Petorecuador Output Recovering, But Long Road Lies Ahead

Ecuador's state oil company Petroecuador has begun to recover oil production levels after protests in the oil-rich Amazon provinces cut output last week, but full recovery could take some time, a ministry spokesperson told BNamericas, confirming local press reports.

Protests in Sucumbíos and Orellana provinces cut output to 20,000 barrels a day (b/d) last week from 200,000b/d normally. Production on Petroecuador's Lago Agrio, Libertador, Sacha, Shusufindi and Auca fields had recovered to about 70,000b/d on Monday as Ecuador's armed forces occupied the fields, the spokesperson said. However, the date for a return to full production is unknown as an inventory of damages is still being carried out, the spokesperson said. Several pipelines were damaged in the protests.

Inhabitants of Sucumbíos and Orellana provinces took over wells on Petroecuador's fields last week in protest against the 13 private oil companies that operate in the region. The protesters say foreign oil companies have not invested enough in local infrastructure, health and education projects and should leave so that Petroecuador can reclaim sovereignty over the country's hydrocarbons resources. Petroecuador declared force majeure on oil exports last Thursday, which is bad news for Ecuador's heavily oil-dependent economy and a government already struggling to make debt payments.

Protests by local communities demanding money for roads, infrastructure, health and education are nothing new in Ecuador's Amazon region. A 5-day protest in May this year cost Petroecuador losses of US$4mn, but this most recent protest has been much more costly as protesters have attacked pipelines and vandalized oil installations. Energy and mines minister Iván Rodríguez has estimated losses due to the protests at US$400mn-500mn, the spokesperson said.

As protests worsened last week, the country's defense minister Solón Espinoza resigned on Friday. "It is a delicate situation," the spokesperson said. However, there was some hope on Monday as about 60 government representatives from Sucumbíos and Orellana began negotiations in capital Quito with government officials, the spokesperson said. The government had planned to launch an international tender to boost production on Petroecuador's four main oil fields, but the tender has been postponed several times due to the country's political instability and lack of consensus over the type of contracts to offer private companies.

Sucumbiós and Orellana authorities have singled out US oil company Occidental (NYSE: OXY) and its Canadian partner EnCana, which operate on block 15, as the main targets for their criticism. The two companies are under increasing pressure as Ecuador's government has previously threatened to terminate their block 15 contract, claiming Occidental sold a 40% stake in the block to EnCana without government authorization. Occidental and Encana are still producing oil despite having had their operations affected by the protests, the spokesperson said. Spokespeople from both companies were not available for comment when contacted by BNamericas on Monday.

Venezuela's President Hugo Chávez has offered to transport Venezuelan crude free of charge to Ecuador while production in the Amazon remains affected, Venezuela's ABN news service reported. "Ecuador has asked us to lend it oil and we will do that," Chávez said during his weekly television broadcast, Aló Presidente, on Sunday. In return for Venezuela's support, Ecuador will export crude to Venezuela once production in the Amazon returns to normal, ABN reported. No volumes or possible terms of such an agreement were mentioned in local press reports.

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