Ecuador terminates Oxy's Block 15 contract

May 16, 2006
Ecuador's minister of energy terminated Occidental Petroleum Corp.'s participation contract with state-owned Petroecuador for the operation of 494,000-acre Block 15.

By OGJ editors
HOUSTON, May 16 -- Ecuador's minister of energy terminated Occidental Petroleum Corp.'s participation contract with state-owned Petroecuador for the operation of 494,000-acre Block 15. The Ecuadorian government claims the right to seize the assets, Occidental said May 15.

In the first quarter this year, Occidental produced 44,000 b/d of oil in Ecuador, where Block 15 is its only producing area. Occidental also holds a 14% interest in Ecuador's Oleoductos de Crudos Pesados crude oil pipeline.

"Occidental remains committed to an amicable settlement of this dispute," the company said, adding that Block 15 operations represent 7% of its first-quarter worldwide production and 2% of its total property plant and equipment as of Mar. 31.

Block 15 also represents 3% of Oxy's pro-forma proved consolidated reserves counting its acquisition of Vintage Petroleum Inc., excluding 72 million boe of Vintage reserves held for sale (OGJ, Nov. 21, 2005, p. 35).

Ecuador Energy Minister Ivan Rodriguez told reporters, "We accept the demand and petition of Petroecuador and the country's attorney general and declare the annulment of the contract."

Occidental had offered Eucador as much as $1 billion in disputed taxes, investments, and extra revenues to end a legal dispute (OGJ, Nov. 21, 2005, p. 34). The dispute involved whether Oxy in 2000 properly transferred part interest in a field to Canada's EnCana Corp.

Lawyers for Occidental are reviewing a 33-page document from the government and are evaluating the company's legal options, which could include appealing the decision in Ecuadorian and international courts.