Refining on the Pacific

What factors led EP Petroecuador’s growth to exceed expectations?

We accomplished the plan proposed at the beginning of 2011, to drill new wells with a large number of towers. Our strategy was successful, and the wells we’ve added have been very productive. We also launched a successful and productive new oil field, the Drago. The Drago is currently producing 10,000 barrels a day (bbl/d), and we hope to double this figure in the coming years. We were successful in completing our program and in the discovery of reserves. This has allowed us to achieve our targeted level of production and exceed the prediction of 6% growth. We planned to produce 52 million barrels per year, but we obtained 55.3 million. Thanks to our subsidiary Rí­o Napo, we were able to produce an additional 50,000 bbl/d. In 2011 we produced approximately 200,000 bbl/d. We maintain an investment fund, and in 2011 we were able to add $500 million more to our investment capabilities in the areas of exploration and production (E&P). Regarding gas, we assumed the platform that belonged to US-based EDC in 2011. We have also incorporated reserves of 18 million barrels of oil in 2011. On the E&P side, we are finishing negotiations to hire well-known companies such as Schlumberger, Halliburton, and Baker Hughes so as to integrate new technology, optimize the production of oil, and develop enhanced oil recovery techniques for reserves that will allow us to increase the retrievable resources through methods of secondary and tertiary extraction. We have been carrying out this project since 2011. EP Petroecuador is more than an oil company, because it is present in every link of the value chain. In the refineries, we have achieved 100% of our goals. The most important refinery in Ecuador is called Esmeraldas, and it is under renovation. This refinery is substantially damaged, and under risk of collapse. At the moment, the refinery is operating at 90% of capacity, and the process of renovation will continue until 2013. Regarding our industrial activities, we have installed a new plant to liquefy natural gas on the Ecuadorean shore, so we can incorporate a new product—liquid natural gas (LNG)—mainly used by companies in industrial applications.

What factors will characterize the merger between EP Petroecuador and Petroamazonas EP?

In partnership with Deloitte, we began submitting information and determining the existing options for restructuring the company in March 2011. EP Petroamazonas is an oil company that manages a number of fields in the Amazon region; the idea is to unify our efforts, form a synergy, and be more efficient than we are separately. Petroamazonas will manage the transportation of oil and gas through pipelines, the international commercialization of oil, and the refining and commercialization of derivatives. EP Petroamazonas will take care of all upstream activities. This means we are completely changing our structure as we incorporate new technology, systems, procedures, business culture, and human resources management. The merger will help to avoid mistakes and unnecessary redundancies. In that sense, we are trying to incorporate new IT systems to connect all of our segments. Petroecuador EP already has excellent technology regarding the engineering of pipelines, but our departments are operating in an isolated way. We are working toward an integrated system. Furthermore, we aim to improve our training to achieve better results from our employee base.

EP Petroecuador plans to invest over $2 billion to modernize its refineries. How much capacity will be added?

The renovation of the Esmeraldas Refinery will cost $750 million, and we have been working on the project since 2008. Apart from refinery renovation, we began a program to improve the quality of our fuels at the end of 2011. The program consists of developing the production of diesel and gasoline. In diesel, we have reduced the content of sulfur to 500 parts per million, but we aim to reduce it to 250 parts per million by mid-2012. Regarding gasoline, we will increase the octane level to 87 as an initial step. Simultaneously, we are carrying out industrial projects to build new plants for the improvement of fuel quality. These projects are at the Refinery of the Amazon, and the cost will amount to $800 million. In total, we will invest $1.4 billion to improve the quality of our fuels. Moreover, we have a project to build a new Refinery on the Pacific, with a budget of around $1.2 billion. Our goals are twofold: export crude oil and begin exporting high-quality crude oil derivatives while filling the gaps in the country’s demand. Currently, we are importers of large volumes of diesel, naphtha, and LNG. Finally, we want to improve the quality of fuels to achieve the highest standards in the world. Our goal is to have fuels that meet Euro-5 standards.