Repsol YPF, (Repsol) estimates that its oil production in Ecuador will come down to around 44,000 barrels per day (bpd) in 2009. This shows a drop of over 9,000 bpd from the last year’s average production of 53,917 bpd, the company's Ecuadorian production manager told Reuters. The company is infusing additional funds into its fields in the oil-rich equatorial nation.
The reduction in output was reportedly due to the aging fields, which show about 20% decline in a natural manner. The trends of decline in production are already visible.
As per the latest research report published by GlobalData in August 2009, Repsol’s annual production in Equador in 2008 was 22% lower at 5.11 bpd as against 6.57 in 2007.
The company is now investing about $60m in 2009, of which 20% has already been invested. It plans to drill three or four new wells, subject to the prevailing global conditions.
Repsol plans an additional investment of over $120m in the OPEC member country in 2010 to drill 20 wells. This, however, depends on the terms of the new fee-for-service contract that is currently under negotiation between the company and the Ecuadorian government. Under the new fee-for-service contract, companies will be paid a production fee and reimbursed for investment costs, although all of the recovered crude oil will belong to the state.
Earlier in March, Repsol signed a one-year transitional participation-sharing contract whereby, the Equador government receives a share of profits from oil production. Repsol will thereafter migrate to the new fee-for-service contract, which is expected to conclude by March 10, 2010.
The current transitory contract with Ecuador government permits Repsol’s presence in the OPEC member country through 2018. Repsol and its partners in Ecuador, including Taiwan’s OPIC and China’s Sinochen, will be required to make additional investments worth $315m over the next nine years to continue current production and boost output in the future. The agreement included Repsol’s commitment to invest $173.5m through 2018.
Repsol also assured to pay some $447m in back windfall-profits tax over a period of five years comprising a first payment of $89m.
Since 2007, the Ecuador government in a bid to take the ownership of the country’s oil resources and boost revenues from the oil sector forced private companies to surrender their profit sharing arrangements with the government in exchange for flat free contracts. The government decided to renegotiate contracts with the oil companies and if the companies fail to boost output then the government will take charge of foreign oil companies operations.
Repsol holds rights for two development blocks in Ecuador covering a net area of 770 km2. Block 16 is situated in the eastern province of Orellana while Blocks Tivacuno and Bogi-Capiron extend over 220,000 hectares. Block 16 and Bogi-Capiron located in the Ecuadorian Amazon produce a combined total of 40,000 barrels of oil per day.
Repsol holds 55% stake in the venture, while its Chinese partners, OPIC and Sinochem hold 31% and 14% respectively. Repsol holds interests in Duragas, an LPG distributor and is also engaged in the Ecuador’s downstream sector.
Repsol, which has invested about $2 billion since the beginning of its operations in Ecuador is estimated to hold reserves of 15.2m barrels in its concessions.