Government awards oil contract to Chinese-led coalition despite objections from indigenous leaders

By Alexandra Valencia

Ecuador’s Energy Ministry awarded an onshore oil contract to a consortium led by China’s state-owned producer Sinopec on Monday, in an effort to increase oil output from the country’s Sacha block.

Energy Minister Ines Manzano announced the Sacha oil field contract award to a Chinese-led Sinopec on Monday.

The block is Ecuador’s most productive, located in the country’s northeastern Amazonian province of Orellana. It pumped 77,000 barrels per day (bpd) last year.

The 20-year production sharing contract for Sacha would be run by a consortium comprising Sinopec and Canada’s New Stratus Energy.

The contract was awarded despite protests from indigenous groups that claim the Sacha area is part of its “heritage territory.”

Energy and Mining Minister Ines Manzano said the consortium has four weeks to sign the contract, and pitched the deal as a way to upgrade an aging but still productive asset. “It’s been said that Sacha is the (local oil sector’s) crown jewel, but I’m sorry to say it’s a rusty crown and the jewels need to be polished,” she said at a press conference, stressing that the block is not being privatized or sold off. “But it will be operated with greater efficiency under the new management,” she said.

New Stratus said in a statement on Monday announcing the deal that it includes an upfront cash payment of $1.5 billion, $600 million of which it will pay, with the contract expected to formally commence later this month.

Sinopec holds a 60% stake in the consortium, and New Stratus the remaining 40%.

Ecuador is one of Latin America’s smaller oil producers, currently producing 465,000 bpd, far behind regional heavyweights Brazil and Mexico.

The project could add some 373 million barrels of oil output over the next two decades, with government coffers expected to take 82% of the income generated assuming an average price of $62 per barrel, according to the Ecuadorean government. Guillero Ferreira, deputy hydrocarbons minister, told reporters that the contract should help boost Sacha’s output to 100,000 bpd over the next three years.

He added that the new production will replace loses from the Yasuni National Park, which was ordered shut down in national referendum last year.

In the past, officials have said Ecuador does not have the funds or the technology needed to best develop Sacha.
Beyond the upfront cash payment, New Stratus said the consortium has agreed to spend more than $1.7 billion during the contract’s initial phase to finance a ministry-approved development plan.

Authorities have defended direct negotiations with the consortium, versus opting for a public auction, arguing the law allows such a direct award.

Indigenous leader and former presidential candidate Leonidas Iza described as “illegitimate” the award of the Sacha field, saying Sacha has been recognized “for generations” as being part of the indigenous community’s homeland. He also rejected the timing of the agreement, two months before the presidential run-off election between President Daniel Noboa will face off against contender Luisa Gonzalez.