Ministry Could Cut Royalty on Block 56 in Peru

Peru's energy and mines ministry could lower royalties for the upstream Camisea consortium led by US-based Hunt Oil on block 56 because the gas produced there is destined for export, minister Hans Flury said in a statement.

The consortium is continuing to negotiate with state hydrocarbons investment corporation Perupetro for an exploration and production contract on block 56, which neighbors Camisea block 88, but royalties are yet to be negotiated, Flury said. "We have to negotiate other conditions first such as the investment and operating costs, and at the end of that we can talk about royalties," a spokesperson at state hydrocarbons investment agency, Perupetro, told BNamericas.

Perupetro aims to wrap up the negotiations by year-end, "but it could take longer," the spokesperson said. "It's about obtaining the highest royalties possible while still making the export project economically viable," Flury said.

The consortium agreed to pay 37.24% royalties on block 88, but the consortium feels that is too high for block 56 considering the cost of exporting the gas, newspaper El Comercio reported.

"All projects have different royalties, and this project is different from block 88 so it could have higher or lower royalties," the Perupetro spokesperson said, adding "it would be difficult for the royalties to be higher than 37.24% because that's pretty high anyway."

"The royalties have to be competitive because we have to consider the cost of exportation, although I'm not saying we will lower it," newspaper Expreso quoted Flury as saying. The Peru LNG consortium, also led by US-based Hunt Oil, is planning to export liquefied natural gas (LNG) from Camisea to Mexico.

The other partners in the Camisea upstream consortium are Argentina's Pluspetrol, Algeria's Sonatrach, South Korea's SK Corporation, and Argentina's Tecpetrol. The Pangoreni field on block 56 reportedly has 3-5 billion cubic feet of gas reserves.

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