Ecuador To Create Co To Operate Former Occidental Fields

QUITO -(Dow Jones via CNN) June 20, 2008 - The state unit that operates the oil fields formerly owned by Occidental Petroleum Company (OXY) will be converted into Petroamazonas SA, an independent state-owned company, in August, Wilson Pastor, the unit's manager, told to Dow Jones Newswires Friday.

Ecuador canceled Occidental's operating contract in May 2006, claiming the company broke several of the terms, particularly by transferring a 40% stake in its Ecuadorean projects to Canada's EnCana Corp. (ECA) without Energy Ministry approval.

To operate Occidental's fields, the government of former President Alfredo Palacio created the "Special Unit of Administration and Temporary Operation," which will become Petroamazonas SA.

Petroamazonas SA will have its own rules and its own directory, integrated by a representative of the president, the country's ministers of finance and oil, and state-owned oil company Petroecuador's president and vice president.

Pastor said Petroamazonas will administer and operate the former Occidental fields, known as Block 15, as well as the state's Panacocha field, signing a services contract with Petroecuador. The new company won't have assets. Its function will be to produce oil at cost.

Panacocha should begin producing in the last quarter of 2008 or at the beginning of 2009.

The new company, when formed, will manage the $838 million budget approved by Petroecuador's board for Block 15 and Panacochaearlier this year for 2008.

This budget includes $68 million to begin developing the Panacocha field and $ 50 million to improve roads to access Block 15. Between January and June, the Block 15 administrator has already spent $138 million.

According to Pastor, Block 15 will produce 104,000 barrels a day at the end of the year. Right now its production is around 94,000 barrels a day.

Petroecuador would own an 80% stake in Petroamazonas, and Petroecuador's production subsidiary, Petroproduccion, would own the remaining 20%.

Panacocha is located in the Orellana province, northeast of the capital, Quito.

-By Mercedes Alvaro, Dow Jones Newswires