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Colombia Shale Oil Industry Is Increasingly Unappealing For Investors

Colombia Map

Story: OilPrice.com, by Matthew Smith.  A lack of major oil discoveries and meager proven reserves of 2 billion barrels saw Colombia look to hydraulic fracturing as a means of securing the future of its economically crucial hydrocarbon sector. While it is believed that the Andean country possesses considerable unconventional oil potential fracking is attracting considerable opposition from a wide cross-section of Colombian society. That opposition along with considerable uncertainty as to whether the national government can effectively regulate the controversial technique saw Colombia’s highest administrative tribunal the State Council place a moratorium on fracking in 2018. This decision was made on a precautionary basis with the judicial body finding that the proposed regulation did not fully contemplate the environmental and community impacts of allowing fracking in Colombia.

While that effectively quashed the shale oil ambitions of President Ivan Duque and Colombia’s petroleum industry, there was a small ray of light with the tribunal excluding fracking pilots from its ruling. That saw state-controlled Ecopetrol, of which Bogota is the majority owner holding 88.5% of the company’s stock, commence two fracking pilots, Kale and Platero, in the Middle Magdalena Basin. The Middle Magdalena and Llanos Basins contain the marine deposited Cretaceous shale formations that will allow Colombia to significantly boost its meager conventional proven oil reserves. The La Luna and Rosablanca Cretaceous shales in the Middle Magdalena Valley Basin are estimated by the U.S. EIA to contain recoverable resources of 4.6 billion barrels of shale oil and 18 trillion cubic feet of shale gas. The Cretaceous Gacheta shale in the Llanos Basin is believed to possess a recoverable resource of 0.6 billion barrels of shale oil and 2 trillion cubic feet of shale gas. Those estimates indicate that Colombia has recoverable shale resources amounting to at least 5.2 billion barrels of oil and 20 trillion cubic feet of gas.

If those numbers prove to be correct, then the exploitation of those shale formations will be a game changer for Colombia’s petroleum industry where meager proven conventional oil and gas reserves are weighing heavily on its future. That is, however, proving to be increasingly difficult to achieve in a country where there is considerable opposition to the introduction of fracking. In April 2022, the First Administrative Court of Barrancabermeja suspended the Kale project’s environmental license and the licensing process for Platero. The court ruled that Ecopetrol had not appropriately consulted with local communities about the project’s impact per Colombia’s legal requirements. The national oil company appealed the ruling which was subsequently overturned by a higher court in the department of Santander early last month. The Administrative Court of Santander stated (Spanish):

“The ruling dated April 21, 2022, by the First Administrative Court of Barrancabermeja is hereby revoked and the request for legal protection is ruled inadmissible,”

This decision allows Ecopetrol to progress with the Kale project which was granted an environmental license by Colombia’s National Environmental Licensing Authority in March 2022. It also allows Colombia’s national oil company along with partner Exxon to proceed with the Platero development which is in the process of obtaining the required environmental permitting. There are expectations that the plaintiff will appeal the decision to put a cloud over both fracking pilots.

While this is a particularly positive development for the introduction of fracking in Colombia, which is the only means of ensuring a future for the country’s crucial oil industry, latest election results will stymie any further positive developments. Leftist candidate and senator Gustavo Petro emerged victorious from the June 2022 presidential runoff and he will be sworn in as Colombia’s next president on 7 August 2022. Petro intends to end Colombia’s dependence on extractivist industries, notably coal mining and oil drilling. He intends to do this by discontinuing contracting for oil exploration while allowing existing production contracts to continue operating until proven reserves fall to unsustainable and non-commercial levels. A central part of Petro’s platform is to ban fracking in Colombia. This according to an interview with CNN (Spanish) will be one of the first three measures he will implement upon becoming president. That includes bringing an immediate end to the Kale and Platero fracking pilots, indicating that despite the higher court’s favorable decision there is no future for either operation. This makes any investment to date by Ecopetrol and Exxon worthless while further disincentivizing foreign investment in Colombia’s petroleum industry.

By Matthew Smith for Oilprice.com

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