Drilling in Yasuní national park begins amid uncertainty

Details of contract between Sinopec and Petroamazonas have not been made publicly available

Drilling for oil in Ecuador’s biodiverse Yasuní national park is well underway despite a lack of clarity on the terms and conditions. In March, state-owned company Petroamazonas began drilling a third well in the Tiputini oilfield, three years after President Rafael Correa scrapped the Yasuní-ITT initiative, which sought international donations to keep the Amazonian park’s oil reserves in the ground. The event prompted tests for the drilling of 40 wells in the area, three of which are already operational and which aim to produce around 20,000 barrels of crude a day between July and December 2016. Petroamazonas is not operating alone and has contracts for specific services with Chinese state-owned oil company Sinopec. The two will cooperate on the development of Tiputini, the first of three oilfields (Ishpingo, Tiputini and Tambococha), which comprise the Yasuní-ITT project. While such contracts are permitted by Ecuador’s Hydrocarbons Law, the specific agreements reached by the parties are unknown. Or at least nobody is willing to discuss them. Petroamazonas receives services, technology and financing from Sinopec, as permitted by article 17 of Ecuador’s hydrocarbons law. The legislation allows Petroamazonas to contract national and foreign companies for any service, including the construction and operation of oil, gas and multipurpose pipelines, terminals and hydrocarbon processing plants. The value of the contract and terms of payment are negotiated between parties and are not necessarily made public. Italo Cedeño of the International Society of Petroleum Engineers, explained that Ecuador offers contracts such as these because it “does not have all the resources to finance the drilling of wells in ITT or the facilities for processing the oil”. He adds that they were intended as a means to secure advanced technology for exploration in Yasuní in order to minimise environmental damage. However, this is not the first time Petroamazonas has inked such contracts. The company has also signed deals with multinationals Schlumberger, Halliburton and Sertecpet for oil fields outside of ITT. In an recent article for Focus Ecuador, Fernando Villavicencio, a journalist and known opponent of the project, wrote that between 2013 and 2015 these companies invested US$3.29 billion in the production of over 57 million barrels. Another source, who preferred to remain anonymous, said that the specific services provided by Sinopec for ITT include the drilling and construction of three platforms in the Tiputini field in block 43. The contract is valid until the date of the final payment to Sinopec, although the amount of finance is, again, unknown. The source also said it is not possible to access appended contractual information because Petroamazonas and Sinopec have agreed to keep it confidential. According to Cedeño, these contracts are made with a rate of return of at least 15%. “We know the cost of drilling wells, electrical logs and production separators,” the anonymous source said adding: “We can calculate the return on their investment so far.” There are two types of contracts: contracts for specific work, which last between three and four years, and another to ‘support the operation’ of oil fields, which can last for up to 20 years. The contract with Sinopec was signed specifically for the development phase of the Tiputini oilfield. During the first phase, Sinopec built the rigs and supplied equipment for the first tests to determine the daily production volume. José Icaza Romero, Ecuador’s minister of hydrocarbons, said the production of crude oil ectracted from the first three Tiputini wells has been a success, having obtained at least 500 barrels from each. Further investment of US$2.6 million is planned up until December 2016. However, more specific details of the agreement, such as how much more investment is required and how and when payment will be made, are unknown. When approached, an official source said he was unaware of the specific contractual appendage and said that those who did know about it would not be willing to discuss it. Commercial production of Tiputini will begin next month. One of the few available figures is that the ITT fields are expected to yield 920 million barrels over a 20-year lifespan. Yet the opacity over the conditions under which these contracts are signed or renewed means it is impossible to know precisely how the future of one of the world’s most biodiverse regions is being negotiated. This article was originally published by GKillCity