Agreement To Assign An Oil Contract Is Upheld

The Attorney General of Ecuador found that an agreement in the form of a Letter of Intent by which the holder of an oil concession agreed to assign its contractual rights to a third party was not in breach of the Hydrocarbon Law (HL) despite the fact that the preliminary agreement was not approved by the Minister of Energy and Mines (MEM). In his ruling, the Attorney General held that it is legal for an oil company to promise the assignment of its contract right to an another company as long as in the original agreement it is established that the future assignment would be subject to the governmental approval. The ruling confirms what had been the traditional understanding of the Government role in the assignment of oil contracts by private parties under the HL. That authorization is only required for the formalization of the assignment itself and not for the execution of any previous understanding.