Colombia's Oil Licensing Round to Provide Asian Link

BEIJING (Dow Jones Newswires), May 12, 2010

So far 83 applications have been received from companies wanting to participate in Colombia's oil licensing round, including from Chinese companies that are already operating in the country, a senior Colombian oil official said Wednesday.

"We have 228 blocks covering close to 60 million hectares on offer in all areas of the country except the Amazon basin...our main expectation is that we will succeed with a quarter of them, 50-60 blocks, anything more would be a plus," said Armando Zamora, Director of Colombia's National Hydrocarbons Agency.

Zamora said hopes were particularly high that Colombia's Orinoco region held large reserves of heavy crude oil, similar to the world-class deposits in Venezuela's Orinoco Basin which have lured international oil majors into committing tens of billions of dollars
to their development.

"If enough reserves are found there, we are already studying the possibility of building a pipeline to the Pacific" from which it would
be possible to serve the Asia market, Zamora told Dow Jones Newswires by phone from Shanghai, where he is presenting the last in a series of roadshows on the round.

"It is a possibility that this pipeline could be used to transport Venezuelan oil to the Pacific if commercial and political relations are normal...technically it makes sense," he said.

Such a pipeline could reduce the cost of delivering oil to Asian countries like China and Japan, the world's largest oil importers after the U.S.

Venezuela and Colombia have been at loggerheads over a range of issues for years, with these stoked by the deep political divide between the governments of the two countries.

Colombia is very keen to attract Chinese oil investment. "There is no doubt about it," including in the downstream sector, Zamora said.

Zamora said he wasn't aware of any talks underway now on downstream projects, but previously there had been Chinese interest in the Cartagena refinery.

The government, which is allowing 100% ownership of reserves by foreign bidders, had embedded various provisions into the oil round documentation including on royalties and windfall taxes to ensure that Colombia's interests were protected, he said.

In January, the U.S. Geological Survey said that Venezuela's Orinoco area contained a massive 513 billion barrels of recoverable oil--the largest accumulation of oil ever assessed by the agency--and Colombian officials hope the reserves extend well into their territory.

"We are only beginning to explore the areas with potential," Zamora said.

As part of its Open Round Colombia 2010 round, the country is also inviting bids for largely unexplored blocks off the Caribbean and
Pacific coast, in waters as deep as 2,000 meters.

Colombia's crude oil output will average above 800,000 barrels a day in 2010, with this increasing to more than 1 million barrels a day in the following two years, he said.

A major challenge to be faced was to improve the country's oil infrastructure if output of more than 1.2 million barrels daily was to
be achieved, he said.

Oil output in Colombia has risen around 50% since hitting a record low of 500,000 barrels a day in August 2006 as the government attracted new companies to explore and extract oil in the country. Output had been hard hit by Marxist rebel attacks on oil facilities and the Cano Limon oil pipeline.

As part of efforts to boost output, the government in 2007 partly privatized state-owned oil company Ecopetrol, which then
embarked on a massive $60-billion, eight-year investment plan.

Two Chinese companies are already active in Colombia. In 2006, China Petroleum and Chemical, or Sinopec, acquired an $800 million stake in Orimex, a Colombian company with proven reserves of 60 million barrels of crude. Sinochem Corp., China's fourth-ranked oil company in terms of assets, last year spent $876 million to acquire Emerald Energy PLC's oil assets in Colombia and Syria.

"I assume the Chinese companies have either submitted documents or will do so," he said.

The bid documents are being held by an independent auditor, and that the names of companies making bids would be published on June 22.

Despite expectations of increased oil production and exports from Colombia, the possibility of joining the Organization of Petroleum
Exporting Countries, or OPEC, isn't being considered, Zamora said.

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