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Changes for Ecuador's oil companies as China brings help

Ecuador's state oil companies have restructured, there's new acreage, and China is bringing much needed funding

Ecuador, Opec's smallest oil producer, has restructured its state-owned oil companies. Under the realignment, Petroamazonas has taken over operation of the country's upstream sector, while Petroecuador is now in charge of the downstream business. Launched in late 2011, the changes were completed in January this year.

The government hopes that putting all of the government upstream operations under one roof will help boost production. The new-look Petroamazonas was producing around 330,000 barrels a day (b/d) in July, nearly two-thirds of the country's total output of 530,000 b/d for the month. Ecuador's smaller state-run upstream firm, Rio Napo, was producing around 73,655 b/d, meaning the state oil companies together accounted for 75% of total production. Petroamazonas plans to invest $3.58bn in exploration and production this year. The company's growth strategy is focused on squeezing more out of its mature fields with enhanced oil recovery technology.

The company could also take on new acreage in this year's licensing round. The auction though, has not drawn much interest. Since reforms in 2010 replaced the industry's production sharing contracts with per-barrel service fee contracts, companies have had little incentive to take on exploration risk. That means frontier exploration in the country is likely to fall to Petroamazonas. With no major projects in development and little expectation of big discoveries to come, production is expected to remain flat.

Petroecuador, for its part, will focus on the management of the country's pipeline infrastructure and its three refineries, which have a combined capacity of 176,000 b/d. The company will also spearhead development of the $12.5bn 300,000 b/d Refineria del Pacifico project, one of the country's largest capital investments.

In June, state-owned China National Petroleum Corporation (CNPC) signed a framework agreement to join the project. After the signing, president Rafael Correa said that CNPC was willing to finance nearly the entire cost of the project. Since its 2008 sovereign default, Ecuador has been effectively cut off from international debt markets, making Chinese funding crucial to realising the project. Ecuador would presumably pay off the loan in shipments of refined fuel products. Ecuador has signed a string of oil-for-loans deals with China over recent years totalling around $7.3bn.

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