Bucking a trend

Feb 1st 2007 | BOGOTÁ
From The Economist print edition

A rare welcome for foreign oil companies

OTHER Andean countries, such as Venezuela, Ecuador and Bolivia, have all put the squeeze on foreign oil companies, with measures ranging from tough new contracts to outright expropriation. But Colombia is putting out the welcome mat.

Colombia shares much of Venezuela's geology. But its oil output is smaller; the last big oil find was by BP at Cusiana in the 1980s. Having been a modest oil exporter for two decades, it faces becoming a net importer unless new discoveries are made. That prospect has prompted President Álvaro Uribe's government to intensify its predecessor's wooing of foreign oil companies. Colombia now offers “among the best fiscal terms in the world”, says William Drennan of Exxon Mobil. These include a sliding scale of royalties varying with production and longer contract terms.

A flurry of investment in exploration to the tune of $1.5 billion a year is starting to produce results. In 2006, for the first time in years, net oil reserves increased slightly, to 1.51 billion barrels. A decade ago, industry analysts expected Colombia to become a net oil importer by 2007. Now that date has been pushed back to 2011, according to a study by Arthur D. Little, a consultancy. If current levels of investment are maintained, Colombia should maintain its oil self-sufficiency at least until 2015, says Armando Zamora, the director of the National Hydrocarbons Agency.

More than a dozen foreign companies are now looking for oil in Colombia. At the same time, Ecopetrol, the state-owned oil company, is operating in a more commercial fashion. It plans to offer 20% of its shares (worth perhaps $3 billion) to private investors. It has joined forces with Petrobras, a like-minded state oil firm, to explore a small field in Brazil.

Having got itself back on the oil map, Colombia hopes to be able to strike a harder bargain. Later this year it will auction contracts to explore offshore in the Caribbean. They will go to the companies that offer the government the biggest production share. Now all that is needed is another Cusiana.