Petroecuador by mid-1994 will begin awarding production sharing contracts (PSCS) for tracts covering 8 million acres offered in Ecuador's seventh international tender for oil and gas exploration acreage.
The bidding round is the first since Ecuador in October 1993 introduced legal reforms intended to end Petroecuador's domination of petroleum development in the country and attract more private investment to Ecuador's upstream (OGJ, Nov. 9, 1993, p. 23).
Increasing foreign participation in E&P is critical to Ecuador's goal of doubling its oil production by 1998. Energy and Mines Minister Francisco Acosta said the government hopes exploration resulting from the bid round will result in discoveries that will boost Ecuador's combined proved and probable oil reserves to 4 billion bbl from about 3 billion bbl.
Under concession, association, and service contracts of the past, the government's share of petroleum production was one of the highest in South America. Also in the past, inflexible contract terms, protracted negotiations following contract awards, and administrative inefficiency discouraged private company activity.
Reforms to Ecuador's hydrocarbon law were approved by the Ecuadorian congress in late November 1993 (OGJ, Dec. 13, 1993, Newsletter). However, the government changed the wording of some legislation as it submitted the reforms under a fast track review by the congress. Details of those changes were unavailable at presstime.
Petroecuador also is offering marginal producing fields for private investment in enhanced oil recovery and redevelopment projects. And the state oil company is marking progress on plans to expand its main crude oil trunk pipeline.
WHAT'S ON OFFER
Included in the current bidding round, which began last week, are:
- Ten onshore blocks as big as 494,200 acres in Ecuador's eastern (Oriente) Amazon region on the piedmont of Ecuador's eastern Andes mountain range.
- Three offshore/onshore blocks as big as 988,400 acres along the Gulf of Guayaquil on Ecuador's Pacific Coast.
Petroecuador said hydrocarbons have been discovered but not developed on many of the tracts. On Block 3, almost all offshore, estimated discovered gas reserves total 250 bcf. Block 23 is reserved for Petroecuador.
To be considered for a PSC, qualified bidders must submit offers by May 31, 1994, to the Quito office of Petroecuador Executive Pres. Federico Vintimilla S., secretary of the special bidding committee.
Petroecuador said one week will be needed after the end of the bidding period to evaluate contenders' creditworthiness and economic standing. Evaluation of proposed technical programs and spending and Petroecuador's share of production can be completed quickly with computer analysis.
Seventh round PSCs are to be signed in fourth quarter 1994.
NEW PSC HIGHLIGHTS
Petroecuador's special bidding committee will award PSCs by rating each bid under a point system. Successful bidders will score the highest ratings based on financial and operating standing (10 points), proposed exploratory program (45 points), and proposed state share of production (45 points).
Ecuador's new PSC requires the contractor to put up an exploration guarantee amounting to 20% of its estimated exploration spending and an exploitation guarantee amounting to 20% of projected development spending.
Exploration periods under the PSC may be as long as 4 years, plus extensions as much as 2 years. The PSC allows exploitation periods of 20 years for oil discoveries and 25 years for gas discoveries.
For gas discoveries, the PSC allows a 5 year, extendable period for market research, installation of infrastructure, and market development and requires the contractor to post a $500,000 guarantee to secure his market and infrastructure obligations.
Ecuador's new petroleum law simplifies the way in which contractor and state shares of production are calculated. The state's share of oil PSCs can be no less than 12.5% of gross production of less than 30,000 b/d, 14% of 30,000-60,000 b/d output, and 18.5% of 60,000 b/d or more. PSCs likely will be awarded to companies offering the best production sharing arrangement for Petroecuador.
Crude oil quality is to be considered a basis for adjusting production shares. Also, parties to a PSC may agree in advance to share production in cash.
Ecuador's new hydrocarbon law allows foreign contractors to sell their shares of production either on foreign or domestic markets at international prices. There are no added taxes on production that's exported. Contractors may buy state shares of gas production. There are no royalties.
Contractors' consolidated tax rate amounts to 36.25% under Ecuador's new hydrocarbon law, including a 25% income tax levied after deductions of operating and administrative costs and expenses, payments to related companies abroad of as much as 5% of gross income, and a 15% labor profit share. Oriente export crude prices will serve as the reference price for calculating gross income for tax purposes.
ENVIRONMENTAL EMPHASIS
Ecuador's new PSC increases emphasis on environmental protection. Contractors are to be required to perform an environmental impact study (EIS) to assess baseline pollution levels. The EIS should include:
- A description of existing natural resources in the PSC area, as well as geographic, social, economic, and cultural factors affecting the area's inhabitants and communities.
- Technical evaluations of foreseeable short term and long term, direct and indirect physical and social environmental effects.
- Detailed environmental management plans for preventing excessive pollution and minimizing expected pollution to acceptable levels, including contingency and emergency programs.
Contractor EISs will be the basis of periodic socioenvironmental audits by Ecuador's Energy and Mines Ministry.
Petroecuador estimated that before Jan. 24 about 30 companies had shown interest in Amazon region tracts and five or six in the Pacific Coast tracts.
Companies wishing to bid in the seventh round must buy packages of technical, economic, and legal information from Petroecuador. Prices are $100,000 for packaged Amazon data and $50,000 for Pacific data.
Acceptable minimal exploration plans will vary by tract. On some, PSCs will require contractors only to collect seismic data. On others, exploratory drilling will be required.
PSCs may be modified to maintain project economics in case of tax law changes. Other factors allowed to alter PSC terms include unexpected discovery of gas on an oil tract or oil on a gas tract, spending on pre-Cretaceous strata, secondary and enhanced recovery costs, or discovery of oil with gravity of less than 15.
Ecuadorian officials hope winning bidders in the seventh petroleum round will offer to spend at least $150 million to collect at least 7,000 line km of seismic data and drill at least 15 exploratory wells.
EOR INITIATIVE
Ecuador's master plan to ramp up its oil production includes an offering of marginal active fields for redevelopment or secondary recovery projects by private companies.
The marginal fields offering is to open in early June, following conclusion of the seventh bidding round.
Under Petroecuador's definition, marginal fields to be included in the round must have production amounting to no more than 1% of gross national oil output, be situated far from existing infrastructure, and produce crude no heavier than 20. In addition, production gains must be possible only with technology not available from within Petroecuador.
Increasing a field's production through private development to more than 1% of national production will not disqualify it as a marginal field.
PIPELINE PROJECT
Plans to expand capacity of the Transecuadorian pipeline are to get under way in March 1994, when Petroecuador expects to call for construction bids by private companies.
Winner of the pipeline construction bidding round will operate the Transecuadorian system after the expansion, and all transporters will pay a single tariff to use the system.
To serve as a basis for bidding, Petroecuador is developing an engineering plan that would expand the export pipeline's capacity to 450,000 b/d. The state's plan will be compared with bids by competing companies, but alternative expansion plans will be considered before a winner is named and a final plan selected.
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