[NGW Magazine] Ecuador Opens Bidding Round
Ecuador has launched a new bidding round, which includes the country’s only gas producing field, as Quito tries to drum up interest in the slow-moving natural gas sector. But it faces competition from other countries seeking investors.
Ecuador launched an auction March 13 for a 10-year service contract for the Amistad (‘friendship’) gas field in the coastal south of the country, as well as contracts for several oil fields. Officials reportedly said that payments would be linked to global oil prices.
The results of the auction are due to be released in June. Under the contracts, companies will carry out activities that include drilling, well completion, the reactivation of plugged wells and the construction of required facilities. Oil and gas minister Carlos Perez has said four companies – Chile’s GeoPark, a unit of Russia’s Rosneft, China’s CCDC Petroleum and Hilong Group – have expressed an interest in the bidding so far.
The Amistad field, which supplies the 130-MW Machala power plant, is around 60 km offshore in Block 6 in the Gulf of Guayaquil, and has seen prolonged developmental delays over its long history.
Today it produces about 39mn ft³/day, but Ecuador’s state-run Petroamazonas has said it wants production to rise again to 50mn ft³/d – the peak level it was at a few years ago before production began declining.
The government “just needs to do something to get solid investment in the field. There are not a lot of other gas fields in Ecuador – that’s the main gas source for them at moment,” Marco Baltazar, a senior consultant at energy advisory firm Wood Mackenzie, told NGW.
Despite its discovery as long ago as 1970, the field has remained underdeveloped for many years as there is no market for the gas, the consultancy said in a report last year.
It did not start producing until 2002, operated by a unit of US independent Noble Energy, Energy Development Company. In 2010, Petroamazonas assumed operatorship of the field when the US firm refused to switch from a production-sharing contract to a service agreement.
The field has been operated by the state for the last eight years. Production was boosted in 2012 when three satellite platforms were installed – two of which are producing. A seven-well drilling programme was also embarked upon that year.
Reprocessing of seismic data has taken place for the second phase of development of the field, which Petroamazonas said has boosted gas reserves to a total of around 1.7 trillion ft³.
The second development phase includes a seven-well drilling programme as well as the installation of connecting platforms between three platforms.
It will also involve the construction of a large trunk pipeline leading to the onshore processing facility. However the ministry of hydrocarbons said at the end of February that no wells have been drilled at the field for the past two years, which could deter potential investors.
In addition, there are several big auctions scheduled to take place across Latin America this year, meaning Ecuador will have to compete quite hard to attract foreign investors to its auction.
Colombia said in March that is planning a major oil auction in April, while new bid rounds are also already due to take place in Brazil, Argentina, Mexico – for the onshore shale gas acreage in the north – and Uruguay.
Historically, the field has been underdeveloped, however that is now changing because there is greater gas demand, Baltazar told NGW.
Drawing investment to the field in future could however still pose a problem, he noted. “There was an investment between around 2012 and 2016 – they [the government] drew up a couple of wells and they did some workovers but more needs to be done if they want to increase the output from the field,” he cautioned.
In addition, it will be difficult for the government to make changes to the kind of contracts it uses for gas fields, something which it has already done in the oil sector, he noted.
Starting in 2010, the government of the former president, Rafael Correa, began to revamp Ecuador’s oil field production sharing contracts by enabling joint-venture partners to become service contractors. The introduction of fee-for-service contracts meant that contractors receive a payment for each additional barrel of production.
After the global oil price crashed in 2014, the government changed some of the original service contracts because they had very high oil prices, said Baltazar.
They were adjusted – to take account of new oil prices as low as around $30/barrel – and tied to West Texas Intermediate crude prices. Nonetheless, the same cannot be done for gas contracts because prices are very low at the moment, he added.
Coupled with that, there is oversupply in the market, partly owing to shale gas in the US. Further to these challenges, Baltazar said that there is a lack of regulation in the gas market including over the price that the government will pay to companies for their gas.
“They can import gas from Peru at low prices so that would also be competing – why would you develop a field if it costs 3 or 4 dollars per cubic metre to get that gas when you can get that same gas imported from Peru,” he asked.
It “remains to be seen what price and if it makes better sense to just pay for LNG imports from Peru or Trinidad,” he added. From a government perspective, having your own supply of gas is a matter of national energy security – and sometimes economics interferes with national policy,” he pointed out.
Overall it may be more expensive to develop the field but it would of course guarantee the country’s energy supply in the long-term, and it is in the best interests of the Ecuadorian people that they develop this gas, he added.
Sophie Davies