The government of Peruvian President Martin Vizcarra cancelled five offshore oil contracts on May 23 that his predecessor had awarded to London-based Tullow Oil Plc before resigning, citing insufficient consultations with coastal residents.
The decision was a win for fishermen and environmentalists who warned exploration and drilling would have put important fisheries and whale breeding grounds at risk.
But it marked a fresh setback for efforts to shore up slumping energy investments in Peru, a relatively small oil producer where past bidding rounds have failed to draw any offers.
Tullow, whose shares fell 5.2% in London on May 23, said it would now consider “next steps.”
The contracts came under fire after Peruvians learned the country’s disgraced former president, Pedro Pablo Kuczynski, had signed five decrees authorizing them just before stepping down due to graft allegations in the country’s worst political crisis in nearly two decades.
Since taking office, Vizcarra, Kuzynski’s former vice president, has distanced himself from his predecessor as he aims to strengthen ties with the opposition-controlled Congress and build grassroots support.
“One of the main objectives of the current government is to build political and social consensus to create a climate of stability and social peace,” the energy and mines ministry said in a statement after Vizcarra repealed the contracts by decree in the official gazette.
The ministry said the five exploration and drilling contracts, which state energy promoter Perupetro had negotiated directly with Tullow, were awarded without sufficient consultations with coastal residents.
“Today’s revocation of the five Supreme Decrees is deeply disappointing,” George Cazenove, Tullow’s head of communications, said. “Tullow has complied with the process and procedures required under Peruvian law.”
Earlier this month, the comptroller’s office said there was nothing illegal about the contracts, but said the process of granting oil concessions through direct talks should be more transparent and give other stakeholders more say.
Critics said a public auction should have been held and that the government should have set a higher royalty rate.
Tullow had planned an initial investment of $200 million to develop the offshore blocks off of Peru’s northern coast, according to Perupetro.
Tullow’s Cazenove said the contracts would have resulted in a “significant investment” over the license period.
Peru’s main association for oil companies, the National Society of Mining, Petroleum and Energy, said Vizcarra’s government had only created more uncertainty for investors in a country where net oil imports were costing the country billions of dollars per year.
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