Desperate to pay down its debts, this tiny country’s government has decided to completely scrap an environmental protection plan – swinging the doors wide open to one of the richest oil deposits ever discovered…
It can’t get any more controversial than this, folks…
Back in 2007, Ecuador stumbled onto a discovery in their Amazonian backyard that had major implications for its economy.
Some 900 million barrels of oil was found in a large oilfield situated beneath Yasuni National Park — one of the most biologically diverse places on earth.
At the time, the country sought to protect the rain forest and keep the oil in place. Ecuador was even hailed for its commitment to a green future.
According to the Washington Post, Ecuador estimated that keeping the oil underground would prevent 410 million tons of CO2 from being emitted. And protecting the park itself would absorb a further 800 million tons of carbon from the atmosphere.
President Rafael Correa recognized this and worked closely with the United Nations to legislate a trust fund that would essentially pay Ecuador not to drill the estimated $18 billion bounty.
The plan would seek $3.6 billion worth of monetary donations over 13 years from the international community. Keep in mind that after the 2009 UN climate talks, the world’s wealthiest nations had already agreed to pony up $100 billion a year by 2020 to help poorer nations combat carbon emissions.
But the money never showed up.
In 5 years, the Ecuador government collected just $336 million for the failed rainforest program.
To make matters worse, the country defaulted on $3.2 billion worth of foreign debt in 2008 and has since sought out over $7 billion in additional loans from China.
Ecuador has depended on loans from China to maintain its high public spending. In exchange, the Asian nation has been able to secure oil supplies from the Andean country.
Needless to say, President Correa’s decision to pull the plug on August 14th was only a matter of time.
With no other way to pay down their debts, the country had little choice but to turn its attention back to the very resource it wanted to preserve: Amazon oil.
“Let no one be fooled, the fundamental reason this failed is because the world is hypocritical,” Correa said in a recent speech. “The world has failed us.”
Open Season On An $18 Billion Giant
Although Ecuador’s existing petroleum industry is already operating in the Amazon rainforest — it only produces a total of 538,000 barrels of crude each day, mostly from the prolific Lago Agrio oil field in northeastern Ecuador.
The development of Yasuni would substantially increase the country’s production.
Two state-owned energy firms, Petroamazonas and its parent Petroecuador will be first in line to begin exploration in the area, which consists of three untapped oil blocks known collectively as the Ishpingo-Tambococha-Tiputini (ITT) field.
However, debt obligations to the Chinese means there’s a good chance that some of China’s big oil players could descend upon Yasuni in the very near future as well.
And that brings me to one of my top Ecuador oil stocks to buy…
Top Ecuador Oil Stocks to Buy:
Last November, Ecuador launched its 11th oil-licensing round, which awards exploration permits in the southern Amazon.
By the time applications close on November 28, 2013, the Ecuador government expects the majority of bidders will be Chinese.
One company that expressed interest and has been active in Ecuador since providing its very first drill rig to Petroecuador in 2004 is China’s Sinopec (NYSE:SHI).
Last year, Sinopec acquired Amodaimi Oil Co., an Ecuadorian subsidiary of Repsol SA, which held portions of key exploration blocks in the country.
This past week, the company submitted a bid to build the 46,000 bpd Pascuales-Cuenca oil pipeline project. Upon completion, the pipeline will supply diesel, gasoline, and liquefied gas to six provinces in Ecuador.
The way I see it, Sinopec is set to continue expanding its footprint in Latin America.
Already holding assets in Brazil, Venezuela and Argentina, among others, snatching up targets in Ecuador’s Yasuni will be yet another major stepping stone for the company.
Before Ecuador announces the winning applicants at the end of November, this is a great time to take a position.
Another company that could be in the mix to develop oil from the Amazon is Canacol Energy (TSE:CNE).
Canacol is a Canadian oil explorer and producer and is focused primarily on Colombia with some exposure to Ecuador.
In February 2012, the company, through a consortium, entered into an incremental production contract for the Libertador and Atacapi fields located in the Oriente Basin of Ecuador.
This lucrative deal gives Canacol a tariff price of $39.53 per barrel of oil produced under the incremental production contract. The operator, PetroAmazonas (previously PetroEcuador), is responsible for all production expenses related to the incremental production, while the consortium is responsible for a 2.5% Amazonia Fund contribution on the incremental production.
Canacol plans to participate in the drilling of 7 new development wells within the Libertador – Atacapi fields, and has recently participated in the drilling, completion, and tie in of the first well, Secoya 44D.
Although not directly in line to develop the Yasuni, the company is still an undervalued and rapidly growing explorer with growing exposure to Ecuador’s Amazon oil fields.