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Harken Energy Corporation (HEC) Message Board

  • dhrosier dhrosier Apr 22, 1998 2:27 PM Flag

    Colombia Grapples With Exodus of Oil Com

    This article appeared on page A12 in the Monday, April 20 edition of the Wall Street Journal. The URL is immediately below for the page on the WSJ interactive site. In case you have to subscribe to the online service to get to the page I have tried to copy it below.

    href=http://interactive.wsj.com/archive/retrieve@1.cgi?dhrosier/text/wsjie/data/SB893013140499130000.djm/&NVP=&template=news-search.tmpl&form=news-search.html&dbname=wsjie%2Findex&dbname=autowire%2Findex&dbname=barrons%2Findex&dbname=djon%2Findex&words=Colombia+oil+&any-all=AND&maxitems=30&HI=27
    target=new
    >http://interactive.wsj.com/archive/retrieve@1.cgi?dhrosier/text/wsjie/data/SB893013140499130000.djm/&NVP=&template=news-search.tmpl&form=news-search.html&dbname=wsjie%2Findex&dbname=autowire%2Findex&dbname=barrons%2Findex&dbname=djon%2Findex&words=Colombia+oil+&any-all=AND&maxitems=30&HI=27


    Any thoughts as to this being a negative or positive for Harken and the other companies discussed on this thread? (SEV, PKC and ROH) On the one hand, it is certainly a vote of "No Confidence" by some very savvy oil men. On the other, it should be a wake up call for Colombia regarding onerous terms they have demanded in excange for drilling rights. The rebels have been specific in their objections to more favorable terms in the contracts.

    The "copy" of the 1st half of the story follows (the whole thing is too long to post, the balance will follow):

    Oil Companies Leaving Colombia; Unattractive Contracts Key Reason
    By THOMAS T. VOGEL JR.
    Staff Reporter of THE WALL STREET JOURNAL

    Oil companies are pulling out of Colombia, once the hottest spot for new petroleum investment in Latin America.

    Over the past few months Lasmo PLC, Triton Energy Ltd., Royal Dutch/Shell Group and British Petroleum PLC, among others, have decided to scale back exploration and production operations or put their projects up for sale and leave.

    Thanks to inflexible and unattractive contract terms over the years, growing problems with guerrilla violence, and more-intense competition among developing nations for new petroleum investment, oil companies drilled just 18 exploratory wells last year in Colombia, down from 76 in 1988.

    The reduced exploration has meant a slowdown in Colombia's buildup of proven oil reserves. Government officials recently warned that the country might have to import oil by 2005 if the pattern continues. Oil became Colombia's biggest traditional export for the first time in 1996.

    Colombia is trying to play down the exodus at the same time that it scrambles to attract badly needed new investment. Colombian oil officials hit the road last week to talk up 36 proposed exploration and production projects and reverse the decade-long decline in exploration.

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    • The URL was so long it messed up the format. Sorry 'bout that!

      Notice that Seven Seas dipped today, I guess on the low rating (CCC+) S&P gave their debt. This looks like a buying opportunity. The fact that there is risk involved in SEV should be no surprise to anyone here.

      Following is part 2 of 3 of the WSJ article. It is still too long for Yhoo post.

      'Oil Capital Migrates'

      "It's not true that investors don't like Colombia," says Oil Minister Orlando Cabrales. "The problem is that oil capital migrates and it can go to other countries," he says. "We always have companies coming and going."

      Mr. Cabrales bristles at comments that Colombia has been unresponsive for too long to concerns about contractual terms. "Tell them they are liars," he says. "This isn't true now and it wasn't true before."

      Colombia's recent efforts to mend fences show the government is sensitive to the problem. But oil industry officials say the efforts may be a case of too little, too late.

      "The industry doesn't understand" why Colombia has taken so long to fix its problems, says Jay Gallagher, editor of the International Oil Letter, a publication of oil consultancy Petroconsultants of Houston. Inflexibility with old contracts meant "it simply was not feasible for many companies to continue investing there," as the costs of security rose and more-attractive opportunities surged elsewhere.

      • 1 Reply to dhrosier
      • Part 3 and the last, I hope.

        Venezuela Beckons

        Lasmo has decided to concentrate its resources elsewhere, like neighboring Venezuela, which opened up to foreign oil
        investment in 1996 and has attracted billions of dollars so far. What's more, Venezuela doesn't have any guerrillas blowing up
        pipelines, as happened 65 times last year in Colombia. British Petroleum moved its regional headquarters from Bogota to Caracas last
        year. Shell has shelved plans for onshore oil exploration in Colombia, although it signed a deal for offshore gas exploration
        earlier this month. Triton, which made a name for itself with the discovery of a huge gusher in Colombia in 1991, has hired bankers
        for a possible sale of its Colombian interests.

        Still, Colombia hopes the proposed new projects will replenish proven reserves by four billion barrels by 2008 and increase exploratory drilling up to 60 wells yearly by 2001, says Mr. Cabrales. Colombia's reserves currently are less than three billion barrels, he says.

        But some oil company executives in Colombia believe the Andean nation needs up to 100 new exploratory wells each year to avoid net imports. The nation has dawdled too long and lost its competitive advantage over other developing nations, they say.

        Colombia has been hamstrung with guerrilla violence over the past two years, but its inability to create more-attractive contract terms over the past decade may have done more to drive companies out.

        "The security issue is a factor ... but contract terms are not realistic," says one consultant for a number of oil companies in Colombia.

        Sliding-Scale Problem

        One of the key problems was a 1989 modification that changed exploration contracts to a sliding scale. Instead of evenly splitting revenues from new oil production for the life of the contract, the government's take would increase to 60% and later 70% as certain total production levels were achieved. This doesn't include huge outlays for exploration, which could increase the government's effective take to more than 90%.

        "This was very negative for exploration," says one oil executive, "so seismic exploration and exploratory wells dropped."

        Oil companies tried for years to modify these contracts with little success. In 1994, the government eliminated the sliding scale for new contracts but not for old ones, which remained in force. The old contracts accounted for most of Colombia's most-promising fields. Last month, the state oil company Ecopetrol announced changes in old contracts that would allow credit for a greater portion of exploration costs in calculating the government's take.

        Now, oil companies have a shot at reducing the government's take, including exploration costs, from more than 90% of oil revenues in some cases to less than 85%.

 

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