Ecuador threatens foreign oil with expulsion

MIAMI, Oct. 13 (UPI) -- Ecuadorian President Rafael Correa has threatened to kick out foreign oil companies if they don't increase output in the coming weeks and months.

Coming off a recent victory in a national referendum on a new constitution for the South American country, Correa warned foreign oil firms "not to play with fire" and increase oil output. If they don't, said the fiery leftist leader, companies could face expulsion.

Among those companies coming up against Correa's ultimatum is Brazil's state-run energy firm, Petrobras, which drew the ire of Ecuadorian energy officials by not turning over a disputed Amazon oil block as previously scheduled to Ecuador.

Petrobras and other foreign firms recently agreed to new terms with the Ecuadorian government whereby they are obligated to pay the government a greater percentage of their profits for doing business in the country.

Other companies and countries are still in negotiations with the Correa administration over the new terms set out by Ecuador, which in recent years has sought to obtain greater control of its 500,000 barrel per day oil industry.

"Tough negotiations lie ahead as the state looks to assert greater control while companies push to be adequately compensated in return," said Patrick Esteruelas, an analyst with the Eurasia Group consulting firm in New York.

Correa, an open critic of multinational petroleum corporations he says operated with impunity for decades in Ecuador, said following his constitutional referendum win earlier this month that new oil legislation would enable him to spend additional oil revenue on social welfare programs.

He also said foreign oil interests should be prepared to turn over a larger portion of revenues, saying his administration would "demand fair compensation" for years of oil extraction in which Ecuador was not fairly compensated, according to Correa.

Critics of the president said the success of the referendum gives Correa too much executive influence over Ecuador's economy and will lead to rampant government spending.

However, his supporters praised his insistence on greater accountability in the oil sector, where the OPEC member nation hopes to increase output for sale on the international market in the near future to capitalize on inflated prices.

"Though Correa's socialist rhetoric has roused negative sentiment among Ecuadorian elites, his policies up to now have been enormously popular among the country's poor," read a recent analysis by the Washington-based Council on Hemispheric Affairs.

Oil has been something of a mixed blessing for the South American country, which hopes to join the ranks of Venezuela and Brazil, the continent's top two oil producers.

Much of Ecuador's foreign debt, totaling more than $16 billion, was incurred during the country's recent oil bonanza, during which time most of the oil revenue went straight into the coffers of foreign countries.

Oil dominates the country's economy and accounts for some 40 percent of export earnings and one-third of all tax revenues, according to the U.S. Energy Information Administration, the Department of Energy's data arm.

The country had proven oil reserves of 4.6 billion barrels in January 2006, the third-largest in South America, according to the Oil and Gas Journal. It is the fifth-largest producer of oil in South America; more than half its oil is sold to the United States.