pluspetrol Peru Corp.'s general manager, Norberto Benito, said Monday.

According to Benito, things are going well and "it is possible" that a final version might be ready Monday or Tuesday, he said in a telephone interview.

The upstream phase of the Camisea project is led by operator Pluspetrol Peru Corp.

The Camisea project came onstream in mid-2004, giving a sharp boost to Peru's hydrocarbons industry.

Talks to fine-tune the contracts began in mid-August, shortly after the Alan Garcia government took office.

Three working groups were established, one each to look at the upstream contract, the downstream contract and the gas distribution contract.

Pending points include a new formula to fix domestic gas prices, currently linked to a basket of fuel oils based on international prices.

"That issue is on the verge of being resolved," said Benito.

He declined to give further details until the talks were finished.

Benito also confirmed that the government is pushing Pluspetrol to step up its work at block 56, which lies adjacent to the Camisea fields.

That block will produce natural gas for export and natural gas liquids for export and for the domestic market.

Energy and Mines Minister Juan Valdivia has voiced concern that Peru could have a liquid petroleum gas deficit by mid-2007, requiring imports.

The government's aim is to offset that deficit by having LPG users switch over to natural gas liquids.

"We could have a supply problem by the second half of 2007 and this will obligate us to import. Therefore, we have to take contingency measures and speed up Pluspetrol's investment to increase its production of liquids," Gestion newspaper quoted Valdivia as saying Monday.

According to Benito, however, block 56 is on track to start producing in April 2008 and while it could come onstream slightly earlier it would be a question of weeks, not months.

"If we begin operating earlier, it won't be in 2007," he said.

Benito said the consortium has finished drilling the first well and has started on the second. He was optimistic that three wells would be drilled this year.

Overall investment in development of the block has increased and is now pegged at $720 million as costs have risen, he said.

Gas from the block will supply Peru LNG Co., a group led by U.S.-based Hunt Oil Co. along with SK Corp. (003600.SE) and Repsol YPF (REP) that plans to export liquefied natural gas to Mexico by 2009.

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