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Ecuador: All change

The overthrow of President Lucio Gutierrez at the end of April means the country's oil-investment policies are once again being revised. Alfredo Palacio's new government has been slow to articulate its own oil policies, but some of the new president's appointees have been quick to criticise the increased reliance on foreign oil companies to raise production that was a hallmark of Gutierrez's administration.

Rafael Correa, the economy minister, has promised to regain the confidence of international capital markets by increasing oil production, but he suggested when taking office that the new government will rely more heavily on state-owned PetroEcuador than the Gutierrez administration did. "With greater efficiency, the private operator manages to boost output by 100,000 barrels a day (b/d), but the country is left with only 25,000 b/d. I prefer the inefficiency of PetroEcuador that raises output by half as much, but those 50,000 b/d stay in the country," Correa said.

Correa did not elaborate on how he plans to improve efficiency at PetroEcuador, which has struggled to maintain output in recent years because of a shortage of funds caused by huge cash calls by the government. The company and the Gutierrez government had planned to license four of its main oilfields to foreign operators in an effort to raise production from 200,000 b/d to 250,000 b/d while minimising PetroEcuador's need for up-front capital spending. These plans appear to be on hold.

Officials at the energy ministry say Eduardo Cordovez, the new energy minister, doubts the benefits of the planned tender of PetroEcuador's main fields, but he has not ruled out another licensing round that would see 11 marginal oilfields licensed for redevelopment by foreign companies. Decision-making within the ministry has slowed to a halt, however, as the 80-year old Cordovez, who has no experience of the energy sector, casts about for advisers.

For the moment, foreign investors are holding back from new commitments while they wait to see how the new government will proceed in the sector. Operators are confident the government will not attempt to revoke or renegotiate existing contracts, but the shifts in policy could make it more difficult for firms seeking to exit the country, such as EnCana, to find a buyer. EnCana produces nearly 80,000 b/d of the country's 0.53m b/d of oil, but it put its interest in the country up for sale late last year to focus on its North American gas operations.

EnCana's proposed sale could also be affected by a VAT rebate dispute between several foreign oil companies and the government. Palacio has already said Ecuador's sovereignty will be the "prime factor" in resolving these disputes, raising the possibility that Quito will ignore the rulings of international arbitration panels. Occidental Petroleum, which won a $75m arbitration claim against the government, is likely to continue to face legal trouble over its sale of a 40% interest in block 15 to EnCana, given the government's hostility to international rulings.

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