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Colombia predicts a bright upstream future, as oil production rises

The recession has not damaged Colombia's petroleum industry, says the country's upstream regulator.

COLOMBIA launched its 2010 upstream licensing round last month, offering exploration rights to 168 blocks. Covering more than 50m hectares of territory, Open Round Colombia 2010 includes full-blown exploration permits for 31 200,000-hectare blocks, about which the upstream regulator, Agencia Nacional de Hidrocarburos (ANH), has "basic information" (see Figure 1).

ANH is also offering 63 Technical Evaluation licences – short-term contracts allowing frontier areas to be evaluated for prospectivity without committing explorers to expensive drilling programmes. In addition, 74 smaller blocks – of between 30,000 and 40,000 hectares, close to existing producing areas – will be auctioned in a mini-licensing round.

Over the next few months, the agency will take a roadshow to Toronto, Calgary, Houston, London, Madrid, Rio de Janeiro, Perth, Kuala Lumpur, New York and Shanghai (in December, events were held in Bogotá and Buenos Aires). It aims to award contracts in the second half of the year; energy minister Hernán Martínez has indicated that the government will be satisfied if ANH can license 80 out of 168 blocks.

The 2010 round, it hopes, will maintain the steady rise in the country's oil production. ANH expected national crude output of 0.7m barrels a day (b/d) at the end of 2009 – around 20% higher than at the end of 2008. This year, it could exceed 0.8m b/d, says Armando Zamora, the head of ANH. That would put it almost back to its record high of 0.83m b/d, achieved a decade ago. Following the 1999 peak, production entered a slump, falling to just over 0.5m b/d in 2005, according to Ecopetrol, the national oil company.

However, under the presidency of Alvaro Uribe, a reduction in guerrilla attacks on oil infrastructure, better fiscal terms and the country's growing reputation for legal stability and contract sanctity have boosted business confidence – reversing the decline.

Exploration and production activity and foreign direct investment (FDI) in the oil and gas sector have held steady despite the recession, says ANH. FDI in the petroleum industry last year is thought likely to have matched 2008's total of $3.5bn; ANH says the same figure could be attained this year. Firm contractual commitments for seismic acquisition and drilling for 2010 are around 60% higher than for 2009.

Proved oil reserves have also been rising, from 1.4bn barrels at the end of 2008 to 1.7bn barrels 12 months later. Given that the country produced 200m barrels in 2009, the net gain in reserves amounted to 0.5m barrels – implying a healthy reserves-replacement rate of 250%, says Zamora. The long-term outlook for upstream growth is good, too. Reserves could rise to 4bn barrels by 2020, says ANH.

Output, meanwhile, could reach 1m b/d by 2015, with obvious benefits for the economy: with national consumption of around 300,000 b/d, exports are already substantial. Although the Colombian economy is not dependent on oil – the sector accounts for just 4% of GDP – exports will rise sharply, as the country ramps up production.

ANH says the government has been so successful in attracting investment that the country could become a hub for services to the wider region's industry. "Colombia has a number of industrial centres and-tax free zones with excellent locations for the oilfield services industry," says Zamora. "It is becoming a regional centre for the oil and gas industry."

Although oil dominates the sector, the prospects are also bright for natural gas, he claims. Colombian production amounts to just 1bn cubic feet (cf) a day, with 70% consumed locally and the remainder piped to Venezuela. However, proved reserves, if used at the present rate, would last just 20 years, so there has been some opposition to large-scale gas-export schemes.

LNG potential

But Zamora says Colombia could soon have proved up enough new reserves to emerge as a large exporter. "It's just a matter of time before we are confident enough to move into a totally new stage of our gas industry, which is to open up for exports," he says, adding that there may be potential for one or more liquefied natural gas terminals.

Much of the gas would probably come from Colombia's gas-prone Caribbean waters. The Guajira gasfield, the country's main supply source, has been producing for over 30 years. A recent study by Halliburton suggests that the Caribbean area – which includes the Chevron-operated Chuchupa, Ballena and Riohacha fields – may contain up to 50 trillion cf of gas. Exploration will start in earnest this year, with five wells expected in 2010. Companies with acreage in the area include BP, Petrobras, Ecopetrol, ExxonMobil, Hess, ONGC and BHP Billiton.

There have also been onshore gas successes. Last year, Hocol and its partners, Talisman Energy and Tepma, made a "significant gas condensate" discovery in the Andes foothills, 300 km northeast of Bogotá, the capital, which could signal the presence of a new hydrocarbons province in the middle of the country.

Colombia could also become a significant part of the unconventional gas revolution. The country has "several trillion" cf in shale-gas deposits north of Bogotá, as well as large volumes of gas trapped in coal seams in the northern Guajira basin, says ANH.

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