Ecuador heavy oil pipeline could revert to state

The shareholders of Ecuador's 450,000 b/d heavy crude pipeline (OCP) are seeking to relinquish the underutilized asset to the state before the company's operating contract expires in 2023, deputy oil minister Patricio Larrea told Argus.

In 2003, Ecuador granted OCP a 20-year operating contract under which the company agreed to return the $1.5bn pipeline to the state at the end of the concession. But the OCP partners are now seeking an early return as a way to resolve a $400mn dispute with Ecuador's tax authority (SRI).

"We are working along with Ecuador's state attorney general office, SRI and the finance ministry to assess if the proposal benefits the state. The tax issue is very complex and we must consider SRI's point of view first," Larrea said.

An OCP official confirmed to Argus that there are ongoing talks between the oil ministry and OCP's shareholders, including China's state-owned Andes Petroleum, Spain's Repsol, US independent Occidental, France's Perenco and Ecuador´s TLC, to hand over the 485km (301mi) pipeline and associated storage and export facilities at the Pacific port of Balao.

Oil minister Carlos Perez has publicly said that Quito would benefit from an anticipated handover of OCP to accommodate state-owned PetroAmazonas´ rising production of heavy crude from the Ishpingo-Tambococha-Tiputini (ITT) complex.

The firm is on track to increase overall production by at least 20,000 b/d in 2018 from 430,000 b/d in 2017.

Tiputini currently produces 50,000 b/d and PetroAmazonas is launching drilling activities at Tambococha, which could add some 60,000 b/d by the end of 2018. In 2019 it plans to drill at Ishpingo.

ITT is key to Ecuador's plans to increase national production to 700,000 b/d by 2021 from around 530,000 b/d in 2017.

If OCP were transferred to Ecuador's state-owned downstream firm PetroEcuador, the country will be able to "better handle the transportation of its light and heavy grades without having to blend them," Perez said.

PetroEcuador owns the 360,000 b/d SOTE pipeline, which transports 24°-28° API Oriente grade. OCP was built to transport heavier 18°API Napo.

SOTE currently operates at capacity, while OCP´s throughput is only around 170,000 b/d.

OCP was built to accommodate plans for rising output by foreign producers in the Amazon oil district for transport to Balao. But most of these plans never materialized, and some of OCP's shareholders are no longer operating in Ecuador.

Occidental left in 2006 after the government revoked its contract for block 15. In 2009 Ecuador seized Perenco's blocks 7 and 21, while Petrobras opted to leave the country in November 2010 after it failed to reach an agreement with Quito to replace its production-sharing agreement for block 18 with a fee-based contract.

But OCP's shareholders continue to operate under a ship-or-pay contract that obligates them to make payments regardless of how much if any oil is actually transported through the line.