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Shell, BPZ May Invest $300 Million to Seek Peru Oil (Update2)

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Shell, BPZ May Invest $300 Million to Seek Peru Oil (Update2) 

By Alex Emery

July 17 (Bloomberg) — Royal Dutch Shell Plc and BPZ Resources Inc. may spend $300 million to jointly explore for oil and gas off Peru’s north coast, BPZ’s Chief Executive Officer Manuel Zuniga said today.

Houston-based BPZ and Royal Dutch Shell Plc, Europe’s biggest oil company, which have signed a letter of intent, aim to have a final accord within three months, Zuniga said at a press conference in Lima. Shell is returning to the Andean nation’s exploration industry after a decade’s absence.

Shell and then-partner Mobil pulled out of Peru’s $1.6 billion Camisea gas-field project in 1998, calling it unprofitable. The joint venture with BPZ is part of $6 billion in investment commitments in Peru’s oil and gas industry over the next five years, according to the Energy Ministry.

“We’re back in the Peruvian exploration business after a decade,” Shell representative Adolfo Heeren said today in Lima. “It was a question of finding a project with the right economic conditions.”

BPZ whose shareholders include George Soros, Morgan Stanley, Merrill Lynch and Barclays Plc, may also invest another $300 million to explore for oil and $150 million in a gas-fired power plant, Zuniga said. The World Bank‘s International Finance Corp., a 10 percent shareholder, may provide $350 million in project financing through syndicated loans with private banks, backed by crude reserves and electricity sale commitments, he said.

Oil, Power Cross-lending

“The company is well-positioned to take care of our business,” he said in an interview. “We have the flexibility to go to the market. Meanwhile, we will do cross-lending between oil and power so we can accelerate power plant construction.”

BPZ, which sells crude to state oil company Petroperu SA and seeks to export natural gas, will drill two more wells at its Block Z-1 oilfield this year, Zuniga said. BPZ, which operates three wells in the field, is on track to double daily crude output to 8,000 barrels a day by year-end, he said.

Shell and BPZ face growing competition for supplies and labor from companies such as Hunt Oil Co., Pluspetrol SA, Perenco SA, Repsol YPF and Petroperu, which plan to start up oil and gas projects over the next three years.

Many of the companies face two-year waiting lists for equipment including drilling rigs and power-plant turbines, according to Aurelio Ochoa, director of Lima-based consultant firm Energie Consult.

“Shell is the 800-pound gorilla in the service industry, where they have a lot of weight,” Zuniga said. “The partnership should facilitate access to equipment.”

BPZ fell $1.94, or 8.2 percent, to $21.69 as of 3:01 p.m. in New York Stock Exchange composite trading. Shell added 19 pence to 1,824 pence in London.

To contact the reporter on this story: Alex Emery in Lima at[email protected]

Last Updated: July 17, 2008 15:09 EDT

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