Ecuador seeks new oil field operator, PdV ejected

OREANDA-NEWS. July 27, 2016. Ecuador's government is looking for a new operator for the 72,000 b/d Sacha oil field after the effective folding of a joint venture between Ecuadorean state-owned PetroAmazonas and its Venezuelan counterpart PdV.

The demise of the Rio Napo joint venture is the latest sign of cash-strapped Venezuela's broader regional retrenchment, even in closely allied countries such as Ecuador.

The Operaciones Rio Napo joint venture, in which PetroAmazonas has 70pc and PdV 30pc, has entered a bankruptcy process ordered by Ecuador's corporate regulator on 5 April 2016.

According to official documents seen by Argus, the regulator assumed that Rio Napo was inactive and ordered the firm's liquidation, asserting that the company had not issued audited annual balance sheets since 2013.

Rio Napo has operated Sacha since November 2009 under a 15-year service contract that is now poised to be formally terminated. Production at the field has not been affected, because PetroAmazonas continues to operate it.

Ecuador is currently in talks with five companies to find a new Sacha operator that would invest at least \\$1.5bn to boost output at the legacy field.

A government official close to the negotiations told Argus that among the companies interested in securing a contract for Sacha are Lukoil's subsidiary CJSC Kama-Oil, US Halliburton and Lebanon-based Gente Oil. Lukoil is said to be the frontrunner.

PdV's imminent withdrawal is consistent with the company's neglect of regional upstream and downstream projects that it can no longer afford to execute. The company has nonetheless resisted Rio Napo's bankruptcy in an apparent effort to retain operating fees.

PdV Ecuador filed a legal complaint in June in an unsuccessful attempt to halt the liquidation process and prevent PetroAmazonas from terminating the contract, alleging that Rio Napo was unable to submit the missing balance sheets because the comptroller's office did not comply with its obligation of hiring an auditor. A court in Quito rejected PdV's motion.

In court documents seen by Argus, PdV Ecuador claims that it will be "gravely harmed as a shareholder" if Rio Napo is liquidated and that it could lose \\$305mn it has invested in the joint venture since 2009.

PdV has not commented on its Ecuador operations.

"Ecuador is seeking a more efficient operating alternative, fresh investment and new technologies for Sacha," strategic sectors minister Rafael Poveda told Argus in a recent interview.

Ecuador is still defining a management model for Sacha, but Rio Napo will not be involved. Poveda said a new agreement will mirror a 20-year service contract signed on 15 December between PetroAmazonas and oil services giant Schlumberger to increase production at the 70,000 b/d Auca field.

Schlumberger has pledged to spend \\$4.9bn over the next two decades to boost Auca production by 20,000 b/d. The company will receive a \\$26/bl fee for existing and new production. The firm made an initial \\$1bn capital outlay, and will spend an additional \\$2.1bn in the first nine years of the contract, including \\$1.1bn in 2016-2019, and \\$1.8bn to cover operating costs at Auca over the life of the contract.

Bringing in a new operator for Sacha will help relieve PetroAmazonas from the financial burden of paying a fee to Rio Napo for running the oil field, a government official close to the negotiations said.

In 2015 PetroAmazonas disbursed some \\$167.1mn to Rio Napo, equivalent to 13pc of the company's operating expenses.

Rio Napo's breakup is a bleak portent for the 300,000 b/d Pacific refinery project that Ecuador's state-owned PetroEcuador is supposed to develop with PdV in the existing 51:49 RDP-CEM joint venture. The \\$13bn project would be built in Manta province.

Poveda said PdV is seeking to reduce its participation in the joint venture to 20pc, as Quito negotiates with a pool of Chinese banks led by Bank of China to fund the project and with a consortium headed by South Korea's Hyundai and China's Sinomach for its construction.

The complex was originally scheduled to start operations in 2013.