Colombia’s ease of doing business is of increasing focus for foreign investors with its corresponding economic growth and attention to commerce-oriented law reforms. 2019 growth for the economy is pegged at 3.4%, with a sunny outlook for 2020. The country’s business-oriented government is taking steps, by way of various legislative changes, to reduce procedural requirements and other barriers to entry for investors.
Additionally, Colombia is plugging several monetary and policy incentives to boost development of its industries. One of these is its somewhat dormant oil and gas industry. We explore how the country intends to rejuvenate this sector and open it up for business.
Oil and gas investment plans
In December 2018, the Colombian Petroleum Association (ACP) said “oil companies operating in Colombia plan to invest almost $5 billion next year, up 14 percent from this year… Next year’s investment projections, which include the drilling of between 65 and 70 wells and 3,200 square kilometers (1,236 square miles) of seismic testing, were made with expectations that the price of Brent crude remains at around $60 per barrel”.
In the same message, ACP Director, José Francisco Lloreda also pointed out the need to increase exploration activities, stating that the local communities’ opposition to seismic activities was making companies abstain from investing.
Since then, the Colombian government, together with the Ministry of Mines and Energy, and the National Hydrocarbon Agency, (ANH) have been working at full speed, doing their part to reactivate the oil industry.
Reviving an old industry
It looks like the Colombian upstream oil industry is underway and that the much-needed exploration activities will take off soon, thus incorporating reserves to the country in the future.
The next step is for Colombia to draw in keen investors to give the upstream oil industry the jump-start it needs.
To understand how to do so, it is important to:
- sense its current geopolitical situation,
- highlight certain perks in Colombia’s oil industry, and
- point out a couple of potential challenges that should be dealt with soon.
The role of oil in Latin America
Colombia is one of the most solid democracies in Latin America. It plays an important role in the geopolitical arena.
Mexico and Brazil are key players in Latin America, but their situation is different to Colombia’s given that they have much higher reserves and both have more than 10 years in their life span. Also, their focus is on deeper water exploration and pre-salt, respectively, that require highly specialized technology and a strong financial muscle.
Although in Mexico, the previous president Peña Nieto, had opened the energy market after many years, in December 2018, Andrés Manuel López Obrador, a leftist, took office as Mexico’s new president. His decisions will impact Mexico’s energy future, and there is not absolute clarity yet as to where he will turn.
With its Vaca Muerta, an unconventional play with large potential, Argentina seems to be on route to recovery from years of difficult economic challenges, but again, we need to wait and see.
Ecuador and Peru are and have been interesting from the industry point of view. Ecuador has begun promoting opportunities again, so we will need to observe how this country develops its oil and gas policies. Peru has lots of areas where the oil industry is developed, located in the heavy, Amazon jungle, including a very old pipeline that needs to be updated and repaired. Such geographical locations can pose challenges for oil companies.
Colombia’ oil-rich neighbor Venezuela, suffering under its current political regime, is experiencing reduced oil production. This puts Colombia in an interesting position as nearby source of oil.
Perks of a century tradition
Colombia is unique. It brings a different blend to the oil business, its targets and strategies differ from other countries in Latin America, and it’s a good place to work.
There is an opportunity for oil companies to work and operate in Colombia. These companies do not necessarily need to be highly specialized in deep water and pre-salt plays; hence, they would not require such rigorous conditions to operate as those needed to operate in Mexico or Brazil.
The oil industry in Colombia has a 100-year tradition. There have been few legal changes to its contracting systems over this time, and whenever there’s been a change, the chosen contract model has lasted for decades, adjusted in certain aspects as needed. Colombia has seen many world-class oil and gas companies that explore, produce, transport, and trade, among others, whether in remote or populated areas.
It is fair to say that Colombia understands the oil business; it has the knowledge and experience, plus a qualified working force. Colombia has reserves and production, and there is potential in non-conventional reserves and offshore areas. The country has more than 15 sedimentary basins, and underexplored areas are an opportunity for avid explorers. Colombia has export ports, refineries, to mention a few.
With more than 15 years since its creation, the ANH is an agency that understands the industry, bringing technical experience, knowledge and support to the table.
Challenges and essential solutions
Colombia’s upstream oil industry faces some challenges. Many are similar to those occurring in other Latin American countries, and oil companies are prepared to tackle these and have done so in the past. Some, however, urge government resolve. The government must solve these soon to allow the oil industry to be whole and to flow as an integral activity.
Urgent and definite solutions are needed for social and environmental challenges, resulting from: a) previous consultation processes and social protests which should both be further regulated, and b) delays in obtaining environmental licenses and scheduling environmental visits. Environmental considerations also should be regulated, including deadlines, and clear and specific procedures adjusted to the oil industry reality and needs.
However, there has been a positive message from the government; actions are being taken to advance on these matters.
Specifically, the ANH has assumed an active role by contacting communities and local authorities directly to explain the scope of the projects and the benefits that these will bring to the region.
The oil companies have highlighted other issues that were perceived as weaknesses in the past, with a tendency to favorability, such as political stability, security, and clarity in contractual aspects.
Getting started? Contact us
The oil and gas industry in Colombia is set for a boost thanks to the government’s helping hand. This and other growing industries offer myriad opportunities for foreign investment and entrepreneurial success in Colombia and the wider region. The country’s pro-business outlook is luring foreign commercial actors to its developing and undiscovered sectors.
Nevertheless, expanding to Colombia requires an understanding of local regulations. Entrepreneurs should seek local support and expertise while setting up. Biz Latin Hub provides expert knowledge and local experience to foreign businesses in Colombia and the rest of Latin America. Our suite of market entry and back-office services are customized specifically to your business needs.
Reach out to our friendly Colombia team at [email protected] today to get started.