Eric Watkins
Oil Diplomacy Editor
LOS ANGELES, Oct. 10 -- Ecuador's state-owned Petroecuador and Petroproduccion have signed a contract with Ivanhoe Energy Ecuador Inc., a subsidiary of Ivanhoe Latin America, to explore and develop Block 20, which contains the 250-sq-mile Pungarayacu heavy oil field, in Ecuador's Amazon basin.
Ivanhoe said the contract covers project appraisal and the development, including production and upgrading the heavy oil of the 426-sq-mile Block 20, which lies 125 miles southeast of Quito, the Ecuadoran capital.
Pungarayacu field was discovered 30 years ago. During the 1980s, Petroproduccion drilled 26 wells in the field, which has been studied and evaluated by Petroproduccion, ARCO, as well as other oil companies.
According to Ivanhoe, "these third-party studies estimated that Pungarayacu contains between 4.5 billion bbl (Petroecuador-ARCO) and 7 billion bbl (Petroecuador) of oil in place."
The firm said confirmation of these resources "would make the Pungarayacu field the largest accumulation of heavy oil in Ecuador and one of the largest in Latin America."
Ivanhoe also believes there is potential for deeper exploration below the known limits of the field.
Ivanhoe said, "This deeper zone in the Pungarayacu field has not yet been drilled with exploration wells, but the field lies on a regional arch that could focus migrating oil into this area."
According to project plans, oil production will begin with 30,000 b/d, eventually rising to 120,000 b/d of 9-14° gravity oil.
Ivanhoe plans to use its special heavy-to-light (HTL) technology to transform the heavy crude into grades of 23° gravity crude.
"We look forward to demonstrating the substantial advantages of our HTL process, which include enhanced efficiency, significant environmental benefits, and the economic production of previously stranded petroleum resources," said David Martin, executive chairman and chief executive officer of Ivanhoe Latin America.
Investment requirements are estimated to be $20 million during the first year of the contract and a total of approximately $110 million for the first 3 years of appraisal.
To recover its investments, costs and expenses, and to provide for a profit, Ivanhoe will receive from Petroproduccion a payment of $37/bbl of oil produced and delivered to Petroproduccion.
The payment will be indexed quarterly for inflation, starting from the contract date, using the weighted average of a basket of three US government-published producer price indexes relating to steel products, refinery products and upstream oil and gas equipment.
Ivanhoe Energy Ecuador may elect to receive its payment in oil, based on market prices, Ivanhoe said.
Earlier this week, Petroecuador said it expects to obtain more than $40 billion in revenues from the Pungarayacu field.
That followed a statement in August by Petroecuador president Luis Jaramillo who said that Ivanhoe would start producing about 108,000 b/d of heavy oil at the Pungarayacu field by May 2009.
In 2007, Ecuador rejoined the Organization of the Petroleum Exporting Countries and has an assigned production quota of 520,000 b/d.
The country had a total output of about 511,000 b/d in 2007, including production by Petroecuador and private oil companies operating in the country (OGJ Online, Aug. 22, 2008).
Contact Eric Watkins at [email protected].
