Mexico Energy Reform Gives Colombia the JittersSep 11 2014
The following interview was originally printed by Business News Americas. It is being republished with the permission of the author and publishers.
The Inter-American Dialogue recently held a closed-door event which brought together Colombia’s new mines and energy minister, Tomás González, with CEOs, industry association heads and regulators.
In the first of a two-part series, Inter-American Dialogue’s energy, climate change and extractive industries program director Lisa Viscidi talks to BNamericas about how the Colombian government is looking to increase oil reserves and maintain competitiveness as Mexico opens its hydrocarbons market.
BNamericas: The Colombian government has been promoting unconventional and offshore development as a way to boost reserves. Yet it only tendered one unconventional block during the latest licensing round. Has this changed the way they think about pursuing unconventional hydrocarbons development?
Viscidi: They recognize that there were some problems with the tender, particularly the terms and the regulatory framework for the unconventional blocks. There was a lack of clarity and the companies weren’t given information in a timely manner.
The [mines and energy] ministry says that they’re going to adjust the regulatory framework for unconventionals. They’re going to make it clearer and possibly more attractive for unconventionals. And I think that that will help, but the problem is that all the other issues with unconventionals are still going to exist, in particular, the environmental licenses and the relationships with communities. Even if you change the regulatory framework and make it clearer, you still have to address these issues. Unconventional drilling has a big impact on the local community, so if you can’t resolve the issues with the local communities it’s going to be very hard for them to award the blocks, even if they make the regulatory framework and rules clearer.
BNamericas: The Colombian government had more success tendering offshore blocks during the last licensing round. Were they happy with the result?
Viscidi: I think they were happy with it. They said offshore needs to be competitive and they were obviously happy that some IOCs [independent oil companies] bid for offshore blocks. But I think the terms they offered in that case were very attractive. So the question is, is that sustainable? They need to make sure that they’re bringing in enough revenue and not giving too much away.
BNamericas: Is the opening of Mexico’s hydrocarbons market a major concern for the Colombian government?
Viscidi: Yes. I think it’s a huge concern. Mexico was brought up constantly. And I think in a way it makes sense. Colombia has never had a lot of interest from the majors, so they’re not competing with major IOC-led deepwater projects in the Gulf of Mexico. Colombia has never been on that scale. They don’t have the resources.
But even in Mexico there’s going to be opportunities for mid-sized companies and I think that’s where they’re going to see competition. And there’s major concern about it. The issue of competitiveness came up constantly.
BNamericas: Do you think it’s a realistic concern that junior oil firms already established in Colombia might pull up stakes and head to Mexico?
Viscidi: I think it’s possible. I think they’re at the point now where they’re increasingly unhappy about the conditions and if things continue as they are or get worse, they may start to rethink investments. In some cases, they’re already invested and the cost is too high to pull out. So I think the concern is more about new investment. If you’re looking at a bid round in Colombia versus a bid round in Mexico, Mexico could be a lot more attractive. I think it would take a lot more for companies to pull out of Colombia. I think for the most part they’re going to just try and make it work, but eventually you could also see that.