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Majors eye Colombian shale

Interest in Colombia’s shale gas and oil is picking up as companies prepare to submit bids for the country’s 2012 licensing round, which sees 31 blocks with unconventional potential up for auction, the head of state-run Ecopetrol said

“It’s exciting because the majors are totally interested... many people are interested,” Javier Gutiérrez, Ecopetrol’s chief executive, told PEU at an investor meeting in London.

Colombia has taken a novel approach to marketing its unconventional acreage, becoming one of the first countries in the world to put shale blocks up for bidding under distinct fiscal and operating terms. Companies will submit their bids for the 2012 licensing round on 17 October, with results expected before the end of the year.

Colombia has sweetened the financial terms for unconventional exploration, offering a discount on royalty rates and raising the threshold for windfall taxes. The country has also extended the initial exploration period for unconventional projects – from six years for conventional projects to eight years – in recognition of the challenges explorers are likely to face in the early stages of exploration.

The supermajors have already shown an interest in Colombia’s unconventional resources. ExxonMobil signed a $50 million exploration agreement with Canacol Energy in April this year to drill at least three wells in Block VMM2 in the east of the country.

The pair spudded the first well, Mono Arana-1 on 23 September, Canacol said. It expects results from that well in December this year. The companies plan to drill a second well – El Cejudo-1 – later this year using the same rig as the Mono Arana-1 well.

Shell has also moved into Colombia’s unconventional patch. The company acquired neighbouring Block VMM 3 from Canacol, taking on an exploration-phase spend of $50 million. Shell is expected to drill at least three exploration wells at the block. While the company has not yet outlined details of its plan, it is believed to include seismic work as well as drilling.

A number of companies that have been actively building their unconventional portfolios outside of North America have pre-qualified to bid for acreage in Colombia including Statoil, Total, Repsol, EOG Resources, Gran Tierra and Talisman.

For its part, Ecopetrol is interested in unconventional oil and gas, but it remains at the very early stages. The company drilled its first stratigraphic well last December, Gutiérrez said. He added that the company is interested in acquiring more acreage in the upcoming licensing round. Ecopetrol hopes to prove 200 million barrels of unconventional reserves and produce 50,000 barrels a day (b/d) from shale formations by 2020.

To reach that goal, though, Ecopetrol will have to forge partnerships with international companies that have unconventional expertise. “We need partners because this is very costly to learn by yourself. We are preparing our people, but we are completely conscious that we need to work with experienced people,” Gutiérrez told PEU.

Companies are eyeing the La Luna formation in the Middle Magdalena and Eastern Cordillera basins. The La Luna shale has drawn comparisons with the Vaca Muerta in Argentina and Eagle Ford in Texas in the US, Orlando Cabrales, the head of Colombia’s National Hydrocarbon’s Agency (ANH), an industry regulator, said earlier this year in London during a road show event for the licensing round.

The government’s shale resources estimates back up the comparisons with the two other highly prospective shale plays. The middle-case estimate for shale-oil resources is 19.5 billion barrels, with the lower-case estimate of 3 billion barrels.

The government’s middle-case estimate for shale-gas resources is 265.5 trillion cubic feet (cf), while the most conservative case estimate is still a sizable 33.8 trillion cf, which would dwarf the country’s proved conventional gas reserves of 5.4 trillion cf.

Colombia hopes that unconventional exploration will help sustain an investment boom in its oil and gas sector. Oil production has risen about 70% since the mid-2000s to 930,000 b/d this year as security in the country has improved and the company has put industry-friendly fiscal terms in place.

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