Colombia's Ecopetrol makes major oil find

www.upi.com By Owain Johnson UPI Business Correspondent From the Business & Economics Desk Published 3/4/2003 1:55 PM

CARACAS, Venezuela, March 4 (UPI) -- Colombia's state-owned oil producer Ecopetrol has announced a record discovery of crude oil deposits, which amounts to up to 200 million barrels of light crude in the north of the country near the Venezuelan border.

The Minister of Mines and Energy, Luis Ernesto Mejia, hailed the find and said Tuesday that it would be "extremely positive" for the economy.

U.S.-based multinational Occidental Petroleum, or Oxy, had done several joint surveys with Ecopetrol in the region, known as the Samore Exploration Block, in recent years, but recently abandoned the project after failing to locate any oil.

Ecopetrol later decided to proceed on its own and was rewarded with the large find.

Ecopetrol President Isaac Yanovich did warn that "it is still impossible to determine the size of the deposit" but confirmed the company expected reserves of about 200 million barrels.

It will take about two weeks to confirm the size of the deposit and the quality of the crude.

"The most important aspect of this discovery is that this is 100 percent an Ecofuel project," Yanovich said. "That means that the reserves and the production based on those reserves will belong entirely and exclusively to the nation."

The government gave Ecopetrol and Oxy joint rights to exploit the Samore Exploration Block in 1991, when analysts estimated the region could hold up to 1.4 billion barrels of crude.

The project proved a costly failure for the U.S. company, which faced enormous hostility from the local U'wa indigenous community and constant security threats from leftist rebels in the area.

These factors prevented Oxy from beginning drilling in the area for close to a decade. By May 2002, the company had invested $100 million and drilled a 12,000-foot well known as Gibraltar 1, but had only discovered gas deposits.

At that point, Oxy, which had faced repeated guerrilla attacks on its crucial Cano Limon pipeline, cut its losses and handed the prospecting rights back to the Colombian authorities.

Ecopetrol restarted exploration in the area in November with an additional investment of about $10 million. The company hit crude at Gibraltar 1 at 12,050 feet, just 50 feet further down than Oxy had drilled.

Mejia said that it would cost about $150 million to begin production at the site.

The discovery couldn't have come at a better time for Colombia. Experts had warned recently that the country would be forced to import hydrocarbons within 14 months, as falling productivity and exploration meant Ecopetrol's output wasn't keeping pace.

Colombia was a net importer of hydrocarbons between 1975 and 1986 -- when it became self-sufficient. By reducing the need for imports, the find will help the trade balance and the profits its generates for the state-owned firm will help the fiscal balance.

Although oil is Colombia's top export commodity, the industry has often been overlooked internationally, partly because of its vulnerability to rebel groups.

Colombia's leftist guerrillas consider oil companies legitimate targets. Foreign oil workers run the risk of kidnap and companies frequently pay "taxes" to prevent damage or destruction of their installations and pipelines.

But as Ecopetrol's find demonstrates, there's great potential for major discoveries in Colombia. Unlike its neighbor Venezuela, about 70 percent of Colombia's sedimentary areas have yet to be properly explored. Only seven of its 18 sedimentary basins are being commercially exploited.

If the authorities can improve security, the country would be well-placed to benefit from the U.S. government's desire to diversify oil imports, particularly as Colombia isn't an OPEC member and faces no output ceiling.