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Colombia Oil & Gas Industry 2014, an Overview

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Colombia Oil & Gas Industry 2014, an Overview www.pwc.com/co Colombia Oil & Gas Industry 2014 An Overview Colombia Oil & Gas Industry 2014, An overview c The Oil & Gas industry in Colombia is in an important historical moment in order to increase production and reserves with the aim of achieving permanency and sustainability of the sector. This document presents an overview of the main economic, political, environmental and regulatory aspects to consider when investing in the sector in Colombia. Contents Industry overview 4 Global Context Colombia’s Main Indicators Resources, reserves, production and infrastructure Main Oil & Gas actors fact sheets Trends 12 Off shore Non-conventional crude oil New technologies Communities Environment and sustainable development Regulatory framework 16 Legal and corporate taxation framework (Oil & Gas) Accounting principles Why invest in Colombia? 22 FAQs 24 How PwC can help 26 Market share Oil & Gas in Colombia PwC solutions Discover how we can help PwC helps organizations and individuals create de value they’re looking for. We’re a network of firms in 157 countries with more than 195,000 people who are committed to delivering quality in assurance, tax and advisory services. The information provided in this Overview is purely indicative and generic and should not be taken as advice by PricewaterhouseCoopers. d Foreword Legal, tax, and political stability in Colombia, and its strong economic performance have positioned the country as one of the fastest growing countries of the region and as one of the most attractive emerging markets for foreign investment at the present time. Over the last ten years, Colombia has taken decisive steps towards making the Oil & Gas Industry grow and it continues to play a predominant role in the country’s economy. To maintain this economic growth, the Colombian government has implemented strategies to increase the level of oil and gas reserves as well as develop investment in mid-stream and downstream infrastructure projects to respond to actual needs. Off-shore and non-conventional oil projects and the use of new technologies for recovery are the most relevant strategies that would allow the country to meet its goals in terms of economic growth; all this within a balanced policy of environmental sustainability and a caring relationship with communities. Navigating through the regulatory and tax environment is critical when it comes to doing business in emerging markets. The Exploration and Production industry is no exception and countries often present unique challenges and opportunities including, inter alia, a highly regulated business environment, fast-changing tax framework, political sensitivities, communities, environment, sustainability, etc. For many years PwC has assisted Exploration and Production companies operating in Colombia with regulatory, tax, audit, sustainability and other consulting services. Over 100 industry-focused specialists work every day to enhance value and assist Exploration and Production companies. This document offers an insight into a number of relevant topics that provide an overview of the Oil & Gas industry in Colombia such as: trends in exploration and production; infrastructure projects; use of new technologies; relations with communities; environmental and sustainable development and tax and regulatory perspectives. Carlos E. Moreno S. Luisa Fernanda Salcedo Carlos A. Lloreda S. Carlos M. Chaparro Miguel Salazar R. Energy Territory Leader Assurance Oil & Gas Assurance Oil & Gas TLS Leader Oil & Gas Assurance Partner Partner Associate Partner Partner Partner PwC Colombia PwC Colombia PwC Colombia PwC Colombia PwC Colombia Colombia Oil & Gas Industry 2014, An overview 3 Industry Overview Manufacturers and petrochemical companies Global Context have also joined this trend, finding lower costs by using natural gas, which is also more environmentally friendly. Currently, some megatrends impacting economic Thanks to technological developments that allow development and markets globally have been shale production on a large scale in United States, identified. The population growth within the it is becoming possible to achieve energy emerging markets in contrast to the decline of independence, and there is a rebirth in the some developed economies has led to important manufacturing and chemical industry in the changes in global economic power, implying that country. As well as the technological a large demand will be in these new emerging developments of exploratory and pad-drilling, markets. there is increased use of open-hole completions and sliding sleeves to reduce completion time and These changes in markets, including lack of costs. Cloud-based “digital oilfield” platforms resources, suggest major increases in risks and enable companies to transform data into real complexity of projects. In the Oil & Gas industry, time operational decisions. new technologies in search of shale and deep waters reserves are being developed. In this Currently Colombia, compared to other South context, operational efficiency, a skilled and Central American countries, has reached workforce, effectiveness in supply chain stagnation in production and reserve levels. The management and monitoring of costs are even government and private sector are working more important. together in order to turn around this trend through new methods to increase recovery and Due to increases in regulations on carbon production factors in the oil fields. emissions, coal power plants are being changed for natural gas power plants. South and Central America oil reserve-to- production ratios, 2013 (years) Argentina 9.8 Brazil 20.2 Colombia 6.5 Ecuador 42.6 Peru 37.5 Trinidad & Tobago 19.2 Venezuela More than 200 Other S. & Cent. America 9.6 0 5 10 15 20 25 30 35 40 45 50 Source: BP Statistical Review of World Energy 2014 4 Colombia’s Main Indicators Geography Official name: Republic of Colombia Head of state: President Juan Manuel Santos Political system: Republic Capital: Bogotá Area: 1.14 million square kilometers Population: 48.32 million Industry Overview Climate: Tropical coastal and eastern regions with cooler highlands Economy Currency: Colombian peso, COP$ (USD$1: COP$2,047.03) GDP: USD$ 3.78 billion (2013) GDP per capita: USD$ 7.826 (2013) GDP growth: 4.7% (2013), 4.6% (forecast 2014) Inflation rate: 2% (2013) Unemployment: 9.6% (2013) Public debt: 39.6% of GDP (2013) Ease of doing business: 34 out of 189 countries (2014) Global competitiveness: 69 out of 148 (2013) Resources Proven oil reserves: 2.38 thousand million barrels (2013) Oil production: 1,004 thousand barrels per day (2013) Proven gas reserves: 5.73 trillion cubic feet (2013) (2013) Gas production: 1.22 billion cubic feet per day Colombia’s Main Indicators Main Colombia’s Source: The Oil&Gas Year Colombia 2014, BP Statistical Review 2014, CIA World Factbook, World Bank, Colombia Central Bank (Banco de la República). Colombia Oil & Gas Industry 2014, An overview 5 Resources, reserves, production and infrastructure The production and crude oil reserves in the According to BP statistical, due to the current country have been characterized by its cyclic consumption, Colombia had in 2013 proven behavior, geographical concentration, and reserves of 2.4 trillion barrels, corresponding to a limited significant size fields. As well as the reserve to production ratio of 6.5 years. In order general issues related to reserve replacement and to maintain the sustainability of the industry, the production thereof. importance of discovering new reserves of crude oil and improving the recovery factors from These characteristics are evidenced, on the one existing fields is a top priority. In the case of hand, by increases in production which has led to natural gas reserves amounting to 160 bcm (5.7 low international prices. On the other hand, tcf), which are sufficient for 12.8 years of generating decreases in the remaining reserves production. as oil is extracted at higher rates. Moreover, in recent years, the source of new reserves has going from production in new fields, to increased recovery factors of mature fields. Finally, recent variations in the type of crude oil produced and the company profiles participating in the business, have been noticed1. 1. Colombia Central Bank (Banco de la República) Key Indicators - Colombia’s oil and gas industry Indicator 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Reservers Oil: Proved Reserves (Thousand million barrels) 1.48 1.45 1.51 1.51 1.36 1.36 1.90 1.99 2.20 2.38 Oil: Incorporated Reserves(Thousand million barrels) 128 0.17 0.25 0.04 0.52 0.57 0.36 0.54 0.46 0.44 Gas: Proved Reserves (Thousand million barrels) 4.20 3.99 4.34 4.41 4.38 4.74 5.41 5.46 5.73 5.73 Production Oil: Production (Thousand barrels daily) 528 526 529 531 588 671 786 915 944 1,004 Natural Gas: Production (Billion cubic feet per day) 0.61 0.65 0.68 0.73 0.87 1.02 1.09 1.06 1.16 1.22 Consumption Oil: Consumption (Thousand barrels daily) 225 230 235 234 233 239 250 269 285 297 Natural Gas: Consumption (Billion cubic feet per day) 0.61 0.65 0.68 0.72 0.73 0.84 0.88 0.86 0.95 1.04 Source: BP Statistical Review of World Energy 2014; ANH Informe de Gestión 2013 6 Colombia has 4 main challenges in order to increase its production and reserves: In order to increase the levels of oil reserves, areas of geographical 1. Improve the recovery concentration have been noticed. Companies are continuing to drill factor from existing exploratory conventional wells in these areas, while pursuing secondary fields. and tertiary recovery methods to increase
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