Integrated royalties model to promote the exploration and exploitation of tight reservoirs in North West of Peru

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Sinchitullo J.
Armacanqui S.
Prudencio G.
Sinchitullo A.
Tafur Y.
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Unconventional Resources Technology Conference (URTEC)
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In the last 10 years, the Peruvian oil sector has suffered a decrease in investment in upstream sector. One of the reasons is due the fall in oil prices, leading to lower production and exploration activity, and therefore loss of oil reserves. The current situation indicates that Peru is running out of the possibility of exploiting its hydrocarbon resources. A key aspect to promote investment in the upstream is the royalty scheme. The current royalty scheme of Peru has room in terms of encouraging new investments. The current scheme has the disadvantages of not considering the geological conditions, the productivity of the reservoirs and the variability of the oil price. Currently countries such as Canada, Colombia and Mexico use royalty schemes that, despite the current oil prices, encourage investment. In the present work, 4 royalty schemes are evaluated: i) the current scheme, ii) schemes based on production, iii) schemes based on oil prices and iv) a scheme proposed here based on the results of optimization process. In this last scheme it is sought that the net cash flow for the life cycle of the project is beneficial for both the investor and the government. More specifically, the royalty scheme proposed in this paper seeks to set the optimal royalty rates to boost the development of tight resources in Peru. The incorporation of the Index of the Reserve Replenishment as an incentive mechanism to set the royalty value is also evaluated in this work. The main result of the research is that the royalty system in force in Peru discourage investments in the block located in area of study because they are overestimated. The royalty rates can be reduced by up to 50% and still result in more income for the country by incorporating parameters that characterize each productive zone of the country which would require the use of latest technologies. © 2019, Unconventional Resources Technology Conference (URTeC).
Special thanks to the "Master’s Program in Peruvian Universities", promoted by the Ministry of Education (MINEDU), the National Council of Science, Technology and Technological Innovation (CONCYTEC), National Fund for Scientific, Technological and Technological Innovation Development (FONDECYT), Vice-Rectorate for Research of the Universidad Nacional de Ingenieria and CAREC, institutions that made possible the realization of this research article.
Palabras clave
Resource valuation, Costs, Investments, Life cycle, Proven reserves