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Matthew Smith

Matthew Smith

Matthew Smith is Oilprice.com's Latin-America correspondent. Matthew is a veteran investor and investment management professional. He obtained a Master of Law degree and is currently located…

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Can Colombia’s Offshore Oil Potential Rival That Of Brazil?

  • Colombia’s oil industry has had a tough couple of years following a significant deterioration due to the COVID-19 pandemic.
  • Colombia has not seen any major oil discoveries in over a decade. 
  • Some believe that Colombia’s offshore oil potential could rival that of Brazil.

The strife-torn Latin American nation of Colombia punches well above its weight when it comes to petroleum production. The Andean country is the region’s third-largest oil producer, even after experiencing a significant deterioration in industrial productivity since the COVID-19 pandemic arrived, despite only having proven oil reserves of 1.8 billion barrels. Colombia has not had any major oil discoveries in over a decade, placing ever greater pressure on the country’s scant reserves and its soil-dependent economy. A solution planned by presidential candidate leftist senator Gustavo Petro, who is leading the polls (Spanish) for the May 2022 election, is to end oil exploration while building other more economically productive industries, notably agriculture and manufacturing. The current hard-right government of President Ivan Duque, protégé of former President Alvaro Uribe, who is credited with reasserting Bogota’s control over Colombia’s national territory, 2021 doubled down on offshore petroleum exploration. 

There is a belief that Colombia possesses similar offshore petroleum potential to Brazil, which if correct would be a game-changer for the Andean country’s struggling oil industry and hydrocarbon-dependent economy. Brazil’s massive offshore pre-salt oil boom located primarily in the Atlantic Ocean’s Santos and Campos Basins catapulted the country to Latin America’s leading crude oil producer. There are signs that Colombia’s coastal waters hold considerable petroleum potential with four recognized offshore basins along the Caribbean coast and a further situated on the Pacific coast. Offshore oil exploration and production holds many advantages over onshore crude oil operations in Colombia. Key are the risks associated with a volatile onshore security environment and deteriorating social license with most local communities opposed to nearby industry operations. Rising cocaine production is fueling conflict among myriad illegal armed groups that predominantly operate in remote regions where there are significant petroleum industry operations.

The Putumayo Basin, which is Colombia’s second-highest producing basin, like the Catatumbo region near the Venezuelan border that encompasses part of the Llanos Basin, the epicenter of Colombia’s oil industry, is riven by conflict. Illegal armed groups in those regions are battling for control of lucrative coca cropping territory and smuggling routes. Pipelines bombings and illegal taps for the theft of petroleum, which is rising, remain constant hazards for onshore operations adding to the risk of production outages and higher transport costs. The decline of the petroleum industry’s social license is responsible for community blockades and invasions of oilfields as well as legal action by various civil society groups. The latest legal action (Spanish) impeding onshore petroleum industry operations is the first court of Barrancabermeja suspending the environmental licenses for the Kale and Platero hydraulic fracturing pilots. Fracking, which is a highly controversial technique for extracting petroleum in Colombia, is blocked by a moratorium imposed by the country’s highest administrative tribunal the State Council, although this does not prevent pilot projects. Court order requires the operator, Colombia’s national oil company Ecopetrol, to suspend operations and engage in consultation with the Afro-Wilches community in the municipality of Puerto Wilches, located in the Llanos Basin. 

Related: EU In Talks With Alternative Suppliers As It Considers A Russian Oil Ban

Those issues coupled with the considerable uncertainty surrounding unconventional hydrocarbon exploitation in Colombia as well as a dearth of conventional discoveries are deterring onshore investment by energy majors. In fact, in late-2020 U.S. driller, Occidental Petroleum sold its onshore Colombian oil assets but retained its offshore interests. It is estimated that Colombia’s offshore Caribbean hydrocarbon basins could hold anywhere up to 32 billion barrels of crude oil, or roughly 16-times the Andean country’s current proven reserves. That makes their exploitation an important step required to reinvigorate Colombia’s petroleum industry and expand production to the all-important target of 1 million barrels per day. Colombia’s offshore Caribbean hydrocarbon basins are attracting considerable attention. Since 2015 Ecopetrol has reported a series of hydrocarbon discoveries along the Caribbean coast, helping to confirm the considerable oil and natural gas potential thought to exist in the region. 

The attractiveness of investing in offshore Colombia is underscored by major international energy companies buying assets in the region during 2021. 

Among them was global supermajor Royal Dutch Shell which in early 2021 closed a deal acquiring, from Anadarko, a 50% operating interest in the Fuerte Sur, Purple Angel, and COL-5 blocks in offshore Colombia, with the remaining interest held by Ecopetrol. Then in late-2021, despite having sold its onshore Colombian oil assets a year earlier, Occidental, through subsidiary Anadarko Colombia, signed contracts for four offshore blocks, COL-1, COL-2, COL-6, and COL-7, covering around 3.9 million acres. Those blocks alone are estimated by the ANH to require an investment of $1.4 billion to be successfully exploited.

Offshore Colombia Caribbean Blocks

Source: Colombia Ministry of Mines and Energy.

Colombia’s Ministry of Energy and Mines expects a total 2022 investment of $80 million for offshore natural gas exploration projects. Most of that spending is expected to come from national oil company Ecopetrol which announced plans to spend almost $65 million on offshore activities. That includes partner Shell spudding the wildcat Gorgon-2 well in the COL-5 Block located in the offshore Sinu Basin. Brazil’s national oil company Petrobras announced plans to drill with pattern Ecopetrol an exploration well in the offshore Tayrona Block, located in the Guajira Basin, to identify the assets' hydrocarbon potential. The block is believed to sit on a hydrocarbon trend which is an extension of neighboring Venezuela’s offshore oilfields. Petrobras, which is the operator and has a 44.44% stake in the Tayrona Block with the remainder held by Ecopetrol, announced in 2020 that it was selling its interest in Tayrona. This forms part of the Brazilian energy supermajor’s strategy of exiting assets outside of Brazil to focus on its Brazilian offshore pre-salt operations.

Successfully exploring and developing offshore Colombia could prove to be the key to rejuvenating the strife-torn Latin American country’s economically crucial petroleum industry. Onshore crude oil output fell sharply with the advent of the COVID-19 pandemic and has yet to recover. By February 2022 Colombia was only pumping an average of 739,542 barrels per day which was 1% lower than a year earlier and the 878,389 barrels daily produced in February 2020, the last operational month not impacted by the pandemic. A lack of major onshore discoveries in over a decade leaving only six years of production poses a direct threat to Colombia’s oil-dependent economy where petroleum generates a third of export income and over 3% of gross domestic product. For these reasons expanding offshore exploration activities is crucial to the survival of Colombia’s hydrocarbon sector, growing crude oil production, and bolstering economic growth.

By Matthew Smith for Oilprice.com

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