Oxy Denies Cutting Output in Contract Dispute with Govt

US oil company Occidental Petroleum (NYSE: OXY) has denied recent press reports that the company has cut back or frozen its production activities in Ecuador, attributing the rumors to a quote taken out of context by a news agency, Oxy spokesperson Larry Meriage told BNamericas.

However, Meriage did say Oxy's new exploration projects are on hold pending a resolution to a dispute with Ecuador's government.

"There is more activity that we could be doing, such as ramping up our exploration activities, for example. There are more prospects there, but we're not going to do that until we resolve the outstanding issues with the government," Meriage said, adding that exploration can have up to a five-year lead-time.

"The producing operation and all the things it takes to keep it going, keep producing oil, all of that is going on unaffected. We're producing every barrel we can," Meriage said.

Ecuador's government has said Oxy illegally sold a 40% stake in block 15 to Canadian oil firm EnCana (NYSE: ECA) without government permission, is overproducing on some wells and has not complied with its investment plan in the block.

Oxy maintains that it has "scrupulously adhered" to its contractual obligations, but clarified that paperwork for new drilling operations has been submitted late on several occasions, according to a previous BNamericas report.

The company doesn't know when to expect the dispute with the government to be resolved, but Meriage said that "the ball's really in [the government's] court now."

Ecuador's state attorney Jose Maria Borja has endorsed the energy ministry's decision to give Oxy until February 8 to present its defense regarding the allegations, local paper Expreso reported.

Oxy is also involved in an ongoing tax dispute with the government.

Oxy won a US$75mn tax rebate from Ecuador last year in an international arbitration court ruling, but the government is appealing the decision. The money corresponds to a rebate for sales tax that Occidental paid Ecuador from 1999-2003.

Oxy's January-September 2005 oil production in Ecuador dropped to 42,000 barrels a day (b/d) from 46,000b/d in the same period in 2004.

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