How To Do Business in Colombia

Colombia has become one of the continent’s best prospects, with 100-percent stakes in fields for international oil firms on the road ahead

May 09, 2016

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Colombia has gone from poster child of non-governance to one of the continent’s best prospects, with wars fading into the rearview mirror and 100 percent field stakes for international oil firms now
a reality.

Opportunities

Despite its status as a failed state of the 1990s, rife with kidnapping, guerilla warfare and drugs, Colombia today is one of the best South American economies for oil firms to invest in. Which is why the Petroleum Services Association of Canada (PSAC) sent a delegation there earlier this year to check out the lay of the land. Canadian oil firms have invested in Colombia since the 1920s, when Canadian-based International Petroleum Corporation owned Tropical Oil and Andian Pipeline Company.

A new free trade agreement between Canada and Colombia and the strong presence of Canadian companies, including Petrominerales, Gran Tierra Energy and Parex Resources “provide[s] an excellent opportunity for Canadian service companies to boost optimization with drilling and completion technologies,” PSAC president Mark Salkeld says. Overall, the political environment in Colombia looks better today than it has in a long time, and the Alberta Trade Commissioner and Canadian Global Affairs now maintain offices there.

Colombia’s oil production has increased since 2007 to about one million b/d of liquids, spurred by regulatory reforms. The oil sector’s US$4.9 billion in foreign direct investment (FDI) in 2013 accounted for 30 percent of the country’s total FDI.

According to Oil and Gas Journal (OGJ), Colombia has about 2.4 billion barrels of proved crude oil reserves. Foreign oil companies can now own 100 percent stakes in oil ventures and can compete with state-owned Ecopetrol, of which the government has sold 10 percent to private investors.

More positive news is that the government and FARC rebels expect to sign a peace deal later this year after more than three years of talks, despite missing a March 23 deadline to sign a final agreement. The deal, once approved by a referendum, will end more than five decades of a war that has killed more than 200,000 people.

Risks

Labor issues in Colombia are a legal and public relations minefield, which Canadian oil company Pacific Rubiales Energy is now trying to navigate. In 2013, representatives of nine Canadian trade unions and NGOs headed to Colombia for a hearing of the firm’s alleged labor abuse. The hearing was part of the People’s Tribunal on Extractive Policies in Colombia, organized by Colombian NGOs and the national oil workers union. Pacific Rubiales Energy is the largest foreign oil company operating in the country, producing 40 percent of its crude and employing 15,000 workers. Since 2011, it has been caught up in a conflict with workers and communities near the oil fields­­—a conflict which deepened in 2012 when a subcontractor working for Pacific Rubiales, who was a labor organizer, was assassinated, allegedly for reasons connected to his trade union activities.

The president of the Communications, Energy and Paperworkers Union of Canada blamed Pacific Rubiales for the conflict and called for a moratorium on all extraction concessions in Colombia until the country revamps its policies. The unions point to the Canada-Colombia Free Trade Agreement’s commitment to labor rights, including the freedom of association, the right to collectively negotiate and the right to strike, in their defense. The Public Service Alliance of Canada condemned what it called a “lack of respect for workers’ rights and violations of the rights of local indigenous communities.” At best it was a public relations disaster for the company.

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