Oil Companies Close The Taps As Fear Of Civil War Grows In Colombia

Key Latin American U.S. ally and the region’s fourth-largest oil producer Colombia finds itself rocked by anti-government protests which are now into their third week. This has even reignited fears of renewed civil war in the strife-torn Andean country. Colombia’s anti-government protests began with a national strike on 28 April 2021 called by various civil society and trade union groups in response to President Duque’s proposed tax reform. A massive fiscal black hole where the budget deficit had reached nearly 9% of GDP is ratcheting up pressure on the cash-strapped national government in Bogota. The bill, which was seeking additional government revenue of $6.4 billion, if approved by Congress would have significantly elevated the tax burden for many Colombians and businesses already reeling under the substantial economic fallout from the pandemic. Even after Duque withdrew the bill the anti-government protests expanded in response to the use of heavy-handed tactics by the police and are now in their third week with no sign of abating. They are fueled by a myriad of social ills and long-standing grievances including rapidly rising poverty, police brutality, an explosion in violence since Duque took office, rising corruption, and poor healthcare.

After failed attempts at negotiation, anti-government protestors have established roadblocks on many major roads in Colombia blocking the transport of essential supplies including food, medicines, and fuels. It is Colombia’s southern departments of Valle de Cauca, Cauca, Nariño, and Putumayo which are among the worst affected. These events are directly impacting Colombia’s already beaten-down petroleum industry after an earlier series of oilfield invasions saw the Colombian Petroleum Association (ACP – Spanish initials) release a series of communications (Spanish) condemning the violence. The roadblocks are preventing the transportation of vital supplies, notably water, fuel, and parts, which is forcing some onshore petroleum companies to shutter wells as well as delay exploration and development activities.

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Earlier this week Colombia’s fourth-largest onshore oil producer Gran Tierra Energy announced the shuttering of oilfields in the Middle Magdalena Valley and Putumayo Basins, shaving 5,250 barrels per day off its petroleum production. Parex Resources, the third-largest oil producer, released a media statement explaining its operations in the Llanos Basin are affected by the blockades. As result, Parex had elected to withdraw its second-quarter 2021 guidance, although the driller has yet to provide any details of how much of its crude oil production will be impacted. Parex further explained that the four six well drilling programs on the Cabrestero Block will be delayed as will exploration and seismic activities for the VIM-1, LLA-32, and VMM-46 blocks will be impacted. In stark contrast, Colombia’s second-largest oil producer Frontera Energy announced this week it would maintain its 2021 production outlook “as it has had no material impacts from recent events in Colombia”. While the largest driller, national oil company Ecopetrol has advised it is monitoring the situation but operations, including its crude oil production, have yet to be materially impacted. Ecopetrol had forecast 2021 average production of 700,000 to 710,000 barrels of crude oil daily 81% weighed to crude oil, which at the upper range is almost 2% greater than the 697,000 barrels per day pumped during 2020.

Those production shut-ins are bad news for Bogota which is struggling to reactivate Colombia’s economically crucial oil industry and return the tempo of operations to pre-pandemic levels. For 2020 petroleum was responsible for nearly a fifth (Spanish) of government revenue, 28% of export income and 3% of gross domestic underscoring its economic importance even during a period when oil prices were severely depressed. The latest numbers from Colombia’s energy ministry (Spanish) underscore that the urgently needed recovery is a long way off. March 2021 petroleum production fell 0.14% quarter over quarter and by 6.5% year over year to 744,715 barrels per day. The sharp decline in output compared to the same period a year earlier is particularly worrying. By April 2020, the fallout from the pandemic, the March 2020 oil price crash and Colombia’s quarantine lockdown were fully impacting the crucial oil industry causing operational activity and production to sharply decline. 

If Duque is unable to find a peaceful solution that ends the blockades Colombia’s petroleum industry will continue to suffer from production declining further. If the government deploys Colombia’s combat-hardened army to remove the roadblocks, there is every likelihood that violence will explode, with some analysts predicting the country is yet again on the brink of civil war. Any escalation in violence will not only cause vital oil output to decline, for an industry yet to benefit from the promised peace dividend associated with the 2016 FARC treaty, but impact exploration as well as development activities. Heightened turmoil and bloodshed will see wellhead attacks, oil pipeline bombings, extortion and even the kidnapping of oil industry workers, which were regular events two decades ago, become commonplace yet again. 

By Matthew Smith for Oilprice.com 

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