Colombia’s economically crucial oil industry keeps showing signs of life as the oil rally extends into late-November 2020. The international benchmark Brent has finally crossed the all-important $45 per barrel mark, which is the price that many drillers need to be profitable. This is especially important for those upstream oil explorers and producers operating in Colombia because it is above their estimated after-tax breakeven price of $40 to $45 per barrel. Not only is the activity in Colombia’s energy patch picking-up as upstream oil producers’ ramp-up activity in response to higher oil prices, but investment is growing. This all points to a notable uptick in activity during 2021, particularly if oil prices remain high and a viable COVID-19 vaccine is released. Next year will be especially important for Colombia’s oil industry. In a recent announcement (Spanish), Colombia’s Ministry of Mines and Energy projected that the Andean country’s hydrocarbon sector will attract $3.4 billion of investment in 2021. There is a range of key activities planned which are focused on expanding the country’s economically crucial but extremely limited hydrocarbon reserves, composed of two billion barrels of oil and 3.1 trillion cubic feet of natural gas. A crucial development is the launch of a large offshore exploration campaign off Colombia’s Caribbean coast. According to Colombia’s Vice-minister of energy Miguel Lotero, $1.9 billion has been earmarked for investment in offshore activities. Colombia’s offshore oil and natural gas potential is tremendous. There are four major hydrocarbon basins identified by the regulator the National Hydrocarbon Agency (ANH – Spanish initials). Those basins are estimated to hold anywhere up to 32 billion barrels of oil equivalent, highlighting that the successful exploitation of Colombia’s offshore hydrocarbon potential would be a game-changer for the Andean country.

Another $940 million is committed to onshore oil exploration and development operations including the long-awaited commencement of unconventional oil and gas pilot projects. Since 2014 there has been considerable community opposition to hydraulic fracturing in Colombia. In 2018 the Andean country’s highest administrative tribunal the State Council placed a moratorium on fracking which was reaffirmed in September 2019. The court did, however, provide additional guidance as to its decision outlining that pilot fracking projects were allowed. The Ministry of Mines and Energy expects the first unconventional wells to be drilled during June 2021, with national oil company Ecopetrol spearheading the pilot program. The Ministry has forecast investment of $400 million to $650 million in the unconventional oil pilots. These are attracting considerable attention from foreign energy companies. The world’s third-largest publicly tradable oil supermajor ExxonMobil is in the process of inking a joint venture with Ecopetrol to develop fracking pilots in the Middle Magdalena Valley, which is estimated to hold up to 7 billion barrels of recoverable shale oil and gas. That deal, which has yet to be finalized, is contingent upon the approval of new regulations governing unconventional oil drilling and production. The primary geological formation being targeted is the La Luna shale, which some industry insiders and analysts believe is comparable to the prolific U.S. Eagle Ford shale. Bogota has been hungrily eyeing Colombia’s vast unconventional oil potential since 2013 when dwindling oil and natural gas reserves were placing the country’s future economic growth at risk. It was the U.S. shale oil boom, which really began to take-off earlier this decade, that was responsible for it overtaking Russia and Saudi Arabia to become the world’s largest oil producer in 2018. While the successful execution of unconventional oil and gas pilots could be an economic boon for Colombia, community opposition is strong. There is a long history of activism among local communities in Colombia which has in the past led to blockades that forced the shut-in of nearby oilfields. The most recent being farmers blockades in the southern department of Putumayo which began in February 2020 and saw Colombia’s fourth-largest oil producer Gran Tierra shutter two blocks. That had a marked impact on the company’s oil output, impacting earnings, but by late-August 2020 operations at the affected blocks had recommenced. These initiatives point to a solid rebound ahead for Colombia’s economically vital oil industry during 2021.

Oil companies operating in the Andean country have been steadily ramping up investment and activity since oil prices rallied. As a result, Colombia’s oil and natural gas production has grown steadily since hitting a multi-year low of 732,100 barrels daily during May 2020, gaining 2.3% since then to average 749,255 barrels daily for September. Natural gas production has also been steadily rising by 5% month over month to just over an average of 1 million cubic feet daily. That gave Colombia total hydrocarbon output of barrels of oil equivalent for September which was 1.7% greater than a month earlier

Drilling activity in Colombia’s energy patch is also climbing. The Baker Hughes rig count shows there were 13 active drilling rigs at the end of September compared to 12 a month earlier and a single rig at the end of May 2020

That is a good indicator of overall activity for Colombia’s oil industry and bodes well for further production hikes at the end of 2020 and heading into 2021.

Existing operators are gradually committing to increased 2021 spending. Colombia’s third-largest producer Parex Resources earlier this month committed to increasing 2021 capital expenditures by roughly a third to between $165 million and $185 million next year. Others, including state-controlled Ecopetrol, Colombia’s largest privately-owned oil producer Frontera Energy and fourth-largest producer Gran Tierra Energy will follow. There is every indication that as Brent rallies higher, some analysts expect it to reach $55 per barrel during 2021, investment in Colombia’s oil industry will expand further, particularly when it is considered that is well above the after-tax breakeven price of around $45 per barrel. This will be a boon for Colombia’s petroleum-dependent economy, helping to lift GDP growth after a disastrous 2020 where the economy for the first nine months of the year shrank by a worrying 8% compared to a year earlier.