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Friday, November 09, 2007

PetroEcuador Asks to Revoke City Oriente Contract

By Stephan Kueffner

Nov. 8 (Bloomberg) -- PetroEcuador, the state-owned oil company, said it asked the energy ministry to rescind the contract of the last U.S. oil company operating in Ecuador, saying it has refused to comply with a windfall profit levy.

City Oriente, owned by U.S.-based City Investing, owes the government $28 million for windfall oil profits, PetroEcuador president Carlos Pareja told reporters today in Quito. City Oriente produces 2,800 to 3,000 barrels a day in Ecuador, while the country as a whole pumps about 500,000.

The government and private oil companies split profits 50- 50 once the price of oil exceeds a threshold, under terms of a revenue-sharing law passed last year by the country's previous administration. Venezuela, Bolivia and Ecuador have redrawn contracts with oil companies to benefit from prices nearing $100 a barrel.

``This company, despite our requests, hasn't complied with a single payment since April 2006,'' Pareja said. ``There's nothing else for us to do other than to seek the rescinding of its contract.''

City Oriente can keep its contract if it makes the payments, Pareja said. The energy ministry will make the final decision about whether to revoke the accord, and there's no deadline, he added.

Officials from City Oriente weren't available for comment, according to a worker in the company's Quito offices who isn't allowed to give her name.

City Oriente said in November that it considers the law unjustified and is seeking international arbitration with the World Bank's International Center for Settlement of Investment Disputes.

Contract Conflict

The windfall law ``constitutes a unilateral modification of our participation contract,'' City Oriente said in a statement to the government, according to a document provided by PetroEcuador today. ``City Oriente won't carry out the payment of the notified sums until the conflict is resolved.''

Most other oil companies in Ecuador have made at least some windfall payments, Pareja said. The country's producers include PetroEcuador, Chinese-owned Andes Petroleum Co., France's Perenco SA, Repsol YPF, Spain's largest oil company, and Brazil's Petroleo Brasileiro SA.

Repsol owes Ecuador $2 million in overdue payments, Pareja said. He said he isn't seeking to revoke Repsol's contract to operate in the country as it has made some windfall payments.

A call to Repsol's media relations office in Madrid, made after the close of regular business hours, wasn't immediately returned. E-mails sent to three press officials listed on Repsol's Web site also weren't immediately returned.

99% Decree

President Rafael Correa, who took office in January, decreed last month that the state will take 99 percent of windfall profits in the future. While the 99 percent rule went into effect in mid-October, companies won't have to made payments at that rate until mid-December, Economy Minister Fausto Ortiz said at a separate event earlier today.

Correa's government wants to renegotiate contracts with the oil companies amid a surge in prices on international markets. Ecuador has offered to rescind the 99 percent rule if companies agree to new service contracts under which Ecuador would own the oil and they would get a fee for extracting it.

If City Oriente loses its contract, it will mark the exit of all U.S.-owned oil countries from Ecuador after Occidental Petroleum Corp. lost its contract in the middle of last year. Ecuador isn't singling out U.S. oil companies, Pareja said.

Occidental still owes Ecuador $31 million for the period the law was in force before the cancellation of the contract, he added.

To contact the reporter on this story: Stephan Kueffner in Quito at

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