President of New Stratus Energy: There is still a lot of crude in blocks 16 and 67, we propose to invest $ 200 million immediately

The president and founder of New Stratus Energy (NSE), José Francisco Arata, has had a tight schedule between meetings with the Ministry of Energy and the personnel currently working in fields 16 and 67 of the Amazon, in which Repsol is a partner. of the consortium that manages them. Arata has sought to explain both to the Ministry and to the staff what the share purchase transaction that NSE will make to Repsol consists of and how it seeks to be part of the oil production duplication process, proposed by the government. To do this, he says, he has an immediate investment of $ 200 million.

What does the new request that have entered the Ministry of Energy these days imply?

We are clarifying what was not explained the previous time, about what the transaction consists of. The idea is that New Stratus Energy (NSE) will acquire the shares of Repsol Ecuador, in Spain. Therefore, the legal entity, the operator that is a member of a consortium -which operates blocks 16 and 67- would not be affected in any change. The company would continue to operate with its personnel, RUC, with its commitments, with its financial and technical capacity.

Does the name stand?

Regarding the name, we are being asked that in a peremptory period we can change it so as not to use the Repsol brand. But this would not affect the workers’ labor rights, seniority remains.

What is the proposal now for Ecuador?

We are telling the Government that there is still a lot of crude in these blocks, since the recovery factor has been barely 18%. In these fields, 30% to 35% can be recovered, but investment is needed. We are willing to make investments of $ 200 million in 2022 and 2023 to drill 30 wells and build the infrastructure. The idea is not to wait for the contract to be reverted to the State, for it to go to tender and for this process to take 3 or 4 years. The consortium knows that it has one year left, it is no longer investing, there is no time for the return on that investment. If we know that we are going to have a contract extension of at least fifteen years, from next year we can start with an increase in production.

They have been known to have international financiers. How would it work?

We have signed a letter of intent with Goldman Sachs, the entity that is supporting us, since when we were grouped with Pacific Rubiales. They consider that this project in Ecuador is solid and that it will generate profitability. We also have a letter of intent with Baker Hughes, one of the largest multinationals in the world that is a contractor for these blocks and supplies electrosubmersible pump equipment. They know the potential of the fields and have told us that they want to be part of the project.

Will it continue to be the same operator despite the name change and must the Ministry approve or not that purchase that is going to happen in Spain?

It should not be approved by the Ministry, as it is difficult for you to make a decision in Spain. However, in similar transactions and due to an event that occurred many years ago with Oxy, the companies request the approval of the Ministry and that it be verified that the new shareholder meets the requirements.

The previous time they wanted to acquire the OCP share package, now not?

We are focusing on exploration and production assets, on increasing production in blocks 16 and 67, there we can contribute with Ecuador to increase production. The OCP is a passive participation in an operator that is doing well. There we would not contribute anything new.

What does Repsol gain, what does Ecuador gain, and what do you as New Stratus gain from this proposal?

Repsol is on its way out, it is a corporate decision for a reorientation of its energy policy. They don’t earn anything. Ecuador wins because investments are going to start coming in, guaranteed by the international financial sector, which is already setting its sights on the country. I believe that with the proposal that we are making to the Government, not only will direct investments come, but Ecuador will become fashionable, as Colombia did in 2003-2004. The investment of $ 200 million, if it is changed to the participation contract and calculating under a price of between $ 60 and $ 65, would mean the country about $ 1.8 billion in fifteen years, without risking a single dollar. This calculation is based on the participation model that already exists in Ecuador.

What about labor and environmental liabilities, and how do the communities in the area receive their possible participation in this new stage?

We talked during the visit to the Amazon with the Waorani community. Health programs, education, certain infrastructure will be maintained. They look forward to continuity in these social responsibility plans. Well, this was already the last year, due to the termination of the contract. Regarding labor, there are two scenarios: if there is no extension of the contract in 2022, all the workers are liquidated with the legal indemnities, and for that the funds are already provisioned both by NSE and by the other partners. If the renewal is given, those workers who are already tired will be terminated, but the majority who are interested continue from 2022 in the same conditions and the same advantages that they have had until now. Regarding the environment, the company has been complying with environmental audits normally.

In your first attempt it was said that the purchase of shares would cost $ 5 million, now those conditions change?

Those prices fluctuate depending on the closing date and crude oil prices. When we were negotiating the operation it was giving losses, because the prices were not enough to pay the fee. Now the situation is different.

What will happen to the debt of carry forward when the contract ends?

In either of the two scenarios (if the contract is extended or it ends in 2022) the State’s debt to the company is extinguished. The carry forward for the entire consortium it is $ 350 million and the net for Repsol is $ 120 million. As there are now high prices, the Government is paying part of that debt. It would be in the interest of the Government to be able to quickly negotiate the participation contract so as not to continue paying.

As an expert on oil issues, do you consider that the Government’s goal of reaching one million barrels by 2025 is viable?

I speak from the experience we live in Colombia. When we arrived in 2004, production was 515,000 barrels and there were no investments due to safety. After the reform of the oil sector, investments began to arrive. In eight years, 1,030,000 barrels were reached. The difference between Ecuador and Colombia is that Ecuador has more potential, as it has four times more reserves and better oil infrastructure than Colombia had. If the appropriate decisions are made through participation contracts and investments arrive in blocks and areas with proven reserves and mature fields, it is feasible to double, although the four-year period is short. In fact, we want to be part of this movie to lift production. In Colombia we were responsible for 65% of the duplication. (I)