The future of Block 64 in the Peruvian Amazon hangs in the balance following the decision of Geopark, a Chilean company, to withdraw. Although Petroperú may acquire Geopark’s interest in the block and seek to develop it on its own, it will run the risk of continued opposition from indigenous groups living in this part of the jungle. With oil prices depressed, attracting partners may prove difficult.
Geopark is a relatively new Latin American oil company, established in Santiago de Chile in 2002 and with active and prospective operations in Chile, Colombia, Brazil, Ecuador, Argentina and Peru. In Peru, Geopark owned 75 percent of the Block 64 concession in the northern Amazon. The other 25 percent is owned by Petroperú, the state oil company.
As we mentioned last week, on 5 July, Geopark had notified Petroperú of its decision to withdraw from the project, invoking force majeure clauses in its license contract. In fact, the project has been paralysed since June last year when Geopark withdrew the Block 64 Environmental Impact Assessment (EIA). The reasons for this were twofold. The EIA had been rejected earlier in the year by SENACE, the agency charged with assessing EIAs for large-scale projects. The project had also faced stiff opposition from local Achuar indigenous peoples, who would be directly impacted by extraction activities, and by the Wampis indigenus peoples, who would be affected by the pipeline needed to pump the oil west to the Pacific coast.
Most probably, an additional reason for Geopark’s withdrawal was the fall in the international price of oil and uncertainties as to its eventual recovery. In fact, earlier this year – in the face of the price collapse – the company had announced a drastic reduction of its 2020 investment plans. According to Rystad Energy, the estimated breakeven price for Block 64 is between US$45 and US$50 per barrel, while the current Brent price is around US$43. It expects that prices will only recover to around US$50 per barrel by 2025. In view of global warming and with investors moving out of oil, the mid and long-term perspectives are unattractive.
So what will Petroperú do with Block 64? It has the option of taking over the entire operation, but this would require investments estimated at US$ 130 million. It would also face opposition from the indigenous groups affected and the environmentalist movement. Furthermore, it has already embarked on the costly upgrade of the Talara refinery in Piura region.
Petroperú may search for a new associate willing to assume the financial and social costs. Or it may simply abandon the project and allow the Achuar and the Wampis to exert their right to follow their own strategies in achieving wellbeing in their territories.
The case of Block 64 thus highlights a broader challenge for companies and governments of oil producing countries. Prices and demand have fallen dramatically, and recovery will be slow. Even if the prices rise, the long-term trend is for investors to withdraw from the oil sector as concerns about global warming grow and migration to clean and sustainable energies accelerates.
Even for those who care little about the fate of indigenous peoples in the Amazon, there are powerful reasons not to bet on oil.