Correa Threatens to Expel Foreign Oil Companies Over Output

By Stephan Kueffner

Oct. 4 (Bloomberg) -- Ecuadorean President Rafael Correa said he may expel foreign oil producers, including Spain's biggest energy company, Repsol YPF, and Brazil's state-owned Petroleo Brasileiro SA, because of declining production.

The companies, particularly Petrobras, as the Rio de Janeiro-based Brazilian company is known, have dragged their feet in contract negotiations in which Correa wants a greater share of oil income, he said today in his first regular Saturday address after almost two-thirds of voters approved a new constitution he had proposed.

``Don't play with fire,'' he said. ``Invest and recover production or you will leave the country.''

Correa wants the companies to agree to be paid for producing the oil, rather than the current terms under which they share in the revenue up to a set price. The new constitution strengthens the government's role in areas of the economy including transportation and energy.

``Now, more than ever, we have the democratic legitimacy to demand that these companies comply with the country,'' Correa said.

Several companies, including Repsol and Petrobras, in August agreed to start negotiating a switch to the payment model favored by the government within 12 months. Foreign oil companies account for close to half of Ecuador's daily production of close to 500,000 barrels of crude oil.

If Petrobras fails to reach an agreement ``soon,'' Ecuador would take over its fields, Correa said. ``If they take too long I'll nationalize their fields and they'll leave the country.''

Correa has taken a hard line in negotiations with the private sector. In October last year, he imposed a 99 percent windfall tax on oil companies, later reduced to 70 percent. He secured financial concessions from America Movil SA, which holds the biggest share of Ecuador's mobile phone market.

On Sept. 23, he expelled Brazilian construction company Norberto Odebrecht SA and seized its projects in a dispute over a $338 million power plant. A final decision on whether to re-admit Odebrecht will be made this week after it signed a document agreeing to the government's demands, Correa said in today's address.

Ecuador is the smallest member of the Organization of Petroleum Exporting Countries.

To contact the reporter on this story: Stephan Kueffner in Quito at skueffner@bloomberg.net