Gold Oil - Is this Black Beauty ?

Hi
The following piece will be of greater interest in the coming months when Gold Oil exploration gets under way
OIL
Peru has proven crude oil reserves of 253 million barrels, according to Oil and Gas Journal (OGJ). The country produced 94,120 barrels per day (bbl/d) of oil (including crude oil and natural gas liquids) in 2004, a 1 percent decrease from the previous year. Oil production in Peru has declined steadily over the past two decades, as the country's fields have matured and no major new discoveries have provided additional reserves. In contrast to production, Peru's oil consumption has grown over the past 20 years, reaching 161,000 bbl/d in 2004. Peru has been a net importer of oil since 1992, with most imports coming from Ecuador and other South American countries.

The largest oil producer in Peru is Argentina-based Pluspetrol, which controls over one-half of the country's entire crude oil production. Other major producers include Occidental Petroleum, Petrobras, and Petro-Tech Pueruana. Peru mostly privatized the former state-owned oil company, Petroperu, in 1993. Still, Petroperu continues to controls the country's only crude oil pipeline, most of the refineries, and a majority of the retail oil products market.

Exploration and Production
Peru's crude oil production is concentrated in the northern part of the country. In particular, the largest oil blocks are Block 1-AB (Pluspetrol) along the border with Ecuador, Block 8 (Pluspetrol) in the northeastern Amazon region, Block X (Petrobras) in the northwest, and Block Z-2B (Petro-tech Pueruana) off the northwest coast. Block 1-AB and 8 account for over 65 percent of Peru's total crude oil production. Most of the crude oil produced in Peru is a heavy, sour variety known as "Lorento," with 20° API and 1.2 percent sulfur content.

In 2003, the Peruvian government established a new royalties schedule and introduced tax incentives in an attempt to increase oil production and attract foreign investment. This new schedule spurred a revival of interest in exploration activities in the country. In March 2005, Global Energy Development, a subsidiary of Harken Energy, signed a new exploration and production contract for Block 95 in the Maranon basin of north-east Peru. The Peruvian government also approved a contract for Burlington Resources in Block 104 of the Maranon basin.

In 2004, Occidental Petroleum announced that it had discovered at least 100 million barrels of recoverable reserves in Block 64, located in the Amazon basin; the company also announced that it would increase its investments in Blocks 101 and 103 in the same area. In March 2004, Nuevo Energy announced that it had signed a contract to explore Block Z-1, located off the northwest coast, while BPZ Energy also has exploration activities in the adjacent Blocks XIX and 19. In 2003, Repsol-YPF and Burlington Resources created a partnership to launch exploration activities in Blocks 90 and 57, located in the Ucayali basin in the central-east region of the country.

Pipelines
Petroperu operates the country's sole crude oil pipeline, Norperuano, which links the export terminal at Bayovar to oil fields in Peru's interior. Norperuano has two branches, one (190 miles) starting at San Jose de Saramuro in the Ucayali basin, the other (160 miles) starting at Andoas in the Maranon basin. Both branches meet at a central pumping station, where they join into a 35-inch system that carries crude oil 340 miles to the Pacific coast. Norperuano has a maximum capacity of 250,000 bbl/d, but declining production in recent years means that current utilization of the system is only 30-40 percent.

Downstream Activities
Peru has six major oil refineries, according to OGJ, with total capacity of 192,950 bbl/d. Repsol-YPF controls the largest facility in the country, La Pampilla, located in Lima, with a capacity of 102,000 bbl/d. The other privately-operated refinery in the country is the 3,250-bbl/d Purcallpa, operated by Maple Gas. Petroperu operates the remaining four refineries and the largest network of retail oil products distribution. According to Peru's Ministry of Energy and Mines, refinery utilization in the country was 85 percent in January 2005. The Peruvian government planned to further privatize downstream facilities, but opposition from labor unions and legislators has delayed these efforts.

NATURAL GAS
According to OGJ (1/1/05), Peru has proven natural gas reserves of 8.7 trillion cubic feet (Tcf), the fourth-largest amount in South America. In 2002, the country produced and consumed 15.5 billion cubic feet (Bcf) of natural gas, an 18 percent increase from the previous year. In coming years, Peru will likely become a net exporter of natural gas as the Camisea project comes fully on-stream (see below). Natural gas production in September 2004, the first full month of Camisea production, was 3.68 Bcf, double the level of September 2003. Besides Camisea, the largest concentrations of Peru's natural gas production include the Aguaytia gas field (Maple Gas) in central Peru, Block X (Petrobras) in the northwest region, and Block Z-2B (Petro-Tech) located off the northwest coast.

Exploration and Production
Camisea
The Camisea project consists of several natural gas fields located in the Ucayali basin of southeastern Peru, principally in Block 88 along the Camisea River. Analysts estimated that Block 88 contains 8.7 Tcf of total natural gas reserves and 410 million barrels of associated natural gas liquids (NGLs). An international consortium led by Hunt Oil has developed the upstream portion of Camisea, with production starting in August 2004. Initial production capacity at Camisea is 450 million cubic feet per day (Mmcf/d) of natural gas and 34,000 bbl/d of NGL, but current gas production is below that maximum level due to a lack of domestic demand and absence of export infrastructure. Transportadora de Gas del Peru (TGP), a consortium led by Techint, constructed and now operates parallel natural gas and NGL pipelines that carry Camisea production to Lima and to a fractionation plant in Paracas. The Camisea project will provide natural gas for domestic consumption, with Belgium's Trachtebel holding a contract for gas distribution to industrial consumers and gas-fired power plants in Lima. Trachtebel has also expressed an interest in constructing additional facilities to distribute natural gas to other parts of the country.

Natural gas production from the Camisea project will likely exceed domestic demand for the foreseeable future, so project sponsors would like to export any excess production. Hunt Oil leads the Peru LNG consortium, which seeks to build a liquefied natural gas (LNG) export terminal at Pampa Melchorita, 105 miles south of Lima. To provide additional natural gas for the Pampa Melchorita facility, the Camisea consortium has secured production rights from Block 56, adjacent to Block 88, which contains an additional 3.5 Tcf of total natural gas reserves. Several issues, including a land dispute with local governments, have delayed the project, but Peru LNG has committed to begin construction on the facility by the end of 2005. The Peru LNG facility will have an initial output of 600 Mmcf/d, with most production destined for North American markets. However, Peru LNG has also held discussions with ENAP, Chile's state-owned oil company, about exporting LNG to that country. Even though the countries share a land border, trading natural gas via LNG could be more cost-effective than the construction of a natural gas pipeline, since both countries already have plans to build the necessary LNG infrastructure.

Other Developments
BPZ Energy announced that it had reached agreements to send natural gas from its offshore Block Z-1 to power plants in Peru and southern Ecuador. The project would initially supply 74 Mmcf/d of natural gas to three electricity generators in Arenilla, Ecuador, with an eventual extension to Guayaquil. BPZ also planned to construct a gas-fired power plant in Peru that would source gas from the Block Z-1 fields (see below). Analysts estimate that Block Z-1 contains 130 Bcf of proven reserves and at least 3 Tcf of total possible reserves.

Downstream Developments
Pipelines
Trachtebel has reportedly held negotiations with Chilean natural gas distributors and consumers about the construction of a 930-mile pipeline linking the Camisea project with northern Chile. This project could present an alternative to the aforementioned LNG trading scheme between the two countries. Currently, Chile sources most of its natural gas imports from Argentina, but gas shortages in Argentina have caused several supply disruptions in recent years. The project would depend upon the availability of surplus gas from Camisea, which has already contracted large volumes of future production to domestic needs and LNG export plans. Camisea's operators, though, have stated that there will be enough excess supply for both an LNG terminal and an export pipeline.
SM