COLOMBIA'S ECOPETROL OUTLINES DATA ON NEW ACREAGE OFFERING

Empresa Colombiana de Petroleos (Ecopetrol) has released more details on Colombia's first competitive international petroleum licensing round.

The offering kicks off a campaign to induce more foreign companies to explore for, develop, and produce hydrocarbons in the country. Colombia aims to increase its oil production to about 1 million b/d from about 455,000 b/d at present.

Ecopetrol is seeking to build on heightened global interest in Colombia's oil and gas prospects on the heels of Cusiana and Cupiagua field discoveries in the Llanos basin. In view of increasing competition worldwide for capital to fund upstream oil and gas deals, Colombia has revised its association contracts to boost the economic attractiveness of developing the country's oil and gas resources.

Colombia currently is offering 21 tracts covering 38,400 sq km in the Llanos, Putumayo, and Upper Magdalena basins. Papers published in Oil & Gas journal detailed the geology of the regions (OGJ, May 16, p. 66; May 23, p. 85; and May 30, p. 93).

Acreage is to be assigned on the basis of a point system described in bid documents and fashioned to reward companies most willing to drill wells, collect geophysical and geological data, and apply new technology on the tracts. Winning bids must propose work programs that exceed minimum requirements.

The licensing round will close July 18. Qualified bids must reach Ecopetrol's Bogota headquarters by noon that day. Awards are to be announced by the end of July.

ACREAGE DESCRIPTIONS

Colombia, with assistance of Intera Information Technologies Ltd., Henley on Thames, England, has presented details about the acreage on offer, bidding procedures, and fiscal conditions in a series of technical and commercial seminars. Presentations occurred in Bogota, Houston, Calgary, and London.

Ecopetrol estimates combined proved reserves of the three basins in which acreage is being tendered at more than 4.4 billion bbl of oil equivalent (BOE). Undiscovered reserves of tracts on offer are estimated at more than 980 million BOE, including:

830 million BOE on 14 tracts covering 30,000 sq km in the Llanos basin.
82 million BOE on two tracts covering 4,900 sq km in the Putumayo basin.
71 million BOE on five tracts covering 3,500 sq km in the Upper Magdalena basin.

Ninety-seven wells have been drilled on the blocks-52 in Llanos, 25 in Putumayo, and 20 in Upper Magdalena. About 10,780 line km of seismic data have been acquired on the acreage tendered-7,400 line km in Llanos, 1,680 line km in Putumayo, and 1,700 line km in Upper Magdalena.

Based on geological and geophysical data, Ecopetrol has identified 19 types of plays and 149 leads and prospects on the tracts to be licensed. Structural and nonstructural traps occurring across the acreage include extensional, compressional, strike-slip, and stratigraphic, with combined capacity estimated at about 23 billion BOE.

Reserves of Colombia's largest Llanos discoveries-Cusiana-Cupiagua and Cano Limon-are estimated at 1.5 billion BOE and 1.4 billion BOE, respectively. But Ecopetrol expects discoveries on acreage tendered in the offering to average 8.8 million BOE in Llanos, 5.4 million BOE in Putumayo, and 1.95 million BOE in Upper Magdalena.

BIDDING PROCEDURE

A company may bid for one or more tracts on its own behalf or that of a group.

To be eligible to submit a bid, a company or group is required to buy a $1,000 package of bid documents from Ecopetrol and at least one data package from Intera describing the technical attributes of each basin.

Each data package includes about 25% of paper seismic data available in each basin, 90% of available paper well logs, a digitized paper shot point base map, and an Intera technical interpretation and evaluation. The latter Intera reports discuss in detail basin petroleum geology and document plays, leads, and prospects and assess risks.

Each basin data packet is priced at $20,000, and all three may be purchased. Some data are being withheld under confidentiality agreements with associates/operators of fields near the tracts tendered.

Companies wishing to view all available data may schedule a visit to any or all of four data rooms set up at Ecopetrol's offices in Bogota, including one room each for Putumayo and Upper Magdalena and two rooms for Llanos. Ecopetrol will allow each company as many as 4 days access to each data room at a cost of $1,000/day/room.

The data rooms opened Apr. 19 and are to close July 15.

CONTRACT REVISIONS

Current oil and gas exploration and production in Colombia are governed by 82 active association contracts with Ecopetrol involving 57 companies and 34 operators. Since introduced in 1974, more than 360 association contracts have been signed.

Despite acceptance of the contracts, Ecopetrol has put in place for Colombia's first competitive tender a series of changes to provide fiscal incentives believed required to allow profitable development of fields too small to rate a "giant" classification.

Production sharing splits between Ecopetrol and associates under the revised association contracts henceforth are to slide on a scale based on the shifting balance between spending and income in each field. Shares are to be determined by an "R" factor, defined as the ratio between accumulated income derived by an associate from a given field and the associate's cumulative exploration and development costs.

For example:

If R in a specific field is less than 1, the associate's share of production will be 50%.
If R is more than 1 but less than 2, the associate's take is to become 50% of production/R.
If R exceeds 2, the associate receives 25% of field production.

Also under Colombia's revised association contract, Ecopetrol will allow full reimbursement of exploratory and/or appraisal wells leading to field discoveries and developments. As much as 50% of dry wildcat or appraisal well costs can be reimbursed from 5% of the first 30 million bbl of production.

Ecopetrol also plans to reduce pipeline transportation tariffs to an average $3.50/bbl this year and $3/bbl in 1995 from $7/bbl.

TERMS AND ECONOMICS

Colombia's association contract has a 28 year term that includes an initial exploration term of 3 years. An optional 3 year exploratory phase extension is allowed.

In addition to Ecopetrol's 50-75% share of production, Colombia receives a 20% royalty. Associates also must pay an income tax of 37.5%, decreasing to 30%; a 12% remittance tax; and a $1/bbl war tax during a field's first 6 years of production.

To estimate attractiveness of each basin, Ecopetrol modeled the economics of three hypothetical discoveries, with oil selling for $14/bbl, escalating at 3.5%/year to $30/bbl in 2018. Operating expenses and investment were allowed to rise at the same rate.

Given those factors, an associate participating in:

A 10 million BOE discovery in the Putumayo basin, where production began within 2 years, operating expenses averaged $1.50/bbl, and Ecopetrol contributed half of a gross investment of $27 million, would retain 24% of gross revenue after Ecopetrol and government takes.
A 100 million BOE discovery in the Upper Magdalena basin where production began within 3 years, operating costs averaged $1.65/bbl, and Ecopetrol contributed half of a $103 million gross investment, would retain 22% of gross revenue.
A near giant 950 million BOE discovery in the Llanos basin where production began within 3 years, operating costs averaged $2/bbl, and Ecopetrol contributed half of a gross investment of $2 billion, would retain 32% of gross revenue.