US independent producer Kerr-McGee will sell its stake in two oil blocks in Ecuador and its share in the embattled OCP heavy crude oil pipeline to small French firm Perenco. Kerr-McGee is exiting Ecuador to concentrate on its operations in the US and the UK. But its departure coincides with another round of complications that threatens to hold up the pipeline, an essential element for transporting foreign-produced Ecuadorean oil to export markets (OD Dec.21,p5).
Kerr-McGee has a modest 4.02% stake in the 450,000 barrel per day, $1.1 billion pipeline, while other consortium members include Alberta Energy, Occidental Petroleum, Spanish Repsol-YPF, and Italian ENI. Argentine Techint is responsible for the construction.
Perenco is somewhat of a specialist in working declining fields, having taken over an ailing Venezuelan field from BP in 2000, and having bought a Guatemalan field from Anadarko in 2001. It also has natural gas assets in Colombia.
Although the pipeline is well under construction, with a completion goal of late 2003, it has been the object of strong environmental complaints because of its routing through the Mindo rainforest, a refuge for rare birds and other animals. Road construction has now reached the Mindo area, where environmental activists and local opponents have held daily demonstrations, with some perched in trees directly in line with bulldozers. Construction is halted, with Techint saying that weather precludes work, while Amazon Watch and other activists say that concern over financial support is making the OCP consortium keep a low profile on site.
In the latest development, the activists have taken the battle to the banks, primarily Westdeutsche Landesbank (WestLB), which has granted a credit of $900 million for the project. Ecology groups are trying to get the loan rescinded. They have gone to the parliament of the German state of Westphalia – the home state and 43% owner of the bank – where there is a green contingent that will support the activist position, opposing social democrats who want the project to proceed. A decision may be made as early as today.
The World Bank is also putting pressure on the pipeline builders. In a letter dated Dec. 17 to the OCP consortium, the World Bank said it wanted to “express our deep concern about the impact of the construction of the OCP pipeline on the Choco-Andean Corridor Project,” which is partially funded by the Bank and is threatened by the pipeline.
World Bank inspectors who inspected the site said the pipeline, if built or operated inadequately, would pose “serious environmental risks” to an important part of the corridor. The World Bank urges OCP to do a better job of ensuring good practices in the construction and operation of the line, and to consider providing some form of ecological compensation to the local indigenous groups.
Furthermore, Ian Johnson, the World Bank’s top environmental officer, said he did not appreciate that OCP and WestLB officials saying that the project complied with all applicable World Bank standards, even though the World Bank had no financing or support in for the project.
“We would like to recommend that OCP provide specific, independent verification of compliance with World Bank standards or, alternatively, refrain from claiming any such compliance,” Johnson said.
In spite of the threats to the pipeline in its current route, there is little doubt in most analysts’ minds that the pipeline will be built, given its importance to the country and to the oil companies. Ecuadorean President Gustavo Noboa finds OCP so important to the country that in June he threatened, “I’ll give them war,” in response to those opposed to the project.
