[R-G] Ecuador to borrow oil from Venezuela as protests halt production

[Anthony Fenton]

Copyright 2005 The Financial Times Limited
Financial Times (London, England)

August 20, 2005 Saturday
USA Edition 2

SECTION: THE AMERICAS; Pg. 2

LENGTH: 524 words

HEADLINE: Ecuador to borrow oil as protests halt production

BYLINE: By HAL WEITZMAN

DATELINE: LIMA

BODY:


Ecuador has asked to borrow crude oil from Venezuela after days of 
violent protests in its oil-rich Amazon region forced the suspension of 
production by Petroecuador state oil company.

Magdalena Barreiro, economy minister, said yesterday Ecuador needed 
Venezuela's help "in order to be able to continue exporting normally" 
after attacks on installations by community groups cut oil production 
by about 65 per cent. Venezuela said late yesterday it had not received 
the request.

The price of oil exceeded Dollars 64 (Pounds 35.70, Euros 52.60) a 
barrel yesterday as traders responded to the crisis. Ecuador is the 
second biggest South American exporter of crude to the US. Oil exports 
finance about 35 per cent of the country's budget.

The political fall-out from the crisis claimed Solon Espinoza, 
Ecuador's defence minister, who stepped down yesterday at the request 
of President Alfredo Palacio, as troops completed their occupation of 
the eastern provinces of Orellana and Sucumbios, under a state of 
emergency since Wednesday.

The armed forces said on Thursday evening they had secured the two 
provinces, which produce three-quarters of state oil and about half of 
Ecuador's private oil, in order "to guarantee the physical security of 
the hydrocarbons complex and the return of the flow of petrol".

Earlier in the day, Petroecuador, Ecuador's biggest producer, suspended 
all production after protesters occupied installations.

EnCana of Canada shut down its output in Orellana on Wednesday. Ivan 
Rodriguez, energy minister, said protesters had sabotaged the company's 
oil pipeline, causing 1,000 barrels of crude to seep into a river 230km 
east of Quito.

The protests are the latest blow to Ecuador's troubled oil sector. No 
new foreign investors have signed exploration or production contracts 
since 1996.

California-based Occidental, the country's biggest private producer, is 
mired in a legal dispute with the government, which has accused the 
company of breaking its contract. EnCana, the second biggest private 
producer, is desperate to leave Ecuador.

Production by Petroecuador has slipped steadily from 280,000 b/d in 
1987 to 200,000 b/d this year, and it is estimated that its main 
producing fields are declining by 5 per cent annually. It recently 
appointed its third chief executive in nearly four months.

Rene Ortiz of the Ecuadorean Association of Oil Companies, which 
represents private companies, told the FT the protests had cut private 
oil production to about half its normal level of 340,000 b/d. "This is 
costing private companies about Dollars 9m a day," he said, and total 
losses for the sector amounted to Dollars 200m.

Local groups began protesting last Sunday, calling for higher wages, 
more jobs for local people, and the construction of schools, roads and 
health clinics.

The oil sector agreed last week to devote more funds to infrastructure 
spending in oil-producing areas, but the deal failed to prevent the 
unrest. Protest leaders are now demanding outright nationalisation.

Mr Rodriguez said that even once the protests were brought under 
control, getting Petroecuador back to its usual production would take 
at least 60 days.