Hunt Oil's Peruvian LNG Project Continues to Make Strides

As LNG projects continue to be proposed, industry-watchers wait to see which projects will stick and which ones will fade away. As opposed to the civil unrest in Bolivia which has cut off an international consortium-planned LNG facility there, Hunt Oil Co.'s Peruvian project appears to be sailing smooth seas and could begin operation in late 2007, early 2008, building an export/import link between the west coasts of North and South America.

In late September, privately-owned Hunt Oil completed an agreement to purchase excess natural gas from the Camisea fields in Peru to be used in a proposed LNG export project to be built on the Pacific coast of Peru. In addition, the company entered into an agreement for the sale of 2.7 million metric tons of LNG per year from that proposed plant to Tractebel LNG, which intends to utilize the LNG to meet its market needs in Mexico.

Things have not run as smoothly in Bolivia. Bolivians have revolted against their government, partially in protest to a project designed to export LNG to North America (see related story this issue). The country's former president -- attempting to quell the civil uprising -- terminated a deal for a pipeline to carry natural gas through Chile to a proposed liquefaction and shipping terminal on the coast. The fact that the deal involved shipment through Chile over land that was once part of Bolivia sparked as much concern as the proposed export of gas when most Bolivians still have no domestic natural gas service. They use bottled propane for cooking and heating.

As a result of the unrest, the Bolivian president then resigned Oct. 17 under mounting pressure, and the vice president moved into power.

"We are pursuing our own project and it is coming along very well," said Jim Oberwetter, Hunt Oil spokesman. "We are not commenting on the politics of other countries." He noted that Hunt Oil has held two community meetings in the two nearest cities to the project with no "surprise questions" coming up.

Hunt Oil said the proposed PERU LNG Co. liquefaction plant would have significant economic advantages by being first in the marketplace for export of LNG from the Pacific coast of South America. Hunt added that PERU LNG is currently in negotiations with other potential buyers for the remaining LNG volumes that will be available from the facility.

Under an agreement with the upstream consortium of the Camisea Project, led by Pluspetrol, excess gas will be sold from the Camisea fields to the proposed LNG liquefaction plant, which will be built by PERU LNG in Pampa Melchorita, Peru. Hunt Oil will be the operator of the Peru LNG project and is currently the principal owner of PERU LNG. Oberwetter said other equity partners are currently being sought.

The second agreement has Tractebel LNG of Belgium purchasing 2.7 million metric tons of LNG each year for 18 years from PERU LNG Co. Tractebel will then ship the LNG from Pampa Melchorita to its proposed LNG receiving terminal and regasification facility in Lazaro Cardenas, Mexico. Tractebel's Lazaro Cardenas project is currently in preliminary development, with a targeted operational start-up planned for 2007/08. A definitive LNG sales agreement finalizing this arrangement is also targeted for the end of 2003.

"Peru has considerable gas reserves and its proximity to Mexico makes it an attractive source of LNG for Tractebel's proposed Lazaro Cardenas project," said Clay Harris, CEO of Tractebel LNG. "This deal is a major long-term LNG supply opportunity for Tractebel LNG, and builds on our worldwide LNG experience, including the recent deliveries to the Far East."

PERU LNG plans to build the liquefaction plant located 169 km south of Lima, Peru. Hunt Oil said the plant will produce approximately 4.4 million metric tons of LNG per year and is designed for future expansion in order to accommodate additional new discoveries of excess gas in Peru, as well as to receive possible imports of natural gas from neighboring countries. An environmental impact study on the Pampa Melchorita site was submitted to the government of Peru on July 30 and public hearings have been scheduled.

Oberwetter said Hunt Oil is currently in discussions with several different parties for the balance of LNG from its facility. While noting that it is to early to discuss where the remaining gas will go, Oberwetter added that North American markets have always been a part of the thinking process behind PERU LNG.

Hunt Oil said that once it has obtained commitments for project financing, the final phase of the project -- construction and completion of the LNG liquefaction plant and associated infrastructure in Peru -- would begin.

"We are now preparing to enter a new phase of the PERU LNG Company project, which will finalize the ownership arrangements of the company and which also will initiate the LNG project's financing objectives," Hunt said. "We have every reason to believe that, based upon the LNG purchase and sales agreements we announced today, project financing will be obtained in a timely manner."

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