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Risks Abound in Mexico’s New Oil Laws

Mexico, Energy Industry, Reform, Law,…

Amid Declining Latin American Output, Colombian Oil is Booming

Oil production has been stagnating or declining in many Latin American countries (Brazil, Mexico, Venezuela, and Ecuador), but Colombia is quietly ramping up production. Colombia’s oil production lagged over the last decade after peaking in 1999 at 830,000 barrels per day. But over the last several years, several factors have contributed to a sharp rise in production, enough to position it as the third largest oil producer in Latin America.

Colombia Total Oil Production
Source: EIA

Colombia only sits atop about 2.2 billion barrels of proven oil reserves (more than 100 times less than the 297 billion barrels lying underneath neighboring Venezuela), but the government has made a concerted effort to boost production. Since 2005, oil production has nearly doubled from 525,000 barrels per day (bpd) to its current output of around 1 million bpd.

Related article: Creating Invisible Oil Repellent Barriers to Contain Spills

The government has partially privatized the state-owned oil company, Ecopetrol, in an effort to woo international investment. Colombia allows international oil companies to own 100% in upstream ventures, and foreign companies can operate there without having to form a partnership with Ecopetrol. This goes much further than the major oil reform currently being considered in Mexico, for example, where the state will maintain ownership of crude oil.

To boost investment, the Colombian government has also offered tax breaks to energy companies and opened up large areas for exploration. The enormous reduction in crime and violence has contributed to an overall improvement in security, a critical element for foreign investment. And Colombia also benefited from a bit of luck – petroleum engineers leaving Venezuela after strikes and the politicization of PDVSA have provided technical expertise to Colombia’s oil sector, according to the Financial Times.

The combined efforts have allowed Colombia to be rated as the third best place to do business in Latin America. The oil sector attracted $4.3 billion in foreign direct investment in 2011, up from only $278 million in 2003. Andrew Topf penned a long feature on Colombia’s oil and gas sector for Oil Investing News on December 10, 2013, an indication of increasing interest from international investors for Colombian energy.

Colombia hopes to go further by tapping into unconventional oil and gas as well. Government officials are trying to finish a regulatory framework in the coming weeks that would incentivize the development of shale oil and gas. Replicating the shale revolution underway in the United States has been a major goal that has thus far eluded many countries including Poland, China, and Argentina. With 17 to 20 trillion cubic feet of shale gas, Colombia believes it can change that.

Related article: Russia Readies to Take Shale Oil Lead

One big factor in the continued success of the oil industry is the ability of the state to maintain security. While violence is dramatically down from the heydays of the 1990’s, guerilla fighters continue to dog the national government. In October, multiple bomb explosions temporarily shut down a pipeline owned by Ecopetrol. The 80,000 bpd Cano Limon-Covenas pipeline runs to the Caribbean coast for export.

President Juan Manuel Santos announced in November that he is seeking reelection for President in 2014, as he hopes to secure long-term peace with the FARC in a second term.

By. Nick Cunningham

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