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Ecuador Law Threatens Oil Assets

Foreign oil firms in Ecuador have to accept renewed contract terms or face expropriation. Chevron presents evidence of fraud.



A new proposed law increases the likelihood of expropriations of foreign oil assets in Ecuador if the owners don’t accept the renegotiation of existing contracts, UK-based Exclusive Analysis warns.


Meanwhile, US-based oil producer Chevron has formally presented evidence to U.S. and Ecuadorian authorities of fraud in the $27 billion lawsuit against it.

“A draft hydrocarbon law forces the renegotiation of oil contracts [and international oil companies] refusing the new terms will likely see assets expropriated,” Exclusive Analysis said in a commentary today. “This forces IOCs such as Spain's Repsol, Brazil's Petrobras, Italy's Eni and China's CNPC and Andes Petroleum to migrate their contracts from the current production sharing agreements (PSAs) to service contracts.”


The new law will likely go into effect as soon as July 26 and the financial terms will be negotiated through October once the legal issues are settled, it adds.


While Canada's Ivanhoe Energy has agreed to the new contracts, others are instead reducing their investments in the Andean country – from about $772 million in 2006 to a projected $410 million in 2010 and just $80 million by 2013, according to Exclusive Analysis.


“This has prompted the government to issue additional expropriation threats against firms significantly reducing investments,” it says and points to the cancellation of a gas contract for US-based Noble Energy.


“With no access to borrowing in international capital markets following a sovereign default, President Correa is seeking additional sources of revenue to sustain Ecuador's oil dependent economy [but] the move is a major gamble for Ecuador, a country that has seen oil production decline,” Exclusive Analysis says. And state-run firms Petroecuador and Petroamazonas will struggle to boost production if the IOCs leave, it points out.  




The lawsuit against Chevron by a group of alleged victims of contamination in Ecuador has been marred by systematic fraud, the U.S. oil giant has repeatedly warned.


“Throughout the year, Chevron has been engaged in discovery proceedings in several U.S. federal courts and the process has yielded significant evidence demonstrating that representatives of the Lago Agrio plaintiffs have engaged in a fraud on the Lago Agrio court,” Chevron spokesman Kent Robertson said in a statement today.


A letter and supporting documents were delivered yesterday to Ecuador’s Prosecutor General, Washington Pesantez, as well as the Assistant Chief of the Criminal Division’s Fraud Section at the U.S. Department of Justice.  “The letter outlines the evidence collected so far, demonstrating that the Lago Agrio plaintiffs’ representatives and consultants colluded with the court-appointed, supposedly independent expert, Richard Stalin Cabrera Vega, to illicitly pass off their work product as the work of Mr. Cabrera. Through this scheme, the plaintiffs’ representatives and Mr. Cabrera violated the expert’s obligations of transparency and impartiality, and they committed a fraud on the Lago Agrio court.” 


In the letter, Chevron attorney Thomas F. Cullen, Jr. from Jones Day writes that the recently uncovered evidence includes indicia of “misrepresentation, concealment, and fraud.”   


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