Ecuador, Repsol YPF end dispute over windfall taxes

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Feb. 27 -- Following discussions between Spanish foreign minister Miguel Angel Moratinos and his Ecuadoran counterpart Fander Falconi, Ecuador and Repsol YPF SA will sign a contract aimed at ending a tax dispute that could have resulted in seizure of the company's assets.

"We have reached an agreement to sign this modificatory contract on Mar. 12," said Luis Jaramillo, president of Ecuador's state-owned oil firm Petroecuador.

Ecuador has long threatened "coercive measures" against Repsol YPF SA that could have involved temporarily seizing assets or freezing bank accounts to ensure receipt of alleged unpaid windfall-profits taxes.

Ecuadoran President Rafael Correa last week stepped up pressure by saying that Repsol YPF and France's Perenco owed $800 million in back taxes linked to windfall profits the companies earned when oil prices soared to record highs.

Under the previous administration of President Alfredo Palacio, it was decreed that when oil prices rose above those set out in operating contracts, the government share of the excess profits would be 50%—later changed to 99% by Correa in 2007.

At the time, Correa also said that contracts with foreign oil companies would be modified, and the firms would be required to change from profit-sharing agreements to service contracts on a fee basis.

Under the new agreement, which will be a service contract, Repsol YPF will pay 20% of the $445 million that the government says it owes in back taxes on windfall profits. The government, which agreed to reduce the windfall tax rate to 70% from 99%, said Repsol YPF could pay the remaining 80% of the back tax in 5 years' time.

In Ecuador, Repsol YPF operates Bogui Capiron and Tivacuno fields and Block 16.

Contact Eric Watkins at [email protected].