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Ecuador: Holding steady on Opec cuts

No plans for an uptick in investment and production in the immediate future

Ecuador, an Opec minnow, has held the line on production cuts so far, but is also implementing major market reforms in a bid to draw in new investment and eventually add oil output after years of stagnation.

Ecuador's president Lenín Moreno came to office widely seen as a loyalist to leftist former president Rafael Correa who would stick with the state-led economic model. But Moreno has surprised with a recent turn towards a set of market-friendly reforms aimed at winning over international investment to help revive the country's economy.

In the oil patch, the new oil minister Carlos Pérez, a former Halliburton executive, is pushing reforms on two important fronts. He hopes to eventually lift output from the roughly 520,000 barrels a day where production has been stuck in recent years.

His first proposal is to restore production-sharing contracts in the country after Correa forced foreign investors to converting their PSCs to less-attractive per-barrel fee contracts in 2010. The companies that had their contracts converted, which includes Repsol and Eni, will have the option to switch back to a PSC, Pérez has said. Production from these projects has been in decline since 2010 and it is hoped that fiscal terms that reward the risks of new exploration drilling will spur investment.

Ecuador is also planning to open some of the most oil-rich acreage in the country to new drilling, also under the new PSC model. As many as 20 blocks could be put up for bidding before the end of 2018, kicked off by an auction for eight blocks in the Intercampos area, where production is already happening.

While Ecuador may be laying the groundwork for an eventual uptick in investment and production, none of this will materialise in the immediate future. Rather Ecuador will be a reliable Opec cutter for the foreseeable future, whether it wants to be or not.

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