What have been the most important developments in the Colombian energy sector in recent years in create an attractive environment for investors?

Ecopetrol used to handle the oil policy for the country. Obviously, their management goals were not only to the benefit of the country, but also for the benefit of Ecopetrol as a company. This created a lot of conflict. All foreign investors who wanted to do exploration work in the country were required to work in association with Ecopetrol. Then, the National Hydrocarbon Agency was created, and Ecopetrol was allowed to act as an independent integrated oil company; just another competing company within the market of exploration and production.

The second factor which I believe is as important as the first was the improvement in the security of the country at the national level. This has allowed companies to penetrate more of the country and to carry out exploration work more safely.

What you say about security is very important. There has been a very radical change. Would you link this improvement to the Uribe administration?

Totally and exclusively. It was on this platform that President Uribe was elected. The focus of his campaign
was on security, and the truth is that he has been achieving just that.

Across the board, the country’s indexes have improved, and moreover, the security index has improved dramatically.
Colombian people had lost hope. The country’s youth were leaving the country; they did not see anything for them here. Hope was lost, and there was immense emigration of Colombians to foreign countries. Nowadays, many are returning.

The president gave his commitment from day one to be dedicated to creating a more secure Colombia. The first report that he receives in the morning is about the security figures of the previous day.

The statistics tell the story. In 2000, we had foreign investment levels in Colombia equivalent to about 12% of the GDP. Today this figure is around 26%. In 2002, 3% of that 12% was solely private investment, the other 9% was public. Today of 26% investment, 19% is private and 7% is public. This is what we have created — enormous confidence for investors, especially in the oil and gas sectors.

Can you describe the current investment regime and explain why it is attractive to foreign investors?

We made a change in the tributary structure of the country. The company tax rate in Colombia was 38.5% on average, and foreign companies had to pay 7% remittance tax on earnings on top of that. So the effective rate of the tax was above 40%, and we were totally outside the range of competitiveness.

In 2007, the rate decreased to 34%, and in 2008, it will decrease again to 33%, with the elimination of the remittance tax. These changes have been very attractive to foreign investors, and the truth is we have lowered the rate of contribution significantly for industry.

What was the reaction to the latest offshore licensing round held in the Caribbean?

There were 13 blocks offered. Each block was around 300,000 hectares on average. They were big blocks. To put them in American terms, each one was almost a million acres. Nine of the 13 were granted, and four were not. Those four did not receive any offers — one was in very deep water, and the other three had low prospectivity.

Companies like Shell, BP, Reliance, Petrobras, and Ecopetrol participated; there was extensive participation. In total, we have around six million hectares in the Caribbean that are under license, and there are many companies working there. We are very excited about these investors.

In addition, there are 140 existing contracts for exploration in the country. The expectation for the coming year is that there are going to be even more exploratory wells. Activity is intense at the moment.

The exploration blocks that are being offered are mainly in the Caribbean. Do you anticipate that border insecurities with regard to other Central American countries could affect these bids?

We have all of our borders clarified. There is a single dispute with Venezuela, but neither country is touching that area until it is clarified.

In the case of Nicaragua’s appeal regarding Colombia’s ownership of the Archipelago of San Andrés, the boundaries are very set.

The 82nd meridian boundary has been approved by all of the international treaties. What people tend to forget about the history of Colombia is that Colombia’s territory used to extend all the way to border with Nicaragua. We clearly have the rights to the territory.

The borders between Colombia and Nicaragua are clearly defined, and we are not entering the zone that is in conflict with Venezuela; so we can say there is no problem in terms of our borders.

Is it possible that the potential gas discoveries in the Caribbean could create higher quantities of gas than can be used in Colombia?
Yes. We are looking at exporting this excess gas. The great majority will go for export to the Gulf of Mexico and the American east coast.

Is there a plan to expand domestic use of natural gas in Colombia?

We are expanding the use of it in several ways. One is in electricity generation. Of Colombia’s 10 million homes, 4.5 million have a connection for natural gas. That means that 45% of Colombian homes have gas service. Our objective is to have 5 million homes using natural gas in 2010.

We also have been expanding the use of natural gas for vehicles. I would say nearly 240,000 vehicles use natural gas.

Colombia is a net petroleum exporter. Do you believe the country will continue to export hydrocarbons in the future?

In the year 2003, we estimated that we would have self-sufficiency until 2009. Now, this date has been extended to 2014. Assuming that there are no more discoveries, we have estimated that we will be self-self sufficient until 2014.

We produce about 500,000 b/d of petroleum. In 2008, we will produce 540,000 b/d. We are raising production, just a little bit, through small discoveries, but they are not the most important factor. The most important factor has been an improvement in our recovery methods. Historically, only 20% or 22% of the reserves discovered were recovered. Nowadays, new technology has raised the recovery rate to about 25%.

Is oil production expanding beyond the industrial centers in Magdalena, Valle, Los Llanos, and Putumayo?
In the year 2003, about 12% of the country was being explored. Today, we already are in the range of 40%
or more.

IE: Is the ministry supporting the process of expansion toward Los Llanos and Putumayo?

Yes.

In your opinion, what is the greatest challenge for the oil and gas sector in Colombia?

One of the most important challenges to the petroleum industry is to maintain the investment rate. Our goal is to have 100 new exploration wells per year. The goal is to discover about two million additional barrels, and that it would take self-sufficiency beyond 2025 or 2030. Obviously, maintaining this rate is not that easy.