Colombian Oil Stocks are Set to Run

The World's Hottest Oil Frontier

By Luke Burgess
Monday, May 17th, 2010

It's one of the world's fastest growing and most important energy development stories...

And yet virtually nobody is paying attention to it.

With tens of billions of dollars expected to be invested in the country's energy sector over the next several years, oil production in Colombia is forecast to skyrocket.

For investors, this means huge opportunities for easy profits.

Colombia's Energy Sector

Since 1999, Colombia's government has taken aggressive steps to stimulate foreign investment in the country's energy sector.

New initiatives include allowing foreign oil companies to own 100% stakes in oil ventures; the establishment of a lower, sliding-scale royalty rate on oil projects; longer exploration licenses; and forcing national oil company Empresa Colombiana de Petroleos (ECOPETROL) to compete with private operators.

These measures have been a resounding success.

According to Colombian government officials, the oil sector received $2.95 billion in foreign investment in 2009 — up from just $1.7 million in 2003. This year, foreign investment is anticipated to increase another 19% to $3.5 billion.

Over the next six years, the government expects almost $40 billion to be invested in Colombia's energy sector.

The oil sector will see the largest amount of energy investment, as $24 billion will be invested through 2015 on new exploration and production activities. The remaining investment will go toward the expansion of refineries, new pipeline infrastructure, power generation, and testing and development projects.

As a result of the growth in financing, Colombia's crude oil production is expected to hit a record 825,000 barrels per day this year.

By 2015, Colombia's oil output could double from current levels to 1.5 million barrels per day, including 1.2 million barrels of crude oil and 300,000 cubic feet of natural gas.

Colombia's crude production was up 18% to an average 763,000 barrels per day in March, up from 647,000 bpd in the same month last year. This March production level is the highest average monthly figure since December 1999, when output stood at 767,000 barrels a day.

An increase of Colombia's oil production would strengthen the country's status as the region's fourth-largest crude producer and boost overall GDP.

In 2009, Colombia’s oil exports rose to $10.27 billion and accounted for just over one-third of total foreign trade.

The oil industry’s share of the GDP reached 3.2% last year, up from the 1.78% share it had in 2006.

One of the most important factors in boosting crude oil production in Colombia has been improved security after more than 40 years of armed conflict in the Andean country.

Colombia once reported 100 guerrilla attacks a year on its oil infrastructure. But government forces under President Alvaro Uribe have largely subdued leftist guerrilla groups that for years blew up pipelines and kidnapped petroleum workers.

Foreign oil companies now feel safer sending employees and equipment into an oil-rich region of Colombia that, until recently, was under control of the Revolutionary Armed Forces of Colombia (otherwise known as FARC).

Investing in Colombian Oil

Colombia now has 240 active oil contracts and 120 public and private oil companies working in the country.

In June, the Colombian government will auction off 255 oil and gas blocks covering 130,000 acres, and is preparing to invest $3.8 billion to expand infrastructure for oil transport and shipping. The auctions includes acreage in frontier areas as well as more-established parts of the country. In addition, the auctions will include offshore blocks in both the Caribbean Sea and the Pacific Ocean.

Already, 83 companies are registered to take part in bidding to take place in Cartagena.

Junior oil companies are rushing into Colombia. The success of companies like Petrominerales (TSX: PMG), Gran Tierra Energy (AMEX: GTE), and Pacific Rubiales (TSX: PRE) has spawned the creation of several new small companies, including:

  • Petroamerica Oil Corp. (TSX-V: PTA)
  • Canacol Energy (TSX-V: CNE)
  • Cap Link Ventures (TSX-V: CAV)
  • Alange Energy (TSX-V: ALE)

Small exploration companies that discover unknown oil resources can see their share prices rise exponentially.

My colleague, Keith Kohl, recently discovered a new oil exploration firm that's already being touted as the #1 oil play in the United States.

Keith recently said of this play:

Since being upgraded this stock hit a high of nearly $15 — including a 233% gain in just over one year. We cashed out with a gain of over 103%... and now we're ready to take our second round of profits.

You can learn more about how to get started investing in this stock today.

Good Investing,

luke_signature.gif

Luke Burgess
Editor, Energy and Capital
Investment Director, Hard Money Millionaire

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