Colombia courts upstream investment to sustain oil output
The country aims to reach 1 million barrels a day this year, but needs investment to make that happen
Colombia is seeking investment in its oil industry in an effort to sustain output past the 1 million barrels a day (b/d) milestone it expects to reach this year. Michel Janna, director of public credit at Colombia’s finance ministry, told an investment forum in London that the country was targeting oil output of 1m b/d “in the coming months”. At the beginning of September the country’s Mines and Energy Ministry said Colombian oil production reached 999,000 b/d in August. This is a 3.2% rise month-on-month.
However, energy industry executives told the Colombia Inside Out forum that current output levels were not sustainable without new investment in oil exploration. “If we continue at current oil production rates reserves will run out in less than seven years,” Jose Francisco Arata, president of Pacific Rubiales Energy, told the forum. “We need to increase investment in exploration to reverse the trend of declining production. For Colombia to be considered an oil country we need to invest in more exploration wells.”
Janna said Colombia’s GDP is expected to grow by around 5% this year and the country is hoping to continue this growth pattern by boosting its international trade, particularly with the US.
Colombia has crude oil reserves of about 2.2 billion barrels, according to Cedigaz data. Much of Colombia's crude oil production is centred on the Andes foothills and the eastern Amazonian jungle. Meta department, in central Colombia, is also an important production area, predominately of heavy crude. Its Llanos basin contains the Rubiales oilfield, the largest producing oilfield in the country.
The country’s annual domestic consumption is around 297,000 b/d, allowing it to export most of its oil production, mostly to the US. In 2012 Colombia exported 432,000 b/d of crude oil and refined products to the US.
Ecopetrol, Colombia’s national oil company controlled the development of all hydrocarbon resources until 2003 when the government reformed the energy sector as it faced declining reserves and production. Between 1999 and around 2008 Colombia’s oil production remained flat, due to a lack of new discoveries.
Former president Álvaro Uribe moved all upstream regulation of hydrocarbon resources from Ecopetrol to the regulatory body ANH. The Ministry of Mines and Energy administers the overall policy and planning coordination, and also regulates the country’s downstream sector.
The Colombian government has also revised its fiscal regime, hoping to attract more foreign investment in its oil sector. Foreign oil companies can now own 100% stakes in oil ventures and compete with state-run Ecopetrol. The government has also reduced its stake in Ecopetrol to 90%, selling shares in the company to private investors.
In 2012 Colombia produced 969,000 b/d, up 61% from 2008 levels. Colombia’s Ministry of Mines and Energy expects oil output to reach 1.3m b/d by 2020. “For the short- to medium-term, we see large growth for our company. Most of which is going to come from Colombia,” Pacific Rubiales’ Arata said.
He added however that around 50% of the company’s oil and gas resources were located outside of Colombia and so expanding on international opportunities, as well as export markets from Colombia, was crucial for any company operating there.
The company is building a new oil terminal in Cartagena, aiming to expand capacity and exports.“In the past we didn’t have enough investment in exploration because we didn’t have international markets (to export to). Now we’re creating these opportunities,” he said.
Magda Manosalva, Ecopetrol’s chief financial officer, said a lack of significant oil discoveries in recent years was a major problem for the company in boosting its output. “For us it’s a supply-side issue. We’re investing most of our capital in exploration and production but we haven’t had a big discovery in Colombia in recent years,” she said.
The company has had exploration success in the Gulf of Mexico recently with the Rydberg oil discovery, alongside its partners Shell and China National Offshore Oil Corporation.
Company figures show Ecopetrol spent $571m - 17% of its total spend - on exploration activities between January and June this year, spudding 14 exploration wells. Its oil output however fell, almost 6% in the second quarter of 2014, to around 734,000 b/d. This is compared to the same period in 2013.
Manosalva added that security is one of the biggest difficulties the company faces in boosting oil production. Around 20,000 b/d of production is lost every time the company is forced to cease output because of attacks on infrastructure, she said.
Arata added that investing in new technology to improve recovery rates from existing oil discoveries would also be crucial to maintaining output. “You can only extract 50-60% of oil in discoveries with current techniques. By investing in technology we can double extraction rates and increase reserves,” he said.
Mark Teare, exploration vice president of Canacol Energy, added that Colombia has significant potential for unconventional oil and gas development, which is still at a very early stage. “Colombia is highly prospective from an unconventional point of view,” Teare said. “We think that with the right technology we can unlock it and start investigating the resource potential of this truly remarkable endowment.”
The US Energy Information Administration (EIA) estimates Colombia has 15.5 trillion cubic feet of shale gas and 6.8bn barrels of shale oil resources, making it potentially one of the most attractive shale plays in the region.
The Colombian government is keen to see success in its shale patch and has offered attractive fiscal terms to lure investors.
In December 2012 ANH concluded a bid round of 115 blocks. To attract investment in blocks thought to contain shale oil and gas or coal-bed methane, the government offered a 40% discount on royalties.
Canacol has bought seven blocks in Colombia with shale oil potential and signed deals to jointly explore the acreage with ExxonMobil, Shell and ConocoPhillips. Combined the companies have so far invested around $500m targeting around 12bn barrels of shale oil in the Magdalena basin.
In March Canacol said results from the Mono Arana-1 well, in the La Luna shale in central Colombia, compared favorably with shale wells drilled in the US and Argentina's Vaca Muerta. The vertical well was not hydraulically fractured but produced around 590 b/d at testing. This compared to less than 300 b/d for a typical well in the US Bakken or Eagle Ford shale plays, it said in a statement. Canacol and its supermajor partners plan to drill around 30 shale oil exploration wells in Colombia over the next couple of years.