Ivanhoe signs new oil deal with Ecuador

Reuters

October 8, 2008 at 5:44 PM EDT

QUITO — — Ecuador on Wednesday signed a service deal with Canada's Ivanhoe Energy Inc. [IE-T] to exploit an oil field, marking a victory for the leftist government in its drive to boost control over the crucial sector.

Ivanhoe plans to invest up to $5-billion (U.S.) over 30 years to extract oil from the Pungarayacu field in Ecuador's Amazon jungle. Ecuadorean oil officials have said the company could produce up to 120,000 barrels a day within five years.

President Rafael Correa, a leftist former economy minister, has pushed foreign oil companies already producing to switch to new service deals that would allow the state to keep all the oil they extract in exchange for a fee.

"Today, we have signed a contract that marks the change of times in our country," said Mr. Correa after signing the deal and replacing the country's oil chief to speed up negotiations with other companies.

Ivanhoe Energy

"We want private companies to have a fair return, but they also have to respect the winnings of the country."

The service deal with Ivanhoe is a win for Mr. Correa's drive to increase the OPEC nation's sway over the sector, but also highlights the U.S.-trained economist's willingness to continue working with foreign oil companies to boost production.

Mr. Correa has so far refrained from oil nationalizations, but threatened to expel foreign oil companies that fail to raise production levels. Most companies have halved investment since new contract negotiations started last year.

Mr. Correa's allies in Venezuela and Bolivia have nationalized key swaths of their economies including oil and gas.

Local oil experts have charged the new deal with Ivanhoe lacks transparency and questioned the company's capacity to meet production targets with experimental technology to upgrade the quality of heavy crude on site.

Ivanhoe has operations in Canada and China, and its working on a technological innovation that potentially makes developing heavy oil fields more economical for smaller producers.