Fujimori presidential election win to boost Peru's hydrocarbon industry: analysts

Oil and gas investors in Peru received a boost after investor-friendly candidate Keiko Fujimori was finally declared the winner of the tightly contested June 7 presidential elections.

Fujimori, the daughter of ex-President Alberto Fujimori, beat leftist Congressman Roberto Sanchez by 50.1%-49.9% after the last disputed voter ballots were resolved after three weeks of scrutiny. The victory continued a regional trend that has seen right-wing candidates elected in Argentina, Ecuador, Chile, Bolivia and Colombia over the past two years.

Fujimori, a 51-year-old former congresswoman who holds an MBA from Columbia, has pledged to attract foreign investment and maintain prudent fiscal and monetary policies. Peru's stocks, bonds and currency all surged on the news of her win.

"Peru has a great opportunity to get back on track and return to an era of economic growth," said Jorge Zapata, head of the country's main business group Confiep. "We have fabulous terms of trade with current commodity prices. There are great expectations for investing in Peru."

But while ratings agencies and investment banks such as Deutsche Bank say Fujimori's victory will usher in an era of greater political and macroeconomic stability backed by the predominance of right-wing parties in Congress, business leaders were rattled by how close the country came to electing a second straight Marxist president.

Sanchez, who is still appealing against alleged electoral fraud and has announced protests, had advocated the nationalization of the Camisea gas fields, renegotiating all contracts with extractive industries, drafting a new Constitution and ousting the country's Central Bank president. Investment in Peru's oil and gas sector fell to $467 million last year from a peak of $1.88 billion in 2012, according to the mining & oil industry group SNMPE.

Peru has faced chronic political instability with nine presidents in the past decade, including the 2021 winner, Pedro Castillo, who was later jailed for an attempted coup.

Fujimori, whose father privatized much of the country's oil and gas industry in the 1990s, now faces the challenge of boosting investment in the hydrocarbons sector after a shutdown of the country's main natural gas pipelines in March exposed dependence on the Camisea fields, now in decline after 22 years of operations.

Pending are E&P bid rounds for former Perenco Blocks 39 and 67, in addition to lining up partners for state Petroperu's Blocks 192 and 64, all in the northern jungle Maranon Basin. Drilling plans this year include Chevron's $100 million north coast offshore oil well and two oil wells to be spudded by Canada's PetroTal in the Maranon Basin.

Also in the pipeline is the restructuring of cash-strapped Petroperu, a bid round for a regasification plant near the capital, a southern natural gas pipeline and long-awaited petrochemical projects on the south coast.

The incoming government will need to grant incentives and streamline bureaucracy that has delayed the issuance of exploration licenses as aging oil and gas fields deplete, according to S&P Global CERA Analysts.

Seismic and drilling permits can take up to 20 years, according to the industry group Peruvian Hydrocarbons Society (SPH). "There are ample reserves in the Amazon basins," said SPH director Patricia Figueroa. "But we must make the country more attractive for investors with better contracts. If we don't, our exploration and development numbers will continue to fall."

Peru is home to 32 basins, with 12 entirely within its borders, and the rest extending into neighboring countries Ecuador, Colombia, Brazil, Bolivia, and Chile. The country's cumulative hydrocarbon recoverable resources have reached 10,559 million barrels of oil equivalent (MMboe), according to S&P Global CERA.

Peru, whose crude production hit a 10-year high of 63,738 b/d in 2019, has yet to recover to pre-pandemic levels as companies including Frontera Energy, Perenco and Pluspetrol pulled out of northern jungle blocks. Peru's production declined to 36,477 b/d through May, according to state oil contracting agency Perupetro.

According to S&P Global CERA analysts, above-ground issues in Peru, such as community opposition to the oil and gas industry, lengthy permitting processes and compliance requirements, pose significant challenges that could impact exploration and production activities.

To address these changes, Peru is expected to prioritize signing contracts in onshore and offshore areas that are deemed less contentious from a civil-society risk perspective, and continue offering contracts with tax breaks aimed at maximizing production from existing onshore fields, according to a recent report.

Peru is also expected to continue efforts to streamline its cumbersome environmental permitting process which has delayed both onshore and offshore projects, the analysts said in the report.