Shell awarded two offshore E&P contracts in Colombia

12 March 2019, Week 10, Issue 754

Royal Dutch Shell has secured two offshore E&P contracts from the Colombian government, as activity off the country’s Caribbean coast ramps up. The company has agreed to spend US$100 million exploring the COL 3 and GUA OFF 3 blocks, which cover a total area of around 8,800 square km.

The head of Colombia's National Hydrocarbons Agency (ANH), Luis Miguel Morelli, said Shell’s investment in the blocks could ramp up to as much as US$650 million should its initial exploration work prove to be successful. 

The award of these contracts is a sign of the market’s positive response to the recent contractual tweaks made by the government to spur greater offshore E&P. The changes, which came into effect on March 1, include arbitration to settle disagreements between producers and pledges to improve the conditions for communities living close to offshore projects. Companies that want to extend offshore contracts will have to pay an additional 5% in royalties to the government. 

Hot on the heels of the new changes coming into effect the ANH announced on March 4 that state-run Ecopetrol had been awarded the drilling rights for the 4,000 square km COL-5 block located off the country’s Caribbean coast. Ecopetrol is to invest more than US$250 million in COL-5 to acquire and process 3D seismic data and drill at least two exploratory wells. The company is seeking a farm-in partner to develop the block, which sits adjacent to its Purple Angel and Fuerte Sur concessions. 

The COL-5 contract award came shortly after the ANH reported on February 27 that Ecopetrol and Brazil’s Petrobras would revive a joint venture to explore for prospects in the Tayrona block, also in the Caribbean. The JV, formed in 2004, aims to invest about US$140 million in drilling two exploratory wells over a four-year period. Petrobras will operate the block and have a 44.44% stake, with Ecopetrol holding the remaining 55.56%. 

Morelli noted that another five offshore contracts were currently being negotiated. "If we manage to sign nine contracts we will have more than US$1.5 billion of investment [committed]," adding that this could yield reserves of up to 2 billion barrels. "Everything depends on what is discovered – the aim is oil but there are possibilities for gas," he said. 

There have been several significant offshore discoveries in recent years, including a natural gas find at the Gorgon-1 well in May 2017 by Ecopetrol and US-based Anadarko. 

Offshore development is seen as the key to Colombia’s success as an oil and gas producer in the future. Although production is creeping up – crude output in January reached 899,000 bpd, the highest level since May 2016 – exploration and seismic activity remain low, with onshore operators discouraged by red tape and frequent social unrest. 

The country has proven reserves of 1.78 billion barrels of oil, which is only equivalent to 5.7 years of output at current production rates. 

Colombia’s last new offshore contracts were awarded in 2014, but the government delayed subsequent bid rounds following the oil price crash of that year. 

Edited by

Ryan Stevenson

Managing Editor

Any questions? Please get in touch