Ecuador's $290 million Petrolia debt void on handover - gov't, company

By Alexandra Valencia

QUITO (Reuters) - Ecuador's $290 million debt to a subsidiary of Canada's New Stratus Energy will be void once contracts for the operation of two oil production blocks expire on Dec. 31, the government and subsidiary said on Thursday.

The subsidiary, Petrolia Ecuador, is obliged to return blocks 16 and 67, in the Amazonian province of Orellana, after President Guillermo Lasso refused negotiations to extend the contracts and change their terms.

New Stratus has said it will resort to international arbitration, arguing Ecuador has breached contractual clauses by not accepting direct negotiation.

"The state owed the contractor, under unpaid tariffs, $290 million," the energy ministry said in a statement. "At the end of the contract because of expiry, that debt is extinguished."

Service provision contracts, such as the one that has applied to Petrolia's blocks, oblige the government to pay the operating companies a certain fee per barrel produced, though the state can accumulate debt to them if oil prices are below a certain amount.

Ecuador has paid Petrolia some $60 million in fees over the past two years, company manager Ramiro Paez told Reuters, acknowledging the remaining $290 million debt would be wiped when the contracts ended.

The company has not yet presented its arbitration case because it must complete a mediation process first, he added.

"The hand-over is in process," Paez said. "We are paying off workers, the majority of whom will be hired by Petroecuador .... We are handing over equipment, materials and assets."

State oil company Petroecuador will on Jan. 1 take over operation of the blocks, which together produce about 14,000 barrels a day.

The blocks will be assigned to a new private operator through an international bidding process in the short term, the ministry said, adding that it projected $150 million in annual revenue from the blocks, based on a forecast for an oil price of $64.8 per barrel in 2023.

(Reporting by Alexandra Valencia; Writing by Julia Symmes Cobb; Editing by Bradley Perrett)