Volume 2, issue #11 - 23-04-1997

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Colombia to ease exploration terms

Apr. 8, 1997 Colombia is preparing major changes in its oil exploration contract terms to open up a vast region of unexplored territory for foreign oil producers, according to top government officials. They have yet to decide on the details, but they are keen to reverse a sharp decline in oil production forecast for 2000-2003.
Energy and Mines Minister Rodrigo Villamizar said Colombia's oil production would peak at around 1 million bpd in 2001-2002, and then predicted a sharp fall unless more exploration work is done now. "Colombia is not just a country with great oil potential, but also it is characterised by a very low level of exploration activities. Less than 20 % of the country has oil-bearing potential and less than 20 % of this has been explored," he told."We have not yet been able to find the best incentives which will have to be reflected in the association contracts so as to better benefit the parties involved," he added.
Delegates from some 50 US energy companies attending the conference saidone reason for the low exploration level was a 82-85 % total government tax take, one of the highest in Latin America. Also, the state oil company Ecopetrol has the option of taking a large stake in exploration contracts if oil is discovered.
Energy Minister Villamizar said his government was hoping to attract $ 18 billion in the upstream oil sector by the year 2000. Other than fiscal and contractual terms, conference delegates saw political risks such as sabotage and kidnapping by guerillas as the main obstacles to investment. Stephen Newton, president of Occidental Colombia which operates the 180,000 bpd Cano Limon field, said the Cano Limon pipeline taking oil to the coast was blown up 462 times since it started operation, at a rate of 45-50 times per year.
Ecopetrol's Urdinola suggested a change in the current security system whereby oil companies negotiate protection directly with the Colombian army."We are studying a scheme where the contract will not be done between the foreign investor and the armed forces of Colombia, but there would be a fund with the contribution of operators and the fund would be managed by an administration to make contact with the armed forces," Urdinola said.