Colombia Auctions Off Oil Fields, Aiming to Boost Reserves

  By Dan Molinski 
 

BOGOTA--Colombia auctioned off the rights for oil companies to explore new, promising oil fields Wednesday as it seeks to boost reserves of crude oil, which has quickly become its dominant export and the source of more than half its foreign revenue.

In first-round bidding for 115 available oil blocks, the government received offers on 49 of them from 37 different oil companies, including ExxonMobil Corp. (XOM) and Colombia's state-controlled energy firm Ecopetrol (EC), the government's oil licensing agency ANH said in a statement. The 49 bids received were just shy of ANH's goal of securing 50 bids, but it said it will re-open bidding next month in the hopes of receiving another five to 10 offers.

"The results were positive given 43% of the blocks received bids," the ANH said.

The oil auction, the first such event in two years in Colombia, is expected to secure about $2.6 billion worth of new investment in oil exploration during the next four years.

Colombia is Latin America's fourth-largest oil producer after seeing a huge boom in oil output since 2005, doubling production during that time to nearly 1 million barrels a day. But while new, productive wells are consistently drawing fresh oil, the country needs a big discovery or two to maintain production levels and build up reserves. Its proven reserves of 2.3 billion barrels might only last another eight years without more oil finds.

Colombia's government, as well as the many foreign oil companies operating in the country, hope to be able to expand oil exploration rapidly if the government's just-launched peace talks with Colombia's main leftist guerrilla group, the Revolutionary Armed Forces of Colombia, or FARC, prove successful. The oil industry in Colombia has long been a favorite target of the FARC for bombings, kidnappings and sabotage, which often forces the delay or cancellation of planned oil-exploration projects in regions that are rebel strongholds.

While new oil discoveries and higher production rates would undoubtedly be a short-term positive for Colombia's economy, which grew 5.9% last year, some observers warn the South American nation may be becoming too dependent on oil.

"Increasing the size of the oil sector will further expose Colombia to fluctuations in global commodity prices," warned Capital Economics in a research note Wednesday. "Expansion of the oil sector may lead to 'Dutch Disease' [in which] the commodities sector crowds out the non-resources sector, particularly manufacturing."

-Write to Dan Molinski at [e-mail]