BET ON IT

Colombia 2017 | ENERGY & MINING | FOCUS: OFFSHORE

With proven reserves dwindling and E&P investments hampered in 2016, Colombia is betting big on its offshore potential. So far, a string of early exploratory successes and industry-welcoming incentives has things off to a positive start.

With E&P investments crippled over the last year as a result of global oil prices, Colombia is re-energized by new incentives and early exploratory successes to jumpstart its nascent, but highly promising, offshore industry. Colombia and its National Hydrocarbons Agency (ANH) have now inked contracts with 22 local and international players, a sharp rise from its first contract in 2004.

Recognizing that it must compete for investments in the capital-intensive industry, Colombia has added certain key measures and incentives in its latest tax reform. These include the introduction of the Certificate of Tax Reimbursement (CERT), a tax-saving and refund mechanism for all oil companies that carry out exploratory activities for specific investments; a VAT refund for all exploratory activities carried out in offshore areas; and the option to amortize expenses related to investments for exploration, development, and construction of mine, oil, and gas fields, carried out between January 1, 2017 and December 31, 2027 by the straight line method over a five-year term. Other strategies beyond the tax reform include the introduction of offshore free trade zones and efforts to simplify the environmental licensing process.

The early exploratory success is also sure to turn heads internationally. In May 2017, Colombia's 88% state-owned Ecopetrol and US-based Anadarko announced Colombia's largest deepwater gas reserve discovery in 28 years. This massive find has brought relief to the country's energy industry and allayed concerns about declining fossil fuel supplies.

“We will now be able to secure gas production until 2027," stated Colombian President Juan Manuel Santos in a video on Twitter at the time. “This will boost foreign direct investment into the country and maintain the importance of Colombia in the global hydrocarbons market," he added.

The discovery occurred at the Gorgon-1 exploratory well, a component of the Purple Angel block between 3,675m and 4,415m below sea level in the south Caribbean Sea. Its total area, across three different blocks, stands at around 14,000sqkm, half the size of Belgium. The commercial development of this discovery will still take between seven and 10 years to commence. For its part, Anadarko is continuing to explore the high-potential Grand COL area, where it is the 100% operator of Blocks COL1, COL2, COL6, and COL7.
“With the existing combination of gas fields in the area, Colombia is opening the door to study the possible development of a cluster specialized in gas production, which will boost the project's profitability and efficiency," pointed out Ecopetrol in a press release.

While this discovery was a major milestone in Colombia's offshore industry, it is only one part of an ambitious year. According to a recent TBY interview with Germán Arce Zapata, the Minister of Energy and Mines, the offshore exploration programs in 2017 will run a total of roughly USD700 million, making it among the largest of any offshore exploration program this year. Successful drilling has already occurred in Kronos and Purple Angel. In total, three deepwater and two shallow-water wells will be drilled by the end of 2017. Other companies beyond Ecopetrol and Anadarko that are drilling this year include Repsol and Petrobras.
Regarding how these early successes relate to the long-term outlook, Zapata continued, “If these exploration campaigns in 2017 prove what we and the companies believe, it is a potentially whole new frontier for gas and oil, and the development of offshore will become the biggest bet we will have for 10 years. The potential capacity of resources accounts for multiple times the resources we have today. It is early to talk about numbers as of yet, but the technical teams think we can double or even triple the country's reserves in the next 10 years, depending on long-term price signals in the market."