Ecuador indefinitely postpones bidding round for Amazon basin

Apr 19, 2004 02:00 AM

Ecuador has indefinitely postponed a bidding round aimed at ramping up oil production at four state-owned fields in the Amazon basin that have combined reserves of some 905 mm barrel.
"This process has been declared void," said Eduardo Lopez, the country's new Energy Minister, after meeting Apr. 14 with the special bid committee to finalize the decision. Lopez said Ecuador would call a new bid soon once legal issues had been resolved, but he did not set a date.

Ecuador had planned to accept bids until Apr. 20 to produce oil through 20-year contracts, but it had to consider cancelling the tender after Attn. Gen. Jose Maria Borja questioned the legality of the type of contracts under offer for the fields. Borja advised President Lucio Gutierrez to suspend the tender on Apr. 13 because of the legal problems.
"The tender is only for the production phase and does not consider exploration activity, which should be considered in an association contract," Borja was quoted as saying.

There also was concern over the fact that former Energy Minister Carlos Arboleda suspended the tender on Mar. 26 and then-to attract more interest from private companies-reopened it without a minimum 35 % state participation, also apparently in violation of the law. Lopez, who took office on Apr. 13, said, "In my personal opinion we should definitely stop this process, but it is only the special bid committee that can formalize this decision."
Lopez replaced Arboleda, who had quit the day before amid criticism from Borja and left-leaning politicians, who said the bidding process on the four fields had failed to protect the country's oil wealth. Arboleda took over the ministry in January 2003 but private oil company executives and political adversaries alike said he did not grasp the oil sector and made poor policy decisions.

Arboleda said he resigned for purely personal reasons but he had been sharply criticized for promoting the tender for contracts on what are considered four of Ecuador's main oil fields: Auca with 199 mm barrel of reserves remaining; Shushufindi, 570 mm barrel; Culebra-Yulebra, 73 mm barrel; and Lago Agrio, 62 mm barrel.
"I have no accusations of dishonesty against him, but he doesn't understand a thing about oil," the leader of the centre-right Christian Social Party, Leon Febres Cordero, was quoted as saying.
Lopez, an oil businessman and qualified oil engineer with 14 years' experience in the oil industry, will serve as temporary energy minister until Gutierrez makes a permanent appointment. Lopez has been Gutierrez's representative on the board of PetroEcuador since January 2003. Meanwhile, it remains unclear exactly how the legalities will be sorted out.

Ecuador's Constitutional Court was to decide whether or not it would admit an unconstitutionality lawsuit against the oil bidding process presented on Apr. 6 by Jorge Sanchez, leader of the Democratic Left (ID) bloc. Sanchez filed the suit in Ecuador's highest constitutional court, saying the bidding round was unconstitutionalsince there is currently no law regarding contracts for fields already in production. The absence of such a law means that President Gutierrez could not legally issue norms outlining the details of such contracts, the suit said.
"The norms have been issued in clear violation of the Constitution... , which says the president can issue norms to enforce laws without changing them or impeding them," the Sanchez suit said.

Sanchez's suit also says the tender failed to protect "national interests" by refraining from setting a minimum for how much new oil production the companies should award the state. The suit says such a minimum was determined necessary in a December 2000 ruling by Ecuador's Tribunal on oil ventures.
Earlier this year, Ecuador planned to require private firms to give at least 35 % of all new oil output to the state, but eliminated the requirement after firms complained.

In early April, figures for Ecuador's state oil sector continued on a downward spiral. In 2003, oil production of 204,149 bpd marked a fall of 7.7 % in 2003 compared with 2002, while the situation worsened in the first 2 months of 2004 with 197,789 bpd of oil pumped in January, and 187,863 bpd of oil produced in February.
The fall in state production was explained as due to out-dated technology and lack of investment in production equipment and systems.
"They are using technology from the 1970s in the state fields, and there are deficiencies in the operation and maintenance of equipment and installations," former Energy Minister Patricio Ribadeneira told. "There are new pumping systems and other drilling techniques today which would allow them not only to avoid the decline but to substantially increase production," Ribadeneira said.

Union leader Miller Quinonez put the matter more simply: "Neither this nor previous administrations have bothered to give the enterprise the funding to maintain production."
The lack of funding is exactly what Lopez hopes to change through a revised bidding process. "We need serious, long-term investments that let the country improve its economy. In this sense we must be coherent and patient in order to do things efficiently," he told after taking up his new position.

Source: PennWell Corporation
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