Ecuador To Renegotiate With Agip Oil After Announcing Halt

QUITO (AFP)--Ecuador is renegotiating its contract with Agip Oil after announcing in December it had ordered the Italian oil company to halt production in line with OPEC mandates, President Rafael Correa said Saturday.

"We are renegotiating with Agip in a much tougher way," the president said in his weekly address, adding that the Italian company suggested the government stop charging it a service fee that it's currently paying.

Correa said Agip proposed "to work for free" to continue operating in Ecuador.

"We mourn (oil) contracts that nobody understands, that are tremendously damaging to the state and where cheating takes place," he added, explaining that Agip works under a service method that involves an extraction fee but at a more reasonable profit.

But, Correa said, Ecuador would have to pay for oil extraction (about $7 per barrel), investment depreciation and service rates.

"They have invested about $600 million since they are in the country, and have recovered $1.1 billion as payment for utilities and services. It is time to recoup the investment and make a huge gain," he added.

Agip, a subsidiary of Italian energy giant Eni SpA (E), currently produces around 23,940 barrels of oil per day in Ecuador's Amazon basin, under a 2000 contract Correa has said is not profitable for the country.

On Dec. 27, 2008, Correa said he had ordered Agip to halt production so Ecuador could meet a national output cut of 40,000 bpd agreed by the Organization of Petroleum Exporting Countries. He also said he had requested a stop on the production of France's Perenco, which produces 25,615 barresl per day.

The Perenco move comes after a failure to change the terms of its contract, according to Minister of Mines and Petroleum Derlis Palacios.

Ecuador, the smallest of OPEC's 13 members, produces about 520,000 barrels per day, half of which is from state-run Petroecuador and the rest from foreign oil companies. The cuts would allow Ecuador to decrease its national production to 453,000 barrels per day.

On Dec. 17, OPEC agreed to cut its output by 2.2 million barrels per day. The biggest production cut in the oil cartel's history came after oil prices plummeted to four-year lows from record highs in July of $147 a barrel.

Crude oil is Ecuador's main export product and generated about $10.3 billion of revenue between January and November 2008. Its price fell $36 per barrel from an average of $117.36 in June.

Quito estimated the 2009 national budget would be about $13.5 billion, given an average price of $55 per barrel of oil.

Ecuador reaffirmed Wednesday that it would default on some $3.2 billion in commercial debt, a day after it said it would pay outstanding interest on 2015 Global Bonds.

Finance Minister Maria Elsa Viteri said Ecuador would pay $30.5 million in outstanding interest on its 2015 Global Bonds on Tuesday.

But the economically strapped country remained in default for its 2012 and 2030 Global Bonds, authorities said Wednesday.

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