COLOMBIA STAYING THE COURSE ON OIL POLICIES

Colombia plans to stay the course on oil policies that turned it into a significant crude exporter in the 1980s.

Colombia's Minister of Mines and Energy Luis Fernando Vergara Munarriz said the new administration of President Cesar Gaviria Trujillo, elected May 27, 1990, essentially will maintain the previous administration's policies covering oil, gas, and petrochemical sectors.

A strong exploration and development program pushed by state oil company Empresa Colombiana de Petroleos (Ecopetrol) separately and in concert with foreign operating companies have made energy the mainspring of Colombia's economic growth the past few years, broadening its economic base significantly.

Colombia's gross domestic product grew by about 3% in 1989, among the highest growth rates in Latin America. Mining-which includes oil production-was the most dynamic Colombian business sector in 1989, growing 8.1% Crude oil output increased by 7.6% to 404,283 b/d in 1989. Average 1990 oil production to December was 435,000 b/d of oil and 390 MMcfd of gas, Vergara Munarriz said.

Colombia is lagging its targets for replacing that increased production, however. Ecopetrol and associate contract partners have added 140 million bbl of reserves since 1987, compared with an official target of 400 million bbl for the period. Increased production sliced Colombian reserves during 1987-89 to 1.75 billion bbl from 2.2 billion bbl.

As a result, Ecopetrol is stepping up E&D, targeting another 350 million bbl with a 5 year, $540 million program. Estimates of the foreign contribution to that effort run as high as $5 billion by 2000.

Ecopetrol faces the same problem plaguing other state oil companies in Latin America and elsewhere: a revenue drain caused by domestic fuels and other subsidies.

The problem is certainly not one of petroleum potential. Cano Limon, the Llanos basin field in eastern Colombia responsible for the country's newly found crude exporter status, is one of only a tiny handful of supergiant oil fields discovered in the 1980s. Colombia's proven oil reserves are estimated at about 2 billion bbl.

EXPLORATION POTENTIAL

Vergara Munarriz noted Colombia holds large, highly prospective areas that have not been exploited for hydrocarbon potential.

"There is an interesting potential for ... exploration if we consider that the sedimentary basins of our country have an average of only one well for every 670 sq km, compared with countries such as the U.S. (13 sq km/well) and Venezuela (57 sq km/well)."

Revised data published in February 1990 by Ecopetrol indicate Colombia's sedimentary basins cover 695,000 sq km onshore and 50,800 sq km offshore.

That means more than half of Colombia's territory has hydrocarbon potential.

Current plans call for about 70 exploratory wells/year in Colombia.

In 1989, Ecopetrol and other companies drilled about 80 wells. Vergara Munarriz estimated more than 90 wells would be drilled by yearend 1990.

Explaining the increase in exploration activity, he cited stability of petroleum policies in the country and the normalization of public order-a reference to President Gaviria's attempts to establish a dialogue with guerrilla groups. Another factor has been the rise in international oil prices due to the Persian Gulf crisis, he said.

Vergara Munarriz thinks the crisis will result in greater interest among international petroleum companies in working with such countries as Colombia.

OIL TRADE

Colombia's oil trade has benefited from higher oil prices as well. During August-October 1990, the minister said, Colombian export revenues increased by $118 million.

That takes into account increased outlays of $19.6 million for gasoline imports and $18.9 million for crude oil purchased from private companies, resulting in a net surplus of $80 million during the 3 months. Crude exports in 1990 averaged 185,000 b/d, of which 103,000 b/d were exported by Ecopetrol.

Ecopetrol's principal markets for its oil are the U.S., Chile, and Puerto Rico.

Other buyers of Colombian crude are Canada, Netherlands, and Costa Rica.

Exports to South America averaged 18% of the total, with most of that to Chile.

LLANOS UPDATE

Colombia's Llanos basin continues to be its most important oil producing province.

The Llanos sedimentary basin covers an area of more than 200,000 sq km. Heavy rains greatly affect activity in the region. Large areas are flooded during the April-November rainy season. Parts of the region near Cano Limon field remain underwater much of the year.

Cano Limon, discovered in 1983 by a unit of Occidental Petroleum Corp., has produced more than 277 million bbl of crude through June 1990. Its original estimated reserves were slightly more than 1 billion bbl.

Cano Limon has a strong water drive and high porosity and permeability that could sustain recovery of as much as 50% of original oil in place.

Production at Cano Limon has ramped up from 35,00040,000 b/d from six wells in 1985. First exports from Cano Limon began in April 1986. (see OGJ, March 17, 1986, p. 43).

By June 1987, Cano Limon was producing more than 180,000 b/d. For the whole of 1987 the field produced 187,000 b/d. Cano Limon production slipped in 1988 to about 163,000 b/d, then rebounded to 172,000 b/d in 1989. Guerrilla attacks on Cano Limon pipeline facilities have disrupted throughput and cut production many times in the past 4 years.

OTHER AREAS

Vargara Munarriz acknowledged that the eastern Llanos continues to be the most promising oil region, but says he has "good expectations for areas such as the Upper Magdalena Valley, Middle Magdalena Valley, Putumayo, and on the Atlantic Coast area mainly for natural gas."

First oil exploration in Colombia took place in the Middle and Upper Magdalena River valleys, with several large heavy oil discoveries and some smaller light oil fields.

The Middle Magdalena is Colombia's second most important producing basin. Infantas field, discovered in 1918, is the oldest in the country and has produced 226 million bbl of oil. With more than 300 wells drilled, Infantas still produces from about 200 wells.

La Cira, discovered in 1926 to the northeast of Infantas, has produced more than 450 million bbl and still has 600 active wells.

Also in the Middle Magdalena basin, Casabe field is undergoing a major waterflood. Casabe has produced more than 240 million bbl and still produces from about 330 wells.

Velasques field is producing about 2,900 b/d. The 1946 discovery has produced about 170 million bbl. In the same Middle Magdalena area, Provincia field is currently the top producer, yielding more than 14,500 b/d. Discovered in 1962, it has yielded a cumulative 165 million bbl.

Much of the work in the Middle Magdalena field is aimed at secondary recovery.

Gas fields dominate in the Lower Magdalena basin. A key exception was the 1985 discovery of San Francisco field. It produces more than 22,000 b/d from some 60 wells in Cretaceous pay, with total production to date 42 million bbl.

ASSOCIATION CONTRACTS

Foreign companies participating in Colombian association contracts account for most E&D spending in the country.

The list of active operators in association contracts include Argosy, Hocol SA (Royal Dutch/Shell Group), Elf Aquitaine, Occidental, Texaco Inc., Chevron Corp., Lasmo, and Braspetro.

By the end of 1989, there were 86 association contracts of which 70 were exchange agreements and 15 risk contracts with Ecopetrol plus one "special" contract. There are 47 oil companies working in the country, of which 28 are operators.

Of the average current production of 430,000 b/d, Ecopetrol produces 86,000 b/d from fields that it operates directly.

The association contracts account for 287,000 b/d and concession areas 57,000 b/d.

FOREIGN PARTICIPATION SOUGHT

Vergara Munarriz noted that while Ecopetrol needs to step up its direct exploration activity-with technological advances needed to achieve the company's goals-more foreign participation is being sought in Colombian E&D.

"The country needs to encourage association contract activities.

"We concluded that it would be very difficult for the state oil company to have a greater participation in exploitation work required in this country without foreign companies' cooperation."

He pointed out, however, that such joint ventures must remain competitive on an international level so that Colombia can attract foreign investment.

He also contends that the political climate for foreign investment and foreign operating companies will stay friendly under the new administration.

ECOPETROL PLANS

In the near term, Ecopetrol plans increases in petroleum sector spending in addition to increased E&D spending. Specific sums weren't disclosed.

At the top of the list is added outlays for construction of a new refinery, with an initial capacity of 75,000 b/d, to start up in 1996.

Ecopetrol spending increases also will go towards expanding the country's crude and oil products pipeline network.

The state company also will hike investment in the government's natural gas grid expansion, directly or through joint ventures and/or through loans to pipelines and natural gas distributors.

Another priority for Ecopetrol is renewed growth in the petrochemical sector.

Vergara Munarriz said important steps have been taken towards defining the role of the state in identifying and setting guidelines for development of domestic petrochemical projects.

He emphasized, however, that development of the petrochemical industry can be achieved by giving priority to the private sector with state participation in projects that require taking advantage of the nation's refining infrastructure- monopolized by Ecopetrol-and of its interaction with petrochemicals.

Plans call for projects to add about 600,000 tons/year of petrochemical products capacity. Imports are high and demand is growing.

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