Economy

Sinopetrol's failed oil deal prompts Ecuador to seek new offers

The contract, originally set for signing in early April, required Sinopetrol to make a $1.5 billion advance payment. The consortium missed the deadline and lost the concession.

Social activists protest in front of the Ministry of Energy in Quito, holding placards that read 'Profiting from oil is not development' and 'Sacha does not sell; it defends itself.' The demonstrators opposed the awarding of the Sacha oil field to the Sinopetrol consortium, backed by Chinese and Canadian capital. [Rodrigo Buendia/AFP]
Social activists protest in front of the Ministry of Energy in Quito, holding placards that read 'Profiting from oil is not development' and 'Sacha does not sell; it defends itself.' The demonstrators opposed the awarding of the Sacha oil field to the Sinopetrol consortium, backed by Chinese and Canadian capital. [Rodrigo Buendia/AFP]

By Catalino Hoyos |

QUITO -- After anxiety about the prospect of losing its largest oil reserve, Ecuador will keep it for the time being.

Sinopetrol, a consortium formed by Petrolia Ecuador and Amodaimi Oil Company SL -- subsidiaries of New Stratus Energy (Canada) and Sinopec (China) -- recently failed to make the required $1.5 billion advance payment to secure rights to drill for 20 years at the Sacha oil field in northeastern Ecuador.

"There are alternatives, such as reopening invitations for expressions of interest in developing the field," said Ecuadorian Minister of Energy and Mines Ines Manzano in a March 12 interview with national broadcaster Ecuavisa, where she announced the suspension of Sinopetrol's concession.

The government had drawn criticism for awarding Sinopetrol the Sacha extraction rights without competitive bidding.

It awarded those rights February 28.

Concession terms

According to the government, the award to Sinopetrol was in accordance with the country's Hydrocarbons Law, which states that oil exploration and exploitation may be "exceptionally" delegated to national or foreign companies with proven experience and financial and technical capacity, Ansa reported on March 12.

Although the contract's terms called for its signing in early April, President Daniel Noboa required Sinopetrol to make the $1.5 billion advance payment by 9pm on March 11. The consortium failed to meet the deadline and lost the concession.

If the concession had taken effect, Sinopetrol was supposed to "invest $1.716 billion over 20 years. In addition, Ecuador will receive between 19% and 26% of the oil extracted from Sacha, while the remainder will go to the consortium," El Comercio reported on March 11.

Competitive bidding, foreign investment sought

The penalization of Sinopetrol has reassured various economic and political leaders in Ecuador, who now expect an international bidding process, allowing other companies to compete for the operation of the Sacha field.

The bidding should take place after April 13, when the runoff election will determine whether Noboa secures reelection or is succeeded by leftist candidate Luisa Gonzalez for a four-year term, many observers say.

A concession to exploit the field could provide Ecuador with the necessary resources to fund social programs, said Noboa, who previously warned that if Sinopetrol failed to pay, the government would cancel the contract and consider other options.

"Petroecuador [the domestic oil monopoly] operated the Sacha field with deteriorating infrastructure more than 50 years old, equipment with internal and external corrosion, a fire protection system that did not meet international standards and more than 1,200 points of contamination, posing serious risks of environmental catastrophes," the news site Vistazo reported March 11.

For this reason, the government says an international concession could help reverse these issues.

Sacha, situated in Orellana province, produces more than 77,000 barrels of oil per day -- one-fifth of the country's output. Observers expect the 20-year concession to boost output to 100,000 barrels per day within three years.

Misgivings remain

However, critics want an annulment of the 20-year award to Sinopetrol altogether, which would force the consortium to compete in a fair bidding process.

The National Assembly's Oversight and Political Control Commission warned in an X posting March 18 that "the Sacha field remains in danger," as the concession resolution is still in effect.

"The resolution awarding the Sacha field concession to the Sinopetrol consortium remains valid. Therefore, the door to signing the concession contract is still open. This resolution must be repealed," the legislative commission stated.

Do you like this article?


Captcha *