South America's Oil & Gas Landscape

South America’s role and importance in the global oil and gas puzzle is quickly changing – and the region is once again attracting considerable global attention. Whether the interest lies in the burgeoning Brazilian pre-salt fields, the large and unexplored expanses of Colombia, new bid rounds in Ecuador and Peru, non-conventional potential in Argentina or Venezuela’s vast reserves, the region can certainly claim to be vital to global supplies in the years to come.


The government’s decision in April to expropriate Spanish company Repsol’s 51 percent stake in energy company YPF put Argentina on the map for all the wrong reasons. The government’s apparent refusal to properly compensate Repsol – which estimates that its 51 percent stake in YPF is worth $10.5 billion – means a long judicial dispute in international courts is now under way. This follows a decade of continued state intervention in the oil and gas sector that has fuelled uncertainty among investors. With the profitability and stability of the energy sector undermined by the government’s interventionist policies, oil production has been falling sharply since 1998, and gas production since 2004. In 2010, Argentina changed from being an exporter to an importer of natural gas.

However, in February 2012 YPF announced the discovery of 22.8 billion barrels of unconventional resources, of which 80 percent is oil and liquids, near the Loma La Lata field in Neuquén province. According to the U.S. Geological Survey, Argentina contains 774 trillion cubic feet of shale gas, the third-largest technically recoverable reserves in the world behind China and the United States. These findings have put Argentina at the focus of the unconventional fossil fuel industry and are likely to attract several foreign companies and investors despite the complex operating environment.


In 2007, the discovery of vast oil fields under a thick layer of salt 3,000 metres under the sea – the so-called “pre-salt” – completely altered Brazil’s profile, putting domestic reserves at the same level as major international producers. If all the discovered fields are proven to hold recoverable resources, Brazil will have the seventh largest proven oil reserves globally.

President Dilma Rousseff – and her Workers’ Party in general – is a strong supporter of partial state intervention in sectors considered “strategic,” including oil and gas. The state is assigned a strategic role, either directly or through a state-owned company, but nevertheless maintains a predictable framework for private investment. However, lengthy debates about how to share royalties between local and federal governments have severely delayed the exploration of the pre-salt resources. The country’s last bidding round for oil took place in December 2008, though further rounds scheduled to take place later this year should inject renewed dynamism into the sector.

Nonetheless, the government’s reaction to an oil spill in the Frade offshore field in the Rio de Janeiro state in 2011 raised investor concerns about the operating environment. The spill resulted in an $11 billion civil lawsuit, the largest-ever environmental damages case in Brazil, as well as large fines from various regulators. The National Petroleum Agency (ANP) suspended U.S. company Chevron's drilling rights in the country, and a federal prosecutor filled criminal charges against 17 company executives.

The charges against Chevron, which relate to a relatively minor incident – the leak of around 3,700 barrels of oil – have prompted concerns that they may be disproportionate or politically motivated. Chevron has accepted full responsibility for the incident and claims that it co-operated fully with Brazilian authorities. Furthermore, Petrobras has been responsible for larger and more damaging spills in the past, but prosecutors have not targeted the company's executives; Petrobras is also a minority partner in the Frade field.

The ANP recently announced that Chevron will be able to resume its operations in 2013, but some companies remain wary, particularly in the face of stiff local content requirements. The upcoming bidding rounds will be a key indicator of how attractive Brazil’s oil and gas sector is in the eyes of investors.


In contrast to neighboring countries such as Peru and Brazil, Bolivia is overwhelmingly a producer of natural gas rather than oil. The Bolivian government’s primary aim as far as the hydrocarbons industry is concerned is to increase production of oil and gas in order to meet domestic demand and (in the case of natural gas) fulfill its export commitments. A key part of this strategy involves attracting participation from private and foreign companies, particularly when it comes to exploration activities. There are, however, a number of barriers to investment.

While the contractual conditions facing private firms are not as restrictive as many feared in the immediate aftermath of President Evo Morales’s election, high taxes and royalties, as well as the limited opportunities for profit given state company YPFB’s ownership of all the oil and gas produced, are a deterrent to some companies.


Colombia is the fastest-growing major oil producer in the region. In 2012, the country had proven reserves of more than 2 billion barrels of oil, ranking as the country with the fifth-largest reserves in the region. The government expects interest in the oil and gas sector to continue growing in the following years, and hopes that increased FDI in this sector will allow the country to boast proven oil reserves of up to 41 billion barrels by 2030. Production has also increased steadily since the early 1990’s and reached the long-coveted 1 million-barrels-per-day mark in early 2013.

Colombia’s history of stability and pro-business governments mean that the likelihood of companies facing political risks like in neighboring Venezuela or Ecuador is relatively low. However, bureaucratic hurdles, especially delays regarding the concession of environmental licenses, are emerging as a challenge to smooth business operations.

The other challenge facing oil and gas companies stems from Colombia’s continuing security problems. Despite the fact that the government of President Juan Manuel Santos and the Revolutionary Armed Forces of Colombia (FARC) leftist guerrilla group are engaged in peace talks, there is no ceasefire in place and the conflict continues. Attacks on oil and gas infrastructure were already up by over 250 percent in the first six months of 2012, and while attacks may have dipped subsequently, the FARC continues to target oil and gas sector assets in many remote areas of the country. Civil commotion, including protests, marches and blockades has also been increasing across Colombia, as communities increasingly make use of their new freedom from decades of conflict to protest social and environmental issues.


Despite its significant proven oil reserves – which total 582 million barrels, according to the Oil and Gas Journal – Peru is currently a net importer of oil. The administration of President Ollanta Humala and state-owned oil company Perupetro are keen to attract more private and foreign investment into the oil and gas sector in a bid to boost production. As part of its plans to revitalize the industry and turn Peru back into a net oil exporter, Perupetro has outlined plans to drill a total of 30 exploratory wells a year (up from 18 over the three years between 2008 and 2010) and to more than triple total production to 500,000 barrels per day by 2021.

A key part of how it plans to do this is by attracting investors into the country: approximately two-fifths of the Amazon basin is now licensed for oil exploration, and industry experts that with further bidding rounds already on the cards, this figure could soon be as high as 70 percent. There are also plans to increase natural gas output by expanding production at the Camisea field.

Aside from the government’s keenness to attract private investment in the oil and gas industry, a key part of Peru’s appeal to companies is its frontier status. Particularly where the relatively undeveloped oil industry is concerned, the remote and unexplored nature of many of the blocks currently being auctioned off by the government raises the prospect of significant undiscovered reserves and potentially large profits for companies willing to take the risk. However, this remoteness also poses a number of challenges. Not the least of these is the absence of even basic infrastructure in the areas where many concessions are located, obliging companies to shoulder the burden of infrastructure development.


In Ecuador, initial fears that the election of leftist president Rafael Correa would lead to wholesale state takeovers of privately-run oil operations have proven unfounded. The president is aware both of the economic importance of the industry and of Petroecuador’s inability to manage expropriated operations, and plans for the awarding of up to 16 new exploration licenses in 2013 are a clear indication that his government remains keen to attract foreign investment into the sector.

Despite this, since coming to power in 2007, Correa has introduced a series of reforms aimed at maximizing state control over and revenues from the oil sector, many of which have served to undermine the investment climate as far as oil companies are concerned. Ecuador is likely to remain at once a promising market and a challenging one for companies.


According to the government, Venezuela has the largest proven oil reserves in the world, its 296.5 billion barrels surpassing Saudi Arabia's 265 billion barrels. It is difficult to substantiate the Venezuelan claim because of doubts over whether all of the oil located in the Orinoco Belt is commercially recoverable. Although the Orinoco Belt oil increased Venezuela’s proven reserves, which relieves pressure on the country’s maturing fields, Orinoco crude is difficult to extract and has a low recovery rate. This means the investment needed in infrastructure and technology is significant, and will depend on oil prices remaining high. Despite ambitious targets to increase production, output has remained well below potential.

At the same time, PDVSA continues to suffer the effects of politicization, a lack of investment and maintenance, increased indebtedness and a debilitating expansion into non-core areas. Weighing on the company in 2013 will be two major arbitration cases filed by Exxon Mobil and ConocoPhillips with the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). Meanwhile, LNG development is seriously behind schedule after the failure of the 2010 bidding round for the Mariscal Sucre project, and despite government pledges to bring production on-stream by early 2013.

The broader political situation complicates the outlook, with Venezuela suffering the effects of acute political polarization, and new President Nicolás Maduro seemingly unable or unwilling to chart a new course away from the divisive rhetoric of the late president Hugo Chávez (1999-2013). The prospects for new bidding rounds and/or other improvements in the regulatory environment remain slim. Even if the more business-friendly opposition wins power in the near future, significant improvements in the O&G operating and regulatory environment would not come overnight.

Guianas (Guyana, Suriname, French Guiana)

Of the three countries, only Suriname is currently an oil producer. The country produced 16,000 barrels per day of crude oil in 2011, all of it from onshore sources. However, the U.S. Geological Survey (USGS) has identified the waters off the northern coast of the Guianas as one of the most promising unexploited hydrocarbons sources in the Americas. In a report published in May 2012, the organization estimated that the area could contain up to 13 billion barrels of oil, making it the third-largest unexploited oil reserve in South America after Brazil´s offshore Campos and Santos basins. In the same report, the USGS estimated that the area could be home to more than 30 trillion cubic feet of natural ­gas, the fifth-largest unexploited reserves on the continent.

Despite the many differences between the three jurisdictions, one thing the governments of Guyana, Suriname and French Guiana do have in common is that they are very keen to encourage offshore drilling and to develop a flourishing oil and gas industry. However, with the hydrocarbon sector in the region still at an embryonic stage, existing legislation in all three countries is not sufficiently robust to support a fully developed oil industry. The Guyanese government is currently in the process of drawing up new oil-sector regulations. Once these have been signed into law, it will be clear under what conditions private companies will ultimately be allowed to operate in the country.

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