Occidental Petroleum Avoids Seizure in Peru; Belco’s Status Unclear

A threat by Peru to nationalize Occidental Petroleum’s operations ended Friday as the government reached a new multi-year oil exploration agreement with the Los Angeles-based oil firm.

The Peruvian government had threatened to seize oil-producing properties belonging to Occidental and another American oil company by midnight Thursday unless they agreed to spend more money on oil exploration. However, negotiations between the Peruvian government and Occidental continued through Friday morning.

Occidental said it agreed to search for oil in a new location in the jungles of southern Peru, apparently to satisfy the Peruvian government’s demand for new investment. Occidental said it acquired 30-year exploration rights to the jungle tract.

$53-Million Investment

Occidental said that it agreed to invest $53 million in the new 2.5-million-acre block over the next six years and that it will continue to invest more in exploration in areas in which it is currently active. It said the amount that it planned to spend on new exploration was not immediately available, although the Associated Press reported in Peru that the amount will be $200 million.

Meanwhile, the status of another American oil company, Belco Petroleum, remained unclear. The Associated Press reported from Lima that Peruvian President Alan Garcia said he would take over Belco’s operations.

The AP quoted Garcia as saying that “there has been no reasonable counterproposal (from Belco) to resolve this problem. Consequently Petroperu will take charge of the areas in northwest Peru that the Belco company exploits.”

Petroperu is the Peruvian national oil company. A spokesman for Omaha-based HNG-Internorth, the parent of Belco, declined comment.

A State Department spokesman in Washington said the U.S. government had received no confirmation that Belco’s properties had been nationalized. “The government (of Peru) says it has assumed control, but no decrees have been signed and no expropriation order given. We’re not sure what that means,” spokesman Greg Lagana said.

Lagana said the Peruvian government had been informed that the monetary aid that it receives from the U.S. government would be jeopardized if it seized control of American businesses without providing “prompt, adequate and effective compensation.” In 1985, Peru received $68 million in economic assistance and $8.8 million in military aid from the United States.

Garcia told the AP that he saw no reasons for reprisals by the U.S. government. “Peru is a sovereign nation. This is not a measure against foreign capital. Neither is it an anti-American position,” he said.

Garcia said independent auditors would be named by the Peruvian Supreme Court to establish a value for Belco’s businesses. Belco assets in Peru have a book value of $400 million.

The government of Peru cancelled the contracts of Occidental, Belco and Oxy-Bridas, a consortium of Occidental and Bridas of Argentina, on Aug. 28. The government said the oil companies did not invest enough of their profits in oil exploration, even though they had been given incentives to do so through tax breaks.

The government has since dropped its demands against Oxy-Bridas, which produces 12,000 barrels a day offshore Peru in the Talara region.

The government of former President Fernando Belaunde Terry lowered the tax rate for the oil companies to 41% from 68% but insisted that the gains be spent on Peruvian oil exploration. A presidential decree published Thursday set the tax rate back to 68%.

Garcia said the vague wording of the tax-break legislation allowed companies to invest only in intensified production of oil in proven areas instead of into exploration. As a result, the country’s reserves were dropping dangerously, Garcia told the Associated Press.

As part of its new agreement with Petroperu, Occidental said it renewed its contracts on its jungle oil fields for 22 years, effective Aug. 30, 1985, and expiring in 2007.

In a statement, Dr. Armand Hammer, chairman and chief executive of Occidental, said: “I am pleased to announce that Occidental has reached a heads (basis) of agreement in Peru which is beneficial to both sides in that it emphasizes incentives for finding new oil.

“I am particularly pleased to report that we will acquire a promising new block as part of our successful negotiations,” he said.

Under the agreements, Occidental will receive from Petroperu a fee per barrel tied to a basket of international crude oil prices including that produced in Peru.

Before the contracts were canceled, Occidental produced 85,000 barrels a day in its jungle oil fields, but that dropped to 65,000 barrels daily under Petroperu. Combined with production from Oxy-Bridas, the Occidental’s Peru operations account for 15% of its worldwide production.

Belco, Peru’s No. 2 oil producer, produced 29,000 barrels a day, most of it offshore. It accounted for 55% of Belco’s oil reserves.