WATCHING GOVERNMENT ECUADOR SEEKS FOREIGN INVESTORS

With Patrick Crow from Washington, D.C. Like its neighbor Peru, Ecuador is enacting a package of reforms to open the country's oil industry to more private investment and greater efficiency. Petroecuador has held a quasi-monopoly on the oil industry for years, but Congress recently approved a law that allows domestic and foreign firms to explore for and produce oil under several contractual methods. Ecuador's new law outlines types of operational contracts, licenses, and joint ventures

Dec. 27, 1993

2 min read

Like its neighbor Peru, Ecuador is enacting a package of reforms to open the country's oil industry to more private investment and greater efficiency.

Petroecuador has held a quasi-monopoly on the oil industry for years, but Congress recently approved a law that allows domestic and foreign firms to explore for and produce oil under several contractual methods.

NEW LAW

Ecuador's new law outlines types of operational contracts, licenses, and joint ventures that will facilitate outside investment in pipelines, refining, storage, and marketing.

Ecuador seeks $5 billion of investments during the next 2 years to expand its oil industry (OGJ, Nov. 8, p. 23).

It adopted a production sharing contract to attract foreign companies to explore for oil and gas and develop marginal fields.

Under the production sharing contract, companies explore their blocks at their own risk and expense. If they find reserves, they will be entitled to a share of production, with the percentage to be determined in the bidding process.

Exploration periods for production sharing contracts will be 4 years, with a 2 year extension possible. The production period is 20 years, with a possible extension.

The exploration reforms will be in effect for the seventh bidding round, planned for early in 1994.

The government also will offer incentives for development of marginal fields, defined as fields that are far from infrastructure, contain heavy crude reserves, and require advanced and costly recovery techniques. Their development should result in an economic advantage for Ecuador.

Qualified companies will be allowed to bid for contracts on marginal fields. No field has vet been earmarked for this type of contract.

DOWNSTREAM OPERATIONS

Ecuador also is liberalizing other aspects of its domestic oil industry. Petroecuador is preparing regulations to implement reforms in the downstream industry.

It will offer operation contracts for joint ventures and licenses to operate pipelines, refineries, storage, and marketing systems.

Private participation already exists in domestic marketing and will be expanded to include imported petroleum products imports. Product prices will be set based on the average export price of Oriente crude, currently about $10/bbl.

The government expects these imports to foster competition, forcing Petroecuador to improve operation of its refineries and other facilities.

Ecuador's reforms were inspired by its desire to produce more oil and by the positive performance of foreign exploration contractors.