Peru’s older contracts, including Petrominerales’ Blocks 126 and 115, are under a sliding scale royalty framework that starts at 5% for production less than 5,000 bbl/d and increases in a linear fashion to 20% for production greater than 100,000 bbl/d. For some contracts awarded between 2007 and 2009, including Petrominerales’ Blocks 131, 161 and 141, there are incremental royalties on top of the sliding scale royalty framework. For contracts awarded subsequent to 2009, an economic bid was required for the additional royalty. As part of the bid round, companies bid an additional royalty rate on top of the prescribed sliding scale royalty rate. In addition, the sliding scale changed to be based on an R Factor (cumulative revenue / cumulative costs) whereby the royalty rate starts at 15% (R Factor less than 1.0x) and increases to 35% (R Factor greater than 2.0x). Petrominerales does not have a working interest in any contacts awarded subsequent to 2009.
Certain License Contracts include an alternative economic results royalty method that can be elected by the operator after it declares a commercial discovery. Once the royalty scheme is selected for a License Contract, it cannot be changed. When the operator elects to have royalties based on the economic results methodology, the royalty payable consists of a percent fixed royalty plus a variable profits interest calculated using income and expenditures in a manner shown below, with a total maximum royalty of 20 percent:
Royalty Rate % = Fixed Rate % + Variable Rate % (VR)
Where:
| VR = | Revenue – Expenses | x | 1 | x | 100 |
| Revenue | 1 – (Revenue/Expenses – 1.15) |
- Revenue is the revenues in the annual period immediately preceding the time at which the calculation of the Variable Rate is made.
- Expenses are the expenses in the annual period immediately preceding the time at which the calculation of the Variable Rate is made.
Summary of Fiscal Terms for Petrominerales License Contracts
When the operator elects to have royalties based on production levels, the following sliding scale illustrates the applicable royalty rate for all Petrominerales License Contracts:
| Field Production | Royalty % | ||||
| (bbl/d) | Block 126 | Block 114 | Block 131 | Block 161 | Block 141 |
| 0 – 5,000 | 5 | 5 | 23.48 | 37 | 23.48 |
| 5,001– 100,000 | 5 – 20 | 5 – 20 | 23.48 – 38.48 | 37 – 52 | 23.48 – 38.48 |
| > 100,000 | 20 | 20 | 38.48 | 52 | 38.48 |
When the operator elects to have royalties based on economic results, the following fixed royalty rate will be added to the variable royalty percentage for all Petrominerales Blocks:
| Royalty % | |||||
| Block 126 | Block 114 | Block 131 | Block 161 | Block 141 | |
| Fixed Base | 5 | 5 | 23.48 | 37 | 23.48 |