PetroEcuador seeks to diversify finance sources

State-owned PetroEcuador is holding talks with Thai state-controlled oil firm PTT to secure a $500mn oil-backed loan to help finance its investment programme.

PetroEcuador aims to finalise the deal this month, the company and oil ministry officials tell Argus. A PTT delegation visited PetroEcuador's headquarters in Quito in April.

PetroEcuador has been looking for additional funding to help finance its 2015 investments since oil prices fell sharply last year. The firm has almost halved its capital expenditure budget to $637mn for this year. Refining and transport projects will alone require some $530mn. The company puts operating expenses at $1.1bn, mirroring last year's figure.

The PTT transaction would expand Ecuador's oil-backed obligations beyond China. Ecuador has arranged three separate loans since 2010 with China Development Bank totalling $5bn. The deals require PetroEcuador to supply crude to state-owned CNPC subsidiary PetroChina and state-owned Sinopec's trading arm Unipec in lieu of cash repayments.

China became Ecuador's main source of credit after the Andean nation defaulted on $3.2bn of sovereign debt in 2008. Quito owes China $5.2bn, around two-thirds of Ecuador's total bilateral obligations and over a quarter of its total external debt, finance ministry data show.

Ecuador signed an agreement with China Development Bank for $1.5bn to be used to finance infrastructure and development projects during a visit to Beijing by President Rafael Correa in January. Another framework agreement with China's EximBank would provide the government with up to $5.3bn to finance a list of unspecified projects that it will submit.

In a separate credit arrangement made in October last year, trading firm Noble Americas agreed to supply up to half of PetroEcuador's gasoline imports and diesel for five years under the terms of a $1bn loan.

The PTT loan will help finance PetroEcuador's investment plan for this year to offset lost income from lower oil prices. The firm's key priority is to complete the upgrade of its 110,000 b/d Esmeraldas refinery, the country's largest, which began a 13-month partial shutdown last year. Work is scheduled to end in August and the refinery will resume full operations by October. Esmeraldas has worked at half capacity during most of the turnaround.

Pacific campaign

Ecuador's other major refinery project, the 200,000 b/d Pacific plant, remains stalled. The refinery was originally due to start up in 2013, but the completion date has been repeatedly postponed and was pushed back to 2018 earlier this year. The installation of a water supply system should take place this year, but this too has hit hurdles resulting from budget cuts and a reluctance by the firms involved in the project to stump up more cash. The refinery project is owned by RDP-CEM, a 51:49 venture between PetroEcuador and Venezuelan state-owned PdV. The companies have held discussions with CNPC over it taking 30pc of PdV's share.

The refinery's 2015 budget was cut to $200mn, including PdV's contribution, in PetroEcuador's 2014-17 investment plan, down from more than $1bn previously. Ecuador aims to reach agreements this year over raising the rest of the finance needed to build the refinery and begin construction in 2016. The project has already absorbed more than $1bn.

Ecuador's government, in line with other oil-exporting countries, has reduced its budget for this year by $1.4bn to $34.9bn and reduced its crude export price assumption from $79.70/bl to a more conservative $60/bl.