Petróleos del Ecuador

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Petróleos del Ecuador

Post Office Box 5007
Quito
Ecuador
(2) 521436
Fax: (2) 569738

State-Owned Company
Incorporated: 1972 as Corporacion Estatal Petrolera Ecuatoriana
Employees: 4,700
Sales: US$1.20 billion

As a holding company, Petröleos del Ecuador (Petroecuador), Ecuador’s state oil corporation, is the country’s largest oil producer and is involved in all aspects of the industry, including exploration, production, refining, marketing, and exports. Pe-troecuador’s investments in crude oil exploration and production absorb huge financial resources; its 1991 budget of US$680 million for exploration and production reflects its status as the country’s largest institution. Petroecuador’s global investments for the years 1991 and 1992 are estimated at US$235 million and US$307 million respectively. Oil production capacity averaging approximately 290,000 barrels a day, combined with derivative oil products including gasoline, liquefied petroleum gas (LPG), jet fuel, kerex, diesel, and fuel oil, generates approximately $1.2 billion a year, of which 90% goes to the government. Despite Petroecuador’s profile as a major Latin American oil producer, its proven reserves, of about 1.5 million barrels per day; fall short of the region’s major oil producers, Venezuela and Mexico, with reserves of 5.8 million barrels per day and 5.6 million barrels per day respectively.

Ecuador had produced negligible amounts of oil since 1918, and at first the small industry attracted little attention. Initially the country’s production came entirely from the coastal area, with much of the exploration being carried out by the U.S. Texaco-Gulf consortium. In 1967, however, a major oil find was made in the Oriente area of Ecuador, the country’s most prolific region, and 1972 saw the completion of the trans-Andean pipeline. The prospect of production on a large scale brought changing attitudes towards foreign involvement in the oil industry. Renegotiations of concessions made prior to 1969 took place, and a new hydrocarbon law was introduced in September 1971, followed by the creation of Corporaciön Estatal Petrolera Ecuatoriana (CEPE) in 1972. It was the renegotia- tions that enabled CEPE to gain control of the Amazon region to the East and on the coast, as disgruntled foreign companies decided to disinvest. By renegotiating various contracts, such as the Texaco-Gulf contract, foreign company concessions were greatly reduced. CEPE strove to achieve control of all phases of the country’s hydrocarbon industry. By 1972, when the country began large-scale oil exports, the government’s nationalistic attitude towards its oil industry was further enforced through its hydrocarbon law. In broad terms, this law stated that the country’s deposits of hydrocarbons and associated substances, in whatever physical state, would be Ecuador’s inalienable patrimony. The state would explore and exploit deposits directly by means of CEPE, which could undertake this task either by itself, or by entering in joint or service contracts with national or foreign companies, or by forming mixed-economy companies. Moreover, it would be the right of the state to transport the hydrocarbons by oil and gas pipelines and to refine them.

A major step was taken by the government in June 1972, when it issued Decree 430 stipulating that those who had obtained concessions prior to 1971 would have to take account of the 1971 law, the most important provison of which was concerned with territory. CEPE’s creation in 1972 had the object of rationalizing the exploitation of hydrocarbons and using the wealth thus generated to power the nation’s economic and social development. The basic legal framework for the national oil company was defined in the Hydrocarbon Law of 1971.

CEPE’s efforts bore fruit, and in 1974 it achieved its biggest goal, responsiblity for administering 25% of the shares of the Texaco-Gulf consortium. Gulf, after a series of disagreements with the government, decided to pull out of Ecuador entirely, and in 1976 it sold all of its shares in the consortium and in the trans-Ecuador pipeline to CEPE, which was then left with 62.5% of the consortium, with Texaco controlling the remaining stake. This change marked CEPE’s debut as an oil company directly involved in production from the Ecuadorian Amazon region, and consequently export from that region.

In 1988 CEPE began suffering from unprecedented financial difficulties resulting from the 1986 world oil price collapse, which lost Ecuador US$1 billion in that year alone. CEPE’s woes were further compounded by the repercussions of Ecuador’s 1987 earthquake, which destroyed 40 kilometers of the trans-Ecuador pipeline, the main method of transport for crude exports, and affected 25 of its oil fields.

As a result, CEPE’s operations were closely scrutinized by the government. The government did not like what it found, and in August 1989 President Rodrigo Borja Cevallos presented an emergency decree to Ecuador’s Congress for the restructuring of the national oil company. The president’s reform law, aimed at “dynamizing the hydrocarbon industry,” was given congressional approval and became public on September 26, 1989; the restructuring of CEPE into a holding company under a new name was approved. Thus CEPE’s legal charter was changed to that of a holding company, consisting of six affiliates—subsidiaries—with the new name of Petroecuador. Its structure, has enabled it to act with autonomy and efficiency, not experienced before in the bureaucratic structure of CEPE. Within a global context, some consider Petroecuador to be riddled with the inefficiency of tight governmental control. Moreover, the division of the company into subsidiaries was also aimed at reducing and controlling the power of the 3,500-strong union which had been vocal against the role of foreign companies in Ecuador’s oil sector.

Under its new structure, Petroecuador operates six subsidiaries, of which three are permanent and three are temporary. Its permanent subsidiaries are Petroproduccion, for exploration and production; Petroindustria, for refining; and Petroco-mercial, for domestic and foreign sales. Its three temporary subsidiaries are Petrotransporte, set up to manage the trans-Ecuador pipeline, which was previously owned by CEPE but operated by Texaco under the CEPE-Texaco consortium; Petropeninsula, set up to manage the Anglo and Repetrol refineries; and Petroamazonas, created to manage the operations of the CEPE/Texaco consortium. Petroecuador also owns five refining plants: Esmeraldas, La Libertad, Amazonas, Lago Agrio, and Complejo Shushufindi, which together are capable of processing 151,460 barrels per day. The CEPE-Texaco consortium, operating in the Oriente field, produces the majority of Ecuador’s oil and represents approximately 70% of Ecuador’s total reserves. The creation of Petroecuador’s temporary subsidiaries forms part of major petroleum policy guidelines set up during President Borja’s electoral campaign and enforced during his presidency.

According to these guidelines, Petroecuador, pursuant to the contractual stipulations, was to undertake operations of the Texaco consortium as of July 1, 1990, through its subsidiary Petroamazonas; the Anglo refinery was to become Petroindus-trial property as of August 1990; the trans-Ecuador pipeline was to be operated by Petrotransporte as of October 1989; production levels of existing fields would be adjusted, taking into account both technical and economic aspects; a new law would be prepared for Petroecuador to operate autonomously as a business. Commitments made by the government with the international companies that had signed service contracts for hydrocarbon exploration and exploitation would be respected. However, the state oil industry’s nationalistic stance was slightly reversed as the government headed by Borja, desperate to boost reserves, began to retreat from its nationalistic oil policy which characterized his campaign and the early part of his presidency.

While the company retains tight control over the country’s oil industry and has no competition, it does not work the oil fields singlehandedly. Foreign firms are responsible for 85% of Ecuador’s exploratory drilling under risk service contracts. These contracts, between Petroecuador and international oil firms, grant foreign investors substantial paybacks and returns from their service agreements, while supplying Petroecuador mainly with financial and technical services for exploration and development. Petroecuador retains the ownership of resources and management control. At the same time the government attempts to attract the foreign investment needed for exploration, as company engineers point to a significant natural production decline in the company’s existing fields.

As well as supplying Ecuador with more than 85% of its internal consumption, Petroecuador exports approximately 160,000 barrels per day of oil, which, coupled with derivative exports, represent 45% of Ecuador’s total exports. During 1990, receipts from crude oil and refined product exports reached US$915 million. A 10% increase over the previous year’s exports resulted from the onset of the protracted Gulf crisis, which found Petroecuador tapping into its stocks to take advantage of inflated world oil prices. Oil output in 1990 was approximately 285,000 barrels per day, with an average export volume of 175,000 barrels per day sold mainly to the United States’s eastern and western coasts, Asia, and the Caribbean.

The contract with Texaco is the sole joint venture between the state oil corporation and a foreign oil company. This contract expires in 1992, when all oil production will be state controlled.