Colombian Ecopetrol works at full speed to raise production and reserves

Splashed with mud, a dozen workers were grappling a 1.500-horsepower drill bit in the rain to drill new wells in Colombia’s most profitable heavy oil production field, Ecopetrol.

The platform in the Castilla field, located in the Eastern Plains, is part of the US $ 3.5 to US $ 4 billion investment plan planned this year for the purpose of boosting production and replenishing its limited reserves.

The plan, which represents an increase of more than US $ 1 billion compared to the US $ 2.2 billion that it invested the previous year, includes drilling 620 new wells and increasing its production to 725,000 barrels a day (bpd) equivalent of crude oil and gas, from the about 701,000 bpd current.

The firm is working on a more aggressive target, to raise production to 870,000 bpd by 2020.

In that sense, the Orinoquía is considered the most precious treasure of Ecopetrol, when throwing the past year more than half of the utilities that registered in total the enterprise group, that in addition owns oil pipelines and refineries.

Within that region, Castilla is key. The field is pumping around 115,000 bpd but should approach 125,000 by the end of next year, José Cotello, vice president of Ecopetrol’s Orinoquía Regional, which includes the Castilla and Chichimene fields, told Reuters.

The expansion would make it the largest production field in the country. Castilla pumps heavy crude, which is usually sold at a discount to light crude oil that is easier to refine.

However, at this moment there is greater demand for this crude among refineries in the world due to a drop in the production of similar oil in neighboring Venezuela, where the lack of investment has taken production to its lowest level in decades.

Ecopetrol allocated US $ 1.1 billion in capital for Orinoquía, which almost double since the previous year, but the execution of the resources will depend on the arrival of more drills, delayed by the high demand and the violent protests of the community that paralyzed the production in February.

Enraged by alleged violations of labor agreements by the company to hire local labor, protesters blocked roads, invaded fields, and burned buildings, including a control room.

The protest generated losses of US $ 100 million that month and delayed the start of operations in five wells.

“The big question mark is the drilling part, because we were unemployed for a month and some of the drills that were to arrive in March and April will be arriving in May, June and July,” Cotello said.

But as international oil prices recover to their highest levels in the last three and a half years, Ecopetrol announced the reactivation of drilling campaigns in seven fields and doubled the number of drills compared to 2017, with 28 working from simultaneously for the second semester and another 25 in conjunction with its partners.

“We are focused on production but mainly on the incorporation of reserves,” Cotello said during a tour of the fields.

Colombia runs against the clock to raise its oil reserves, which at the end of 2017 stood at a scant 5.6 years according to estimates of the Ministry of Mines and Energy, and for the case of Ecopetrol are 7.1 years, some very below the average of almost 12 years for the world’s leading oil and gas companies.

Protests, attacks, and delays:

Ecopetrol expects to accelerate investment in the second half of the year after spending only US $ 405.4 million during the first quarter, due to protests and the presidential election slowed down spending.

Anti-corruption laws prohibit public companies from opening bidding processes to hire during election campaigns. Ecopetrol is controlled 88.5% by the State.

The elected president, Iván Duque, has promised to support the oil industry, with a firm hand against the rebel groups that attack the oil pipelines and investments in the country’s refineries, controlled by Ecopetrol. He has also promised tax cuts to companies, including those in the oil sector, without giving further details.

Colombia has struggled to attract investments and maintain oil production, in scenarios in which conflicts, protests and guerrilla attacks have interrupted operations in many cases.

The operation of the Caño Limón pipeline, owned by Cenit, a subsidiary of Ecopetrol, until last week the operation remained suspended for six months because of 58 attacks attributed by the authorities to the National Liberation Army (ELN).

The closure of the pipeline has not affected the production or exports of the Caño Limón field, operated by Occidental Petroleum Corp. The crude oil from the field is transported through a smaller pipeline, according to Ecopetrol sources.

“What I would worry about is that the issue of territorial order with protests and dissidences (of the guerrillas) comes to halt at some point the intention of investment,” said Jairo Lastra, investment manager of Lastra Capital Management and whp worked at the Ecopetrol money table.

The expansion in investments is a big change for a company that was hit by the global drop in oil prices in 2015 which led it to report losses of more than US $ 1 billion, forced it to reduce drilling and close an oil field . The increase in oil prices is giving the company the cash it needs despite the challenges. The company tripled its net profit in the first quarter to 2.61 trillion pesos (US $ 923.3 million).

“The crisis is already in the rear-view mirror, there is no more capital restriction,” Cotello said.

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