Peter Howard Wertheim
OGJ Correspondent
Rio de Janeiro, Jan. 26-- Colombia's state-owned Ecopetrol plans to invest $2 billion this year to explore and produce for oil and gas. Ecopetrol spent $1.3 billion in 2006, the company reported.
Colombia will produce 520,000 b/d of oil in 2007. Ecopetrol and other companies must invest to sustain that level of production in the future, said Ecopetrol Finance Minister Alberto Carrasquilla.
The investment is needed to recover the country's proved reserves that topped 3 billion bbl in years' past, dropped to 1.5 billion bbl in 2004, remained at that level in 2005, and increased a bit in 2006, Carrasquilla said.
Ecopetrol target is to invest $12.5 billion over the next 5 years to sustain the country's output levels. Oil is currently Colombia's leading export and source of foreign income, constituting one third of the country's foreign revenues.
All oil production is undertaken by Ecopetrol in contracts of association with foreign companies.
Most of the Colombian oil industry runs through joint ventures between Ecopetrol and international companies, some of which have heavily financed the construction of pipelines. Investment from these multinational corporations has led to the creation of the oil infrastructure that exists in Colombia today. BP PLC and Occidental Petroleum Corp. are among the largest international companies in the Colombian oil sector.
Tax reductions
Colombia has become a hot spot for oil and gas exploration in Latin America as energy multinationals face increasing hostile business conditions elsewhere in the region, industry experts say. Key attractions include a steep, sustained fall in guerrilla attacks under President Alvaro Uribe—now in his second 4-year term—and a reduction of taxes.
The government has drawn up incentives to attract oil companies, including cutting Ecopetrol's mandatory stake to 50-55% in any exploration contract with a private-sector company. This compares with the 70% required over the past 30 years.
Examples of recent liberalization include allowing IOCs to own 100% stakes in oil ventures, the establishment of a lower, sliding-scale royalty tax on oil projects, longer exploration licenses, and forcing Ecopetrol to compete with private operators.
The sliding-scale royalty schedule has been one of the most successful measures introduced by the government. The scale establishes an 8% royalty rate on the smallest oil fields; with more than 90% of Colombia's fields containing less than 60 million bbl, the low royalty rate has encouraged investments by small and medium-sized operators.
