South America: The World’s Next Unconventional Frontier?

Important data point from Colombia last week. Where it appears the country is on the verge of some big changes in its oil and gas sector.

Specifically, the increased use of hydraulic fracturing, or fracking. Which could change the face of petroleum production here.

Colombia’s state oil firm Ecopetrol said that it plans to pursue licenses for fracking completions at its projects across the country. The firm is currently the largest petroleum producer in Colombia.

The company’s decision to pursue fracking comes after a law was introduced in March to allow for such unconventional drilling. Opening the door to the use of the technique in this already-established petroleum province.

In fact, the most recent oil and gas licensing round in Colombia saw 19 blocks singled out for the purposes of unconventional drilling. A full 20% of the total licenses allocated in the round.

This is worth watching for a few reasons.

The biggest one being that South America is one of the few places on Earth outside North America that’s made any significant progress in unconventional development. Plays like the Vaca Muerta in Argentina have seen promising results from fracking completions–which recently attracted some big attention, in the form of an up-to $9 billion farm-in deal from Malaysian major Petronas with local producer YPF.

One of the big reasons for the success here is the maturity of the existing oil field services sector in South America. With decades of conventional production having created the supply chains and expertise necessary to make unconventional drilling work at costs that approach reasonable.

Another factor is the permitting regime here. Which is turning out to be a lot more workable than places like Europe. Just this month, Colombia announced changes to its environmental policies that will expedite approval of oil and gas (and mining) development applications.

All of that–plus the capital and commitment of big players like Ecopetrol–makes Colombia a spot to keep an eye on for emerging new unconventional plays. Watch for drilling results–and any knock-on increases in permitting activity–over the coming months.

Here’s to cracking it,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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