Peru Approves Royalty Plan to Attract Investors

Last week the Peruvian Government approved two new plans for revising the terms of oil royalties in an effort to attract more exploration investment. "(The new plans) will make the discovery of small fields more economical ... and the productive life of the fields will be substantially longer, optimizing resource extraction," the Energy and Mines Ministry said in a statement.

The first newly approved plan will fix a royalty rate according to production levels across the oil lot after exploration, discovery, and extraction. Those royalties will range between 5 percent and 20 percent, the ministry said.

The second plan calls for a 5 percent royalty to be set for the productive stage of the field, followed by another royalty rate depending on the economic results of the lot.

Previously, royalty rates were subject to negotiation but were usually at least 15 percent. Peru hopes to draw in new oil exploration to compensate for exploration that failed to yield any discoveries.

Oil companies will have a choice in which new plan they would like to use and this will eliminate the negotiation phase between oil companies and the government and will facilitate new contracts.