Repsol accepts Ecuador new contract rules for oil sharing

Mercopress, March 16, 2009

Ecuador’ government owned Petroecuador signed a transitional contract with Repsol-YPF, giving the Ecuadorian government a bigger share of the Spanish oil company’s profits for one year and paving the way for new fee-for-service deal.

The “modificatory contract” was signed last week by Petroecuador CEO Rear Adm. Luis Jaramillo and the manager of Repsol-YPF Ecuador S.A., Sergio Affronti.

The contract extends Repsol’s presence in the country through 2018 and covers its licenses to Block 16 and another field it shares with Petroecuador, Bogi-Capiron, which are located in the Ecuadorian Amazon and produce a combined total of 40,000 barrels of oil per day.

The accord will be in force for one year, after which time Repsol, like all private companies operating in Ecuador, must negotiate a new fee-for-service contract that allows the country to keep all oil produced.

The agreement states that Repsol and its partners in Ecuador – including Taiwan’s OPIC and China’s Sinochen – must make new investments worth 315 million US dollars over the next nine years to sustain current production and increase it in the future.

Repsol-YPF also has pledged to pay some 447 million USD in back windfall-profits tax, a levy first imposed in 2006 and raised even higher by the current populist President Rafael Correa.

The debt will be paid off over a period of five years, with a first payment of 89 million USD this week.

Affronti said the contract was the result of a “great effort” at negotiation between the two sides, adding that Repsol has invested some 2 billion USD since it began operating in Ecuador.

“Repsol and its partners in the block are prepared to continue ensuring operative efficiency, social responsibility, care for the environment and the safety of the people who work at the company,” Affronti said.

According to the manager, taxes paid by Repsol in Ecuador have provided some 1.5 billion USD to government coffers.

Energy and Mines minister Derbis Palacios said the two parties had reached a positive agreement and that it is “important that the company will continue working here,” in Ecuador.

Under the new interim deal, “the higher the price of oil, the greater the share (the state has of the production from Repsol’s wells) and we’ll have better revenues” the minister

He also said under the temporary contract, Ecuador will receive 70% of Repsol’s windfall profits, down from 99%.

Repsol-YPF said Friday that the accord reached with Quito increases the value of its assets in the country and is an “important” step in the process of normalizing its relations with the Correa administration.

In a statement, the company said the agreement, which includes a commitment to invest 173.5 million USD through 2018, represents progress in the process of working out a new legal framework for Repsol’s operations in Ecuador.

Repsol added that the extension of its presence in Ecuador to 2018 “increases the value of the company’s assets and investments in the country.”

Ecuador produces some 500,000 barrels of crude oil a day, 60% of which exploited by the state and the remainder by a dozen private companies.