MercoPress. South Atlantic News Agency

Colombia charms oil and gas investors

Colombia has become a hot spot for oil and gas exploration in Latin America as energy multinationals face increasingly hostile business conditions elsewhere in the region, industry experts say.

A steep and sustained fall in guerrilla attacks under President Alvaro Uribe, who began a second four-year term this month, and a reduction in tax rates are key attractions.

The favourable investment climate contrasts with those of other countries in the region, such as Venezuela, Bolivia and Ecuador, where governments have as much as doubled the tax and royalty rates levied on foreign-owned operations and, in some cases, expropriated assets.

"Contrary to the rest of the region, there is no strong resource nationalism driving petroleum policy in Colombia," said Roger Tissot, Latin America director at PFC Energy, a consultancy based in Washington. "Instead, the government has adopted a business-friendly strategy aimed at increasing exploration activity."

This month, India's Oil and Natural Gas Corporation and China's Sinopec jointly bought, for $800m, a 50 per cent stake in Onimex de Colombia, a subsidiary of US-based oil exploration and production company Onimex Resources.

Swiss-based Glencore International also outbid Petrobras of Brazil for a majority stake in a company that will operate the Cartagena refinery, Colombia's second-largest. Glencore offered to pay $630.7m for a 51 per cent stake in the new company, which will help finance the $800m expansion of Cartagena.

Colombia has 1.4bn barrels of proven reserves but it will be self-sufficient in oil only until about 2010, which makes the discovery of new fields a national priority.

The Uribe government has offered better fiscal terms to boost exploration and reverse a decline in oil output. Production fell from 800,000 barrels per day in the late 1990s to 526,000 b/d last year but it has already begun to increase.

The National Hydrocarbons Association predicts that the improving conditions will attract $750m in exploration in 2006, 50 per cent more than last year.

Ecopetrol, Colombia's state-owned oil company, is meanwhile preparing to sell off a 20 per cent stake to finance what is already a dramatic increase in exploration activity.

Mauricio Salgar, Ecopetrol's chief operating officer, said the number of wells drilled last year was the highest in two decades, and the company's exploration budget for 2006 is $150m ? five times its historical average.

"For more than a decade exploration activity was very timid," he said. "But there has been a complete resurgence as a result of the combined effect of improved security and better fiscal terms." Ecopetrol is increasing production from mature oilfields and ramping up the output of heavy crude, which has become profitable thanks to high oil prices.

Mr Salgar said the partial flotation of Ecopetrol would allow it to overhaul the way it is run. While it is profitable, its investment budget is constrained by having to pay high dividends to the government.

"The aim is that with a share offering of up to 20 per cent, the state will retain control but Ecopetrol will be run 100 per cent as if it was a private company," he said.

Exploration is gathering pace offshore, as well as in Colombia's still largely unexplored interior. ExxonMobil, Petrobras and Ecopetrol are jointly exploring the Tayrona bloc, a promising deep-sea area off the Caribbean coast.

Dirceu Abrahão, president of Petrobras's operations in Colombia, said the change in conditions had enabled the company to quadruple its exploration budget from $20m last year to more than $80m in 2006.

Petrobras currently produces 47,000 barrels a day in Colombia. (FT)