Peru's oil industry takes a beating

We have already talked extensively in these pages about the severe impact that the collapse in oil prices is having and will have on the Colombian oil industry. The biggest hit has been to oil companies’ spending on exploration. Peru is no different, as Peruvian business journal El Comercio reported on the state of the Peruvian oil industry. According to the article, expenditures on exploration, already soft for 2014 and 2013 at around $500 million per year, will be even worse in 2015. Hydrocarbons expert Carlos Gonzales told the journal that, at currently oil prices of around $50 per barrel, oil companies’ profitability has completely evaporated, leaving them with zero margin for risk when it comes to exploration.

Furthermore, added El Comercio, falling oil prices will also impact oil fields already in production. The French-Vietnamese oil company Perenco has a very expensive model in which it brings solvents in by boat from the Atlantic Ocean so that it can extract oil from its fields, and then brings the oil out by the same boats, an expensive means of transportation. It is possible that these and other oil operations will be rendered unprofitable by the falling prices.

In related news, Los Andes published an opinion piece calling into question El Comercio’s impartiality in reporting on Peruvian oil news, specifically commenting on the editorial El Comercio published on Sunday, January 4^th, called “The sure business of Petro-Peru.” According to the opinion piece, El Comercio criticized any and all of Petro-Peru’s projects – past, present, and future. The irony, said the piece, is that El Comercio is actually indirectly responsible for the weakness of Petro-Peru. Peru is one of the few countries in Latin America without a strong state oil company, and El Comercio is one of the actors working to hold it back. Los Andes called for Petro-Peru to involve itself in the most lucrative sector of the oil industry: extraction.