Petroecuador President: Occidental's OCP Stake Still at Issue

QUITO, May 24, 2006 (Dow Jones Commodities News via Comtex)

Ecuador's government-run oil company, Petroecuador (PCD.YY), has not decided whether it will take over the stake owned by U.S.-based Occidental Petroleum Company (OXY) in the private-sector heavy-crude pipeline OCP Ecuador, Petroecuador's top official said Wednesday.

Backtracking on comments made Tuesday, when he said the shares would be seized, Petroecuador's president, Fernando Gonzalez, said that while he is in favor of seizing the assets, no final decision has been taken. He said a decision may be reached by next week.

"It is my legal judgment, not as president of Petroecuador, that the shares that Occidental has in the OCP should also revert to the state," Gonzalez told Dow Jones Newswires.

The Petroecuador president said he still believes the OCP shares should revert to the state as a consequence of last week's cancellation by the government of Occidental's oil field operating contracts, for what the government calls a breach of terms. Occidental denies the accusations and is seeking arbitration at the World Bank's International Center for the Settlement of Investment Disputes.

There appears, however, to be some internal disagreement at Petroecuador over the legality of taking Occidental's OCP shares. A source at Petroecuador, who asked not to be named, told Dow Jones Newswires that Petroecuador's lawyers are opposed to the seizure of the OCP shares.

"Apparently we don't have anything to do with the OCP shares," the source said.

"The Petroecuador lawyers say that it has no right to participate in those shares, but we are analyzing all the documents, all the balance sheets and all the laws, to finally as a firm decide what portion of (Occidental's) assets should revert to the state and which ones shouldn't," the source said.

The statements by Gonzalez expressed his personal view, and not that of the company, the source said.

Gonzalez said that if necessary, the government will ask a judge to decide what happens to Occidental's shares in the pipeline.

Earlier, Occidental's Chief Financial Officer Stephen Chazen called Ecuador a "kleptocracy," expressing disappointment in the government's moves to strip Occidental of its assets there.

"These were no legal proceedings, you understand," he said, adding that the decision came through "a kangaroo court." He said Occidental has invested about $400 million in Ecuador and has taken out "a significant multiple of that in cash" since 1999.

The company has previously indicated that it has invested $1 billion in Ecuador since beginning operations there in 1985.

Occidental's Ecuador business most likely will be categorized as "discontinued operations" in its next financial report, Chazen said, since it now "seems to meet the definition."

Occidental owns a 14.15% stake in OCP Ecuador, which was built by private- sector companies operating in Ecuador and began operating in November 2003. The pipeline's other partners are Spain's Repsol YPF (REP), U.K.-based Perenco and Andes Petroleum, a Chinese consortium that bought out shares owned by Canada's EnCana Corporation (ECA).

The OCP can transport up to 450,000 barrels of oil a day, but at current production levels it is carrying around 150,000 b/d, of which 70,000 come from Occidental's Block 15, Limoncocha and Eden-Yuturi fields.

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