Ecuador To Start Oil Contract Renegotiation

(Updates with comments of director of official gazette, additional details)

By Mercedes Alvaro

Of DOW JONES NEWSWIRES

QUITO -(Dow Jones)- Ecuador's nonrenewable natural resources minister, Wilson Pastor, said Monday that the process of renegotiating contracts with private-sector companies in the petroleum sector will start Tuesday.

Pastor said at a press conference the government will hand over model contracts to use in the negotiations this week.

The administration of President Rafael Correa wants to replace current production-sharing deals with service contracts for private operators that would see oil companies receiving a production fee, while the government would own 100% of oil and gas produced.

The state will reserve 25% of gross revenue before paying the fees to the companies that the government says will cover costs, amortization of investments and provide a reasonable profit.

The talks between the government and the private companies are expected to focus first on legal issues and then deal with fees and investments.

The government has said that if companies don't want to accept new contracts, a price will be determined for the liquidation of their current contracts, paving the way for them to leave the country.

On Monday, Pastor said that companies that don't want to change their contracts, will receive a "fair price."

On Saturday, during his weekly media address, Correa said that a bill for a new hydrocarbons law should automatically come into effect this week after lawmakers failed to meet the time limit set for voting on the proposal.

Correa sent the hydrocarbons law as an urgent bill to the National Assembly on June 25, with a 30-day deadline to approve or reject it.

On Friday, Fernando Cordero, president of the National Assembly and a member of the government's party, called for a Sunday-evening session to vote on the bill, although Correa said that was too late.

On Sunday, lawmakers from the government's party boycotted the session, and the opposition didn't get the votes it needed to officially start the session and vote on the bill.

Fernando Badillo, director of the official gazette, told Dow Jones Newswires Monday the law had been sent to his office at midday.

"Due to its importance, the law will have priority publication," Badillo said, and should be published this week.

The new law will convert private oil producers into little more than service providers for the exploration and extraction of hydrocarbons.

Once the law goes into effect, contract negotiations should begin between the government and individual companies.

According the new law, larger companies, including Italy's Eni SpA (E, ENI.MI), Spain's Repsol YPF SA (REP, REP.MC), Brazil's state-run Petroleo Brasileiro SA (PBR), China's Andes Petroleum Co. and PetroOriental, will have 120 days to sign new contracts. Smaller companies will have 180 days.

According the law, all types of contracts, including those for the so-called marginal, or low-production, oil fields, as well as contracts for specific services, should be changed to the new services contracts.

Specific service contracts include Chilean state oil and gas company Empresa Nacional del Petroleo SA, or Enap.

-By Mercedes Alvaro, Dow Jones Newswires; 5939-9728-653; mercedes.alvaro@dowjones.com