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Occidental May Lose Contract

Ecuador may stop the oil company from drilling in the country amid alleged violations.

August 24, 2004|John O'Dell | Times Staff Writer

Occidental Petroleum Corp. said late Monday that the government of Ecuador was considering terminating the company's contract to drill in the country.

The Ecuadorean field represents about 8% of Occidental's worldwide production and 4% of its proven reserves, company spokesman Lawrence Meriage said.

The review of Westwood-based Occidental's 19-year-old drilling and exploration contract is based on Ecuadorean government allegations of an unspecified breach of contract, the company said.

It comes on the heels of a tax arbitration case in which an international panel in July awarded Occidental $75 million against Ecuador for excessive tax withholding on proceeds from the Ecuadorean field.

Philip Verleger Jr., a senior fellow at the Institute for International Economics, said he didn't believe Ecuador really wanted to oust Occidental. Even if the company were to lose the contract, it would not be a major blow because Occidental "has substantial reserves and doesn't receive that much of the proceeds from the Ecuadorean contract," he said.

But Fadel Gheit, an analyst with Oppenheimer & Co., said the contract represented "a sizable slice you cannot replace that easily."

"It isn't going to cripple the company, but it will take some of the luster off the stock," Gheit told Bloomberg News.

Meriage said the oil company's executives believed they had honored their contract with Ecuador and intended to meet with government officials there to resolve the issue.

Occidental doesn't report revenue from individual contracts. But Meriage said the company didn't believe that loss of the Ecuadorean revenue would have a significant effect. The contract represents just 2% of Occidental's property, plant and equipment assets.

For 2003, Occidental, the fourth-largest U.S.-based oil company, reported a $1.5-billion profit on revenue of $9 billion. The company reported assets of $18 billion for the year.

Occidental shares fell 65 cents Monday to $49.95 on the New York Stock Exchange. Announcement of the Ecuadorean issue came several hours after the U.S. markets had closed.

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