VZCZCXYZ0004
OO RUEHWEB

DE RUEHQT #0464/01 1492037
ZNY CCCCC ZZH
O 282037Z MAY 08
FM AMEMBASSY QUITO
TO RUEHC/SECSTATE WASHDC IMMEDIATE 8888
INFO RUEHBO/AMEMBASSY BOGOTA PRIORITY 7566
RUEHCV/AMEMBASSY CARACAS PRIORITY 3035
RUEHLP/AMEMBASSY LA PAZ MAY 1062
RUEHPE/AMEMBASSY LIMA PRIORITY 2614
RUEHGL/AMCONSUL GUAYAQUIL PRIORITY 3570
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L QUITO 000464 
 
SIPDIS 
 
TREASURY FOR MEWENS 
DEPT FOR WHA/EPSC FAITH CORNEILLE 
 
E.O. 12958: DECL: 05/29/2018 
TAGS: EPET ECON EINV DOD EC
SUBJECT: PETROECUADOR PRESIDENT RESIGNS OVER DECLINING 
PRODUCTION; ANOTHER NAVY ADMIRAL TAKES OVER 
 
REF: A. 07 QUITO 2575 
     ¶B. 06 QUITO 1920 
 
Classified By: DCM Jeff Brown, Reasons 1.4 (b) and (d). 
 
¶1.  (U) Summary: Following harsh words from President Correa 
about state oil company Petroecuador's inability to meet 
petroleum production projections, its President Fernando 
Zurita resigned on May 20.  He was replaced by another Navy 
Admiral, Luis Jaramillo, who will attempt to increase 
production in spite of Petroecuador's difficulties in 
spending its investment budget.  End Summary. 
 
¶2.  (U) On May 19, Correa attended a Petroecuador board 
meeting at which he expressed displeasure over reduced 
petroleum production numbers and unrealized planned 
investment. 
 
¶3.  (U) On May 20, Zurita resigned, saying that 
Petroecuador's "executive priorities are not satisfying the 
President's expectations."  Zurita, a Navy Admiral, was 
appointed by Correa to replace the previous Petroecuador 
president in November 2007.  He was appointed under a 
presidential mandate that allows the Navy to manage 
Petroecuador in an attempt to root out corruption (ref A). 
On May 21, another Navy Admiral, Luis Jaramillo, was named to 
replace Zurita.  Jaramillo previously headed up Ecuador's 
maritime authority and was only recently promoted to the rank 
of admiral.  Before that he was head of Ecuador's naval 
academy, and served in various other positions within the 
Navy.  Although he has spent 28 years in the Navy, he does 
not have petroleum experience (a fact that the Petroecuador 
unions say should disqualify him from becoming president). 
 
 
Unmet Production and Investment Goals 
------------------------------------- 
 
¶4.  (U) Prior to its meeting with Correa, Petroecuador had 
lowered its projected 2008 production for Petroproduccion 
from 185,000 barrels per day (bpd) to 172,000 bpd. The new 
projections, if met, would imply only a 1% increase over 
2007, when production averaged 170,000 bpd.  Current 
production is approximately 167,000 bpd.  In addition, only 
12% of a planned annual investment budget of $2 billion has 
been spent to date (and 10% more has been contracted). 
(Note:  These production and investment numbers exclude 
Occidental Petroleum's former Block 15, where production 
recovered in 2008 after dropping for much of 2007.) 
 
¶5.  (U) Zurita claimed natural declines in mature wells were 
underestimated for 2008 and should have been measured at 16% 
instead of 8%, and production of other wells had been 
overestimated.  In addition, he noted that Petroecuador has 
not yet been able to obtain the drilling rigs it had planned 
to use. 
 
¶6.  (SBU) Petroecuador has faced major difficulties in 
implementing its investment plans.  Petroleum industry 
representatives have said that drilling rigs have been 
leaving the country.  They claim rigs are scarce worldwide. 
Only one of two rigs promised by PDVSA of Venezuela has 
arrived in Ecuador to begin drilling.  One petroleum services 
company noted that firms, even though they are hungry for 
work, are reluctant to bid on contracts with Petroecuador 
because the contracts are poorly written and subject to 
frequent changes.  In addition, the state oil company faces 
opposition from its powerful unions, which benefit from the 
current corrupt system (ref B) and are said to be blocking 
efforts to make management changes and award contracts in a 
transparent manner. 
 
COMMENT: 
-------- 
 
¶7.  (C) With an increased investment budget, Petroecuador has 
come close to stabilizing production in its mature fields (in 
itself an accomplishment since Petroecuador production had 
been falling for years) but has not yet increased production. 
 Petroecuador's inability to fully spend its investment 
budget implies the GOE's plan to reform Petroecuador and 
improve production (by having Navy leadership make management 
changes and eliminate corruption) has not been fully 
 
realized.  Instead, Petroecuador suffers from institutional 
weaknesses that inhibit it from implementing the government's 
ambitious infrastructure plans - problems that plague other 
parts of the government as well - that cannot be easily fixed 
by a few changes at the top and dictates from the Presidency. 
 
 
¶8.  (C) Post has had prior contact with Jaramillo, who 
appears capable and accessible but lacks experience in the 
petroleum sector.  Navy contacts suggest that naval officials 
do not want the Petroecuador presidency job but the Navy is 
required to fill it by Presidential decree.  With this 
scenario, and a lack of petroleum background, it seems 
unlikely that the new appointment will improve Petroecuador's 
situation. 
Jewell