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Colombia's collateral damage

Efforts to end Colombia’s decades-old war were supposed to bring security to the country’s oil sector, but are doing the opposite

Colombian oil producer Hupecol was surprised in April when its environmental licences for a series of exploration wells near the town of La Macarena in the country’s Meta district were suddenly pulled. The environment minister said the decision was a response to local concerns that drilling could pollute a nearby river.

But people in the oil industry saw another force at work. Just before the licenses were rescinded, leaders from the Revolutionary Armed Forces of Colombia (Farc) rebel group negotiating a peace deal with the government to end the country’s long-running civil war said it saw the area as an ideal site for a “concentration zone”—an area to be set aside for them to retreat to and demobolise. “This wasn’t a coincidence,” Ruben Lizzaralde, president of the Colombian Chamber of Oil Goods and Services (Campetrol), told Petroleum Economist.

The negotiations have brought Colombia closer to peace than it’s been in decades. The oil industry has long hoped for a deal that would end years of attacks on workers and facilities. But negotiations have raised unexpected collateral damage: investment is suffering from political indifference and community blockages tied to Farc and government interests, say industry sources.

“If you try to go out there and do something it’s nasty and you have no government support because they’re focused on other priorities [linked to the peace process],” Henrique Tono, country manager of La Luna Resources Oil Company, an investor in Colombia, tells Petroleum Economist. “They’re letting local communities do whatever the hell they need or want to in exchange for support for the peace process.”

Dropping upstream

The Colombian Petroleum Association’s (ACP) chief economist, Alexandra Hernández, says the country has been facing a marked slowdown in exploration and production. In June, the ACP´s figures show, production dropped to 0.88m barrels a day from 1m b/d in October.

Upstream spending numbers have also dropped. “This year’s investment budget is expected to be close to $4bn in E&P, but that’s based on drilling 25 wells and, so far, we’ve drilled only seven along with a planned 2,000km of seismic activity, and we’ve only managed 500km up until now,” says Hernández. If the trend continues, the final investment figures could be well below $3bn for the year, their lowest level in over a decade.

According to Tono, the situation has been exacerbated by bureaucracy and local opposition forces. It has put off investors, including supermajors operating in the country. Last year, Shell pulled out of the Middle Magdalena region’s Picoplata well, one the world’s top three shale plays.

Tono says ConocoPhillips, which took over the well last year, has been waiting a year for a testing licence, all the while watching the project’s costs steepen. “And then even when and if they do get this licence they’ll have to deal with local communities and authorities,” he adds.

“Ten years ago the problem used to be the National Liberation Army (ELN) and the Farc, but right now the job that used to belong to these [guerrilla] groups now is in the hands of local politicians,” says Tono. “We have mayors demanding that we do things that are actually outside the scope of the law in regions [like the Middle Magdalena region] that are supposed to be easy to work in.”

The silence by national authorities to deal with this local level blackmail is deafening, says Tono. “When we go the government to complain about these extortion tactics, the reply has invariably been sorry but you need to go and negotiate with them, but it’s not about negotiation when you have a gun to your head.”

Lizzaralde, from Campetrol, agrees, saying the government doesn’t want to support the oil sector “until the peace process is consolidated late next year.” He added: “From regulations to licences, the whole package will keep crawling along as it is until the next elections in 2018.”

Another fear is that the government might coopt firms into its own social programmes. “We’re already starting to get requests from the government to join their efforts and it could be very tricky,” says Tono. “It’s one thing to back health brigades in certain communities and another thing to be involved in demining programmes.”

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