Colombia's state oil company Empresa Colombiana de Petroleos (Ecopetrol) has postponed until September the awarding of drilling rights to exploration blocks in two regions it had previously reserved for itself.
The auction originally was to have been held last week.
In a bid to attract foreign oil explorers at a time when many companies are going elsewhere because of what they consider to be onerous taxes and high government profit participation in Colombia, Ecopetrol invited 17 firms to submit bids in a private auction of rights to the two areas.
One of these areas straddles Arauca and Casanare states in the Llanos area of the Amazon basin, and the other is in the Putumayo region in southern Colombia south along the Ecuadorian border.
The two blocks have combined resource potential estimated at 600 million bbl of crude oil, according to preliminary studies.
Oil companies' interest in the Putumayo area may be dampened somewhat by recent political unrest among coca farmers, who have staged several confrontations with Colombian authorities to protest coca eradication efforts. One such confrontation in mid-August left two farmers dead and 35 wounded.
Until May, both areas were reserved for future exploration by Ecopetrol, which is trying to mount an oil exploration program of its own in geologically promising areas to lessen its dependence on foreign companies.
The government said 17 of 18 companies invited, including some major multinational oil and gas firms, agreed to submit bids for the auction.
What's available
The two areas open for bids are:
- Tocoragua, which covers 54,362 acres and features a potential oil resource of 400 million bbl in Arauca-Casanare.
- Troyano, which covers 42,007 acres and has a potential 200 million bbl in Putumayo.
Colombia has high hopes for both blocks, which lie in the foothills of Colombia's Eastern Cordillera.
They are said to have geology similar to that of Cusiana, Colombia's largest oil field and now under development by British Petroleum Co. plc and partners. For that reason, the government is describing the auction as a concession to foreign firms and as a means of stimulating investment in the search for oil in Colombia at a time when investor interest is flagging.
The national oil company also said it is willing to sell rights to the areas on a shared-risk basis, meaning Ecopetrol would share drilling and exploration costs of as much as $60 million from the outset of exploration in exchange for a 70% participation in oil revenues.
Additional taxes and royalties would bring the total government take to nearly 90% of production, oil analysts said.
Under the typical association contract licensed by the Colombian government, private oil exploration companies assume all dry hole risks and are reimbursed for half their costs only if the well is certified as commercially productive.
At that point, Ecopetrol receives a 50% ownership in oil production, exclusive of other taxes and royalties that bring the average government take in Colombia to 85%.
Ecopetrol invited only companies with at least $1.5 billion in assets, 500 million bbl of oil reserves, and with technology more advanced than Ecopetrol's.
Industry responds
Among the companies that reportedly agreed to submit bids were Amoco Colombia, ARCO International, BP, Canadian Occidental, Shell de Colombia, Elf Aquitaine, Esso Exploration, Mobil Exploration, Occidental de Colombia, Braspetro, Texaco Inc. and Total Exploratie.
Oil industry observers welcomed the auction as a move in the right direction for Colombia, which because of its tax laws-not to mention guerrilla wars and political upheaval-hosted only 13 exploratory wells drilled in 1995 by private firms, down from 52 in 1988.
Seismic studies have also plummeted as foreign companies increasingly are deploying their risk capital on friendlier shores.
"The likelihood of finding oil is good. Ecopetrol obviously believes these blocks are low risk and high quality," said Rafael Quijano, Latin American analyst with Petroleum Finance Co., Washington, D.C. "The acreage reserved for the national oil company usually has the least geological risk. It only offers shared risk contracts where it has done geological work and sees more potential."
Risks
But the Putumayo farmer protests, which have been highly organized and focused on oil facilities, could cause companies to rethink their bids.
Oil industry consultant Gerald Prager of Gaffney, Cline & Associates, Dallas, says the bid still doesn't go far enough in offsetting Colombia's mounting disincentives and the country would be better off cutting taxes rather than reducing exploratory risks by offering shared-risk contracts in promising areas.
"Colombia's risk-sharing deals have not been popular with foreign companies because they don't mind taking risks if it means they get a larger share of the participation. That's what they are in business for and accustomed to living with.
"Generally, companies would rather see lower taxes and lower Ecopetrol participation than share the exploration costs."
Colombia's oil status
Colombia's average oil production is now on the rise, totaling an average 650,000 b/d and expected to go as high as 1 million b/d by 1998, when giant Cusiana field comes fully on line with the completion of a 480 mile pipeline linking the field with Caribbean ports.
At the same time, the country's proven oil reserves are in decline, now totaling 2.9 billion bbl, a drop that foreign oil companies attribute to a decrease in exploration caused by onerous tax laws.
While encouraged by the auction, Alejandro Martinez, executive director of the Colombian Petroleum Association, a trade group of foreign oil company members, said the attractiveness of the offering won't be known until bids are submitted.
That's because the price of entry thus far is low: bid information packages cost only $2,000 each, Martinez said.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
