COLOMBIA needs to encourage further investment in its oil and gas sector to halt declines in reserves and production and, according to industry observers, this will require action on several fronts, including opening up the country’s unconventional plays to development.

Oil and gas investment in Colombia did increase by 28% last year to $4.4 billion, compared with 2017, but production and reserves replacement still lagged behind pre-oil price crash levels.

According to analysts at Eurasia Group, Colombian oil ouput reached 865,127 barrels per day in 2018, more than the country’s target of 844,000 bpd.

However, Colombia needs to find more ways to boost the sector as it has a reserves-to-production ratio of only 5.7 years and current output is still less than the 1 million bpd level of 2015.

According to analyst Elena Nikolova from energy consultancy Wood Mackenzie, companies already active in Colombia feel they have done all they can with the acreage they hold and are now looking to expand.

That makes the decision by Colombian regulator National Hydrocarbons Agency (ANH) to start a permanent bidding process — after five years of having no tracts up for auction — a timely one.

“I think that this sets a great tone from the ANH because there (are) going to be blocks that are continuously on offer, (which) means there will be continuous opportunities for companies to grow in Colombia, or at least to seek growth in Colombia,” Nikolova tells Upstream.

However, John Padilla, managing director of IPD Latin America, thinks the administration of President Ivan Duque has yet to build the momentum needed to attract more private-sector investment. He says potential players may be discouraged by the fact that “(state-controlled) Ecopetrol holds a tremendous amount of acreage”.

Potential solution

New acreage is one of the answers to Colombia’s reserve replacement issue, but a potential solution to that problem, unconventional development, would have to overcome widespread public opposition to hydraulic fracturing.

Moreover, the country has seen a number of security issues. The Cano-Limon pipeline was bombed 88 times in 2018, while the Transandino pipeline suffered 16 attacks.

Unconventional development will prove difficult, given recent changes to how royalties are distributed and opposition from local communities to oil and gas operations — though a court decision in October last year appears to have reduced the power of local communities to veto oil and gas development proposals.

Recent reforms mandate royalties to be gathered by the central government and distributed equally among provinces, instead of only the areas where oil and gas development is occurring.

It remains to be seen how Duque navigates the challenges, what proposals will be brought forward and how he manages community disputes and unrest, Nikolova adds.

“Overall, they need to reconcile the fact that Colombia needs new reserves, new resources. The biggest material source of that would be unconventionals, and yet you have a lot of community resistance,” she says.

However, the unconventional regulatory framework remains stalled after a decision by Colombia’s highest administrative tribunal, the Council of State, rolled back unconventional exploration and production standards established in 2013 and 2014.

The “precaution principle” suspended unconventional projects ostensibly to protect the environment and human health.

Eurasia Group analyst Maria Luisa Puig says in a research note that she does not believe Duque’s administration will make a decision in favour of fracking anytime soon, as the president suffers from low approval ratings and with Congress facing local elections in October.

That would push the unconventional timeline even further out.

“You still have quite a way to go to before you prove up the resource, find out where the sweet spots are, decrease costs so that it’s actually economic — and first you need to start with some pilots,” Nikolova says. “And they don’t even have pilot projects.”

Community approval

More recently, a 13-member expert committee in a non-binding decision concluded that unconventional pilot projects should proceed under strict government supervision and community approval.

The state, which tasked the independent panel with the three-month study, will ultimately decide how to proceed.

Ecopetrol has a pilot project in the Middle Magdalena Valley scheduled for 2019 but, even with the promise of permanent government supervision, its fate is uncertain.

Other proposals have not fared well. US independent ConocoPhillips had environmental licences for its VMM-3 and VMM-2 unconventional blocks rejected by the country’s National Authority of Environmental Licenses last year.

The company is contesting the decisions.

Colombia country director for independent oil company GeoPark, Marcela Vaca, says she would like to see the moratorium on hydraulic fracturing lifted in order to encourage unconventional exploration and production.

“I think that’s required to expand the reserve base of the country and expand the self-sustainability of our economy,” she says.

GeoPark is not yet in the unconventional space but “it’s something that we’re more than happy to review”, Vaca says.

The company could be interested in joining unconventional pilot projects that others have invested in or tried to develop. “But we haven’t made that decision yet,” she adds.

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Colombia keen to support oil and gas drive