QUITO - Brazilian oil giant Petrobras on Thursday agreed to switch to a new contract with Ecuador to make it only a contractor, marking a win for President Rafael Correa in his drive to boost his control over the key sector.
The new service deal means the company will be paid a service fee for extracting oil instead of keeping part of the crude, Oil Minister Galo Chiriboga told Reuters on Thursday.
"We reached an agreement with Petrobras to switch contracts after a meeting with the president," Chiriboga said from his office in Quito. "They agreed to start negotiating the terms of the new service contract."
Chiriboga said the government and Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) would meet immediately to work out details of the new service contract, including economic conditions, but he gave no details on when the deal would be signed.
"It (the deal) seems to reflect on the President's willingness to cooperate with the private sector," Gianfranco Bertozzi, an analyst with Lehman Brothers in New York, told clients in a note. "Headline risk from the oil sector may be diminishing and for now pragmatism seems to prevail over obstinance in Ecuador. Positive for markets."
Correa, an ally of nationalization-prone Venezuelan leader Hugo Chavez, has worried investors over his drive to rework oil and mining deals and threats not to repay foreign debt.
The widely popular ex-college professor, who for months has pushed oil companies to cough up more of their revenues to the OPEC nation, faces a tough referendum vote in September to bolster his sway over the economy via a new constitution.
The deal for the moment leaves out Petrobras' block 31, which is located at the heart of Ecuador's Amazon jungle and has yet to extract oil.
Drilling at the field has faced fierce opposition from environmentalist groups that worry the project will contaminate the ecosystem. The company had expected to invest $300 million in the field to produce around 40,000 barrels per day.
Still, Petrobras plans to keep investing in Ecuador after the contract switch and expects to increase its production in the country by 5,000 bpd this year, Petrobras executive director for energy, Decio Oddone, told reporters at a news conference in Quito.
Ecuador, South America's No 5 oil producer, represents only a small part of Petrobras's investment in the region.
Correa, a U.S.-trained economist and former economy minister, plans to meet on Friday with China's consortium Andes Petroleum and Spain's Repsol (REP.MC: Quote, Profile, Research, Stock Buzz) to secure a deal, government and officials of the companies told Reuters.
As part of negotiations, Ecuador wants companies to drop a series of international lawsuits filed over Correa's surprise move last year to take nearly all of the companies' windfall tax over a set contractual price. The country also wants countries to resolve future contractual rows in Latin American courts instead of bodies in the United States and Europe.
The new service deal means the company will be paid a service fee for extracting oil instead of keeping part of the crude, Oil Minister Galo Chiriboga told Reuters on Thursday.
"We reached an agreement with Petrobras to switch contracts after a meeting with the president," Chiriboga said from his office in Quito. "They agreed to start negotiating the terms of the new service contract."
Chiriboga said the government and Petrobras (PETR4.SA: Quote, Profile, Research, Stock Buzz) would meet immediately to work out details of the new service contract, including economic conditions, but he gave no details on when the deal would be signed.
"It (the deal) seems to reflect on the President's willingness to cooperate with the private sector," Gianfranco Bertozzi, an analyst with Lehman Brothers in New York, told clients in a note. "Headline risk from the oil sector may be diminishing and for now pragmatism seems to prevail over obstinance in Ecuador. Positive for markets."
Correa, an ally of nationalization-prone Venezuelan leader Hugo Chavez, has worried investors over his drive to rework oil and mining deals and threats not to repay foreign debt.
The widely popular ex-college professor, who for months has pushed oil companies to cough up more of their revenues to the OPEC nation, faces a tough referendum vote in September to bolster his sway over the economy via a new constitution.
The deal for the moment leaves out Petrobras' block 31, which is located at the heart of Ecuador's Amazon jungle and has yet to extract oil.
Drilling at the field has faced fierce opposition from environmentalist groups that worry the project will contaminate the ecosystem. The company had expected to invest $300 million in the field to produce around 40,000 barrels per day.
Still, Petrobras plans to keep investing in Ecuador after the contract switch and expects to increase its production in the country by 5,000 bpd this year, Petrobras executive director for energy, Decio Oddone, told reporters at a news conference in Quito.
Ecuador, South America's No 5 oil producer, represents only a small part of Petrobras's investment in the region.
Correa, a U.S.-trained economist and former economy minister, plans to meet on Friday with China's consortium Andes Petroleum and Spain's Repsol (REP.MC: Quote, Profile, Research, Stock Buzz) to secure a deal, government and officials of the companies told Reuters.
As part of negotiations, Ecuador wants companies to drop a series of international lawsuits filed over Correa's surprise move last year to take nearly all of the companies' windfall tax over a set contractual price. The country also wants countries to resolve future contractual rows in Latin American courts instead of bodies in the United States and Europe.
