Ecuador's ITT project - a billion barrel opportunity but not without challenges

In its latest Latin American research, Wood Mackenzie discusses Petroecuador’s decision to put the Ishpingo-Tambococha-Tiputini (ITT) field development out to tender. Wood Mackenzie examines the drivers behind this move to offer participation in the fields, which are estimated to contain close to 1 billion barrels of recoverable reserves.

Wood Mackenzie‘s analysis of some of the possible fiscal models for the project reveals that the size of the prize is significant; however, the terms granted to any ITT investors will have to be sufficiently attractive so as to balance some of the huge challenges associated with the project. As Michael Rae, research analyst – Americas for Wood Mackenzie, explained; “Specifically, ITT combines a remote, environmentally sensitive location with the need for sizeable production handling facilities; ITT crude is extremely heavy and lies in a basin which typically has a very high water-cut.”

He added, “Ecuador’s production profile is expected to enter decline this year based on existing development plans. With an estimated peak production of more than 100,000 b/d, the ITT development would go some way to mitigating this. Whilst ITT alone will not be enough to compensate for sliding production, a new contract would demonstrate that the government is committed to the long-term success of Ecuador’s oil sector.”

Graham Kellas, vice president of Petroleum Economics for Wood Mackenzie, said, "Ecuador is one of a small number of countries which has in recent years increased the tax take from producing assets by introducing a windfall profits tax. The impact this has on investors' perceptions of doing business within unstable fiscal environments is discussed in Wood Mackenzie's forthcoming Government Take study."

The three fields, which lie in the east of the country close to the Peruvian border, have long been the white elephant of the Ecuadorian oil industry. Although Tiputini was discovered as far back as 1970, the fields have so far gone undeveloped, but Petroecuador now appears to be making a concerted effort to get the project off the ground.

Wood Mackenzie says the fields are estimated to contain 5.5 billion barrels of oil in place reserves, of which 920 million barrels are thought to be initially recoverable. Although the area is no stranger to oil and gas development, access to the fields by road is not guaranteed, leaving potential operators to either air-freight equipment to the site or to ship it by barge via the nearby Napo river. As with all fields in Ecuador, Wood Mackenzie believes gaining the approval of the local communities will also be key to the success of the project.

Rae concluded, “Interest in the tender has reportedly been very high, particularly amongst national oil companies. However, any potential player will certainly be looking for a fiscal regime which takes into account the inherent difficulties associated with the project.”