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Colombian oil revival hopes face electoral test

An upcoming election and auction round will help determine the country's oil fortunes

The outcome of Colombia's election next week is being watched closely as the country attempts to reverse its sliding oil fortunes, which have suffered since the downturn started in late 2014.

Colombians will head to the polls to choose a successor to Juan Manuel Santos on 27 May for the first-round vote, with a run-off likely on 17 June. The most critical issues that the industry will want the next president to address include fiscal terms, clashes with local communities over drilling projects, and ongoing attacks from the ELN rebel group on energy infrastructure.

The price rout was brutal on Colombia, 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.

While investment and production have stabilised, the rise in the polls of the left-wing candidate Gustavo Petro has 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 has advocated reducing reliance on oil exports. He has also pushed for more renewables, in line with progressives in the US and Europe. One proposal is to turn state oil company Ecopetrol into the region's largest solar producer.

Source: ANH Colombia

Also alarming to the industry is the fact that Petro has backed the existing regional consulting process, which has essentially given local communities veto power over local drilling and mining projects. The procedure has stymied some projects and played a major role in the sharp drop-off in investment in Colombia.

By contrast, the other two leading candidates, Iván Duque, from the Democratic Centre party, and Germán Vargas Lleras, from the Radical Change party, are far more market-friendly alternatives.

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. Vargas Lleras would go so far as to outlaw the local referenda on individual projects and wants to bring the decision-making power back to the national government. Both have 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.

On the block

After the vote, focus will turn to the crucial first auctions round since 2014, the Sinú San Jacinto bid, which involves 15 blocks across the basin. It hasn't been smooth sailing for regulators, who spent $200m obtaining updated information on the blocks. The auction has now been postponed six times, and was most recently scheduled for the latter half of this year. Geological data shown so far indicate the region is likely to turn up more gas than oil.

Other challenges include the 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.

Drillers will be watching the polls closely for signs of how to approach the Sinú San Jacinto bidding round, but Duque's current opinion poll lead, which was 38 percent of intended votes as of 15 May, will likely reassure them for now.

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