Ecuador’s ongoing Intracampos Licensing Round was designed to attract international investors based upon a switch from service contracts to production-sharing contracts (PSC). The licensing round involves eight onshore exploration blocks in the oil-prone Oriente basin.
Principal producing reservoirs in the northwest Oriente basin are the Cretaceous Hollin and Napo formations, which comprise successions of sand-rich fluvial and deltaic deposits, said a recent Wood Mackenzie Ltd. report.
The blocks are near existing oil fields and pipelines, representatives of Ecuador’s Ministry of Energy and Non-Renewable Natural Resources told interested oil and gas executives on Sept. 25 in Houston where they discussed the licensing round (OGJ Online, Sept. 12, 2018).
Carlos Perez, Ecuador’s Minister of Energy and Non-Renewable Natural Resources, told reporters that he expects the current round could attract $1 billion in investment. The ministry is on a roadshow to help attract investment.
Noble Pendergrass, WoodMac principal petroleum economist for the Americas, told OGJ on Sept. 26 that Ecuador has revised its contractual, fiscal, and legal terms for upstream investment.
A lingering issue for oil and gas investors is dispute resolution. Ecuador withdrew from the World Bank arbitration court in 2009. But for the latest licensing round, Ecuador’s government agreed to arbitration by Colombian courts.
Colombia has established petroleum laws and represents a Latin America perspective, Pendergrass said.
The PSC has no cost provisions or royalty, but full production value is placed into a profit-sharing pool. The profit-sharing pool is split between the company and Ecuador’s government based on a percentage involving a production component and a biddable price component.
The production component is figured upon a tier-based system that increases with increased daily production. The biddable component increases as the oil price increases.
Pendergrass said there may be a sovereignty adjustment applied to the profit share. Each year, the cumulative cash flows, including all taxes and costs, are calculated for the government and contractor. If the government share is less than 51%, the difference will be added into the profit share for the government the next year.
In addition, Ecuador cancelled its windfall tax. Two production taxes, called Ley 10 and Ley 40, will provide revenues for ecological redevelopment and provincial income. The taxes apply just as they do under existing service contracts.
Two income taxes also apply, the labor participation tax and the corporate income tax, which together apply 36.25% rate to profits.