Colombia Oil Bounty

The hunt is on for Colombian oil.

The Colombian government has a plethora of initiatives on the table to boost production volume. Efforts in combating domestic terrorism, drug trafficking, and safeguarding oil workers have improved the atmosphere for outside investors.  

70% of the country lies unexplored, according to Energy Minister Federico Renjifo. He said oil production could spike 13.3% this year, Reuters reports.

But current oil reserves will only secure a 7 year production lifespan unless the government can attract investment from abroad.

In 2012, crude output hit 944,000 barrels per day – a 3.16% increase.  

The Colombian Ministry of Mines and Energy announced that Colombia has 2.3 billion reserves as of the end of 2012, a 5% increase from 2011. Crude production has doubled since 2007, but commercial volume will hold for 6.9 years to come.

The government hopes to stretch that time frame by enhancing drilling techniques and auctioning unconventional shale plays and conventional crude next year.

10% of the country’s oil could originate from shale resources.

Colombia’s two primary oil companies will come to be the lead in any oncoming production booms. State-owned Ecopetrol SA (NYSE: EC) and the privately-owned Pacific Rubiales Energy Corp. (TSE: PRE) have helped the Colombian oil industry immensely, and both have goals of reaching one million barrels a day within a decade.

Ecopetrol has more freedom than other state-backed oil firms in Latin America. Petrobras (NYSE: PBR) of Brazil, PDVSA of Venezuela, and Pemex of Mexico have at one time or another been used as cash vehicles to fund political agendas. Ecopetrol is allowed, first and foremost, to be an oil company. The firm has undergone 16% annual growth since 2008 and is one of the top-performing energy companies in Latin America.

Colombian officials partially privatized the firm, with the government holding an 89% stake, but there is room for investors to claim a stake in the company. Regulatory power was stripped from the firm and reallocated to the new National Hydro Carbons Agency.

Rubiales Pacific was conceived by four Venezuelans, and they plan to help their adopted nation of Colombia through doubling oil production by 2015 – a fairly reachable goal when considering the vast potential of undiscovered territory.    

Venezuelan-Columbian Connection

Venezuela underwent an oil strike from 2002 to 2003, when political opposition amassed worker support from the PDVSA.

In response, the late Hugo Chavez canned over 18,000 workers in the fields of management, engineering, and geology. Many turned to the U.S. for work, but most transitioned to Colombia. Now the PDVSA is made up of political loyalists and going through a degree of internal decay due to mismanagement and asset drains. And there is no sign that things will change under Chavez successor Nicholas Maduro.  

If it were not for Hugo Chavez’s ambitions in driving away vital PDVSA workers, Venezuela could have utilized the very talent that Colombia is benefiting from.  

Rubiales has used Venezuelan drilling equipment to leap from 14,000 bpd in 2008 to a projected figure of 250,000 bpd in 2013.

Things look good for Colombia, but there are still some lingering problems to overcome.

Colombian Investment

A lack of transport infrastructure to support higher production will be a problem as oil activity flourishes, but this can easily be remedied with the flow of foreign capital.

But smaller companies in Colombia are doing their fair share in adding value to the nation’s energy industry.

Petrominerales Ltd. (TSE: PMG) operates in the Llanos Basin. Transportation costs have skyrocketed since Colombia’s production surge. In 2009, Petrominerales constructed an offloading station in the OCENSA pipeline, acquired a five percent stake in the pipeline in 2011, and participated in the construction of the OBC pipeline project in 2010. 

Gran Tierra Energy Inc. (NYSE: GTE) is an independent oil and gas company that has had significant holdings in the Putumayo Basin of southern Colombia since 2006.

Colombia has a few good native drillers, but foreign investment and the involvement of big-name companies could get production in full swing.

But a lingering concern for investors and government officials hoping to attract foreign investors has been terrorism. Revolutionary Armed Forces of Colombia (FARC) has long conducted attacks on energy infrastructure, and there have been instances where oil workers were kidnapped and killed. But FARC suffered a major blow when senior leader Sixto Cabana was among several killed in a clash with government forces in 2010.

The Colombian government has cracked down on FARC, and the government is in the midst of peace negotiations with the organization – a move that will appease investors and energy companies.

Former President Alvaro Uribe even went so far as to station troops near Rubiales Pacific and oil sites to prevent attacks on infrastructure.

Colombia has undergone political instability, but Iraq is a far more dangerous place, yet energy companies are still pitching tent in the region. And the Colombian government is doing everything it can to foster a healthy business atmosphere.

The decrease in violence has already attracted more investors to the region, but will it be enough?

Corporate investing has suffered as a result of the global fiscal crunch, and Colombia has already seen a two percent decline in foreign investment in 2012. A slump in worldwide commodity prices may also be a hindrance.

In order to get over these hurdles, the government would have to do more in assuring investors, but there have been additional concerns regarding the slow status environmental permits. There have also been reports of regulatory delays for exploration, well drilling, and development.  

But despite the minor setbacks, the massively undeveloped territory alone should be enough for many international investors to take notice.

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