Ecuador oil reserves and pipeline transport capacity is big enough to produce as much as 850.000 bpd. Therefore there is a significant opportunity to double the present production and export volumes.
Oil & Gas ? Ecuador
Oil & Gas
Sebastian Sauleo C. Trade and Investment Officer British Embassy Quito
Last revised February 2009
Whereas every effort has been made to ensure that the information given in this document is accurate, neither UK
Trade & Investment nor its parent Departments (the Department for Business, Enterprise & Regulatory Reform, and the
Foreign & Commonwealth Office), accept liability for any errors, omissions or misleading statements, and no warranty is
given or responsibility accepted as to the standing of any individual, firm, company or other organisation mentioned.
Published - 2009 by UK Trade & Investment.
Crown Copyright ©
Oil & Gas ? Ecuador
Table of Contents
CHARACTERISTICS OF MARKET 6
KEY METHODS OF DOING BUSINESS 7
MORE DETAILED SECTOR REPORTS 8
CONTACT LISTS 9
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Oil & Gas ? Ecuador
Ecuador is the fifth-largest producer of oil in South America and the smallest oil producer in
OPEC, with an assigned production quota of 520,000 bbl/d, from which 368,000 bbl/d are
exported and 152,000 bbl/d consumed locally. The oil industry represents 15 percent of gross
domestic product and 40 percent of the country?s exports. Recoverable oil reserves are
estimated to be of about 4.6 billion barrels. Most of the oil production is extracted in the
environmentally fragile Amazon region. Petroecuador, the Government owned oil company, is
responsible of about 46 percent of the country?s crude oil production. The rest is produced by
private operators with the largest currently being Repsol-YPF representing 11 percent of the
country?s total crude oil production. The second most important producer is Andes Petroleum
whose production represents 10.9 percent of national oil output. Andes Petroleum is a
consortium led by the Chinese National Petroleum Corporation (CNPC) that acquired assets in
September 2005 formerly owned by EnCana (Canada.) Other important producers are Agip
(ENI-Italy), Petrobras (Brazil) and Perenco (France). While overall oil production has increased
in the past ten years, Petroecuador's output levels have actually declined, highliting the
importance of private oil companies. On the downstream side Ecuador has three oil refineries,
with a combined capacity of 176,000 bbl/d. Distribution is carried out by a group of foreign and
local companies including Petrocomercial owned by Petroecuador.
In January 2007, Rafael Correa became President of Ecuador. Correa?s overall policy seeks a
larger government participation in the oil sector, either through higher tax and royalty
payments or equity stakes in production projects for Petroecuador. The Government has
pushed foreign oil companies to give the state a bigger share of oil revenues. However falling of
oil prices have conspired against the development of energy sector projects and the
Government has slashed public investment from US$4.8 billion to US$3 billion. In order to
minimise alleged corrupt past practices and thereby improve Petroecuador's efficiency the
Government has assigned the administration of the state owned Company to the Navy. The
Navy has since appointed Wood Mckenzie (UK) to design the restructuring of Petroecuador and
review all company contracts.
Ecuador oil reserves and pipeline transport capacity is big enough to produce as much as
850.000 bpd. Therefore there is a significant opportunity to double the present production and
export volumes. The Government is interested in increasing annual production by 30.5 million
barrels over the next ten years by improving the output of mature fields through new
technology. In the downstream, President Correa and Venezuela?s President Chavez signed a
letter of understanding for the construction of a new refinery in Ecuador. On October 8
Ivanhoe Energy (Canada) signed a contract with Petroecuador to develop Pungarayacu heavy-
COUNTRY ATTRACTIVENESS FOR DEVELOPMENT
Ecuador?s most important Oil and Gas objectives are:
? To increase production by about 18,500 B/pd by rehabilitating 47 wells in the most
important fields such as, Lago Agrio, Shushufindi , Sacha, Auca and Libertador.
? To increase production by 90.000 B/pd in further developments of the major fields and
new explorations in marginal fields. The investment required is of about USD 486
? To build a new refinery to process 300,000 Bpd.
? To build an onshore LPG storage compound.
? To explore and develop offshore gas fields.
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Oil & Gas ? Ecuador
The Ishpingo-Tapococha-Tiputini (ITT) block is the most interesting and challenging block for
development. It is located in the heart of Ecuador's Amazon region, and contains an estimated
900 million barrels of proven reserves, with potential recoverable reserves possibly as high as
1.3 billion barrels. Analysts predict that the block could produce at least 190,000 B/pd. The ITT
block reportedly contains a variety of heavy crude oil of around 14 API, so any oil producer
would need to blend the crude with lighter hydrocarbons before shipping it via Ecuador's
pipeline network. There has been significant opposition to oil development in Ecuador by
indigenous groups, which object to increasing oil production in the Amazon region on
environmental grounds. These groups have repeatedly obstructed exploration and production
activities in Ecuador's eastern region. As an alternative to the development of the ITT block,
President Correa is promoting the new idea that companies purchase a new form of carbon
offsetting certificates to leave the oil in the ground and contribute to reduce global warming.
The new plan replaces the original idea that the international community be asked to contribute
$350 million each year over a ten-year period, which represented the Government's estimate of
one-half of the revenues that it could earn from its exploitation.
Drilling in Ecuador is generally straightforward with vertical well depths of around 10,000 feet
or less in the Oriente, with average drilling times of 20-25 days. In the Coastal or Peninsula
area, wells are in the order of 1000 - 3000 feet in depth, and can be drilled very quickly. With
the increasing contracting out of packages of services in drilling operations, there is a market
for overall well contract management, and also for full turn-key operations. However the latter
approach does have problems because of environmental concerns and restrictions on
operations, particularly in the Oriente area.
Directional drilling has a good potential due to the fact that there is considerable pressure to
reduce the number of drilling locations in the Amazon region. Development of Block 31 from
Petrobras and of the ITT complex will almost certainly also be by directional drilling from pads.
Schlumberger and Baker Hughes currently provide directional drilling services in Ecuador. There
will also be an increasing number of horizontal well completions to improve well productivity
and reservoir drainage.
Virtually all the exploration and development drilling work is now being done in the Oriente
area, with an increasing resistance to road construction, and the size of well pads, because of
environmental concerns. Therefore there is demand for helicopter transportable drilling rigs,
including the use of coiled tubing drilling. Likewise there would be an interest in slim hole
exploration well drilling, with minimal casing programmes.
Well completions is another area of opportunity, because of the restrictions in access to
development wells if there are no roads. Anything that could avoid the mobilisation of people
or equipment must be of interest, so smart well technology could be justified on the basis of
reducing overall costs
Another area of interest is in cuttings handling and cleaning, again because of the very sensitive
environmental issues in the Oriente area. Water run off treatment at drilling sites there is a
major problem. There will also be opportunity for the use of environmentally friendly drilling
The majority of wells in Ecuador are on pump, but gas lift is also used by Petroproducción.
Many of the pumps, particularly in the old coastal fields, are sucker rod pumping units. A large
number of the producing wells in the Oriente use ESPs, including the bulk of the former
Contractor and Licence Holder wells, and many of the Petroproducción wells. The ESPs used
appear to be mainly Centrilift with some Reda and some Wood Group ESP Inc units at
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Oil & Gas ? Ecuador
Petroecuador oil fields. Hydraulic or jet pumping is also employed by at both Petroproducción
and AGIP on some wells.
Pump maintenance is a major issue, partly because of corrosion problems, but also more
general failures. Operators have experienced a lot of problems, particularly in the early stages
of field life. The average run life of Electrical Submersible Pumps is poor by UK standards, and
this could probably be improved by more careful installation.
There are currently a very large number of workovers, about half carried out by
Petroproducción, with most requiring the use of a rig or mast. There must be opportunities for
more coiled tubing interventions, particularly on isolated pads. This would be particularly true
for the Villano Field where there is no road and only helicopter access. It seems likely that
many future field developments will also have limited access.
Tubular and well head corrosion is also a major problem in some fields, and some operators are
now completing wells with stainless steel. The downhole corrosion problem carries over into
flow line problems with lots of possible leaks, and resultant potential pollution of the surface
water system in the Oriente.
Work-over fluids are also an area of opportunity, as there have been problems with reservoir
damage caused by using conventional brines.
Environmental concerns in the Amazon area, and indeed elsewhere, have had a very high level
of publicity, particularly in the actions raised against Texaco over claims of pollution in their
former concession area.
All new licensees in the Oriente are required to undertake, and submit for approval, an
environmental impact study before they can undertake any activity on the ground. Thereafter
annual environmental plans and budgets have to be submitted to the National Environmental
Bureau for approval, and an annual report on actual activity also has to be submitted. The list
of controlled or banned activities is quite lengthy.
There is a market for individual environmental impact studies but this would need to be
satisfied locally and require a local partner or representative to be carried out. However there
may be opportunity for occasional system audits and for advice on overall environmental issues.
Oil spills are an obvious problem in the Amazon area, and clean-up and containment expertise,
particularly in an advisory role might have some application.
Given the lack of established major power supplies to the Oriente, there are obvious
opportunities to provide oil company operators and the local communities with electricity. In
the absence of sufficient gas in some areas, operators have been generating power using
expensive diesel, but many are now turning to power generation using crude oil burning
engines. Given the very high cost of diesel delivered to the Oriente, there may still be
UKTI publishes international business opportunities gathered by our network of British
Embassies, High Commissions and Consulates worldwide. These opportunities appear in the
Opportunities portlet on the relevant sector and country pages on the UKTI website. By setting
up a profile you can be alerted by email when relevant new opportunities are published. New or
updated alert profiles can be set in My Account on the website.
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Oil & Gas ? Ecuador
CHARACTERISTICS OF MARKET
Ecuador?s political instability has limited the capacity for the country to fully exploit its relatively
large oil reserves. However, the government recognises the importance, and current
dependence, on oil for its plans to develop the economy. A widespread view is that previous
governments failed to invest sufficiently in exploration and well recovery, preventing the current
government from benefiting from the windfall oil prices enjoyed until October 2008. The
Government policy towards investment is now to favour joint ventures with national oil
In the upstream Ecuador?s oil production has been decreasing due to lack of investment in the
Government owned oil fields and controversial judicial decisions affecting private oil company
investments, including the decision in 2006 by the Ecuadorian Government to confiscate
Occidental Petroleum assets. Occidental has since launched an arbitration claim against the
Ecuadorian government seeking compensation. Downstream, Ecuador must still import refined
petroleum products owing to the fact that domestic refining capacity does not meet demand.
Anther controversial decision occurred in October 2007 when President Correa signed a decree
establishing a 99 percent windfall tax on oil company profits, up from the 50 percent rate
established in 2006. The tax takes effect whenever Ecuador?s oil export basket exceeds $24 per
barrel; while Ecuador?s export basket trades at a substantial discount to world benchmark crude
prices like WTI, it was much higher than this threshold level in 2007. The decree offered an
alternative to the higher tax levels: oil companies could agree to transition their projects to
service agreements, where they would produce oil on behalf of the government for a fee.
However, under these deals, the companies would transfer existing investments at the field to
the government and would no longer be able to book (for accounting purposes) oil reserves at
the field. At the time of this report some companies continue to negotiate the terms of the new
policies with the Ecuadorian government whilst others have reported the decision to leave the
country. In order to stabilise prices OPEC requested all members to reduce its own production.
Ecuador is poised to force foreign energy investors to absorb Ecuador's portion of the
production cut agreed on by OPEC. The most affected currently are AGIP and Perenco, and the
President has started to criticise Repsol-YPF for lack of planned investment.
Ecuador produces two varieties of crude oil:
? Oriente which is a medium-heavy, medium-sour crude, with a 28.8° API and 1% sulfur
? Napo which is a heavy, sour crude, with a 19.2° API and 2% sulphur content.
Ecuador has two major oil pipelines. The first is the Sistema Oleducto Trans-Ecuatoriano (SOTE)
owned by Petroecuador with a transportation capacity of 400.000 b/pd of Oriente type oil.
The second oil pipeline is the Oleducto de Crudos Pesados (OCP). The 300-mile, 450,000-bbl/d
OCP mostly parallels the route of the SOTE. The OCP is a heavy crude oil pipeline owned by a
consortia formed by Repsol, Andes Petroleum, Petrobras and Perenco.
Ecuador utilises also the TransAndino pipeline which connects Ecuador's oil fields with the
Colombian port of Tumaco, carrying about 50,000 bbl/d of Ecuadorian oil.
Petroindustrial is the industrial branch of Petroecuador. The country has five refineries: La
Libertad; Esmeraldas; Amazonas; Lago Agrio; and the Shushufindi Gas Plant. Refining capacity
is of about 170.000 B/pd. Ecuador is a net importer of refined oil products, Correa?s
government has made it a priority to increase domestic refining capacity by improving the
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Oil & Gas ? Ecuador
efficiency of Esmeraldas (100,000 bbl/d), the largest refinery in Ecuador located on the Pacific
Natural Gas and LPG
As of January 2006 Ecuador's Natural gas reserves account for about 345 billion cubic feet
(Bcf.) Ecuador is however a net importer of LPG which is subsidised for household consumption
and distributed in bottles of 15 kg. LPG capture, production and distribution infrastructure is
practically negligible. Most of natural gas associated with oil production is flared off. The only
large-scale natural gas project is the Amistad field located in the Gulf of Guayaquil. The Amistad
field produces 30 million cubic feet per day and all production is used for power generation of a
power plant located in Machala at the southern coast of Ecuador.
KEY METHODS OF DOING BUSINESS
In general terms investing in Ecuador is relatively straightforward but time consuming, and
there are very few areas where foreign investment is restricted or barred. The World Bank
report on international ease of doing business ranks Ecuador at place 136 in 2009 three
positions less from 2008. If a company wishes to tender for a Government or Petroecuador
contract then they must have a legal representative in Ecuador. In order to be invited to bid for
Government projects Companies must be registered at Contratanet web site www.proctic.org
This is not necessary for work with a private company, or if simply selling a product, but it is
still recommended that a company should consider an agent or legal representative.
If any business is won, then a company should establish a presence with the option of a
separate company, a branch office, a joint venture or a formal agency agreement, depending
largely on the nature of the business. Any foreign company who wishes to participate in bids
with the Ecuadorian State and in bids called by Petroecuador or any of its branch companies
must have a legal representative. The legal representative generally shall act in any public bid
for the purchase of the bid bases and the presentation of the proposal. The hydrocarbons law
establishes the various forms of contracts, the most important ones are:
The participation contract allows the contractor to explore and exploit hydrocarbons in an
assigned area owned by the State through Petroecuador. The private contractor makes all
necessary investment and is responsible for all costs and expenses required for exploration,
development and production. In return the contractor is entitled to a participation in the
production. By prior agreement with Petroecuador, the contractor may also be paid in cash.
The association contracts are those in which Petroecuador and a private company associate
together to explore and exploit hydrocarbons. The State contributes with rights over areas, oil
fields, hydrocarbons and/or facilities and the private company undertakes the obligation to
make the necessary investments to develop the oil field. In return the association contract
establishes the participation share in production. If the associated company incurs in expenses
or investments that are higher than the minimum established, the scale of participation in the
results of production fixed in the association contract will not be changed.
Work or Service Contracts
Contracts for specific work or services are those in which juridical persons undertake to perform
for Petroecuador specific work or services
The tax system is relatively straightforward. However the Global financial crisis has prompted
the Government to introduced new restrictions on imports, as well as tariff and non-tariff
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Oil & Gas ? Ecuador
barriers. Up to date information can be obtained for the British Embassy in Quito. At the
moment the main taxes are:
? Income tax (IR)
? Financial Transactions Tax (ICC)
? Regulatory Agency Contributions
? Value Added Tax (IVA)
? Special Consumption Tax (ICE)
There are also local (municipal) property taxes or rates. There is also a requirement to
distribute 15% of net income to employees. General corporate Income Tax is currently 25%,
but oil exploration and production companies pay 44.4%. Individual Income Tax ranges from
0% for annual incomes of less than $5,000 to 25% for incomes over $40,000. The Financial
Transactions Tax is currently 0.8% and there is no remittance tax on dividends paid overseas.
In general therefore a service company would pay 25% on net profit, but is of course subject to
IVA, currently 12% and to assets taxes of around 0.25%. In addition there are Social Security
contributions, being currently 9.35% for individuals and 12.15% for companies, as a
percentage of each employee?s annual salary.
It is recommended any company holding a patent, trade mark or other intellectual property
should register these in Ecuador to avoid any infringement.
Other background information on doing business in Ecuador can be found on UKTI?s website.
Simply go to the Ecuador country page where you will find information on:
? Economic background and geography
? Customs & regulations
? Selling & communications
? Contacts & setting up
? Visiting and social hints and tips
MORE DETAILED SECTOR REPORTS
Research is critical when considering new markets. UKTI provides market research services
which can help UK companies doing business overseas including:
? Overseas Market Introduction Service (OMIS). Bespoke research into potential
markets, contacts and support during your visits overseas.
? Export Marketing Research Scheme. Advice on market research and help to
contact subsidised market research administered by the British Chambers of Commerce
on behalf of UKTI.
Contact your local International Trade Advisor if you are interested in accessing these services,
or for general advice in developing your export strategy.
When considering doing business in Ecuador, it is essential to obtain legal, financial and
taxation advice. A useful contact list of lawyers and other relevant professional bodies as well as
further information on the fire, police & security sector in the country is available from the
Embassy www.britembquito.org.ec. For further details, please contact:
Trade and Investment Officer
British Embassy Quito
Naciones Unidas Y Rep. de El Salvador
Citiplaza Building 14 Floor
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Oil & Gas ? Ecuador
Tel +5932 2970800
EIA - Historical Energy Data on Ecuador
UK Trade & Investment?s Tradeshow Access Programme (TAP) can help eligible UK businesses
take part in overseas exhibitions. Attendance at TAP events offers significant benefits:
? possibilities for business opportunities both at the show and in the future
? a chance to assess new markets and develop useful contacts
? grants are available if you meet the criteria
? UKTI staff overseas will be available to assist delegates
Find out if you are eligible to apply to attend this event, and more about the support UKTI can
offer, on the UKTI Market Entry web page.
Details of TAP events can be found in the Events portlet on the Ecuador page.
Other Market Visit Support may be available via your local International Trade Advisor.
Senior Trade and Investment Officer
Av Naciones Unidas and Republica de El Salvador 14th floor
Tel: 00 593 22 970 800
Fax: 00 593 22 970 809
UK TRADE & INVESTMENT
Head of Unit
Oil & Gas: Americas
UK Trade & Investment
300 Bath Street
Glasgow G2 4 DX
Tel: +44 (0)141 228 3690 (direct)
+44 (0)207 215 8000
Fax: +44 (0)141 228 3627
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Oil & Gas ? Ecuador
UKTI?s International Trade Advisers can provide you with essential and impartial advice on
all aspects of international trade. Every UK region also has dedicated sector specialists who can
provide advice tailored to your industry. You can trace your nearest advisor by entering your
postcode into the Local Office Database on the homepage of our website.
For new and inexperienced exporters, our Passport to Export process will take you through the
mechanics of exporting. An International Trade Adviser will provide professional advice on a
range of services, including financial subsidies, export documentation, contacts in overseas
markets, overseas visits, translating marketing material, e-commerce, subsidised export training
and market research.
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