Petroamazonas, Petroecuador eye tie-up

Petroamazonas, Petroecuador eye tie-up

M&A Corporate & Sovereign Strategy Economy & Policy Energy Ecuador

Ecuador's state-owned oil producers, Petroamazonas and Petroecuador, could merge before the end of next year and create a company worth $25bn, LatinFinance has heard.

Energy Minister Carlos Pérez said in September that the government intended to combine the two companies to make the oil sector in Ecuador "more competitive and efficient." He also said the plan calls for the new company to list its shares on the stock exchange.

The planned merger, however, faces challenges, notably an exhaustive audit of Petroamazonas' and Petroecuador’s accounts that the government has not yet completed, said Ramiro Crespo, president of the local financial services group Analytica.

"How can you have a new company without properly audited financial statements?" Crespo asked. "Petroleum has become an opaque industry in Ecuador and has been hit by corruption."

The merger, though, would result in significant economies of scale and bring about more transparency to help increase foreign investment in Ecuador's oil sector, he added.

The government recently hired PwC to review financial statements from Petroamazonas and Petroecuador, but the auditing firm said it could not complete the job on time and added that it needed to include "at least 90 pages of notes" to complete the due diligence, a source said.

Crespo said that the government had also retained Wood Mackenzie as an advisor, but he added that he is unsure is unsure if the firm is still working on the planned merger.

The government has said it aims to increase oil production by 18% to roughly 700,000 barrels per day by 2021. The state-owned companies typically spend around $3.5bn per year to produce roughly 75% of Ecuador's crude oil, while the private sector producers, led by Repsol and Enap, usually invest roughly $1.5bn per year to pump 25% of the country's output.