Energy & Mining

The Next Step

Colombia's oil and gas industry

Colombia’s oil companies are taking their first steps in fracking and offshore production, as well as in the development of green energy projects.

Colombia’s oil and gas industry is experiencing a boom in 2022. In the face of high global commodity prices, the sector is going through a phase of revenue expansion that will serve to finance the first exploration projects for unconventional techniques, as well as support the transition to a green economy. Meanwhile, the reputation of oil companies among the public has been on the rise over the past three years.

These firms are beginning to take their first steps in fracking or offshore activities, at a time when the reputation of this industry in oil municipalities is at record levels. Thus, 77% of citizens in hydrocarbon areas consider that the oil and gas industry was positive for the municipality, a level higher than 67% in 2019, according to the Oil Barometer survey prepared by the Colombian oil and gas association ACP.

“For the past 10 years, the sector has been responsible for 45% of the country’s exports, 10% of GDP, and 28% of FDI,” said Nelson Castañeda, president at Campetrol, the Colombian oil and gas industry chamber, to give some figures on the weight of this industry for the country’s economy. “Currently, we have proven reserves of 1,816 million barrels,” he added.

In the January-March 2022 period, Colombian government-owned oil company Ecopetrol recorded the best quarterly result in its history by reporting earnings of COP6.6 billion, more than double the COP3.1 billion it obtained in the same period of 2021.

Meanwhile, in 1Q2022 it reached production of 692,000bpd, 16,300bpd more than in 1Q2021. This increase in production is explained, among other factors, by the recovery of the Castilla field and by the more than 50,000bpd generated by its joint venture in the Permian field in the US. Thanks to the use of fracking, production at Permian is expected to increase steadily to 100,000bpd in 2027.

Unconventional oil extraction remains a controversial regulatory issue in Colombia. However, in June a local judge lifted the suspension of the first fracking project in the country to be carried out by Ecopetrol together with ExxonMobil. Located in the municipality of Puerto Wilches, in the department of Santander, it is a first step to develop techniques such as fracking, which could increase the country’s hydrocarbon resources by up to 25 billion barrels of additional crude oil, according to the National Hydrocarbons Agency (ANH).

Regulatory uncertainty surrounding unconventional products impedes planning. However, this has not been an impediment to investment in the oil sector. Oil companies will invest USD4.4 billion during 2022, a 42% growth compared to the resources allocated in 2021, according to ACP estimates. The percentage increase evidences the good symptom of the country’s economic reactivation and the good moment the hydrocarbon sector is going through.

In addition, auctions of areas for hydrocarbon exploitation have received an upward boost. One example is the Canadian company Pares Resources, which arrived in Colombia more than a decade ago, and won 18 areas in the 2021 oil round. In that round, a total of 30 areas were awarded to seven companies, which committed to invest at least USD149 million. Given the good response of the participating companies and the current context of high oil prices. The regulator ANH is expected to hold another new round of bidding for oil and gas drilling rights during 2022.

Meanwhile, Energy companies are also exceeding in matters of ESG. Ecopetrol has a 2040 strategic plan that seeks to advance towards its goal of being a zero net carbon emissions company by 2050. As part of that plan, this year the oil company has entered into an agreement with six international companies— including EDF and Siemens— as partners to implement its strategic low-carbon (green, blue, and white) hydrogen plan. The intention is to implement projects that focus on hydrogen production at refineries, in addition to industrial use and sustainable mobility initiatives.

Another of the main actions that the oil sector has to impact ESG objectives in Colombia is through the Works for taxes program, a mechanism through which they can obtain tax discounts with the investment of projects in areas affected by violence and poverty. In this sense, the mining-energy sector invested more than COP800 billion in environmental projects in 2021. Ecopetrol, which has executed 18 of the 36 projects approved under the program, expects to complete another eight this year related to infrastructure, school furniture and access to drinking water.

“In a short term, we are also putting our faith on Colombian offshore. In the next 12 months, we will start drilling three appraisal wells. If we have a confirmation that these new exploration frontier does have the resources, the country will have medium- and long-term resources that can generate the income it needs to maintain all its social projects,” said Castañeda.

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