What role does ANH play in the overall development of Colombiaâ€™s hydrocarbon resources?
ZAPATA: Colombia has made a series of major decisions over the last decade. One of the main decisions was to establish ANH as the responsible authority for managing Colombiaâ€™s hydrocarbon resources. The national company had played this role in the past. Today, ANH is responsible for developing new exploration and production processes. These processes have stemmed from a long change of value and decisions that the Agency has been taking over the course of a number of years. ANH was created 10 years ago. We are now starting to see the results of the investments that ANH has made. We started implementing programs in 2006. The promotions that have been made, as well as the bid rounds, have been evolving over the past couple of years. When we first started, we had very little knowledge about the available resource that was underground. Since then, ANH has been investing in this information so that we can offer more knowledge to companies and the industry as a whole. It takes time to gather this knowledge and offer it to the industry. We are starting to see positive numbers as a result of those campaigns.
What are the main challenges that ANH is currently facing with regards to drawing outside investments and potential collaboration? Furthermore, what segments or current projects throughout the sector require further FDI in order to help facilitate the growth and sustainability of the countryâ€™s hydrocarbon resources?
ZAPATA: ANH is focused on bringing investments into the hydrocarbon sector. However, Colombia has a bigger agenda for attracting further investments. The first thing that we offer is the country as a whole. The main factors being stability, a clear set of rules, and fiscal terms. This is something that the country is working on in a number of sectors. In hydrocarbons in particular, we have been investing in knowledge and creating the right conditions so that companies can make long term investments. There are companies that left Colombia a decade ago and are now coming back to the country. It is a clear signal that the strategy is working. At this point in time, shale gas and shale oil require further investments. Colombia has decided to develop shale gas and shale oil opportunities. We are investing in knowledge, seismic graphing of wells, and doing the kind of exploration that the companies will undertake.
As a result, we will be able to offer a clearer package of information in our Open Round 2014. This is our target. We are also working on creating regulations for environmental terms and conditions. We are learning from the experience of the Canadian and US governments. I would say that the main challenge is to have sustainable development for unconventionals. In the 2012 Open Round, we had a total number of 54 contracts. 5 out of the 54 contracts were for unconventionals. It was the first contract that we offered which had clear rules in developing shale gas and shale oil. I think that contract is going to be the base for what we are going to do for next year. The most important thing is to create the regulatory terms for the environmental aspect. We are spending a lot of time on creating that set of rules to ensure that we give more comfort to the companies. As a result, they will know exactly what we want and are expecting for the development of these technologies.
Colombia has recently reached sustainable production of over 1 million barrels of oil per day. However, Colombiaâ€™s level of oil reserves stands at roughly 2.3 billion barrels. What investments are currently being made in the upstream segment to help boost the countryâ€™s level of oil reserves? How do you see this progressing over the long term?
ZAPATA: Colombia has a certain number of targets in terms of production. The government believes that we have the capacity to improve the recovery rates of some of these blocks and areas. The actual results have shown that rates of recovery have improved substantially. We have also invested in the development of heavy oil and we are starting to see the results from those campaigns. In order to take things to the next step we will have to implement a strategy to develop unconventionals. We have reached our short-term target, which was production, but the balancing of reserves is also improving. Increasing reserves is a tricky game. If the speed of improvements in production is higher than the capacity for adding reserves then you fall into a trap in terms of creating a deficiency in the balance of internal consumption. We had an RP Index of roughly 6.8 in 2011 and we have improved that indicator to 6.9. Essentially what has happened is that we have improved productions levels over the last couple of years but we are adding more reserves than the ones that have been taken out of the balance.
The relationship is to marginally add new reserves to the balance. We are going to see the results in the near future. Today we have 63 wells involved in the evaluation phase. This implies that these are the sources of the next wells that will be declared commercial. We have a number of new wells that are under evaluation that will be potential producers in the near future. These wells will be adding new reserves into the balance. 32% of the new reserves added in 2013 are coming from new discoveries. The relationship in the past has been that we were only adding 10% to the reserves from new discoveries. This is a very important component because it is showing that the previous campaigns for the exploration phases have helped facilitate the maturation of evaluation wells. Furthermore, these wells will become commercial in the near future. We are seeing the results of the strategies that we have developed over the last year. The strategies that we are implementing are focused on increasing the number of reserves and we are very optimistic about how Colombia is improving this balance.
The first things that we are competing for is money and investment. Colombia has the highest rate of FDI in the region. It has a very sustainable rate of growth in terms of FDI, which is a critical index for measuring results. I believe that Colombia has been somewhat of a pioneer for this model.
In what ways is ANH competing with other national hydrocarbon agencies in the region to attract further FDI and international contractors? What are Colombiaâ€™s competitive advantages with regards to hydrocarbon investments over other regional neighbours, such as Brazil, Venezuela, and Peru?
ZAPATA: The first things that we are competing for is money and investment. Colombia has the highest rate of FDI in the region. It has a very sustainable rate of growth in terms of FDI, which is a critical index for measuring results. I believe that Colombia has been somewhat of a pioneer for this model. There are a lot of decisions that were made 10 years back. There were a number of decisions that have been taken over time and today we are deciding on the next decade.
Things are going well so far but there are still challenges that we need to address. The cost of capital is one factor. It is cheaper and easier to have more aggressive investment programs. The second thing is what is underneath the ground. We want to prove that there are potential prospects for a bigger discovery. We are investing quite a lot into the knowledge that we have in La Formacion De La Luna, which is very critical for Colombia. If we can apply deeper knowledge into La Luna, then we will eventually be able to offer a higher potential for investors that will increase the rate of success for the companies. This is a long-term process where you need to invest in the knowledge and you have to understand exactly what you have underground. We must also have clear terms and conditions so that the industry can make long-term decisions. I will say that Colombia has a very long history compared to that of our peers on establishing stability with regards to economic terms and conditions.
What incentives or policies are currently in place in order to entice companies to come and invest in Colombiaâ€™s hydrocarbon resources? How successful have these initiatives been to date and what progress do you see being made over the long term?
ZAPATA: The contractual terms are the main instrument that the agency has. Colombiaâ€™s regulatory framework for exploration and production are very stable. The macroeconomic perspective of the country plays an important role and the cost of capital is a very critical driver. The main thing is that a country like Colombia will evolve based on the prospects of its actual resources. The level of knowledge that we had with regards to our natural resources underground was very limited. As a result, we are investing in knowledge and we are creating momentum so that we can offer more information. The whole framework, fiscal policy, regulatory implications, and macroeconomic concepts, will adapt and companies will be more informed to make decisions. Technology is very important. A lot of things have happened in the industry over the last decade. This is an industry that is in permanent evolution and technology plays a critical role. If we can attract companies to Colombia that have the knowledge, technology, and financial muscle, then we can guarantee the necessary stable conditions for doing these projects.