Essay About International Oil Companies And Oil Industrycorrea’S Proposal

Petrobras in Ecuador
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Petrobras in Ecuador – By Rosa BolivarBACKGROUNDPetrobras controlled significant Ecuatorian assets including exploitation rights in two promising areas known as Blocks 18 and 31 since 200In 2007 President Correa decided to implement a campaign to increase state control over oil industryCorrea’s proposal was to replace existing contracts with service agreements where international oil companies would be paid a production fee and reimbursed for investments cost but all recovered oil would belong to the government; Also, it would prohibit international oil companies from filing arbitration claimsAny company refusing to renegotiate their contracts would face a 100% tax on profitsSWOT ANALISIS Strengths Robust market position in 23 countries and 4 continentsHighly diversified portfolio of assets Upstream and downstream revenuesOverall positive financial performanceWeaknessesExisting disputes with Ecuador government regarding Block 18 contract irregularities Existing disputes with Ecuador government regarding Yasuni Reserve – location of Block 31-environmental damage Ecuador withdrawn from ICSIDOpportunitiesExpansion plans in Africa, Middle east, Asia, Mexico and PeruGrowing pool of investors in addition of access to inexpensive Brazil Banks lines of creditThreatsGrowing nationalism tendencies in Latin AmericaIncreasing oil expropriation by Latin American’s governmentsEnvironmental Regulations in Block 31Political and Economic InstabilityPotential rise of Venezuela due to conflicts between Ecuador and BrazilHow should Petrobras respond to Ecuador’s unilateral revision of its contract?There are some options to consider:Seek compensation through local court battle or international arbitration Petrobras withdrawal from Ecuador through a mutually beneficial agreement with Ecuador governmentThe first alternative has the disadvantage of potentially creating tension  in diplomatic relations between Ecuador and Brazil governments. Also, international arbitrations are typically lengthy, consequently it would be a long-term solution.The second alternative would be a more conciliatory approach. Petrobras could attempt an agreement with Ecuador government for early termination on Blocks 18 and 31 contracts and be compensated for damages accordingly.