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U.S. oil company demands contract from Costa Rica

June 10, 2011

U.S.-based Mallon Oil Company invoked the Central America Free Trade Agreement (CAFTA) to pressure Costa Rica’s government to sign a contract that will allow for exploration of oil and natural gas in the northern part of the country, according to the daily La Nación.

Two letters sent in the past seven months by representatives of the U.S. company warned that Costa Rican officials would face “legal, economic and international consequences” if the 11-year-old exploration contract is not honored. The first letter was sent November 2010 to Foreign Trade Minister Anabel Gonzáles, and a second one was sent March 31 to Costa Rica’s ambassador in Washington, D.C., Muni Figueres.

Costa Rican President Laura Chinchilla said Tuesday she would consider supporting exploration and production of natural gas, but not oil.

In 2000, Mallon Oil Company won a 20-year concession for exploration and production of oil and natural gas in northern Costa Rica, but some 200 court appeals have until now blocked the concession. Last April, the Constitutional Chamber of the Supreme Court turned down the final appeal.

Chinchilla said her administration intends to “limit this process to just natural gas, leaving oil exploration out of the contract.”

If Costa Rica’s Ministry of the Envi-ronment, Energy and Telecommunications (MINAET) signs the agreement, Mallon Oil Company would receive a concession to explore and exploit in the Northern Zone and near the country’s north Caribbean coast, including near the cities of San Carlos, Sarapiquí and Pococí.

The company plans to extract five to 25 million oil barrels annually, enough to supply the local demand, which is currently estimated at 19 million barrels per year, the daily La Nación reported.

The revenue from the oil is estimated to be at least $7 billion for the entire length of the concession.

Mallon Oil Company has spent the last decade trying to obtain the required permits to start oil and gas exploration here. It first started business in the country in 2000. Back then, former president Miguel Ángel Rodríguez (1998-2002) authorized the company to start oil explorations after winning a public bidding.

However, a series of appeals filed by the Justice for Nature organization kept the firm from signing the contract for 10 years.

Chinchilla evaluated the possibility of involving state-run enterprises such as the Costa Rican Petroleum Refinery (RECOPE) and the Costa Rican Electricity Institute (ICE) to prevent the natural gas from going exclusively to the U.S. company.

“Natural gas is less of a pollutant [than oil] and could proved to be an important alternative fuel,” Chinchilla explained, while also noting that the country in the past has relied to heavily on industries that are tied to heavy pollution, like mining, to bring economic growth.

“We are evaluating the criteria of timeliness and convenience, and especially the review is being directing toward satisfying public interest and to respecting the principles of environmental protection,” Costa Rica’s president said.

Costa Rica is not an oil-producing country, but it’s suspected that the country has oil in the north and on the Caribbean. Environmentalists and political opponents have long opposed oil exploration within the country.

In 2002, then-President Abel Pacheco imposed a moratorium on oil exploration and in 2003 struck down a concession to U.S. business Harken Holdings, which led to a suit that still has not been resolved. Pacheco felt petroleum exploration was too harmful to the environment.

Harken Costa Rica Holdings LLC, subsidiary of the U.S. Harken Energy, received a 20-year concession to look for and exploit oil resources in the province of Limón, 188 kilometers northeast of San José.

However, the contract was criticized by environmental groups in the area and in 2002, the Technical Secretariat of the Environment Ministry ruled that the project was not viable because it affected the Caribbean’s natural ecosystem.

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