Zero oil exploration in Colombia

Francisco Lloreda, president of the Colombian Petroleum Association (ACP), the leading oil industry trade association in the country, told reporters that the country needs to find a way to make the industry competitive again, given the collapse in global oil prices. Lloreda explained that, according to the ACP’s data, oil exploration in the country is practically paralyzed. This year has seen just 12 exploratory wells, compared with 68 during the same period last year, when oil exploration had already hit dangerously low levels.

Lloreda touched on the familiar problem with the Colombian oil industry: reserves that will last just six years. He stressed that the only solution for the oil sector’s problems is additional exploration, and the lack of exploration should be setting off alarms, as the bill for this lack of exploration will be paid in the years to come. Lloreda warned that even the recent deep water discovery in the Caribbean is not enough to assuage these fears, as it remains to be seen whether the hydrocarbons are oil or gas, and whether they can be extracted profitably.

Colombian daily El Espectador published a piece explaining how a barrel of oil gets priced in international markets, highlighting the differences between the prices different types of crude will fetch. The article explained that not only are Colombia’s oil reserves declining, but the balance of the remaining oil is skewed towards heavier, less profitable oil.

Politics and Peruvian Economic Growth

Roberto Abusada, director of Peruvian Institute for Economics told the Peruvian business journal Gestión on Friday that it is not too late for the administration of Peruvian president Ollanta Humala to take steps to strengthen the country’s mining and infrastructure.

Abusada believes that President Humala needs to speak loudly and positively about the mining sector. He added that there is a lot of room for actions regarding Peruvian infrastructure, both working directly with regional and local governments to make sure that construction projects are run well and with less corruption, and on large projects, like national rail lines.

A new Stratfor report on Wednesday warned that the next Peruvian president would not enjoy the same economic conditions as President Humala. According to Stratfor, the strong economic growth in Peru over the last 10 years was due solely to the Chinese construction boom, and Peru’s economic growth will now slow, along with China. The next Peruvian president will have to work harder to grow the country in a more unforgiving economic climate.

However, BBVA Research is more bullish on Peru’s medium-term economic prospects. While the economic research firm predicts just a 2.5% GDP growth for Peru in 2015, it believes that growth will rebound to 3.8% in 2016 and 5% in 2017. BBVA argues that increased copper production in the country will power Peru’s economic growth in the coming years.

Colombian mining production in decline

On Wednesday, president of the Colombian Mining Association Santiago Ángel explained that the latest results on Colombian mining production show a clear trend towards deceleration. He added that this makes it increasingly more difficult for the sector to reach the government’s goals for the industry.  

Overall, mining production fell 3.6%, driven by a 3.6% decline in coal production and a 4% decline in nickel production. Gold was the one bright spot, with production surging by 11.2% all the way to 107 million ounces. Even in the case of gold, though, much of this increase in production can be attributed to illegal gold mining.

Santiago Ángel, in an interview with Reuters, called on the Colombian government to support a plan to boost the industry’s competitiveness and attract international investment. He asserted that, “This industry can be a strong source of fairly important wealth for the Government and for Colombia, no just today but also in coming years, and so we believe that we can be a basis for saving the public finances of the country.”

But first, the Colombian government needs to pass a plan that would lower the costs of materials, imported machinery, tax relief for mining companies, legal security, and clear regulations. Ángel noted that foreign investment in the mining industry fell by 46% in 2014 over its level in 2013, so the sector greatly needs the government’s help to return to its previous levels of competitiveness.

Peru receives no bids for Block 192 oil field

Peruvian state oil company Perupetro’s auction of the rights to operate the country’s main oil field, Block 192, was a total disaster. Though three companies had been pre-qualified to compete for the block – Perenco, Pacific Rubiales, and incumbent Pluspetrol – all decided not to submit a technical proposal for operating the oil field.

Perupetro announced that it would now seek to sign a contract directly with an operator in order to ensure that oil production at Block 192 is maintained. This contract could be short-term, for just two years, or a definitive contract for 30 years. The oil field is the most productive one in Peru, accounting for 17% of the country’s oil production. Argentine oil company Pluspetrol has been operating the block for the list fifteen years, but its contract runs out at the end of this month.

The government blamed the collapse in oil prices for the lack of interest in the auction, but other reports noted that the social conflict between Pluspetrol and the local indigenous communities also likely factored into the oil companies’ decisions.

Colombia to maintain oil production despite falling prices

On Tuesday, Colombian Finance Minister Mauricio Cárdenas emphatically rejected the possibility that Colombia would lower its oil production, in light of the Organization of Petroleum Exporting Countries (OPEC) announcing that the burden will be on non-OPEC countries to cut oil production if prices are to rise again.

Minister Cárdenas told reporters in London, “If they're counting on non-OPEC producers to cut production to adjust the oil market and to supply, that's not going to happen in Colombia. We're making every effort to keep production at 1 million bpd (barrels per day).” The Finance Minister added that Colombia is basing its budget projections on oil prices of $60 bpd for 2015 and $64 bpd in 2016.

In its ongoing reporting on the Colombian oil crisis, the BBC reported on the rise and fall of the oil boomtown, Puerto Gaitán. During the times of high oil prices, thousands of Colombians were drawn to the town by the promise of high salaries. Since 2014, however, between ten and fifteen thousand people and 75 businesses have left Puerto Gaitán. The town has now been forced to adjust to a new reality of lower salaries and a smaller municipal budget. Some residents, however, are frustrated by what they feel was wasteful spending during the good years.

In other related-news, leading Colombian weekly Semana published a report on Colombian state-owned oil company Ecopetrol’s hopes for exploiting hydrocarbons in the Caribbean. According to Semana, Ecopetrol’s only hope for a new large hydrocarbons discovery in Colombia is the Caribbean. Oil companies have given up trying to find a new large onshore field, and it will take years to develop fracking’s potential.

Humala administration brought unprecedented investment to Peruvian mining sector

On Monday, the Peruvian Ministry of Energy and Mines (MEM) announced the figures for investment in the mining sector during the administration of current Peruvian president Ollanta Humala. During the current administration, investment exceeded $34 billion, a 142% increase over the amount invested in the mining industry between 2006 and 2011.

MEM general director Marcos Villegas told reporters that, “The remarkable growth, which was accumulated in the last four years, is based on the Peruvian mining's great potential. These investments have been carried out in diverse sectors, such as infrastructure, mining exploitation, plant equipment, exploration, mining equipment, and mine preparation.”

In related news, Peruvian mining production increased by 10.33% in June over the same month last year. Because of the collapse in commodity prices, maintaining high production totals is important to keeping mining revenue steady. The gold, zinc, and copper production in Peru achieved new record highs.

In other mining-related news, Roque Benavides, president of Compañia de Minas Buenaventura, spoke with reporters about the Peruvian government’s support for the country’s large mining projects. Benavides distinguished between “well-structured” mining projects that protect the environment and local communities’ interests, and which should be supported by the government, and irresponsible and informal mining.