Ecuador to Offer Oil Blocks Under New Bidding Terms in Jan

Source: Reuters 10/6/2017, Location: South America

Ecuador will offer oil exploration and production blocks in January under new contract terms that it expects will attract more interest and allow the OPEC-member country to compete with its neighbors for foreign investment, the oil minister said.

The new terms will allow producers to be paid in oil and enable them to export or sell the barrels to local refineries, said Carlos Perez at a conference at Rice University in Houston.

“Ecuador needs to be able to compete now that Brazil and Colombia have changed their contract terms to encourage foreign investment,” he said.

The switch to production-sharing agreements from service contracts should help make the next bidding round more attractive than previous ones, he said.

The Intercampos project in January will offer eight oil blocks for an expected investment of $1.25-billion.

A following auction at the end of the second quarter of 2018 will offer 16 additional blocks at lots 70s and 80s along the border with Peru under the Sur-Oriente project, according to a presentation from Ecuador’s Hidrocarbons Ministry.

Ecuador needs capital to replace oil reserves, revitalize production and overhaul refineries and terminals. But frequent contract changes have spooked big oil firms in recent years, contributing to an output decline.

Ecuador’s withdrawal from a World Bank’s arbitration court in 2009, which was included in many oil contracts as the preferred mechanism to solve disputes among partners, has also increased the risk for investors in the country.

Perez said Ecuador was considering including Chilean courts in new contracts as the lack of international arbitration mechanisms was an “issue”.

The country expects to renegotiate oil-for-loan agreements with China’s PetroChina and Thailand’s PTT PCL . It is currently in talks to pay a loan portion to PetroChina in advance, which would free crude barrels for exports, Perez said.

State-run Petroecuador also plans to launch a new tender to sell crude on the open market in early 2018, after awarding Glencore PLC a similar offer earlier this year.

Needed Improvements
An ongoing auction for small oil blocks under the previous contract terms received interest from 45 firms, with 23 qualified to bid, Perez said. Ten blocks will be awarded by the end of the month.

Ecuador needs to keep cutting costs, said Perez, a former oilfield services executive. Operational costs for its Petroamazonas producing arm are $6.56 per barrel, but the entire production cost including transportation and drilling is between $16 and $17 per barrel.

To help cut costs, Petroecuador has reduced staff and is trying to do more workover drilling in existing wells.

Perez said Ecuador expects to lift its production to 700,000 barrels per day (bpd) in four years from 548,400 bpd in 2016, although recent cuts by the Organization of the Petroleum Exporting Countries have led the nation to reduce output this year by some 13,000 bpd.

The country will support any decision by OPEC as long as it remains a member of the group, he added. The organization has signaled a willingness to extend the cuts into 2018.


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