Bottom Line: Despite news of significant progress in peace talks between the government of Colombia and the rebel group FARC, guerrillas in the north and south of Colombia remain active. In the past two weeks, at least 18 members of the Colombian military were killed in conflicts with the FARC or ELN, belying the success of the peace negotiations. During the same period, numerous FARC attacks on oil pipelines caused major disruptions for Petronorte and Ecopetrol.
Analysis: Eight sequential blasts tore apart a pipeline belonging to Petronorte in the department of Norte de Santander on 20 May. The explosions were allegedly the FARC’s response to fatalities suffered in an armed confrontation with the Colombian Army in Norte de Santander. The blasts caused the shutdown of the pipeline at an estimated cost of $263,000, and a call for government assistance in mitigating the environmental damage, including oil potentially spilling into the Catatumbo River. Separately, attacks on Ecopetrol’s Caño Limón-Coveñas pipeline (also in Norte de Santander) and San Miguel-Orito pipeline (in Putumayo) caused their shutdown. The bomb in Putumayo caused a fire which lead to the hospitalization of one local resident. In a late May interview with a major Colombian newspaper, ELN rebel leaders affirmed their commitment to targeting the oil industry in particular because of their dissatisfaction with multinational operations in Colombia. So far in 2013, there have been almost twice as many explosive attacks on oil pipelines as during the first five months of 2012. The pipelines, which run through rugged, remote regions of Colombia, are an easy target for sabotage given that neither oil companies nor the government has come up with a feasible way to protect them.
Recommendation: For now, investors must prepare for and accept such attacks as a cost of doing business in Colombia. Typically, the explosions are more an annoyance than a catastrophe; local authorities and oil workers along the pipelines are now familiar with how to best minimize damage. Other sectors, including mining and infrastructure, shield investors from risk associated with pipeline attacks as would expansion of offshore operations.