In the Third Supplement to the Official Gazette No. 4 of February 16, 2022, the Regulation for the Application of the Hydrocarbons Law was published.

The following are the main aspects of the Regulation:

HYDROCARBONS POLICY

1. The principles on which the national hydrocarbon policy will be based are established, among which are: Give preference to the national industry; Exploit hydrocarbons with the primary objective of industrializing them in Ecuador; Promote sustainable development.
2. The responsibilities and powers of the Ministry of the branch are established, as well as the formation and operation of the Board of Directors of the Agency for Regulation and Control of Energy and Non-Renewable Natural Resources.

EXPLORATION AND EXPLOITATION OF HYDROCARBONS

Private initiative. – When Ecuadorian public hydrocarbon companies do not have technical or economic capacity for the development of exploration or exploitation activities, which may affect the sustainability of hydrocarbon production, these activities may be delegated to the private initiative.

Bidding processes . – The award of exploration or exploitation areas will be carried out through bidding processes, in accordance with the regulations issued by the Hydrocarbon Bidding Committee (COLH) for each process. The general guidelines of the bidding processes are established.

Consortium. – Consortiums may be established between Ecuadorian public hydrocarbon companies with national or foreign companies, public or private, to carry out exploration and exploitation activities.

Delegation of production fields. – The production fields that are under the management of EP PETROECUADOR, may be delegated through participation contracts. An entry premium will be defined to be paid by the winning company at the time of signing the participation contract.

Service Agreements for the exploration and exploitation of hydrocarbons. – The form for the calculation of disposable income for payment to contractors is established.

Participation contracts . – The participation contracts are defined, and who the contracting parties are.  The participation of the contractor can be paid in money by agreement of the parties.

The share of the Contractor’s production shall be calculated based on the percentages offered and agreed, valued according to the reference price, in accordance with the Hydrocarbons Law, adjusted for the quality of the crude oil in the contract area (corresponding to Crudo Oriente or Napo), for the volume of hydrocarbons produced and in accordance with the formula established in the Regulation.

The State shall share in the benefits of the exploitation of the hydrocarbons, in an amount that shall not be less than the profits of the contractor who exploits them.

Migration of contracts. – With the approval of the COLH, it will be possible to migrate to other contractual modalities for the exploration and exploitation of hydrocarbons.

Assignment and transfer of rights derived from contracts for the exploration and exploitation of hydrocarbons. – The Regulation lays down the requirements and procedure for the assignment and transfer of rights arising from contracts for the exploration and exploitation of hydrocarbons.

OTHER REGULATED ASPECTS

The Regulation regulates other important aspects of the hydrocarbons sector, such as:

• Contract expiration process.
• Hydrocarbon transport.
• Refining, storage, industrialization, and marketing.