After tumultuous year, Colombia's oil sector looks set to tighten its belt
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After tumultuous year, Colombia's oil sector looks set to tighten its belt

Colombia’s oil sector looks set to end 2015 on a low note as slow exploration markets and declining global crude prices could cause the sector’s income to drop by as much as 60 percent.

For Latin America’s fourth largest oil-producer, the hydrocarbons sector is not such a large earner as it is for neighboring Brazil or market contender Mexico; however, 20 percent of the Colombian government’s revenue comes from crude. As the peso dropped against the dollar again this month, the fluctuating currency wrought havoc on oil prices and national revenue.

The government expects 9.5 trillion pesos (US$3.5 billion) in oil revenue this year — less than half of 2013’s total income — as lower oil prices are set to to reduce the oil industry’s tax and royalty payments, Finance Minister Mauricio Cárdenas said.

Furthermore, as oil sector layoffs appear set to continue through this year and into the next, union grumblings and potential strike action could potentially cause yet more upheaval for the sector.

Larger firms such as Ecopetrol, Colombia’s biggest oil company, have been worse hit by the country’s ongoing problems. Following a discussion in Congress of the firm’s significant debts, Ecopetrol hit back with an optimistic recovery plan that reached into 2016 and beyond. Under the plan, new exploration will be key to ensure that Colombia’s oil sector remains on the global map, as the company seeks to increase offshore drilling and output from its well-established fields.

Only six exploratory onshore wells were drilled in January and February of this year, compared to 20 during the same period in 2014, according to Colombia’s oil industry association, ACP.

Colombia could lose its “self-sufficiency,” said ACP president Francisco Lloreda.

“The sector will lose dynamism and no longer be a driver of development,” he said, adding that new exploration goals will be key to ensuring that Ecopetrol remains a key national contender.

However, as the peace negotiations between the government and FARC rebels drag on, amid pipeline attacks that act as constant reminders that the internal conflict has yet to be resolved, the company is not out of the woods yet. The recent bombing of a pipeline in Colombia’s Putumayo region could also leave the company with a full-blown environmental crisis on their hands.

With what could be a difficult few months ahead, Ecopetrol looks set to tighten its belt and focus on meeting targets for the second half of the year.

National firms are not the only ones that have been affected, either. Canada-based Pacific Rubiales Energy has also faced an overhaul of its Colombian operations. After deciding not to operate its large Colombian field earlier this year, the company has faced economic upheaval, with lower earnings and slashed 2015 capital expenditures having a negative effect on investors.

Furthermore, with Pacific’s proposed sale to Alfa and Harbour Energy Ltd. facing further hold-ups due to red tape, the proposed takeover could be the final nail in the coffin for the once-successful company.

With 43 percent of companies in Colombia’s oil sector at high risk of going bankrupt, according to a survey presented to Colombia’s Congress in April, many are asking if the country will be able to attract and maintain international investment?

As Russian and Iraqi fields present an easy alternative for multinational firms, Colombia may now have to fight even harder to maintain its grasp on current investment.

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