Ecuador to keep 70 % of Perenco output in tax dispute

Mar 04, 2009 01:00 AM

Ecuador plans to retain 70 % of French oil company Perenco's output until a tax dispute is resolved or the debt is paid off, Ecuadorean Mines and Oil Minister Derlis Palacios said. Ecuador wants the company, which currently produces 25,000 bpd in the South American country, to pay $ 338 mm in back taxes, plus an undetermined amount of interest, Palacios told.
"We're open to any negotiation; what we've withheld up to the date of a deal will be credited to the repayment of the debt," Palacios said. Otherwise, "Ecuador will auction off or sell that oil until the value of the debt has been recovered."

Ecuador in October 2007 increased a 50 % windfall tax on crude to 99 % to obtain a greater share of oil revenue. The government said that several companies including Perenco have failed to pay the full amount of the tax.
Ecuador and Perenco haven't been able to reach a deal because of opposition by ConocoPhillips's unit Burlington Resources, a minority US shareholder in the three fields operated by Perenco, Palacios said.

ConocoPhillips is fighting the tax increase before the World Bank's International Centre for the Settlement of Investment Disputes and has asked that court to stop Ecuador from going ahead with its threat of taking over the oil, Charlie Rowton, a company spokesman, said.
"We would be happy to find an amicable settlement," he added. Ecuador will take control of the oil at the port of Balao near Esmeraldas on the Pacific Coast, including a 720,000-barrel shipment ready for to be sent, Palacios said.

President Rafael Correa has threatened to sue or expel oil companies for failing to agree to changes in contracts or production targets, including Repsol-YPF, Spain's biggest oil company, and Brazil's Petroleo Brasileiro. Repsol, the biggest foreign oil producer in Ecuador, and the government resolved the same tax issue on Feb. 26. Repsol agreed to pay instalments totalling $ 447 mm and also agreed to pay $ 135 mm this year to settle the bill.
The ministry will beginto negotiate changes in its contract with Agip Oil, a unit of Italy's ENI, Palacios said. The outcome of the talks will determine how a planned cut in Ecuadorean output will be distributed between foreign companies, Palacios said.

OPEC production cuts
To comply with mandatory OPEC production cuts, Ecuador's state-owned oil company PetroEcuador and its PetroAmazonas unit will cut production by 18,000 bpd, he said. President Correa previously said he would shut down Agip's local production to allow Ecuador to meet its quota as the government considers the contract unprofitable.
"The state can't lose money when prices drop," Palacios said. "Payment of services to the company is linked to the price of oil, which doesn't make sense."

Ecuador is the smallest member of the Organization of Petroleum Exporting Countries. Palacios also said that Ecuador doesn't think OPEC needs to cut crude oil production again after prices have stabilized at about $ 41 per barrel since last December.
Oil futures traded in New York have dropped more than $ 100 a barrel since touching a record $ 147.27 in July. The government continues to estimate an average $ 55 per barrel price this year, based on expectations for an increase in prices in the fourth quarter of 2009, Palacios said.

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