OIL AND GAS LAW UPDATE: PERU

• Jurisdiction: Derecho Internacional

International Mining and Oil & Gas Law, Development, and Investment
(Apr 2011)
CHAPTER 24B
OIL AND GAS LAW UPDATE: PERU
Eduardo Guevara
Estudio Echecopar Abogados
Lima, Peru

EDUARDO GUEVARA is a partner of Estudio Echecopar of Peru. He has extensive experience in energy matters, especially on oil and gas. His experience focused on oil and gas industry, having advised local and foreign clients, including the negotiation processes for; acquiring interests in exploration and production agreements; joint operating agreements, oil and gas maintenance plants agreements; project development of gas pipelines, LNG plants, petrochemical plants and power generation plants; negotiation of power generation supply and financing of operations. He holds a Master Decree from Southern Methodist University of Dallas, Texas (2002). He was Foreign Associate with Haynes and Boone LLP at Dallas (2000-2001). He has been ranked by the independent publication Chambers & Partners Latin America in 2011 in the oil and gas law specialization.

Peru Oil & Gas Updates

April 6, 2011

International Mining and Oil & Gas Law, Development and Investment

PERU: Oil & Gas Updates

OVERVIEW OF PERU

Main Socioeconomic Indicators:

• Strategic location in the central western part of South America.

• Third largest country in South America with 1.29 million km2

• Three natural regions: Coast, Andes and Rainforest.

• Significant natural resources and diversity.

• Population: 29 million. Lime concentrates 30%.

• GDP Growth: 8% (2010).

Favorable Climate for Investment:

• Dynamic economy with highest growth rates in the region and many years of stability.

• A tractive framework for foreign direct investment based on market freedom and equality.

• Non-discriminatory treatment for foreign investors and access to all economic sectors.

• Promotion of free competition and private property.

• Country with investment grade.

• free trade agreements with major commercial and economic partners.

Peru will continue leading regional growth.

OVERVIEW OF PERU

Exports (US$ Million)

Private investment (US$ Million)

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MACROECONOMIC STABILITY

Net International Reserves (US$ Million)

OVERVIEW OF PERU

• Adequate environment for investment

• Non discriminatory treatment

• No restrictions for foreign direct investment (except for broadcasting and aviation industries)

• Access to stability agreements

Investment Agreements

• Peru has signed Bilateral Investment Treaties (BIT) and Free Trade Agreements that underpin its liberalization policy.

• It has also signed double taxation agreements with Brazil, Chile and Canada.

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OIL & GAS INDUSTRY

• Prior to 1993

— The Peruvian NOC (PETROPERU) had the monopoly of all oil and gas activities (late 60's oil operations were nationalized)

— Private companies provided services to PETROPERU. They did not have any rights on the oil and gas produced. Service fees were paid in cash or in kind

— Produced oil and gas was reserved for local market

— Regulated prices

— Exportation of hydrocarbons was subject to export taxes

• 1993: Hydrocarbons law was approved

— Is an organic law. therefore it can only be amended by a qualified majority of the votes of the members of the Congress (50% + 1 vote)

— PETROPERU (nor any other State own company) has any more the monopoly on oil and gas activities

— Hydrocarbons in situ owned by the State

— The State transfers the property on the produced hydrocarbons to an special agency: PERUPETRO. This in turn grants to Oil Companies the righ for performing E&P activities under license or service agreements

— No limitations for foreign direct investment on oil and gas activities

— Activities covered by the Hydrocarbons law:

• E&P

• Transportation by pipeline

• Distribution of natural gas by pipeline

• Refineries and processing facilities

• Storage facilities

• Transportation, distribution and commercialization of hydrocarbons

• Governmental authorities

— Ministry of Energy and Mines

• Promotes investment in oil and gas activities

• Establish the policies and regulates oil and gas activities

• Approves environmental impact assessment for oil and gas projects

— PERUPETRO

• Promotes investments in E&P activities

• Awards E&P agreements (bidding rounds or by direct negotiations)

• Supervises the compliance of E&P agreements

— OSINERGMIN

• Energy and mining supervising agency

• Supervises the compliance of safety obligations

• Supervises the compliance with regulatory and technical obligations

• Regulates tariffs of natural gas transportation and distribution activities

— OEFA

• Supervises the compliance of environmental regulations

— PETROPERU

• Peruvian NOC

• Must compete with other oil and gas companies

• No longer holds a monopoly

• E&P contract regime

— License agreements

• Pursuant to this agreement PERUPETRO grants Oil Companies the right to perform E&P activities in certain area (block)

• PERUPETRO transfers to the Oil Company the ownership on the produced oil and gas

• The Oil Company will pay PERUPETRO a royalty on the produced oil and gas

• Oil companies bear technical and financial risks

— Service Agreements

• Pursuant to this agreement the Oil Companies will provide PERUPETRO E&P services

• PERUPETRO remains as the owner of the produced oil and gas

• The oil company will be paid a fee for the E&P services provided. The fee will be based on the production

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LICENSE AGREEMENTS

• Term

— 30 years for E&P of oil

— 40 years for E&P of natural gas

• Exploration

— 7 years, can be extended up to 10 years (main issue the delays for obtaining the environmental permits)

— Must perform certain Minimum Work...