Ecuador accuses Petrobras of illegal transfers

Brazil's Petrobras—accused of illegally transferring 40% of its Ecuadorian operations to Japan's Teikoku Oil in 2005—has denied irregularities in its operations in the South American country.

Eric Watkins
Senior Correspondent

LOS ANGELES, July 9 -- Brazil's state-owned Petroleo Brasileiro SA (Petrobras)—accused of illegally transferring 40% of its Ecuadorian operations to Japan's Teikoku Oil in 2005—has denied irregularities in its operations in the South American country.

"Petrobras reaffirms it has complied with all legal provisions in all legal, contractual, and administrative acts in that country," the firm said, responding to criticisms leveled in a report of a special commission created by Ecuador's Ministry of Mines and Energy.

In the report, Petrobras stands accused of making the transfer without the consent of the Ministry. The report also alleges that Petrobras illegally explored a well, leading to a dispute with Ecuador's state-owned Petroecuador.

The special commission report, echoing Ecuador's May 2006 cancellation of contracts with Occidental Petroleum Corp., suggested suspension of the contract with Petrobras and confiscation of the company's assets in the country as "punishment" for the alleged irregularities.

Petrobras said it had not been notified of any investigation by the commission, and that it was not invited to provide information or possible clarification regarding any act that could be considered as an irregularity under Ecuadorian law.

Petrobras said it "expects the Ecuadorian government will disregard the accusations involving reserves acquisitions, which may have been the justification for the investigation, as it has or has requested all formal authorizations issued by the competent regulatory bodies."

In February 2006, Teikoku Oil Co. said it planned to invest ¥1.5 billion on test drilling at three sites in a field in Ecuador.

Earlier, in January 2005, Teikoku Oil Ecuador, closed an agreement with two subsidiaries of Petrobras Energia SA, giving Teikoku 40% participating interest in Ecuador's Blocks 18 and 31, subject to approval by the relevant Ecuadorian authorities.

In May 2006, the administration of President Alfredo Palacio cancelled Oxy's operating contracts, saying the company had broken a number of contract terms, including an unauthorized transfer of a 40% stake in its operations to Calgary-based EnCana Corp.
Oxy responded by filing an arbitration claim against Ecuador on May 17, seeking reparation for losses following the country's May 15 termination of its exploration-development contract and the immediate confiscation of its Amazon oil field operations on Block 15 (OGJ Online, May 19, 2006).

Contact Eric Watkins at hippalus@yahoo.com.

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