Global Policy Forum

Safeguarding Colombia's Oil


By Juan Forero

New York Times
October 22, 2004

In the biggest, most ambitious army offensive in Colombia's 40-year rebel war, 18,000 counterinsurgency troops have since January fanned out across four isolated southern states, a lawless swath that for years functioned as a de facto republic for Marxist rebels. Aided by American helicopters, planning and surveillance, Colombian forces have the stated goal of penetrating the historic heart of Colombia's largest rebel group to "strike a decisive blow to narco-terrorists," as Gen. James Hill, the commander of United States forces in Latin America, put it earlier this year. But the Washington-backed offensive has another motive, oil and military authorities say, one that Colombian and American officials only gingerly discuss: to make potentially oil-rich regions safe for exploration by private companies and the government-run oil company.

With Colombian oil production falling and the Bush administration eagerly seeking to diversify American oil imports, Colombia's government has made securing potentially lucrative oil basins and other energy infrastructure a cornerstone of its efforts to pacify this vast country. "For the military, the priority is to protect and provide confidence for investors, in particular in the petroleum sector," said Mauricio Salgar, operations director for Ecopetrol, the state oil firm. "For the investor, it's important that he know that in Colombia he has an ally." The policy's twin emphasis of protecting oil production and challenging Colombia's most formidable rebel group, the Revolutionary Armed Forces of Colombia, is most apparent here in Putumayo province, where coca once grew like weeds and rebels freely controlled roads and towns.

One of the newcomers is Petrotesting Colombia, a small, spirited homegrown company that has made the production of crude in dangerous corners of Colombia something of a specialty. But it does not operate here alone.Four hundred troops patrol a narrow dirt road used by tankers to transport crude. At one Petrotesting well, soldiers with Galil assault rifles stand guard from a heavily fortified base circled by a dozen sandbag bunkers."We went in with the support of the armed forces," Frank C. Kanayet, the company's president, said in an interview in at the company's new offices in Bogotá. "Without government support, we would not have been able to come in."

Much of the coca, used to produce cocaine, has been destroyed here in an American-funded eradication drive. The soldiers who now stand guard in the wilting heat say they have been told their job is vital - ensuring that the oil and government revenues flow. Lately, they have been in an upbeat mood. "All of this belonged to the guerrillas," said Lt. Luis Villalba, the young commander of a group of soldiers standing sentry. "Now it belongs to the army." Such boasts may be premature. Across four provinces, the guerrillas have melted into the jungle, avoiding direct confrontations. But they have left behind snipers and land mines that have bogged down army forces, killed about 50 soldiers and wounded hundreds. Here in the cattle pastures and jungles south of the Putumayo River, the rebels also recently burned nine tankers carrying Petrotesting's oil and killed one driver. "They've told us, 'This is our crude, and you are only helping the multinationals,' " said José Ney, 44, whose tanker was set on fire by rebels in September. "If they stop me again, they'll kill me."

Still, for the first time in years, soldiers and police have arrived in isolated pockets of this province, as well as forgotten regions of three others, Caquetá, Meta and Guaviare. And while bombings against infrastructure like oil pipelines and wells continue in Putumayo, the attacks have fallen from 149 in 2003 to 58 this year through mid-October. The military and oil company representatives credit two battalions created just to guard oil infrastructure. They and other units protect such companies as Argosy Energy International of Houston, which has 15 wells in Putumayo, and Petrobank Energy and Resources, a Canadian oil producer that has banked much of its future in Colombia on tapping into an oil deposit in the Orito region that may contain a billion barrels. "There's a feeling of safety, that we're keeping the peace," said Major Pedro Sánchez, an 18-year counterinsurgency specialist who is the second in command of the battalion that protects oil installations in Orito. "We've provided confidence so companies can explore here."

Employing Colombia's 200,000-member army to further oil interests is seen as critical to President í?lvaro Uribe's ambitious plans to boost oil production. Oil is Colombia's No. 1 export, providing nearly a third of the state's revenues. Latin America's third-largest exporter of oil, Colombia has long been among the top 10 suppliers of crude to the United States. But a worsening conflict, coupled with contract terms that prospective investors found unpalatable, prompted oil companies to abandon the country and caused exploration to stagnate. From production of 830,000 barrels a day in 1999, Colombia now pumps 535,000 daily.

With many of the country's major fields fast declining, like Occidental Petroleum's Caño Limón and BP's Cusiana and Cupiagua, energy planners here say Colombia will become a net importer by 2009 unless new discoveries are made. That means luring oil companies, large and small, even to regions like Putumayo, where energy planners say production of just 10,000 barrels a day could easily quadruple with more exploration. "Whatever barrel of oil that's out there, we're going to go after aggressively," said Mr. Salgar, the Ecopetrol director of operations. "Some of these fields are very small, but we think they are all important. One barrel of oil is better than no barrels."

Though unproven, Colombian energy officials believe the country may contain 47 billion barrels of oil, an estimate based on Colombia's proximity to its oil-rich neighbor, Venezuela, with which it shares much of the same oil-producing geology. Colombia, however, is vastly underexplored, with exploration and production going on in only 7 of the nation's 18 sedimentary basins, Ecopetrol officials said. To spur exploration, the state in 2001 reduced Ecopetrol's mandatory share in joint ventures from 50 percent to 30 percent. Then, in 2002, the government replaced its flat 20 percent royalty with a sliding scale that enhances the financial viability of small projects.

In April, the state went further, eliminating Ecopetrol's required participation in projects. Taxes were also reduced, the lifespan of contracts extended and the awarding of concessions made more flexible. Ecopetrol itself was split into two units, one devoted to developing business. The scope of the changes prompted the regional president of one major oil company, who asked that his name not be used, to remark: "The government is literally desperate." Armando Zamora, director of the National Hydrocarbon Agency, which administers concessions, agreed. "We were anguished and that's what permitted us to undertake these reforms."

The measures have attracted attention and business. The biggest catch this year has been Exxon Mobil, which along with Petrobras, a long-time oil producer here, took advantage of beneficial terms to undertake an ambitious offshore exploration project. Other big companies like ChevronTexaco and Occidental Petroleum have extended natural gas and oil contracts. The Harken Energy Corporation, Repsol-YPF of Spain, Hocol and several smaller companies have in recent months signed either exploration contracts or viability agreements that will likely lead to exploration.

In all, 20 exploration contracts have been signed this year, continuing a trend from 2003, when 21 companies signed contracts. In 2002, when the conflict was raging and before new terms were introduced, 14 contracts were signed. But the state realized that it needed to address security if it wanted oil companies to explore in regions like the foothills of the Andes in Meta and Casanare provinces or in the war-torn Catatumbo region in northeastern Colombia. These areas may have oil, but they are lawless and violent.

Upon taking office in August of 2002, Mr. Uribe's government stepped up its protection of power lines and reduced the theft of gasoline by right-wing paramilitary groups that had a long-standing practice of tapping into government-owned pipelines. The government also established a new office in the presidency, the Presidential Councilor for Infrastructure Protection, which meets frequently with military officials, Ecopetrol and oil officials to discuss security measures. The Bush administration, meanwhile, reversed American policy and dispatched Special Forces trainers from Fort Bragg, N.C., to train Colombian soldiers to protect a 500-mile pipeline used by Occidental Petroleum, which is based in Los Angeles, to pump crude from its northeastern oil fields.

State oil officials say the idea now is to simply get prospective companies to travel to Colombia to discuss the safety issues. "Those companies that are afraid, we tell them, 'First send your security people,' " said Mr. Zamora of the National Hydrocarbons Agency." They come down, and we take them to the Defense Ministry, the Mines and Energy Ministry, to other companies, so they can see for themselves." Such measures have raised concerns among some policy analysts who question using public funds, both American and Colombian, to benefit mostly private companies. Many of the companies are American and, like Occidental, have long lobbied Washington to back Colombia's government more strongly. American military planners have also played an important role in devising military efforts to both protect infrastructure and hit the guerrillas. "Even if the Uribe government has launched offensives in other places, the U.S. assistance has been in places that do have oil reserves," said Adam Isacson, a senior policy analyst who tracks Colombia for the Center for International Policy, an organization in Washington that promotes demilitarization and human rights. "Coincidence?"

The policies, though, have in many cases benefited ordinary Colombians long forgotten by the state. There are now security forces in all 1,100 Colombian municipalities nationwide; two years ago, nearly 200 towns had no police or soldiers. Soldiers and light tanks line vital roads near big cities where Colombians were often kidnapped. For Petrobank's Colombian subsidiary, Petrominerales, the presence of troops has been reassuring. Steven J. Benedetti, Petrominerales' general manager in Colombia, notes that the company has not gone unscathed: rebels have been attacking its wells since production began in January of 2003. Still, Mr. Benedetti remains optimistic. "It's a situation where we have to weigh the risks with the benefits," he said. "Putumayo is going to be important for a long time to come."

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