New ways of working in Colombia

April 11, 2019

Diego Mesa, Colombia’s vice-minister of energy, talks to TOGY about the ministry’s priorities in 2019, the work being done to resolve the question of unconventional development in the country and efforts to strengthen competition in the industry. The Ministry of Mines and Energy establishes policies and regulations for the sustainable development of Colombia’s energy resources.

This interview is featured in The Oil & Gas Year Colombia 2019

What is the outlook for new investments in the oil and gas industry under this administration?
The potential is quite high given the prospectivity of the country and the stable conditions the country offers to international investors. This administration has a big challenge regarding reserves, as we only have 5.7 years of oil and just over 10 years of gas.
We have a strategy on three fronts. One is to continue promoting and incentivising enhanced recovery and incremental production. The second is to promote the development of offshore projects in the Caribbean Basin. There’s going to be a lot of gas potential in that area, but hopefully oil as well.
The third front is to decide whether we will develop unconventional resources. To this end, we established an independent commission of experts, which included well-known experts on environmental and conservation issues, hydrogeology, seismicity, public health, petroleum policy, regulation and fiscal issues. The report was issued in February [2019] and recommended doing some pilots, subject to a few conditions, before these resources can be fully developed.
The president wanted a group of independent experts to assess the different risks of developing these resources and whether the regulation we have in place can mitigate those risks. We are studying the report and its recommendation, and we’ll make a decision about how to proceed.

On which key point has the commission concentrated?
The mandate for the commission was quite narrow. They only looked at the exploration phase where we already have a very robust regulation. They looked at all the existing reports and studies and attempted to answer three main questions.
First, they explored whether we can develop those unconventional resources in an environmentally friendly manner. This means whether we have the regulation in place to mitigate and manage the risk associated with this development. The second question is whether we have the institutional framework to monitor and supervise the development of these resources. Lastly, the third question looks at the economic and fiscal angle. What are the economic impacts of developing those resources, and what is the scenario if we don’t develop those resources?

 

What is the ministry’s position on unconventional development?
The first thing to keep in mind is that from the president down, we want to study and understand the report’s recommendations. Having said that, at the Ministry of Mines and Energy, we think the regulation we have in place for exploration is pretty robust by international standards. This has been recognised internationally, and I should note that it is also environmentally sound. However, we wanted the experts to assess all this and make their own conclusions and recommendations.
Overall, I think those resources could be a game-changer for the industry and the country. We only have 5.7 years of oil reserves and 10-11 years of gas reserves, and enhanced oil recovery or incremental production can only do so much. The big bet is on offshore development and unconventionals, if we decide to develop those. That’s where we can actually make a big difference for the sector and for Colombia.

What approach is needed to prevent community opposition to unconventional development?
We need to do a lot of educational programmes, not only with the courts, but in general, with the communities and our stakeholders. Our idea is an informed debate, where the people have all the information at hand.
We would like to depoliticise the debate and focus on the technical, environmental and community issues. We are aware that we need to go out to community governments, but also to industries, and explain what the development of unconventional resources means. We need to explain that this could be done in an environmentally responsible way and talk about the risk.
Obviously, as with any extractive industry, there are associated risks. You can have the best regulation in place and, if the work is not done properly, you can have accidents and so forth. The idea is that everyone understands the risk, but also the benefits.

How can royalties and taxes be better utilised for the communities?
Our challenge is to make sure that the revenues from extractive industries are well spent. This means making sure these resources are invested in projects that benefit communities. We are aware of the need for this and would like to work with the communities as much as we can. We’ve been talking about ways to make sure royalties or the revenue from the royalties are spent more efficiently in the communities, on projects that are going to benefit the community directly.
We have what are called Obras por Impuestos [Public Works for Taxes] and we are finalising a bill for Obras por Regalia [Public Works for Royalties] to have one more mechanism that facilitates investment that directly benefits communities. We need to make sure that we as a government are articulating these plans across the national government, but also through local governments, to make sure we bring all those benefits to the communities and the people.
Also, in terms of employment and knowledge transfer, we need to make sure the local content in the contract is met. This is something we’re working very closely on with our partners and other stakeholders.

What is the energy ministry doing to enhance competition in the oil and gas industry?
We’re working very closely with the ANH [National Hydrocarbons Agency] on a plan to restart the sector. We have had very little investment in this sector over the past two to three years, and what’s more, no new E&P contracts were signed in the past four years. That was reflected in low seismic activity, the low number of exploratory wells and so forth, so the plan also includes doing a competitive study. The ANH is working on that.
In addition, the agency has a number of mechanisms in place. One of them is what we call the permanent competitive process, or PPAA, which basically is opening up new acreage for competition among companies. We hope that’s going to attract a lot of companies and create a new dynamic in the sector.
A number of initiatives look at the competitiveness of the sector from a fiscal point of view, but also to make sure permits are approved quickly, working with ANLA [National Environmental Licensing Authority] for environmental licensing.

How open is this administration to investments by international players?
This government is open for business and is trying to make sure our policies are investment friendly. We welcome foreign investment wherever it comes from. In fact, I’ve been spending most of my days meeting with companies that are interested in investing in Colombia. We’ve been talking to companies from the Middle East, Asia, Russia and, obviously, from the US, Europe and Canada as well.

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