The announcement of a definitive ceasefire between the Colombian government and FARC, the country’s largest guerrilla group, offers a peace dividend not only to a conflict-weary nation, but also to the oil and gas industry, whose members can look forward to less disruption and danger.
Colombia’s oil industry was already at a crossroads, facing low prospectivity and declining reservoirs onshore, and an offshore sector with great potential but facing the same problems as any high-cost, high-risk play in the current low-price environment.
A peace deal with FARC is certainly one less thing to worry about. In 2014, state-run Ecopetrol reported $430 million worth of losses due to attacks on infrastructure.
A short-lived return to arms in the first quarter of 2015 — caused by FARC retaliation to an armed forces strike — targeted the oil industry, resulting in scores of attacks.
There have been very few incidents since the ceasfire was reinstated, and the peace deal can do nothing but good for a competitive farm-out process just launched by Ecopetrol.
Colombia’s peace dividend is to be celebrated, and President Juan Manuel Santos surely deserves to get the backing of the Colombian public when he asks for their endorsement of the peace deal through a national plebiscite.
Oil companies will have plenty to ponder, however. First there is the other smaller guerrilla group, the ELN.
Some regions are likely to continuing suffering some attacks, probably on a reduced level, while others are likely to become free of such risks.
The post-peace security situation will include complicating factors.
Colombia must bear the cost of demobilising and fulfilling government promises to invest in land reform and social investment.
The Santos administration has done well in coping with lower oil prices, but it will have little choice but to raise some taxes later this year.
It would be fair to give those tax increases a progressive aspect, but oil companies, along with the rest of the corporate world, would rather see VAT bear the brunt than any resort to windfall taxes.
Not all of the 7000 or so FARC fighters will make their way smoothly back into civilian life.
The interface between guerrilla groups and organised crime, especially in the lucrative production and commerce of illegal narcotics, has forged some business links that will survive.
As IHS senior analyst Arthur Dhont points out, the cocaine trade has also stimulated a business in siphoning off oil from pipelines, providing inputs for cocaine refining. This kind of theft is nowhere near the Mexican scale, but needs to be combatted.
On a local level, oil companies are also likely to find themselves dealing with some difficult new players. FARC leaders have made it clear that they want the entity to become integrated in the electoral system as a legitimate political party.
FARC’s revolutionary roots and rhetoric point to a likely role in stiffening negotiating by local communities against mining and oil and gas companies, or against central government.
There is nothing wrong with communities or activists getting a tough new ally in these consultations, but such a change is something that the oil companies will be wise to watch.
Luckily for Colombia, the country’s judiciary and other institutions have been performing well in striking the right balance between rapacious extraction and stifling environmental regulation, and have been responsive to well-run civic movements, giving the Colombians a sense of empowerment in the face of authority.
There is cause for cautious optimism in Colombia.
What is really needed now is a big oil find.
