Oil report

UPDATE 5-Ecuador says takes control of Perenco's operations

(Recasts with Ecuador’s decision to seize Perenco operations)

QUITO, July 16 (Reuters) - Ecuador’s state-run oil company Petroecuador said on Thursday that it took control of Perenco’s oil operations because the French company ordered a temporary suspension of production.

Petroecuador said in a statement that the Ecuadorean government is now running Perenco’s two oil blocks located in the South American country.

Perenco, which had decided to stop producing oil from Thursday, said the Ecuadorean government had confiscated its fields over a tax dispute.

“What they did was to take control of the installations, the fields, and the operations ... that’s called expropriation,” Perenco’s Latin American manager Rodrigo Marquez told Reuters.

“They (Petroecuador officials) spoke with the workers and told them clearly that they were taking control,” Marquez added.

Leftist Ecuadorean President Rafael Correa, an ally of Venezuelan leader Hugo Chavez, is trying to increase state revenue from the key oil sector, but has so far shied away from outright nationalizing oil companies.

His government has seized the bulk of Perenco’s production since March in a bid to collect more than $350 million it says the company owes in windfall taxes.

Perenco extracts 22,000 barrels of oil per day from two blocks in Ecuador’s Amazon jungle, or around 4.5 percent of the country’s total output, which amounted to 486,000 barrels per day in May.

The Ecuadorean government had previously said that it was not going to allow Perenco to halt output.

The government is trying to sell some 2 million barrels of oil confiscated from Perenco, and the only bidder so far has been Petroecuador.

Burlington Resources, a subsidiary of ConocoPhillips COP.N, has stakes in the two blocks operated by Perenco in Ecuador.

Perenco launched a suit against Ecuador and Petroecuador last year to dispute the legality of the windfall tax, saying the levy violates its contract.

The World Bank’s International Center for Settlement of Investment Disputes accepted a request from Perenco in May to block any forceful collections until the center rules on the legality of the windfall tax.

Ecuador hiked the tax to 99 percent from 50 percent in 2007 as a way to pressure foreign oil companies to rework their extraction deals, but later lowered the tax to 70 percent. (Writing by Eduardo Garcia; Editing by Christian Wiessner)