Colombia: New sales blocks for oil
While Brazil’s latest deep-sea discoveries have made it the talking point of the South American oil industry, Colombia is fast coming into its own, with production almost doubling in the five years up to 2011 and exploration also on the rise.
Recently dubbed the regional oil industry’s “rising star” by the Financial Times, Colombia is the fourth-largest Latin American oil producer behind Brazil, Mexico and Venezuela.
The country’s plans to push for substantial growth in the oil sector during the coming years follow a steady rise in production that began after Ecopetrol, the state-owned oil company, was partially privatised in 2007.
The move saw production increase from a stagnant 530,000 barrels per day (bpd) on average to 941,000 bpd by end-2011. Forecasts now expect it to pass the 1m-bpd mark before the end of 2012 in what would be an average annual increase of 11-12%.
The number of exploratory wells drilled in the country is also on the rise, up from 75 in 2009 to 126 in 2011, and anticipated to reach 150 before the end of the year.
Colombia’s oil industry has been buoyed by the impressive strides made by the country’s armed forces towards eradicating paramilitary groups operating in the hinterlands. The resulting improved levels of security in both oil-producing areas and throughout the country, coupled with the current political turmoil in neighbouring Venezuela, have encouraged a significant number of international investors to focus on opportunities in Colombia’s oil sector.
Foreign direct investment (FDI) in the industry was up by around 30% from US$3.33bn in 2007 to US$4.32bn in 2011 and is expected to continue its upward trend this year, boosted by Open Round Colombia 2012, which was launched in February and marks the country’s first large-scale auction of oil blocks since 2010.
The sale is scheduled to include the sale of some 109 blocks, with the names of companies qualified to participate in the bidding set to be announced on July 26, 2012. The successful bidders will be revealed in November.
Three types of blocks, categorised as mature fields, new frontier basins and “non-conventional” sources, will be included in the auction. Only a small number of blocks fall into the first category, with around 30% of the total listed in the non-conventional group.
Daniel Johnston, a consultant and expert on Colombia’s oil industry, told OBG that the final category was made up of lots located primarily in deep water or in the Llanos region. He said deep-water wells were recognised as a costly investment that could easily add up to US$100m or more. Reserves discovered in Llanos, he added, would also be difficult to access. “Rocks dip steeply, making it difficult to drill a straight hole,” he said, “thus resulting in more costly operations.”
Colombia’s National Association of Hydrocarbons (ANH) has substantially increased the operational capacity requirements for 2012 bidders compared to those in place for the 2010 rounds.
Given the comparatively easy access that defines oil blocks offered under the first mature category, requirements for bidders in this area remain relatively low, with producers needing a count of just 2m barrels in reserves and production of 1000 bpd. Criteria for bidding on the unconventional source oil blocks is considerably more rigorous, with bidders required to have 50m barrels in reserves and daily production of 20,000 barrels.
Johnston believes these requirements are still reasonable given the high-cost nature of drilling in the deep sea and Llanos areas. It is also thought they may help ensure that only firms of an appropriate size and with the required resources gain access to the country’s more challenging oil blocks.
Interest in the auction is proving to be high, due in part to ANH’s efforts to market the Open Round internationally, which included rolling out promotional visits to New York, Toronto, Calgary, Houston, London, Beijing, Seoul, Tokyo, Rio de Janeiro and Mumbai. By May 2012, 60 companies had already requested the technical information required to participate in the bidding process.
Former Brazilian President Lula Ignacio de Silva’s quip that “God must be Brazilian”, made in 2007 on the back of promising discoveries in the country’s Tupi oilfields, reflected its increasingly prominent role in the South American oil industry.
But Colombian President Juan Manuel Santos is certainly upbeat about the prospects for his own country’s oil sector. Included in his estimates is a forecast that at some point in the coming years, production should surpass 2m bpd, an important landmark and one that, if achieved, could do much to cement Colombia’s status as an emerging energy powerhouse.