Oil companies turn off taps as fear of civil war grows in Colombia



America’s top Latin American ally and region’s fourth-largest oil producer Colombia finds itself shaken by anti-government protests who are now in their third week. It even rekindled fears of a new civil war in the conflict-torn Andean country. Colombia’s anti-government protests began with a nationwide strike on April 28, 2021 called by various civil society groups and unions in response to the tax reform proposed by President Duque. A huge fiscal black hole where the budget deficit reached nearly 9% of GDP is putting pressure on the cash-strapped national government in Bogota. Bill, which sought additional government returned $ 6.4 billion, if approved by Congress, would have significantly increased the tax burden on many Colombians and businesses already reeling from the substantial economic fallout from the pandemic. Even after Duque withdrew the bill, anti-government protests have grown in response to the use of brutal tactics by police and are now in their third week with no signs of abating. They are fueled by a myriad of long-standing social ills and grievances, including rapidly rising poverty, police brutality, a explosion of violence since Duque took office, growing corruption and poor healthcare.

After unsuccessful negotiation attempts, anti-government protesters established roadblocks on many main roads in Colombia, blocking the transport of essential supplies, including food, medicine and fuel. The departments of southern Colombia of Valle de Cauca, Cauca, Nariño and Putumayo are among the most affected. These events have a direct impact on the Colombian oil industry already battered after a previous round of oilfield invasions that saw the Colombian Petroleum Association (ACP – Spanish initials) publish a series of the communications (Spanish) condemning violence. Roadblocks prevent the transport of vital supplies, including water, fuel and parts, forcing some onshore oil companies to close wells and delaying exploration and development activities.

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Earlier this week, Colombia’s fourth-largest onshore oil producer, Gran Tierra Energy ad the closure of oil fields in the middle valley of the Magdalena and the basins of Putumayo, thus reducing 5,250 barrels per day of its oil production. Parex Resources, the third largest oil producer, published a media statement explaining its operations in the Llanos basin are affected by the blockades. As a result, Parex had chosen to withdraw its guidance for the second quarter of 2021, although the driller has yet to provide details on how much of its crude oil production will be affected. Parex further explained that the four six well drilling programs on the Cabrestero block will be delayed, as the exploration and seismic activities of the VIM-1, LLA-32 and VMM-46 blocks will be affected. In contrast, Colombia’s second-largest oil producer, Frontera Energy, announced this week it would maintain its production outlook for 2021 “because it has had no significant impact from recent events in Colombia”. While the largest driller, the national oil company Ecopetrol has said it is monitoring the situation, operations, including its crude oil production, have yet to be significantly affected. Ecopetrol had forecast 2021 average production of 700,000 to 710,000 barrels of crude oil per day at 81% crude oil, which in the upper range is almost 2% higher than the 697,000 barrels per day pumped in 2020.

These production shutdowns are bad news for Bogota, which is struggling to revive Colombia’s economically crucial oil industry and bring the tempo of operations back to pre-pandemic levels. For 2020, oil was responsible for almost a fifth (Spanish) government revenue, 28% of export income and 3% of gross domestic income highlighting its economic importance even during a period when oil prices were severely depressed. The latest figures from Colombia ministry of energy (Spanish) stress that the urgently needed recovery is still a long way off. March 2021 oil production fell 0.14% quarter over quarter and 6.5% year over year to 744,715 barrels per day. Of particular concern is the sharp drop in production compared to the same period a year earlier. In April 2020, the fallout from the pandemic, the fall in oil prices of March 2020 and the blocking of the quarantine in Colombia had a total impact on the crucial oil industry, leading to a sharp drop in operational activity and production. production.

If Duque is unable to find a peaceful solution that ends the blockades, the Colombian oil industry will continue to suffer from declining production. If the government deploys the combat-seasoned Colombian army to remove roadblocks, violence is highly likely to explode, with some analysts predicting the country to be on the brink of civil war again. Any escalation in violence will not only lead to a decline in vital oil production, for an industry that will not yet benefit from the promised peace dividend associated with the 2016 FARC treaty, but will have an impact on exploration as well as on the activities of development. Increased unrest and bloodshed will see wellhead attacks, pipeline bombings, extortions and even kidnappings of oil industry workers, which have been regular events two decades ago, once again commonplace.

By Matthew Smith for Oil Octobers

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