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Colombia Seeks Oil Investors—Again

[AlzerianCrimson]

• WORLD NEWS
• NOVEMBER 1, 2010
  

Colombia Sets Ambitious Peace Agenda: Oil

By ANGEL GONZALEZ and DARCY CROWE

BOGOTA—Colombiaiscappinga string of military victories against Marxist guerrillaswithalucrative peace dividend: oil production.

This week,globaloil-industry leaders are expected at a conferencein the coastalcity ofCartagena, where the country will tout itspetroleum resourcesforpotential investors.

Foreign oil executives arecrisscrossingColombia buying upexploration projects or fields that wereabandonedbecause of securityrisks.

The rebirth of Colombia's oilpatch hasleaders in the capital,Bogota, forecasting that production willnearlydouble in the next eightyears, to 1.5 million barrels a day, onpar withthe oil-rich Gulf ofMexico, marking a shift in the petroleumpeckingorder of Latin America.

As Venezuela and Mexico see their dominance decline, Brazil and Colombia are ascendant, aided by foreign investment.

Justeightyears ago, the country's oil industry was near astandstillbecauseoilfields such as Rubiales, now the country's largestproducer,wereinaccessible, surrounded by insurgents from theRevolutionary ArmedForcesof Colombia, Latin America's oldest andlargest guerrilla group,alsoknown as FARC. The guerrillas didn't tapthe oil but establishedhideoutsin the remote areas where most ofColombia's reserves are found.

"Nobody could work here," said Ronald Pantin, chief executive of Pacific Rubiales Energy, which runs the field.

AU.S.-backedmilitary offensive begun in 2002by then-President AlvaroUribe, helpedsecure much of the countryside,driving the FARC deep intothe mountains.Now companies, includingPacific Rubiales, are reaping thebenefits. Since2007, Rubiales hasseen its production grow tenfold—tonearly 20% of thecountry's entireoutput—without a single rebel attack,Mr. Pantin said.

"Oilexecutives are driving to every corner ofColombia and they aresafe,"said Armando Zamora, head of the country'soil-licensing agency.Crime inbig cities, once a major concern forforeign oil employees,also is undercontrol. One important benchmark ofthesecuritysituation—kidnappings—decreased by 97% under theUribegovernment,according to International Crisis Group, anonprofitpolicyorganization.

"The security in the major cities is as good as you can get," said Ali Moshiri, Chevron Corp.'s president for Latin America and Africa.

Whilethesecurity issues have been addressed, investing inColombia'sresourcesremains risky, as the specter of state controlalways risesonce largeprofits appear. It is likely that the newlyelectedconservativegovernment will keep welcoming foreign investment,but "theissue of howyou split up the pie is never going to go toaway," saidJeremy Martin,director of the energy program at theInstitute of theAmericas at theUniversity of California in San Diego.

Colombia'sindustry has beenadvanced by a diaspora of formeremployees ofVenezuela's state oilcompany, Petroleos de Venezuela S.A.Many of themwere purged afterpublicly opposing President Hugo Chavez'ssocialistpolicies.

FormerPdVSA head Luis Giusti, after advising theColombiangovernment, startedhis own company to prospect previouslyinaccessibleareas, where he saysthere is a chance of large oil finds.

"Former PDVSA people that stayed in Venezuela are being left out of the oil industry," Mr. Giusti said.

Mr.Pantin,one of the first to bet that it was time to invest inColombia'soilindustry, was part of that Venezuelan exodus. In 2007,his companyboughtthe Rubiales field and brought in technicians withexperienceinextracting its goop-like heavy crude—an expertise that wasmissinginColombia.

For two years, more than 2,000 trucks formeda"pipeline on wheels,"carrying the crude over hundreds of miles ofempty,dusty roads until apipeline from Rubiales was finished in 2009,Mr.Pantin said.

Rubiales's bounty helped to double Colombia'soilexports to the U.S.in the last three years. In the same period,U.S.crude imports fromVenezuela fell 20%. The government here has beenquickto show itsgratitude. In May, President Uribe bestowedColombiancitizenship on Mr.Pantin and other Venezuelan oilmen.

Colombia'sprogressis also thanks to a decision to open up thecountry's oilindustry tointernational investment, a policy thatcontrasts with thoseofenergy-rich neighbors such as Venezuela, Ecuadorand Bolivia thathaveveered to the left, limiting private developmentof their resources.

In2002,to encourage new domestic and foreign oil firms, Colombiareducedthedomestic role played by state-run Ecopetrol S.A., createdalicensingagency independent from the oil company, and loweredroyaltypaymentsthat developers of new fields had to pay the government.

"Ifwehadn't taken these measures, Colombia would surely beimporting crudetorun its refineries," says former Colombian Mining andEnergyMinisterLuis Ernesto Mejia, who under Mr. Uribe enacted severalof thereformsthat led to the turnaround.

The military's gains againstthe FARCcontinue under President JuanManuel Santos, who succeeded Mr.Uribe inAugust. Colombian SpecialForces last month killed Victor Suarez,alsoknown as Jorge Briceño, theFARC's second in command, when hewasbunkered down about 250 milesfrom the Rubiales field. Pipelineattacks,which in 2001 shut down a keyconduit for 200 days, have fallento ahandful each year.

The government is trying to dispel fearsthatit could elbow outforeign investors once larger oil riches startpouringin, something itdid in the early 1990s after the discovery ofthreehuge fields.

"The last time Colombia scared away oilcompanies,it generated acrisis," says Mr. Zamora, the licensing chief."Everybodyremembers itwas a huge failure and the overwhelming nationalfeeling isthat wedon't want to repeat it."