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.
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.
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%.