Operators press E&D in Ecuador, keep close eye on new government

Richard Wheatley
Associate Managing Editor-News

• Current Action in Ecuador [55221 bytes]

This posture stems from widespread review of service contracts by the new government of President Abdala Bucaram-and comes on the heels of a reported agreement between the government and YPF SA unit Maxus Energy Corp., which have been embroiled in a contractual dispute.

Service contracts under review are held by Oryx Energy Co. unit Oryx Ecuador Energy Co., Occidental Exploration & Production, ARCO unit ARCO Oriente Inc., Elf Aquitaine, and Tripetrol SA. But industry officials said the review is not confined to only those companies.

"Everyone is under review-literally," an Oxy official said.

The new government of President Bucaram, which took office in August, deems Ecuadorian economic development a priority-notably foreign investment.

After the initial headline-grabbing dispute between Bucaram's government and Maxus waned, some industry observers suggested the fiery populist's theatrics belied a more sedate, centrist, market-oriented approach to foreign investment.

In fact, if any move by the popular new president has proven a stumble, it was the politically unpopular, market-oriented effort to end some state subsidies for refined product prices.

Operators remain optimistic that oil and gas exploration and development will benefit from energy-related measures being considered or undertaken by the new administration.

Upstream projects on track

Meanwhile, upstream projects are moving ahead. Action centers on the Oriente jungle region with one new wildcat drilling ahead on Block 11 and several others planned in 1996-97 on Blocks 15, 19, and 21.

Santa Fe Energy Resources Corp. unit Petrolera Santa Fe (Ecuador) Ltd. is drilling its first test as part of a four-well primary term obligation in Block 11 in the North Central Oriente basin.

Oryx plans a wildcat on Block 21 late in first quarter 1997 and continues to build production levels from five fields on Block 7, acquired from British Petroleum Co. plc (OGJ, Mar. 1, 1993, p. 56).

ARCO and partner Agip Petroleum (Ecuador) Ltd. are continuing with previously disclosed plans on detailed engineering and environmental impact studies on a pipeline to move Villano field production to market from Block 10 (OGJ, July 1, p. 47).

Oxy plans a wildcat in Block 15 in the fourth quarter.

Triton Energy Ltd. and partners plan to drill two exploratory wells on Block 19 in 1997.

Maxus situation

Maxus has been embroiled in a contract dispute with the government, facing threatened ouster from Ecuador and possible nationalization of its interests, unless new contract terms can be hammered out.

According to South American press reports, the government will pay Maxus $108 million as compensation for expenditures Maxus incurred as part of field development work in Ecuador under a service contract signed in 1986. The new participation contract will be reviewed by officials of the comptroller's office, military commanders, and the Ecuadorian attorney general before final approval.

Various press reports have indicated Maxus would pay the government a royalty of 18.4% of gross revenues or, alternatively, 29% of gross production. But at presstime, YPF would not confirm an agreement had been reached.

Reuters last month reported that Maxus Ecuador partner and Taiwanese state petroleum company Chinese Petroleum Corp. had confirmed an agreement had been reached between Maxus and the government setting up a new production-sharing scheme to replace the service contract.

Among its Ecuadorian interests, Maxus owns a 35% interest in the 511,000-acre Block 16, about 160 miles southeast of Quito (OGJ, Mar. 6, 1995, p. 32). It operates five fields with combined production totaling 35,000 b/d.

Political scene

President Bucaram, leader of the Roldosista Party, has announced a slate of measures aimed at boosting foreign investment in all economic sectors.

The new administration appears to favor oil policy constructed along the lines of a recent National Council on Modernization (Conam) proposal to modify current policy.

The Conam energy proposals under review and discussion include:

• Authorizing construction of private pipelines to carry heavy oil production from fields in the southern Oriente region, in addition to expanding the trans-Ecuadorian Lago Agrio-Balao pipeline.

• Constructing new refineries with private investment.

• Adopting new forms of contracts to foster exploration and production, such as concession and association contracts that were used previously.

• Reorganizing the state oil company Petroleos del Ecuador (Petro- ecuador) into a centralized entity by combining the services that are now provided by affiliates Petroproduccion, Petrocomercial, and Petroindustrial.

Commenting on the Bucaram government, Chris Krusz, general manager of Oryx's Quito office, said, "He's saying the right things on a macro-scale. He understands the importance of the oil sector."

Unlike the Maxus situation, companies have benefited from production sharing contracts that were attached to acreage beginning with the seventh- round bid awards.

Tim Parker, Santa Fe's International Division exploration manager, Houston, said, "For those of us with the more recent contract form, we don't anticipate any problems.

"We've generally found the government and its various agencies reasonable to work with."

Santa Fe test

Santa Fe is drilling ahead with its 1 Cristal, targeting Cretaceous pay in the main Hollin and Napo sections. In mid-October, the well was drilling below 8,000 ft.

In June, Santa Fe completed interpretation of 940 km of high-quality 2D seismic and selected the initial drilling locations from "first-pass" data interpretation.

Santa Fe's seismic gathering work was carried out so as to have minimal environmental impact, the company said. Paths cleared did not exceed 1.2 m, and the company avoided cutting trees that exceeded 1 ft in diameter.

The 1 Cristal will be drilled back-to-back with a second test that is planned 10 miles southeast of 1 Cristal immediately following the first well.

Santa Fe is obligated to drill 4 exploratory wells in a 4-year primary term contract. Two remaining wells are planned in 1997.

Working interest partners in the 1 Cristal are: Operator Santa Fe 35%; Nippon Oil Exploration (Ecuador) Inc., a unit of Japan's Nippon Oil Co. Ltd. 30%; and Yukong Ltd. 21% and Korea Petroleum Development Corp. 14%, both of Seoul.

Oryx sets brisk pace

Oryx and partners remain active on Block 7, currently producing, and on Block 21, awarded in 1995 as part of the mid-1994 seventh bid round.

Oryx's 1 Yuralpa Centro, an 8,500 ft test, targeting the Cretaceous main Hollin or pre-Hollin-whichever is encountered first-will tap an identified structure in an area drilled by Texaco Inc. on the southeast flank of the structure. Oryx's prospect could hold "as much as 200 million bbl" of oil, claims an Oryx official in Dallas.

Interest owners in Block 21 are Oryx 50%, Preussag Energie Americas 17.5%, and Sipetrol 17.5% and Clapsa 15%, both Chilean firms.

On Block 7, the company has increased net production after drilling eight of 10 planned wells in a 1996 development drilling program. Oryx has boosted production of 23.5° gravity blended crude from five fields to an average rate of 8,600 b/d from a rate of 7,000 b/d net at the beginning of 1996.

Gross production averages 25,500 b/d from five fields: Coca-Payamino, a unitized field owned by Oryx 46% and Petroproduccion 54%; and from Gacela, Lobo, Jaguar, and Mono fields, all 100% Oryx-owned.

Coca-Payamino, Gacela, and Mono fields produce from multiple horizons. Jaguar produces from the main Hollin, and Lobo produces from the Napo (U), found at about 9,000 ft.

Coca-Payamino is the largest of the five fields. It has a total of about 30 producing wells that currently yield about 15,500 b/d gross from the main Hollin, encountered at about 9,500 ft, as well as from the upper Hollin, Napo (U), and basal Tena zones. Five wells are producing in Gacela, six in Mono, three in Jaguar, and one in Lobo.

Interest owners in the Block 7 partnership are Oryx 50%, Preussag 25%, Clapsa 15%, and Sipetrol 10%.

Oxy, Triton plans

Oxy plans a test of the Yuturi prospect on Block 15.

In the unexplored extreme southeastern corner of Block 15, where Oxy has been gathering 2D and 3D seismic data, the company will spud the 1 Eden wildcat in the fourth quarter.

The well is part of an obligation calling for 600 km of seismic and 4 wells during a 3-year exploration term.

In an agreement signed last December with the government, Oxy was granted a minimum 7-year extension to develop new discoveries.

Oxy, as operator, holds an 85% interest, with partner Canadian Occidental Petroleum Ltd. holding the remainder.

Oxy, the first foreign company to sign a service contract with the government, has been developing Block 15 since its initial plan of development was approved in July 1992. Average 1996 net production totals about 17,000 b/d.

On Block 19, awarded in the seventh bid round, Triton and partners have acquired 400 km of 2D seismic, and data interpretation is under way. The block covers 494,200 acres. Triton did not disclose details of the two exploratory wells planned for the block.

Triton, operator, holds a 55% interest with partners Vintage Petroleum Ecuador Inc. 30% and Ranger Oil Ltd. 15%.

ARCO-Agip work

ARCO and partner Agip Petroleum (Ecuador) Ltd. plan a pipeline to transport crude from Villano field on Block 10.

An ARCO official said the ARCO-Agip project, in its early stages, is on track. A 105-mile secondary pipeline is planned to transport crude oil from Villano field-where the companies expect to recover 160 million bbl of 21° gravity oil-to the Trans-Ecuadorian Pipeline System.

An agreement with the government of Ecuador amends the existing ARCO-Agip service contract. The government will reimburse the partners for their exploration, development, and production costs after development is completed and production begins.

Detailed engineering and environmental impact studies for both the pipeline and Villano field development will be carried out during a 6-7 month period.

Plans call for the pipeline to be operational by 1999. It will have a capacity of 80,000 b/d, but initial shipments will be 30,000 b/d, ARCO said. Excess capacity will be reserved for other field developments or to allow partners to ramp up Villano production levels.

ARCO holds a 60% share of the partnership with Agip owning the remainder. ARCO will operate Villano field and the secondary pipeline.

ARCO, which was the apparently successful bidder for rights covering Block 24 in the eighth bid round, has yet to sign a contract with the government for that block. ARCO's service contract covering Block 10 is under review.

Trunk pipeline plans

Authorities and production-sharing contractors want to boost pipeline capacity of the Trans-Ecuadorian Lago Agrio-Balao trunk line under a phased, build-operate-transfer (BOT) approach.

But the proposed project has yet to come to fruition (OGJ, Dec. 18, 1995, p. 28).

Capacity in the Lago Agrio-Balao trunk line is limited to 380,000 b/d.

A tender is being prepared for first-phase expansion by Petroecuador, and about 45 companies have submitted prequalification documents.

Second phase, requiring a 120,000-150,000 b/d loop line, will be constructed by private companies under a BOT scheme.

Another plan, which has been under preliminary discussion with the government of Ecuador but now is in question, is a new 180,000 b/d heavy crude pipeline to carry oil from the southeastern Oriente region.

The proposed pipeline, which would be built by a group of companies, would parallel the existing Trans-Ecuadorian pipeline.

Project cost is estimated at $400-500 million, and construction would take about 2 years.

The government said in early October it wants to seek competitive bidding on the pipeline, and Ecuadorian Energy Minister Alfredo Adum said other companies will be asked for bid proposals.

What that action means for this proposal remains to be seen. A spokesman for Enron Development Corp. (EDC), one of the group members engaged in the talks, said EDC may or may not take part in the bidding process because the project is "up in the air."

Talks have involved EDC, Williams Cos.' Williams International Group, Tulsa, and the Argentinian pipeline contractor Techint International Construction Co., Buenos Aires.

Copyright 1996 Oil & Gas Journal. All Rights Reserved.