The onshore route to securing Colombia's gas self-sufficiency

Toronto-listed NG Energy International plans to raise natural gas production from its operations in Colombia to more than 130Mf3/d (million cubic feet of gas a day) within 18 months, up from a current level of around 20Mf3/d. 

Chief financial officer Jorge Fonseca tells BNamericas why the company is optimistic about its growth prospects in Colombia and how it aims to provide a solution to the country's looming gas supply crunch. This is the second of a two-part interview. The first part can be seen here.

BNamericas: The company had a US$100mn credit facility approved by the Macquarie Group for the 2024-25 period. How does NG Energy intend to use these resources? Can we expect a major capex increase in 2025 compared to this year's forecast figure of US$23mn to US$27mn?

Fonseca: We plan to utilize an additional US$10mn from our credit line, which will increase our debt from US$40mn to US$50mn. Fortunately, our current operations in Colombia are generating significant profits. We're selling gas at an average price of US$7.50 to US$9.50 per million cubic feet, which is a very profitable business. As our production increases, we anticipate considerable free cash flow and enhanced financial flexibility, providing a strong foundation for our future growth.

Looking ahead, our future capital expenditures will be largely self-financed through our own cash generation. This year's capex is primarily focused on two key wells: Aruchara 4 in María Conchita and Hechicero in Sinu-9. Upon completion, we will have a total of three producing wells in María Conchita and three producing wells in Sinu-9.

BNamericas: What would be a ballpark capex projection for 2025, if you could share that with us?

Fonseca: If we're drilling three to four wells next year, our capex is going to be around US$50mn, without any doubt. Another thing that I should mention is that Macquarie is a very specialized bank. They focus on infrastructure and energy. I've never seen such thorough and detailed due diligence conducted by a company. And for me, that's a rubber stamp. The fact that a bank like Macquarie not just looked at the company but wrote a check and is now our partner is a quality seal.

We also have Sproule as a reserve certifier. Sproule is a world class company. They went through all of the data and rebuilt the reserve report. They spoke with our technical team and we had due diligence in legal, environmental and social compliance. This is further validation of the company's business plan and, for me personally, very gratifying. 

BNamericas: In a recent corporate presentation, the company said its long-term plan was to produce more than 200Mf3/d. How do you plan to get to that target? Will it be through organic or inorganic growth, or both? And is NG Energy looking at opportunities beyond Colombia? 

Fonseca: All of the above. Right now we have plenty on our plate but when we talk about the target of up to 200Mf3/d of gas, which is the business plan we put together with Sproule, this only covers around 35% of Sinu-9. We haven’t fully explored Sinu-9 yet. On top of that, we have Tiburón in La Guajira, which is also another good prospect for the company. 

Additionally, we're actively exploring opportunities for collaboration with smaller, less developed companies in Colombia, with a view to potentially working together to drive mutual growth. And we’re also keeping a close eye on opportunities outside of Colombia in Latin America. 

But with what we have right now – and what we have is still very green – we could get up to 200Mf3/d of gas a day and that would make us the second largest gas provider in the country. 

BNamericas: Would the company be interested in offshore opportunities?

Fonseca: Offshore is a game for big boys, you know, for the Exxons, the BPs and the Shells of this world. We are not in that league yet. I’m a very conservative CFO. I just want to focus on creating value for our shareholders and selling gas through long-term contacts with the best offtakers in the country. 

Most of our offtakers are investment grade. And we're signing three to five-year offtake agreements. That gives us steady cash flows in a very profitable business that is creating value for our shareholders. Do we want to grow? The answer is yes. Do we want to continue on this path? The answer is yes. But we're a very young company and it's too early to start thinking about getting into the offshore business.

BNamericas: We've spoken about long-term offtake agreements. What percentage of NG's gas do you envisage being allocated to the spot market?

Fonseca: The policy that we're putting in place is to have 80-20. Eighty percent in medium and long-term contracts and 20% in the spot market.

BNamericas: How would you describe the current investment climate for Colombia's natural gas segment and where does NG Energy stand in this panorama?

Fonseca: We are committed to making a difference in Colombia during a very challenging moment for the gas industry in the country. We believe we can be a significant piece of the solution. We have a very experienced management team. We have a well-capitalized company. We have great partners like Macquarie, Sproule and our infrastructure partners that will help us develop our company and make a difference on the energy landscape in Colombia.

BNamericas: On the subject of infrastructure, is NG Energy interested in building pipelines? 

Fonseca: Our focus is exploration and development of oil and gas fields. We're not going to build pipelines. Why? Because I believe this is not our core business. We have found incredible service providers and are very happy to be working with them, which allows us to focus on what we are best at. Local people and local companies know how to undertake the negotiation process with property owners and communities. They have the know-how to operate effectively in-country. For now, this is the perfect business model for our company.

BNamericas: Finally, Colombia's mines and energy ministry is seeking ways to expand gas supply to avoid possible shortages in the coming years. Apart from ramping up production from onshore fields, options include expanding LNG import capacity, offshore gas developments – which are longer-term bets – and piped imports from Venezuela. Which, in your view, is the best option?

Fonseca: All of the above. Do we need to add more LNG plants in the Pacific or in the Caribbean? The answer is yes. Why? Because the only solution that the government sees right now is in the offshore segment. But this is going to take time and it's going to be expensive gas. You also have to build infrastructure to bring the gas to shore and connect it to the existing infrastructure. And that's going to take time.

So, yes, we're probably the only company that has a plan to increase production by up to 200Mf3/d in the next 24 months. I don't see any other company doing that, not even Ecopetrol, because their offshore plans are longer term.