ECUADOR OPENS BIDDING FOR ORIENTE BLOCKS
Officials of state owned Petroecuador and other government leaders formally opened Ecuador's eighth bidding round with a presentation in Houston.
In other Ecuadorian petroleum news, Petroecuador let contract to France's Beicip to conduct a feasibility study of the Panacocha-Tiputini development project, destined for joint development with a foreign partner.
Meanwhile, Ecuador's Ministry of Energy has agreed with Texaco Inc. to settle claims over environmental rehabilitation of part of the Oriente in which Texaco operated oil fields for more than 22 years.
OPEN ACREAGE
Blocks on offer are to be assigned for exploration and development through production sharing contracts (PSCs). Ecuador first used PSCs last year in the country's seventh bidding round (OGJ, Feb. 7, 1994, p. 38).
Galo Abril Ojeda, Ecuador's minister of energy and mines, said PSC terms in the eighth round will be almost the same as in the seventh.
The main change is that parties are to settle PSC terms before acreage is awarded. That will allow Ecuador and winning bidders to sign contracts on the day winners are disclosed, eliminating long negotiations that followed the seventh round.
With bids to be submitted before Oct. 30, Ecuadorian officials could announce winning companies before yearend, and work could begin as early as January 1996, Abril said.
Officials said Ecuador must replace dwindling oil reserves or risk becoming a net oil importer, perhaps within a decade.
Abril estimated the cost of properly developing Ecuador's upstream and downstream petroleum sectors could amount to as much as $2 billion by 2000.
At least 15 companies, most of them currently working in Ecuador, have expressed interest in the available acreage.
ECUADOR'S PSC
Under the country's revised hydrocarbon law, Ecuador's PSC is a risk contract. Contracting parties include Petroecuador as a representative of the government and the winning bidder or bidding group as operator.
Duration of the PSC is 26-31 years, including 4-6 years for exploration and 20-25 years for development and production. In case of a gas discovery, Ecuador allows an added 5 years for studies, infrastructure construction, and market development.
The operator decides whether a field is commercial. Once commerciality is established, Ecuador's share of production must be at least 12.5% if output is 30,000 b/d or less, 14% for 30,000-60,000 b/d, and 18.5% for more than 60,000 b/d.
An operator may dispose freely of his share of production, selling into international or domestic markets at an international reference price. Ecuador will not tax domestically produced hydrocarbons sold and exported to other countries. In addition, Ecuador requires no currency exchange controls, and operators are free to repatriate profits.
Oil companies in Ecuador are subject to general tax rules without discrimination. Operators must pay 15% of gross income to contractors as a profit sharing fee and a 25% income tax on the remaining 85% of gross proceeds. Total payments amount to 36.25% of gross income, allowing a net profit of 63.75%.
MINIMUM WORK
Based on minimum work requirements, the 494,200 acre tracts included in Ecuador's eighth bid round fall into two general groups.
Winning bidders on Blocks 22, 26, and 29 will be required to:
- Collect, process, and interpret 300 line km of seismic data.
- Collect, process, and interpret 300 km of gravimetric and magnetic data.
- Reprocess and interpret existing seismic data.
- Drill one wildcat.
Discoveries have been reported on each of the three tracts.
Wells drilled to satisfy the minimum work requirement must be true wildcats, drilling in a new area or testing a new structure, and not simply a confirmation or delineation well. In addition, tract operators must collect and analyze wellbore cuttings, as well as cores from potential pay zones.
Winning bidders on each of Blocks 23, 24, 25, 30, 31, and 32 must acquire and interpret 500 line km of seismic data, 500 km of gravimetric and magnetic data, and reprocess and interpret existing seismic data. Ecuador does not require drilling on these tracts.
In all cases, operators will be responsible for connecting commercial discoveries to Ecuador's pipeline grid. Also, each operator or operating group is to pay $100,000 in each year of the exploration period for training Petroecuador employees. Companies also must pay a fee of $500,000/year to abate environmental effects of exploration.
BIDDING PROCESS
Ecuador expects exploration spending on eighth round tracts to total about $100 million.
Officials estimate that discovery of as much as 100 million bbl of proved reserves will result from work on eighth round acreage, with estimates of probable reserves as high 1 billion bbl.
Companies wishing to bid in the eighth round are required to pay $100,000 for technical, economic, and legal information and register with Petroecuador's petroleum contracts unit.
Ecuador will award acreage on the basis of a point system. Officials will rate bidders based on financial and operating standing, the proposed exploratory effort, and the participation level proposed for Petroecuador. Ecuador will award acreage to the company or group bidding for each tract that generates the highest point total over 100.
Companies bidding on seismic-only tracts will be able to score as many as 50 points for proposing a high level of state participation, 33 points for a strong exploration program, 5 points for satisfying environmental requirements, and 2 points for a good training program.
Companies making offers for seismic/wildcat tracts may score 45 points for state participation, 38 points with a proposed work program, 5 points for its environmental program, and 2 points for training.
Satisfying financial and operating requirements is worth 10 points.
For both types of tracts, Ecuador will weigh financial data based on a bidder's total assets, cash and banking contacts, profitability, and net worth.
To award points for operating capacity, officials will consider a bidder's world oil and gas production, exploration spending, extent of wildcat drilling, and exploration and production acreage.
PANACOCHA-TIPUTINI
Development of Panacocha and Tiputini fields was proposed more than 2 years ago, following Petroecuador's confirmation of the 1970 Tiputini oil discovery.
At the time, Petroecuador was considering a $300 million project to develop the low gravity Tiputini oil in tandem with three light oil finds at Panacocha.
Plans called for developing 30 gravity Panacocha crude as diluent to move 17 gravity Tiputini crude through a new 306 km pipeline from Tiputini to the country's crude oil trunk line at Lago Agrio in the northern Oriente (see map, OGJ, Feb. 15, 1993, p. 43). Also planned was a 90 km pipeline to move Panacocha crude to Tiputini for use as a diluent.
Tiputini reserves then were estimated at 237 million bbl of oil. No estimate was given for Panacocha reserves, but Petroecuador at the time estimated the Combined development project could yield 30,000 b/d of oil.
Since then, Petroecuador unit Petroproduccion has found three more structures in the area.
Total reserves for the Panacocha-Tiputini project now are estimated at more than 600 million bbl of oil. Of this total, about 70% is located in four structures at Tiputini and the rest at Panacocha.
Beicip will study feasibility of the combined development proposal as well as the economic viability of developing the two fields separately
A key consideration in the study is the form of contract under which a foreign partner will operate.
Beicip's study will focus on reserves evaluation, commerciality threshold, technical alternatives, infrastructure required, capital investment needs, alternatives for foreign participation, development plans, and projected production.
The study is expected to be complete by the end of this month, followed by preparation of bid documents with the tender to kick off by yearend.
TEXACO AGREEMENT
Following up on a memorandum of understanding that Texaco signed with the Ministry of Energy in December 1994, the two sides agreed to settle claims on environmental restoration and "social compensation" rebated to Texaco's former operatorship of the block that for decades provided most of Ecuador's oil production.
Texaco handed over the operations to Petroecuador in July 1992 under an earlier agreement.
The most recent agreement provides for remediation work that includes cleanup and plugging of wells and cleanup of production stations; treating and disposal of produced water; reforestation in areas surrounding wellsites and production facilities; and paving of certain roads. This work will be conducted by an undisclosed U.S. service company.
"Social compensation" measures intended to compensate local populations affected by Texaco's past oil operations include building schools and medical facilities at three locations, supplying two emergency river boats and a small airplane, and providing drinking water and sewage facilities for the towns of Lago Agrio. Shushufindi, Sacha, and Coca under separate negotiations with each town.
By carrying out those measures, Texaco will be released from future responsibility stemming from its past operatorship of Shushufindi and other fields in the Oriente. Texaco's expected costs tinder the agreement were not disclosed.
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