Colombia Oil & Gas Market Update
Market overview of Colombia's Oil & Gas sector:
Colombia is proving an increasingly popular jurisdiction for investment, thanks to a booming economy, political and economic stability, an entrepreneurial culture and high levels of productivity and performance in selected sectors. By the first quarter of 2012, foreign direct investment in Colombia had increased fourfold on the previous year. The United Nations has reported that Colombia enjoyed the fifth-highest flow of foreign direct investment in 2011.
The oil and gas sector has been crucial to this success. Last year, some some $7.704 billion in foreign capital was injected into this sector – a figure representing 58.2% of total foreign direct investment for 2011.
The attention of foreign investors was piqued in 2009, when it was revealed that Colombia had proven reserves of 1.988 billion barrels – the fourth largest reserves in South America. By 2011, average production stood at 785,000 barrels per day, with peak production of 903,000 barrels per day. Between 2015 and 2020, it is anticipated that new discoveries will yield additional reserves of 2.5 billion barrels.
At the beginning of the 21st century, the regulation of Colombia's oil and gas industry was in a state of disarray. There were serious concerns about the inefficiencies of Ecopetrol as an operator, and about conflicts of interest due to its dual role as both operator and regulator. At the same time as setting oil and gas policies, it was also serving as regulator, operator and joint venture partner, giving it unfettered influence over the sector.
These concerns were addressed by establishing the Colombian Hydrocarbons Agency (ANH). This new entity assumed all of Ecopetrol's regulatory responsibilities, and took over the administration of hydrocarbons and the award of concessions for exploration and production activities. Ecopetrol in turn was transformed from a state-owned corporation to a mixed-economy company, which has since carried out three public placements and is currently listed on the New York Stock Exchange.
While Colombia's energy sector has enjoyed phenomenal success in recent years, certain challenges must be addressed if this trend is to continue:
- New discoveries have decreased.
- There are considerable delays in the granting of environmental licences.
- Transport problems are complicating the transmission of oil and gas.
- Industry infrastructure is coming under sporadic attack from guerilla activists.
This article was first published in the International Law Office Energy & Natural Resources Newsletter – www.internationallawoffice.com