Updated 02:03 AM EST, Sun, Nov 29, 2020

Peru to Offer New Oil Royalties after Companies with Exploratory Contracts Declare Force Majeure

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Peru is planning on lowering royalty payments from oil companies by July. According to Reuters, this move is set to help them survive the oil price crisis and may allow them to postpone part of their payments.

Around twenty-nine companies with exploratory contracts in the South American nation and three with rights to extract have declared 'force majeure' as the oil price drop significantly cut their profits. Crude oil, at its peak, reached over $100 per barrel and is now only around $30. Such massive cuts triggered companies to minimize their investments in new wells.

Peru's energy agency Perupetro said that they will offer new royalties depending on the conditions of the oil blocks, adding that if they refuse to do so, these companies are "going to start giving up their oil blocks."

Perupetro added, "Companies that can't do business are going to leave."

The move comes just two days after Colombia announced a similar tactic, with Bogota giving 25 percent discounts on taxes. Slash 27/4 noted that Peru, however, decided to cut their royalties even lower: what now stands at 20 percent is being lowered to a mere 5 percent, with the country hoping that the transaction will be "offset by an increase in investment."

CNBC noted that being a net oil importer, Peru is having trouble when its production dropped to 58,000 barrels per day in 2015, which was only nearly half the peak production in the 1970s.

Perupetro's offer to lessen the royalties has already been very generous, but some companies still wanted to lower the costs to as low as $4. However, the company's president, Rafael Zoeger, drew the line, saying that it's complicated and prices that low will not be able to cover costs.

The Latin American country is not the only one facing problems in oil. The International Monetary Fund also said that it's ready to help sub-Saharan oil exporters cope with the falling oil prices. However, Nigeria and Angola, who have also been affected by the price drop, sought the help of the World Bank, which is now discussing a program to support structural changes, reported The Rakyat Post.

An IMF spokesperson said in a statement that sharp decline in prices shocked many countries, but all is not lost. There are several other counties with adequate foreign exchange reserves and low levels of debt that suggest that the payment crisis that plagued Peru, Nigeria, and Angola, among others, is not imminent.

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