Snapshot Colombia: An Emerging Destination for Oil and Gas Investment
Rising exploration and a favourable environment make Colombia a very attractive destination for oil and gas investment. In 2010 alone there were around 35 new oil and gas discoveries with high success rate. Drawing on detailed GlobalData research, hydrocarbons-technology finds out how these finds and other factors are creating a wealth of new oil and gas opportunities in Colombia.
Colombia's upstream sector has witnessed significant investments during the period from 2007-2010 and the country is being hotly tipped to emerge as a significant oil and gas producer.
A strong flow of investments from national and international oil and gas companies is leading to increased exploration and production activities, improved fiscal terms, government initiatives to attract foreign companies and strong exploration potential of the Colombian basins have made the country an attractive destination for foreign oil and gas investment.
Using detailed research from GlobalData's 'Colombia - An Emerging Destination for Oil and Gas Investments' we examine the market for oil and gas in this up and coming South American nation.
Colombia witnessed 25% increase in oil reserves in 2010
In early 2010, Colombia had 2 billion barrels of proven oil reserves – the fifth largest in the South American region. Colombia's oil reserves increased by around 25% in 2010 compared to the country's oil reserves of 1.6 billion barrels in 2009.
The country was also one of the major producers of crude oil in the region in 2010. The majority of the crude oil production in Colombia comes from the Andes foothills, the eastern Amazon jungles and Central Colombia.
Colombia had gas reserves of 3.96 trillion cubic feet in 2010. The country produced 318 billion cubic feet of natural gas while consuming 265 billion cubic feet during 2008.
The country's natural gas production has increased substantially owing to greater investments and new export opportunities.
Colombia's natural gas deposits are spread across 18 basins. Six of these basins - Eastern Llanos, Putumayo-Caguan, Catatumbo, Eastern Cordillera, the Middle Magdalena Valley and the Upper Magdalena Valley are mature basins.
The emerging and frontier basins in Colombia include Guajira and Guajira offshore, Sinu-San Jacinto, the Lower Magdalena Valley, Los Cayos, Uraba, Choco and Choco offshore, Tumaco and Tumaco Offshore and Cauca-Patia.
The number of oil and gas discoveries in Colombia nearly tripled between 2006 and 2010
Colombia is emerging as an attractive oil and gas destination in terms of the number of discoveries made in the country in 2010. Sustained efforts of the Colombian government to explore the offshore and onshore basins have resulted in growing number of oil and gas discoveries.
Strong growth in oil and gas discoveries are mainly due to the country's new regulatory reforms which are favourable to foreign investments. The country ranks second globally in terms of oil and gas discoveries during the period January 2010 to March 2011.
The major emerging basins in Colombia include Guajira and the Guajira offshore region, Cesar-Rancheria, Sino-San Jacinto, the Lower Magdalena Valley.
The frontier basins in the country include Los Cayos, Uraba, Choco and Choco offshore, Tumaco and Tumaco offshore and Cauca-Patia.
The number of new oil and gas discoveries in Colombia increased from 12 in 2006 to 28 in 2009 and reached 35 in 2010. Going forward, the number of discoveries is expected to increase further. Some of the major discoveries in 2010 include:
The Moqueta-1 discovery is located in the Chaza block in the Putumayo basin in Colombia. A Canadian oil and gas company, Gran Tierra Energy Inc, wholly owns and operates the Chaza block. The company successfully completed well testing in June 2010.
The Altair-1 exploration well is located in the Altair block in the Llanos basin in Colombia's offshore area. The well was spudded in April 2010 and was completed in May 2010. The well is operated by Interoil Exploration and Production with 90% ownership. The remaining 10% equity stake is held by Erazo Valencia S.A.
The Copa-1 well in the Central Cubiro block of the Llanos basin was successfully tested in May 2010. The Alange Energy Corp, with 60.5% ownership, operates the block.
Colombia's flexible and progressive fiscal policies attract international investors
Colombia offers a flexible and favourable oil and gas investment scenario for international oil and gas companies. Colombia's flexible fiscal policies and high reserve potential have transformed it into a country with one of the highest potential investment acreages globally.
The upstream sector in the country has generated huge interest among international oil and gas players and institutional investors. In the recent past, exploration acreages have been increasing steadily, demonstrating the growing attractiveness of Colombia as a global oil and gas investment destination.
Between 2003 and 2010, more than 200 million hectares were explored and another 47 million hectares of land was open to exploration activities in 2010.
The Colombian government has also taken flexible and progressive fiscal regime to encourage investments in its upstream sector, particularly for increasing the flow of foreign direct investment (FDI) into the sector.
Some of the important measures taken by the government include:
- The royalty structure has been reformed in the Colombian oil and gas contracts. Royalty has been changed from a fixed rate of 20% of production to a sliding scale, between 5% and 25%, based on production. This indicates the operator has to pay the royalty proportionate to the amount of crude oil production thus increasing operator's profitability.
- The government's take on profits from oil and profits from gas is flexible and competitive. It is based on the quality and production of crude oil and the distance from the shore for natural gas.
- There are no signature or discovery bonuses applicable on oil and gas companies operating in Colombia. The contractor does not make any payment towards bonuses to the state. Instead, the money is invested in exploration or evaluation projects.
- The minimum depreciation period is also reduced by the government from ten years to five years, favouring the oil and gas operators.
Furthermore, asset and personal security have also developed significantly, with the number of attacks on oil and gas assets and personnel kidnappings having drastically reduced during the last decade.
Colombia has also witnessed stronger economic growth in the last decade, with its GDP increasing almost three fold between 2000 and 2010.
Major national and international oil and gas companies are investing in Colombia
Colombia's upstream sector is characterized by the presence of both national and international oil and gas companies. A large number of companies operate in the industry, including some major international oil majors such as BHP Billiton, BP Plc, ExxonMobil Corporation, Nexen Inc, Reliance Industries Limited, SK Energy Company Ltd, and Talisman Oil & Gas Ltd.
Furthermore, certain national oil companies like Ecopetrol SA, ONGC Videsh Limited and Petrobras S.A, also have operations in the country.
The flexible fiscal regime of Colombia has enabled a large number of foreign players to foray into its exploration and production sector. Furthermore, most of the existing companies are increasing their presence in the market through mergers, acquisitions, asset purchases and by forming partnerships.
The overall investments in M&A activities in the region saw a sharp increase in 2010 with around $2,044.2m invested in the oil and gas industry.
On 25 March 2011, C&C Energia (Barbados) Ltd, a subsidiary of C&C Energia Ltd, signed an agreement to acquire certain oil and gas properties located in the oil rich Central Llanos basin Colombia, from Ramshorn International Ltd, an oil and gas company, for a purchase consideration of $89m in cash.
In March 2011, Azabache Energy Inc. entered into an agreement to acquire 30% working interest in the Antares block and the E&P Contract, located in the Upper Magdalena basin, Colombia, from Petroleos Del Mar (Petromar).
In Feb 2011, Ecopetrol S.A. entered into an agreement to acquire the entire stake in the exploration of Cano Sur block, located in the Llanos Orientales basin, from Shell Exploration and Production Colombia Cano Sur GmbH.
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