Once considered high on the list of kidnapping capitals of the world, Colombia has done a turnaround and now represents an attractive opportunity for oil and gas investment.


“It has good fiscal terms, it’s underexplored and it has political stability. News from South America is generally negative, but Colombia is solid. It has sanctity of contracts, no debt default and strong US ties,” said Menno Wiebe, exploration vice president with Solana Resources of Calgary during a presentation at the summer North American Prospect Expo in Houston, Texas.


Solana has 14 blocks in four Colombian Basins and the exploration opportunities and fiscal terms are two of the attractions for the company.

Seismic crews set up a temporary "fly" camp in Colombia's Catatumbo Basin near the Venezuelan border as they shoot 124-mile (200-km) 2-D seismic survey for Solana Resources. The company will drill the Rio Oru 1 in this area in December 2006. (Photo courtesy of Solana Resources)


As for terms, he said. Royalties start at 8% and, at US $70/bbl oil, the netback is $47.30/bbl. Overall, the operator’s take climbed from 25% to 47%.


A windfall profits tax gives the state 30% of the value of each barrel of oil over the base $28/bbl price.


President Alvaro Uribe, who just started his second 4-year term in office has been a big catalyst to the country’s renewed strength. One possible reason for the better security situation is a provision in the new hydrocarbon laws that gives the department (county, province) in which the production occurs a big share of the government take, which it can use to the benefit of local people.


While BP and Occidental represent a large part of the nation’s production, it also is a gathering place for international and local independents. Recently, India’s Oil & Gas Corp. and China’s Sinopec formed a combination to acquire a half-interest in the Colombian subsidiary of US-based Onimex Resources for $800 million.


The proof of the country’s strength shows in its activity. Production has fallen to around 530,000 b/d and the country was afraid it would lose its ability to export oil. Now, the nation’s National Hydrocarbon Agency forecasts $750 million in exploration funds this year, up from about two-thirds that amount last year, and production is increasing slowly.


From a macro point of view, Colombia has 1.8 billion bbl of proved oil reserves and 7.5 Tcf of gas. Total potential reserves have been estimated as high as 47 billion boe.


Production peaked at 816,000 b/d in 1999 and dipped to as low as 528,000 b/d in 2004. That prodded the government into a mode more attractive to investors.


Exploration periods last 6 years with a possible 4-year extension, evaluation up to 5 years and exploitation up to final depletion. State oil company Ecopetrol had a right to back in on older contracts, but now the license holder retains a 100% working interest.


Royalties are levied on a sliding scale that starts at 8% up to 5,000 boe/d, climbs to 20% for 125,000 boe/d and caps at 25% for 600,000 b/d or more of production. No producer in the country produces more than 125,000 boe/d of oil, although BP, at the 1.5-billion-bbl Cusiana-Cupiagua complex in Casanare Department, is considering a gas-to-liquids plant for the nation’s highest-volume production area.


A look at Solana’s investments might provide some insight. The company acquired six of its blocks in 2005 and 2006 and the 2006 drilling campaign gave Solana a discovery, with state oil company Ecopetrol as operator, at the Guariquies 1 well in the Upper Magdalena Basin. That led to the drilling of Guariquies 2. The latest well produced non-commercial rates of gas and a small volume of oil. The company will drill a third well late this year or early next year. The discovery well produced 220 b/d on natural flow and will go on pump to establish a maximum production rate.


Solana drilled three wells in the Llanos Basin in early 2006. The Yalea 1 on the Guachiria block initially produced at more than 500 b/d but sand invasion cut the production rate to about 200 b/d. The company gets 90% of West Texas Intermediate prices for oil, less a $13/bbl trucking and handling cost to get the oil 62 miles (100 km) to the west. The Bonaire 1 recovered 140 b/d on swab tests and the company will try a frac treatment to improve production.


The Puma well is in the Putamayo Basin in southern Colombia, an extension of Ecuador’s Oriente Basin. The company has an interest in a well already drilled to 12,225 ft (3,727 m) in September last year. Production testing has been delayed by the lack of availability of rigs in the basin. In the same area on the Guayuyaco block the Guayuyaco 1 is producing 400 b/d with a 70% water cut and the Guayayuco 2 is producing 900 b/d with a 27% water cut. An engineering company set Solana’s probable reserves for the field, net of royalties, at 865,000 bbl.


To the north, the company has blocks in the Catatumbo Basin where Venezuela’s Maracaibo Basin extends into Colombia. Wells in the area have produced on the order of 1,000 to 4,000 b/d, Wiebe said, and Solana is moving a rig in to drill the first of two wells by the end of this year.