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Ecuador weighs costs ahead of vote on Amazonian oil – Argus

The river near Yarentaro community in the Yasuní National Park, Amazons, Ecuador (Erin Schaff/ NYTimes)

Alberto Araujo, Argus Media

energiesNet.com 06 22 2023

Five hours by motorboat into Ecuador’s Amazonian region along the Napo River, residents wonder whether the rest of the country will vote to keep producing oil that has brought some cash to an area mostly rich only in biodiversity.

Mayor Juan Carlos Orellana of the small Aguarico administrative division in Orellana province plans to vote against a 20 August referendum that would end oil operations in the Ishpingo, Tambococha and Tiputini (ITT) fields in block 43, in Ecuador’s Yasuni natural reserve.

About half of Aguarico’s 10,400 inhabitants depend on the operations for their incomes, which have risen from $50/month from mostly agriculture and fishing before production began in 2014, to about $600/month now. They provide operator state-owned PetroEcuador with transportation services on 20 boats and two buses as well as work in the fields and facilities.

Beginning operations in the Yasuni in 2014 — renowned for its biological wealth, natural beauty and remote indigenous population as a UNESCO Biosphere Reserve — was controversial. Ecuador’s government launched a failed attempt for the international community to pay the country to keep oil in the ground.

Now PetroEcuador faces reversing its entry if the referendum wins. The vote will take place at the same time as Ecuador chooses a new president in the wake of impeachment proceedings, directing focus away from the referendum decision.

PetroEcuador’s push to keep producing includes ferrying journalists to its production area through the small port of Miranda on the river, the gateway to the Tiputini field which was the first to start operations in the ITT.

If the referendum fails, PetroEcuador will continue to work its 250 wells in ITT that produced an average of 50,600 b/d of 9-15° API crude from January-April. In that scenario, PetroEcuador will expand its operations and drill an additional 45 wells in the block with an investment of around $409mn, to increase output by 7,000–10,000 b/d, said Diego Navarrete, manager of development and optimization of the ITT.

In addition, PetroEcuador would expand the power generation capacity of the fields to 120MW from 64MW.

Reversing the flow

But if the referendum wins, PetroEcuador also has a plan to gradually shut the 225 wells in block 43 in one year. It will take PetroEcuador about five years to dismantle some 10,000 tons of steel installed in the 80 hectares of the three fields since 2014.

This includes removing 30 tanks, 12 production platforms, three drilling towers, a 24 km (15mi) internal pipeline and another 55 km (34mi) pipeline that takes the crude from a processing center to nearby block 31 and then to the 450,000 b/d OCP pipeline, among other facilities.

The total cost of dismantling all the infrastructure is estimated at $450mn, according to PetroEcuador chief executive Ramon Correa. Stopping ITT production will reduce the central government’s income by about $1.2bn/yr, based on a production cost of $18/bl and a sale price of $66/bl for heavy sour Napo crude, the company estimates.

But environmental group Yasunidos, which promotes stopping oil activities in the ITT, believes PetroEcuador’s figures are inflated, arguing that the real cost of producing crude in that part of the country is $35/bl. Yasunidos also said that if the Ecuadorian government eliminates tax incentives and exemptions for corporations and individuals it could earn $6.3bn/yr, much more than the ITT generates. It wants to instead promote more tourism in the region.

But in Aguarico, the mayor points to the new health facilities and schools, as well as drinking water and sewage systems that now reach about 80pc of the population. He notes that there is little to ensure that the services would continue if oil production there ends.

argusmedia.com 06 22 2023

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