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Reform-minded Ecuador settles with ConocoPhillips

04 Dec 2017 18:17 GMT
Reform-minded Ecuador settles with ConocoPhillips

Quito, 4 December (Argus) — Ecuador and ConocoPhillips settled a 10-year dispute stemming from the previous government´s seizure of two oil blocks that will result in a $337mn Ecuadorean payment to the US independent.

The settlement, which Ecuador's attorney general called "a final and total agreement", is the latest sign of Quito´s campaign to mend fences with the private sector.

According to ConocoPhillips, Ecuador paid $75mn on 1 December, with the balance of $262mn to be paid by April 2018.

"We are pleased that the government of Ecuador abides by the rule of law and worked constructively with us to come to a mutually acceptable resolution," ConocoPhillips senior vice president Janet Langford Carrig said in a company statement.

In February, the World Bank's International Centre for Settlement of Investment Disputes (Icsid) ordered Ecuador to pay $379mn in compensation plus interest to Burlington Resources, a subsidiary of ConocoPhillips, for the 2009 takeover of blocks 7 and 21.

The tribunal also ordered the US firm to pay Ecuador $42mn to address environmental liabilities at the blocks.

Burlington owned a 42.5pc stake in block 7 and a 46.25pc stake in block 21, with Anglo-French Perenco holding the balance and acting as operator of the blocks until 2009.

Quito claimed that Perenco in July 2009 halted operations at both blocks. The company said it suspended work due to "persistent material breaches of the contracts by the Republic of Ecuador." The European company has a separate case pending at Icsid.

Ecuador terminated the upstream contracts in 2010, claiming that activities at both blocks were halted for more than 30 days without justified cause.

The dispute began in April 2008, when Burlington initiated arbitration against Ecuador, after the country enacted a windfall profits tax which allowed the government to levy a 50pc tax on extraordinary revenues resulting from rising oil prices.

In filings to Icsid, Burlington claimed it had paid, jointly with Perenco, more than $396.5mn in windfall taxes.

Despite a restraining order issued by Icsid, Ecuador confiscated crude production from Burlington and Perenco and sold it in 2009-10 auctions.

The case was seen by Burlington as an unlawful expropriation of the company's oil investments in Ecuador, in violation of a bilateral investment treaty between Ecuador and the US.

In May, after a decade in office, then-outgoing president Rafael Correa terminated 16 bilateral investment treaties, including those signed with the US, the UK, France, China, Germany, Chile, Brazil and Argentina.

Ecuador's new government, headed by former Correa ally president Lenin Moreno who took office on 24 May, has ushered in a more moderate investor-friendly era in which the BITs are expected to be reinstated.

Ecuador is also reviving production-sharing contracts that were abandoned during Correa's 10-year tenure in favor of a fee-based agreements model and a new hydrocarbons law under which all oil reserves were nationalized.

In order to boost stagnant exploration and production, the PSCs will reappear for the first time in seven years in an upcoming tender for acreage known as Intracampos. Estimated investment needed to develop the eight featured blocks is $1.2bn. Contracts are to be awarded by March.

By the end of the second quarter of 2018, Ecuador will re-launch a licensing round for 15 exploration blocks in the southeast Amazon, close to the border with Peru. The round took place for the first time in 2013, gathering just four offers because of the fee-based model of contract on offer.