Exploration / Development

Petroecuador seeks to develop Block 20 heavy oil

By OGJ editors
HOUSTON, Aug. 22 -- Luis Jaramillo, president of Ecuador's Petroecuador, said Ivanhoe Energy Inc., Vancouver, BC, would begin work within 9 months towards the production of heavy crude oil from Pungarayacu heavy oil field on Block 20 in Ecuador's Oriente basin, according to El Comercio newspaper.

Robert Friedland, Ivanhoe's executive chairman, president, and chief executive officer, confirmed that the company is in advanced detailed discussions with Petroecuador, but he claimed Aug. 19 that no final agreement has been reached.

"A final agreement would require approvals by both parties," Friedland said. "Disclosure of the terms of such an agreement would be made at an appropriate time," he added.

Petroecuador's former Pres. Fernando Zurita earlier this year said Pungarayacu reserves are 3-4 billion bbl of 8° gravity oil, and the company hopes to produce 30,000-120,000 b/d from the field within 5 years.

Petrobank Energy & Resources Ltd. has evaluated the commercial viability of developing the field, examining various alternatives for the optimal exploitation strategy for the extensive heavy oil resource. Ivanhoe has the technology to transform the heavy crude into a lighter, 23° gravity grade.

Ivanhoe, which recently purchased Athabasca oil sands assets from Talisman Energy Inc. northeast of Fort McMurray in Alberta, also has expertise in the US and China in upgrading heavy oil.

Important to Ecuador
Developing the Pungarayacu reserves is important for Ecuador, which is South America's fifth-largest oil producer as well as a member of the Organization of Petroleum Exporting Countries. The country had a total output of about 511,000 b/d in 2007, including production by Petroecuador and private oil companies operating in the country.

However, Petroecuador's steady production decline led to the resignation of the company's former president, Fernando Zurita in May, when the company failed to achieve its production goal of 180,000 b/d set by the nation's President Rafael Correa (OGJ Online, May 22, 2008). Zurita blamed the falling production on internal problems.

From an average production of 175,303 b/d in December, 2007, the state company's output fell to 169,011 b/d by April, partly from natural field declines. In February, flooding ruptured the 314-mile export pipeline, forcing the country to meet its export obligations from reserves in storage.

Earlier this year Ecuador's Mining and Oil Ministry reported that the company's 2008 oil production target had been cut to 172,000 b/d.

If the project to develop Pungarayacu is approved, the Canadian company plans to invest nearly $5 billion in the project, according to a Bloomberg report, with Ecuador paying $37/bbl for the oil extracted.

According to project plans, the field will be evaluated and results ratified, then production would begin at 30,000 b/d, rising gradually to as much as 120,000 b/d. The contract will be for 20 years with options for 10-year extensions.