World Looks to Colombia for Oil Supply

15
Mar

As Libya descends into civil war, it is estimated that half of Libya’s 1.6m barrels a day oil output has already been closed down.

Escalating violence in North Africa sent oil prices above $106 per barrel early this week as Western Governments consider economic and military sanctions against Libya, including a no-fly zone over the country.

WTI Crude Future up 23% in one month

As Moammar Gadhafi continues to unleash air assaults against his own people, the markets are now factoring in the possibility that unrest could spread to other oil producers in North Africa and the Middle East – causing further supply disruption.

In the U.S. a gallon of regular gas climbed to $3.50 – up 15 cents in a week.

Current oil price spikes are coming from an “escalation in the Libyan troubles and the large reduction in U.S. crude-oil stocks,” confirmed Matt Parry, chief economist at KBC Energy Economics.

This means that oil importers and international investors will look to other geographic regions to pick up the slack from the choked Middle Eastern supply.
At the top of that list of alternative regions is Colombia – an oil rich nation with surging production levels and low political risk.

“In the past 10 years, Colombia has gone from being nearly a failed state to becoming a very attractive destination for foreign investment,” stated a Barclays analyst in a recent report.

The Energy Information Administration (EIA) estimates that Colombia oil production will rise from 760,000 b/d in 2010 to 810,000 b/d in 2011.

The “Colombian Oil Rush” has already begun with an estimated $3.1 billion invested in the oil industry last year, and Colombian government predicting 1 million barrels a day production by 2012.

Much of that production is going to come from the prolific Llanos Basin.  Growth investors should look for a company with staking, drilling and producing pedigree, operating in that basin.

Petroamerica (PTA-TSXV) is one company that appears to hit all the marks. With a market cap of $174 million, they have a 15% interest in a confirmed oil discovery in the Balay-1 exploration well in the Llanos Basin.  The well has tested at a stabilized rate of 1,314 bbl/d of 28.3º API.

Earlier this year Nelson Navarrete – a Colombian national – took over the duties of President and CEO of Petroamerica.

Mr. Navarrete has over 24 years of oil and gas exploration and production experience through his extensive career with the State Oil Company of Colombia – Ecopetrol.

The Board also announced the appointment of Ronald Pantin to the Board of Directors.

This is significant because Mr. Pantin is the CEO of Pacific Rubiales (PRE-TSX) – the largest independent oil production company in Colombia – with a market cap of about $9 billion.

Petroamerica already has a farm-in agreement with Pacific Rubiales on the CPO-1 block, which is on trend with the Caracara fields.  The Caracara fields were bought by Cepsa for $920 million in June 2008.

So PTA is making friends with heavy hitters in Colombia.

On March 7, 2011 PTA confirmed its intention to focus on the lower to medium risk exploration properties in the Llanos Basin by withdrawing from the Eastern Cordillera blocks, COR-12 and COR-14.

Llanos Basin Hightlights
On March 9th 2011, Petroamerica announced the completion and casing of the Balay-2 ST1 well for an extensive testing program.

The original objectives of the Balay-2 well were to appraise the Balay-1 Mirador Formation discovery and to assess the hydrocarbon potential of deeper reservoirs.

The Balay-2 ST1 well bore has been logged and a probable net oil pay thickness of 50 feet has been interpreted in the Upper Mirador, compared to the 20 feet of net oil pay encountered in Balay-1.

According to the World Bank “Ease of Doing Business index”, Colombia’s ability to “protect investors” jumped 20 places in 2010 – from 25 to 5.  That puts it in the top 3% of the 183 surveyed countries.

The steady removal of the Colombian “political discount” will put companies like PTA high on the radar of investors looking to profit from the mayhem unfolding in the Middle East.

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