Wednesday, January 26, 2011

Seven Foreign Oil Companies to Pull Out of Ecuador

By Gonzalo Ortiz
Jan 25 (IPS)

Seven of the 16 foreign oil companies operating in Ecuador have decided to pull out of the country in disagreement with a reformed oil law that turned the firms into providers of services to which the government will pay a fixed tariff for operating the fields.

“To the companies that do not accept the new conditions, we’ll say to them good-bye and good luck,” Correa has said since 2008, when international oil prices hit a record high.

Of the nine companies that renegotiated their oil contracts, five have large oil and gas fields: Andes and Petroriental from China, Agip from Italy (which belongs to the state-run Eni), Spanish-Argentine Repsol-YPF, and Chile’s Enap. They have a combined output of 251 million barrels.

The other four, which operate marginal fields and have a combined production of 43.5 million barrels, are Petrobell, a subsidiary of Brazil’s Petrosynergy, U.S.-Colombian Pegaso, Petrosud-Petroriva of Spain, and Tecpecuador, a subsidiary of Argentina’s Tecpetrol.

The firms that decided on Sunday to stop operating in Ecuador are the U.S. Bellwether, and the mixed-capital consortiums Gran Colombia and Petróleo Amazónico, which operated marginal fields.

They thus joined the ranks of Brazil’s Petrobras, the U.S.-based EDC, South Korea’s Canada Grande and China’s CNPC, which refused in November to accept the conditions set by the government.

After four years of presidential decrees and negotiations, Non-Renewable Natural Resources Minister Wilson Pástor was finally able to announce that “now the oil produced in Ecuador belongs to the Ecuadorean state.”

>From now on, “the state will receive 100 percent of any rise in oil prices,” Pástor said.

The aim of boosting the government’s share of oil revenue and guaranteeing that any windfall profits would go to the state has been a top priority of centre-left President Rafael Correa, who has replaced his energy minister five times due to the failure to come up with a mechanism to reach that goal.

A formula was finally created by a reform of the country’s oil law, approved in July, which replaced the current production-sharing agreements with a flat rate per barrel of oil produced.

The new legislation gave the companies holding the largest concessions 120 days to renegotiate their contracts, while firms operating on marginal fields were given 180 days.

The former deadline expired in November and the latter on Sunday Jan. 23.

Five percent of the country’s total national output comes from marginal fields, which are called that because “they had already been exploited for 15 to 20 years by the state-run oil company and have difficult drilling conditions,” oil expert Carlos Izurieta told IPS.

Because some firms operate more than one oil field, the government managed to renegotiate seven contracts for marginal fields and seven for large fields. Prior to the reforms passed in July, 25 agreements with private companies were in force.

“Although the contracts in effect before the renegotiation had different modalities, under all of them the companies extracted the crude, sold it on the international market, received the earnings, and paid the state a fixed share,” Izurieta explained.

Under the new contracts, Ecuador will receive all the proceeds from production while paying a per-barrel service fee for the operation of the fields, which also takes into account past and future investments.

The fees agreed with the companies range from 24 to 31.90 dollars a barrel for companies with marginal fields in the Amazon jungle region, and from 35 to 41 dollars for firms operating large fields.

“To obtain higher profits, the private companies that will receive a fixed tariff will have to cut costs, which will lead, in turn, to an increase in income taxes for the state,” Pástor said.

The text of the contract is the same for every company, and only the per-barrel service fee, the amount of investments already made or planned, and the life of the contract — which is linked to the original concession — differs.

“If we hadn’t set a deadline for the negotiations, we would never have finished,” said Pástor, who had a renegotiation team working for six months, in shifts, with the representatives of the oil companies.

“The government’s team was of high professional quality and inflexible,” a source with one of the oil companies, who could not reveal his identity because of the confidentiality clause he signed, told IPS. “A target fee was set for them to achieve, and they didn’t have a problem ignoring figures on oil reserves and other statistics that the government itself had used.”

Pástor, meanwhile, stressed that the companies promised to increase investment, which would revert the decline in oil investment seen in the last few years in Ecuador.

“If we add up the investments pledged in marginal and large oil fields, in 2011 alone the private companies are going to invest 403 million dollars in production and 42.5 million in exploration, which means nearly 450 million dollars,” Pástor announced with satisfaction.

Investment fell from 770 million dollars a year in 2006 to 400 million in 2009 and 2010, as a result of the Correa administration’s repeated announcements of changes in oil legislation, said analyst Stephan Kueffner.

The drop in investment brought with it a fall in output.

Now, the nine companies that have decided to stay have promised to make investments of 1.117 billion dollars until their contracts expire, in five, 10 or 12 years, depending on the firm.

The minister said the private firms will produce a total of 150,000 barrels a day, which under the new rules “will bring additional daily benefits for the state of 2.1 million dollars and 766.5 million dollars a year, based on the current price of West Texas Intermediate, used as the benchmark for Ecuador’s crude, of 90 dollars a barrel.”

He also announced that the Pucuna oil field operated by the Gran Colombia consortium, which did not reach an agreement with the government, “will now be operated by the (state-run) Petroecuador,” while the Armadillo, Singue and Charapa fields, left behind by the Petróleo Amazónico consortium and Bellwether, will be put up to tender in April.

In November, Ecuador produced 15.23 million barrels of oil, an average of 510,000 barrels per day.

The state-owned Petroecuador and Petroamazonas, and Río Napo, which is a joint venture with Venezuela’s state oil giant PDVSA, produced 10 million barrels, an average of 334,500 barrels per day, while the private firms produced a daily average of 175,500 barrels, or 5.26 million barrels a month

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