US embassy cable - 05BOGOTA5565

UNCLAS SECTION 01 OF 03 BOGOTA 005565 
 
SIPDIS 
 
DEPT PLS PASS TO DEPARTMENT OF ENERGY FOR A/S KAREN 
HARBERT, DEPARTMENT OF COMMERCE FOR ITA/MAC/WLT, 
ITA/USFCS/OIO/WH/RD 
 
E.O. 12958: N/A 
TAGS: SNAR, ENRG, PREL, OVIP, CO, EINV 
SUBJECT: CARTAGENA ENERGY CONFERENCE HUGE SUCCESS 
 
REF: BOGOTA 5203 
 
1.  Summary.  Department of Energy Deputy Secretary Clay Sell 
and Assistant Secretary for International Policy Karen 
Harbert led a delegation to Cartagena May 19-22 to attend an 
oil and gas investment conference to promote foreign 
investment and participation in Colombia's energy sector, 
primarily from the United States.  In his meetings with 
President Uribe (reported reftel), Minister of Mines and 
Energy Meija, National Hydrocarbons Agency Director Zamora, 
Colombian legislators from key energy committees, and major 
U.S. companies invested in the Colombian energy sector, 
DepSec Sell affirmed USG support for President Uribe,s 
security and energy policies and emphasized the USG view that 
Colombia maintains one of the most attractive hydrocarbon 
investment climates in the region.  End Summary. 
 
2.  Post wishes to express thanks to Deputy Secretary of 
Energy Clay Sell and the entire team from the Department of 
Energy for the excellent preparation and execution of the 
Cartagena Energy Conference.  Thanks to their efforts, the 
conference was successful beyond our most optimistic 
expectations.  Thanks also to Mrs. Sell who helped at 
representational functions and visited a local USAID project. 
 The recruitment of U.S. companies by DOE was excellent and 
promoted U.S. interests in increased energy production.  In 
addition, the GOC, from President Uribe to lower ranking 
energy officials, were appreciative of USG efforts. 
 
Presidential Initiative Backs Conference 
---------------------------------------- 
 
3.  In a November 2004 meeting in Cartagena, Presidents Bush 
and Uribe discussed the idea of an oil and gas investment 
conference that would promote the Colombian hydrocarbon 
sector and increase U.S. involvement in developing Colombia's 
energy resources.  Follow-on high level meetings held between 
DOE, USGS, the Colombian Ministry of Mines and Energy and 
National Hydrocarbons Agency (ANH), the U.S. and Colombian 
embassies, and private sector energy companies promoted 
conference organization and participation. 
 
4.  Over 450 participants, including approximately 60 from 
the United States, took part in Colombia's International Oil 
and Gas Conference in Cartagena from May 19-21.  Participants 
included Colombian and U.S. industry representatives ranging 
from small businesses to multinationals, GOC and USG 
officials, and private sector experts.  Small to medium-sized 
U.S. companies attended with heavy representation from the 
services sector.  Major financial and organizational support 
provided by ExxonMobil, Chevron, and Occidental Petroleum 
ensured a successful event.  (ExxonMobil is currently engaged 
in a major exploration project here.  Chevron and Occidental 
are producing oil and gas.)  Conference goals included 
providing an overview of the Colombian hydrocarbon sector and 
promoting the advantageous business and investment climate 
and improved security situation.  A third important component 
was a specific focus on the details of financing, support 
services, and the downstream market that guaranteed whole 
industry coverage.  U.S. and Colombian industry experts in 
all three areas (OPIC provided representation for financial 
services) provided relevant knowledge and fostered mutual 
investment interest.  USG and GOC discussions are underway to 
conduct follow-up activities to the conference. 
 
USG Supports Colombian Hydrocarbon Sector 
----------------------------------------- 
 
5. In his opening remarks at the conference, Deputy Secretary 
of Energy Clay Sell emphasized U.S. support for investment 
climate improvements in the Colombian hydrocarbon sector and 
for the U.S. commitment to Colombian efforts to develop its 
energy resources.  The Deputy Secretary said security 
improvements, combined with regulatory reforms in the 
hydrocarbon sector have contributed greatly to a favorable 
investment climate, especially when compared to regional 
neighbors.  The DepSec added that he was confident the 
conference would succeed in promoting Colombia's positive 
environment for foreign investors by encouraging outside 
interest in searching the more than 80 percent of the country 
that remains unexplored for hydrocarbon resources. 
 
Highlights of Colombian Energy Sector 
------------------------------------- 
 
6.  Ministry of Mines and Energy (MME) Luis Mejia and 
National Hydrocarbon Agency (ANH) Director Armando Zamora 
provided an overview of the Colombian energy sector for the 
conference.  Colombia has proven oil reserves of 1.5 billion 
barrels of oil and 6.7 trillion cubic feet of natural gas 
located in 18 sedimentary basins.  Colombia has proven coal 
reserves of 7 billion metric tons with an estimated 17 
billion metric tons of potential coal resources.  Coal 
production is significant, increasing from 39.5 million tons 
in 2002 to 53.7 million tons in 2004.  Coal exports grew from 
USD 990 million to USD 1.7 billion during the same period. 
Regarding electrical power, Colombia has an installed 
capacity of 13.3 gigawatts transmitted by a 12,266 km 
national network.  The country has a 167 kilometer 
international network that exports 621 megawatts of power to 
Ecuador and Venezuela. 
 
Regulatory Changes Enhance Investment Climate 
--------------------------------------------- 
 
7.  The GOC has established an attractive investment climate 
after completing a series of legislative and regulatory 
reforms in 2003.  Companies pay 8 percent royalty for fields 
producing 5,000 boe/day to a maximum of 25 percent for fields 
producing 600,000 boe/day.  The new contract model does not 
require shares in production with Ecopetrol or ANH and the 
government take has been reduced to about 50 percent compared 
to the world average of 67 percent.  Also, there is no 
requirement for investors to pay bonuses to the GOC for 
contract signatures or discoveries and obtaining contract 
extensions has been made easier. 
 
GOC Fostering Greater Exploration Activity 
------------------------------------------ 
 
8.  The GOC hopes to expand exploration into the 85 percent 
of the country that remains unexplored through short-term 
expansion of exploration contracts and a long-term investment 
program.  In 2004, ANH approved a total of 25 exploration 
contracts.  In 2005, ANH,s goal is to approve 30 contracts; 
it has already signed or is waiting to approve 18.  Moreover, 
there were about 21 A-3 wells and about 6,500 kms of 2-D 
seismic testing in 2004; ANH estimates there will be 40 A-3 
wells and over 12,000 kms of seismic testing in 2005 (16 
wells have already been drilled in 2005).  ANH plans to 
invest USD 70 million in obtaining new geological information 
in 2005.  Long term exploration investment plans are also 
ambitious.  Under &Plan 20208 ANH and Ecopetrol plan to 
invest approximately USD 15 billion in exploration and 
development projects with the goal of discovering 4 billion 
boe between now and 2020.  ANH,s portion amounts to USD 800 
million and will be focused on a heavy oil project in the 
Llanos basin, and other projects in Tayrona, Pacific basin, 
Sinu-San Jacinto, and Tello fields. 
 
9.  During the conference, ANH signed a technical agreement 
with the University of Florida International,s Hemispheric 
Center for Environmental Technology and Center for Energy and 
Technology of the Americas.  The agreement will facilitate 
scientific interchange and technical support and training 
between the Colombian government and the UFI.  Both sides are 
hopeful the agreement will provide greater opportunities to 
study Colombia,s sedimentary basins for hydrocarbon 
potential. 
 
Defense Minister Uribe Outlines GOC Security Achievements 
--------------------------------------------- ------------ 
 
10. In a panel focusing on the Colombian business 
environment, Minister of Defense Jorge Alberto Uribe 
summarized GOC efforts to improve the security situation 
during President Uribe,s administration.  Minister Uribe 
said the administration,s strategy has been to greatly 
increase the numbers and units of armed forces and public 
security in the field and specifically to regain control of 
the country,s municipalities.  The number of security forces 
increased from 273,000 in 2003 to 373,000 in 2005.  In 2002, 
there were about 400 municipalities without a police 
presence; in 2005 there are none without a presence.  During 
2003-2005 the number of homicides dropped from 22,690 (May 
03-May 04) to 18,909 (May 04-April 05).  Uribe added that, 
during the past 12 months, terrorist attacks on energy 
infrastructure have fallen 41 percent and kidnappings are 
down 52 percent. 
Meeting with Colombian Legislators 
---------------------------------- 
 
11.  DepSec Sell met with a group of Colombian legislators 
selected by the Ministry of Mines and Energy to obtain their 
views on the Colombian energy sector and indicate USG support 
for Colombian regulatory reforms in the hydrocarbon sector 
and efforts to encourage foreign investment.  Legislators 
were members of committees covering energy and natural 
resource issues and were generally supportive of GOC efforts 
to promote the sector.  Legislators offered a range of views 
but there was consensus on the following points:  1) support 
for President Uribe,s security policies and their enhancing 
effect on the investment climate, 2) support for GOC efforts 
to promote the hydrocarbon sector and the importance of this 
for the nation,s long term economic health, 3) need for 
continued U.S. support in consolidating security gains and 
development in the energy sector.  Several legislators asked 
DepSec Sell to convey their gratitude for USG support for the 
conference and for Plan Colombia to President Bush. 
 
Meeting with the Council of American Companies (CEA) 
--------------------------------------------- ------ 
 
12.  DepSec Sell and A/S Harbert met with U.S. hydrocarbon 
sector representatives operating in Colombia to discuss their 
challenges and success stories.  Mr. Sell opened the meeting 
by asking for an update on the security situation in Colombia 
and its impact on doing business here.  Company 
representatives gave their views on the security climate and 
offered their perspectives on other significant challenges 
they face.  All praised the information sharing between the 
GOC, U.S. Embassy, and inter-company exchange promoted 
through the Overseas Security Advisory Council (OSAC).  The 
Colombian chapter of OSAC, Diplomatic Security,s program to 
protect U.S. multinationals operating overseas, has 89 U.S. 
multinational members and 31 guest companies. 
 
13.  Companies had varying views on the most important 
challenges they face when operating in Colombia.  Occidental 
reported they had reached security agreements with the 
Colombian military to provide for protection of oil pipelines 
and other infrastructure and that their company regularly 
shared information with the U.S. Embassy and U.S. corporate 
headquarters.  Occidental had benefited greatly from this 
cooperation and credited President Uribe,s security policies 
for significantly lowering attacks against oil pipelines.  On 
the other hand, Occidental stated that the GOC needed to 
further develop its ability to secure remote areas if it 
wanted to encourage further foreign investment.  Drummond 
executives stated that while security is an ongoing concern, 
they have mitigated the problem by investing in a 6,000 
member local workforce and contracting the Colombian military 
to provide more than 900 soldiers for perimeter security at 
one of the world,s largest surface coal mining operations. 
Drummond,s main challenge has been training its local labor 
force but believed job creation and the company,s social 
investment in schools, hospitals, and roads has built 
community support for its operations.  As a result, attacks 
against the company by illegal guerrilla groups operating in 
the area have been drastically reduced.  Chivor, an operator 
of a 1000 MW electric plant in Colombia, stated its main 
concern is focused on the capacity of the GOC to conduct 
regulatory change.  Colombia had made good progress in recent 
reforms in the hydrocarbon sector and Chivor hopes that this 
capacity can be maintained for future changes it may seek in 
electrical power regulations. 
 
Site Visit - Drummond Ltd. Mine 
------------------------------- 
 
14.  After the conclusion of the conference, DepSec Sell and 
DCM Drucker conducted a site visit to one of the world,s 
largest surface coal mining operations, operated by Drummond 
Ltd., Cesar Department, northern Colombia.  Post will report 
details via septel. 
DRUCKER