Petrobras to Leave Ecuador as Contract Talks Fail - Sources

QUITO (Dow Jones Newswires), Nov. 19, 2010

Brazilian energy giant Petrobras plans to pull out of Ecuador after failing to reach an agreement with the government on changing its oil sharing deal to a services contract, a high-level government official told Dow Jones Newswires.

"The company has notified the Ministry of Non-Renewable Natural Resources that it will leave the country," the official, who asked not to be named, said Friday.

The official, who didn't provide further details, said there was a "very low possibility" of reaching a last-minute agreement because the deadline to change the contracts expires next Tuesday.

Another source said the fee the government was offering for the services contract was too low.

A spokesman for Petrobras, as the company is known, declined to comment. A spokeswoman from Ecuador's Ministry of Non-Renewable Natural Resources also declined to comment.

Ecuador wants to switch all current production-sharing deals with private companies to service contracts, to tighten its control over its natural resources.

Under service contracts, private oil companies will be paid a production fee while the government will own 100% of the oil and gas produced.

Another person close to the renegotiation process said the main problem was the production fee that the government plans to pay to extract crude oil. "Petrobras said that the fee is not enough to maintain its operations in Ecuador," this person said.

President Rafael Correa has said Ecuador's state-owned oil companies Petroecuador and Petroamazonas can take over private oil companies operations if agreements can't be reached.

Last July, after a long tax dispute, Ecuador canceled the oil contracts of Anglo-French company Perenco Corp. for blocks 7 and 21 in the Amazonas region, and Petroamazonas formally took over operations at the Perenco oil fields.

Petroamazonas also operates former Occidental Petroleum Company (OXY) oil fields, which were seized in May 2006.

According to official government data in Ecuador, currently Petrobras produces around 19,500 barrels of oil a day in Ecuador, including 16,000 barrels a day from the unified Palo Azul oil field.

However, the company said in Brazil that last year Petrobras produced 3,000 barrels a day from Palo Azul and Block 18.

The government has set Nov. 23 as a deadline to wrap up the five biggest renegotiations with Spain's Repsol, Italy's Eni, Petrobras, and Chinese-run Andes Petroleum and PetroOriental.

Andes Petroleum is a joint venture between two giant Chinese state-run oil companies, China National Petroleum Corp. and China Petroleum & Chemical, known as Sinopec.

Last weekend, Correa said oil private companies that don't sign new services-based contracts must leave the Andean country.

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