EXTRACTIVE INDUSTRIES

Ecuador holds the third-largest proven oil reserves in South America, totaling 4.5 billion barrels in January 2008 according to the Oil and Gas Journal. In 2007 Ecuador re-joined OPEC, where it is the smallest oil producer with a quota of 520,000 barrels per day, yet production stood at 512,000 barrels per day in 2007. Ecuador is heavily dependent on oil revenue, which accounted for a quarter of the government's total fiscal revenue and half of its total export earnings in the period of 2000-2005, according to IMF data.

Since the inauguration of President Correa, the hydrocarbon sector has been subject to the ongoing political changes. Prior to 2007, private oil companies saw a steady growth of their output, increasing their share of total production from 44% in 2001 to 63% in 2005. However, in 2006 the government took over the assets of Occidental Petroleum, following several claims that the company had violated the terms of its contract by transferring assets to another company without the approval of the authorities and after years of disagreement over tax issues. Then, in 2007 President Correa announced his intention to renegotiate the existing production sharing contracts and change them into service agreements. In October 2008 a new Constitution was approved by a majority vote in a referendum. The new legal framework stresses the government's control over the extractive industry, defining the oil sector as a strategic asset, as well as declaring the State's inalienable ownership.

The largest international oil companies with presence in Ecuador are Repsol, Andes Petroleum, a consortium led by the Chinese National Petroleum Corporation, Perenco and Agip. During 2008 all these companies agreed to renegotiate their contracts with the government and are in the process of migrating to service agreements. In July 2008, City Oriente decided to leave Ecuador and its assets, which produced 11% of total oil output in 2007, have passed to the state. In 2007 approx. 20 different oil companies hold 15% of proven oil reserves and produced 46% of country total.

Although large scale industrial mining has been absent in Ecuador, 2007 saw the eruption of a heated debate around the issue. Following reports of sizable mineral deposits and the beginning of large scale operations, communities affected by these activities have led demonstrations against mining, which have resulted in clashes with public forces. The new Constitution defines mining in similar terms as the oil sector. In addition, the Assembly has approved a new mining code which includes several provisions that are intended to regulate the activity, thus infuriating those opposed to these activities, and providing for the creating of a new state-owned mining company. The code is currently being discussed, but it is expected to be approved soon. The amount of mineral reserves and economically feasible projects are still unclear.