Ecuador tells Occidental of contract violations against PetroEcuador

Ecuador's Energy Minister, Ivan Rodriguez, notified US energy firm Occidental Petroleum about several contract violations alleged in a PetroEcuador report issued last August.
"Now, Occidental has 60 days to rectify the problems cited or provide evidence disproving the allegations," Rodriguez said.

Carlos Pareja, the former president of Ecuador's state-owned oil company, PetroEcuador, asked the Energy Minister last August to rescind an exploration and production contract with Occidental, saying the US-based oil and gas company has violated some terms of the contract.
In August of 2004, the Attorney General, Jose Maria Borja, also accused Occidental about numerous contract violations, including the unauthorized transfer of a 40 % stake in Block 15 to EnCana.

Occidental has denied the charges. According to Occidental, the alleged violation refers to a November, 2000 farm-out agreement registered with the US Securities and Exchange Commission, in which EnCana agreed to foot 40 % of investment costs in exchange for a 40 % share of production and profits. Farm-outs are a normal industry mechanism for oil firms to share exploration risks with other companies.
In August 2004, the Attorney General also said that he detected “irregularities" in Occidental's investment plans, including over-production and unauthorized drilling.

According to Ecuador's hydrocarbons law, a contract deemed null and void would force the immediate return of oil block concessions and mean the loss of guarantees enabling an oil firm to operate in the country, among other things. Block 15 holds estimated reserves of 233 mm barrels of oil. Occidental currently produces some 101,000 bpd from the block.
Occidental began its operations in 1985 with a service contract in which the firm would be reimbursed for its investments in Block 15. In 1999, that contract was exchanged for one in which the company took on all operating costs and the state took a share of production.

According to the company, Occidental has invested more than $ 900 mm in Ecuador over the last six years, an amount that hasn't yet been recovered.
Between July 1999 and June 2005, total revenues from Block 15 operated by Occidental have been $ 1.75 bn, of which 65 % has been paid to the state, the executives said.