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UPSTREAM OPPORTUNITIES: THE OIL INDUSTRY

Legal security has been an especially important matter for Ecuador's oil and gas sector. After the discovery of oil in the Amazon region of Ecuador in 1967, the energy sector has transformed the country as the sixth most important oil producer in Latin America and the fourth crude exporter of the continent. However, many multinational oil and gas companies were disappointed after discussions with the government about a devolution of taxes and other broken promises.

Ecuador needs to change its legal framework quickly, especially since major investment is needed for the hydrocarbon sector. The government admits that it does not have the capacity of modernizing the state oil company PetroEcuador, and major funds are required in order to increase oil production and export levels.

But the opportunity of upstream development has great potential - Ecuador's oil reserves are estimated at 3.4 billion barrels and if these potential oil reserves are exploited, the country could undergo a new oil boom. To meet this goal, the Minister of Energy and Mines, Carlos Arboleda, offered a total opening of the sector and greater "legal security" for foreign oil companies, although he still has yet to deliver on his promise.

The project that could act as a magnet to attract new investments is the heavy crude oil pipeline called the OCP (Oleoducto de Crudos Pesados). It was inaugurated in September and represents the most important project of the country, which required an investment of $1,400 Million and generated some 15,000 jobs.

"The heavy crude oil pipeline will double present production, and if we tap into the potential of our fields in the south-east of the country, we may reach $1.2 Million per day of oil production in nine years. This means that Ecuador will be a different country in the next decade" projects Mauricio Pozo, Minister of Economy. Ecuador registered an average production 400,000 barrels a day and last year its oil exports totaled $1.84 billion.

Jorge Donoso Moran, FLOPEC's General Manager, reflects on the impact of the new OCP pipeline for his business: "Ships coming to Ecuador will have a greater capacity than the ones at the present, which opens up many new business opportunities for us". In order to capitalize on this new capacity, FLOPEC is developing strategic alliances and joint-ventures in order to support the exports of a new terminal that is being built in the Pacific Ocean port of Balao.

The Construction and Services Corporation (CORPCYS) is another company that has grown thanks to an increase in oil investments, while taking advantage of new construction opportunities in Ecuador. "Being involved in the construction of the OCP has permitted us to grow" admits Ramiro Manosalvas, CORPCYS General Manager.

The trend is positive, yet new explorations are necessary so that oil production can increase in a considerable manner and for the OCP to fill up to 100% of its capacity. "The OCP will start operations by transporting approximately 220,000 barrels per day, which is almost 50% of its capacity… Indeed, the OCP is only the tip of the iceberg - and that is why we are launching a new era in terms of oil potential of the country", says Bernardo Tobar, Executive President of OCP.

The OCP assembles an impressing group of multinational companies such as Encana of Canada, Repsol YPT of Spain, Agip Gas Petroleum of Italy, Occidental Petroleum of the United States, Perenco of France, as well as Perez Companc and Technit of Argentina. By working together, these multinationals have shown that they believe in the country, even though they would like the government to move faster to liberalize the oil sector and offer legal security to investors. Critics also suggest that the government has failed to define a coherent policy that might allow investment to truly move ahead.

"Ecuador has proven oil reserves" affirms Tobar. "Now the ball is in the government's Court: they have the reserves, we have set the infrastructure for transport services, and interest exists on the part of the foreign investors. What is missing? Investors are willing to take the risk now that the OCP is completed, so now it is up to the government to take certain actions needed in order to initiate new business opportunities in the sector".