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Colombia: Shale Oil Exploration Gains Momentum

(This report is part of Oilprice.com’s premium publication Oil & Energy Insider. Oil & Energy Insider gives subscribers an information advantage when investing, trading or doing business in the energy sectors. Successful investors, hedge funds and senior executives, have access to high level intelligence and power in ways that you, as an individual investor, are locked out of (the game is and never has been fair.) Let us help you level the playing field by using our network of traders, intelligence assets and high level partnerships to ensure you are making the right investment decisions.)

Colombia’s oil production has risen by about 40% from 2009 to 2011—making it the fastest-growing oil producer in Latin America. Right now, the focus is on expanding unconventional exploration, but this means treading on territory that until very recently was dominated by rebel groups.

Is it too early? Perhaps. The government is still in talks with the Revolutionary Armed Forces of Colombia (FARC). The security situation remains extremely complex, and will continue to dominate the potential investment climate.

The first auctions of shale acreage in Colombia were held late last year, with ExxonMobil Corp. (NYSE: XOM) and Colombia’s state-owned Ecopetrol SA making the highest bids for three onshore blocks—two of which are believed to contain shale oil. There really wasn’t enough data on these blocks in time for the auction: only five bids were placed for 49 blocks up for grabs.

Related article: Chevron Hits Australian Shale Gas Market in $349m Farm-In

In late February, Canadian company Canacol Energy Ltd (CAAEF) and ConocoPhillips 9NYSE: COP) joined forces to explore for shale oil in Colombia’s Middle Magdalena Basin. ConocoPhillips will pay $13.5 million in cash and be responsible for the cost of drilling, completing and testing some 13 wells. ConocoPhillips will get 70% of shale oil discovered in the deeper areas of the play, while Canacol will retain 30% in the deeper areas but 100% in the shallower reservoirs. This is for Canacol’s Santa Isabel contract (334,000 acres), which is only one of five contracts it has in Colombia. For other contracts, Canacol has agreements with ExxonMobil Corp. and Royal Dutch Shell PLC.

We like Canacol in Colombia because we believe it is the best positioned to take advantage of the country’s unconventional shale oil play.

Right now, this is really a play for the juniors—small and medium-sized businesses. Discoveries haven’t been on a massive scale, but we like the trend that has emerged with Canacol—junior exploration lures in the majors.

Let’s look at the key basins:

Colombia's Shale Oil

The Middle Magdalena Basin: This is where the big attention is now. This basin is located in the Eastern Cordilleras of the Colombian Andes and exploration to date has led to discoveries of some 1.9 billion barrels of oil and 2.5 trillion cubic feet of gas. Explorers are already calling this the next Eagle Ford, and comparing it also to western Argentina’s Vaca Muerta shale. Some have put recoverable shale gas reserve estimates at 31.7 trillion cubic feet.

Related article: Algeria: Leveling the Playing Field for Shale Gas Exploration

The Llanos Basin: This east-central Colombia is one of the most prospective areas for E&P, with more than 1.5 billion barrels of recoverable oil recorded so far. Around 70% of current production comes from this basin. This is the sight of a heavy oil belt (particularly in the Rubiales Field—4.38 billion barrels of oil in place). 

Caguan-Putumayo Basin: This basin is in the country’s southwest, bordering Ecuador and Peru and covering around 104,000 square kilometers. So far, more than 365 million barrels have been discovered in 19 different fields.

Catatumbo Basin: A southwest extension of the Maracaibo Basin in Venezuela, the Catatumbo basin accounts for about 2% of the world’s hydrocarbon reserves. It is one of the most prolific basins, but only moderately explored.

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