Under rebel threat and with its largest fields in decline, Colombia’s oil industry was dealt a new blow this month when one of its loyal foreign investors said it had not found significant reserves.
However, despite Occidental’s decision to abandon the Sirirý exploration block near the Venezuelan border, where it had hoped to locate an estimated 1.4bn barrels of oil, Ecopetrol, Colombia’s state oil company, remains optimistic that a drive to attract fresh investment will result in a major discovery.
Colombian oil matters to the US. The country is not a big global producer, but it supplied 2 to 3 per cent of US imports in 2001, which would be important if Middle East supplies were interrupted.
And because oil comprises one-third of Colombia’s export revenues and is a mainstay of its finances, the US sees oil as vital to Colombia’s chances of fending off a growing guerrilla and drug trafficking threat that could destabilise the region.
The Bush administration wants Congress to authorise $98m to train Colombian troops to protect an export pipeline used by Occidental’s Caýo Limýn field. Rebel sabotage of the pipeline cost Colombia about $500m in lost revenue last year.
Regardless of the pipeline protection plan, Colombia knows only further joint ventures and fresh discoveries will keep oil revenues flowing over the long-term. The last big find a decade ago was BP’s Cusiana-Cupiagua field, which is now past its production peak.
Alberto Calderýn, Ecopetrol’s president, has been clocking up air miles and sending out geological information to entice investors. The lobbying has lifted the number of exploration contracts agreed with foreign companies to more than 60 in the past two years from 50 in the previous four years, including just one in 1999.
Investors must take account of Colombia’s long-running and worsening armed conflict but Mr Calderýn believes security costs are “not decisive”: for larger companies they add up to 25-30 cents per barrel.
“Companies have seen the long-term stability we have here, despite the short-term problems,” he says.
As well as BP and Occidental, companies exploring or producing include Total, Repsol, Petrobras, Talisman of Canada, Rosneft of Russia, and Chevron/Texaco.
Russian giant Lukoil last month made Colombia the focus of its first foray into Latin America, agreeing to prospect 300,000 hectares in the Andean foothills close to Cusiana-Cupiagua.
Mr Calderýn points to foreign investment commitments of about $800m over the next three years. About 15 prospects, of which eight could harbour at least 500m barrels, are to be drilled by end-2003, shortening the odds against a big find.
Two large recent discoveries already mean Colombia’s 1,850m barrels of proven reserves “will increase this year for the first time in 10 years,” says Mr Calderýn.
Niscota, a BP exploration block, is a big hope for 2003.
“This is not going to be Saudi Arabia, but it should confirm the idea of Colombia as an oil-producer,” he says.
Nevertheless, Occidental’s decision to abandon Sirirý raises concerns, according to Felipe Hernýndez-Calle, an analyst with Santander Investment in Bogotý.
“First, it casts a shadow on the future of oil reserves and oil production in Colombia,” he says. “Second, Occidental has had investments in Colombia for several years, and this failure could be seen as a sign of deteriorating conditions for investment in the oil sector there.”
Ecopetrol hopes to re-assign exploration rights at Sirirý. But Oxy’s assessment of it contrasts with earlier predictions of $19bn in revenues for Colombia from the project, which would have been one of its biggest.
Oxy denied the decision was sparked by security concerns or by negative publicity surrounding the drilling near an indigenous reserve.
