Forecasts Suggest Struggle To Raise Production

BMI View : Despite ambitious production targets, we expect Ecuador to struggle on the back of mature fields and a lack of experienced foreign partners. Upside risks comes from enhanced oil recovery projects and potential upstream developments, but at present we believe the country will miss its ambitious targets as it approaches peak production volumes.

Petroecuador, Ecuador's state-owned oil company, announced expectations for a 7.5% increase in production to an average of 178,000 barrels per day (b/d) for 2013. This increase is set to come from drilling in the Acua, Shushufindin and Cuyabeno fields in the Amazon. Ecuador expects overall production to increase to 530,000b/d in 2013, a rise from 2012's 510,000b/d target. Much of the expected increase is set to come from the Sacha oil field, operated by a joint venture (JV) between Petroecuador and Venezuela's state-owned PDVSA.

However, we believe Ecuador will fail to achieve its ambitious production targets, with production in 2012 forecast to reach 515,500b/d and fall to 500,000b/d by 2013. Moreover, we expect this trend line to continue, with production on a slow annual decline until the end of our forecast period in 2021 ( see our online service, August 24, 'Energy Sector In Decline').

In the case of the Sacha oil field, we highlight uncertainty associated with PDVSA's role in the project. Despite promising in 2007 to raise output from the light oil field by some 20,000b/d from 46,000b/d, this target has not been met and production remained just above 50,000b/d. Although we acknowledge the potential of greater volumes from increased investment by field operators, we underscore the Sacha field as evidence of the difficulties Ecuador has had in raising overall production despite ambitious targets.

Standing At The Peak
Ecuador's Oil Production, Consumption & Exports, 2005-2021 ('000b/d)

Volumes To Fall, But New Investment Could Limit Losses

Increasing oil production has been a goal of successive governments in Quito; since the 1980s the country has alternated between more liberal open-market approaches and its current state-led strategy under President Correa. High oil prices have meant that, despite less attractive contract terms following the introduction of fee for service contracts, some multinational firms have continued operating in the country's oil and gas sector.

Upside risk to our forecasts comes from recent investments in enhanced oil recovery (EOR) operations, particularly with Western service companies such as Schlumberger. Attracting firms with expertise in EOR will be essential if Ecuador - OPEC's smallest producer - is to offset output decline from maturing fields and maintain healthy state revenues. State-owned companies have to-date been largely unsuccessful in their efforts to raise volumes from mature fields

Ecuador's challenging business environment has left the country overly dependent on investment from state-owned firms of politically aligned governments, such as China and Venezuela. Yet these firms have less expertise in the technically challenging operations required to extract greater volumes from mature fields. This suggests Quito may struggle to increase production in 2012/2013 without improving its attractiveness to multinational firms, and in part supports our forecasts for volumes to remain below government targets.

Table: Latin America Oil & Gas Risk/Reward Ratings
Upstream R/R Ratings Downstream R/R Ratings Oil & Gas R/R Ratings Rank
Source: BMI
Brazil 74.8 61.2 68.0 1
Colombia 73.4 51.9 62.6 2
Peru 70.2 47.9 59.1 3
Chile 45.1 49.3 47.2 4
Trinidad and Tobago 54.2 37.8 46.0 5
Venezuela 57.1 32.8 45.0 6
Ecuador 46.9 40.6 43.8 7
Bolivia 49.1 34.5 41.8 8
Argentina 37.4 45.3 41.3 9
Mexico 31.8 47.6 39.7 10
This article is tagged to:
Sector: Oil & Gas
Geography: Ecuador

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