- Colombia's oil production has declined in 2014 due to terrorist attacks, community protests, and decreased foreign investment, putting the country at risk of missing its fiscal goals for the year. - Meetings between industry and government officials have discussed solutions, as production is over 100,000 barrels per day below target and foreign investment has also declined. - Attacks on pipelines by rebels have disrupted production, including a 93-day shutdown of the Cano Limon pipeline that cost Colombia over 5 million barrels in lost oil sales.

1. 2 July 2014
Copyright 2014. Platts. All Rights Reserved.
Bogota, Colombia (Platts)--2Jul2014/249 pm EDT/1849 GMT
ANALYSIS: Colombia's oil industry, government facing
declining output, investment
Declining oil production caused by terror attacks, community
protests and a drop in foreign investment has the Colombian
government concerned it will miss its 2014 fiscal goals, according to
analysts.
Top industry and government officials have met over the last two
weeks in the presidential palace to discuss solutions to an alarming
drop in barrels produced so far this year that has been only partially
mediated by a recent rise in oil prices, sources said.
Also of concern to the industry and government is the decline in
direct foreign investment in Colombian energy projects this year,
according to the central bank. The slowdown is a continuation of a
trend seen last year when foreign investment in oil and gas totaled
$4.9 billion, off 10% from the previous year, according to the
Colombian Petroleum Association.
According to exploration indicators, 2014 is shaping up as a
disappointing year at a time when the country has made expanding
its crude reserves a national priority. A recent CPA report said only
26% of the projected 51,657 square km of seismic exploration
studies had been carried out as of May 21. Of the 233 exploratory
wells projected to be drilled in 2014, only 60 had been drilled as of
that date.

2. Colombia's crude production in May averaged 950,000 b/d, a 6.3%
decline from the same month in 2013. For the year to date, the
country's average output is running at more than 100,000 b/d under
the 1,095,000 b/d target for 2014 set by the finance and planning
ministries last year.
Gone are the days when Colombia's oil output was increasing by
annual double-digit percentage gains, with growth driven mostly by
the spike in heavy oil production in the eastern Llanos region in
fields operated by state-controlled Ecopetrol, Pacific
Rubiales Energy and Gran Tierra Energy.
PIPELINE CLOSURE HIGHLIGHTS CHALLENGING SECURITY
ENVIRONMENT
Much of this year's drop-off is due to the 93-day shutdown of the
900-km Cano Limon pipeline, which has a peak capacity of 220,000
b/d. Bombed at least 20 times this year by rebels, the pipeline
reopened May 25 -- but not before Colombia lost more than 5 million
barrels of oil sales,according to Orlando Hernandez, president of
Agora Consultorias, a Bogota-based risk analysis firm.
Colombia's challenging security environment was highlighted by the
bomb attack by suspected guerrillas Tuesday on state-
controlled Ecopetrol's critical oil pumping station at Banadia in
eastern Arauca province. No injuries or damage to oil pipelines or
other infrastructure was reported.
The attack in Banadia was especially troublesome because it is the
point where the 110,000 b/d Bicentennial Pipeline, completed last
year, joins with the Cano Limon line, Hernandez said. On Sunday,
suspected guerrillas struck again, launching cylinder bombs inside
the Cano Limon oil field operated by Occidental Petroleum, also in
eastern Arauca province, injuring 13 people. While rebels routinely
bomb the pipeline connecting the Cano Limon field with the Covenas
offloading port on the Caribbean, the bombing inside the security
walls of the heavily guarded installation was a rare event.

3. Although President Juan Manuel Santos won re-election on June 15
after running a campaign touting his peace initiative with FARC
rebels now being negotiated in Havana, rebel control in certain rural
communities where oil companies are exploring and producing has
been made evident by recent attacks.
Over the first six months of 2014, attacks by rebels and criminal
bands on oil infrastructure in Colombia totaled 64 bombings, down
44% from the 113 attacks over the same period in 2013,according to
a study released Wednesday by Hernandez's Agora
Consultorias. But Hernandez said attacks have picked up in recent
weeks and noted that the effect of the bombings has never been
more negative.
"Despite the reduced number, the [negative] impact has been the
most significant in history,"Hernandez said, pointing to the impact of
Cano Limon pipeline's shutdown. The lengthy Cano Limon closure
was also extended by an indigenous community's refusal to allow
repair crews on its reservation to restart the line until certain
conditions were met.
For many oil executives here, including Chris Spaulding, who
heads Talisman Energy's Colombia operation, the rising number of
community blockades of oil installations is of more concern than
rebel bombings.
Communities increasingly block access to oil fields in rural areas,
particularly in the eastern Llanos region, to demand a higher share
of oil royalties, more inclusive local hiring or a reduction in
environmental damage or truck traffic over rural roads.
Oil companies have also been put off by extended delays in the
permitting process for exploratory wells, Spaulding and others have
said, although the government insists the permitting process is
slowly improving.
OIL, GAS EXPORTS ARE CRITICAL TO ECONOMY
Officials of the mining and energy, finance and national planning

4. ministries first met June 25 to discuss the impacts of the production
slowdown as well as measures that might be taken to enable the oil
and gas industry to recapture its former dynamism.
The importance of oil and gas sales to Colombia's economic well-
being was reflected by last year's export sales of Colombian crude,
natural gas and products that ballooned to $32.5 billion, nearly 10
times the $3.38 billion Colombia collected in 2003. Petroleum sales
last year accounted for 56% of all export dollars, up from just 26% of
the total in 2003.
Some oil executives have said on condition of anonymity that the
government should take a harder line with communities that block
access to oil fields, noting that the Colombian constitution gives
ownership of all natural resources to the state.
Others favor a frequently mentioned but still hypothetical "omnibus
agreement" that would cover hiring, permitting, truck traffic and
environmental standards and which the government, labor unions,
local communities and oil companies theoretically would sign off on.
In addition to a possible short-term fiscal crunch resulting from
declining production and investment, the government is also facing a
longer-term challenge of boosting reserves. The total proven
reserves as of December 31 of 2.445 billion barrels represents only
a 6.6-year inventory at current production levels.
Although the Colombian oil boom is nearly a decade old and has
seen billions invested in exploration, the country has yet to record a
major new oil strike of 1 billion barrels or more to compare with the
development of Oxy's Cano Limon field in the 1980s or BP's
Cusiana-Cupiagua complex of fields in the 1990s.
Chris Kraul,
Edited by Jason Lindquist,
Platts, una división de The McGraw-Hill Companies Inc.