Colombia Begins Study of Oil and Gas Reserves, Revenues to Plan Industry’s Future

Bloomberg Línea can confirm that President Gustavo Petro has ordered the mining and energy ministry and hydrocarbons agency to conduct a study on which decisions regarding the future of the oil and gas industry will be based

The country's oil production in 2021 totaled 268 million barrels.
November 23, 2022 | 01:38 PM

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Bogotá — The future of oil and gas exploration and extraction in Colombia will soon cease to be an enigma, as President Gustavo Petro has ordered the Ministry of Mines and Energy, the National Hydrocarbons Agency (ANH) and the Mining and Energy Planning Unit (UPME) to conduct a study that will be the cornerstone for making a decision on the industry, Bloomberg Línea can confirm.

The study has two main objectives, according to sources at the Casa de Nariño, the presidential residence. The first is to determine the fiscal framework of oil and gas in the country, that is, to review revenue generation, operating costs and the industry’s trade balance, while the second motive is to determine the country’s oil and gas reserves, which will serve to define how the country is doing in terms of energy self-sufficiency.

“It is an internal study that is within the competencies of the ministry and its affiliates. We are working from the institutional framework, and no external company is involved,” Minminas told Bloomberg Línea.

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In addition, the analysis also includes the contracts signed with oil companies in order to determine their status, whether they are in an exploratory stage, and whether they are active or have been suspended, or whether they are already producing.

The ministry described the move as a purging process in order to draw up a roadmap for the industry’s future.

The contracts that have been suspended, which number around 58, will be reviewed to determine whether their reactivation is viable.

“The study will inform the decision that the government is about to take. The positive side is that the National Hydrocarbons Agency is no longer ruling out continuing with rounds to auction new areas for oil and gas exploration, and this is a step in the right direction”, said Amylkar Acosta, a former mines and energy minister.

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Acosta also said the government must address several aspects, “on the one hand, the very fact that our reserves are very precarious, and the country needs to increase them, and although it is true that there are contracts in force and that, as minister Irene Vélez said, we must establish why many of them are inactive. The truth is that if they have not been developed, if no progress has been made in contracts already signed, and in processes that may be seismic or exploratory wells, this is due to different circumstances”.

He added that the objective of the companies is to advance those processes, some of which have been stalled due to environmental licensing, prior consultations, and protests and blockades that have occurred in some areas, in addition to other public order issues.

“The contracts that have been signed would only lead us to the discovery of 150 million barrels of proven reserves, which would cover the country’s internal needs for six months.”

Óscar Vanegas, oil policy advisor to Colombia's Congress

For his part, Óscar Vanegas, an advisor to Colombia’s Congress on oil policy, and academic coordinator of the petroleum engineering program at the Universidad Industrial de Santander, said the study must conclude that the oil exploration and exploitation contracts already signed are not sufficient.

“The size of the reserves is 80% covered by minor reserves, fewer than 50 million barrels of original reserves, and the recovery factor is only 17%, so the contracts signed would only lead us to the discovery of 150 million barrels of proven reserves, which would be enough to cover the country’s internal needs for six months. This does not guarantee energy security”.

Oil production in Colombia

Another issue to analyze is time, according to former minister Acosta.

“Oil production is governed by the binary logic of zero or one, that is to say, a well is drilled and the possibility is that there will be oil or not, and more or less the average success rate we have in Colombia oscillates around 20%, that is to say that out of every 100 wells drilled, 20 result in discoveries. However, it is not enough to find oil, we have to determine the size of the reservoir. And wells in development only occurs when the field, the deposit, is declared commercial. And that declaration depends on the volume and quality of what is found,” Acosta said.

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He added that from discovery to commercial production takes no fewer than three or four years. “The results of the exploratory efforts made today will be reflected in four years in reserves,” he said.

In late October, the Ministry of Mines informed that it will respect the more than 330 hydrocarbon exploration and exploitation contracts already in force. Of this total, 207 contracts are for exploration areas, of which 117 are in execution.

“We want to reactivate the remaining ones to be able to count on those resources and take advantage of them correctly,” minister Vélez at that time.

Furthermore, “we still have important gas resources in the Colombian Caribbean that can potentially become reserves and would significantly increase the country’s self-supply horizon. With the Gorgon, Uchuva and Orca wells, we will seek to adjust the gas resources to our energy transition plan”.

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According to information from the ministry, net production in 2021 was 268 million barrels, while in 2022 there is an approximate output forecast of 273 million barrels, which would mean a 2% year-on-year increase.

Translated from the Spanish by Adam Critchley