Environmental permitting: The bottleneck

Companies have complained about permitting delays across the board in the areas of seismic exploration, well creation and field development. Orlando Cabrales, former president of the ANH, told Bloomberg News that with an increase in the number of companies seeking permits for exploration and production, wait times have doubled in some instances. Even state-owned Ecopetrol saw delays in environmental permits during 2012. Such delays have led to the fear that Colombia will continue to fail to breach its current seven year limit on oil reserves, and stagnation and decline are two words which observers have become accustomed to reading.

Oil is Colombia's number one export; however, Colombian production is currently out-performing the discovery of new reserves, lowering the reserves-to-production ratio (RPR). The fact that 75% of basins in Colombia remain underdeveloped, a large amount of which have not even seen seismic acquisition, highlights the regulatory inertia.

“Colombia in 2012 produced approximately 345 million barrels of oil equivalent but I have doubts about how sustainable it can be,” says Nightingale of Gran Tierra. “Colombia has the expertise and the resources in order to sustain or even increase the proposed growth targets, but in 2012 exploration wells discovered approximately 150 million barrels, that represents a 200 million barrel shortfall to replace reserves that have been produced. According to the ANH data, in 2012 there were 132 exploration wells drilled in Colombia, which resulted in the 150 million barrels of reserves found. Basic logic suggests, at current rates of discovery and taking the mean field size being discovered, that the operators need to drill more wells to replace the reserves being produced and definitely many more exploration wells if the desired growth targets stand a chance of being achieved.”

The Autoridad Nacional de Licencias Ambientales (ANLA), Colombia's environmental regulator, may be just three years old but is under huge pressure to tackle the delays which are holding back progression of the whole industry.

Many suggest that the recent restructuring of the permitting process is to blame for delays. In return the government would suggest that the restructuring was a necessary reaction to increased demand and the delays are simply a consequence of that. “At the beginning of the recent oil boom, it was much easier for the companies present in the market,” says Nelson Navarrete, president and CEO of Petroamerica Oil, which moved successfully into commercial production in 2013. “There were attractive fiscal terms, as we see today, but in addition there was excess capacity in the pipeline network. At that stage, the environmental permitting process was much like anywhere else in the world, and there were few complaints. However, as the market grew and many new companies entered, the authorities had to restructure the environmental permitting process and with that restructuring came the delays we hear so much about today. In reality, however, the time taken for environmental permitting in Colombia is much less than that of the US or Canada for example.”

If ANLA is to succeed, it needs to identify the main issues affecting the speed of permitting, which many suggest may be due to staffing shortfalls at the regulatory authority. “Of course more can be done to improve the environmental permitting process. The government should consider appointing more people to ANLA and the Ministry of Environment, which is overworked and unable to process all the applications. This is delaying Colombia from reaching the levels of production it expects. I am 99% sure solving these problems would result in a dramatic improvement,” says Omar Leal Quiroz, president of OMEGA Energy Colombia.

“The exploration timeline at our Buenavista field,” he continues, “depends on when we receive our environmental license. We applied for it a year and a half ago and it is taking longer than expected. With the new rules, we had to do public consultations. The permitting process has been very tough because there has been local conflict against the company acquiring the seismic for our neighbour, which has caused problems for us too. There is a lot of contamination in the region, and with little knowledge of our environmentally responsible plans, the public fears the same from us. Perhaps to gain votes, local politicians create a lot of publicity about matters they do not understand. OMEGA Energy has plans to drill a large number of wells at Buenavista as soon as the license is granted.”

This report was prepared by Caroline Stern, Alice Pascoletti, Ramzy Bamieh and Josie Perez of Global Business Reports. For more information contact info@gbreports.com.