While offshore Brazil, Guyana and to a lesser extent Suriname are gaining the lion’s share of attention when it comes to South American offshore oil, with opportunities opening-up in Colombia. The Andean country’s Caribbean coast is believed to hold considerable oil and natural gas potential. It was with much fanfare that Diego Mesa, Colombia’s Minister of Mines and Energy, announced the reactivation of offshore activity in Colombia at the start of October 2020. This is an important development for a country, which despite being dependent on oil to drive economic growth, has limited proven reserves of just over 2 billion barrels with a disturbingly short production life of 6 years. Falling investment because of weak oil prices, a lack of onshore petroleum discoveries since 2009 and deteriorating domestic security are weighing heavily on plans to boost onshore oil reserves and production. Attempts by the central government in Bogota to commence unconventional hydrocarbon production through the introduction of hydraulic fracturing to boost onshore oil reserves and production have been stymied by Colombia’s courts. In fact, a lack of major hydrocarbon discoveries, rapidly depleting mature natural gas fields and a marked uptick in demand for natural gas forced Colombia to commence sustained liquified natural gas imports in 2017. Colombia’s government and the peak industry body the Colombian Petroleum Association (ACP – Spanish initials) believe the Andean country’s tremendous offshore hydrocarbon potential is key to securing Colombia’s energy security. The Andean country has 4 recognized hydrocarbon basins along its Caribbean coast, the Cayos, Colombia, Guajira and Sinú offshore basins.
Colombian Sedimentary Basins
Source: ANH Colombian Sedimentary Basins.
There are a wide range of estimates regarding the volume of hydrocarbons to be recovered from Colombia’s offshore Caribbean basins, This makes it difficult to quantify the full petroleum potential but it is believed that those 4 basins alone could hold up to 32 billion barrels of oil equivalent, which is 16-times greater than Colombia’s 2 billion barrels of proven oil reserves. Those numbers underscore how the successful exploration and exploitation of Colombia’s offshore Caribbean basins would be a game changer for the petroleum dependent Andean country.
In early October 2020, Colombia’s Ministry of Mines and Energy issued new regulations governing offshore hydrocarbon production in Colombia which it is hoped will promote urgently required investment. By October 2020, after a 5-year hiatus, 6 offshore contracts for blocks near Colombia’s Caribbean coast had been signed. The hydrocarbon regulator, the National Hydrocarbon Agency (ANH – Spanish initials), last month stated there were 8 offshore contracts in force in Colombia which it estimates will generate $1.6 billion in investment. That will translate into a $16 million benefit for local economies on Colombia’s Caribbean coast, which are suffering because of the COVID-19 pandemic and Bogota’s hard quarantine lockdown which ended in July 2020. The Ministry of Mines and Energy expects 2 wells to be drilled during 2021, one each in the offshore Tayrona and COL-3 block, which will require a combined investment of $240 million. Petrobras, the operator and owner of 44.4% of the Tayrona Block with the remainder held by national oil company Ecopetrol, announced the sale of its interest in late July 2020 which could delay the drilling of the planned exploratory well. U.S. oil company Noble Energy has a 40% stake in the COL-3 block and is the operator, with the remaining 60% owned by international oil major Shell.
National oil company Ecopetrol has a stake in 6 offshore Caribbean blocks the Fuerte Sur, Purple Angel, COL-5, Tayrona, GUA-OFF-10 and GUA-OFF1 blocks. International energy major Shell earlier this year acquired a 50% interest from Ecopetrol in the Fuerte Sur, Purple Angel and COL-5 blocks where it also became the operator. Ecopetrol, along with partner Shell, plans to commence drilling and production tests for their shared blocks during the next 2-years, with a focus on the Gorgon-1 and Kronos-1 natural gas discoveries. According to the President of Colombia’s leading industry body, the Colombian Petroleum Association (ACP – Spanish initials), 4 exploratory wells will be drilled over the next 3 years. He expects commercial development and production in the region to commence between 2025 and 2030.
The considerable attractiveness for international oil companies to invest in Colombia’s offshore Caribbean hydrocarbon basins is underscored by the region’s low breakeven costs. According to the National Resource Governance Institute, operations on the Caribbean coast have a breakeven price of just under $32 per barrel, which is lower than the onshore Llanos Basin. At that price operational projects are cash flow positive even with Brent trading at around $40 per barrel. Colombia’s central government has made investing in offshore hydrocarbon exploration and production in Colombia more attractive by providing significant tax, tariff and other incentives for offshore projects. These benefits were established as part of Decree 2682 made in 2014, which was modified by Decree 2129 issued in 2015. If Colombia’s offshore Caribbean oil basins live up to expectations and are successfully exploited, it will be a game changer for the Andean country’s oil industry and ultimately economy. It will significantly mitigate the economic and developmental risks posed by Colombia’s lack of onshore oil reserves and deteriorating production, while alleviating the Andean country’s emerging natural gas crisis. The considerable potential held by offshore Colombia in the Caribbean could reignite the county’s fading oil boom.
By Matthew Smith for Oilprice.com
More Top Reads From Oilprice.com:
- The Road To Recovery Is Long For Oilfield Services
- Is This The Key To Cheaper Solar Power?
- M&A Heats Up In Canadian Oil Patch