unconventional-ogm-week-12

Unconventional OGM

26 March 2012, Week 12

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COMMENTARY

Colombia’s shale gas on offer for the first time Colombia has included unconventional oil and gas blocks into its latest bid round for the first time as it attempts to attract more foreign investment

By Nnamdi Anyadike  Colombia is offering 109 blocks on offer in Round 2012, of which 31 are unconventional  The ANH estimates Colombia to hold far greater unconventional reserves than previously projected  Investment into Colombia’s energy sector, including unconventional resources, is expected to rise Colombia’s series of international oil and gas roadshows hosted by the country’s hydrocarbon government agency Agencia Nacional de Hidrocarburos (ANH) reached London’s Park Lane Hilton Hotel last week. Under ANH’s new president, Orlando Cabrales Segovia, Colombia is making a determined effort to expand its oil and gas output and has put 109 blocks – 98 offshore and 11 onshore – on offer under its current Round 2012. The blocks are divided up into Type 1, Type 2 and Type 3, depending on their maturity.

However, it is the inclusion of unconventional oil and gas resources for the first time that is making this round such a landmark event. Of the 109 blocks on offer, 31 are unconventional. ANH has estimated that Colombia has a total of 33.3 trillion cubic feet (943 billion cubic metres) of shale gas reserves, 1 tcf (28.3 bcm) of tight sands, 725.4 billion cubic feet (20.5 bcm) of coal-bed methane (CBM), 3 billion barrels of oil shale and 3.45 billion barrels of oil sands.

These numbers are greatly in excess of previous estimates and are the result of a study carried out in 2011 for ANH by the National University of Colombia. The prospective basins for shale gas are Eastern Cordillera, Eastern Llanos and Caguan-Putumayo. “The Eastern Cordillera Basin could easily have three to four times the size of unconventional resources that are contained within [the Eagle Ford shale],” Segovia said.

Breaking new ground

So groundbreaking is the offer of unconventional blocks in this round that it has created problems with drawing up a contract template. “Because this is the first round globally to include shale in a methodical way, no contractual model existed anywhere for us to base our agreements on,” said Segovia.

ANH is providing incentives for companies to explore and produce from the unconventional blocks. “We have made adjustments to reflect the new realities for unconventional oil and gas,” Segovia told UOGM. “There will be a 40% discount for unconventional oil and gas over the royalty rates established for conventional oil and gas,” he continued.

“In addition, the new base price for oil will be US$81, irrespective of API. This compares with the current system of between US$33 and US$50 depending on the API,” he told UOGM. According to the timetable, the current round of roadshows is due to wind up in Rio de Janeiro in April before returning to Bogota, Colombia, when the data rooms will be open. The bid documents are expected to be submitted by June and

“The Eastern Cordillera Basin could easily have three to four times the size of unconventional resources that are contained within the Eagle Ford shale”

the qualification process will commence the following month. Areas will be awarded to the successful bidders on November 26 and all contracts are due to be signed by December.

The contract period will be split between an exploration and production period. For the conventional blocks, the exploration period is six years evenly split into two three-year phases. For the unconventional blocks, the exploration period is eight years split into two threeyear phases followed by a two-year phase. ANH’s technical advisor, Luis Ardila, 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. In both the conventional and unconventional cases the exploration period is 24 years.

Attracting investors Colombia is banking on its attractiveness as an investment location to boost its activities in unconventional oil and gas.

As of the beginning of this year, some shale gas and heavy oil exploration had already begun to take place in the country, but it is hoped that the bid round will give it a significant boost. “Our macroeconomic policies are sound and of late there has been a significant improvement in our security. We are a mature democracy and we are open to invest and trade,” said Segovia.

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

26 March 2012, Week 12

page 3

COMMENTARY The steady decline in domestic violence and kidnapping in recent years has turned the country into a haven of relative peace and stability in the region.

But it is the proactive approach being taken by the Colombian government, particularly with regard to the series of reform measures it has undertaken to make its energy sector more attractive to foreign investors, that analysts say is now making the difference. These reforms include the partial privatisation of the state oil company, Ecopetrol.

In its recent report, Business Monitor International (BMI) said that it anticipated Colombia’s impressive levels of hydrocarbon growth carrying on, with oil production surpassing 1 million barrels per day in 2013. “Production has grown by more than 70% since the mid2000s, and we expect that upward trend to continue,” the report said. “By 2016, we forecast production topping 1.33

million bpd, making it one of Latin America’s top oil producers,” it said.

While most spending has hitherto been aimed at tapping Colombia’s oil reserves, BMI now sees investment in Colombia’s gas sector, including shale gas, rising.

“Gas production has nearly doubled in the last decade and we see scope for strong growth in the years ahead,” BMI said. Colombian gas output is forecast to rise from 11 bcm in 2012 to 11.5 bcm in 2013, before hitting 13.5 bcm in 2016.

As Colombia’s gas production will continue to outpace consumption, there will be plenty of room for exports. The bulk of these should maintain their flow east into Venezuela via a pipeline.

However, BMI has forecast small-scale LNG exports – led by Pacific Rubiales, operator of Colombia’s largest oilfield – to start in 2013. The company plans to build a 0.7 bcm per year export facility on the Caribbean coast, where it will

target regional markets such as Panama, the Dominican Republic and Puerto Rico.

The indications are that Colombia’s unconventional plays will attract attention, and projected investment levels across the energy spectrum are on the rise. Ecopetrol alone plans to spend a total of US$8.5 billion in 2012 as part of a broader capital expenditure (capex) plan that will see it invest over US$80 billion between 2011 and 2020. Nearly half of the total capex this year will be channelled into production activities and US$1.4 billion has been earmarked for new exploration.

However, the level of interest and investment by foreign companies in Colombia’s shale oil and gas will very much depend on the economic climate this year. In the end, energy prices could well be the determining factor.

China homes in on shale gas targets China has set ambitious targets for the development of its shale gas reserves, but there are questions over whether these are achievable

By Kevin Godier  China is thought to hold the world’s largest shale gas reserves and exploration efforts are gaining momentum  The country hopes to gain technological expertise in the shale sector  China has set ambitious targets to produce 6.5 bcm of shale gas by 2015 China is looking to make a major breakthrough in its shale gas production by 2015, by which time it is aiming to produce 6.5 billion cubic metres per year, complete a thorough survey of its shale gas reserves, boost relevant technologies and conduct exploration in 19 key areas.

These key targets are contained in a fiveyear National Energy Administration (NEA) blueprint stretching from 2011 to 2015, which posits that shale gas resources represent a chance for China to perfect its energy mix and reduce emissions of greenhouse gases (GHGs).

“If we can make a breakthrough in key

exploration and development technologies by 2015,” then it is “very likely” that more ambitious 2020 targets will be achieved, the head of the NEA’s Oil and Gas Department, Zhang Yuqing, said at a March 16 media briefing.

China started the shale push in late 2009, inspired by the shale boom in the US, but still produces hardly any shale gas, despite having drilled about 50 shale gas wells. This is to some extent because of a lack of domestic drilling expertise, and also attributable to tougher geology than that in the US, where output has surged 15-fold in the past 10 years.

Nonetheless, China’s entry into the shale gas sector could transform the industry over the coming years once its potential is unlocked, according to Ernst & Young, which has pointed out that China currently has the world’s largest shale reserves – around 19% of the global total. The Ministry of Land and Resources said earlier this month that China might hold 25.08 trillion cubic metres of potentially recoverable shale gas resources, one year after the US Energy Information Agency (EIA) produced a figure of roughly 36 tcm.

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