Foreign Oil Companies Skip Meeting with Ecuador Government

QUITO Oct. 8, 2007 (Dow Jones Newswires)

Foreign oil companies Monday skipped a meeting with the Ecuadorean government, which was supposed to kick off negotiations over new contracts.

Ecuador's oil minister, Galo Chiriboga, said he assumed the oil executives were still consulting with parent companies in their home countries.

Last week, Ecuador's government ramped up the pressure on oil companies operating in the country by raising royalties on oil production. It also said it wants to switch the existing operating contracts for service-provider contracts in which the state pays the oil companies a fee to produce oil.

Chiriboga had said he would meet Monday with the operators to begin those negotiations.

Five companies - Brazil's Petroleo Brasileiro (PBR), or Petrobras, Spain's Repsol-YPF (REP), France's Perenco, China's Andes Petroleum and U.S.-owned City Oriente - which account for the bulk of private-sector operations in Ecuador, had all said they would sit down to talk.

According to Credit Suisse, last week's decision to raise the royalty level means "the government is essentially forcing the oil companies to re-negotiate the existing contracts."

"In our view, the oil companies that operate in Ecuador expected that the government would seek to re-negotiate the terms of the oil contracts but probably anticipated a more amicable process," Credit Suisse analyst Carola Sandy said in a research note.

"The government's harsh treatment of the oil sector will probably discourage investments by the private sector, in oil or any other sector," Sandy said.

Copyright (c) 2007 Dow Jones & Company, Inc.

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