VZCZCXYZ0000
RR RUEHWEB
DE RUEHBO #0570/01 0432219
ZNR UUUUU ZZH
R 122219Z FEB 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 1383
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
INFO RUEHBR/AMEMBASSY BRASILIA 8043
RUEHCV/AMEMBASSY CARACAS 9951
RUEHLP/AMEMBASSY LA PAZ FEB LIMA 5905
RUEHZP/AMEMBASSY PANAMA 1229
RUEHQT/AMEMBASSY QUITO 6553
UNCLAS BOGOTA 000570
SIPDIS
SIPDIS
SENSITIVE
STATE EEB/ESC/IEC FOR MMCMANUS; WHA/EPSC FOR FCORNEILLE;
ENERGY FOR GWARD
E.O. 12958: N/A
TAGS: ENRG EPET ECON EINV PGOV CO
SUBJECT: COLOMBIA'S OIL & GAS OUTLOOK: INVESTORS BULLISH,
PREDICT PROLONGED EXPORTER STATUS
REF: A. A) 07 BOGOTA 7088
B. B) 07 BOGOTA 6862
C. C) 07 BOGOTA 7785
1, (SBU) SUMMARY: Investment in Colombia's oil and gas sector
continues to grow as a result of pro-market policies,
expanding security, and the successful private capitalization
of state-owned Ecopetrol. As a result, Colombia has reversed
its long decline in oil production and extended its status as
a net oil exporter through at least 2015. While few experts
expect Colombia to uncover a globally significant find, local
producers believe Colombia still holds profitable plays in
natural gas offshore, heavy oil near the Venezuelan frontier,
and micro-fields of lighter-grade oil in the interior. The
GOC plans to auction its next major round of exploration
blocks in September 2008. END SUMMARY.
Strong Investment Climate Attracting Capital
--------------------------------------------
2. (U) Since 2002, the GOC has taken significant steps to
improve investment terms in the energy sector and attract
capital, including a sliding royalties scale, longer
contracts and 100 percent foreign stakes. Colombia now ranks
second only to Brazil as the most attractive country in Latin
America for hydrocarbon investment, according to a report
compiled by independent energy sector research firm Arthur
Little. The report cited Colombia's reform efforts and the
improving security as the basis for Colombia's high ranking,
contrasting Colombia's openness to foreign direct investment
with the resource nationalism growing in other Latin American
countries.
3. (SBU) Most oil and gas producers in Colombia have
significantly increased their investment plans in Colombia.
British Petroleum (BP), which currently produces 20 percent
of Colombia's oil, plans to invest USD 500 million in oil
production and exploration in 2008. Petrobras Colombia
President Dirceu Abrahao told Econoff that Brazilian-owned
Petrobras invested USD 300 million in Colombia in 2007, up
from an average of USD 30 million per year before 2004. He
said Petrobras drilled 23 wells in 2007 and expected to drill
a similar number in 2008. Likewise, Chevron Colombia
President David Bantz told Econoff that good cooperation with
Colombia's National Hydrocarbons Agency (ANH) and the
Ministry of Mines and Energy were key to his company's
decision to invest over USD 350 million in Colombia over the
last two years. He described President Uribe as the best
head of state in Latin America for international investors to
work with. Overall, Colombia's National Hydrocarbon Agency
(ANH) expects USD 3.5 billion in new foreign investment in
Colombia's oil and gas sector in 2008.
4. (SBU) The Director of Colombia's National Hydrocarbons
Agency (ANH), Armando Zamora, told Econoff that the GOC
recognizes it must encourage investment to extend Colombia's
net oil exporter status. Oil currently represents 26 percent
of Colombia's exports, but without significant new
discoveries, Zamora estimates Colombia will shift to a net
oil importer in 2016. He noted that 2007 was a banner year
for new wells with 73 drilled throughout the country--up from
12 in 2002 and the highest number since 1989. Of the 73 new
wells drilled, 21 found oil and are now producing an
additional 22,000 barrels per day (bpd). Alejandro Martinez,
President of the Colombian Petroleum Association (ACP),
predicts that operators will drill at least 77 oil wells in
2008.
Ecopetrol Rising
----------------
5. (SBU) State-owned Ecopetrol, fresh off of its successful
privatization of a 10 percent stake in the company (ref A),
expects to invest an additional USD 3.8 billion in
exploration and production, up from USD 1.8 billion in 2007.
Over the next four years, Ecopetrol plans to invest USD 17
billion. Ecopetrol increased its exploration activities 35
percent in 2007 and plans to drill 20 new wells in 2008.
Ecopetrol has developed partnerships with Chevron,
ExxonMobil, Occidental Petroleum, as well as with other
international firms. Increasingly, Ecopetrol has looked to
Petrobras as a model for its development as a technically
sophisticated parastatal hydrocarbons company with private
investment and corporate governance standards.
6. (SBU) Petrobras' Abrahao termed Ecopetrol as the best
state-managed hydrocarbons company in Latin America after
Petrobras, but said that to reach the status of a truly
regional or global player, Ecopetrol must have adequate human
resources and reserves. Abrahao pointed out that Ecopetrol
has not traditionally focused on reserves, but that is
changing now. He acknowledged that Ecopetrol looks to
Petrobras as a model and, apart from cooperating in projects
in both Colombia and Brazil, Ecopetrol asked Petrobras
officials to assuage Colombian Members of Congress on
Petrobras' private capitalization process before the
Colombian Congress approved Ecopetrol's successful 10 percent
privatization.
Raising the Line on Oil Production
----------------------------------
7. (U) Fueled by increased foreign and domestic investment,
Colombia has halted its slide in oil production and begun to
reverse the trend. According to ANH, oil production fell
from an average of 578,000 bpd in 2002 to 526,000 bpd in 2005
before recovering to 544,000 bpd in 2007. Minister of Mines
and Energy Hernan Martinez announced February 4 that daily
oil production reached 558,000 bpd in December 2007. The
Minister also announced the GOC was extending its current
estimate for maintaining oil net exporter status from 2014 to
2015. (Note: At the beginning of the Uribe Administration in
2002 the GOC estimated Colombia would shift to importer
status in 2009. End Note.) According to preliminary ANH
figures, Colombia's oil reserves grew by 190 million barrels
in 2007 to 1.5 billion barrels, but still remain down from
1.9 billion barrels in 2000.
Bright Future for Natural Gas Production
----------------------------------------
8. (SBU) Meanwhile, natural gas production and reserve
estimates continue to grow. Since 2003, Colombian gas
production has risen from 578 million cubic meters to 730
million cubic meters in 2007. ANH estimates current gas
reserves at 7.3 trillion cubic feet, or roughly a 20-year
domestic supply. Bantz said that Chevron expects stable or
rising gas production in Colombia for at least ten years.
The company operates two platforms offshore of La Guajira
Department responsible for 60 percent of Colombia's gas
production and has ramped up investment since 2005. Bantz
suggested the GOC's successful auctioning of nine offshore
blocks (ref B) was due in large part to the solid prospects
of additional gas deposits in blocks bordering Chevron's
current concession. Although Chevron focuses only on
offshore gas now, the company expects growing exploration to
uncover an increased number of economically viable gas
deposits onshore as well.
9. (SBU) For the moment, Bantz said Colombia's gas volume
appeared too small for the country to become a significant
long-term exporter. However, he cited important niche
opportunities such as Chevron's partnership with state-owned
hydrocarbons company Ecopetrol that began exporting 80
million cubic feet (2.3 million cubic meters) of gas per year
to Venezuela in early January via the new La Ballena pipeline
(ref C). Demand has been so great -- 300% of that projected
-- that the company will seek to renegotiate the terms of the
contract. As presently planned, Chevron is to increase its
production from La Guajira by 25 percent in 2008, rising to
150 million cubic feet in 2009 before reversing the pipeline
flow in 2012 with Venezuela supplying 137 million cubic feet
of gas to Colombia per year.
Growing Interest in Heavy Oil, Accumulating Small Deposits
--------------------------------------------- -------------
10. (SBU) Besides natural gas, several company and GOC
officials tell us Colombia has prospects for developing heavy
oil belts near the frontier with Venezuela. Petrobras and
Ecopetrol, in particular, are examining prospects in these
areas. According to ANH Director Zamora, his agency plans to
auction heavy oil blocks in four zones in 2008, The zones,
averaging 1,800 square kilometers each, include Sinu-San
Jacinto and Cesar-Rancheria in northern Colombia as well
Soapaga along the Eastern Cordillera and the Llanos basin in
eastern Colombia. The blocks will be available to bidders
capable of producing a minimum of 5,000 bpd and a
capitalization of at least USD 500 million. ANH plans to
issue official bid terms in March with bids accepted in
September.
11. (SBU) Oxy Colombia's President David Stangor told Econoff
that rather than go after new blocks with heavy oil
potential, his company intends instead to concentrate on
finding small and medium fields (i.e. 1,000 to 5,000 bpd) of
lighter oil. Oxy, which produces 100,000 bpd from three
"light oil" fields responsible for roughly 20 percent of
Colombia's national output, plans to drill 11 new wells in
2008 versus only two in 2007. Stangor expressed doubt that
Colombia held a "globally significant" find, but said that
Colombia's excellent terms and expanding exploration area
will continue to attract capital and turn up medium and small
finds of lighter grade petroleum. Petrobras' Abrahao echoed
the view saying international companies are motivated to
invest in Colombia, not because of high probabilities of a
large find, but rather the positive investment climate that
makes small and medium finds profitable.
Brownfield