New Oil Production Targets Are Likely To Be Missed
BMI View: Ecuador's state-owned upstream company Petroamazonas is very optimistic regarding the country's short-term energy outlook, largely on the back of a planned 60% increase in government investment into upstream operations in 2013. While we forecast that oil production will rise this year, the increase will likely fall short of government targets. Furthermore, our forecasts suggest that Ecuador's oil production will peak in 2015 and begin a steady downward trend through the end of our forecast period. There are some modest short-term upside risks to this view, including new investment from an ongoing licensing round, however our core view of a sector in decline will remain intact.
Petroamazonas ' General Manager has stated that Ecuador's total oil production will increase approximately 4% in 2013 from 2012 production levels to reach 524,000 barrels per day (b/d) , which will be then followed by an additional 3% increase in production to 540,000b/d in 2014 .
This official production forecast is consid erably more optimistic than our own , which sees production increasing 0.6% in 2013 and 0.4% in 2014. While we do recognize the short-term upside risks to our forecast posed by efficiency gains on the back of the recent consolidation of Ecuador's stat e-owned energy companies-which saw all of Petroecuador 's oilfield s transferred to Petroamazonas-we believe that the government will fall short of its short-term production targets ( see our online service, November 20, 2012, 'Petroamazonas Consolidates Ahead Of Licensing Round' ). In addition, we anticipate Ecuador's oil production peak ing in 2015 , followed by a steady downward trend through the end of our forecast period.
|A Sector In Decline|
|Ecuadorean Oil Production, Consumption, & Net Exports, '000b/d|
New Licensing Round Provides Some Optimism, But Not Enough
Over the long-term, we do see the potential for upside risks to our forecast posed by the ongoing licensing round, which has on offer 13 new oil blocks for exploration in the relatively underexplored south east, near the border with Peru. The round is critical, as Ecuador's energy sector has been dragged down by a poor business environment which saw the drying up of all foreign investment since the election of President Rafael Correa in 2007. As such, this upcoming licensing round will be a key bellwether for the future trajectory of the sector.
For now, however, our core view of a sector in decline remains intact despite this upside risk. Indeed, according to assessments made during the 1970s, the country's south-east region had preliminary estimates of more than 100mn barrels (bbl) of crude. However, the government hopes that, due to recent technological advances, its real potential could be between 800mn and 1.6bn barrels (bbl). Yet, even the top line estimates of the licensing area's potential are likely to be insufficient to reverse the sector's overall negative trend.