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Ecuador offers oil firms tax cut to keep output up
May 16, 2008 / 5:36 PM / 10 years ago

Ecuador offers oil firms tax cut to keep output up

QUITO, May 16 (Reuters) - Ecuador on Friday offered foreign oil companies a cut in a controversial windfall tax, if they keep output levels up this year, in a move to boost dwindling production in the key sector.

A lower windfall tax, which has stalled private oil investment in the OPEC-member nation, could also pave the way for companies to sign new deals with the leftist government, which wants to boost its share of oil revenues.

Oil Minister Galo Chiriboga told oil executives the government was seeking new contracts within four months for companies to become only operators and drop deals that allow them to keep part of the crude they extract.

Meanwhile, he said, companies could sign interim participation contracts for them “to operate with clarity.”

“The Ecuadorean state is seeking good relations with the private companies,” Chiriboga told reporters during the meeting with executives.

Overall oil production, one of the Andean country’s main sources of revenue, has dropped in recent months, according to central bank figures.

President Rafael Correa, a former economy minister, surprised investors last year by grabbing nearly all of the companies’ windfall revenues above a set contractual price.

He also started negotiations for companies to boost state participation in deals.

In April he halted advanced negotiations with several companies, including Brazil’s Petrobras (PETR4.SA) and Spain’s Repsol (REP.MC), to speed up the switch of contracts to allow the state to keep all the oil the companies extract.

    The temporary contract would lower the 99 percent windfall tax to 70 percent in exchange for companies to maintain investment plans and withdraw lawsuits filed against the state in international courts.

    Repsol said this month it expects its daily output to drop 10 percent due to an investment freeze. Other industry executives said they have decreased investment because the windfall tax makes their business inviable.

    Private companies extract nearly half of the country’s daily oil production of 500,000 barrels.

    No company’s executives or spokesmen were available to comments.

    Other companies participating the talks included France’s Perenco and Chinese consortium Andes Petroleum (0857.HK) . (Reporting by Alonso Soto; editing by Walter Bagley)

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