The Ecuadorian government had signed a contract allowing the company to exploit oilfield blocks 16 and 67 located in the Amazon. However, the executive of President Guillermo Lasso is now refusing to negotiate the extension and change of terms of the contracts.
The company Petrolia Ecuador claims its right to a direct negotiation committee and threatens to resort to international arbitration. In addition, it accuses the government of causing it a huge loss by refusing to assume the $290 million debt.
On this topic, the Department of Energy states:
“The state owed the contractor $290 million in unpaid rates. Upon termination of the contract due to expiration, this debt is extinguished.”
However, Petrolia Ecuador has fulfilled its part of the bargain by producing approximately 14,000 barrels of oil per day for the country. However, as allowed by law, the government has accumulated its debt by not paying when oil prices were below a certain amount.
With the contracts expiring on December 31, 2022, the company must now make do with the $60 million in royalties paid over the past two years. The remaining $290 million will be forgiven at the end of the contracts. However, Petrolia Ecuador will also use a mediation process before taking more severe legal action.
In the meantime, the management of the former operator is doing its best to limit the extent of the damage.
“The transfer is underway. We are paying the workers, the majority of whom were hired by Petrolia Ecuador. We are handing over the equipment, materials and assets,” said Ramiro Paez, Director of the company.
Despite the protests of the former operator, the government intends to nationalize the oil fields at its discretion. Thus, he announced that Petrolia Ecuador, the national company, should return blocks 16 and 67, in the Amazonian province of Orellana. The President of Ecuador, Guillermo Lasso, also refused to accept the terms of the negotiation to extend the contracts and to modify the conditions of operation.
The Ministry of Energy has already launched an international tender to find a new private operator in the short term. There could be many interested parties, as the Orellana province blocks together would represent annual revenues of $150 million, assuming an average oil price of $64.8 per barrel in 2023.