Hydrocarbons Colombia - Fracking investigation

12 February 2018

The National Environmental Licensing Agency (ANLA) made a historic decision on the development of unconventional projects: Colombia’s main alternative to solve its energy self-sufficiency problem in the short (and maybe even longer) term. The development of these and other stories in our HCC weekly summary.

Fracking investigation
Last year, ConocoPhillips (NYSE: COP) requested environmental licenses to develop the VMM3 block in the APE Plata exploratory area, in the municipalities of San Martín and Aguachica (Cesar).
Even though environmentalists and social leaders rejected the initiative, ANLA announced that it initiated procedures to evaluate the project’s possible environmental impacts.
According to the firm, “(the project consists of) drilling and completing (fracturing) for a period of six years, up to six vertical wells from which it will be possible to navigate between one and six horizontal wells in the La Luna formation, without exceeding a maximum number of six horizontal wells in the development of the project.”
Although a formal evaluation by the ANLA is far from being a guarantee of obtaining an environmental license, it is an important first step for the development of unconventional projects in the country.
We have long pointed out that this government’s belief that the country was five years away from needing to make decisions about unconventional technologies was either incredibly naïve or, more likely, a cynical attempt to ‘kick the can’ down the road and avoid confronting the issue.
Now Conoco-Phillips is boldly calling the government’s bluff with a request to do hydraulic fracturing now. Not five years from now. Not two presidential terms from now. Now.
Parex (TSX: PXT) announced its 2017 year-end reserves and reported positive results in key metrics such 1P reserves, Reserve Life Index (RLI) and Reserves Replacement Index (RRI).
The firm’s proved reserves (1P) went from 63.7mmboe in 2016 to 95.5mmboe last year, representing a 50% growth.
Parex reported 1P RLI of 6.7 years, which was 5.6 years in 2016.
Proved plus Probable (2P) reserves grew from 112mmboe in 2016 to 162mmboe in 2017, meaning a 45% increase year over year. The company highlighted that 99% of 2P reserves are oil.
Geopark (NYSE: GPRK) also reported positive results in its consolidated net proven reserves (1P), which increased 24% (97mmboe) in 2017.
The firm highlighted Colombia’s importance to its reserves, as 55% of 1P reserves are in the country; 21% are in Chile and the rest in Peru, Brazil and Argentina.
The company said that net 1P reserves increased 64% to 66.1mmboe in Colombia, after registering 8mmboe in 2017.
Net 2P reserves in Colombia were 88.2mmboe, meaning a 31% growth. The firm commented that 100% of reserves in the country are oil.
“For each barrel of oil extracted in Colombia, 4.2 barrels of 1P reserves were added, result in a 1P Reserves Replacement Index (RRI) of 421%,” said the company in a statement.
The Colombian army confirmed that the ELN carried out a new attack against Coveñas Caño Limon (CCL) in one of Arauca’s rural areas.
The guerrilla reiterated its rejection of the presence of oil companies in Colombia because according to them, firms take the country’s natural resources without leaving any benefit to Colombians.
Last week, the ELN threaten Parex’s workers and contractors declaring them military targets in Arauca. This week, Frontera Energy (TSE: FEC) announced that it had to close the Cubiro block (Casanare) as a result of threats and violent acts against its infrastructure and workers.
Days after the attack took place; the guerrilla announced a three-day general strike (starting from February 10th at 6:00 am, until February 13th) throughout the national territory, and asked passengers and transporters to refrain from traveling and that way “avoid inconveniences.”
(HCC: The ELN’s press statement used the term ‘armed strike’ which, in the past, has meant that the ‘inconveniences’ could come about through the use of military force.)
For those unaccustomed to these ‘armed strikes’, their effectiveness in any particular region at any particular time clearly depends on the relative strengths of the guerrilla and the Armed Forces.
In the past, there has been trouble in some areas during some of these events, whereas in other areas or at other times, not much has happened.
We expect more incidents in rural Arauca than in Puerto Gaitan to pick a couple of oil-important regions with vastly different ELN presence.
The best advice, as always, is to maintain very good relationships with the community in areas of influence and with the local Armed Forces. Truck transport should be planned carefully.
According to the Ministry of Mines and Energy (MinMinas), Bogota’s reference fuel prices will be CoP$9,042 per gallon during February; CoP$128 more compared to January.
Diesel’s reference price grew CoP$132 compared to last month and it is now CoP$8,324 per gallon in Bogotá.
Fuel prices increased CoP$843 during 2017, but the government could not justify this behavior. However, oil price increases are the perfect excuse to raise gasoline prices this year.
For Fenalco’s Guillermo Botero, the government will not be able to achieve low inflation by increasing gasoline prices.
Colfecar’s Juan Carlos Rodríguez said that the government should review the formula to establish prices, especially in producer price as it represents 60% of the final price.
Almost four years after the issuance of Law 1715, which laid the foundations for the integration of unconventional renewable energies, figures show that although there are solar and wind projects approved and underway for their execution, only 1% of the electricity generation matrix corresponds to clean energies like cogeneration, self-generation, wind generation and solar energy.
Presidential candidate Gustavo Petro spoke about his initiative for installing solar panels in households, which according to economist Marc Hofstetter could increase the energy supply (at a small scale) and its geographical origin could be diversified.
“With the right regulatory design, energy prices in Colombia, which remain high in the regional context, could be marginally reduced,” he added.
Other news
Francisco Reynés was appointed as Gas Natural Fenosa’s new executive chairman and will replace Isidro Fainé, who will remain in the company as honorary president.
According to the DANE, Colombian exports went from US$31.7B in 2016 to US$37.8B in 2017.
Oil associations celebrated 100 years of industry in Colombia.

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