Unconventional OGM
23 October 2012, Week 42
page 2
COMMENTARY
Colombia takes one more step towards shale The Colombian government received offers for five unconventional blocks during its recent auction, having sought to attract investment into its unconventional resources By Kevin Godier Colombia is trying to raise its proven unconventional reserves to 1 billion barrels in the next 20 years Some unconventional blocks had no bidders, possibly owing to a lack of information on resources The country’s unconventional resources are expected to attract ever-greater attention over the coming years Colombia has taken another step towards joining the global shale boom, after the country’s latest government auction of oil and gas blocks – including unconventional blocks – took place on October 17. The government received offers for five unconventional areas out of offers for a total of 49 blocks. The auction is anticipated to bring in US$2.6 billion of new investment into oil exploration in the country over the next four years. Colombia’s state-owned oil exploration company, Ecopetrol, along with a unit of ExxonMobil Corp., were the highest bidders for three onshore blocks, including two that may hold shale oil, according to a manager of public and government affairs for ExxonMobil in the Andean region, Julian Santos. “We think there is a potential for unconventional in Colombia,” Santos told Bloomberg on October 18, stressing that “fiscal terms are attractive and the issue of security has improved.” Santos also revealed that ExxonMobil took a share earlier this year in a block that also may hold shale oil, reinforcing the notion that the surge in production of shale oil and gas in the US is leading companies to search for new resources overseas. The final list of companies awarded concessions will be published by Colombia in November, with all contracts due to be signed by December. Just as importantly for unconventional market observers, the government has taken a key step in its stated pursuit of increasing its proven unconventional reserves from zero to 1 billion barrels in
the next two decades by auctioning unconventional areas. “The important thing is to get under way,” the National Hydrocarbons Agency’s (ANH) head, Orlando Cabrales Segovia, told Bloomberg. “Argentina is further ahead and Mexico is starting to move.” Raising output Colombia has been the fastest growing major oil producer in Latin America in the past five years, and is now expanding exploration in areas once dominated by guerrilla groups as it races towards an output target of 1 million barrels per day by the end of the year. Conventional oil production has jumped by an impressive 72% since 2007, enabling the country to surpass Argentina as the fourth largest producer in Latin America after Brazil, Mexico and Venezuela. Analysts have said that the process has been underpinned by improved security following on from persistent military action against the nation’s largest leftwing rebel movement – the Revolutionary Armed Forces of Colombia (FARC) – which recently agreed to its first direct talks with the government in 10 years after 50 years of armed conflict. If negotiations succeed, Colombia’s hydrocarbons industry may be able to operate without the perennial sabotage of pipelines by rebels. Although
A lack of information had probably deterred more bids
attacks on energy infrastructure have declined from 10 years ago, instances of sabotage more than tripled to 123 incidents in the first nine months of 2012 from 37 a year earlier, and the total number of terrorist acts jumped by 55%, according to Ministry of National Defence figures. Ecopetrol has reacted to attacks this year by cutting its 2012 output target from 800,000 to 780,000 bpd of oil. A potential dawning of peace should therefore boost confidence in Colombia’s quest for new energy sources, including coal-bed methane (CBM) and shale, as the country attempts to maintain its reserves in line with output gains. As crude oil discoveries become less frequent, US government data have suggested that Colombia’s oil reserves of about 2.3 billion barrels will equal almost seven years of output, and Colombian figures estimate eight years, whereas Cabrales has said that “ten years” is about the minimum level the country is aiming for. “We need to increase the reserves,” he was quoted as saying, suggesting that the exploitation of unconventional fuels would raise reserves levels to more than 10 years’ worth of production. In this respect, reserves look to be plentiful. The ANH has estimated that Colombia contains a total of 33.3 trillion cubic feet (943 billion cubic metres) of shale gas reserves, 1 tcf (28 bcm) of tight sands, 725.4 billion cubic feet (21 bcm) of CBM, 3 billion barrels of shale oil and 3.45 billion barrels of oil sands.
Copyright © 2012 NewsBase Ltd.
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Edited by Anna Kachkova
All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents
Unconventional OGM
23 October 2012, Week 42
page 3
COMMENTARY These numbers greatly exceed previous estimates and are the result of a study carried out in 2011 for ANH by the National University of Colombia. The key prospective basins for shale gas are Eastern Cordillera, Eastern Llanos and Caguan-Putumayo, with the former potentially holding three to four times more unconventional oil and gas than that within the Eagle Ford shale in Texas, according to ANH officials. Colombia is already South America’s largest supplier of coal, leading to a trickle of CBM activity. In northern Colombia, for example, Drummond Co. is aiming to extract CBM to fuel its coalmining operations. Some shale gas and heavy oil exploration has also already begun in the country, but it is hoped that the recent bid round will give it a significant boost. Auction feedback The hydrocarbons auction was designed to attract US$500 million of investment in unconventional reserves, the Colombian government said in March, adding that it expected unconventional production to begin in 2013. At the landmark event, 115 blocks were offered altogether, including more than 24 areas with significant shale rock formations, according to preliminary results on the Bogota-based ANH’s website.
Blocks were awarded based on proposals for investment and the government’s share of production. For the unconventional blocks, the exploration period was fixed at eight years, split into two three-year phases followed by a two-year phase. ANH’s technical advisor, Luis Ardila, has said that, at a minimum, the unconventional exploration phase should include geological mapping for at least 50% of the block area, 2-D seismic, surface geochemistry and two stratigraphic wells with physical and geochemical logs. The government sought to award rights to blocks covering about 13.5 million hectares (135,000 square km) across mountainous central Colombia, its eastern plains and offshore in the Caribbean, Segovia said. He noted that many blocks, including some unconventional areas, had no bidders, and that a lack of information had probably deterred more bids. Segovia added that the government intended to gather more data about unconventional blocks for future auctions. Colombia set out its plans for the round earlier this year, when it conducted a series of international roadshows at which it was indicated that the country eventually aimed to surpass Argentina in unconventional hydrocarbons production. Segovia told UOGM in March that
ANH would be providing incentives – including a 40% discount for unconventional oil and gas over the royalty rates established for conventional oil and gas – for companies to explore and produce from the unconventional blocks. A further incentive for inward investment has undoubtedly been provided by the steady decline in domestic violence and kidnapping in recent years, which has helped to transform the country’s environment into one of relative peace and stability. Although the level of interest and investment by foreign companies in Colombia’s shale oil and gas prospects expressed at the auction may have come as a slight disappointment to some government and ANH officials, the overall expectation is that the country’s unconventional plays will attract increasingly more attention given the under-explored nature of the market. As the government gains a greater understanding of the sector’s potential contribution to its revenue streams, it can be anticipated that fiscal terms for oil and gas concessions may be tweaked further and more information may be made available on the various blocks. The full concessions list, due to be released in November, should show more fully how much progress is being made.
US shale ‘miracle’ could be a one-off The transferability of the US’ shale boom to the rest of the world has been questioned, and even the US has been warned that hopes for energy independence could be unrealistic By Nnamdi Anyadike US shale gas production has boomed but low gas prices are rendering it unsustainable Geology and a number of other factors are expected to limit shale development outside the US With many US drillers shifting their focus to shale oil, liquids output has been forecast to grow The development of US shale oil and gas has been forecast to continue apace. In three years’ time, 1 million barrels per day are expected to have been added
from the Bakken and Eagle Ford shale plays, bringing total US liquids output to 10.6 million bpd. Meanwhile, studies released in early
October have also further increased North America’s shale gas potential to 3.3 quadrillion cubic feet (93.5 trillion cubic metres).
Copyright © 2012 NewsBase Ltd.
www.newsbase.com
Edited by Anna Kachkova
All rights reserved. No part of this publication may be reproduced, redistributed, or otherwise copied without the written permission of the authors. This includes internal distribution. All reasonable endeavours have been used to ensure the accuracy of the information contained in this publication. However, no warranty is given to the accuracy of its contents