OIL AND ENERGY TRENDS, SEPTEMBER 2011 LOOKING AHEAD 13

LOOKING AHEAD

Colombia turns to heavy oil

Colombia’s future as an oil producer and exporterdepends increasingly on heavy oil. As production fromthe older, light crude fields declines it is being replacedby heavy crude. About 47% of Colombia’s productionis made up of oil with an API gravity of 15◦ or lower:and this proportion is set to reach 70% in future. Theheavy oil program will require massive investment bothin production and in refinery upgrading in Colombia tohandle crudes as low as 8◦ API. Colombia also hopes toexport increasing volumes, especially to Asia. In additionto the technical problems of producing and refining thecrude, Colombia also needs to deal with violent revo-lutionary groups, which have been responsible for thekilling and kidnapping of oil workers and for bombinginfrastructure including storage tanks and pipelines.

Notwithstanding these problems, Colombia hasmanaged to increase its oil production so far this yearby around 16% compared with 2010, and this has comeon top of 2010s increase of 17% over 2009. Since 2004,Colombia’s output has risen each year and the 2011 totallooks like being nearly 70% above the level in 2004, at930,000 bpd (see Table G).

Heavy production

Most of Colombia’s upstream effort is now focused onits heavy oilfields. As a result, the country’s total provenreserves are likely to see some upward revision in future,thus improving its present low reserves:production ratio(see Table G). Most of the heavy oil reserves are found inthe east of the country, which contains the Rubiales field:currently Colombia’s most productive heavy oilfield.

Together with the neighboring Quifa field, Rubialesproduces 230,000 bpd of 12.5◦ API crude. Three otherfields–Cano Sur, Casilla, and Chichimena–produce afurther 150,000 bpd: although some of the crude here isheavier. Chichimena’s crude is nearer 8◦ API. Output at

Table GColombia: Oil Reserves and Production, 2011

Proven Reserves 1.9 bn bbl∗

Reserves Remaining 6.5 years†

(kbd)Production

≤15◦ API 440>15◦ API 490Total 930

∗As at 1.1.2011†Based on 2010 productionSource: (Reserves) Oil & Gas Journal

(Other) Pearl Oil forecast

both field-complexes is set to rise. The combined pro-duction of Cano Sur, Casilla, and Chichimena is forecastto increase by a third during 2011.

Any early revision to Colombia’s proven oil reservesis likely to come from Meta state, in eastern Colombia,which contains the Rubiales field-complex. Reserves hereare estimated at just over 1 bn bbl, but the national oilcompany and Colombia’s largest producer, Ecopetrol,estimates recoverable reserves there to be in the regionof 3 bn bbl.

Ecopetrol is also working to increase recovery ratesat its heavy oilfields. The state company has invested$100 mn on secondary recovery at Rubiales and Quifa.Most of the oil is transported by pipeline to a terminalat Covenas on the Caribbean, but rising productionhas overwhelmed the capacity of the line, and increas-ing volumes of heavy crude need to be transported byroad-tankers. There is now an urgent need for morepipeline capacity, as the roads cannot handle the addi-tional tanker traffic. There have been protests in easternColombia at the congestion on the region’s roads, whichhave included the blocking of roads for several days.There are also more general problems at the Rubialesfield-complex, which have led to strikes over workingconditions and even acts of sabotage.

Improving security

A more serious threat to oil production comes fromattacks on oil workers and infrastructure by revolution-ary groups operating in the remote eastern regions ofColombia. For many years, the eastern half of Colombiawas more or less off-limits for the oil industry owing tothe activities of groups such as the Revolutionary ArmedForces of Colombia (FARC) and the National Libera-tion Army (ELN). Colombia’s total output fell steadilyfrom 840,000 bpd in 1999 to 550,000 bpd in 2004. Therevival that began in 2005 and has continued ever sincewas principally because of improvements in security inthe east that allowed Ecopetrol and other companies toproduce oil in the new, heavy oilfields.

There has, however, been a revival in the activitiesof FARC and ELN this year, which has led to mur-der of a number of oil workers and the kidnapping ofseveral more. Pipelines, road-tankers, storage facilities,and other oil industry-related infrastructure have alsobeen attacked and destroyed. The government recentlyannounced ‘‘a new security policy,’’ which will need tobe successful if Colombia has to go on increasing its oilproduction.

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14 UPSTREAM REVIEW OIL AND ENERGY TRENDS, SEPTEMBER 2011

Refining and exports

Colombia exports about 680,000 bpd, of which about340,000 bpd goes to the US. Exports to the US haverisen sharply in recent years as those from America’straditional suppliers of heavy crude–Venezuela andMexico–have declined. Colombia’s US sales in 2008were only 176,000 bpd.

Exports to the US are likely to go on rising, butColombia also wants to sell more to Asia. Sales to China

went up by 60% last year, though they remain modestat 40,000 bpd. China, India, and other parts of Asia arenevertheless seen as growing markets for Colombia’sheavy crude. The Colombians also want to refine moreat home and, to this end, they are investing $5 bn toupgrade their two main refineries, at Barrancabermejaand Cartagena to increase heavy crude processing thereby 420%, to 260,000 bpd.

UPSTREAM REVIEW

Europe

Discoveries and production

Norway: Marathon Oil Norge AS discovered oil andnatural gas at the 25/10-11 wildcat well on the EarbSouth prospect in the North Sea off Norway.

Three hydrocarbon-bearing Jurassic sandstonesequences with poor reservoir quality were discovered.The discovery well transected a 6-8 m sand sequencebelow the Draupne Shale, a 20-30 m sequence inthe Middle/Upper Jurassic, and an underlying 285 msequence in the Upper Jurassic. A 150-m thick intervalfrom this sequence was tested and oil and gas was flowedto the surface but a stable flow was not achieved.

The Earb South reservoir appears to be quite tight,and further work will be needed to determine whetherthe discovery can be commercialized.

Marathon is operator of the license with 35% interest.Lundin Petroleum AB, Stockholm, has 30%, VNGNorway AS has 20%, and Mærsk Oil Norway AS has 15%.

Norway: Statoil made a major oil discovery at theAldous Major South prospect in the Norwegian sectorof the North Sea, which may represent an oil structureof between 500 mn and 1.2 bn bbl of recoverable oilequivalent, making it potentially one of the biggestNorwegian finds in recent years.

The Transocean Leader semisubmersible drilledexploration well 16/2-8 on Production License 265, tran-secting a 65 m oil column in the Jurassic sandstone. Thediscovery was made in Jurassic sandstone in a very goodquality reservoir consisting of coarse-grained, unconsol-idated sand. Initial estimates of 200-400 mn bbl of oilequivalent were revised upward after common oil/watercontact was established between the Aldous Major Southdiscovery and the Avaldsnes discovery to the east onProduction Licence 501.

Statoil is the operator of Aldous Major South and hasa 40% interest. The other partners are Petoro (30%), Detnorske oljeselskap (20%), and Lundin (10%). Lundinis the operator of Avaldsnes with a 40% interest. Part-ners Statoil and Mærsk have 40 and 20% interests,respectively.

Pipelines

Finland: Allseas’ Solitaire, the world’s largest pipelayvessel, has completed work on Line 2 of the Nord

Stream natural gas pipeline through the Baltic Sea aheadof schedule. The vessel laid 342.5 km of each of the twinpipelines in the Gulf of Finland.

‘‘The Solitaire has lived up to all our expectations,’’said Nord Stream’s Construction Director Ruurd Hoek-stra. ‘‘The Solitaire is a dynamically positioned vesselwhich operates without anchors, so only the pipelineitself touches the seabed along the agreed route. Thiswas crucial for us in the Gulf of Finland with its his-toric lines of mines and congested sea lanes. Using theSolitaire helped us to minimize the impact on the envi-ronment and marine traffic and in this section the safetyzone around the pipe-laying could be much smaller.’’

Altogether, the Solitaire has laid some 57,000, 24tonne pipes along this key 342.5 km section of the route.At 300 m long by 40.6 m wide the Allseas Solitaire isthe length of three football pitches. The vessel has beenoperating with a crew of 405, and has been laying pipe24 hours a day seven days a week for Nord Stream foralmost a year.

The first of Nord Stream’s twin 1,224 km pipelineswas completed in June and is currently in the final stagesof pre-commissioning. Gas is expected to flow throughthe pipeline from the last quarter of 2011. Line 1 willhave the capacity to transport 27.5 bcm of natural gasa year to Europe. The second of the pipelines is sched-uled to become operational in late 2012, doubling thetransport capacity to 55 bcm.

Africa

Discoveries and production

Egypt: Apache Corporation reported two oil discoveriesin the Faghur Basin in Egypt’s Western Desert.

A test of the Jurassic Safa sand in the Faghur Deep-1Xflowed at a rate of 6,671 bpd of oil and 2.76 mn cfd ofgas, and the Neilos-1X discovery well on the Neith Southdevelopment lease test-flowed at 4,179 bpd and 4.2 mncfd of gas from the Jurassic Safa formation. Neilos-1Xalso encountered two Cretaceous Alam El Bueib (AEB)pay sands that were not tested.

The prospects were located by evaluating modernthree-dimensional seismic surveys over the southwest-ern part of the Khalda Offset concession and the southernpart of the West Kalabsha concession. Apache has drilledand/or completed 11 exploration wells in 2011, resulting

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