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Wednesday, September 19, 2007

Ecuador Wants Petrobras To Testify On Alleged Contract Issues

QUITO, September 18, 2007 - (Dow Jones via Ecuadorean officials want Brazil's state-run oil company Petroleo Brasileiro SA (PBR), or Petrobras, and Japan's Teikoku Oil Co., a unit of Inpex Holdings Inc. (1605.TO), to testify in court about alleged contractual irregularities, they said Tuesday.

The national secretary against corruption, Jose Luis Cortazar, and Attorney General Xavier Garaicoa have asked judges in the province of Pichincha, where Quito is located, to order the testimony. By law, the judges have to comply with the request, and testimony is expected in the next few days.

In a press release, Cortazar's office said it is investigating whether Petrobras broke the terms of its exploration contract in Ecuador and transferred exploration rights to Teikoku "without previous authorization from the Ministry of Mines and Energy."

Petrobras' contract in Ecuador could be terminated if irregularities are substantiated, the press release said.

In May 2005, Ecuador canceled U.S.-based Occidental Petroleum Corp.'s (OXY) contract, alleging similar irregularities and stake transferring. Ecuador and Occidental have been fighting in an international arbitration court ever since the decision.

Petrobras and Teikoku signed an agreement in January 2005 to transfer 40% of Petrobras' rights in Amazon oil blocks 18 and 31 and Petrobras' stake in the private oil pipeline known as OCP.

Garaicoa said Tuesday he is trying to determine whether the transfers occurred before or after the Energy Ministry's authorization. He declined to give more details about his investigation.

According to the anti-corruption secretary, if the company representatives refuse to testify, they could be taken to the judicial chambers by force or treated as if they had confessed to the irregularities.

Petrobras executives told Dow Jones Newswires the company hasn't been officially notified of the investigation and declined to comment. Teikoku's officials could not be immediately reached.

In the past, Petrobras officials have said they acted with official consent from the Energy Ministry.

The Brazilian company produces about 32,000 barrels of oil a day in Ecuador, of which 51% goes to the government as part of the exploration contract.

Union leaders at Ecuador's state-run oil firm, Petroecuador, and other labor and leftist leaders have asked numerous times for an end to Petrobras' contract, citing the alleged share transfer irregularity and saying a joint exploration effort between Petrobras and Petroecuador should end because the oil reserves belong to Petroecuador.

In June, then-Energy Minister Alberto Acosta wrote a letter to President Rafael Correa saying that Petrobras had broken the terms of its contract in at least six instances. After the letter, Petroecuador labor leaders asked Correa to end the joint operation with Petrobras, but no official steps were taken against the Brazilian company until Tuesday.

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