Commission to Present Palo Azul Findings in 30 Days

An independent commission that Ecuador's state oil company Petroecuador asked to study alleged irregularities in the exploration and production (E&P) contract for the Palo Azul oil field will present its findings to the ministry of mines and energy in 30 days, Petroecuador spokesperson Eduardo Naranjo told BNamericas. The commission will invite Ecuador's corruption control commission to report on the contract terms, which may be illegal according to state laws, local daily El Universo reported. "The commission could recommend that the terms of the contract be changed to favor the state," Naranjo said, adding that Petroecuador would have to renegotiate the contract with oil company Ecuador TLC, 70% owned by Argentina's Pecom Energia. According to the Palo Azul contract, the state currently receives 45-55% of sales revenues based on variations in the West Texas Intermediate (WTI) oil price. Previous contracts awarded by Petroecuador gave the state a fixed percentage of 18-24%, and private oil companies are not happy with the Palo Azul contract, which sets the precedent of higher state returns. In January, mines and energy minister Carlos Arboleda said that there were "irregularities" in the four-year contract, which was signed in August 2002 and calls for US$190mn investment. But Petroecuador expert Francisco Rendon said at the time that there is nothing illegal about the contract, which he said Petroecuador lawyers studied rigorously to get the best possible participation for the state. According to Rendon the new administration of President Lucio Gutierrez could be using the Palo Azul contract as a political tool to question the previous administration's decisions. Petroecuador's E&P contract with Chile's state oil company Enap for the Mauro Davalos Cordero (MDC), Paraiso, Huachito and Biguno fields is based on the same model as the Palo Azul contract, and will also be studied by the commission. The contract, which was signed in October 2002, could be revised to provide the government with more favorable terms, commission member Marcelo Roman said, local daily El Universo reported. "We don't want to scare away investment in Ecuador, but rather to make sure that these contracts are fair," Roman said, the paper reported. While the commission studies the contract, Petroecuador will withhold US$2mn it owes Enap's international subsidiary Sipetrol for 200,000 barrels of crude produced in January.

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