Colombia's oil sector plots way forward as shut-ins, layoffs loom

Oil and gas operators in Colombia could be forced to downsize their workforce by 8% this year as they grapple with the effects of the COVID-19 pandemic, a new report has warned. 

The impact of the crisis will be even worse for service companies and suppliers, which might need to lay off 72% of their staff, according to the 11-page document published by Colombia's petroleum association ACP. 

"From the point of view of jobs, companies to date have tried to keep their staff, but the worsening of the price crash and high uncertainty is forcing them to cut payroll," it said. 

ACP said that operators had already reduced staff numbers by 2% in the first quarter while service firms and providers cut labor by 48%. 

In a separate report, Colombian oil equipment and services chamber Campetrol said a median 2020 Brent oil price below US$25/b would lead to 26,390 local job losses, around a quarter of the industry's 105,000-strong workforce last year.  

An average price of US$35/b would see the national oil and gas labor market fall to 85,855, it added. 

PRICE CRASH

The warnings came as Brent crude traded at US$21.54/b late on Thursday, up almost 6% from its Wednesday closing price. 

Oil's global benchmark has lost more than two thirds of its value since January amid coronavirus lockdowns that have hammered demand and overwhelmed storage capacity.

Colombia, which relies on oil exports for more than 50% of its export revenue, is particularly vulnerable to the price slump.  

Last week, oil engineers association Acipet said that 5,000 industry jobs were lost since the pandemic began. 

The retrenchments included contractors and employees at the Barrancabermeja and Cartagena refineries plus some oilfields in the northern Middle Magdalena valley and in the southern Amazon region. 

CAPEX, FDI

According to Campetrol, foreign direct investment in Colombia's hydrocarbons sector would fall to US$1.58bn this year if prices averaged US$25/b, down from US$2.82bn in 2019. 

The figure would be US$2.06bn with prices at US$35/b and US$2.61bn at US$43/b. 

Last month, state oil company Ecopetrol cut its 2020 capital guidance by US$1.2bn to cope with the effects of the oil price downturn. Gran Tierra, GeoPark and Frontera are among other Colombia-focused oil companies to reduce their spending outlook.

The breakeven price for Ecopetrol's projects is estimated to be US$30-35/b. 

PRODUCTION SHUT-INS

ACP warned that an ongoing Brent price below US$25/b would force operators to cut production by 100,000b/d this year. Such a scenario would mean the closure of 25 to 30 fields and 390 wells, it said in its report. 

"After great efforts in recent years to optimize production and operations, companies now have little room to continue reducing costs," ACP said. 

It added that lower production also threatened Colombia's energy security as the country struggles to replace dwindling reserves. 

The mines and energy ministry has warned that without new discoveries, Colombia's oil and gas reserves would run out in around six years and 10 years, respectively.

Campetrol, meanwhile, said 2020 production would fall to 763,000b/d from 886,000b/d last year if Brent prices averaged US$25/b. A median price of US$35/b would lead to estimated output of 786,000b/d this year, it added.

PIPELINE COSTS

ACP said financial relief measures should include a reduction in regulated oil transport rates, which it says account for 45% of total operation costs. 

"It is an opportunity for pipeline transportation costs to be reduced. It is the only link in the chain of the sector whose cost in recent years has remained practically the same," the report said. 

It added that the current rate structure "dissuaded" investors, particularly in fields whose resources do not exceed 10Mb.