The Colombian oil industry continues with cutbacks

Observers have been warning for weeks that, because of the collapse in global oil prices, oil companies will look to cut costs on their operations in Colombia, primarily by reducing spending on exploration and making their existing operations more efficient.

These predictions are starting to come true, as First Colombia Gold became the latest player in the Colombian oil industry to announce that it will “reduce overhead” and “scale back its drilling and exploration operations.” First Colombia Gold’s CEO, Jason Castenir, told Globe Newswire, “Due to the continued plummeting oil prices, we have implemented a plan to maintain profitability while mitigating our cost and overhead.” No surprises there. First Colombia will not be the only company cutting back on its overhead, disappointing Colombian officials who had hoped that exploration expenditures would increase in 2015.

In related news, a smaller player in the Colombian oil sector, Parex Resources, reduced its capital budget for 2015 from $300 million to approximately $150 million.  Parex attributed this cut to the drop in global oil prices. The company added, “Parex expects to be able to provide year-over-year annual production growth of 18% fully funded from cash flow from operations and maintain its strong balance sheet in a low Brent oil price environment.”

Lastly, while oil will be on all Colombian observers’ minds in 2015, let’s not forget about the peace talks with the FARC and the ELN. According to Stratfor, 2015 “could be a decisive year” for the peace talks. A successful end to the lengthy negotiations could give the Colombian oil industry the boost that it’s been craving. Both the FARC and the ELN have focused their attacks on Colombia’s oil companies and oil infrastructure. If security risks improve thanks to a peace agreement, Colombia would be a much more attractive opportunity to foreign investment.