Colombia's Oil & Gas Update Quarter 1 2011: Gonzalez Consulting International Corporation
Colombia's Oil & Gas Update Quarter 1 2011: Gonzalez Consulting International Corporation
Quarter 1 2011
Prepared by
Gonzalez Consulting International Corporation
Colombia Today
Colombia's new policy allows private companies benefits such as 100% ownership upon exploration
success, while incorporating a generous sliding friendly environment, national security, and royalty
scale starting at 8% on production of 5,000 barrels per day or less. In response, $367 million in oil
investment contracts were established between the Colombian ANH and private investors in 20051.
Unlike the 1980s, there is a new stability and security in Colombia, America’s closest Latin American
neighbor. Adding to the positive foreign investment atmosphere is the nation’s stable economy, with
estimated GDP per capita of $7,900 and $14.96 billion of foreign exchange and gold reserves in 20052,
and the spirit of cooperation between the governments of Colombia and the US, as indicated by 40.4%
of the country’s exports going to America3.
Currently, in Latin America, the development of major energy projects has been put on the table for
earnest discussion. Operation of extra heavy oil fields, development of natural gas projects and
technological improvement on offshore drilling, are key topics opened as investment opportunities in
the region. There are also some other issues such as refining extra heavy crude oil, selling it in a market
suited to lighter crude slates, and gas availability for the development of such projects, that also provide
some interesting avenues for business.
Colombia is one of six Latin American countries with significant oil reserves, estimated to be 2.6
billion barrels. Oil is the country’s largest foreign exchange earner. The industry has attracted foreign
investment from leading multinational energy companies including Mobil, Esso, Texaco, Oxy, Shell,
BP and others, operating under association of concession modes in the country. The industry in
Colombia includes production companies, oil services, advisory companies and a supporting
manufacturing sector with equipment, plants and materials.
Colombia’s long history of oil and gas exploration and discovery has attracted investors from around
the world, developing cultivating a large base of experienced and skilled oil industry professionals. But
Colombia remains a relatively unexplored country, with enormous potential in its frontier areas. More
than 80% of the country’s territory remains unexplored. 4
Today, 27% of the Colombia’s total exports are related to the international commercialization of
hydrocarbons. This exceeds all other Colombian export products, including coffee.
1 US Department of State
2 Central Intelligence Agency's World's Factbook
3 The Economist (2005 numbers)
4 Colombia's Embassy in Washington, USA; Colombia's energy industry: recent developments and new opportunities
The Potential in the Colombian Oil Market
The era of cheap and easy oil is coming to an end. Since 2003 oil prices soared from $30 to $125 per
barrel5. The one year forecast for crude oil is estimated to go up to $131 per barrel. Additionally, big
discoveries are less frequent. High oil prices and increasing demand are a natural stimulus for the
search for hydrocarbon resources. The existing perception regarding hydrocarbon potential in different
countries, as well as political stability, are important considerations for investors deciding to participate
in this risky business. The effect of these factors has also been crucial in Colombia.
Colombia is getting a lot of attention in the last two years from the investors' market due to the
continued solid economic stability and increased in safety. However, in the last two months the eyes are
on this country. On March of this year S&P raised Colombia to investment grade on its growth outlook.
Colombia’s credit rating was boosted to investment grade by Standard & Poor’s, 11 years after it was
cut to junk in the midst of an insurgency, as violence recedes and growth prospects improve. S&P
raised Colombia one step to BBB-, from BB+. The increase puts Colombia’s rating in line with that of
Brazil and Peru.
7 Ecopetrol President Mr. Javier Gutierrez on Press Release April 25, 2011.
In 2010, a year when all oil production records were broken, daily average production was 785,000
barrels, 39% more than the government´s target for the year, which was 671,000 barrels per day.
Monthly average production in 2010 was 23.6mn barrels, some 16.9% higher than the average in 2009.
The results achieved in production, as well as the progress achieved in exploration have made 2010 the
best year in history for the Colombian oil sector.
Consensus Forecast : Oil production to reach 30mn barrels/ month in 2011 and 38mn
barrels/month in 2012
Based on analysts’ predictions, crude oil production will reach 1mn barrels a day in 2011, some 30mn
barrels per month on average, before rising to 1.2mn-1.4mn barrels a day in 2012, which would be 36-
42mn barrels per month. Between 2010 and 2020, BMI are forecasting an increase in Colombian oil
production of 51.7%, with crude volumes peaking at 1.47mn b/d in 2018, before declining to 1.22mn
b/d by 20208. Oil consumption between 2010 and 2020 is set to increase by 26.8%, with growth
averaging an assumed 2.5% per annum towards the end of the period and the country using 250,000 b/d
by 2020. Gas production is expected to rise gradually, from an estimated 11bcm in 2009 to 15bcm in
2018-2020. With demand growth of 34.4%, this implies peak export potential of 3.6bcm by 2018.
Details of BMIs 10-year forecasts can be found in the appendix to this report.