A Change in Command at Petroecuador

A leadership change took place this week at Ecuador’s state-owned oil company following news that the firm would fall short on production goals, even as crude oil prices soared above $130 a barrel.  The shakeup coincides with a visit from Organization of the Petroleum Exporting Countries (OPEC) Secretary-General Abdalla Salem El-Badri, who also made a stop in Venezuela, South America’s other OPEC member country. Speaking from Quito, El-Badri blamed speculation and a weak dollar for surging oil prices. “Even if we increase output tomorrow, the prices will not come down tomorrow,” he told Reuters.

El-Badri comments were in response to criticism that OPEC has held back oil production to raise prices (Read a recent backgrounder from the Independent exploring the degree to which OPEC commands control over oil prices.). Yet Ecuador’s economy is feeling the effects of the country’s own flagging production. The amount that the oil industry contributed to Ecuador’s GDP fell by 9 percent last year, reports the Financial Times. Fernando Zurita, the Petroecuador president who stepped down Wednesday, came into office in November 2007 pledging to boost the company’s production to 180,000 barrels a day. Yet output fell to 169,000 in April and, on Monday, Zurita revealed 2008 projections to the tune of 172,000 b/d, faulting internal and administrative problems for the drop-off.

Correa appointed Admiral Luis Jaramillo, a former submarine commander with modest experience in the oil industry to replace Zurita (also a former navy officer). But it remains to be seen if the leadership shift of Petroecuador, which has a 51 percent stake in the country’s crude oil production, will help boost output. In 2007, Correa’s government raised windfall taxes on oil from 50 to 99 percent and announced intentions to renegotiate oil contracts with foreign firms. Some companies have responded to Ecuador’s evolving energy policies by bringing cases against the country in the World Bank’s International Center for Settlement of Investment Disputes, including a recent suit by Murphy Exploration. Last week, in a move to stave off declining output, Ecuador’s oil ministry made an offer to reduce the windfall tax for foreign firms if they maintain production levels this year.

Ecuador, which produces more than half a billion barrels of oil each year, serves as the U.S.’ second largest supplier of crude oil in South America, according to the Energy Information Administration. While it sells a majority of its exports to the United States, Ecuador has increasingly looked to the government of Venezuelan President Hugo Chávez—an outspoken critic of Washington—for support in boosting its oil production. On May 14, the countries announced plans to collaborate in the construction of a refinery in Ecuador in which Petróleos de Venezuela (PDVSA) would hold a minority stake. However, no date has been set to start construction of the refinery, and El Comercio notes that Venezuela delayed delivery of the second of two oil rigs rented to Ecuador after pledging to deliver it by November 2007. Venezuela also faces its own set of production woes, with production dropping by 5 percent in 2007, according to official estimates, with some reports indicating the problems may be worse.

Concerns over energy production have caused energy bottlenecks in other parts of Latin America. A recent AS/COA update examine the effects of a Bolivian slowdown in natural gas production on contracts with Brazil and Argentina. Another update takes a look at efforts to reform Mexico’s state-owned oil company and stem declining production.

On June 2, AS/COA hosts Ecuador’s Ministry of the Interior Fernando Bustamente as the keynote speaker for a panel discussion entitled “The Andean Region at a Crossroads: Economic, Political, and Security Prospects.”