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Thursday, July 31, 2008

Ecuadorean gov't, City Oriente cancel oil contract

IHT, July 31, 2008

QUITO, Ecuador: The Ecuadorean government said Wednesday that it has reached an agreement with U.S.-backed oil company City Oriente to end its operating contract.

Oil and Mines Minister Galo Chiriboga told a news conference that Ecuador will pay the company US$69 million and City Oriente will withdraw an arbitration suit contesting back taxes claimed by the government.

Chiriboga said Wednesday that the company will hand over its jungle oil wells to the government in April 2009. City Oriente is a Panama-based company backed by U.S. capital.

City Oriente pumps about 3,000 barrels a day in Ecuador — less than 1 percent of the country's daily output of around 500,000 barrels. City Oriente's contract was set to expire in 2021.

"This has been an open, frank process that has allowed us to show the country that agreements are possible, even to end contracts," Chiriboga said.

"It's very gratifying ... to have reached a solution with good terms to this conflict with the state," said City Oriente's chief executive, Jose Paez.

City Oriente had filed a claim with the World Bank's International Center for Settlement of Investment Disputes, contesting back taxes claimed by the government after it boosted its share of extra revenues from 20 to 50 percent in 2006.

President Rafael Correa's government is currently renegotiating the contracts of four other foreign oil companies, in a bid to boost its share of the nation's oil income.

Correa, a close ally of socialist Venezuelan President Hugo Chavez, signed a decree last year that nearly doubled to 99 percent the state's share of windfall oil profits, which are earnings on oil sold above prices fixed in company contracts.

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