TBY talks to Francisco José Lloreda, Executive President of The Colombian Oil & Gas Association (ACP), on expectations for the year, increasing the feasibility of hydrocarbon projects, and the state of the offshore sector.

Francisco José Lloreda
Francisco José Lloreda was born in 1965. Before his current position as president of the ACP, previous roles included High Presidential Advisor for Coexistence and Citizen Security in the Santos administration, Ambassador of Colombia to the Netherlands, and Minister of National Education.

What are your expectations for the hydrocarbon sector for 2017?

Compared to 2016, this year is expected to be better for a number of reasons. The first is because, at least up until now, international prices for oil have been above USD50 a barrel, which in the case of Colombia, allows many of the projects to be economically feasible. It seems the price crisis is over—or at least the worse is behind us. Companies have done their best to adjust costs and become more efficient, which allows us to be more optimistic. Nonetheless, it is not easy to predict what will happen with the investment budgets, especially because different countries are interested in increasing their production and selling those barrels of gas. At the same time, Saudi Arabia and other OPEC countries sent a clear message to the world indicating they would not be the only ones reducing the oil supply in order to keep prices at a more competitive level. In the case of Colombia, specifically, a sign that creates more certainty, is that the tax reform has been approved, although many challenges remain. The biggest is that the country still needs to create conditions that make it more competitive regardless of what is happening with the international price level.

What else can be done from the government side to further increase the feasibility of hydrocarbon projects?

It is true that the national government introduced some reforms in order to reduce the impact of the crisis in oil prices and, compared to other countries in the region, Colombia is in a better position after so much uncertainty. In the case of the oil and gas business, the government introduced some measures, especially the National Hydrocarbons Agency (ANH), in order to introduce more flexibility in contracts. We are seeing the results of those measures right now. For example, in 2017 investment in E&P will increase as compared with last year's investments. Nonetheless, we still have some economic challenges, and the government is fully aware of all of them. One has to do with reaching a more competitive government take. After the last tax reform, the offshore projects were able to maintain the same tax situation. Nonetheless, in the case of onshore projects, due to a new tax that introduced on the dividends of foreign companies, the government take was increased rather than reduced, as was expected.

What challenges still remain in the sector regarding legal security?

One of the main assets Colombia has had is that it is a country with a stable political system, its macroeconomic policies are quite predictable, and despite its challenges, it still has an important institutional structure and legal security. Unfortunately, we are facing a challenge in that aspect because of certain rulings in the judiciary system and because we still need to regulate different mechanisms of community participation. This is an important issue, but sooner or later those worries will disappear, as the needed reforms are approved.

What is your outlook on the offshore sector in Colombia?

Most companies agree on the interesting prospects that Colombia has offshore, and many have been working with a great deal of enthusiasm since 2014, precisely the time the oil crisis started. Colombia has done more than 100,000km of seismic exploration. In 2017, a number of companies are expected to invest in five specific wells; hence, this offshore activity is a clear commitment from the companies. We believe that there is still some room to be more competitive offshore, especially if the discoveries are related to gas. Gas has different economic requirements, so we will need to adjust the economic models to the new reality.