Ecuador to Examine Oil Contracts This Month

QUITO, Jun 7, 2007 (Dow Jones Newswires)

A report examining oil contracts between private companies and the state, aimed at allowing the government to eventually obtain a higher share of crude production, is expected this month, the deputy minister of energy said Thursday in an interview.

The government of President Rafael Correa, who took office earlier this year, has vowed to review Ecuador's oil industry to boost the state's oil-related revenues.

"A special commission has been analyzing the contracts for more than a month to establish the current situation. It looked at when they began, when they ended, if they have met their obligations and how they are working following the reform law that modified state participation, among other factors," Jorge Alban told Dow Jones Newswires.

The report is expected to allow the government to determine its role in the new oil contracts it plans to sign over the course of the year and in the existing contracts.

According to Alban, the government will decide whether there is a need for further studies.

For new contracts, the state's participation in production could be higher than 80%. But depending on a series of factors such as the international market and prices, the type of crude, the investment commitment, and operating and production costs, the average is expected to be 70%.

Regarding the existing contracts, Alban said two options are being analyzed, but nothing has been decided so far.

One option could involve establishing temporary participation levels until a new constitution is in place.

A Constituent Assembly is expected to be installed in October, with a mandate to write a new constitution.

Another option would involve waiting for the new constitution, which could define a new framework for the contract relations between the state and private oil companies, as well as for the entire hydrocarbons sector.

"The state must have greater participation in private production, at least in some cases, because we suspect that in certain cases that participation is too low," said Alban.

Among the private oil firms operating in Ecuador are Petroleo Brasileiro SA (PBR), or Petrobras; Repsol-YPF (REP); France-based Perenco Ecuador Ltd. and Andes Petroleum Co.

Correa has frequently said the state receives an average 20% of production from private firms.

However, the private sector Hydrocarbons Industry Association says taxes and other payments push that number much higher.

"The state, which has not placed a single cent, obtained a total yield of 91% last year thanks to current contracts," said Rene Ortiz, president of the association.

Last year, Ecuador approved and implemented regulations that oblige private companies to share 50% of any extra income obtained from high oil prices with the state.

Alban said this law will be one of the factors taken into account to define the new percentages of state participation in current contracts. Another key factor will be international oil prices, as that determines the state's share.

Offshore Fields To Be Offered In July

Meanwhile, the ministry plans to offer offshore fields in the Gulf of Guayaquil in July. According to Alban, the precise parameters to offer these fields will be defined in June.

The most ambitious project, the Ishpingo-Timbococha-Tiputini, or ITT, will be treated differently. According to Alban, if the government opts to develop the project it will seek to create a joint venture where state oil company Petroecuador will have a majority stake.

The ITT has an estimated 1 billion barrels of reserves and preliminary estimates indicate it would require $5 billion to develop.

Many environmentalists, however, don't want the ITT to be developed because it is located inside the Yasuni National Park.

On Tuesday, the government presented a proposal to leave the area untouched if it receives some $350 million a year from the international community through different mechanisms.

The government has said it will wait a year to see if it can raise the necessary funds. If not, it would offer the ITT in bidding in June 2008.

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