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Colombia hopes for a revival

Duque’s victory in June’s elections is likely to open the way for new upstream investment opportunities

Colombia is holding its first auction round since the downturn started in late 2014, in an attempt to reverse the nation's sliding oil fortunes. It opened in October 2017, and an April 2018 deadline has been extended until the second half of this year.

Colombia needs some good news. The price rout was brutal on the country, which saw investment and production wither. Oil output hit a highwater mark of 1.03m barrels a day in January 2015, achieving the country's long-held goal of joining the 1m-b/d-producer club. Its residency didn't last long though. Production started declining sharply in 2016 before settling at around 850,000 b/d in recent months, 15% off its highs. The downturn also derailed the current government's hopes of driving investment into new shale and offshore frontiers.

Now that investment and production have stabilised, the government is hoping to kickstart renewed growth in the oil and gas industry. That effort begins with the Sinú San Jacinto bid round, which will auction 15 blocks across the basin. It hasn't been smooth sailing for regulators though, who spent $200m obtaining updated information on the blocks. The auction has been postponed five times. Geological data shown so far indicate the region is likely to turn up more gas than oil.

Colombia faces stiff regional competition for investors. Mexico and Brazil have pulled off blockbuster auction rounds in recent months by putting highly prospective deep-water assets up for bidding. Those rounds have pulled in billions of dollars in investment commitments from some of the world's largest producers. Argentina, Uruguay and Guyana are also holding their own auctions this year that have attracted the attention of major investors.

Colombia's round hasn't drawn the same kind of international attention, but does offer existing players an opportunity to refill their project pipelines. The six companies who qualified for the round-Parex, Gran Tierra, Nexen, Hocol, Talisman and Noble Energy—are all independents already active in the country.

Political turnaround

Elections loomed large for many months over the future of the industry. Colombians first went to the polls in May to choose a successor to Juan Manuel Santos. After a second round run-off in mid-June, Iván Duque, a right-wing US-trained lawyer narrowly defeated former left-wing guerrilla and ex-mayor of Bogotá, Gustavo Petro. 

The most critical issues that the industry will want the next president to address will be fiscal terms, clashes with local communities over drilling projects and ongoing attacks from the ELN rebel group on energy infrastructure.

The rise in the pre-election polls of the left-wing candidate Petro sent chills through the industry. Whereas Latin America's leftists have typically taken a nationalist approach to the oil industry and looked to exploit its riches to fund major social spending programmes, Petro advocated reducing reliance on oil exports.

By contrast, Duque, from the Democratic Centre party, promises to be a far more market-friendly alternative.

Duque opposes the existing local-community consulting process and wants to ease the way for fresh drilling projects to spur new investment and lift output. He has also talked of improving investment terms for oil drillers and advocated offshore drilling, although they've been more cautious on fracking, which is deeply unpopular among the public.

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