Opportunities in Colombia’s Extensive Heavy Oil Play Continue to Grow, Says IHS Report

Opportunities in Colombia’s heavy oil plays continue to expand in both developed and underexplored areas, offering large, potentially prospective areas for investors and companies seeking acquisitions, said information and analysis provider IHS (NYSE:IHS) in a special report. Colombia’s heavy oil plays are primarily located in the southeastern part of the country, where a heavy oil belt exists in the Llanos basin.

Heavy oil, which in this report, the IHS Herold 2011 Regional Resource Assessment: Opportunities in Colombia’s Heavy Oil Play Continue to Grow, is defined as 20 degrees API (a unit for measuring the weight of oil, which was established by the American Petroleum Institute, a standards organization) or heavier. Heavy oil is more expensive to produce since it requires techniques such as steam injection and in-situ combustion to produce, and requires more refining than lighter, more desirable crudes found in countries such as Saudi Arabia. It is plentiful in areas such as Colombia, Venezuela and western Canada, which are open to investment from international oil companies.

According to Donald McIvor, senior energy financial analyst and author of the IHS report, the two most attractive areas in the Colombia oil play for investors and companies seeking acquisitions are the Llanos basin southwest of the Rubiales oil field, and in the Putumayo basin around the developing Capella oil field. The two largest Colombian heavy oil discoveries to-date are the Rubiales field in the Llanos basin, with 4.38 billion barrels of oil in place, and the Capella field in the Putumayo basin, with 2.2 billion barrels of oil in place.

“We also believe two other very large areas — the eastern Llanos basin and the Putumayo basin southwest of the Capella field — have potential for heavy oil discoveries,” McIvor said, “but the license holders are doing very little to evaluate them.”

McIvor added that since 2008, the proven and probable (2P) reserves of the Rubiales oil field and four satellites, which are owned by Pacific Rubiales Energy Corp. and Ecopetrol SA, the state-owned oil company of Colombia, have increased nearly three-fold and Pacific Rubiales’ stock price has increased three-and-a-half times.

In addition to the progress in this field, further opportunities continue to accumulate in the area. During the past 18 months, Petrominerales Ltd. and Pacific Rubiales ‘made significant discoveries’ southwest of the Rubiales field. Important but far from proved, the report noted, is the possibility that a very large part of the Llanos basin east and northeast of the Rubiales field is prospective for heavy oil.

“In the adjoining Putumayo basin, a large, heavy oil field is under development by Sinochem Group (of China) and Canacol Energy Ltd. (of Canada),” McIvor said. “Numerous discovery opportunities exist around that field and between it and the Andes Mountains.”

Georgia Cooper, area coordinator for Colombia and Mexico in the Global E&P Reporting Service at IHS, agrees with McIvor that Colombia offers additional opportunities for heavy oil exploration and production, but said the Colombian government must address some key issues, particularly around infrastructure and transportation, to facilitate that growth.

“Production in Colombia has grown in recent years due to increased investment in secondary oil recovery from old fields. However, there has not been a big, new discovery recently,” Cooper said. “Colombia continues to be a very attractive country for oil exploration, yet companies operating there are still facing problems with infrastructure and transportation, in particular. The Colombian government realizes they must invest significantly in infrastructure and transportation projects to improve oil and gas investment in the country. One such investment for heavy oil is refinery upgrades, and Ecopetrol’s board approved a U.S. $3.39 billion project to modernize the Barrancabermeja refinery, which is expected to be completed in 2016,” she said.

According to a statement released by Ecopetrol,“The [Barrancabermeja refinery modernization] project will enable the country's largest refinery to increase the conversion factor from 76 percent to 95 percent, which means that it will be possible to obtain more products, such as gasoline and diesel, and a greater quantity of heavy crudes will be processed."

The Colombian energy ministry, the Agencia Nacional de Petroleo (ANH), announced in early May 2011, that oil production in Colombia grew two percent from March 2011 to April 2011, and increased 17 percent from April 2010 to April 2011. According to Ecopetrol, the company did not reach the 21 percent production growth forecasted at the start of 2011 due to delays in bringing online additional capacity at the Ocensa pipeline.

 As for the potential for heavy oil development in Colombia, Cooper said the Colombian government and ANH hosted a licensing round last year, which offered several blocks with heavy oil potential that are located close to the heavy oil belt. Those blocks include: LLA-58, LLA-46, LLA-76, LLA-77, CPO-16, CPO-15, PUT-15 and CAG-5. However, out of these, just three blocks received bids: block LLA-58, which was bid on by the Tabasco Oil Company LLC (of Colombia), block CPO-16 – which was bid on by Hocol S.A (subsidiary of Ecopetrol SA), and block CAG-5, which was bid on by Meta Petroleum (a subsidiary of Pacific Rubiales)  and Talisman (of Canada).

According to Cooper, the remaining blocks may be offered again during the next Colombia bid round, which may take place in 2012.

In addition to insight and analysis regarding prospectivity and values in the Colombian heavy oil plays, IHS offers additional special studies covering other plays of interest, including a recent assessment of the emerging Niobrara horizontal oil play and the Bakken/Shale Forks play. The company also covers financial performance of companies and transactions across the entire energy spectrum.

For more information on the IHS Herold 2011 Regional Resource Assessment: Opportunities in Colombia’s Heavy Oil Play Continue to Grow, please contact sales@herold.com. To speak with IHS analysts Don McIvor or Georgia Cooper, please contact melissa.manning@ihs.com, or press@ihs.com.

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