Correa offers players temporary contracts

Ecuador's President Rafael Correa has offered foreign companies working in the country's hydrocarbons sector six-month temporary contracts while talks over revising exploration and production deals continue.

Oil & Mines Minister Galo Chiriboga told a press conference today that the government will seek to seal temporary deals. Following that period, the government will seek service contracts.

"They will be improved contracts that guarantee legal security for both parties," Chiriboga said.

He did not give details of the new contracts.

Correa made an announcement from Mexico this weekend that he had stopped contract negotiations with Spain's Repsol-YPF, France's Perenco, Brazil's Petrobras, US-owned City Oriente and the Chinese-owned Andes Petroleum.

The companies began renegotiating their contracts in January after Ecuador increased its share of windfall profits from 50% to 99% last year by a presidential decree.

Correa had announced that he would change current participation contracts to service contracts.

Under participation contracts, the state receives a percentage from oil production, while in a service contract companies would be paid a production fee and reimbursed for investment costs.

Average oil output in January from Ecuador was 519,452 barrels per day.

Petroecuador's oil output averaged 265,935 bpd while private companies' oil output was 253,516 bpd.

Chiriboga said the government is aiming for constitutional oil sector reform to establish that the state will always own the oil found in the country.

The new constitution "will give the state greater sovereignty over its resources. It will define the basic limits and principles of the relationship between the state and private companies," he told Dow Jones.

He added that the government said that Correa's government is also looking to strike a clause contained in a number of contracts with private companies which allowed them to go to the World Bank's International Centre for the Settlement of Investment Disputes to solve tax issues and other financial conflicts.

California-based Occidental Petroleum is seeking $1 billion in damages from the World Bank body over Ecuador's decision to cancel the company's contract in May 2006, accusing the company of violating its terms, particularly in transferring, without proper authorisation, a 40% stake to Canada's EnCana.

"We are looking for greater sovereignty, greater autonomy and legal security," Chiriboga said.