Ecuador Approves Reform to Give State 50% Cut of Oil Income

Ecuador's congress approved President Alfredo Palacio's changes to the hydrocarbons law reform bill on Wednesday establishing a minimum 50% state take on income from oil production, according to a congress statement.

Congress passed a reform stipulating a 60% state share in oil income in late March, but Palacio vetoed that part of the bill in early April and suggested a 50% take instead.

Of the 79 lawmakers present on Wednesday, 41 voted to approve Palacio's changes, the statement said.

The statement highlighted that the reform establishes a minimum state participation but not a ceiling as the distribution of funds will be a function of the price paid by US consumers for a barrel of oil.

The law will take effect within the next few days once published in the daily ledger, a spokesperson from Ecuador's energy ministry told BNamericas.

"Many companies have been putting pressure on the president to do something about what potentially amounts to a unilateral change of existing contract terms and conditions," Jose Valera, an attorney at Houston law firm King & Spalding's Global Transactions Group, told BNamericas.

"By reducing the 60% take to 50%, he is not seen as giving in completely to the demands of congress, but on the other hand carefully not picking the type of political fight which in Ecuador could result in being kicked out of office," Valera said.

Valera said the new terms would likely dissuade potential investors from starting operations in the country, but that potential investors could be found in national oil companies (NOC's) in emerging eastern markets.

For countries such as a India and China, making a minimum investment return might not be as important in the long term as maintaining oil supply to their home countries, Valera added.

Palacio's partial veto also excluded marginal fields from the reform's framework.

According to a report presented by Ecuador's economic commission, E&P contracts on marginal fields currently give the state an average 65.1% participation in production.

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