OilVoice - Ecuador Extends Deadline For Overseas Oil Firms

Ecuador Extends Deadline For Overseas Oil Firms

Wednesday, March 03, 2010

The government of Ecuador has extended a deadline for private oil firms to sign new agreements with the authorities in Quito, by one month to the end of April 2010. Strategic Sectors Minister Galo Borja commented that the government was capable of taking over the operations of any company that did not want to renegotiate its contracts, but ruled out expropriation in favour of continued negotiation.

The Ecuadorian government had initially set a March 8 deadline for all new contracts to be signed, but with expropriation ruled out and ongoing negotiations marred by legal grey areas the government had little choice but to extend its deadline.

President Rafael Correa, in an effort to exert more state control over Ecuador's energy resources, has publicly stated that he wants all private oil firms operating in the Organisation of Petroleum Exporting Countries (OPEC) member nation either to surrender their profit-sharing agreements and accede to fixed-fee oil service contracts, or continue with their profit-sharing contracts but face paying a hard-hitting 99% tax on windfall profits.

At present, the government is in talks with the handful of overseas oil firms still operating in the South American country. This lis includes Spain's Repsol YPF, Brazil-based Petrobras, Italian major Eni and the Chinese consortium Andes Petroleum. Talks between the government and the firms began back in mid January.

As previously mentioned, the negotiations have also been marred by a high degree of legal uncertainty. In addition to re-negotiating existing contracts with foreign operators, Correa is simultaneously pushing for a new Hydrocarbons Law to be passed by legislators. Both international oil firms and legislators, however, claim that one process is contingent on the other, and as a result both efforts have stalled.

With expropriation ruled out and the pending Hydrocarbons Law injecting uncertainty into the negotiations, it seems the government had little choice but to extend its initial deadline in the hope that deal will be inked at a later closing date. However, unless things move fast and the government provides the legal clarity necessary for negotiations to progress successfully, the April deadline is likely to pass without contracts being signed.