Ecuador steps up pace of oil development activity

March 23, 2005
Oil companies operating in Ecuador plan to quicken the pace of oil development this year.

Oil companies operating in Ecuador plan to quicken the pace of oil development this year. After delays in 1991, companies plan a series of projects to develop reserves discovered the past 3 years estimated at more than 600 million bbl. Oil & Gas Journal estimated Ecuador's proved crude reserves at 1.55 billion bbl as of Jan. 1, 1992 (OGJ, Dec. 30, 1991, p . 40).

The development push is part of a larger effort needed to ensure Ecuador's status as an oil exporter into the next century.

Ecuador is the smallest crude oil producer and exporter in the Organization of Petroleum Exporting Countries.

Crude oil production has remained relatively flat in recent years while domestic consumption has risen, eroding the country's export capability. Ecuador's export capacity could be the first to disappear among OPEC members, warns East-West Center, Honolulu, "presenting a ticklish situation with important implications for other small oil exporting nations."

That's critical to Ecuador's future economic health as well. Crude oil is the country's biggest single export commodity in terms of dollar value, accounting for about 46% of total merchandise exports in 1990. The value of crude exports dropped to about $1.1 billion in 1991 from $1.3 bilion in 1990, East-West Center figures show.

Exploration will take a back seat to development in Ecuador in the 1990s as the country seeks to preserve its oil exporter status beyond 2000. This helicopter is transporting field personnel for initial geological surveys in the Oriente jungle region of eastern Ecuador.

The potential for Ecuadorian oil exports disappearing after the turn of the century is tied not just to crude production levels but also to the country's outmoded refining/transportation infrastructure, current laws limiting private-notably foreign-investment in the oil sector, and efforts to market a much lower gravity crude, which the new development projects will produce.

Taken together, those efforts could cost as much as $20 billion, East-West Center said.

Petroecuador Pres. Luis Roman last year estimated investment in Ecuador's exploration and development would reach about $2.9 billion during 1992-96 (Table 1).

Of that total, Petroecuador would spend about $1.2 billion and private companies about $1.7 billion.

A group of companies led by Maxus Energy Corp., Dallas, will account for the biggest near term outlays-about $500 million planned in 1992-93 for development of heavy oil fields on Block 16, formerly operated by Conoco Inc.

Petroecuador's role

State oil company Petroecuador will play an even bigger role in Ecuador's oil and gas sector beginning next July.

That's when its joint venture with Texaco Inc. expires and subSidiary Petroamazonas assumes Texaco's interests in a concession that accounts for about two thirds of the country's oil production.

Since Petroamazonas took over as operator of the concession, production has increased to 234,000 bid at yearend 1991 from 215,000 bid in June 1990, notably from 1990-91 discoveries that were placed on stream in 1991.

The concession produced an average 222,700 bid in 1991 at an average lifting cost of 82¢lbbl.

Petroamazonas also will proceed with plans to begin an enhanced oil recovery project in giant Shushufindi oil field, Ecuador's largest, on the joint venture concession.

Shushufindi, which has produced about 100,000 bid for 18 years, is under successful waterflood. Current reserves, including those recoverable by waterflood, are estimated at 650 million bbl.

Petroamazonas let contract to Scientific Software Corp. (SSC) to conduct a full reservoir engineering study of Shushufindi. Preliminary results of that study showed a potential for incremental recovery of another 250 million bbl of reserves.

That would allow production under waterflood of 100,000 bid to 2003 with drilling of about 28 infill wells and 11 injection wells, although SSC recommended a combination of EOR techniques that could yield potential for additional reserves recovery.

Texaco and Repsol SA in 1990 submitted a plan to Petroecuador for a $1.1 billion carbon dioxide flood in Shushufindi and nearby Sacha oil field that would have' boosted recovery by a combined 500 million bbl (OGJ, June 4, 1990, p . 26).

SSC's study will allow Petroamazonas to prepare bid specifications for a tender, expected by midyear, on a service contract to implement the project. Petroamazonas will retain full control of operations and ownership of incremental production.

Petroproduccion's role

Petro ecuador' s role in other exploration, development, and production activities outside the joint venture concession will be carried out through its Petroproduccion affililate.

Petroproduccion operates 10 fields in the northern portion of the Oriente basin. Production has increased steadily to 85,000 bid as of yearend 1991. Some of the fields are partly under artificial lift.

Exploration by Petroproduccion in 1990-91 confirmed reserves estimated at 100 million bbl in Singue, Chanangue, Anaconda, Palanda, and Pinto oil fields. Development of the five fields is scheduled this year, and some are expected to start up by yearend. Combined production is expected to climb to 85,000 bid.

Combined production from Petro ecuador' s two affiliates is expected to reach 315,000 bid this year, and total production for the country is targeted at 330,000 bid.

Petroproduccion also plans to drill as many as five wildcats in 1992 on the Tiputini, Yasuni, and Panacocha prospects.

Criticisms 0f Petroecuador

The outlook for Petroecuador's operations may change somewhat in light of decisions that might be in the offing when a new government takes office in August. The state oil company has come under a barrage of criticism in recent years.

Structural changes also are expected at Petroecuador to overcome problems with bureaucratic reel. tape stemming from its status as a holding company with six affiliates.

Critics have said Petro ecuador should reduce the number of affiliates to cut red tape and costs, improve efficiency, and solve problems with coordinating authority and duplicating effort. They contend the two upstream subsidiaries should be merged into a single entity responSible for all exploration, development, and production.

Critics also say a similar merger is needed for Petronindustrial, which operates the Esmeraldas and Amazonas refineries, and Petropeninsula, which operates the two refineries on the Santa Elena Peninsula.

Such a merger was implemented earlier for Petrotransporte, which oversees crude and products pipelines and was integrated into Petrocomercial, which handles marketing.

The main source of criticism was former Minister of Energy Oscar Garzon, who resigned last November after only 3 months in office.

He also took issue with the way Petroecuador handles service contracts with foreign companies, charging the state oil company takes far too long to negotiate contracts and even longer to approve development plans.

Contracts under negotiation for Blocks 22, 18, and 19 still await signatures after more than a year. There have been repeated announcements of a seventh bidding round that has yet to materialize.

The new minister of energy, Rafael Almeida, announced negotiations of pending contracts will resume soon, but there are no signs this is imminent.

In addition, Garzon in November announced Ecuador would put up for bid five blocks covering about 2.5 million acres in the Oriente region. Government officials estimate the Oriente blocks hold another 800 million bbl of potential oil reserves.

Critics also contend Petroecuador is unable to undertake an expanded exploration campaign because of a lack of financial and technical resources. Thus it must rely more heavily on foreign operators to take exploratory risks and contribute capital and technology as exploration fans out increasingly into frontier areas where risks and capital needs are higher.

Petro ecuador also has been criticized for an inadequate policy on refining, especially with regard to surging domestic demand for refined products. Some officials anticipate Ecuador will be forced to import gasoline in a few years and have called on Petro ecuador to undertake expansions or revamps at one or two of the country's refineries to meet rising demand.

They also contend maintenance is inadequate at the refineries.

With an investigation of Petroecuador's operations currently under way, critics expect to see a program of reforms soon.

Price reform

One key reform some industry sources in Ecuador contend is critical to future economic health of the country's oil sector is an end to subsidies of domestic refined products.

The government effective Sept. 9, 1991, hiked the price of all fuels consumed in Ecuador. That pushed the price of 84 octane gasoline to 45.5¢/gal from 40¢/gal, then in added monthly increments to 50.6¢/gal in December.

Ecuador's gasoline prices still are among the lowest in the world and second lowest in Latin America after Venezuela.

The price increase was in part a response to a surge in black market sales of refined products to Colombia and Peru, where prices are considerably higher.

Maxus: a new key player

After Petroecuador takes over full ownership of the joint venture concession with Texaco, the second most important player in Ecuador's oil sector will be Maxus.

Maxus assumed operatorship of Block 16 in the Oriente after a withdrawal by Conoco Inc. in 1991. Conoco pulled out, citing competing commitments for its capital elsewhere (OGJ, Oct. 28, 1991, p. 40) .

After lengthy negotiations and approvals, development of five fields on the block looks set to proceed. Reserves are estimated at 250 million bbl with an average gravity of 17°.

Block 16 development is expected to cost more than $600 million and involve 120 wells, most of them horizontal. Plans call for construction of two parallel 160 km pipelines, one to move light crude from Shushufindi to use as a diluent for low gravity crude and a second to transport the blend to Lago Agrio for further transport to the export terminal at Balao.

Development on Block 16 includes an ambitious effort to protect the environment in a sensitive area, one that aroused controversy when plans were announced. A small portion of the block lies within Yasuni National Park, declared a biosphere reserve.

The government has taken steps to control population settlement in the area that would accompany construction of more than 150 km of roads. The companies will undertake extensive reforestation measures at drillsites and alongside roads.

Plans call for development to get under way in second half 1992 and continue into 1993. Production is expected to reach 45,000 bid.

Meanwhile, Petroecuador has undertaken with Institut Francais du Petrole (IFP) a study of modifications needed at the Esmeraldas refinery to process the 22° gravity blend from Block 16. Preliminary estimates of an expansion and revamp call for outlays of $300 million in 1992-93.

Oxy'S plans

Occidental Petroleum Corp., the first company to sign a service contract with Ecuador in 1985, also will be an important player in the country in 1992.

Oxy drilled eight exploratory wells on Block 15, and five flowed sizable volumes of good quality oil. Oxy confirmed the latest discovery with the 2 Laguna appraisal well last October. It tested a combined stabilized rate of 3,385 bid of an average 23.1° gravity crude from the same zones tested in the 1 Laguna discovery (OGJ, Aug. 12, 1991, p . 46).

Oxy spent about $70 million on exploration.

Its discoveries are close to infrastructure, allowing fast track development. Reserves are estimated at 225 million bbl.

Tentative plans call for a $250 million development project involving 38 wells. Production could start in late 1992 or early 1993 and reach about 30,000 bid .

Operator Oxy holds an 85% interest in the 494,000 acre block.

Tripetrol's program

Tripetrol SA, a 100% owned Ecuadorian company, also is a significant operator in Ecuador.

After acquiring all of Belco Petroleum Co.'s assets in Ecuador in 1989, Tripetrol began a strong exploration program on Block 1 on the Santa Table 2 Elena Peninsula, drilling the Mata Chivato, Pacoa, Palo Santo, Guayacan, and San Pablo wildcats.

Pacoa flowed 1,400 bid of 30-41° gravity oil, Mato Chivato 350 bid of 24S gravity oil, Palo Santo 100 bid of 22° gravity oil, and Guayacan an undisclosed volume. The first three wells delineated the Pacoa structure, which Tripetrol estimates holds about 50 million bbl of reserves.

Tentative plans call for a $40 million program to develop Pacoa, which lies in dry lowlands near production infrastructure and Santa Elena refineries.

When reserves initially were pegged at about 40 million bbl, Tripetrol estimated production at 7,500 bid.

Petroecuador is studying the development proposal and is expected to approve it.

Oryx work

Oryx Energy Co., Dallas, continues work on its 100% owned Block 7 in the Oriente basin.

Having drilled Ecuador's first horizontal discovery well, 1 Gacela, last year (OGJ, Oct. 28, 1991, p. 25), Oryx recently followed up with a successful horizontal well in the unitized CocaPayamino area (OGJ, Jan. 13, p. 25). Both wells flowed from Cretaceous Hollins.

Oryx also plans a step-out to 1 Gacela in first quarter 1992.

Development drilling at Coca-Payamino is expected to boost gross production to 11,000 bid in mid-1992 from about 3,600 bid in late 1991.

Oryx has four other discoveries on the block and has identified several more prospects.


In all, companies that have signed service contracts with Petro ecuador have found reserves totaling about 900 million bbl.

Of that, 491 million bbl are proved and 409 million bbl are probable.

The breakout by company is Maxus 210 million bbl, Oxy 198 million, Unocal Corp. 101 million, Belco 84 million, Ste. Nationale Elf Aquitaine 93 million, Oryx 56 million, British Gas plc 48 million, Braspetro SA 70 million, Petro-Canada 20 million, and ARCO 20 million.

Total investment for all service contract companies in Ecuador has climbed to $479 million.

The ministry of energy last November 1991 let contract to IFP to carry out a detailed study of the country's oil reserves. Concerns have been voiced over the status of Ecuador's reserves and the implication that holds for future economic development. Oil exports account for about half of total Ecuadorian exports and provide more than half of the government's revenues.

Export capability

East-West Center contends Ecuador faces some decisions and major outlays to sustain its status as a net oil exporter after 2000.

Of the $20 billion in outlays estimated for that effort, at least $3 billion will go to development of heavy oil.

The center estimates production of Oriente crude will slide to about 199,000 bid by 2000 while the overall gravity of Oriente crude slips to 27° in 2000 from the current 29° (Table 2).

Production of new heavier crudes, with gravities of 10-20°, is expected to begin this year and reach 96,000 bid by 1995.

To move the high pour point crudes through the trans-Ecuadorian pipeline system, Petroecuador will have to use a diluent, likely an Oriente crude, to deliver a crude mixture of 21° gravity, 2% sulfur, and viscosity of 165 cSt at 80° F. for export, East-West Center noted.

Using Oriente crude as a diluent will reduce supply of that crude available for export to about 59,000 bid by 2000 from the current 180,000 bid. Petroecuador is expected to market 81,000 bid of the crude mixture in 1995-96, the center said, declining to 72,000 bid by 2000 as domestic demand continues to rise and Oriente output falls.

At the same time, Ecuador faces big investments in its downstream infrastructure, East-West Center pointed out. Its refineries have a cracking/distillate ratio of only 11 %, compared with almost 20% in the Latin America! Caribbean region and 55% in the U.S. And Ecuadorian refineries are unable to meet the country's growing demand for lighter fuels, especially liquefied petroleum gas.

"Unless increased oil prices make heavy oil production economically sound and Ecuadorian hydrocarbon law can accommodate a larger foreign investment injection, Ecuador's export base may dwindle after 2000," EastWest Center said.

An alternative would be for Ecuador to focus on exporting refined products, calling for massive investment in refinery expansions and upgrades.

"The lower quality of the crude mixture may make crude sales a less profitable option than the value added from product exports, even taking into account the higher refinery investment," the center said.

"In any case, great efforts are needed to sustain Ecuador's net export status."