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Colombia readies unconventional push

Colombia is turning to its nascent unconventional oil and gas sector in a bid to attract new investors and sustain growth in its booming oil and gas industry

Although some shale-gas and heavy-oil exploration is already taking place, the country’s unconventional push will start in earnest with an upcoming licensing round.

Orlando Cabrales, who took over as director of the national hydrocarbons agency (ANH) in October, recently told local El Espectador that around one-third of the 113 blocks to be offered in this year’s licensing round have shale potential – both gas and liquids. The round is expected to be formally launched on 21 February, with final bids due in mid-October.

The US Energy Information Administration estimates Colombia’s technically recoverable shale-gas resources at 19 trillion cubic feet (cf), with proved reserves estimated at 4 trillion cf.

New investors

Until recently, Colombia’s oil industry attracted only brave and the bold investors, although a much-improved security environment and one of the region’s most attractive fiscal regimes have seen a turnabout in the industry’s fortunes.

Oil production has nearly doubled since 2005 and is nearing 1 million barrels a day (b/d), according to ANH figures. Gas production has seen a similar increase, rising from 648 million cf/d in 2005 to 1.03 billion cf/d in 2011. Over the same period, foreign investment in the hydrocarbons sector has risen from just over $1 billion to an estimated $7 billion last year.

Colombia aims to capitalise on this momentum, as well as the growing interest in unconventional resource plays beyond North America, to attract new investors into its own nascent sector.

State-owned Ecopetrol has said it hopes to produce 25,000 b/d from unconventional sources as early as 2015 and has brought Schlumberger into Colombia to help its shale-exploration effort. Meanwhile, Canada’s Nexen, which has significant shale holdings in Canada, drilled its first shale-gas well in the country in December. Canacol, another Canadian firm, has likened the properties of its La Luna shale formation to south Texas’s prolific, liquids-rich Eagle Ford Shale.

Colombia has also offered generous fiscal terms for unconventional producers, including a 40% discount on royalties for gas produced from unconventional sources.

Spreading the net

The country is casting its net wide in the hunt for investors. As well as the traditional roadshow stops of Houston, London and Canada, Cabrales will also take his pitch to Beijing, Seoul and Tokyo. Asia’s cash-rich national oil companies have been significant investors in North America’s unconventional oil and gas plays and, like their international oil company competitors, are starting to look for opportunities beyond North America.

Moreover, Colombia’s geography, with both a Caribbean and Atlantic coastline, provides unique access to both the Pacific and Atlantic basin markets, if large unconventional-gas deposits are found.

A late-2011 decision to allow liquefied natural gas (LNG) exports from a small terminal on the Caribbean coast is likely to ease investors’ concerns that large discoveries would be reserved for domestic consumption – according to Cedigaz, demand in 2010 rose by 4.5%, to 880 billion cf/d.

Canadian firm Pacific Rubiales is teaming up with Belgium-based LNG specialist Exmar to build and operate the as-yet unnamed plant, which is due on line in 2013. Pacific Rubiales says feedstock for the 490,000 tonnes a year facility would be sourced from the La Creciente field.

Security concerns

But Colombia may have to convince some potential investors that the labour disputes and abductions that plagued the industry in 2011 do not herald a return to the bad old days, when security concerns brought the oil sector to a near standstill.

In September, Pacific Rubiales was forced to shut in production at the Rubiales and Quifa heavy-oil fields – two of the country’s main producers, at 185,000 b/d and 40,000 b/d, respectively – after clashes between striking workers and local police turned violent.

The number of oil workers abducted by rebel fighters also ticked up in 2011, with high-profile cases of Chinese workers, as well as employees of Talisman and Occidental Petroleum, being kidnapped.

But despite these concerns, Colombia looks poised to become the second Latin American country to make a significant push to tap its unconventional resources. Argentina is leading the way, with Repsol’s local subsidiary, YPF, making large shale oil and gas discoveries in the country’s Vaca Muerta shale formation.

Following YPF’s discoveries, oil majors ExxonMobil, France’s Total and Shell have rushed to gain exposure to the Argentine shale sector.

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