Colombia’s government has put it clear: it is determined to set their “energy locomotive”, as they labelled their ambitious energy plans, full-steam ahead. Luckily, their engine seems to be well tuned.

“Colombia is attractive. You have lots of investment, lots of companies coming, lots of interest in new areas, and production levels practically doubling,” Javier Gutiérrez, the head of the country’s state-controlled energy company, Ecopetrol, told the Financial Times.

After years of decline in production and exploration during the 1990s, in the past decade, Colombia has taken advantage of the commodities boom and a crackdown that has put Marxist insurgents on the back foot.

This had ignited the interest of investors in the energy-rich parts of the country that were off-limits during the rough years of the drug-fuelled, guerrilla and paramilitary violence in what became the western hemisphere’s longest-running armed conflict.

Overcoming fears of becoming an importer, the Andean country has almost doubled its production since 2006 to over 955,000 barrels of oil equivalent a day in October 2012. Even India’s Essar Oil has agreed earlier this year to buy 12m barrels from Ecopetrol over a year.

The oil and mining boom that has transformed Colombia into the region’s fourth-largest oil producer and the world’s fourth-largest exporter of coal in recent years has made it one of Latin America’s sweetest spots for energy investments. Colombia has current proven reserves of 2.3bn barrels and prospective of between 7.7bn and 41bn barrels, according to the energy ministry.

With booming production, good prospects and a favourable policy framework, Colombian officials expect around $17bn in foreign investment this year – about half of that going into energy projects.

“Investments in hydrocarbons in the past eight years has been sustained, at between $3.5bn and 5bn a year. Ten years ago, it was only around $250m. The number of agents and companies participating in the sector are now more than 100, the number of auctioned hectares jumped from 10m to 100m,” Mr Gutiérrez says.

Being surrounded by left-leaning neighbours with a penchant for resource nationalism, such as Hugo Chávez’s Venezuela and Rafael Correa’s Ecuador, also played a role in diverting investments towards Colombia. Yet, aside from this and the cooling of the internal armed conflict, the boost was in big part fuelled by the liberalisation of the industry in the mid-2000s, which includes the creation of the National Agency for Hydrocarbons, or ANH, and the partial opening of Ecopetrol. Since then, the state-controlled oil giant has managed to restructure its contracts and encourage the private sector to invest.

“By being fully in the hands of the state, Ecopetrol used to be judge, jury, and executioner. And that made some investors uncomfortable,” explains Isaac Yanovich, who sat on the company’s board and was the mastermind behind the opening.

With Mr Gutiérrez at the helm, Ecopetrol has increased production 16 per cent a year since 2008 and is now among the best-performing energy groups in Latin America, trailing trailing just behind Brazil’s Petrobras, Venezuela’s Pdvsa, and Mexicos’ Pemex.

Today, Ecopetrol contributes to more than 60 per cent of Colombia’s oil production – with its oil production almost doubling from 400,000 boe/d in 2007 to about 780,000 boe/d this year. It plans to increase that to 1.3 “clean” boe/d by 2020, boosted by an $80bn investment programme. The company’s market value has risen more than fourfold since its initial public offering in Colombia 2007 and a year later in New York – a week after the collapse of Lehman Brothers.

“What Javier Gutiérrez and his people have done in these past six years is mighty work,” says Mr Yanovich.

Testimony of the success was the surprising shock when in May this year Ecopetrol briefly surpassed the market capitalisation of Brazil’s Petrobras, considered the region’s benchmark oil producer. The Colombian government still holds an 88.5 per cent stake in the company, with the rest publicly traded. But the company still has wiggle room for a further 8.5 per cent issuance. “We are following a model similar to [Norway’s] Statoil,” explains Mr Gutiérrez, “and it seems to be working.”

In recent years between 600 and 900 wells have been drilled in the country. But Ecopetrol’s recipe for success is partly tied to the development of the majority of those fields, originally tapped between 20 and 30 years ago. “Colombia is still relatively virgin in exploration terms,” explains Julián García, Gold Oil’s country director in Colombia and one of the creators of the ANH.

Attracted by that virginity, recently, western majors have been particularly drawn to the country’s deposits of shale oil and gas, oil sands and coal bed methane, mostly in La Luna, located on the Middle Magdalena basin. Colombia auctioned off 115 blocks in an auction last month, more than two dozen of which included unconventional shale resources. Anadarko, ExxonMobil, Royal Dutch Shell were among the winners as the country is pushing to draw investment in shale formations – most of those, in joint ventures with Ecopetrol.

“In this latest round, part of the major players that have once lost interest in Colombia are back”, says Mr Gutiérrez. Aside from shale, this includes agreements for offshore drilling in the Caribbean basin.

Not everything in the garden is rosy however. Violence, although not ubiquitous, and mostly in remote border areas with Venezuela and Ecuador, continues to take its toll on pipelines and oilfields. The fighting cuts an estimated 9,000 boe/d, or 1.2 percent of Ecopetrol’s production. That is almost equivalent to BP’s Deepwater Horizon oil spill, according to some analysts’ calculations.

Notwithstanding, Mr Gutiérrez as well as Colombian officials now say the frequency of the raids declined after representatives of the FARC guerrillas and the Colombian government agreed in August to start peace talks that will last “months, not years,” according to the country’s president, Juan Manuel Santos.

“Peace would help a lot, on several fronts,” says Mr Gutiérrez, as he heads to an investor’s presentation, “So the future seems to be bright.”

Source: Financial Times