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Lagniappe


Platts:
Colombian peace won't
cure oil industry's problems


No short-term solution to the fortunes of Colombia's declining oil industry


Analysts and industry sources are skeptical that the peace agreement announced this week between the Colombian government and a rebel group with which it has been at war for a half century will provide any short-term boost to the fortunes of Colombia's beleaguered oil industry.

Continued violence, logistical difficulties and an expected tax increase later this year on top of an already high government take will continue to make Colombia's oil patch a challenging place to find, produce and transport oil and gas, experts said, particularly compared with more hospitable venues.

After nearly four years of negotiations, the government announced late Wednesday it had reached agreement on all major points with the Revolutionary Armed Forces of Colombia (FARC), with which it has been at war since 1964. The accord will be put to a nationwide vote October 2. Public opinion is sharply divided on the proposed accord.

FARC declared a cease-fire a year ago and has since halted oil pipeline bombings and oilfield personnel kidnappings, the two banes of the industry over the last several decades. Thus, the peace deal will make more permanent the improvement in oilfield security that has been seen over the last year.

Still, Colombia remains a high-cost venue for drilling and producing oil and many wildcatters in recent years have left for greener pastures such as Mexico, Argentina and Peru. It's not just security and logistics that have driven players from Colombia: industry officials complain that the government charges producers a high government take (royalties plus taxes).

With leaders grappling with fiscal deficits, no one expects the government to make tax concessions in the near term. In fact, the industry is bracing for significant tax increases later this year as part of an overhaul of Colombia's tax system.

OTHER GUERRILLA GROUPS STILL A CONCERN

While the peace deal will lessen security concerns, which long have been an overhang for Colombia's oil patch, they won't disappear. Other lefitist guerrilla groups, most notably the National Liberation Army (ELN), continue to cause mayhem.

According to Agora Consultores, a Bogota-based risk analysis firm, the ELN has bombed Colombia's oil pipeline network 29 times this year, up 81% from the 16 bombings over the same period in 2015. Meanwhile, FARC bombings have fallen from 59 attacks in 2015 to zero this year.

"The climate after the signing of the peace deal [set for September 23] will be one of optimism moderated by skepticism," Agora President Orlando Hernandez said, a former officer and security expert in Colombia's national police.

Adding to security concerns is that the ELN has refused to forswear kidnappings and release the 100 or so hostages they are believed to be holding. That refusal is a principle obstacle to the government embracing peace talks, according to Adam Isacson, a senior researcher at the Washington Office on Latin America, a think tank.

Hernandez and Isacson said there is evidence that the ELN has moved into areas, such as North Santander province, that were once controlled by the FARC to attack and extort businesses there.

The ELN was suspected of several bombings over the summer of the 220,000 b/d Cano Limon pipeline in places where it runs through North Santander. The attacks caused a six-week shutdown of the line that ended August 17, according to a source at state-controlled Ecopetrol.

That shutdown, added to three years of declines in Colombian oil field investment, are the main reasons for the big drop in the nation's 2016 oil and gas output. Colombia pumped 843,000 b/d of crude in July, down 10.8% from 945,000 b/d in July 2015.

Spot market sources did not expect to see any immediate impact to prices from the agreement with FARC.

"I don't think there will be an impact on the market, because it is a political issue and the agreement was verbal. Also because there is another rebel group [ELN] that still is in conflict with the government,? a US bunker fuel trader with business in Cartagena said.

COMMUNITY BLOCKADES BECOME A BIGGER ISSUE

Hernandez said a bigger problem for some producers has nothing to do with insurgents -- the rising tide of community blockades of rural oil installations that often force companies to halt production. Shut-ins have risen as Colombian oil revenues have fallen and as many communities have reacted to a drop in the royalties directed their way.

Through August, Hernandez said community blockades have totaled 109 this year, which is less than half the rate last year when full year blockades totaled 473. But the community protests continue to be a disincentive for oil companies' drilling activities, executives have said.

For example, the Uwa indigenous community earlier this month occupied and shut down a natural gas pumping station in Gibraltar, North Santander province, that is owned and operated by Ecopetrol. The takeover caused a major disruption in gas deliveries to the nearby city of Bucaramanga and resulted in a spike in prices, Hernandez said.

"Community blockades of oil operations are constantly lasting longer and having greater impact," Hernandez said. "The consequences of social conflicts now are far more severe in economic impact than those generated by terrorist attacks."

In addition, Isacson said a concern of many in the Colombian government is that some FARC splinter groups will refuse to demobilize and instead form criminal gangs, much like members of demobilized paramilitary groups a decade ago. That new generation of criminal gangs continues to terrorize businesses and industry, especially in northern Colombia.

Bogota, Colombia (Platts)--26 Aug 2016 429 pm EDT/2029 GMT


Story by Platts reporters Chris Kraul and Maria Eugenia Garcia; Edited by Jason Lindquis. Petroleumworld does not necessarily share these views

Editor's Note: This commentary was originally published by Platts; on Aug. 26, 2016. Petroleumworld reprint this article in the interest of our readers.

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Petroleumworld News 08/29/2016

 

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