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The 1m b/d production goal
Upstream investment in Colombia should set a new record this year, helping the country build towards 1m barrels a day of oil production by 2020, says the upstream regulator. Tom Nicholls writes
COLOMBIAN oil production could rise by 75% to 1m barrels a day (b/d) by 2020, according to Agencia Nacional de Hidrocarburos (ANH), the country's upstream regulator. Proved reserves could increase by 4bn barrels by 2020, from 1.35bn barrels, it claims – with half of the additions coming from established fields and half from new discoveries. Intensifying licensing activity and rising upstream investment are behind the optimism: last year, ANH granted 54 exploration licences – comfortably above its annual target of 30. This year, says ANH's director general, Armando Zamora, the total will exceed 50 and could reach 100; in parallel with its open-door licensing policy, ANH is offering 43 blocks in a large licensing round and 100 smaller blocks in a so-called mini-licensing round (see box). Foreign direct investment (FDI) in the oil and gas sector continues to set new records and drilling activity has increased to unprecedented levels. In 2007, FDI reached $3.4bn and 70 wildcat wells were drilled (see Figure 2). But neither record is likely to stand for long: ANH says FDI will amount to $4bn-5bn this year and the agency is expecting 90-120 new wells by the end of 2008. Anecdotal evidence supports the regulator's bullish view of investment: in March, Spain's Cepsa – of which France's Total owns almost 50% – bought the 20,000 b/d Caracara block, in the southern Llanos basin, in the centre of the country, from Texas-based Hupecol for $0.92bn. Given that the area contains estimated proved-plus-probable reserves of 40m barrels, the price paid suggests a particularly high valuation for undeveloped reserves, says Zamora – in the region of $20 a barrel. "That deal demonstrates the level of confidence in the country," he says. "It has sent out a very important signal." The rise in upstream investment is already filtering through into encouraging upstream statistics. Oil output in January averaged 0.557m b/d, continuing the modest growth that started three years ago (see Figure 3). Gas production also continues its steady rise, reaching 0.733bn cubic feet a day (cf/d) in January (see Figure 4). A few years ago, the situation looked very different: in 2002, the year before ANH was created, the then energy minister, Luis Ernesto Mejía Castro, told Petroleum Economist that the country risked becoming a net importer as early as 2006 if new discoveries were not made quickly. That did not happen: with oil consumption at around 275,000 b/d, the country's surplus of crude oil remains healthy and Zamora claims it can be maintained or increased between now and 2020. In the 1990s, foreign investment and exploration activity were undermined by non-competitive fiscal terms. Low oil prices and Colombia's chronic security problems also deterred investment. Those circumstances have now been reversed: oil prices are high and, since 2003, investors have operated under a more benign fiscal regime. The security situation has also improved significantly: terrorist attacks, for example, dropped from 1,645 in 2002 to 387 in 2007.
Economic indicators have also improved: GDP growth reached an average of 7.3% last year, compared with 2.3% in 2002, according to Colombia's national statistics agency. Unemployment and inflation have fallen and consumer confidence has risen. And, claims Zamora, Colombia has also benefited from the increasing shortage of upstream opportunities elsewhere. Colombia's gas business is also growing. At present, natural gas reserves amount to 7 trillion cf, but a recent Halliburton survey estimated that the Caribbean area may contain up to 50 trillion cf. That, says Zamora, suggests there may be potential for as many as two liquefied natural gas (LNG) plants – one in the northeast Caribbean, in the vicinity of Petrobras' Tayrona block, and one in the southwest, where BHP Billiton and BP have gas-prone acreage. LNG exports would be targeted at markets in Central and North America. Recent discoveries provide further encouragement. Canada-listed Pacific Rubiales Energy's La Creciente gas find in the Ciénaga de Oro reservoir, in the north of the country, may contain as much as 3 trillion cf of gas, says ANH. The company has preliminary plans to export gas from the field to Central America and the Caribbean, but will need to demonstrate to the government that the local market's needs – at present 0.7bn cf/d, but growing rapidly – will be met first before being granted an export licence. Gas exporters in general face the constraint of a lack of export infrastructure. Pacific Rubiales hopes to get round that by using compressed natural gas technology. In addition, ANH is hopeful that the pipeline through which Colombia supplies 150m cf/d to Venezuela will be extended in the other direction to Central America, enabling exports to that region when the flow of the pipeline is reversed in five years' time. The identification of new markets is, indeed, a priority for Colombia's nascent gas business, as it will generate gas-focused upstream investment and accelerate the market's development.
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