Columbia's Push to Triple Proven Oil & Gas Reserves
With
no major onshore oil discoveries since 2009, Colombia’s oil and gas reserves
have dwindled. The country has thus turned to non-conventional deposits as a
means to boost production in the medium to long term. While this segment has
historically been dominated by offshore activity, the government’s aim to boost
proven reserves, diversify its sources and ensure long-term self-sufficiency
has given the fracking industry ample opportunity to expand.
The
government estimates that fracking activities could triple proven oil reserves;
however, resistance from local communities and environmental groups has
dampened the industry’s progress. While preliminary results appear positive,
whether these policies can be sustained over time remains to be seen.
Offshore
Colombia’s
offshore ambitions began in 1969, with Chuchupa, the first find, occurring in
the northern region of La Guajira in 1973. This field, operated by Chevron, is
the only offshore project currently in operation. The offshore segment saw
little activity in the intervening years, until the National Hydrocarbons
Agency (Agencia Nacional de Hidrocarburos, ANH) issued six blocks in 2012 and
five blocks in 2014. These were awarded to companies like Shell, Repsol,
Ecopetrol, Anadarko, ExxonMobil and Statoil. This cleared the path for the
introduction of more favourable fiscal conditions, such as cutting royalty fees
by 40% and decreasing windfall tax on profits.
In
September 2016 the Ministry of Mines and Energy announced that offshore
projects would be considered free trade zones, allowing operators to bring in
the supplies and services necessary for the development of project without
passing Customs. These changes provided operators with incentive to begin
operations, which in 2014 led to a large offshore find at Brazilian national
oil firm Petrobras’ Orca-1 well in the Tayrona Block, 40 km off the coast of La
Guajira. According to state-owned Ecopetrol’s CEO, the gas extracted from the
field could potentially be exploited by 2023. In 2015 US firm Anadarko Petroleum
discovered 39.6 to 70.1 metres of net natural gas pay at its Kronos-1 well in
the Fuerte Sur Block-53, at depths of over 1500 metres. In February 2017 the
offshore specialist drilled the Gorgon-1 well in its Purple Angel block, at a
depth of 1835 metres. The well revealed a gas column which was the largest find
of its kind in Colombian history.
While
these discoveries are promising, production at the Gorgon field may not begin
until 2025. However, the proximity between confirmed gas fields could open the
possibility for the development of a specialised gas cluster, effectively
allowing for the sharing of infrastructure, thus improving profitability and
efficiency. The existing infrastructure that has been developed by Chevron over
the last decades in order to service its Chuchupa and Ballena fields could
serve as a base for the future development of additional offshore projects.
Colombia’s
offshore prospects look positive, with the ANH estimating potential reserves in
the Caribbean waters to be close to 9bn barrels, with an additional 3bn barrels
in the unexplored Pacific Basin. However, the industry began to lose momentum
in 2018 as security issues arose in other parts of the country. These problems were
exacerbated by upcoming elections and increased instability in neighbouring
Venezuela.
New
Winds
The
election of a pro-business government in 2018 re-established some of the
sector’s optimism. In February 2019 the ANH announced a series of reforms to rules
regarding its exploration and production (E&P) contracts, including the
designation of an arbitration tribunal to respond to disputes over offshore
projects. Additionally, the reforms include the chance for operators to extend
contracts and the option for Colombia to increase its participation in offshore
projects by 5% when extensions are requested. The change could see as many as
nine existing offshore technical evaluation agreements (TEAs) – owned by
ExxonMobil, Shell, Ecopetrol and Anadarko – be converted into E&P
contracts. At the same time, the ANH issued 20 new blocks for E&P in early
2019 within its newly passed permanent process for area allocation, including
two offshore blocks (see overview).
Deals
Following
the overhaul of the country’s regulations on E&P contracts, a number of
deals were signed on onshore and offshore fields that have allowed for the
arrival of new players in the latter segment. Days after the ANH and Shell
signed E&P contracts for two of its blocks under TEAs COL-3 and GUA OFF-3,
Houston-based Noble Energy acquired a 40% stake in Shell’s offshore blocks and
gained operational control, following approval from the ANH.
Under
the terms negotiated with the ANH, the first phase of the projects include
minimum exploratory programmes (planificación espacial marina, PEMs), which
entail investment of over $100m across the two blocks. If both PEMs are fully
developed, commitment to these projects should exceed $650m. Following this,
the ANH and Spanish company Repsol signed two E&P contracts with ExxonMobil
and Ecopetrol for the exploration of two blocks. Participation in the COL-4
block, located 100 km off the coast of Bolívar, will now be shared between
Repsol and ExxonMobil, while the GUA OFF-1 block, 78 km off the coast of La Guajira,
will be split between Repsol and Ecopetrol. The Spanish company will maintain
its role as operator in both cases, and the two contracts should result in a
combined investment of up to $700m.
After
signing an E&P contract for offshore block COL-5, Ecopetrol now has a hand
in five offshore blocks in the Caribbean, along with Fuerte Sur, Purple Angel,
Tayrona and RC12. This follows claims by Ecopetrol that, together with its
partner Petrobras, it will be reactivating its efforts on the Tayrona block, given
improvements in contractual conditions granted by the government. The programme
is expected to result in an approximately $140m in investment and the drilling
of two more wells before 2022. This is in addition to the company’s ambitions
to expand outside Colombia’s borders. It already owns shares in various
offshore blocks throughout Mexico and Brazil.
Fracking
While
the debate over fracking is not new, a recent report, issued by a 13-person
panel of experts across the industry and related academia, has given the green
light to begin evaluating prospects. Developed as a guideline for whether or
not the country should engage in fracking activities, the document recommends
the implementation of one or more integral research pilot projects (proyectos pilotos
de investigación integral, PPIIs). These should generate knowledge and
scientific evidence that will help make informed decisions on the commercial
production of hydrocarbons. Implementation of PPIIs will respond to a number of
requisites addressing matters concerning transparency, management guidelines,
prior consultation with communities, strengthening institutional capacity and
regulatory oversight, as well as ensuring environmental protection and water
conservation.
While
the law covers the exploration phase of non-conventional sources, no regulation
yet exists with regards to production stages. In addition, a number of advocacy
organisations have highlighted the contradictory nature of the report, namely
that despite recognising the numerous risks associated with these activities,
it still gave them the go-ahead.
Pilot
María
Fernanda Suárez, minister of mining and energy, told international media that
Colombia could increase its oil and gas reserves through the use of fracking
from 5.7 years for crude and 11 years for gas, to 15 and 30 years,
respectively. She stated that ExxonMobil, Conoco Phillips, Parex and Ecopetrol
are among those interested in initiating fracking operations. A number of
basins offer strong prospects for potential fracking, including Valle Medio del
Magdalena, Valle Superior del Magdalena, Caguán-Putumayo, Catatumbo, Cordillera
Oriental, Cesar-Ranchería, La Guajira and Llanos Orientales. Once it receives
environmental approval from the National Authority for Enviromental Licences,
the first pilot project will be developed by Ecopetrol in Valle Medio del
Magdalena. It is expected to set the stage for the future application of this
technology. Ecopetrol announced that it will invest $500m in the exploration of
non-conventional deposits between 2019 and 2021, and establish a Directorate of
Non-conventional Hydrocarbons within its corporate structure to direct its
intentions in the field.
Looking
Forward
While the new government sees the development of its hydrocarbons potential as paramount to the country’s development and energy self-sufficiency, opposition from local communities and environmentalists is ongoing. A lack of trust in the government, local communities’ perception of insufficient norms and regulations, and oversight from local and regional environmental agencies act as roadblocks to the development of extractive industries. While recent favourable decisions by the constitutional courts provide an additional impetus for operators seeking to develop activities in the sector (see overview), the country’s history in dealing with regional authorities remains a risk for those seeking to enter the sector.