PetroEcuador expects heavy sour crude Napo's discount to WTI will widen if voters in Ecuador choose to stop oil exploration and production in block 43 to preserve the Yasuni natural reserve.
Without the Napo crude produced in block 43 — also known as ITT for the Ishpingo, Tambococha and Tiputini fields — Ecuador would have almost no Napo crude to sell in spot tenders, which would widen the discount, state-owned PetroEcuador's international trade manager Reinaldo Armijos said. Competing heavy grades from Guyana may take Napo's place in the spot market, he said.
Ecuador exported over 109,540 b/d of Napo crude in January-May, a 5pc increase from the same period in 2022, according to PetroEcuador. ITT produced nearly 51,570 b/d of Napo crude, or about 47pc of the country's Napo grade. Ecuador exports all of its Napo because it cannot be processed in local refineries.
Around 50pc of Napo crude exports this year have been negotiated through mid- and long-term agreements with PetroChina, China's Unipec and Thailand's state-owned oil company PTT. The other half is sold in spot tenders, in which PetroEcuador reached better prices and narrower differentials to WTI, Armijos said.
Napo's discount to WTI was around $17/bl in January-May, according to the Central Bank and PetroEcuador, a 51pc increase from the same period in 2022, when it averaged $11.25/bl.
Freight costs to ship Napo — which varied from $3-8/bl in 2022 — would also increase if voters reject production in ITT because PetroEcuador will have less Napo to export, he said.
Arbitration claims
PetroEcuador may also face arbitration claims for about $250mn from 35 local and international companies that provide services for ITT operations if voters choose to stop production in the referendum, chief executive Ramon Correa said today.
PetroEcuador has signed contracts with around 25 international firms and 10 local companies that provide drilling equipment or fluid separation equipment, among other goods and services.
Those contracts will expire in 2025 and comprise expenditures of about $250mn, which the companies would expect in compensation if ITT oil operations stop, Correa said.
Dismantling all the ITT infrastructure is estimated at $450mn, according to PetroEcuador, and stopping ITT production will reduce the central government's income by about $1.2bn/yr.
