Ecuador, Repsol say oil contract deal reached

By Alonso Soto and Clara Vilar

QUITO/MADRID (Reuters) - Ecuador on Thursday said it will keep its contract with Spain's Repsol (REP.MC) after both sides agreed to new terms, marking a victory for the leftist government in its drive to control the key energy sector.

"The company has agreed to sign an interim agreement for a year," the government said in a statement, a day after tough negotiations concluded to solve a spat with the government that threatened to end Repsol's contract in Ecuador.

A Repsol spokesman in Madrid told Reuters the company has agreed to the new terms and that the deal would ensure its presence in the South American nation until 2018.

Repsol's work in Ecuador represents only a small part of its global operations.

Ecuador had said last week it planned to terminate the company's extraction contract because it could not reach a deal on terms more favorable to the state.

Ecuadorean President Rafael Correa had only recently said it was too late for the company to save its contract, but the leftist is known for his arm-twisting tactics with foreign companies to secure more benefits for the government.

Since he took office in 2007, Correa has launched an aggressive drive to renegotiate foreign oil and mining deals to exert more control over those key sectors of the OPEC nation's economy. He has threatened to expel other companies in the past over contractual disagreements.

The former economy minister has not traced the steps of leftist allies Venezuela's Hugo Chavez and Bolivia's Evo Morales, who have nationalized key industries as part of their drive to bring socialism to their Andean countries.

Correa, a widely popular U.S.-trained economist, wants oil companies to switch to service deals that would allow the state to keep all the oil they produce in exchange for a set fee.

Oil Minister Derlis Palacios said the company will sign the year-long production-sharing contract in coming days while it negotiates a new service deal.

Palacios added that Repsol plans to invest an additional $315 million in the next six years to boost dwindling production.

Ecuador has already signed temporary deals with the largest oil companies there, including Brazil's Petrobras (PETR4.SA) and China's Andes Petroleum.

However, some analysts doubt Correa will be able to convince companies to accept the new service, which would strip them of their oil reserves in the country.

The new deal would lower Repsol's overall tax burden in exchange for the company to hand over more of the oil it produces to the state, Palacios said.

Repsol, one of the Andean country's largest investors, operates three oilfields in the Amazon jungle with a capacity to produce around 65,000 barrels per day. It currently produces around 48,000 barrels per day.

(Editing by Christian Wiessner)