Economic View: Orlando Velandia
What steps are being taken to improve investor confidence in Colombia’s oil and gas industry?
ORLANDO VELANDIA: It is important to stress that since the beginning of the downturn in commodity prices, no oil company has left the country. Nevertheless, there are some issues and challenges that need to be addressed. The country is working to enhance the interests of investors in the energy sector, and we must be more proactive and show that we listen to and address the concerns of investors.
We are working on new rules for the assignation of new production blocks as well as granting new exploratory compromises. We must respect the decisions that the Constitutional Court has made in recent months as well as work harder to have clear rules.
The government should continue its efforts to help develop and grow the geological knowledge of the country. These are some steps, though the most important is to have strong channels of communication between all concerned parties: government agencies, the private sector, social groups and investors.
What is being done on a national level to address environmental issues related to new exploration and production activities?
VELANDIA: Many environmental concerns in the oil and gas sector come from the false belief that hydrocarbons activities are not regulated. The truth is that the hydrocarbons sector is very well regulated, from seismic activity to exploratory drilling and production, which are regulated by permits, while licences and authorisations are granted by the environmental authorities.
There is a misconception that the energy sector’s demand for water is high, which has become a main argument for opposition to the oil industry. However, the latest figures from the national water study show that the demand for water in the sector is less than 5%. A hydrocarbons strategy must seek closer relationships with institutions and organisations on a regional and local level to get this message across.
Colombia’s proven crude oil reserves were down 13.2% to 2bn barrels at the end of 2015. What changes are necessary to incentivise and encourage exploration activity?
VELANDIA: Colombia has significant potential to remain self-sufficient and retain the oil sovereignty it has today. The sector is taking steps to create the correct business environment by making oil exploration more flexible. However, it is important to correctly interpret the reserve indicator. The variation of proven reserves, meaning those with assured economic viability, is a reflection of the change in oil prices over the past year.
The government continues to make efforts to maintain production in the range of 1m barrels per day. Production levels have also been affected by the business strategy many operators have had in the past year, looking for efficiency in their operations and guided by cost reduction plans. The variation of proven reserves between 2014 and 2015 was only a decrease of 13%, while countries like Brazil and Mexico showed a decrease of 22% and 21%, respectively.
To what extent will offshore and non-conventional oil exploration help meet domestic demand in the short term, and what opportunities does it present?
VELANDIA: The offshore potential of the Caribbean coast is one of the most interesting areas in the region and will hopefully lead to self-sufficiency of the country’s gas needs. However, we need a clear roadmap to develop these assets, along with measures to make investment more attractive.
Colombia’s offshore oil and gas potential is significant, as the country has not yet reached deep and ultra-deep waters in the Caribbean. Additionally, it involves the growth and development of logistics and ports related to its extraction and commercialisation, as well as the oil service industry.
As for non-conventional oil exploration, it is important to learn and understand from experiences on an international level. The country needs to approve technical regulations for the design and construction of exploration wells, along with the terms of reference for environmental impact studies and the overall production requirements.
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