The first of three bid rounds in Colombia Round 2008 includes 43 blocks in four basins. (Image courtesy of ANH)

The role of national oil companies (NOCs) is changing. The fact is that 14 of the top 20 oil and gas companies in the world are NOCs, and some of them — most notably Venezuela’s PdVSA — are flexing their muscles. They are leveraging their positions as the holders of large reserves and are challenging historical partnership arrangements and investment agreements.

For newcomers on the NOC scene, the primary goal is to differentiate themselves from the pack and to find ways to encourage international oil companies (IOCs) to invest with them.

Director General Dr. Armando Zamora of Colombia’s national hydrocarbons agency discussed some of the challenges Colombia’s newly emerging NOC faces and the steps the country is taking to encourage investment as it embarks on a new bidding round.

Laying the groundwork

State-owned Empresa Colombiana de Petróleos (Ecopetrol) is working to establish itself as a company that is interested in partnerships. Restructured
in 2003 to internationalize and become more competitive, Ecopetrol is trying to entice new investors to Colombia.

In Zamora’s opinion, Ecopetrol is achieving its goal to be more competitive, business oriented, and accountable. “There is tremendous pressure to perform,” Zamora said, noting that the new Ecopetrol has undergone “a complete change from the state-owned company it was in the past.”
Internationally, the dynamics are changing, Zamora said. “The NOCs are squeezing the IOCs out of the market.” NOCs have a lot of leverage, he explained, but they need to use that leverage to strengthen relationships.

“The world has been watching our recent exchanges with Venezuela and Ecuador,” Zamora said. “We have been acting rationally with an open agenda. We’re fighting terrorism and drug trafficking where others are either aiding or ignoring the problems. We seem to be on the right side of the equation.”

The ANH, though a separate entity from Ecopetrol, is working toward the same goals as the state-owned company. Together, they are encouraging investment in a move to internationalize the country’s oil and gas industry. Part of that effort includes a series of road shows that began in Bogotá, moved to Houston, and concluded in London.

ANH has also been purchasing booth space at petroleum events around the world. They will participate in 15 exhibitions, including the World Petroleum Congress in Madrid, Spain; Offshore Northern Seas in Stavanger, Norway; and INJAPET, which will be held in Peru, Zamora said.

At present, there are more than 40 oil companies operating in Colombia, including everything from startups to super majors. “Our main aim,” Zamora said, “is to get companies that are already established in Colombia to reinvest.” In some ways, the country is achieving that goal. ExxonMobil and Shell, for example, have returned to Colombia.

Part of the reason for this is a change in policy that no longer requires IOCs to partner with Ecopetrol, which now must compete for acreage on a level playing field.
Growing interest from Chinese, Indian, Korean, Russian, and Japanese companies indicates the new regime is a step in the right direction for Colombia.

“We are in a boom period for E&P in Latin America,” Zamora said. “Every single company in the world is looking for investment opportunities. They have plenty of cash in their hands.”

Attracting investors

The challenge is to get those companies to spend their cash in Colombia. To make that happen, Zamora says, ANH and Ecopetrol need to make sure Colombia is in the running.

Zamora enumerated six things he says companies look for when they are looking for international investment opportunities: prospectivity, fiscal regime, economic stability, legal stability, political stability, and personal safety. Zamora believes Colombia can compete on every level, with the caveat that Colombia needs to change the way people think about the country in terms of the final two items in his list.

“There is a big gap between perception and reality,” Zamora said. “We organize, promote, and sponsor opportunities for investors to come and visit.” This, he said, is helping
to change investors’ minds about working in Colombia.

Democracy in Colombia has been strengthened by the country’s struggle with illegal drugs, he said, noting that the current government has an 85% approval rating. In addition, the security indicators (the number of murders, kidnappings, etc.) are much improved.

In 2007, more than 10 new companies decided to invest in Colombia, Zamora said, noting that foreign investment, which was negative in 2000, reached US $3.5 billion in 2007 and is likely to hit $5 billion this year.

The reason investors are willing to work in Colombia today is that the risk factors have been mitigated, Zamora said. Investors are now beginning to realize that it is possible to work safely in Colombia and that the country has considerable reserves. This realization has whetted the appetites of investors, who are gaining in confidence, he said.

Investing oil and gas

Colombia has specific objectives for oil and gas.

“Ecopetrol has unveiled its investment and business plan through 2015,” Zamora said. The plan includes investing $60 billion to increase domestic production. Ecopetrol has a goal of 700,000 boe/d production by 2015. Total production today stands at 560,000 boe/d, Zamora said, which is down considerably from the nation’s best year, 1999, when production reached 820,000 boe/d.

All in all, things are much improved, Zamora said. “The world has changed. Ten years ago, nobody was looking for gas. Now, the world is hungry for gas. We have loads of proven gas reserves.”

Zamora offered evidence to support his claim that Colombia has the potential to draw investors in gas development, pointing to a recent estimate put forward by Halliburton that places gas reserves at 50 Tcf. Proved reserves, Zamora said, are at 30 Tcf. And there is also a lot of heavy oil. An IHS study estimates yet-to-find oil at 10 billion bbl, he said, “which is a conservative estimate.”

Today, Colombia is producing 600 MMcf/d of gas from the Guajira field, which began production in 1994. Oil production is at about 25,000 b/d, all of which comes from the Rubiales field. Plans are in place to bring production up to 150,000 b/d by the end of 2009.

Opportunities abound

Colombia is offering a large number of blocks in three bid rounds that comprise Colombia Round 2008.

In the first round, 43 blocks are on offer in four basins: the Cesar-Ranchería Basin in the northeast, the Sinú-San Jacinto Basin in the northwest, the Cordillera Basin in
the eastern central region, and the Crudos-Pesados area of the eastern portion of the Llanos Basin in the central part of the country.

The Research Group on Hydrocarbon and Coal Geology at Universidad Undustrial de Santander carried out a study on the Cesar-Ranchería basin. This frontier area has seen 14 wildcat wells that have produced non-commercial quantities of oil and gas. Seismic interpretation over the 4.5 sq-mile (11.6-sq-km) basin indicates the presence of gas, in the form of coalbed methane, and oil.

The Caldas University evaluated the Sinú-San Jacinto region. Seismic survey information is being made available for this potentially gas prone area. Meanwhile, the National University of Colombia managed the evaluation for the Cordillera Basin, where there has been one oilfield discovery. For the Llanos Basin, ANH teamed with Halliburton in a regional evaluation that resulted in the identification of several viable prospects ANH has started to acquire regional seismic data,”Zamora said, which will provide more concrete incentive to investors.

Zamora is optimistic about Colombia Round 2008. “It is all coming together very nicely. There is something for everybody,” he said.