Ecuador Eyes Temporary Oil Contracts

QUITO, April 14, 2008 (Dow Jones Newswires)

The government of Ecuador's left-leaning president is seeking to increase state control of oil under its new constitution.

Oil and Mines Minister Galo Chiriboga said during a press conference Monday that the government will seek temporary, six-month contracts with foreign oil companies with which it is currently renegotiating agreements.

Following that period, the government will seek service contracts.

"They will be improved contracts that guarantee legal security for both parties," Chiriboga said. He did not give details of the new contracts.

Correa had announced from Mexico over the weekend that he had halted contract negotiations with Spanish-Argentine energy group Repsol-YPF, France's Perenco, Brazil's Petroleo Brasileiro SA, U.S.-owned City Oriente and the Chinese-owned Andes Petroleum. The companies officially began renegotiating their contracts in January after Ecuador last year increased its share of windfall profits from 50% to 99% by a presidential decree.

Initially, Correa had announced that he would change current participation contracts to service contracts.

Under the current participation contracts, the state receives a percentage from oil production, while in a service contract, companies would be paid a production fee and reimbursed for investment costs.

Average oil output in Ecuador -- South America's fifth largest oil producer -- was 519,452 barrels a day in January. Petroecuador's oil output averaged 265,935 b/d while private companies' oil output was 253,516 b/d.

In an interview with Dow Jones Newswires earlier Monday, Chiriboga that Correa's government hopes that the assembly currently writing the nation's new charter -- which is expected to be put before a national referendum in mid-2008 -- gives the government "greater sovereignty" of the country's oil sector.

Chiriboga said the government is aiming for constitutional oil sector reform to establish that the state will always own the oil found in the country.

The new constitution "will give the state greater sovereignty over its resources," Chiriboga said. "It will define the basic limits and principles of the relationship between the state and private companies."

Correa's party controls 80 seats in the 130-member assembly.

Chiriboga added that Correa's government is seeking for the oil reform to omit a clause in contracts with private oil companies allowing them to go to the World Bank's International Center for the Settlement of Investment Disputes to solve tax issues and other financial conflicts.

California-based Occidental Petroleum Corp. is seeking US$1 billion in damages from the World Bank body over Ecuador's decision to cancel the company's contract in May 2006, accusing the company of violating its terms, particularly in transferring, without proper authorization, a 40% stake to Canada's EnCana Corp.

"We are looking for greater sovereignty, greater autonomy and legal security," Chiriboga said.

QUITO, April 14, 2008 (Dow Jones Newswires)

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