Why Columbia?
Political Landscape
Colombia has come a long way from the instability that once characterized the country. Through political initiatives and the re-election of President Alvaro Uribe, Colombia is becoming a great environment for investment - especially in the energy sector.
The political situation in Colombia today is very strong and stable. Harvard educated President Alvaro Uribe was elected to a second four year term by greater than a 60% majority. He is an avowed capitalist, and stands in sharp contrast to neighbor Hugo Chavez of Venezuela. He supports the US war on terror, the only South American president to do so. Under Uribe's regime the Colombian oil and gas industry has been revitalized through decidedly pro-democratic reforms which have yielded dramatic results in terms of drilling activity, new production and foreign investment. Economically, Colombia has low domestic inflation rates, a vigorous middle class, and a currency that has appreciated substantially versus the US Dollar over the past four years. Colombia has never failed to make a payment on any sovereign debt. There is an institutionalized respect for contract law, both domestically and from foreign origins through the independent judicial branch of government. The Central Bank is also independent from the executive and legislative branches of government, and is highly reminiscent of the North American model.
Oil and Gas
In 2003, the traditional link between outside capital and the state-owned oil company was broken. For the first time, outside Colombian interests could acquire concessions for exploration and production without going into partnership with the government of Colombia.
The new structure came about through the creation of the ANH or (National Hydrocarbon Agency), which administers the land concession process. The creation of this agency created a level playing field for outside capital to come into Colombia and apply for concessions, without being forced to sign a contract with the Colombian government-owned E&P company. Foreign companies may own 100% of a petroleum venture, and there are no restrictions on profit repatriation. The ANH administers the concession process in Colombia in a completely fair manner, in fact, one of the guiding principles for concession granting is "first come-first served". The ANH is also assisting in Colombia's oil imperative by reserving tracts of land upon which the agency does geological work, including seismic work, so that the potential bidders for the concession can have the information that has been generated at no cost to evaluate before the bidding process begins.
Colombia is one of six Latin America countries with significant energy resources and potential for future development. Its proven oil reserves are estimated to be 1.5 billion barrels while its proven natural gas reserves stand at 6.7 trillion cubic feet.
Colombia produced an average of 558,000 barrels a day of oil in 2006, according to BP Plc's statistical review of world energy. It was South America's fourth largest producer, behind Venezuela, Brazil and Argentina. There is a national oil imperative that exists in Colombia at this time. The Colombian government, and by extension the state owned oil company Ecopetrol and the national hydrocarbon agency are doing everything in their power to stimulate exploration and production in Colombia. Colombia's state owned oil company, Ecopetrol develops approximately 15% of the country's reserves. The remainder is developed through private companies operating either independently or in joint ventures with Ecopetrol. The opportunities offered by the Colombian energy sector have attracted foreign investment from leading multinational energy companies including Exxon Mobil, Chevron, Occidental, Shell, BP and many others. The oil and gas infrastructure in Colombia is excellent and improving. Colombia has five major pipelines, four of which connect production fields to the Caribbean export terminals at Covenas. According to the Oil and Gas Journal, Colombia had 285.8 MBbl/d of crude oil refining capacity in 2007.
Despite its enormous potential, Colombia remains relatively unexplored. While Ecopetrol estimates that the country's petroleum reserves are approximately 47 billion barrels, more than 80% of the country's territory remains unexplored.
Colombia is currently a net exporter (approximately 325,000 bbls/d) of crude oil. To combat the country's declining oil and gas production, which has occurred over the last several years, the Colombian government enacted a number of incentives aimed at attracting foreign investment in 2004:
* Sliding scale royalty rates based on field size, with an 8% royalty rate for most fields.
* Government allows 100% company ownership of production projects.
* Eliminated government back-in rights on new concessions.
* Vastly improved security environment - President Uribe on offensive with broad popular support. Military increased 273,000 to 370,000 personnel in 2 years. US assistance at US$600 million/year.
* Progressive Colombian fiscal changes similar to those in UK which spurred renewed interest in the North Sea.
Colombia has a well developed infrastructure system comprising of over 3,700 miles of crude and product pipelines. This system is concentrated on transporting crude from the main producing basins (Llanos and Magdalena).
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