Q&A: Colombia’s Lloreda Eyes E&P Revival

(Argus, 28.Sep.2020) — Colombia’s oil industry is slowly shaking off the double market blows of 2020 while it prepares to debut unconventional pilot projects. Oil chamber executive president Francisco Lloreda reflects on the upcoming challenges with senior contributing editor Patricia Garip. Edited highlights follow:

How is Colombia’s oil industry recovering from the dual crises of the pandemic and price war of 2020?

As in other countries, the crises were unprecedented for Colombia’s oil industry. The industry and the government immediately took important steps, mainly revising contractual obligations. And the government imposed a series of measures that gave all companies more oxygen in terms of cash flow. Thanks to these measures, the blow was less challenging than it could have been. The industry is now slowly coming out of this, although it still depends on the recovery of oil demand.

We produced around 735,000 b/d of crude at the end of July, significantly lower than 880,000 b/d at the start of the year. Our hope is that as international prices recover, fields that were closed will reopen, and production will recover toward the end of the year to reach an average of 800,000-830,000 b/d in 2020. At the same time, we hope to revive exploration. We had planned more than 60 exploration wells this year, and to date we only have 12.

We have proposed to the government a roadmap, not only to reactivate the oil industry but also to contribute to the Colombian economy, with around $715mn in investment this year by the private companies, not including (state-controlled) Ecopetrol. We have also identified some projects that could be implemented next year and the following year worth another $1.7bn.

How far along are plans to implement pilot projects for unconventional exploration and production?

Colombia for several years has diversified its hydrocarbons portfolio. In addition to conventional onshore development, Colombia has done important work with different enhanced recovery techniques that have allowed the country to maintain its reserves, however precarious. A third dimension are important offshore discoveries and signed contracts, but these are for deepwater and ultra-deepwater, mainly for gas, so this is a longer term bet.

Fourthly we have the unconventional development in what we hope is three to five years. The pilot projects are fundamental. The government has issued most of the technical, social and transparency regulations, and environmental terms of reference. We are waiting on special contractual regulation for the pilot projects, and how these will be evaluated. Once we have this regulation, hopefully this year we will sign these contracts and start environmental impact studies for evaluation by the environmental agency. And in 2021 we can start civil works and drill the first exploration wells. Hopefully in these two years the government can evaluate these pilots, and pave the way for wider exploration for commercial purposes. This will benefit Colombia, and will help to reactivate the economy. But these projects won’t happen overnight.

Does unconventional activity still face legal risks in Colombian courts?

One thing is the regulation that Colombia already has for commercial unconventional exploration and development, which is the regulation which dates back to the previous government. Another thing is the emerging regulation for the pilot projects. In the first case, the technical aspect was the subject of a lawsuit. And the State Council issued a temporary injunction on that. The State Council could endorse that regulation, which is exclusively technical. If not, the government would have to issue another technical regulation, likely incorporating some aspects of the environmental regulation. The rest of the general regulations are on firm ground.

In the case of the pilot projects, the State Council has cleared the way for them, and it recently ratified that stance by rejecting a request for another injunction on the corresponding framework decree. This means the decree is on firm ground and so the associated regulation should have the same legal certainty. Once the pilot projects show that this can be done in a safe way, as we expect, the uncertainty will be cleared up.

European oil companies are starting to transition away from fossil fuels. Do you see Colombia following the same path?

The energy transition won’t be homogeneous across the world. We can’t compare what is happening in Germany with India, or China with Bolivia. Each country will not advance at the same pace.

All signs indicate that in the next three decades, depending on the region and country, there will be more demand and primary energy diversification, including for fossil fuel, especially natural gas, which is very important for power generation in Europe. The use of fossil fuels will not end tomorrow. Income per capita is very different. So there is no single recipe. It is not fair to condemn countries that still have energy poverty, and ask them to renounce lower cost energy.

More developed countries are the ones that most contribute to environmental degradation, and they want to pass the bill on to the poor countries. Undoubtedly there has to be diversification, but each country has to advance at its own pace.

We need to have increasingly clean energy, and advance in carbon capture, but let’s be honest. There are no ideal forms of energy, all have an impact. No one energy can cast the first stone.