China’s Andes Said to Join Repsol in Ecuador Oil Drilling Freeze

Ecuador's President Rafael Correa
The drilling delay is another setback for Ecuador, where a 45 percent plunge in the price of its Oriente crude has led President Rafael Correa to cut spending and the budget of state producer Petroamazonas. Photographer: Meridith Kohut/Bloomberg

Andes Petroleum Ecuador Ltd. and Repsol SA, Ecuador’s two biggest foreign oil producers, are shelving plans to drill exploratory wells amid a payment dispute with the OPEC nation’s government, according to two people with direct knowledge of the matter.

Andes, owned by China National Petroleum Corp. and China Petrochemical Corp., and Madrid-based Repsol have notified Halliburton Co. that they plan to freeze their drilling contracts this year, said the two people, who asked not to be named because the matter hasn’t been made public. Houston-based Halliburton provides services to both companies, which pump oil for Ecuador’s government for a per-barrel fee.

A third person with knowledge of Repsol’s plans, who isn’t authorized to speak about the matter publicly, said the Spanish company has begun notifying all of its service providers in Ecuador, including Halliburton, that it wants to reach new agreements after global oil prices fell. Current output isn’t affected by the exploration delays, one of the people said.

Repsol spokesman Kristian Rix said the company was operating normally in Ecuador and declined to comment on individual contracts. Susie McMichael, a spokeswoman at Halliburton in Houston, and Andes Petroleum spokesman Edgar Vasquez declined to comment when asked about the contracts. The press office of Ecuador’s oil ministry didn’t provide a comment.

The drilling delay is another setback for Ecuador, where a 45 percent plunge in the price of its Oriente crude has led President Rafael Correa to cut spending and the budget of state producer Petroamazonas. The government has fallen behind on payments of fees to oil operators as the drop in prices for crude, which accounts for about a quarter of state revenue, saps liquidity, according to two of the people.

Payment Delays

A global rout that has seen oil prices fall about 50 percent since June has led well operators to seek cost concessions of more than 30 percent for oil services, according to investment bank Evercore ISI. As lower oil prices have forced oil producers to cut back on exploration, drillers like Halliburton have fired workers to trim costs.

Over the past two quarters, Halliburton, the world’s second-biggest provider of oilfield services, has cut a total of 9,000 workers, or more than 10 percent of its global workforce as the price collapse forced drillers to cut back, interim Chief Financial Officer Christian Garcia said April 20.

On April 9, Petroamazonas said it was in talks with suppliers and contractors to delay payments and said it was seeking external financing to help maintain oil-field investments. Output will fall by about 3 percent this year because of the cuts, the company said.

Petroamazonas’s press office in Quito didn’t reply to telephone messages seeking comment.

New Deal

Andes and an affiliated company operate the Tarapoa, Block 14 and Block 17 concessions in Ecuador’s eastern Amazon region. Repsol operates the Block 16 and Tivacuno concessions.

The government pays Andes $35 a barrel for oil pumped at Tarapoa and $41 a barrel for Blocks 14 and 17, according to oil ministry data. Repsol gets $35.95 a barrel from the Block 16 field and $27.25 from Tivacuno, the data show.

In November 2013, Repsol signed a new deal with Ecuador’s government to expand its operations in Block 16 in a bid to get more use out of existing infrastructure and investments. As part of the agreement, Repsol agreed to drill two new wells in what is known as the Wati field, with the possibility of an additional five if exploration was successful.

Repsol will now halt drilling after the second well is finished next month and no longer plans to perforate the additional five this year, one of the people said.

(For the view of the government of Ecuador, click here. Bloomberg stands by the story.)

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