Lima, Peru – A major oil discovery in the northern jungles of Peru in 1998 dismayed a Denver-based wildcatter.
“We were somewhat disappointed,” said James Dean, who at the time headed the international division for Denver’s Advantage Resources. “We were looking for light oil.”
Instead, Advantage found heavy oil, which is more expensive to transport and was trading for less than $10 per barrel.
Advantage held tight while several partners came and went.
But with heavy-oil prices now above $30 per barrel – and buoyed by two other successful wells drilled last year – Advantage and its partners plan to spend at least $1 billion to begin production in 2010 and reach up to 100,000 barrels per day by 2015.
The developments are a fitting payoff for Ed Ackman, Advantage’s largest shareholder and president. Ackman began investing in Peru in 1990 when most oil companies were staying clear of the country because two guerrilla groups, now defunct, were terrorizing foreign investors and Peruvians alike. At the time, Ackman said, South America was one of the few areas where small independents could compete.
Ackman, 74, formed Advantage in 1961 and was the Independent Petroleum Association of Mountain States Wildcatter of the Year in 1994.
“I’m very optimistic that we’ve found a lot of oil,” Ackman said in a brief telephone interview from Denver. “It’s the largest discovery that I’ve been involved with.”
Dean, 51, who has a doctorate in geology from Colorado School of Mines, worked mostly in South America for Ackman at Advantage.
Dean has formed his own company, Sundance Investments, to join forces with Advantage and Citigroup Venture Capital International, an arm of the banking giant that invests in emerging markets.
The project’s general manager is Benjamin Schulein, a Denver native.
The consortium is operating under the name Barrett Resources Peru. Beginning in 1997, Barrett Resources of Denver, founded by legendary local oilman Bill Barrett, owned a share of the field. Barrett Resources was sold to Williams in 2001.
Barrett Resources Peru is planning to drill 140 wells to reach the 250 million barrels of reserves in its field, known as Block 67. Initial production will be 40,000 barrels per day.
Environmental concerns
“The oil price doesn’t have to be $60 or $70 per barrel to go forward,” Dean said, “but I’d be kidding if I didn’t say that price wasn’t a big reason for coming back to Peru.”
Lots of work remains, especially because the oil will be as thick as tar after being pumped above ground.
Barrett will have to build an upgrader plant on-site to lighten the oil and then a $400 million pipeline, to connect to an existing jungle pipeline that goes to the Bayóvar port in northern Peru.
Barrett also will have to overcome concerns about polluting the environment and harming small Indian tribes.
That is an especially sensitive subject after spills from two other major oil and gas projects have polluted local rivers.
Amazon Watch, a San Francisco-based group, is already gearing up to block the Barrett project, saying that Block 67 and the pipeline route would endanger Indian communities and a national forest reserve.
Creating the safeguards needed to protect them, said Simeon Tegel, a spokesman for Amazon Watch, “may either make the project logistically impossible or it may raise the operational costs to a point where they help undermine the project’s commercial logic. Making an educated guess about Barrett’s intentions, I would venture that they probably think they can get away with breaching these safeguards.”
Not so, said Dean.
“We want to go above and beyond the industry standard to protect the rain forest,” Dean said. “We know that nonprofits will carefully scrutinize the project.
“No contaminated water will get into the rivers,” Dean said, “and we will drill multiple wells from one platform to save trees. We want to be very good stewards. We’re spending prodigious amounts of money to do this right.”
Nation welcomes drilling
The decision by Dean and Ackman to move forward has been big news in Peru.
When Barrett brings its reserves above ground, “we’ll be a net exporter of oil,” Juan Valdivia, Energy and Mines minister, said in an interview.
President Alan Garcia heralded the development by flying to the remote jungle site near the Ecuador border in mid-December with the press in tow.
Peru, twice the size of California but with an economy about the size of Utah’s, is enjoying an economic boom. Under Garcia, the country has continued its close relations with the United States.
