Ecuador tests return of production-sharing model

Ecuador will test a new production-sharing contract model in an 11 September auction for eight small oil blocks.

The acreage in the Intracampos round lies in the northern oil district, near the country's most productive mature fields.

The blocks contain a combined 854.13mn bl of in situ reserves and 170.8mn bl of prospective resources, considering a 20pc recovery factor. The government estimates that the blocks require $1bn-$1.2bn in total exploration investment.

Resources were certified by Ryder Scott, according to a report from the hydrocarbons secretariat seen by Argus .

On 16 July, president Lenin Moreno issued a decree restoring the production-sharing contracts (PSCs) that were abandoned in 2010 in favor of fee-based agreements that were imposed under the previous administration that ended in May 2017.

The fee-based contracts contributed to a plunge in upstream investment, from around $500mn in 2010 to $282mn in 2017, according to oil ministry figures.

Quito hopes that the PSCs will revive investment and production.

The new agreements allow oil firms to book reserves and leverage them to finance their development projects, according to energy minister Carlos Perez. The contracts feature a windfall tax calculated on the sale price of the production minus the contract's agreed floor price, multiplied by the sales volume.

The floor price will be determined based on the monthly average price at which state-owned PetroEcuador has sold Oriente and Napo grades over the last 10 years, adjusted for inflation.

A sovereign adjustment clause will kick in when oil firms' income exceeds state participation. The state participation cannot be inferior to 12.5pc of each block's total crude production.

Ecuador's oil authorities will monitor each contract's performance on a yearly basis and will apply the sovereign adjustment to make sure that the state take always exceeds the companies' benefits.

To calculate the state and companies' participation, Ecuador will use a reference price based on the weighted average export price of Napo and Oriente in the previous month or on a basket of crudes whose prices will be extracted from price reporting agencies.

If the Intracampos round is successful Ecuador will pursue its more ambitious Southeast round, covering 10-14 blocks close to the Peruvian border. Seismic information is scant, but some of these southeastern areas could contain light crude of 34°-36°API, the government says.

Ecuador oil blocks set for 11 Sept auction unit Block In situ reserves (mn bl) Prospective resources (mn bl) Sahino 202.3 40.5 Perico 180.3 36.1 Espejo 160.4 32.1 Iguana 121.9 24.4 Araza Este 101.7 20.3 Panayacu Norte 36.3 7.2 Charapa 30.2 6.0 Chanangue 21.2 4.2 Source: Hydrocarbons Secretariat, Ryder Scott, 2017

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