In order to increase its oil and gas reserves, Colombia is seeking to drill new exploration wells while improving recovery factors at existing ones. Though these goals should ultimately provide opportunities for oilfield service firms, a large number of regulatory and technical hurdles must still be overcome in the short-term.
Colombia’s improved security situation and a more desirable regulatory environment have both played a role in the rapid increase in the country’s production of oil and gas.
The energy industry has also proved a tempting target for rural guerrilla movements. In both cases, the government and firms providing oilfield services are left to navigate difficult situations.
PROLONGED PROCESS: Environmental permits are a prime example of the challenge facing the government. In order to address public concerns about environmental degradation, the Colombian government maintains a strict permit regime. Yet, despite government assertions that the National Authority of Environmental Licensing has sufficient staff to process permit applications, a large number of firms have experienced delays.
The application and approval process, which took five or six months in 2009, has been averaging 14 months in 2014. Oilfield services companies, particularly those involved in the exploration side of the business, are strongly affected by the slowdown caused by these permitting delays, with their revenues virtually disappearing as a result. Exploration and production companies are also hesitant to offer the long-term contracts that oilfield services companies require to invest in their equipment and employees. The number of rigs operating in Colombia dropped from 250 in 2011 to around 200 in the first quarter of 2013. Equally worrisome, while production continues to grow, discoveries of new reserves are not keeping pace. With reserves of 2.2 billion barrels of oil in 2012, Colombian oil will last 6.4 years. This is below the seven years the government would prefer to maintain.
OPTIMISTIC ABOUT SHALE: Yet, for all these concerns, the future is far from grim. The ratio of reserves to production for gas is about 13 years and the comparably low numbers for oil are more a reflection of inefficient extraction techniques than they are of a long-term decline. As it stands, 75 percent of Colombia’s basins remain unexplored and the US Energy Information Agency believes that Colombian territory may hold 6.8 billion of South America’s estimated 20.2 billion barrels of shale oil. With improved techniques, the Mining and Energy Planning Unit forecasts that reserves could be lifted to 9 billion barrels of oil equivalent by 2030.
Inefficient extraction methods and environmental concerns have also provided opportunities for technologically adept oilfield service firms. Reaching unconventional deposits of oil often relies on new techniques such as horizontal drilling. When Ecopetrol subsidiaries, such as Hocol, require such methods, firms such as Schlumberger are ready to step in.
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