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YPF Ecuador (formerly Maxus Ecuador) is operator for the Oriente Basin Block 16 project that is producing approximately 50,000 barrels of oil per day (mid-1998). Conoco was the operator for the project from its inception in 1986 to 1991 when the consortium drilled eight exploration wells resulting in the discovery of five oil fields. Total reserves were initially considered to be 200 million barrels. Conoco withdrew from the project in 1991 and Maxus was named operator. Development of the oil fields began in 1992. YPF S. A. acquired Maxus Energy Corporation in 1995 and Maxus Ecuador was renamed YPF Ecuador in 1996.

This case history begins with a description of Ecuador’s political environment and economic trends, and a review of the petroleum geology of Ecuador and Block 16. This is followed by a discussion of Maxus’s decision process to commit to the major development project, Maxus’s (later YPF) accomplishments, major economic and financial issues, government relations, and use of technology to increase oil reserves. Significant issues include the preparation of the environmental plan for the activities in the rain forest, building relationships with the indigenous people in the area, and most importantly, the successful resolution of a difficult financial and relationship situation between Maxus and Petroecuador, which was resolved with the signing of a new contract in 1996. This contract provided for YPF/Maxus to pay Petroecuador a royalty which replaced a cost recovery/service fee contract and gave YPF Ecuador more freedom to manage the Block 16 development in an efficient manner.

The most important lessons learned from the Block 16 project are (1) the contractor should thoroughly analyze the so-called “above ground” risks, especially the host country political and business processes, before committing to a major investment project, and (2) the contractor and host country must agree on a “win-win” contract concerning fiscal terms and the process for oil development in order to foster and preserve a good relationship between the contractor and the host country.

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