olombia’s new slogan, aimed at encouraging tourism, is “Theonly risk is wanting to stay.” The country’s policymakers arehoping that the boom in investment in Colombian E&P isalso here to stay. With production now at record levels, the newchallenge is to ensure that Colombia maintains and builds upon anoil industry that has helped turn the country around.The nation has undergone a renaissance over the past 10 yearsin political stability, safety and economic growth. Among the eco-nomic sectors that have driven this revolution, oil and gas has beena leader. Colombia is now the third-largest crude producer in SouthAmerica, after Venezuela and Brazil.Colombia has become well known among oil investment circlesas one of the most exciting E&P investment markets. While the ge-ological potential has been a foundation for interest, the real cata-lyst for the increased activity has been reforms in the institutionsthat control the industry and the contract terms available to explor-ers.Although discoveries to date have not been on a sufficient scaleto attract the world’s largest oil companies to invest heavily, it hasbecome a market of choice for small to medium-size players that ap-preciate the competitive government conditions and see great valuein the unexplored potential for modest, but profitable, discoveries.According to figures from the Ministry of Mines and Energy, for-eign direct investment (FDI) in Colombian natural resources hasincreased from $500 million in 2001 to over $9 billion in 2011.This increase in investment has translated into strong results for thecountry’s industry. According to the Ministry, the country is nowon the brink of achieving a 1-million-barrel-per-day productionlandmark.However, the next great challenge is to build upon this success.The stated target from the Ministry of Mines and Energy is toachieve an average production of 1.5 million barrels per day by2020. Yet, with only 2 billion barrels in reserves, policymakers hopeto maintain an annual level of FDI investment in the sector of US$5 billion.Other challenges that the industry is facing include an infras-tructure network that has been stretched to the point that bottle-necks have developed in the key production areas. Also,maintaining a good reputation and relationship with communitiesneighbouring operations and the populace at large is vital in acountry that has Colombia’s violent civil past.In addition, the recent and rapid growth of the industry meansservice providers for the oil and gas sector were unprepared for thenew demand. For international companies and investors, this hascreated another interesting opportunity; increasing numbers of en-trepreneurs are filling those gaps and larger international player areestablishing or growing their presence.Many observers hope that the past five years can be seen asmerely the first chapter in Colombian oil development. Further op-portunities are being encouraged in offshore and unconventionalexploration. A success story in either of these developments couldopen an entirely new front for Colombian energy.
Security as a basis for prosperity
The greatest issue for Colombian investment has been concernsover security. Colombia gained infamy as a nation torn apart by theviolence of leftist guerrillas, far right paramilitaries and the druglords that profited from the associated chaos.During former president Álvaro Uribe’s time in office, and con-tinuing with his successor President Juan Manuel Santos, the coun-try made enormous improvements. The government, through thearmy, has been keen to collaborate with the private sector and hasprioritized the protection of the resource industry in the hope thatthis activity, and the local jobs and wealth it brings, can help themmaintain security in rural areas.Over the past three years, a number of the leaders of FARC,Colombia’s largest and oldest insurgency, have been killed and, inFebruary, the group announced it would cease kidnapping civilians,a practice that has been a key concern for any oil executive operat-ing in the country.However, Colombian security is an incredibly complex issuethat remains a key consideration for any E&P operation. Worry-ingly, attacks on Colombia’s oil sector were on the rise in 2011,with 84 oil pipeline bombings, up from the record low of 31 in2010. However, the hope is that this year’s spike in figures may beeventually considered an anomaly caused by the death throes of these groups.
Investing in Colombia
Colombia is now the fourth-largest economy in South America,with a GDP of $240 billion, and the central bank expects theColombian economy to expand around 4.5% this year after growingan estimated 5.8% in 2011.Within South America, a trend towards protectionism has con-cerned investors as more left-leaning governments have pursued
COLOMBIA’S OIL & GAS INDUSTRY, 2012
An E&P investment hotspot is fast turning into a hydrocarbon production hub for South America.
researched and written by Thomas Willatt,Patricia Matey García, Liliana Ávila Sánchez and LorenzoPiras of Global Business Reports. For further information,contact firstname.lastname@example.org or follow us on twitter:@GBReports (Cover photo courtesy of SAExploration)
Colombia’s president, Juan Manuel Santos, is hoping to take the countryinto its next phase of development.