Ecuador: Exports Won't be Affected by Rupture, Declaring Force Majeure

Ecuador's oil and mining minister, Galo Chiriboga, said Friday the government has declared a force majeure on its oil exports.

"I have reviewed carefully the situation and approved the force majeure as a preventive measure," Chiriboga told Dow Jones Newswires.

According to official data reviewed by Dow Jones Newswires, on Thursday a shipment of 418,000 barrels, which left from Balao, was reduced to 360,000 barrels.

"We have low levels of crude in stock and we need to supply local necessities for refining crude," said a high-level official.

The official said the next shipments could be delayed by three or four days, depending on when the SOTE, the nation's main pipeline, resumes operations. The first shipments that will be delayed are 400,000 barrels for Agip SpA and 360,000 for Valero Energy Corp. (VLO).

State-owned oil company Petroecuador's Management of International Trade unit said in a press release that 11 buyers of Oriente Crude were notified Friday about the force majeure, which implies that the company will defer the date of shipment.

"The storage of Oriente crude for export in Balao terminal will be reduced by the emergency on the SOTE, and it can't allow fulfillment of the program of shipments," the press release said.

Late Thursday, Petroecuador declared the SOTE to be in a state of emergency because of a rupture caused by a landslide and suspended the pipeline's operations to prevent more infrastructure damage.

Simultaneously, Petroecuador told oil buyers by telephone that it had declared the force majeure for its exports and said that it would send them an official letter. Chiriboga said early Friday that originally he didn't agree with the decision but that after reviewing all information he ordered Petroecuador to send the official letter about the force majeure to each company.

Petroecuador exports around 180,000 barrels of both Oriente and Napo Crude crudes a day.

A force majeure is a contractual clause that protects one of the parties from liability if it can't meet obligations due to factors beyond its control.

According to Chiriboga, there are at least 80 meters of the SOTE pipeline affected by the landslide and around 4,000 barrels of crude have spilled.

"We hope to repair the SOTE in around three days, but it could take around six days," Chiriboga said.

SOTE normally transports some 350,000 barrels of oil a day from the Amazonia to the maritime port of Balao in Esmeraldas province. This includes state oil output and that from Petroleo Brasileiro SA (PBR), Chinese Andes Petroleum, Agip and other private companies.

Days of heavy rain caused a landslide Thursday near Reventador, 75 miles east of the capital, knocking out a section of the pipeline.

Ruptures on the 36-year-old facility are becoming increasingly common.

SOTE is one of the Andean nation's two oil pipelines. The other is the privately owned OCP pipeline. Chiriboga didn't rule out reaching an agreement with OCP to transport crude if the situation continues. "This is an option for us. We have a preferential rate to transport our crude through this pipeline," he said.

Ecuador, which rejoined the Organization of Petroleum Exporting Countries last year after having pulled out in 1992, produced an average of 511,000 barrels a day in 2007.

More than three million people have been affected by the worst floods in Ecuador in decades.

Copyright (c) 2008 Dow Jones & Company, Inc.


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