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New Frontiers: Colombia looks to reverse the drop in its oil production

After a much-celebrated turnaround in increasing oil production, Colombia reversed course last year. In this week’s Oilgram News column, Regulation & Environment, Chris Kraul talks with a key Colombian official on reversing that slide.

Better terms. More hand-holding. Accentuate the positive. And promote unconventional and offshore energy.

That’s the advice that Orlando Cabrales gives his former employer, the Colombian government, in its efforts to lure oil companies that lately have been turned off by the country’s mounting red tape, social unrest and oil field violence. Producer disenchantment was a main factor in Colombia’s year-on-year decline in oil field investment and crude production in 2014—just when the country is desperate to augment fading oil and gas reserves.

Last year marked the end of an eight year surge in daily crude production as output slumped to an average 988,100 b/d, down from 1,007,000 b/d in 2013. The outlook for 2015 is murky at best. The government is forecasting a rebound to 1,030,000 b/d this year, but the International Energy Agency doesn’t expect the country to exceed the 1-million b/d mark.

Colombia should look beyond short–term road bumps and focus more on new horizons, said Cabrales, who knows the landscape here well. He formerly was BP-Colombia general counsel and director of the National Hydrocarbons Agency, the entity responsible for conducting bid rounds. Most recently, he was energy vice-minister, a position he left last year to set up his own Bogota-based energy consulting firm, Cabrales Segovia Consultores.

“Petroleum is all about taking the long view. You can’t do anything about the international climate but you can manage domestic concerns so that you don’t obstruct investment,” Cabrales said.


“The government should provide better individual attention to companies investing here,” by easing logjams in the permitting process and by helping companies take advantage of the energy options Colombia has to offer, like offshore and unconventional deposits associated with coal and shale.

“Colombia has as good a portfolio of opportunities as anywhere in the region.”

As far as prices go, Cabrales is relatively sanguine about the recent decline in the global crude market, believing prices will bounce back in the medium term if not sooner.

——————————————- There is no question that 2015 will be a difficult year for Colombia, he says. The country’s two largest oil companies, state-controlled Ecopetrol and Pacific Rubiales, which combined produce about 85% of the country’s crude and natural gas, announced last month they were cutting overall capex investment this year by 25% and 40%, respectively.

Loosening the permitting morass is essential. As much as $4 billion in potential investment promised by winning bidders in the country’s last two bid rounds in 2012 and 2014 has been held up by bureaucracy and oil field problems, he said. “I think we can capture most of that investment if the government helps these companies bring their budgets forward.”

Colombia must also be sure its terms are competitive. Last year, the country enhanced terms for offshore explorers and developers of unconventional energy sources related to shale and coal by granting deep discounts on royalties and raising the trigger prices on windfall taxes.

But Cabrales thinks the government should go farther. Apparently the government agrees. Earlier this month, an NHA official told the local press that “urgent and immediate measures” should be taken to make Colombia more economically attractive to wildcatters. Colombia’s energy independence is at stake. Oil reserves as of December 2013 totaled 2.44 billion barrels, a decline from the previous year in terms of years of inventory at current production rates.

There are signs of good news. Late last year, partners Ecopetrol, Petrobras and Repsol announced a discovery of natural gas at their Orca shallow water well off the Caribbean coast, and are expected to provide details after completing an evaluation phase later this year.

“I think it is mostly likely that tests will show it’s a good result. If it is, it will be the first offshore discovery in Colombia made in recent decades,” Cabrales said of the Orca well. A major find would be welcome indeed as no big mega-fields of crude or gas have been discovered since the early 1990s. The only two previous deepwater wells drilled in 2007 and 2012 each turned out to be $100 million dry holes.

Energy regulators can’t afford to merely hope that the Orca gas field turns out to be commercially viable. They authorized a 350 million cf/d re-gasification plant for imported LNG near Cartagena to address an expected shortfall in domestic supply by 2017. The plant will supply gas to several thermoelectric power plants in cities along the country’s Caribbean coast.

Cabrales sees a silver lining in last summer’s bid round that some analysts described as disappointing. Two major oil companies, Statoil and ExxonMobil, made winning bids on blocks, and if they are successful one could expect other majors and minnows to follow.

Published on:
January 26, 2015
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