Wednesday, May 12, 2010

Colombia's oil production is gushing,0,231012.story

Output is expected to reach at least 1.2 million barrels a day by the end of 2012, one oil company official says, nearly double the average daily production reached last year.

By Chris Kraul, Los Angeles Times

Reporting from Cartagena, Colombia

Brazil and its huge offshore oil finds may be getting much of the oil world's attention these days, but Latin America's energy scene has another rising star: Colombia.

In the latest upward revision of the nation's production targets, a top official of state-controlled oil company Ecopetrol said Monday that Colombia's crude oil output should reach at least 1.2 million barrels a day by the end of 2012, nearly double the average daily production reached last year.

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The ramping up of crude production would strengthen the country's status as the region's fourth-largest oil producer and probably lead to increased Colombian exports to the U.S., analysts said. That would be good news for U.S. consumers. Although much of the world's oil resides in nations whose regimes are mercurial or hostile to the United States, Colombia is a staunch ally with a relatively stable government and economy.

Pedro Rosales, executive vice president for transportation and refining for Ecopetrol, Colombia's largest oil company, said in an interview Monday night that wildcatters in the eastern states of Casanare and Meta had met with such unexpected numbers of gushers that the company was straining to get the crude to market.

"The success is overwhelming our pipeline system's capacity," said Rosales, who also outlined a plan for a $4.3-billion, 500-mile pipeline to transport the newly found heavy crude from eastern oil fields to the Caribbean oil depot.

Output is rising rapidly: In March, Colombia averaged 763,000 barrels of crude a day. That's up from an average of 672,000 barrels daily for all of 2009.

Government and industry officials attribute the rise to Colombia's open-door policy with regard to oil drilling. In contrast to neighboring Venezuela, which limits foreign companies' ownership of oil projects, Colombia has attracted billions in outside investment thanks to relatively low tax and royalty rates that have lured dozens of private-sector producers.

Colombia has also benefitted from an influx of Venezuelan oil executives and engineers, many of whom were fired from Venezuela's state-run oil company by that nation's socialist president, Hugo Chavez, after a bitter 2002 strike. The eastern part of Colombia features crude that resembles that of Venezuela's Orinoco Belt, the largest reserve in the hemisphere. The Venezuelan expatriates working here are experts at dealing with the heavy oil that represents the bulk of Colombia's recent energy finds.

But perhaps the most important factor boosting oil output is improved security under President Alvaro Uribe after years of armed conflict. Government forces have largely subdued the leftist guerrilla groups that for years blew up pipelines and kidnapped petroleum workers.

Oil companies now feel safer sending employees and equipment into an oil-rich region of Colombia — the so-called llanos, or eastern jungle plains — that until recently was under control of the Revolutionary Armed Forces of Colombia, known as FARC. Ecopetrol, which accounts for 82% of Colombia's crude output and reserves, is also investing big sums in the region.

Better technology and improved recovery rates in aging oil fields have also boosted output, said PFC Energy analyst T.J. Conway.

"Colombia has done an exemplary job in reversing production declines that started in the late 1990s," Conway said.

The production rise is remarkable considering that five years ago Colombia's output was declining so fast that the nation expected to be a net oil importer by now. Deteriorating security was the cause of the steep decline in Colombia's output after it set a national record by averaging 816,000 barrels a day in 1999.

Colombian oil industry association President Alejandro Martinez said in April that the nation's daily production would reach 840,000 barrels by the end of this year and average 800,000 for all of 2010

Among Latin American crude producers, Colombia currently ranks behind Mexico's 2.7 million barrels a day; Brazil, with 2.5 million barrels; and Venezuela, at 2.3 million barrels, according to U.S. Department of Energy statistics.

Rosales says the new target is based on analysis by the mining and energy ministry and by Ecopetrol. He said that the 1.2 million figure was the "least optimistic" target and that daily production could reach 1.4 million barrels daily within two years.

Last week, Ecopetrol's Reficar refining subsidiary revealed details of a new $3.7-billion refinery project in Cartagena to break ground in June. One of the factors driving the project, Reficar President Orlando Cabrales said, was the need to add refining capacity in light of Colombia's recent production boost. The refinery is scheduled to begin operation in early 2013.

Rosales said Ecopetrol and its partners spent $1 billion to expand the country's pipeline, storage and transportation network in 2008 and 2009, and planned to spend an additional $900 million over the next 12 months.

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