The decree increases the state’s share of oil revenues from 50 to 99 percent for prices above the benchmark of about $20 a barrel established in the original contracts. The change could cost companies an estimated $830 million a year. In addition, existing contracts, in which companies are allowed a portion of the crude they produce, will be converted so that the state will keep all the crude produced and pay the firms a service fee.

If companies fail to cooperate with the new taxes and contract conversions, the government could increase the windfall tax to 100 percent and allow contracts to expire in coming years. The policy, which is decidedly hostile to oil companies, took some industry veterans by surprise. Hydrocarbons industry association director, René Ortiz-Durán, who earlier this year was upbeat about Correa’s relationship with oil companies, has decried the action as nationalization. After taking office in January, Correa had a rather cordial relationship with private oil companies. The left-wing leader enjoys a level of popularity not seen for years in Ecuador. He was thought to be keen to work with industry partners to revitalize his country’s oil industry, which last year produced just under 550,000 barrels per day. Galo Chiriboga, the mines and oil minister, and Carlos Pareja Yannuzzelli, the president of state oil company Petroecuador, met frequently with company representatives and were eager to attract investment.

That made sense. Foreign investment is desperately needed, Ecuador’s oil industry is shaky, refineries are decrepit, and mismanagement at Petroecuador is rampant, following years of political upheaval in which the last three elected presidents were ousted in protests. Petroecuador’s production is down to roughly 175,000 bpd from 220,000 bpd in years past, and the country, which produces three times the crude it needs for domestic consumption, is on track to import more than $2 billion worth of fuels this year. Petroecuador’s president stated publicly that the company needs $10 billion to get things back on track, and has talked of launching exploration and production licensing rounds for promising fields. Correa has also expressed interest in rejoining OPEC. (Ecuador quit the cartel in 1992.)

But Correa probably figures his country can do without the investors, as his Venezuelan counterpart and close political ally Hugo Chávez has promised major investments. Chávez has committed to help Ecuador build a $5.5 billion refinery on the Pacific coast and says that PDVSA will lend drilling rigs and expertise in mature fields to Petroecuador. But Chávez – who has made similar offers to Bolivia, and to a lesser extent Argentina, Nicaragua, and Uruguay – has been slow to make good on his promises. Indeed, if the cash doesn’t follow the promises, Ecuador’s oil industry will continue its slide.