Ecuador is licensing a chunk of the Amazon. After touring Asia, Europe and North America, the Andean country’s government has extended from late May to mid-July a deadline by which bid for oil blocks located in the southeast of the country must be submitted.
The government says this will give companies more time to appraise the region’s geology and fill out the necessary paperwork. To some, it could suggest Ecuador had received less interest than initially hoped for.
Late last year, Ecuador opened 13 blocks to bids from private companies. Three other blocks have been assigned to state-run oil company Petroamazonas, which may form joint ventures with private bidders.
Oil is central to Ecuador, Opec’s smallest member. The energy sector accounts for roughly a third of the country’s revenues and about 60 per cent of exports.
But production remains below peak levels seen in the mid-2000s before Rafael Correa, the leftist president, offered foreign oil companies the choice of re-drafting contracts to grant the lion’s share of revenues to the state, or leaving the country.
Since then, production has been stagnant at about 500,000 barrels of oil equivalent a day. More investment is needed to ramp up production.
When the latest bidding round was launched, officials said they hoped to attract over $1bn in investments. The government says the blocks have potential reserves of up to 1.6bn barrels of oil, potentially a huge boost for the Andean country.
In the oil industry, the benefits look more likely to go to Chinese rather than western companies.
“The [Ecuadorean] government doesn’t really like European or American companies, so China seems like the most secure option,” says Fernando Santos, a former undersecretary of energy in Ecuador and a former governor of Opec.
It would not be the first time. Ecuador has been shut out of international debt markets since it defaulted in 2008. But China has come to the rescue, lending it more than $7bn, partly in exchange for oil.
China has also invested nearly $2bn in hydroelectric power plants, a Chinese-owned company is developing the first large-scale copper project in the country, and Cnooc (the China National Offshore Oil Corporation) is considering taking a 30 per cent stake in the $12.5bn Refinery of the Pacific, alongside PDVSA, the Venezuelan state oil company.
Aside from potential bids by CNPC’s and Sinopec’s local subsidiaries such as Andes Petroleum and PetroOriental, Peru’s Petroperu, Colombia’s Ecopetrol, and Venezuela’s PDVSA have also been rumoured as possible bidders.
The bidding round faces opposition from indigenous groups who fear damage to their ancestral lands and have repeatedly protested. The blocks are located in Ecuador’s southeastern Amazon, away from its northern Amazon where most of the country’s crude is drilled and where Chevron inherited a legal wrangle over pollution when it bought Texaco in 2001,
“China could be the only one with the guts to go there,” says Santos. “Even if they already have blocks in Ecuador, they still have appetite for oil and good relations with the government.”
