The Business Year

Alexis Arellano

ECUADOR - Energy & Mining

Share the Vision

General Manager, PDVSA Ecuador

Bio

"We have been producing for more than 40 years in the north and central area of the Amazon."

What is the main contribution that the Hydrocarbons Secretariat of Ecuador (SHE) makes to the country?

Since 2010, the structure and organization of the industry has welcomed the Hydrocarbons Secretariat as the entity in charge of the administration of the country’s assets. We are in charge of the administration of contracts and areas that are included in our state-owned company, Petroamazonas. We encourage investments by any oil operators, whether they are NOCs or IOCs. We have to plan, subscribe, and search for contracts with new contractors, promote investment, and control investments as agreed in contracts. We are the counterpart of any investor or contractor in the state or government. That is the main role of this entity.

How will international promotion affect SHE and its respective sector in Ecuador?

We have seen the way our reserves are progressing and we are always thinking in the short term, medium term, and long term. Due to the status of our reserves, we estimate that the country will experience a decline in production. We believe that the development of the southeastern region is the most important project for long-term oil production. For that reason, we established a strategy for the development of the southeastern region in 2011. We are building a strategy of 21 blocks, 13 of which will be listed as part of a very historical bidding process. This is one of the main projects of the government in the strategic sectors.

“We have been producing for more than 40 years in the north and central area of the Amazon.”

Will this new round increase production in Ecuador?

We have been producing for more than 40 years in the north and central area of the Amazon. The area that we are implementing now for development is almost the same in size. We have production in Colombia and Peru, and in the north and center of the Amazon. We believe that the fields in the southeastern region could be as lucrative as the ones that we found in the north and in Peru. This would double our production. In the first round of studies, we discovered that about 1.6 billion barrels can be added to form a combined total of 1.8 billion barrels in proven reserves.

What does Ecuador need to do in order to maximize its oil and gas potential?

In the short term, we have to focus on the production fields and work on how we can help Petroamazonas and other new ventures to increase production in the mature fields. In the mid term, investments in other technology like secondary and tertiary ways of getting oil, new technical procedures that are being developed all around the world, better warehouses, chances to get more oil, and new technology in the actual fields would be helpful. However, in the long term our reserves will not yield new production and it is important to focus on exploration in the southeastern region.

What is the main challenge in the hydrocarbons sector?

The main challenge is that we are, for first time ever, presenting a service contract for a pure exploratory region. For exploration, contracts are usually production sharing or concession funds. We are presenting a unique contract for exploration that is a service contract with a tariff system. Of course, this is a new system that represents a significant challenge because we have to understand and learn the system and assign the right technicians. We believe that the geology of the region is great, and is probably one of our strengths. One out of every three projects in exploration are successful, and operational costs are low. We have strengths for the process but, of course, the contract is a challenge as it is difficult to come again with the opening for investment after 25 years. It is also a challenge because we are coming back. We haven’t been around for many years and companies need time. The model is difficult because it is new. Also, there is a minor problem of misinformation or the perception that investors have about Ecuador.

What is your strategy when you go abroad to change the perception of Ecuador?

We strive to present the official and correct information so at least they have two sources to compare. If they come and see what’s on offer, they will enjoy the atmosphere here. It is one of our strengths. We have a lot of political stability and significant state investment in infrastructure. There are a lot of good things to say. We have very good relationships with indigenous nationalities and communities, and we provide a very secure environment for investment.

What do you do with the local communities here in the country?

When we started designing the strategy for oil development in Ecuador’s southeastern region, we had two main challenges: how to deal with communities and how to extract oil from the area. The first issue was more important as people are the most important element of any environment. We really have to use our natural resources in the best way to fight against poverty and improve the living standards for everyone in Ecuador. We hired more than 50 people from communities in the area and then involved them in this hydrocarbons entity. We trained them to be communicators in the area. Then, we built a tool that we call “social environmental diagnosis.” We went to the indigenous nationalities and told them what our policy was for the venture of oil development in the area. That took us almost six months. Once we had this feedback of what they were thinking and their concerns and needs, we were able to build a process that we called “prior consultation.” It is the constitutional right of every community to have information before any decision is taken by the state that can affect the environment. The results were amazing. We signed agreements with almost everyone there in the area. This is a key part of our policy and unique to the region.

What can foreign investors coming to Ecuador expect from SHE?

We present ourselves as partners because we help them to make decisions. We help them understand the system and the law, our geology, our economics, and our legal issues so they can decide if it is an important investment opportunity. We want investors who we share a similar vision with. That vision is to develop the economy in a sustainable way.

© The Business Year – May 2013

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