A dependable destination
Growing foreign investment in the oil industry – partly thanks to resource nationalism elsewhere – means Colombia will not become a net oil importer for at least seven years, writes Tom Nicholls
RESOURCE nationalism in oil-rich countries is feeding through into a step-up in interest in Colombia's oil and gas sector, according to the upstream regulator.
"There is a shortage of acreage and investment opportunities in the oil industry," Armando Zamora, director general of Agencia Nacional de Hidrocarburos (ANH), said in an interview with Petroleum Economist last month. "Access to acreage is becoming more difficult because national oil companies are dominating the scene and countries are becoming more selective." This, he said, is one of the reasons for the strength of interest in Colombia, where investments terms are comparatively benign.
Indeed, as antipathy towards the private sector reaches new heights in Venezuela and Bolivia, Colombia has become – politically and economically – one of the region's most dependable destinations for investment. "Our situation is different to that of neighbouring countries. We need foreign investment to increase our reserves."
ANH plans to meet the growing appetite for Colombian upstream risk with regular licensing rounds to complement the open-door policy in force on most of the country's acreage.
In 2006, net direct foreign investment in the country's oil and gas sector amounted to $1.77bn – up from $1.2bn in 2005. The increased investment appears to be producing tangible results upstream: proved reserves ended 2006 at 1.51bn barrels – up from 1.42bn barrels a year earlier. While the increase in volume is modest in world terms, it is significant for Colombia, where, previously, reserves had been in decline.
Additionally, according to Zamora, the growth in the country's reserves base means Colombia will not become a net importer of oil until 2014. Three years ago, that dreaded day was forecast for around 2010. At present, there is a comfortable margin for exports: oil production is around 0.52m barrels a day (b/d), compared with consumption of 250,000 b/d.
Zamora attributed the increase in investment to several factors other than the rise of resource nationalism in other countries. The economy, for example, is healthy: GDP has grown by 5-7% over the last three years and inflation is below 5%. "The investment climate is very positive," he said. "In general, there is much more confidence on the part of business."
Colombia's open, straightforward and rapid licensing system – created in 2004, the year after ANH was set up – is another factor, he claimed. Most of the country's acreage is available on a first-come, first-served basis and a strict 60-day limit is imposed on the licensing procedure.
Some areas, however, have been set for allocation in bid rounds. This year, ANH is planning to license 13 offshore Caribbean blocks, each averaging 3,000 square km. Bids will close on 18 September, with contract awards announced the same day. Separately, it has invited a group of companies to negotiate directly with ANH for access to heavy-oil-prone areas in the onshore Llanos basin. Some reserves are proved, but further exploration is needed.
However, ANH believes there is considerable upside: based on the results of exploration undertaken in the 1970s, it says the region's heavy-oil reserves amount to between 2bn and 8bn barrels. Three further licensing rounds are planned for 2008 and another the following year. At some point after 2008, ANH also plans to license the Choco area off the Pacific coast – frontier acreage where it is carrying out preliminary exploration work.
This year, ANH will sign "at least" 30 exploration and production contracts, said Zamora, compared with 32 last year. So far, the agency has approved 10 licence applications, of which five are signed. But Zamora claimed the total could hit 50 if the Caribbean licensing round is a success and if it is successful in relicensing recently relinquished acreage.
Strong interest upstream means the date when the country will have to begin importing oil is likely to be pushed back beyond 2014. There are, for example, high hopes for the offshore Tayrona block, being developed by a consortium of ExxonMobil, Brazil's Petrobras and Ecopetrol, Colombia's state-owned oil company. Drilling on the 44,000 square km block, in the Colombian Caribbean, will start later this year.
Petrobras will be operator during the exploration phase and ExxonMobil will be the operator for the development phase if gas is found. There has been talk of Tayrona's reserves being large enough to support a liquefied natural gas export terminal, although exploration work has been minimal and it is 20 years since the last well was drilled. Shares in Tayrona are ExxonMobil, 40%, Petrobras, 40%, and Ecopetrol, 20%.
Ecopetrol is also becoming more active; in the second half of the year, it is expected to sell up to 20% of its shares to private investors, raising capital of $4bn – funds that are badly needed for its ambitious investment programme. Between now and 2011, Ecopetrol says it will spend $12.5bn. Some of that investment will go on expanding its international portfolio, which will initially focus on Latin America and the Gulf of Mexico. The company made its first overseas investment in November – a contract with Petrobras for an exploration block offshore Brazil.
New funds will also be poured into enhanced-oil recovery projects at domestic fields. In December, Ecopetrol entered an agreement – also with Petrobras – to develop the Tibú field, near the Venezuelan border. The partners claim additional recoverable reserves may amount to over 100m barrels and this could enable an output increase from 1,800 b/d to over 15,000 b/d.
Colombia also continues to attract smaller companies, for which its generally small discovery sizes represent material upside. For example, Canada's Consolidated AGX Resources is in the process of buying, for $225m, 75% of Rubiales Holdings, which holds exploration acreage in the Llanos basin in partnership with Ecopetrol. The assets produce 18,500 b/d of heavy oil from proved-plus-probable reserves that are thought to amount to over 375m barrels. The Vancouver-based firm says significant increases in production may be possible.
Meanwhile, in May, Canada's Gran Tierra Energy, a South America-focused explorer, struck oil at its Juanambu-1 exploration well in the Guayuyaco Block, Putumayo Basin, in southern Colombia.