BRAZIL, PETROBRAS APPEAR AMBIVALENT ON ECUADOR OIL

UNCLAS RIO DE JANEIRO 000280 SIPDIS SENSITIVE STATE FOR WHA/BSC, WHA/AND, WHA/EPSC, EB/ESC E.O. 12958: N/A TAGS: ENRG ETTC EPET EINV PREL EC AR NI AO LY IN TZ PK BR SUBJECT: BRAZIL, PETROBRAS APPEAR AMBIVALENT ON ECUADOR OIL CONTRACTS SENSITIVE BUT UNCLASSIFIED, PLEASE PROTECT ACCORDINGLY ¶1. (U) Jose Sergio Gabrielli, President of Brazil's state-controlled oil and gas company Petrobras, said October 7 that the company would not renegotiate with the Government of Ecuador on its oil production in the country. The statement was made during the inauguration of Petrobras' P-51 platform in the Campos Basin deepwater "Marlim Sul" field off the coast of Rio de Janeiro state. It was Gabrielli's first official statement after Ecuador's President Rafael Correa threatened to expel Petrobras from his country if the company did not renegotiate on new terms of oil production. ¶2. (U) In early September, Correa ordered the renegotiation of the contracts with all foreign oil companies which currently exploit half of the country's oil fields and keep 82 percent of the revenues. France's Repsol-YFP, Spain's Perenco and China's Andes Petroleum have already agreed to change their contracts. Under the new contract, Ecuador keeps the oil production by paying for the production costs as well as a share of the profits. ¶3. (U) Petrobras has a very limited presence in Ecuador -- only one exploration block and one production block with average daily output of 10,400 barrels per day. That accounts for less than 0.5% of the company's total production. ¶4. (U) Brazil's President Lula, who also attended the Petrobras platform inauguration, said the government was not taking part in the negotiations, but government departments might join the discussion if necessary. Lula stressed that though the problem is minor, Petrobras could reconsider its position about its operations in Ecuador. He said, "If there is an agreement, great. If not, Petrobras will find another way, and Ecuador will find new partners." ¶5. (SBU) Comment: Petrobras was probably considering pulling out of Ecuador anyway, for purely business reasons, so that it can focus resources here in Brazil. On October 2, Petrobras Global Business Manager Samir Awad told State Department Undersecretary for Economic, Energy, and Agricultural Affairs Reuben Jeffery that the company will likely pull back on many of its international operations with the exception of investments in the U.S., Argentina, Nigeria and Angola. He said that Petrobras will probably pull out completely from Libya, India, Tanzania, and Pakistan. Given the Petrobras' relatively minor interests in Ecuador, it appears that the Government of Brazil will not intervene in Petrobras' business decisions like it has previously done on deals with countries such as Venezuela and Bolivia. We do not expect Petrobras to renegotiate its contracts in Ecuador, and could see the company pull out from Ecuador in the near future. What implications the GOB may draw from the oil industry's response to Ecuador's changes as Brazil considers its own plans for oil sector restructuring remains to be seen. End Comment. ¶6. This message was cleared/coordinated with Embassy Brasilia. MARTINEZ