The draft legislation, part of President Rafael Correa's effort to persuade foreign oil companies to renegotiate production contracts as service contracts, is likely to become law if current talks fail to produce a result to Correa's liking.
Ecuador wants oil contracts renegotiated to secure a larger share of its declining oil income. Correa has warned he won't hesitate to nationalize foreign oil assets if he doesn't receive new contracts from firms operating in the country.
Business analysts said the president's position wasn't helped by adverse export and production prospects for Ecuador oil production and exports, the country's main earner. Up to a quarter of Ecuador's budget is financed by oil income.
"We need the legal instruments in case they don't want to change to service contracts," Correa said. "We won't be keeping a single dime, here's the value of your investment but we are not interested in working with you any longer. Here in Ecuador the government and the people of Ecuador command, not the large transnational corporations."
Last week Correa declared, "We'll not be at the whim of the corporations and their timetables."
Correa has followed populist policies similar to the Bolivarian revolution of Venezuelan President Hugo Chavez amid falling revenues and declining growth in other sectors of Ecuador's economy.
Ecuador has 34 contracts with various companies including Italy's Eni SpA, Spain's Repsol YPF SA, Brazil's state-run Petrobras, China's Andes Petroleum Co., and Petro-Oriental de China.
Repsol YPF SA reported a 17 percent drop in oil production to 16.3 million barrels in 2009 from the 2008 level.
In February, production fell 5.8 percent to 13.1 million barrels from 13.9 million in the same month in 2009. Central Bank data showed that output from private companies fell 11 percent in the same period.
Industry analysts said most oil companies appeared to have no appetite for new contracts and some might already be resigned to seizure of their assets by the government.
However, nationalization wouldn't help improve Ecuador's finances and would discourage foreign investment, analysts said.
The government is locked in disputes with several privately owned companies in Ecuador and is poised to expand state takeovers in different sectors from communications to transportation and distribution.