Colombia lets contract for unconventional resources development

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, Dec. 9 -- Colombia’s National Planning Department let a contract to Petroleum Development Consultants (PDC), London, to develop the model contract and technical regulations for the development of the country’s unconventional resources.

“The focus of the work is to prepare a contractual framework and fiscal arrangements that will encourage the exploration and development of these types of resources in the country,” said PDC.

Under terms of the agreement, PDC will prepare an assessment of the resource in Colombia, develop appropriate development scenarios for typical resource size, prepare capital investment and operating cost estimates for typical developments, and carry out economic evaluations and determine optimum fiscal terms balancing the requirements of government and investors.

In June, Rodolfo Guzman of Houston-based consultancy Arthur D. Little said investors interested in Colombia's hydrocarbons reserves were beginning to pay increased attention to unconventional resources as regulated gas prices in the country begin to rise.

Guzman told BNAmericas news agency that officials have long known about Colombia's vast reserves of coalbed methane, but that new studies are also being undertaken to evaluate shale gas reserves across the country.

"There's not a lot of information around," Guzman said. "Typically, until recently, domestic gas prices were not attractive enough to incentivize any type of unconventional development.”

But he added that “over the last 3-4 years, gas prices have been increasing, and that's starting to create interest in unconventional resources."

Guzman told the agency that Colombia’s hydrocarbons regulator ANH was planning to promote the development of unconventional resources in the country, although the current fiscal regime may need to be adapted.

"E&P contracts were designed for conventional hydrocarbons, so there are some changes that need to be done. You need a little bit more flexibility. And ANH is currently working on that," Guzman said. "I think over the next couple of years we're going to see a lot more activity in both coalbed methane and shale gas."

Guzman said that coal miner Drummond announced several years ago that it had discovered methane reserves totaling 2.3 tcf.

He said the discovery, which could be close to being declared commercial, may ease Colombia's tight gas supply situation and allow the country to take a new look at exports.

"About 15-30 tcf of methane gas exists in Colombia, but you have to determine how much of that is really going to be recoverable. It will probably be about half of that," Guzman opined, adding that significant production could still be years off.

"Except for the Drummond project, which is really advanced, it will take at least five years before you have any new commercial methane or shale gas production," Guzman said.

"Strategically, the majors may be interested, especially the ones that are already here. But it may attract more interest from niche players," said Guzman, whose firm was hired by ANH.

In March, ANH Director Armando Zamora said Colombia plans to offer rights to explore for shale gas within two years, meeting rising demand for such exploration areas.

"There has been a lot of demand for such prospects, people have been complaining," Zamora told reporters on the sidelines of the Latin Upstream 2010 conference in Rio de Janeiro. "We just need time to organize ourselves and get this done right."

Contact Eric Watkins at hippalus@yahoo.com.

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