Colombia’s oil bust
The Latin American heavy oil producer has had a stellar few years but will see output fall this year
Count Colombia among the collateral damage in the global oil-price war. High crude prices and smart policy fuelled a decade-long oil boom that propelled the country into becoming a major regional producer at just over 1m barrels a day. But investment is now plummeting, production is following and the country’s most important producers are facing financial crises.
Colombia’s heavy oilfields are some of the world’s most expensive to develop, making the downturn particularly painful for the country. Industry group
Campetrol puts the average production cost at $35 a barrel. The country’s two largest producers Ecopetrol and Pacific E&P, formerly known as Pacific Rubiales, dispute the $35/b figure, putting their production costs at around $20-22/b thanks to lower diluent and service-contract costs. But even at these lower levels, some areas are almost certainly operating at a loss and wells already being shut in.
It’s all in the production data. January output slipped to 0.982m b/d in January, 5% lower than a year earlier, according to the energy ministry. The government has set a production target of 0.944m b/d for 2016 if oil prices stay at today’s prices, indicating there is still some way to fall this year. It will be welcomed in a global crude market drowning in oversupply, but a bitter blow for the Colombian economy.
As the economics of drilling deteriorate, there is little incentive to continue pumping money into Colombia’s oilfields. The rig count has fallen to just eight, down more than 80% from November 2014 and the lowest level in 12 years. Signs of a turnaround are scarce. Exploration spending in the country fell by half last year to $0.7bn and is likely to fall sharply again this year.
State oil company
Ecopetrol, which accounts for about 60% of the country’s output, will spend just $4.8bn in 2016, down 40% from last year as it looks to protect itself from lower prices.
Pacific E&P, the country’s second largest producer, is in even more perilous financial shape. The company saw a takeover attempt fall apart last year, and has been struggling ever since. It has entered into talks with its creditors seeking to fend off bankruptcy, a process that could lead to the company being sold.
It is a worrying prospect for the long-term health of Colombia’s oil industry, which has been a key driver of economic growth and a magnet for foreign investment.
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