Carlos Monges Reyes, president and general manager of Gran Tierra Energy Peru

It is impossible for companies to undertake developments in a high-cost operating environment such as the Amazon jungle at current prices.

Carlos Monges Reyes President and General Manager Gran Tierra Energy Peru

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Jungle oil: global prices threaten Amazon development in Peru

March 26, 2015

Carlos Monges Reyes, president and general manager of Gran Tierra Energy Peru, speaks to TOGY about the impact of low global oil prices on local companies and the outlook of Peru’s oil and gas industry, as well as the country’s new environmental regulations. Gran Tierra Energy Peru is the local subsidiary of the Calgary-based exploration and production company Gran Tierra Energy.

How are companies operating in Peru coping with the oil price slump?

The low oil prices that we are currently experiencing will likely mean that planned developments will be delayed. It is impossible for companies to undertake developments in a high-cost operating environment such as the Amazon jungle at current prices.

Many companies are diverting their capital to enhance the value of their assets and preserve their cash positions and the strength of their balance sheets. Drilling high-risk exploration wells at a time such as this does not make good business sense.

Low oil prices are having a significant impact on the development activities of companies operating in the local industry, such as Gran Tierra. With low prices and uncertainty over how much longer this situation will continue, we are reviewing our capital budget with the intention of minimising further capital expenditure on activities that do not add near-term value.

We are in discussions with Perupetro regarding our work commitments and the potential for extensions to exploration phases. In general, all of the operators working in the jungle are in the same situation.

What can the government do to mitigate the effects of low oil prices?

In the past few decades, the impact of falling oil prices has not been well understood by the government. This has slowed the rate at which exploration wells are being drilled, reduced the potential for discoveries and caused some companies to walk away from sub-commercial discoveries.

The government must recognise these challenges and provide appropriate incentives such as access to crude oil transportation infrastructure. It must also improve the permitting process for wells and seismic acquisition to allow companies to complete their work programme commitments in a timely manner.

A quick response from the government is required because without state assistance to protect investors until prices recover, many investors may leave Peru and invest elsewhere. Attracting them to new blocks will take many years, as Peru is not one of the world’s top oil and gas producers.

 

What is the outlook for Peru’s hydrocarbons market in the near future?

Peru is a country where medium and long-term growth is considered because of its resource potential and how underexplored it is. There are major fields, such as Camisea in the sub-Andean area of Peru where geological trends are underexplored.

The country needs to be explored more intensively and with a greater sense of urgency. The key to supporting exploration is quickly issuing permits for acquiring seismic data and drilling exploration wells.

New legislation needs to be developed and new policies need to be implemented as soon as possible to facilitate the growth and development of Peru’s oil and gas industry. The hydrocarbons wealth that could be generated would significantly assist with the further economic development of Peru and benefit the economic standing of its people.

What is Peru’s environmental permitting process like and are there areas for improvement?

A new environmental regulation on hydrocarbons was published in November 2014. We have evaluated the regulations and see opportunities for minor improvements and time-saving measures.

The new regulations have only recently been implemented and government authorities are not sure how to regulate and enforce the changes in the environmental permitting process. When the new regulations are better understood, regulatory authorities will be better aligned and able to implement the changes more efficiently.

Overall, the new regulations are a step in the right direction, but there is still a long way to go in terms of the changes that are required before operating companies can effectively complete their work programme commitments.

Too many companies have their exploration acreage in suspension due to an inability to obtain permits in a timely manner. This is slowing down further development of the country’s oil and gas industry.

Regarding the government’s requirement of prior consultations, Gran Tierra’s blocks have not had delays because this law is not applicable to current licences. The prior consultation process also needs to be tested, reviewed and improved because the government must promote new exploration acreage sooner.

ABOUT THE COMPANY: One of the leading exploration and production operators in Peru, Canada’s Gran Tierra, operates blocks 95, 107, 123, 129 and 133. The company has significantly expanded its portfolio in recent years with acquisitions from ConocoPhillips, Talisman, Burlington Resources and Petrolifera, who have divested their assets in the country.

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