Petrobras in Ecuador (A) Harvard Case Solution & Analysis

On October 18, 2007, Ecuador's President Rafael Correa announced his intention to migrate Petrobras' present contribution contracts to use oil reserves in Ecuador's Blocks 18 and 31 to servicing arrangements under which Petrobras would be paid a creation fee and reimbursed for investment costs but all recovered oil would belong to the authorities. Correa additionally declared a dramatic increase in corporate taxes and changes to other contracts to which Petrobras was a party.

All foreign oil companies running in Ecuador would be likewise changed and any business refusing to "renegotiate" its contracts would face a 100% tax on profits. How should Petrobras react to the riding roughshod over its contracts of Ecuador? Should the Ecuadorian government is taken by Petrobras to arbitration? Or would it be better to pursue a negotiated solution much like that reached in Bolivia a year before? How should Petrobras balance its fiduciary duties to and the best interests of its investors with the interests of the Brazilian government?

Petrobras in Ecuador (A) case study solution

PUBLICATION DATE: April 02, 2009 PRODUCT #: 309107-HCB-ENG

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