With our continued interest and dedication in providing you with the true picture of Colombia, Investment Group Colombia here explores the latest news regarding one of the more promising investment fields, crude oil production and mining. Now ranked number one as the country that best protects its investors and number three as the most business friendly country in Latin America, Colombia is attracting billions of dollars in outside petroleum and mining investment funds. This is the result of low tax and royalty rates as well as liberal and attractive business incentives for both private-sector producers and investors.
Ranked behind both Brazil and Venezuela, Colombia is now South America’s third-largest oil producer and is projected to be producing in excess of 1.2 million barrels of crude per day by 2012. According to government sources, that is nearly twice current production levels. Colombian oil industry association president, Alejandro Martínez, said in April that the nation’s daily production average would reach 800,000 barrels per day (bpd) for 2010.
State-owned Ecopetrol (NYSE:EC) is responsible for 82 percent of current production. Ecopetrol stated earlier this week that in April of last year it broke an 11-year-old export record, selling 403,510 bpd of crude oil and refined products. The previous record had been established in July of 1999, with Ecopetrol exporting 398,275 bpd of oil and refined products. Ecopetrol is the fourth-largest oil company in Latin America behind Petroleos de Venezuela S.A., Petrobras and Petroleos Mexicanos.
Colombia received $7.2 billion dollars in direct foreign investment last year, with 80% of that going to the petroleum and mining industries. This influx of both investment confidence AND dollars nearly doubled the overall petroleum and mining investment to $3.1 billion dollars. In contrast, Ecuador, South America’s fifth largest oil producer behind Argentina, received only $312 million dollars in foreign investment in 2009.
Eurasia Group analyst Patrick Esteruelas states that, “Companies are looking for the next big thing — an unexplored market — and Colombia has been popping up on the radar.” Increased royalties and taxation in both Venezuela and Ecuador have alienated many energy investors–so much so that many multinationals have pulled out.
According to Esteruelas, “Colombia is one of the few countries in Latin America that essentially offers iron-clad contractual guarantees over periods of 20 years.” “Part of the reason why Colombia, unlike many of its neighbors, was forced to provide so many tax incentives and regulatory sweeteners was precisely because they had to deal with that legacy of insecurity,” Esteruelas said. But, in addition to increased security, better technology and improved recovery rates in aging oil fields have also boosted output, said PFC Energy analyst T.J. Conway.
Nearing the $10.6 billion record of 2008, Colombia’s foreign trade ministry says it expects Colombia to top $10 billion in foreign investment this year. But, bolstered by the flood of foreign investment dollars, U.S. currency has lost 12 percent of its value this year against the Colombian peso (COP). Additionally, the Colombian government is forecasting a healthy 4.5% jump in gross domestic product this year.
Under the leadership, first, of former President Álvaro Uribe, and now, President Juan Manuel Santos (Uribe’s former Defense Minister), Colombia’s known oil reserves rose 22 percent to 1.9 billion barrels with production posting a gain of 45 percent.
But where mining interests are concerned, even before Uribe took office, investors considered the country’s gold reserves especially promising. There has never been a better time to be in the gold business. Now selling for more than $1,200 an ounce, the precious metal’s price has reached unprecedented heights. And Colombia is Latin America’s fifth-largest gold producer.
Colombia also has been the number one coal producer in South America for 39 years running.
While Peru and Chile have historically been safer bets due not just to proven reserves of gold, copper and other minerals but also greater political stability, Colombia has become increasingly competitive for mining investment.
Of Colombia’s 440,000 square miles (114 million hectares) only about 19,000 square miles (5 million hectares) have been explored, said Mario Ballesteros, Director for the Institute of Geology and Mining. 40 percent of the country is legally off-limits due to Colombia’s foresightful environmental measures of establishing National parks and reserves as well as protecting other environmentally sensitive regions.
William Tankard, an analyst with GMFS, a London-based precious metals consultancy firm states that “It’s only now that you’re seeing the product of people’s investigation coming through in the form of feasibility studies and project development.”
One of these investor/developers, Greystar Resources Ltd., a Canadian mining company, projected it could extract a total of 511,000 ounces of gold — worth up to $611 million at today’s prices — and 2.3 million ounces of silver from the Angostura deposit in the northeastern state of Santander. Greystar has invested $140 million during its 16 years of operating in Colombia.
Another investor/developer, having invested $159 million dollars in Colombia since 2002, is South African Anglo Gold Ashanti Ltd. Ashanti believes it may have unearthed a monster mine, appropriately named “La Colosa.” According to company spokesman Ivan Malaver, the La Colosa project could generate 800,000 ounces of gold annually.
As both of these projects pursue their due diligence in meeting all environmental and regulatory concerns prior to full production, new discoveries are being made and new feasibility studies are being begun almost daily by other companies. The full richness and plentitude of Colombia’s mineralogical resources has yet to be fully realized. But it is very clear that there are abundant resources beyond previous imaginations and expectations.
After years of armed conflict, perhaps the most important factor in boosting oil output and mineral exploration and development has been the improved security realized under former President Uribe. While it was Colombia’s past legacy of violence and lack of security that was largely responsible for keeping Colombia off of the investor’s map, The Colombia of yesterday is definitely not the Colombia of today. Mauricio Tellez, spokesman for state-owned Ecopetrol, which operates the national crude oil pipeline, stated that things began to change drastically in 2002 when former President Uribe directed Colombian military units to begin guarding the pipeline.
Even today, “In areas that are considered a high risk, like in the border regions with Venezuela and Ecuador, military forces will accompany oil operators,” said Armando Zamora, regulator for the National Agency of Hydrocarbons.
Ariel Avila, a researcher at the Nuevo Arco Iris think tank , states that, “The recent mining boom has been accompanied by the arrival of illegal security groups.”
According to company vice president Jose Francisco Arata, it was those “incentives” that helped persuade Colombia’s second-largest oil company, Pacific Rubiales, to begin investing in Colombia in 2004. Pacific Rubiales moved into formerly rebel-held areas of Meta and its production is now up to 125,000 barrels a day. Over the next year, Pacific Rubiales plans to invest $235 million in further exploration in the eastern plains, as well as in the lowlands of the southern state of Putumayo.
“Historically, the country’s violence hasn’t been the biggest difficulty for outside companies,” Avila said. “The biggest difficulty was that they didn’t know the region. And now that they’ve done preliminary studies and know, they’re investing more.”
No, the Colombia of today is certainly not the Colombia of yesterday! With a future as bright and shinning as any (and even brighter than most!), Colombia has entered an age of political stability and relative peace and tranquility. And with confidence and boldness, Colombia has “found its stride” and is aggressively pursuing its place at the forefront of world investment markets. It is Investment Group Colombia’s belief that, while the best is yet to come, NOW is the time to invest in Colombia. As the old saying goes, “the early bird gets the worm!” Do not miss the opportunity to not only invest in, but to also experience one of the most beautiful culturally rich and diverse countries in the world… invest in and experience Colombia!