PetroEcuador seeks to cut debt-linked crude volume
Quito, 24 October (Argus) — Ecuador's state-owned PetroEcuador is seeking to reduce the volume of crude that the country is obligated to deliver to repay eight oil-backed loans with Chinese state-owned firms PetroChina and Unipec and Thailand's state-controlled PTT.
The negotiations with the Chinese firms have already started in Houston, Texas, and talks with PTT will begin on 30 October.
PetroEcuador owes $5.3bn to the three companies and has pledged to deliver a combined total of 500mn bl through 2024 to repay the loans. According to PetroEcuador's international trade manager, Jorge Cisneros, that crude volume is "excessive".
"At current oil prices, that volume is worth $22bn. The amount of crude pledged in these contracts is excessive and unfavorable to Ecuador," Cisneros told reporters today in Quito.
One of the main objectives in the ongoing talks is changing the price formula applied to the Ecuadorean crude in the contracts, and reducing financial and transportation costs, PetroEcuador chief executive Byron Ojeda said.
The original price formula included an Argus 6.5 sulfur petroleum coke assessment that was discontinued starting in September, so the formula can no longer be applied, a change that PetroEcuador has used as an opportunity to renegotiate the contracts, according to Ojeda.
During the first round of negotiations with PetroChina, a subsidiary of China's state-owned CNPC, and Unipec, a state-owned Sinopec subsidiary, PetroEcuador's counterparts accepted that the original price formula can no longer be applied, Ojeda said.
By changing the formula to secure a better price for its Napo and Oriente grades, "PetroEcuador intends to free up crude to sell it in the market to the highest bidder," Cisneros said.
Since 5 October PetroEcuador is using a provisional formula to invoice its crude to the Chinese companies and PTT, but the firms disagree with it and are applying their own formulas, which has created a price controversy.
"The parties involved in the negotiation have acknowledged that there is a conflict and this is the first step to find a solution. The negotiation is amicable, we have made our proposal and we are waiting for a counter-proposal" from PetroChina and Unipec, Ojeda said.
If negotiations are unsuccessful, PetroEcuador is considering several options, including borrowing money to prepay the loans before maturity.
Starting in 2010, under the populist administration of ex-president Rafael Correa, Ecuador started to sell its crude and fuel oil through a series of oil-backed loan agreements with companies such as PetroChina, Unipec and PTT, leaving virtually no surplus oil for spot sales.
PetroEcuador recently resumed spot sales thanks to a small surplus.