Ecuador continues to grapple with efforts to privatize its petroleum sector a year after disclosing its plans to withdraw from the Organization of Petroleum Exporting Countries.
One of OPEC's smallest members, Ecuador last year said it would leave the group in March 1993, citing high membership costs and minimal benefits (OGJ, Nov. 9, 1992, Newsletter). Industry observers also noted at the time Ecuador's plans to sharply boost production this century might run afoul of its OPEC quota.
Political controversy is stalling efforts to implement a new reform oriented hydrocarbon law in Ecuador that would open the country's petroleum sector to greater participation by foreign companies and privatize state petroleum companies, including Petroleos del Ecuador (Petroecuador).
That comes even as foreign contractors' participation in Ecuador's upstream sector are making a significant contribution to boosting the country's oil production, which had remained flat for a number of years.
NEW LAW STATUS
A draft of the new hydrocarbon law has circulated in Ecuador for a number of months and was to be submitted to that country's congress earlier this fall (OGJ, Oct. 18, p. 30).
The new law was to set the stage for a sweeping restructuring of Ecuador's oil and gas industry under a master plan developed by ICF Resources Inc., Fairfax, Va., for a special Ecuadorian commission. That plan outlined steps needed upstream and downstream for a combined outlay of $4 billion to boost Ecuadorian oil and gas production, improve the country's crude transportation and refining infrastructures, and maximize petroleum revenues (OGJ, June 21, p. 26).
Oil authorities had prepared in recent months several drafts of reforms to Ecuador's hydrocarbon law in hopes of submitting a final text to the congress for its approval before calling the next bidding round. In the draft proposals are alternatives to Ecuador's existing service contract system, including association and concession agreements.
But to date no draft has been submitted to congress, nor does it seem likely to be submitted in the near future, given political circumstances.
Further, the political cauldron has been stirred anew with fresh charges of environmental damage from oil industry operations in Ecuador's Oriente jungle region. The latest controversy entails a $1 billion class action lawsuit on behalf of Ecuadorian Indians alleging long term environmental pollution by Texaco Inc. during its 20 year operatorship of the region's key producing region.
While decisions on Petroecuador's future role in the industry is still pending reforms to the hydrocarbons law, the state oil company continues to maintain a dominant presence in the industry, from exploration to domestic marketing, including steps called for under the master reorganization plan.
Meantime, Petroecuador has selected 13 blocks for the next bidding round, tentatively set for January 1994. Oil Minister Francisco Acosta recently said that, failing congressional approval of the reforms, the planned bidding will be carried out under present service contract regulations. These have enabled so far a dozen foreign oil companies to carry out exploration since 1985. The successful ones are starting to produce oil in their blocks. Among the key start-ups this year were projects operated by units of Occidental Petroleum Corp. and Ste. Nationale Elf Aquitaine.
REFORMS STIR CONTROVERSY
The reforms to the hydrocarbon law that energy authorities intend to carry out have stirred much controversy from all quarters.
The eventual timing anticipated by energy authorities for congressional approval of the proposed reforms (OGJ, June 21, p. 26) will be postponed until agreement can be reached on several key matters of the reform.
During much of this year, energy authorities have received harsh comments on the proposed reforms from former oil officials. At one point in midsummer, Petroecuador's workers, supported by electric sector workers, threatened to go on strike if privatization of Petroecuador's affiliates were included in the new text of the reform to be submitted to congress as a formal bill.
Energy officials announced after a 2 day meeting with oil and electric workers an agreement that Petroecuador's affiliates will not be privatized. Workers declared they would watch future developments to assure compliance with the agreement. Under the latest draft of the law, the near monopoly role of Petroecuador would be diminished with its affiliates transformed into operating companies governed by Ecuadorian business law and open to private participation. Petroecuador would be recast as a regulatory agency.
Before those reforms could be carried out, however, congress must pass a modernization law needed as a framework for the oil reforms. That bill was debated for months in congress, finally getting passed in late September. Continuing controversy over oil reforms may indefinitely delay implementation of the modernization law.
MASTER PLAN
Underlying the tone of the reforms is a master plan developed by ICF that found about $4 billion must be spent on Ecuador's petroleum sector during 1994-2005 to achieve goals the government identified.
That breaks out to more than $2.5 billion for exploration and development, $971 million for expanding Ecuador's pipeline system, and $473 million for upgrading the refining sector.
Generally, it called for:
- Almost doubling oil production to more than 650,000 b/d in 1997, subsequently declining to 250,000 b/d by 2008. This would come mainly from infill drilling and waterflooding in Shushufindi, Sacha, and other large fields. CO2 flooding and development of Ecuador's Pungarayacu tar sands would also be considered. Projections include undiscovered oil reserves pegged at 600 million bbl. In addition, offshore Amistad gas field would be developed, with resulting gas production intended to back out fuel oil use in the Guayaquil region.
- Expanding the SOTE oil trunk pipeline capacity to 600,000 b/d by 1996 to transport increased volumes of Oriente crude to Esmeraldas for export. Heavy crudes would be blended in the Oriente with lighter crudes to meet the minimum viscosity requirements for pipeline transport. Additional crude lines from Santo Domingo to La Libertad and directly to the trunk line from the southern Oriente, plus use of existing lines in Colombia and Peru, also are possible options.
- Upgrading the Esmeraldas refinery as soon as possible by adding a coker, another fluid cat cracker, and other units in order to reduce surplus volumes of lower value No. 6 fuel oil. Crude processing would increase to meet expected increases in domestic product demand, expected to rise to more than 175,000 b/d by 2008 from slightly more than 100,000 b/d in 1993. The La Libertad refinery would be maintained at low throughput levels through the 1990s. An alternative new refinery could be considered at Santo Domingo or Quito.
Under the master plan, cash flow from production would exceed $3 billion/year during 1996-2004, once major pipeline and oil field investments have been made. Spending would peak at $2 billion in 1993-2004.
ENVIRONMENTAL CONCERNS
Environmental controversy has again rocked Ecuador's petroleum sector.
A $1 billion class action suit was to be filed at presstime last week in a New York federal court on behalf of Ecuadorian Indians alleging Texaco contaminated their rain forest environment with oil wastes, according to newswire service reports.
Texaco operated on behalf of a joint venture with Petroecuador or its predecessors the Shushufindi producing area in the Oriente jungle region during 1972-92, accounting for about two thirds or more of the country's oil production in that period. Petroecuador took over those operations in July 1992 and earlier this year let a 2 year contract to American Fluids International Inc., Midland, Tex., to clean up massive hydrocarbon pollution across the country (OGJ, May 3, p. 13). Environmental studies commissioned by World Bank say more than 4.4 million bbl of hydrocarbons has been spilled across Ecuador in hundreds of minor mishaps.
United Press International quoted the Indians' lead attorney, Joseph Kohn, as saying the suit was unprecedented because it was the first time Amazon Indians have sought restitution for damage to their environment by a U.S. corporation in a U.S. court. It seeks compensation for thousands of Indians allegedly, threatened by exposure to high levels of purportedly carcinogenic hydrocarbons.
Texaco had no comment on the suit, UPI reported.
Meantime, exploration in Ecuador's Cuyabeno wilderness reserve has been cut back pending a completion of environmental impact studies.
After a report by Ecuadorian news agency Inefan on environmental damages allegedly caused by oil exploration by Petroecuador while shooting seismic and carrying out initial exploratory work on Paujil, Sabalo, and Imuya structures in the Cuyabeno reserve, exploration in the reserve will be limited to Paujil.
A close watch on the limited activities will be maintained, coupled with a study on environmental effects of exploration. The results of exploration in Paujil will serve whether or not to authorize further exploration in the reserve's other two locations, with Imuya thought to be highly sensitive to environmental damage.
The Cuyabeno reserve, created in 1979, covers an area of 1.62 million acres north of Yasuni National Park. Ten producing oil fields are located within the Cuyabeno reserve: Parahuacu, Atacapi, Secoya, Shuara, Shushuqui, Cuyabeno-operated by Petroecuador-and Fanny, Mariann and Tarapoa, operated by City Investing Co. While exploring in the Panacocha-Ishpingo area, Petroecuador recently identified five new structures in the region, of which two lie within the Yasuni Park and the three within the Cuyabeno reserve.
Authorities apparently have decided to block further exploration in the protected areas of the Oriente. No acreage within the Yasuni Park or Cuyabeno reserve has been earmarked for the January 1994 tender.
RESERVES, OUTPUT CLIMB
Stepped up exploration and development by Petroecuador and foreign service contractors has boosted Ecuador's oil reserves and production.
As of Dec. 31, 1992, total remaining reserves were pegged by the National Directorate of Hydrocarbons at 3.2 billion bbl. Of this, 1.95 billion bbl underlie fields under production and 1.3 billion bbl in fields not yet brought on production or fully developed. For the fields under production, that breaks out as Petroecuador 1.9 billion bbl, City Investing 12 million bbl, and Tripetrol SA 39 million bbl. Of those fields not producing or fully developed, that breaks out as Petroecuador 577 million bbl, Maxus group 228 million bbl, Oxy 198 million bbl, ARCO 162 million bbl, Oryx Energy Co. 121 million bbl, Elf group 24 million bbl, and Braspetro SA 8 million bbl.
Production has climbed steadily in 1993. By the end of September, output reached 351,559 b/d, an increase of 6,000 b/d from August's level and 10,994 b/d from the average output during January-August. Much of the increase is due to new oil production by four operators that signed contracts since the mid-1980s.
Output is expected to increase further in 1994 to about 405,000 b/d. The increase will come mainly from Oxy's Block 15, where production is expected to reach 30,000 b/d, and from Maxus Energy Co.'s Block 16, where production will start at about 14,000 b/d by February 1994. Average crude gravity in 1994 is expected to drop to 26.3 from 27.9 in 1993, due in largely to the Maxus heavy oil development.
Oil output will continue to grow until 1999, when it is expected to reach a peak of 447,000 b/d. From then, output will start to dwindle to about 147,000 b/d in 2011.
PETROECUADOR ACTIVITY
Petroecuador is quickly reviewing its exploration and development plans up to 1996, when its current authority expires.
As a first measure towards a more efficient management of exploration and development activities, Petroecuador's affiliates Petroproduccion and Petroamazonas, which so far have acted independently, have been merged into one unit. The new unit Petroproduccion will be responsible in the future for all exploration, development, and production activities in all of Petroecuador's areas.
The merger will enable the resulting unit to carry out operations in a more integrated and efficient way, avoiding duplication of efforts, redundancies, and excess personnel. Bidding, requirements, contract terms, and procedures will be standardized.
Of the 13 blocks Petroecuador will offer in the January tender, nine will be located in the Oriente west of the blocks currently under exploration and/or development, along a north-south axis from the Colombian to the Peruvian borders.
Four blocks will be around the Gulf of Guayaquil.
Geologic and other technical information is being collected for the tender. About 50 oil companies have shown interest in the tender.
Petroecuador's 1993 exploration campaign resulted in the discovery of oil reserves estimated at 460 million bbl in the Isphingo-Tambococha area of the Oriente.
By the end of June 1993, Petroecuador's oil output reached 330,449 b/d.
PIPELINE WORK PLANNED
To cope with the additional production expected, Petroecuador plans to expand the Lago Agrio-Balao trunk pipeline to 450,000 b/d.
A new, parallel line to the existing one will be built. It will be buried at points along the eastern side of the Andes, to avoid damage from earthquakes. Basic engineering for the new line is complete. Construction specifications are being prepared for a tender that will be called soon.
In addition, a third line is under consideration from Villano to Baeza, to transport oil from several blocks in the Oriente.
Earlier this year, Petroecuador let contract to France's Beicip to conduct engineering studies of the proposed Villano-Baeza pipeline.
The proposed 171 km, 18 in. pipeline will begin in ARCO's Villano field, where ARCO has discovered about 176 million bbl of heavy oil, and will extend to a pump station at Baeza on the Lago Agrio-Balao trunk pipeline. From this point the trunk line will be expanded to about 450,000 b/d from its present 325,000 b/d capacity.
SERVICE CONTRACTS PAY OFF
Eleven years have elapsed since service contracts were introduced into Ecuador's oil law. The first contract was signed in 1985, and 12 other contracts soon followed. Seven bidding rounds have been organized to date, including the January 1994 round.
Total investment committed for field development amounts to $1 billion. Of this amount, about $115 million had been spent by December 1992.
First oil production from service contracts started in 1992 by Oryx, from its Coca-Payamino complex, owned 65% by Petroecuador and 35% Oryx. Current production is about 8,600 b/d, of which about 6,000 b/d comes from Coca-Payamino field, and about 2,000 b/d from Gacela field.
Oryx recently farmed out 50% of its interest in Block 7, 25% to Santa Fe Minerals and 25% to two affiliates of Chilean state oil company Empresa Nacional del Petroleo.
Last May, Oxy brought on stream its Jivino field at an initial rate of 15,000 b/d. Production is being ramped up to 30,000 b/d.
Tripetrol produces about 1,000 b/d at its Block 1 on the Santa Elena Peninsula.
The Maxus group expects its first oil production early next year at an initial rate of 14,000 b/d broken out as 8,500 b/d from Tivacuno field, owned by Petroecuador but operated by Maxus, and about 5,500 b/d from the unitized Bogui-Capiron field that is owned 80% Petroecuador and 20% Maxus group. Total production from fields operated by the Maxus group ultimately will reach about 45,000 b/d.
Ecuador's total output is expected to reach about 365,000 b/d by yearend. Shortage of capacity in the trunk pipeline to Balao is expected, causing transportation bottlenecks. Negotiations are under way with Colombian state oil company Empresa Colombiana de Petroleos for possible use of its Orito-Tumaco pipeline for as much as 40,000 b/d of oil throughput.
SHORT OF EXPECTATIONS
Results achieved so far through service contracts are generally considered modest, bearing in mind initial expectations 10 years ago, when a target of about 2 billion bbl of additional reserves was expected.
Results can be attributed not only to geology but also to some inherent contract limitations, which have not favored more aggressive exploration by service contractors. Contract terms have proved to be inflexible and have precluded additional exploration within the blocks under contract.
Nor are the economics attractive. According to a paper by Petroconsultants SA, Geneva, at a conference earlier this year in Quito, the government take in Ecuador is one of the highest in South America.
Contract negotiation and administration also feature shortcomings. Following the sixth bidding round, contracts for Blocks 18 and 19 have been unsuccessfully negotiated for 2 years. Also, the seventh bidding round was announced for about 2 years, with no follow-up invitation formally made.
All these shortcomings have thrown doubts about the efficiency of the service contract system and the implementation of administrative procedures.
With the changeover of governments in August 1992, the status quo has persisted, while several alternatives were considered regarding the oil industry as a whole, leading to the proposed reforms.
Reforms are aimed at opening oil exploration to private companies in a more decisive and attractive way than in the past. Oil concessions may be reintroduced, in the form of license contracts subject to royalty payments. Service contracts would be maintained if requested. Petroecuador's affiliates would be turned into truly operating companies, open to private capital. Transport and domestic marketing would be also handed over to private hands.
It is doubtful, however, that all these reforms will be carried out, at least in the short run, because of the political heat they continue to attract.
OXY START-UP
Oxy in May started up oil production from its Oriente Block 15 (OGJ, Mar. 1, p. 56).
Initial production came from 1 Jivino well at about 15,000 b/d, with plans to ramp up soon to 30,000 b/d. Jivino field is part of a five field complex including Laguna, Limoncocha, Indillana, and Itava fields. The wells are located on the northwestern side of Block 15 close to existing infrastructure.
Production has been established in Cretaceous Napo Lower U and T formations and Hollin. It is expected that the fields will produce under water drive. Napo U and T zones are subsaturated, with a bubble point below 3,000 psi of the original reservoir pressure. Temperature is about 200 F. Gas:oil ratio is 10-200 scf:st-bbl, and crude viscosity 2-25 cp.
With those parameters, the fields will be operated at high production rates, permitting efficient recovery of reserves and drilling of few wells to enhance project economics. Estimates of original oil in place of about 613.1 million bbl resulted from analysis of structural maps and water/oil contact points. Simulation models led to the estimates of recoverable reserves and will guide field development.
DEVELOPMENT DETAILS
Objective of Oxy's development plan is to ensure recovery of oil at maximum efficient rate, while at the same time minimizing effects on the environment.
That entails:
- A production rate of about 30, 000 b/d maintained for about 10 years, starting in 1994.
- Development wells will be directionally drilled.
- Submersible electric pumps will be used.
- Energy for pumps will be provided by burning associated gas from the fields.
- The central production facility between Limoncocha and Laguna fields will have all modern equipment for treating crude.
- Produced water will be reinjected to Orteguaza formation at about 6,000 ft depth or to producing reservoirs, if required for pressure maintenance.
- Fields will go on stream on this sequence: Jivino, Laguna, and Limoncocha in 1993, Indillana in 1998, and Itaya in 1999.
ELF'S START-UP
After 7 years of exploration and development work, the group led by Elf recently brought on stream Wanke field on Block 14 in the Oriente this past summer.
Wanke is deemed part of a structure encompassing Wanke, Sunka, and Penke fields in the western portion of Block 14. Reserves are pegged at 24 million bbl of 17 gravity crude.
Since June 23, Wanke's producing well has been under extended testing with an output of 1,300 b/d of 17.4 gravity oil. Diluent crude from Auca field, 31 km west of Wanke, is pumped into this well to ease lifting. The resulting 20-21 gravity crude mix is transported to Pindo, where production is audited and then on to Auca.
The Wanke well was to be tested for about 3 months, then shut in. Sunka will be brought on stream for another 3 months, then shut in, followed by a similar extended test of Penke.
This extended production test program for the three wells is designed to gain information on reservoir behavior and on the possible continuity of the structure among the three wells.
Copyright 1993 Oil & Gas Journal. All Rights Reserved.
