The trials and tribulations of the Colombian oil industry

By now, we should all know that the Colombian oil industry is in trouble. Just how much trouble, and what the Colombian government should do about it, has been hotly debated by experts, observers, and the stakeholders involved. Francisco Lloreda, president of the Colombian Petroleum Association (ACP), has been very clear regarding his position: he believes that the Colombian government needs to everything it can to keep oil companies happy. For example, speeding up the environmental licensing process, sending more soldiers to protect the country’s oil pipelines, the development of free trade zones for oil companies, and for the Colombian politicians to embrace the possibilities of fracking. La Republica columnist Alberto Bernal-León summed up the pro-oil arguments: “Without oil there is no education, health, roads, and most importantly, no post conflict. It’s really incredible that Colombians can not grasp such a ridiculously simple concept.”

El Tiempo reported that the ACP also warned that, although it projects Colombian oil production to average 1,020,000 barrels per day in 2015, this calculation assumes that oil production in the country encounters no unusual problems such as protests and attacks on infrastructure.

The Colombian oil industry did get a little bit of good news over the weekend. The Colombian National Authority for Environmental Licensees issued the Turkish Petroleum International Company a license for its exploration project in the Norte de Santander department. Considering that most of the news up to this point has centered on companies cancelling exploration activities, this is a welcome development.

In addition, the Colombian National Hydrocarbons Agency (ANH), together with THX Energy, drilled the deepest well over in Colombia, reaching a depth of 20,000 feet. Carlos Arturo Espinosa, the president of THX Energy, told reporters, “This project will allow the government to redesign the geological map in the northern part of the country, which will make it the most important for 2014 and 2015. This is the first time that such deep activities have been undertaken in a stratified field, so detailed research and studies can be made in search of new hydrocarbon resources.”

The answer to the Peruvian Dini's problems

Yesterday, the Peruvian journal Diario Correo published an opinion piece by Luis Alfonso Morey blasting what he views as the deplorable state of the Peruvian National Intelligence Directorate (Dini). He said that the Peruvian government lacks a strategy on the issue of national security and has allowed the Dini to become overwhelmed by infighting, political plots, corruption, and plots against the press and political opposition.

Morey even went so far as to compare Peruvian president Ollanta Humala and his wife, Nadine Heredia, to agents 86 and 99 from the old TV show, Get Smart. While we strongly disagree with the writer regarding his opinions of President Humala and Nadine Heredia – they are neither inept, nor are they secret agents, they are highly successful politicians – we do appreciate some other comments that he made. He argued that the Peruvian government should contract the services of a private operator, mentioning Leonie Group, our parent company, by name, to support the Dini.

On that point, we couldn’t agree more. Leonie is a highly specialized communications, analysis, information systems, cyber, and research operations firm. Specifically regarding intelligence support, Leonie gives clients the ability to efficiently collect, filter, process, create, distribute and securely store data with systems support and extensive training. Leonie’s specialties include all-source, human, geospatial, and signals intelligence analysis, intelligence training, counter intelligence analysis, and intelligence collection management. If anyone is interested in learning more about Leonie’s service offerings in South America, they should let us know.

Oil prices help Peruvian industry

On Wednesday, Peruvian National Industrial Society president Luis Salazar told reporters that the collapse in global oil prices we lead to a large growth in Peruvian industrial output this year. He told El Peruano, “There is no doubt this circumstantial factor will favor our industry. However, in respect of energy consumption, these benefits will be present to a greater or a lesser degree depending on the output level.” He added that the economic recovery in the United States could also boost the performance of Peruvian exports, as the United States is one of the main destinations for those goods.

In unrelated news, the problem of illegal gold mining in Peru was featured on NPR’s All Things Considered. Specifically, the report centered on the research done by Bill Pan and his colleagues on Duke University, regarding mercury toxicity and artisanal mining. These researchers showed that unsafe levels of mercury toxicity caused by gold mining boats and open-pit mines exist not just in the mines’ immediate surroundings but also far, far downriver. “There's definitely a strong correlation between where the mining is occurring and where people are at risk for mercury toxicity," Pan said. "And that risk remains elevated for hundreds of miles.” Pan recognized the efforts of the Peruvian government to combat the illegal mining activities, but given the high price of gold, Pan does not expect the situation to change any time soon.

Colombia's oil dream is slowly bursting

The President of the Colombian Petroleum Association (ACP), Francisco Lloreda, told reporters during a press conference that a fall in Colombian oil production will be “inevitable” in 2016, when production could fall as low as just 900,000 barrels per day. The ACP predicted that the fall in production would then continue through 2018, possibly resulting in a production drop as high as 220,000 barrels per day. Production in December 2014 finally averaged the government’s goal of 1 million barrels per day, so this decline would represent a loss of 22% of current production levels. Nonetheless, production in 2015 is expected to average out to approximately 1 million barrels per day.

Lloreda also pointed out that 50% of the ACP’s members have indicated that they will cut back on exploration in 2015, meaning that it will be very difficult for Colombia to build up its oil reserves.  He added that the ACP presented Colombian President Juan Manuel Santos with a series of proposals to lessen the impact of the oil crisis on the Colombian economy. The proposals included ways of lowering operational costs, mechanisms to boost exploration, and facilitating the termination of projects that are not viable.

The collapse in oil prices has worried many officials in the Colombian government about how the trend would impact the government’s revenues and their departments’ budgets. However, Colombian Defense Minister Juan Carlos Pinzón should be less worried than the rest of his colleagues. In an interview on Monday, Colombian Finance Minister Mauricio Cardenas told reports that even if a peace agreement is reached with the FARC, the defense budget will be maintained, at least initially. Given the drop in oil revenues, and anticipated spending on post-conflict social programs that could cost as much as $40 billion, money will have to come from somewhere. Barclays analyst Alejandro Grisanti recommended that Colombia shift spending from defense to social programs, but the government clearly does not see it the same way.

Illegal mining does not respect international boundaries

Over the weekend, Peruvian newspaper El Comercio ran a feature detailing a new practice, whereby illegal Ecuadoran miners that operate out of the city of Zamora, near the border with Peru, will cross over into Peruvian territory to dig up gold-bearing chunks of earth, and then bring them back into their own country to extract the gold. The Ecuadoran miners dig tunnels across the border and steal gold; one hundred and forty-four tunnels crossing the border into Peru have been discovered in the jungle of Cenepa. When Afrodita, the only legitimate mining company that operates in the area, has called the nearby outpost of the Peruvian military, the soldiers have refused to take any actions.

We have already talked extensively about how illegal mining is one of the biggest problems facing the Peruvian government. This story demonstrates just how extensive that problem is and how difficult it is to address.

In related news, an online Latin American military journal wrote about the cooperation between the Peruvian and Colombian armed forces on the issue of illegal mining. According to the article, this new bilateral collaboration is still in the phase of drawing up a strategy for how the two countries can jointly fight the problem of illegal mining. The Peruvian and Colombian armed forces plan to concentrate their efforts in the Putumayo River valley.

In a separate story, El Comercio interviewed Armando Zamora, an international hydrocarbons consultant, who the journal claims was personally responsible for transforming the Colombian oil industry. Zamora called on the Peruvian government to act quickly and work to renegotiate terms with oil companies to encourage exploration and investment in the Peruvian oil industry. Because oil prices have fallen so dramatically, international oil companies need new incentives to explore for oil in Peru.