Big oil remains interested in Colombia shale, minister says

ANDREW WILLIS and ANDREA JARAMILLO

BOGOTA, Colombia (Bloomberg) -- Colombia sees at least two shale projects starting development this year, with Royal Dutch Shell and Exxon Mobil maintaining their interest despite a slump in prices.

“What we’re seeing in the shale area is that the prospectivity is interesting enough for some of the companies to go forward,” Colombia Mines and Energy Minister Tomas Gonzalez said in an interview at Bloomberg’s New York headquarters on Monday. “I would expect at least three or four blocks will move forward. I hope at least two of these blocks move this year.”

The companies will present environmental impact assessment studies to Colombian authorities soon, he said. The Andean nation last year published rules governing how companies can explore for oil and natural gas using hydraulic fracturing. Production regulations will be published by year-end, he said. Unconventional resources pay a lower royalty rate to the government, part of an effort to develop the nation’s resource.

Colombia has an estimated 6.8 Bbbl of technically recoverable shale-oil, according to the U.S. Energy Information Administration. It has the third-largest unproved reserves in South America, after Argentina and Venezuela.

Shell recently completed exploration drilling on the VMM-3 onshore block in the Magdalena valley and will continue to evaluate its onshore portfolio in the country, the company said in an e-mailed response to questions. Exxon didn’t immediately respond to a telephone message seeking comment.

Economic Viability

The economic viability of Colombia’s shale projects will depend on the quality and size of the fields, plus service industry costs, Gonzalez said. Global drillers were deferring shale exploration plans in Colombia after the fall in crude prices exacerbated regulatory uncertainty, two people with knowledge of the matter said in February.

Shale and deposits offshore are key to helping Colombia boost reserves, Gonzalez said. At current production rates, state-controlled Ecopetrol SA’s reserves will last about eight years, the shortest span among the 18 members of the BI Global Integrated Oils Valuation Peers Index.

Colombia will maintain oil output of about 1 million barrels a day until 2018, Gonzalez said. Ecopetrol has a “loose” production target for the next couple of years of around 800,000 bpd, said Gonzalez, who serves on its board. In the future, the company will only operate in areas with large potential resources and will seek partners to operate other assets, he said.

Unconventional energy sources could eventually account for about half of Colombia’s gas reserves and a quarter of its oil reserves, Gonzalez said.