President Alan Garcia announced tonight that Occidental Petroleum Corp. has accepted his government's conditions for continuing to operate in Peru, only hours after Belco Petroleum Corp. refused and was ordered taken over by Garcia.
Occidental has agreed to invest a total of $567 million, Garcia said, as part of an agreement in principle that will give the firm access to a new oil field.
Garcia also said that the state-owned oil company Petroperu would take over the operations of the Belco, another U.S.-based firm, because the company had refused to accept the government's negotiating position.
Garcia will meet with David Martin, Occidental's executive director, on Saturday to continue conversations. The definitive contracts are to be signed within 60 days. Garcia said that the new arrangement with Occidental represented the largest oil investment made in Peru.
The Associated Press reported last night that a Garcia spokesman, in a radio interview, said that a consortium composed of Occidental and Argentina-based Bridas Exploraciones y Produccion S.A. would continue to operate, but under the terms of its original contract, which set the tax level at 68 percent, rather than the 41 percent set by Garcia's predecessor.
Shortly after taking office in August, Garcia ordered concession contracts with the foreign oil companies rescinded and changes in legislation governing their operations. Garcia has been the ultimate decision maker behind the negotiations; and the government's final deliberations took place in his residence.
Belco is a wholly owned subsidiary of InterNorth Inc. of Omaha and has offshore oil concessions on the northern Peruvian coast near the Ecuadorian border. Belco produces about 15 percent of Peru's 180,000 barrel-a-day output.
According to sources close to the negotiations, Belco had the toughest negotiating position of the three companies.
The Belco management team apparently was unprepared to accept what Garcia called a "contractual prerequisite" -- that Belco guarantee to invest $127 million in exploration to compensate for tax credits received over the past four years. The government also has substantially increased the tax burden on oil companies and set other conditions.
[Belco has assets of $400 million in Peru and expects to earn $25 million to $30 million from its Peruvian operations in 1985, according to Nancy Davis, a spokeswoman in Houston for HNG-InterNorth Inc., the energy company that owns New York-based Belco. The Associated Press reported that Belco officials are attempting to talk with the Peruvian government about resolving the disagreement short of nationalization, she said, adding, "We consider the matter still open."]
Garcia said that the Peruvian court system would make an assessment of Belco's assets in the country and determine how much tax Belco owes the government. Belco would be reimbursed for the net difference between assets and taxes.
A company-by-company breakdown of back taxes claimed by the government has not been made public, but government officials have been discussing a global figure of about $35 million. Garcia said that Peru would not seek to recover Belco's tax credits.
Peru may be subject to sanctions from the U.S. government for its measures against Belco. Garcia said: "This is not a measure against foreign investment . . . or an anti-North American position. It should not affect relations with the United States."
By coming to an agreement with Occidental, the country's largest oil-producer, the government substantiates its position that it doesn't intend to nationalize the oil industry or expropriate foreign investment.
Under the terms of the agreement reached tonight, Occidental has agreed to pay $17 million in back taxes and to hand over to Petroperu 3 million barrels in crude oil for its 1985 taxes.
Occidental will also invest $300 million of its own funds in developing deposits at fields from which it is already taking oil in the northern Amazon jungle. Another $267 million also will be invested in a new oil concession that Peru will grant.
Occidental's chairman and chief executive, Dr. Armand Hammer, termed the agreement "beneficial to both sides." In an interview with The Associated Press in Los Angeles, he said he hopes that Peru in the future will back off from its new 68 percent tax rule to be competitive with surrounding nations that charge taxes ranging from 42 percent to 50 percent.
But he added that Occidental has no intention of pulling out of Peru."We have been very successful, and we think there is great potential for the future. We intend to stay."
Occidental's jungle concession currently produces about 85,000 barrels a day.