Boston, MA -- (SBWIRE) -- 03/07/2014 -- Ecuador, long a laggard for petroleum investment due to its above-ground risk profile, can be expected to make modest near-term gains in production. However, the incremental uptick in production is not matched by any commensurate growth in proven oil reserves. That is because exploration investment remains static, as the sector is beset by economic terms that are unattractive to many firms, a history of legal uncertainties and likely compounded by investors aversion to the risk of reputational criticism if they were to invest in blocks located within sensitive environmental areas of the country. Those blocks have failed to generate much interest and the deadline for bids has been pushed back several times. The country's government is trying to counter the corporate assumptions of risk with an aggressive courting of potential entrants to the country from Russia, and most notably China. Gas production is still predicted to continue to trend downward, albeit at a slower rate than oil.

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Much of the story of Ecuador's petroleum sector, both upstream and midstream seems likely to be written with China in mind. Beijing has been the country's primary foreign lender since Ecuador's debt default in 2008 and the Chinese have been paid in crude. Moreover, a cooperation agreement between China and Ecuador has confirmed that the China National Petroleum Corporation (CNPC) will take a 30% investment position in the Pacifico Refinery. The refinery, a partnership of state -owned Petroecuador and Venezuela's Petroleos de Venezuela, and now CNPC, has been pushed back on several occasions but is now planned to enter production in 2016. We recognise this as an upside risk to our forecasts, but considering the rolling delays to the project we have not yet factored it in our forecast scenario.

The key trends and developments in Ecuador's oil and gas sector are:

- Although there is upside from the potential awarding of new licences in an ongoing bidding round, our forecast calls for both oil and gas reserves to begin to trend lower toward the latter part of our forecast period. We see a somewhat similar trend for production. - -

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