Colombian shale potential draws Vaca Muerta comparison
Shale acreage up for bidding in Colombia’s 2012 licensing round could be similar to the multi-billion barrel Vaca Muerta formation in Argentina, a top Colombian oil official has claimed
“In a conversation I had with
YPF… they said something that is pretty consistent with what I’ve heard from others and that is that La Luna formation is pretty similar to Vaca Muerta,” Orlando Cabrales, the head of Colombia’s National Hydrocarbons Agency (ANH) said at a Road Show event for Colombia’s 2012 licensing round in London.
YPF is the largest acreage holder in Argentina’s Vaca Muerta shale formation, and has said that one portion of the play could hold more than 22.8 billion barrels of oil equivalent (boe) of potentially recoverable resources. That has made it one of the most sought-after shale plays outside of North America. The La Luna shale formation sits in the Eastern Cordillera basin, which stretches across much of Colombia’s east, close to the Venezuelan border.
Cabrales warned that data for La Luna and other shales in Colombia was still very limited, but the country has released resource estimates that point to significant shale potential. According to government estimates, the middle-case estimate (P50) for shale-gas resources is 265.5 trillion cubic feet (cf), while the conservative case (P90) is 33.8 trillion cf. The middle-case estimate for shale-oil resources is 19.6bn barrels, with a lower-case estimate of just over 3bn barrels. That potential compares to Colombia’s proved conventional reserves of 2.058bn barrels of oil and 5.4 trillion cf of gas.
With the industry now scouring the globe for the next big unconventional opportunity, it is little surprise that Cabrales said that he has seen “very strong interest” in Colombia’s unconventional acreage. He added that the interest had come from companies already in the country, as well as firms considering entering Colombia for the first time.
Cabrales is on the road, trying to drum up interest in Colombia’s 2012 licensing round. The tour will see him make stops in Houston, London, Calgary, Beijing, Tokyo and Seoul. The round includes 109 blocks, including 98 onshore blocks in established, as well as frontier, regions and 11 offshore blocks.
What has made the round unique, and appears to be attracting the most attention, though, are the 31 unconventional oil and gas-prone blocks that are up for bid. The round will close in mid-October, with blocks to be awarded in late November. The round is not just unique for Colombia. It is one of the first licensing rounds in the world to differentiate conventional and unconventional blocks.
To date, the hunt for shale resources has had an air of the haphazard about it. In North America, the acquisition of acreage in new shale plays has resembled a 21st century version of the 1800s gold rushes. And elsewhere in the world, acreage has mostly been handed out on an ad-hoc basis. Colombia is trying to break this mould, though it hasn’t been easy.
“We hired [energy consultancy] IHS to help us develop new contractual terms for the unconventional round and I asked them to show us samples that has been used in other parts of the world,” Cabrales said. “The answer was: ‘Well, you’re the first one’.”
Without a model to work from, Colombia has had to develop its own terms. In order to attract investment into its shale patch, the country is offering financial incentives and reworked its exploration and production agreements to suit unconventional exploration.
Production from unconventional resources will enjoy a 40% discount on royalty rates compared to conventional production. Those rates normally range from 8-25% depending on the amount of production and the oil and gas price. The country has also raised the price at which the standard windfall tax kicks in to $81 per barrel. The price at which the windfall tax takes effect for conventional resources is around $35/b, depending on the API gravity of oil produced.
ANH has also extended the initial exploration period for unconventional projects as well. Instead of the standard six-year period, the first unconventional projects will have an eight-year exploration period. Exploration drilling and hydraulic fracturing (fracking), if it is needed, is expected to start after a three-year data-gathering period, meaning Colombia could see its first shale-exploration wells drilled sometime in late 2015 or 2016.
The country also appears to be targeting investment only from larger companies with established unconventional production. An official from a small explorer that has focused on shale opportunities in Europe, but was interested in Colombian acreage, complained that qualifying terms for the round requiring 20,000 barrels of oil equivalent per day (boe/d) of production would preclude it from participating, in spite of their shale-drilling experience. The company source added that there were likely other smaller firms, many of which have been pioneering unconventional exploration, which would not be able to take part in the round.
In many places, the US and Europe in particular, shale exploration has been followed by environmental protests over potential threats to water resources posed by chemicals used in the fracking process. Cabrales told
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