Colombia oil and gas protests could undermine shareholder confidence: Analysts

An employee of the Canadian Alange Energy Petroleum Company pushes a wheelbarrow in Campo Cubiro, close to San Luis de Palenque in Casanare province, April 26, 2010. Colombia is now Latin America's fourth largest oil producer, thanks to improved security under President Alvaro Uribe who has drawn investors with tough military action against rebels and pro-business policies. 

 Protests that have interrupted production in Colombia by two Canadian oil and gas companies on two separate occasions this month could affect shareholder confidence if repeated, analysts say. On Wednesday, Toronto-based Pacific Rubiales Energy Corp. said it will resume output "gradually" at the country's largest oilfield after a violent protest resulted in shutting down 225,000 barrels of oil per day, about one quarter of the country's total output. 

 A week earlier, Calgary-based Petrominerales Ltd. announced it would restart production at its Corcel and Guatiquia Blocks after about 15,000 bpd was taken off-line for a week by protesters who blocked access roads. The protests are apparently related to upcoming municipal and regional elections on Oct. 30. Oil and gas royalties are collected by the federal government but a sizable portion goes to the region where they originate, resulting in enthusiastic contests for those seats. That could change under new legislation to better distribute the money.

 In a news release Tuesday, Pacific Rubiales said "unknown persons, who are not employees of the company" were responsible for the unrest, noting that roads were blocked "as part of union and political activity taking place outside of Pacific Rubiales' operations." The protesters at the Rubiales field, many of whom are contractors, demand better wages, more job security and improved living conditions, according to the oil union, known as USO.

 Company officials for Pacific Rubiales nor Petrominerales were not immediately available for comment on Wednesday. Stock in the former closed down 85 cents at $24.50 and in the latter down 12 cents at $29.07. Canaccord Genuity analyst Frederick Kozak of Calgary said so far the disruptions seem to be of limited duration and not likely to affect long-term operations — but if they continue after elections, they will have to be taken more seriously. "If it were to continue, it would be something to be concerned about because, keep in mind, Canada and Colombia have just put in place a free-trade agreement that is going to open up both countries to investment from other countries," he said.

 "Anything that casts a negative light on investment potential in Colombia is a negative for investors." He said the situation likely will come up for discussion Thursday night, when Colombian President Juan Manuel Santos is in Toronto to accept the Statesman of the Year Award from the Canadian Council for the Americas. "The number of times we've seen disruptions to these operations has been minimal (in recent years)," pointed out analyst Alex Klein of Dundee Securities.

 "We seem to be seeing more lately . . . so it does tell you there's something going on this year that we haven't seen in previous years." In an e-mail response to Reuters on Wednesday, Pacific Rubiales president Jose Francisco Arata said calm is being restored at its operations in Colombia. "We will start resuming the production gradually" in accord with security protocols, he said. 

The output disruption hasn't affected supply contracts because Rubiales sells its crude for immediate delivery, he said. Pacific Rubiales owns 100 per cent of Meta Petroleum Corp., a Colombian oil operator which operates the Rubiales and Piriri oilfields in the Llanos Basin in association with Ecopetrol, S.A., the Colombian national oil company. Meanwhile, Phoebe Buckland, spokeswoman for Calgary-based international major Talisman Energy Inc., said it has not been affected by the troubles in Colombia.

 "We continue to monitor the situation closely," she said in an e-mail. Talisman announced last year it would partner with Ecopetrol to buy BP Exploration Company (Colombia) Ltd. for $1.9 billion, with Talisman taking the minority 49 per cent stake. It has since averaged 12,000 net barrels of oil equivalent per day. It is in the Llanos Foothills, Llanos Basin and Offshore Caribbean fields.

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