The speed of Ecuador’s economic development has left many policymakers wary of both production rates and the price of oil. With over 40% of government income derived from oil, the Correa administration’s strategy is focused on boosting production over the long term, and working with the private sector to get the most out of its existing fields.
Ecuador’s most productive oil fields are located in the northeast of the country, and the last major increase in production came in 2003, with the opening of the Oleducto de Crudos Pesados (OCP) pipeline. However, as a result of natural decline and operational difficulties, production has somewhat leveled off after peaking at 196 million barrels a year.
Oil production levels have now, however, hit the 500,000 barrels per day (bbl/d) mark again following the inauguration of the Pañacocha field in the Ecuadorean Amazon, a field run by the SANTOS CMI CONSERMIN consortium. The consortium developed the field through an Engineering, Procurement, and Construction (EPC) contract and current production levels are around 24,000 bbl/d. The field was the first production expansion since the current administration took office in 2007. The country last produced 500,000 bbl/d in 2008, and in 2010 averaged around 465,000 bbl/d. The upswing can also be attributed to several investment projects coming to an end, and fields working further toward full capacity.
In order for Ecuador to reach its target of 600,00 bbl/d by 2013, the state oil producer Petroecuador has approved a budget of $3.75 billion, of which $1.82 billion has been set aside for investment in exploration and production (E&P), as well as refining activities. Petroecuador is the largest producer of oil in the country, with a current production rate of around 200,000 bbl/d, or 55.3 million barrels yearly. After undergoing a merger with Petroamazonas in late 2012, however, this figure will increase to 300,000 bbl/d.
It is the private sector, however, which holds the key to Ecuador’s production future. After reaching an agreement with only 12 out of 17 private companies during oil contract renegotiations that applied a profit ceiling of $32 per barrel for extractors, Petroecuador began to flirt with private companies to boost investment in enhanced oil recovery projects at some of the country’s large, mature fields that have started to head into decline over recent years. Contracts worth $1.7 billion have been signed already, including a 15-year deal with Schlumberger for the development of the Shushufindi field, where 20 million additional barrels of oil reserves were recently discovered, and a consortium headed by Tecpetrol for work on the El Libertador field. Schlumberger is slated to invest $1.3 billion on the Shushufindi field, while the Tecpetrol consortium will spend approximately $380 million.
New developments also feature in Ecuador’s production development plans, including the Drago field, which has a current production rate of 10,000 bbl/d and is estimated to contain a total of 30 million barrels. The country is also soliciting bids to develop 12 blocks on the border with Peru.
Located in the Yasuní National Park, the Ishpingo-Tambococha-Tiputini (ITT) Block holds 850 million barrels of proven reserves, or 20% of the country’s reserves, and could be secure the country’s oil supply for years to come. However, the park was designated a Biosphere Reserve in 1989, and is home to the indigenous Huaorani people. Heeding worries that development of the block could lead to irreversible damage, the Correa administration led a bid to attract donations of $350 million a year for 10 years—around half the money the country would generate should it develop the block. The donated funds would be held in trust by the United Nations Development Program (UNDP), and fully contributed by 2024. The funds would then be earmarked for renewable energy and sustainable development initiatives, as well as social programs in Ecuador’s Amazon region. In December 2011, the initial payment of $117 million had been raised, keeping the project alive. Another $580 must now be pledged by the end of 2013.
Ecuador has two major pipeline systems, including the Sistema Oleducto Trans-Ecuatoriano (SOTE), launched in the early 1970s, and the Oleducto de Crudos Pesados (OCP). The SOTE stretched 310 miles from Lago Agrio to the Balao oil terminal on the Pacific coast and has a 400,000 bbl/d capacity, and the OCP, at 300 miles long and with a 450,000 bbl/d capacity, runs mostly parallel to the SOTE and heralded an increase in production when it was brought online in 2003. The country also uses one international pipeline, the TransAndio. It has a capacity of 50,000 bbl/d and connects Ecuador’s major oil fields to Tumaco, on the Colombian coast.
Moving into 2H2012, the Correa administration will be hoping the global price of oil remains steady, especially while new investments come online and the country moves toward its target of 600,000 bbl/d in production.
© The Business Year