MercoPress. South Atlantic News Agency

Ecuador cuts into private oil companies windfall profits

Multinational oil companies operating in Ecuador called the government's decision to take a larger share of windfall profits a “legal atrocity”.

The new legislation contemplates a 60% share of additional profits when international oil prices exceed those established in contracts. Currently the Ecuadorean treasury is entitled to 20%.

"A contract can't be altered by a bill", said Ecuador's Hydrocarbon Industry Association president Rene Ortiz, "what they've done is a legal atrocity and unconstitutional".

Mr. Ortiz said the legal way out was to renegotiate contracts individually and stressed that the path chosen will only "scale back investment in the country".

According to Ortiz foreign companies invested some 7 billion US dollars between 1993 and 2005 to bolster production, pushing daily output up from 60,000 to 330,000 bpd. State-owned oil company Petroecuador meanwhile, invested less than a billion US dollars in the same period and production fell from 340,000 bpd to 204,000 bpd

Economy Minister Diego Borja said legislation is intended to "equitably" share the profits garnered because of the high international price of crude. Implementation of the new law will result in an additional 250 million US dollars annually.

Light sweet crude was selling at 67.39 US dollars a barrel last week, compared with roughly 15 US dollars a barrel when the existing contracts were drafted.

A total of 15 foreign oil companies operate in Ecuador, the biggest Spain's Repsol-YPF; Italy's Agip; the Andes Petroleum consortium, headed by China's CNPC; U.S.-based Occidental Petroleum; and France's Perenco.

Ecuador's oil exports last year totaled 5.4 billion US dollars and are the country's main source of hard currency: Oil revenues also finance almost 40% of the national budget.