VZCZCXYZ0000
RR RUEHWEB

DE RUEHBO #0570/01 0432219
ZNR UUUUU ZZH
R 122219Z FEB 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 1383
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
INFO RUEHBR/AMEMBASSY BRASILIA 8043
RUEHCV/AMEMBASSY CARACAS 9951
RUEHLP/AMEMBASSY LA PAZ FEB LIMA 5905
RUEHZP/AMEMBASSY PANAMA 1229
RUEHQT/AMEMBASSY QUITO 6553

UNCLAS BOGOTA 000570 
 
SIPDIS 
 
SIPDIS 
SENSITIVE 
 
STATE EEB/ESC/IEC FOR MMCMANUS; WHA/EPSC FOR FCORNEILLE; 
ENERGY FOR GWARD 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON EINV PGOV CO
SUBJECT: COLOMBIA'S OIL & GAS OUTLOOK: INVESTORS BULLISH, 
PREDICT PROLONGED EXPORTER STATUS 
 
REF: A. A) 07 BOGOTA 7088 
 
     ¶B. B) 07 BOGOTA 6862 
     ¶C. C) 07 BOGOTA 7785 
 
1, (SBU) SUMMARY: Investment in Colombia's oil and gas sector 
continues to grow as a result of pro-market policies, 
expanding security, and the successful private capitalization 
of state-owned Ecopetrol.  As a result, Colombia has reversed 
its long decline in oil production and extended its status as 
a net oil exporter through at least 2015.  While few experts 
expect Colombia to uncover a globally significant find, local 
producers believe Colombia still holds profitable plays in 
natural gas offshore, heavy oil near the Venezuelan frontier, 
and micro-fields of lighter-grade oil in the interior.  The 
GOC plans to auction its next major round of exploration 
blocks in September 2008.  END SUMMARY. 
 
Strong Investment Climate Attracting Capital 
-------------------------------------------- 
 
¶2. (U) Since 2002, the GOC has taken significant steps to 
improve investment terms in the energy sector and attract 
capital, including a sliding royalties scale, longer 
contracts and 100 percent foreign stakes.  Colombia now ranks 
second only to Brazil as the most attractive country in Latin 
America for hydrocarbon investment, according to a report 
compiled by independent energy sector research firm Arthur 
Little.  The report cited Colombia's reform efforts and the 
improving security as the basis for Colombia's high ranking, 
contrasting Colombia's openness to foreign direct investment 
with the resource nationalism growing in other Latin American 
countries. 
 
¶3. (SBU) Most oil and gas producers in Colombia have 
significantly increased their investment plans in Colombia. 
British Petroleum (BP), which currently produces 20 percent 
of Colombia's oil, plans to invest USD 500 million in oil 
production and exploration in 2008.  Petrobras Colombia 
President Dirceu Abrahao told Econoff that Brazilian-owned 
Petrobras invested USD 300 million in Colombia in 2007, up 
from an average of USD 30 million per year before 2004.  He 
said Petrobras drilled 23 wells in 2007 and expected to drill 
a similar number in 2008.  Likewise, Chevron Colombia 
President David Bantz told Econoff that good cooperation with 
Colombia's National Hydrocarbons Agency (ANH) and the 
Ministry of Mines and Energy were key to his company's 
decision to invest over USD 350 million in Colombia over the 
last two years.  He described President Uribe as the best 
head of state in Latin America for international investors to 
work with. Overall, Colombia's National Hydrocarbon Agency 
(ANH) expects USD 3.5 billion in new foreign investment in 
Colombia's oil and gas sector in 2008. 
 
¶4. (SBU) The Director of Colombia's National Hydrocarbons 
Agency (ANH), Armando Zamora, told Econoff that the GOC 
recognizes it must encourage investment to extend Colombia's 
net oil exporter status.  Oil currently represents 26 percent 
of Colombia's exports, but without significant new 
discoveries, Zamora estimates Colombia will shift to a net 
oil importer in 2016.  He noted that 2007 was a banner year 
for new wells with 73 drilled throughout the country--up from 
12 in 2002 and the highest number since 1989.  Of the 73 new 
wells drilled, 21 found oil and are now producing an 
additional 22,000 barrels per day (bpd).  Alejandro Martinez, 
President of the Colombian Petroleum Association (ACP), 
predicts that operators will drill at least 77 oil wells in 
¶2008. 
 
Ecopetrol Rising 
---------------- 
 
¶5. (SBU) State-owned Ecopetrol, fresh off of its successful 
privatization of a 10 percent stake in the company (ref A), 
expects to invest an additional USD 3.8 billion in 
exploration and production, up from USD 1.8 billion in 2007. 
Over the next four years, Ecopetrol plans to invest USD 17 
billion.  Ecopetrol increased its exploration activities 35 
percent in 2007 and plans to drill 20 new wells in 2008. 
Ecopetrol has developed partnerships with Chevron, 
ExxonMobil, Occidental Petroleum, as well as with other 
international firms.  Increasingly, Ecopetrol has looked to 
 
Petrobras as a model for its development as a technically 
sophisticated parastatal hydrocarbons company with private 
investment and corporate governance standards. 
 
¶6. (SBU) Petrobras' Abrahao termed Ecopetrol as the best 
state-managed hydrocarbons company in Latin America after 
Petrobras, but said that to reach the status of a truly 
regional or global player, Ecopetrol must have adequate human 
resources and reserves.   Abrahao pointed out that Ecopetrol 
has not traditionally focused on reserves, but that is 
changing now.  He acknowledged that Ecopetrol looks to 
Petrobras as a model and, apart from cooperating in projects 
in both Colombia and Brazil, Ecopetrol asked Petrobras 
officials to assuage Colombian Members of Congress on 
Petrobras' private capitalization process before the 
Colombian Congress approved Ecopetrol's successful 10 percent 
privatization. 
 
Raising the Line on Oil Production 
---------------------------------- 
 
¶7. (U) Fueled by increased foreign and domestic investment, 
Colombia has halted its slide in oil production and begun to 
reverse the trend.  According to ANH, oil production fell 
from an average of 578,000 bpd in 2002 to 526,000 bpd in 2005 
before recovering to 544,000 bpd in 2007.  Minister of Mines 
and Energy Hernan Martinez announced February 4 that daily 
oil production reached 558,000 bpd in December 2007.  The 
Minister also announced the GOC was extending its current 
estimate for maintaining oil net exporter status from 2014 to 
¶2015. (Note: At the beginning of the Uribe Administration in 
2002 the GOC estimated Colombia would shift to importer 
status in 2009.  End Note.)  According to preliminary ANH 
figures, Colombia's oil reserves grew by 190 million barrels 
in 2007 to 1.5 billion barrels, but still remain down from 
1.9 billion barrels in 2000. 
 
Bright Future for Natural Gas Production 
---------------------------------------- 
 
¶8. (SBU) Meanwhile, natural gas production and reserve 
estimates continue to grow.  Since 2003, Colombian gas 
production has risen from 578 million cubic meters to 730 
million cubic meters in 2007. ANH estimates current gas 
reserves at 7.3 trillion cubic feet, or roughly a 20-year 
domestic supply.  Bantz said that Chevron expects stable or 
rising gas production in Colombia for at least ten years. 
The company operates two platforms offshore of La Guajira 
Department responsible for 60 percent of Colombia's gas 
production and has ramped up investment since 2005. Bantz 
suggested the GOC's successful auctioning of nine offshore 
blocks (ref B) was due in large part to the solid prospects 
of additional gas deposits in blocks bordering Chevron's 
current concession.   Although Chevron focuses only on 
offshore gas now, the company expects growing exploration to 
uncover an increased number of economically viable gas 
deposits onshore as well. 
 
¶9. (SBU) For the moment, Bantz said Colombia's gas volume 
appeared too small for the country to become a significant 
long-term exporter.  However, he cited important niche 
opportunities such as Chevron's partnership with state-owned 
hydrocarbons company Ecopetrol that began exporting 80 
million cubic feet (2.3 million cubic meters) of gas per year 
to Venezuela in early January via the new La Ballena pipeline 
(ref C).  Demand has been so great -- 300% of that projected 
-- that the company will seek to renegotiate the terms of the 
contract.  As presently planned, Chevron is to increase its 
production from La Guajira by 25 percent in 2008, rising to 
150 million cubic feet in 2009 before reversing the pipeline 
flow in 2012 with Venezuela supplying 137 million cubic feet 
of gas to Colombia per year. 
 
Growing Interest in Heavy Oil, Accumulating Small Deposits 
--------------------------------------------- ------------- 
 
¶10. (SBU) Besides natural gas, several company and GOC 
officials tell us Colombia has prospects for developing heavy 
oil belts near the frontier with Venezuela.  Petrobras and 
Ecopetrol, in particular, are examining prospects in these 
areas.  According to ANH Director Zamora, his agency plans to 
 
auction heavy oil blocks in four zones in 2008,  The zones, 
averaging 1,800 square kilometers each, include Sinu-San 
Jacinto and Cesar-Rancheria in northern Colombia as well 
Soapaga along the Eastern Cordillera and the Llanos basin in 
eastern Colombia. The blocks will be available to bidders 
capable of producing a minimum of 5,000 bpd and a 
capitalization of at least USD 500 million.  ANH plans to 
issue official bid terms in March with bids accepted in 
September. 
 
¶11. (SBU) Oxy Colombia's President David Stangor told Econoff 
that rather than go after new blocks with heavy oil 
potential, his company intends instead to concentrate on 
finding small and medium fields (i.e. 1,000 to 5,000 bpd) of 
lighter oil.  Oxy, which produces 100,000 bpd from three 
"light oil" fields responsible for roughly 20 percent of 
Colombia's national output, plans to drill 11 new wells in 
2008 versus only two in 2007.  Stangor expressed doubt that 
Colombia held a "globally significant" find, but said that 
Colombia's excellent terms and expanding exploration area 
will continue to attract capital and turn up medium and small 
finds of lighter grade petroleum.  Petrobras' Abrahao echoed 
the view saying international companies are motivated to 
invest in Colombia, not because of high probabilities of a 
large find, but rather the positive investment climate that 
makes small and medium finds profitable. 
Brownfield