• 3 minutes Don't sneeze. Coronavirus is a threat to oil markets and global economies
  • 5 minutes Boris Johnson taken decision about 5G Huawei ban by delay (fait accompli method)
  • 9 minutes This Battery Uses Up CO2 to Create Energy
  • 12 minutes Shale Oil Fiasco
  • 7 hours Historian Slams Greta. I Don't See Her in Beijing or Delhi.
  • 2 hours Governments that wasted massive windfalls
  • 1 day Let’s take a Historical walk around the Rig
  • 5 hours We're freezing! Isn't it great? The carbon tax must be working!
  • 10 hours Trump has changed into a World Leader
  • 3 days US (provocations and tech containment) and Chinese ( restraint and long game) strategies in hegemony conflict
  • 20 hours Beijing Must Face Reality That Taiwan is Independent
  • 1 day Yesterday POLEXIT started (Poles do not want to leave EU, but Poland made the decisive step towards becoming dictatorship, in breach of accession treaty)
  • 1 day Tesla Will ‘Disappear’ Or ‘Lose 80%’ Of Its Value
  • 3 days Might be Time for NG Producers to Find New Career
  • 37 mins 2nd Annual Great Oil Price Prediction Challenge of 2019
  • 7 hours Trump capitulated
Alt Text

Predicting The Bounce In Crude Oil

Crude prices have fallen significantly…

Alt Text

The Oil Industry’s Radioactive Secret

An investigative journalist has written…

Alexis Arthur

Alexis Arthur

Alexis Arthur is energy policy associate at the Institute of the Americas, a think tank on Western Hemisphere Affairs based in La Jolla, Calif. She…

More Info

Premium Content

This Nation Could Host The Next Latin American Offshore Boom

With most of the attention focused squarely on Mexico and Brazil of late, it is easy to overlook Latin America’s broader offshore potential, particularly the smaller players such as Colombia.

Mexico’s proximity to proven reserves in the US Gulf of Mexico as well as its spotlight-grabbing energy reforms have rightly drawn investors’ gaze. But Mexico is not the only player in the game. Colombia in particular has touted its offshore prospects, though an inauspicious global investment environment as well as problems at home have seen investors withdraw from this once-promising energy space.

To be fair, investor interest in offshore exploration has ebbed across the region but Colombia in particular is struggling. The one-time darling of the Latin American energy world is taking a sobering look at its declining production and reserves, with serious concerns for its future energy security. Related: How Should Commodity Traders Now Think About Geopolitical Risk?

Still, Colombia’s potential should not be so readily discounted. According to an oft-cited 2012 study by the National University of Colombia, the nation’s offshore resources could triple Colombia’s natural gas reserves and increase its oil reserves by a factor of six.

Offshore reserve estimates range from 10 billion barrels of oil equivalent to over 55 billion.

The Colombian government is banking on major discoveries to reverse a trend in declining production and reserves. After almost doubling oil production between 2008 and 2014, and reaching the 1 million barrels per day milestone in 2013, Colombia has just 6.6 years of estimated oil reserves and 15.5 years of natural gas.

The National Hydrocarbons Agency (ANH) has argued that Colombia must drill between 200 and 230 wells per year to turn the situation around. In the first two months of 2015, just six wells were drilled. A lack of exploration activity has been linked to low global oil prices, increased taxes on energy companies, and Colombia’s political and business environment more generally.

For those who observe Colombia closely, this is not wholly unexpected, particularly in the wake of a lackluster oil and gas auction last year. Just 26 of the 95 blocks on offer received bids under Ronda Colombia 2014. Moreover, the $1.4 billion raised came in well under the expected $2.4 billion. Related: This Is What Will Determine If Oil Prices Go Up Or Down

The offshore results were a little less disappointing. Four firms bid on the five offshore areas, with a total investment commitment of $540 million. A Shell/Ecopetrol venture in the deepwater was the top bid overall; a $231 million investment in SIN OFF 7. The third largest bid of the auction was also an offshore block, with Anadarko bidding $152 million for COL 6. Both are off Colombia’s northern, Caribbean coast. The entrance of Norwegian oil company, Statoil, was also a positive sign. The company now has two farm-in deals with Repsol as well as a share in COL 4 block with ExxonMobil and Repsol.

Some were surprised that the 19 offshore blocks available failed to attract more attention. Regional competition, in particular from the newly-opened Mexican market, was one factor. The high risk of investing in Colombia’s relatively untested offshore waters was another.

Low oil prices have only added to the challenge. Colombia’s national oil company, Ecopetrol slashed its offshore budget this year, bringing it down to $200 million from $632 million in 2014. Although this is in line with regional and global trends.

Colombia’s energy strategy is still banking on a major offshore discovery to revive its energy fortunes.

Petrobras and Ecopetrol have announced a natural gas discovery at the Orca 1 well in the shallow waters off Guajira. While further evaluation is necessary, early signs are good. A major find would be the first since the 1990s in Colombia and a much-needed boost for the nation’s energy sector.

Further success would lower the risk in adjacent areas, sparking more interest in future bid rounds. For now, the Colombian government has announced that it will not be holding an oil and gas auction for at least two years while it focuses on increasing production in existing concessions. Related: Energy Stocks May Be A Safe Haven For U.S. Investors

Including those awarded in Ronda Colombia, the government has 23 active contracts for offshore blocks – 21 off the Caribbean Coast and 2 off the Pacific.

The ANH and national government have announced a new plan to address some of the institutional barriers in an effort to reduce the cost of drilling, again with a particular focus on stimulating offshore interest.

In the short term, Colombia has a tough road ahead but oil and gas projects - in particular offshore - are a long term business. Political, financial, and institutional changes can be made to streamline the process and make Colombia an attractive place to do business again. In its current situation, Colombia has little to lose.

By Alexis Arthur for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play