One example of technological risk was the proposed Camisea gas field in eastern Peru studied by Mobil and Shell in the late 1990s. The proposed field would be developed in the middle of the Peruvian cloud forest, a socially and environmentally sensitive region, increasing site infrastructure and operating costs radically.
It would then have required the construction of a dual pipe over the Andes to the Pacific Coast near Lima, dropping 12,000 feet in altitude in a little more than 20 miles. Mobil and Shell walked away because this was a challenge thought to be too technically risky given expected returns at the time. The project was later undertaken and completed, on a smaller scale and alternative structure, by a consortium of companies including Hunt Brothers and PeruPetrol. Net cash flows—the takes—accruing to the state and IOC over the 20-year project life.
Note that the net negative cash flows occurring in years one through three are the result of the investment required to develop the reservoir. This negative cash flow is borne completely by the IOC. The state in this example provided none of the investment capital. The 60/40 profit oil split is the primary parameter that essentially guarantees that the state’s take will always exceed the IOC’s take.
Of the state’s total take under the
baseline analysis, 18.2% is in royalties, 67.6% in profit oil split, 13.2% in taxes,
and less than 1% (0.9%) in the up-front signature bonus.