2012_Global_Data_Oil and Gas Exploration and Production (E&P) in Colombia

GDGE0067MAR / Published OCT 2012 Page 1 Oil and Gas Exploration and Production (E&P) in Colombia - Market

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Oil and Gas Exploration and Production (E&P) in Colombia - Market Analysis, Competitive Landscape and Forecasts to

2020 Reference Code: GDGE0067MAR Publication Date: October 2012

Colombia has Witnessed 136 Oil and Gas Discoveries Since 2007

Colombia has emerged as one of the most attractive upstream investment destinations, as several discoveries in the country have attracted investors’ attention. Based on the number of oil and gas discoveries worldwide during 2007 to 2012, Colombia ranked third after Brazil and Australia. Colombia witnessed around 136 oil and gas discoveries during the period.

The figure below shows the standing of Colombia globally in terms of oil and gas discoveries during 2007 to 2012.

Oil and Gas Exploration Market, Global, Top Countries by Oil and Gas Discoveries, 2007-2012 (August)

261

157136 127

110 10383

62 60 58

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Liby

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Num

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Source: GlobalData, Oil and Gas eTrack, Discoveries Database [Accessed on August 24, 2012] Note: *Oil and gas discoveries until August 24, 2012 are considered.

In the early 2000s, Colombia’s oil and gas reserves dropped significantly as a result of a decline in exploration activities due to continued guerilla attacks and a subsequent drop in foreign direct investments in the country’s oil and gas exploration and production sector. In 2003, the government of Colombia initiated restructuring of the country’s hydrocarbon sector, mainly focusing on sector organization, public governance, and fiscal and regulatory regimes redesign. These measures helped the country to attract investments in its oil and gas exploration activities, which led to an increase in discoveries and reserves.

Colombia is Estimated to Have Proved Oil and Gas Reserves of About Three Billion Barrels of Oil Equivalent

According to BP Plc’s Statistical Review of World Energy 2012, Colombia was estimated to have proved oil and gas reserves of about 3,024.6 million barrels of oil equivalent (MMboe) at the end of 2011. Since 2006, the country’s proved oil and gas reserves have increased at an Average Annual Growth Rate (AAGR) of 5.7%.

The figure below shows the historical trend of Colombia’s proved natural gas reserves for 2006-2011.

Oil and Gas Industry, Colombia, Proved Oil and Gas Reserves, MMboe, 2006-2011

0

500

1,000

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2006 2007 2008 2009 2010 2011

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s (M

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e)

Source: BP Plc, 2012a MMboe - Million barrels of oil equivalent

Of the total proved oil and gas reserves, Colombia had two billion barrels (billion bbls) of proved oil reserves by the end of 2011. The country accounts for 0.12% of the global proved oil reserves. Colombia was estimated to have 163 billion cubic meters (bcm) of proved natural gas reserves by the end of 2011. The country’s proved natural gas reserves were 0.08% of the world’s total proved natural gas reserves.



Oil and Gas Production in Colombia is Estimated to Grow to 627 MMboe by 2020

Oil and gas production in Colombia has grown at an AAGR of about 9.9% over the 2006-2011 period. The country’s total oil and gas production was estimated to be about 400.5 MMboe in 2011. The production is estimated to grow to 627 MMboe in 2020, witnessing an AAGR of about 4.8% over the 2012-2020 period.

The figure below presents the growth of oil and gas production in Colombia since 2006, and estimated production in 2020.

Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production, MMboe, 2006-2020

0

100

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2006 2007 2008 2009 2010 2011 2020

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and

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boe)

Source: GlobalData; US EIA [Accessed on July 9, 2012]

The majority of crude oil and natural gas production in the country is light oil, representing about half of the total production in 2011. Heavy oil currently accounts for about 31% of the country’s total oil and gas production. However, the significance of heavy oil in the country’s oil and gas production has been gaining prominence in the past few years.

The figure below presents the share of light oil, heavy oil and natural gas in Colombia’s total oil and gas production in 2011.

Oil and Gas Exploration and Production, Colombia, Share of Light Oil, Heavy Oil and Natural Gas in Production, %, 2011

Light Oil50%

Heavy Oil32%

Natural Gas18%

Source: ANH, 2012a

Pacific Rubiales is Emerging as a Strong Independent E&P Company in Colombia

Besides Ecopetrol, of the top five companies based on production, Meta Petroleum and Petrominerales Colombia Ltd have been rapidly increasing oil and gas production in the country. Meta Petroleum is a subsidiary of Pacific Rubiales Energy Corp, a company with a strong focus on exploration and production activities in Colombia and other countries in the region, such as Peru and Guatemala. Other subsidiaries through which Pacific Rubiales operates in Colombia include Petromagdalena (formerly Alange Energy), Pacific Stratus Energy Ltd, Kappa Energy Company Inc and Maurel et Prom Colombia B.V. (49.99% stake).

In 2011, Pacific Rubiales Energy Corp had an average gross oil and gas production of 218.5 Mboe/d (net production of 86.5 Mboe/d). The company’s net production increased by 52% over the net production in 2010. This was driven primarily by increased production from the Rubiales and Quifa SW fields in Colombia.



1 Table of Contents 1 Table of Contents ............................................................................................................................ 3

1.1 List of Tables............................................................................................................................. 5 1.2 List of Figures............................................................................................................................ 6

2 Introduction ..................................................................................................................................... 7 2.1 Overview................................................................................................................................... 7 2.2 GlobalData Report Guide........................................................................................................... 7

3 Colombia - A Snapshot of its Oil and Gas Sector .............................................................................. 8 3.1 Colombia is an Emerging Oil Producer from South and Central America ..................................... 8 3.2 Colombia Recorded Two Billion Barrels of Proved Oil Reserves by the End of 2011.................... 9 3.3 Key Drivers for the Growth of Colombia’s Oil and Gas Market ................................................... 11

3.3.1 The Colombian Petroleum Sector has Attracted Substantial Foreign Direct Investment in Recent Years.................................................................................................................. 11

3.3.2 Colombia is Witnessing Increasing Exploration Activities for Oil and Gas.......................... 12 3.3.3 Colombia to Offer Unconventional Oil and Gas Acreage for Bidding Under the 2012

Licensing Round............................................................................................................. 13 4 Colombia - Oil and Gas Regulatory Regime and Investment Activities ............................................. 14

4.1 Fiscal Terms and Regulatory Regime....................................................................................... 14 4.2 Colombia Has Emerged as an Active Destination for Mergers and Acquisitions in Oil and Gas

Exploration and Production...................................................................................................... 15 5 Oil and Gas Exploration and Production in Colombia ...................................................................... 18

5.1 Llanos Basin is the Epicenter for Exploration and Production Activities in Colombia................... 18 5.2 Colombia has Witnessed the Third Largest Numberof Oil and Gas Discoveries in the World Since

2007 20 5.3 Oil and Gas Production in Colombia has Increased with an Average Annual Growth of 12.8%

Since 2007.............................................................................................................................. 21 5.3.1 Oil and Gas Production in Colombia is Estimated to Grow at an Average Annual Rate of

4.8% During 2012-2020 .................................................................................................. 24 6 Oil and Gas Exploration and Production in Llanos Basin ................................................................. 25

6.1 Llanos Basin Has About 168 Exploration Blocks....................................................................... 25 6.2 Llanos Basin Has Witnessed Nine Oil and Gas Discoveries in 2012 (until July) ........................ 28 6.3 Llanos Basin is the Major Oil Producing Area in Colombia ........................................................ 30 6.4 Llanos Basin - Recent Updates................................................................................................ 31

7 Oil and Gas Exploration and Production in Valle Medio Del Magdalena Basin.................................. 33 7.1 Valle Medio Del Magdalena Basin Has 33 Exploration Blocks................................................... 33 7.2 Valle Medio Del Magdalena Basin Has Witnessed Eight Oil and Gas Discoveries Since 2007.... 35 7.3 La Cira is the Most Active Oil Producing Field in Valle Medio Del Magdalena Basin................... 36 7.4 Valle Medio Del Magdalena Basin - Recent Updates ................................................................ 37

8 Oil and Gas Exploration and Production in Valle Superior Del Magdalena Basin.............................. 38 8.1 Valle Superior Del Magdalena Basin Has Over 50 Exploration Blocks ....................................... 38 8.2 Twelve Discoveries Have Been Made in Valle Superior Del Magdalena Basin Since 2007......... 42 8.3 Guando is the Most Active Oil Producing Field in Valle Superior Del Magdalena Basin .............. 43 8.4 Valle Superior Del Magdalena Basin - Recent Updates............................................................. 44

9 Oil and Gas Exploration in Colombia’s Emerging Basins ................................................................. 45 9.1 Oil and Gas Exploration and Production in Caguan-Putumayo Basin......................................... 45

9.1.1 The Caguan-Putumayo Basin has 39 Exploration Blocks ................................................. 45 9.1.2 Putumayo Basin Has Witnessed 14 Oil and Gas Discoveries Since 2007 ......................... 46 9.1.3 Caguan-Putumayo Basin Has Been Witnessing Increasing Levels of Oil and Gas Production

Since 2009 ..................................................................................................................... 47 9.2 Oil and Gas Exploration and Production in Cordillera Oriental Basin.......................................... 48

9.2.1 Cordillera Oriental Witnessed a Rapid Increase in Oil Production in 2011 ......................... 50 9.3 Oil and Gas Exploration and Production in Valle Inferior Del Magdalena Basin.......................... 51

9.3.1 The Valle Inferior Del Magdalena Basin Has Witnessed Seven Discoveries Since 2007.... 52 9.3.2 Arianna is the Most Active Oil Production Field in the Valle Inferior Del Magdalena Basin . 53

10 Major Oil and Gas Companies in Colombia - Competitive Landscape.............................................. 55 10.1 Ecopetrol Participates in the Largest Number of Exploration Blocks in Colombia ....................... 55 10.2 Petrominerales Colombia Ltd Has Made the Largest Number of Discoveries in Colombia Since

2011 57 10.3 Ecopetrol Leads in Terms of Oil and Gas Production in Colombia ............................................. 58

10.3.1 Pacific Rubiales is Emerging as a Strong Independent E&P Company in Colombia .......... 60



11 Appendix....................................................................................................................................... 61 11.1 Market Definitions.................................................................................................................... 61 11.2 Abbreviations .......................................................................................................................... 61 11.3 Bibliography ............................................................................................................................ 61 11.4 Methodology ........................................................................................................................... 62

11.4.1 Coverage ....................................................................................................................... 62 11.4.2 Secondary Research ...................................................................................................... 62 11.4.3 Primary Research........................................................................................................... 63 11.4.4 Expert Panel Validation................................................................................................... 63

11.5 Contact Us .............................................................................................................................. 63 11.6 Disclaimer ............................................................................................................................... 64



1.1 List of Tables Table 1: Exploration and Production Sector, Colombia, Value and Number of M&A and Asset

Transactions, $m, 2007-2012 (until July 15)......................................................................... 16 Table 2: Exploration and Production Sector, Colombia, Major M&A and Asset Transactions, 2007-July

15, 2012............................................................................................................................. 16 Table 3: Oil and Gas Exploration Market, Colombia, Number of Oil and Gas Discoveries by Top Basins,

2007-2012 (August) ............................................................................................................ 19 Table 4: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production,

MMboe, 2000-2011............................................................................................................. 21 Table 5: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production,

MMboe, 2012-2020............................................................................................................. 24 Table 6: Colombia, Llanos Basin, Top 10 Exploration Blocks Based on Acreages, Sq km, 2000-2011. 25 Table 7: Llanos Basin, Major Companies with Gross Acreage, Acres, August 2012............................ 28 Table 8: Oil and Gas Exploration and Production, Colombia, Major Discoveries in Llanos Basin, 2012 29 Table 9: Oil and Gas Exploration and Production, Colombia, Top 10 Fields in Llanos Basin Based on

Production, MMboe, 2011 ................................................................................................... 31 Table 10: Oil and Gas Exploration and Production, Colombia, Major Exploration Blocks in Valle Medio

Del Magdalena Basin, Sq km, 2012..................................................................................... 33 Table 11: Valle Medio Del Magdalena Basin, Major Companies with Gross Acreage, Acres, August 2012

.......................................................................................................................................... 34 Table 12: Oil and Gas Exploration and Production, Colombia, Major Fields in Valle Medio Del Magdalena

Basin, MMboe, 2011........................................................................................................... 36 Table 13: Oil and Gas Exploration and Production, Colombia, Major Exploration Blocks in Valle Superior

Del Magdalena Basin, Sq km, 2012..................................................................................... 38 Table 14: Valle Superior Del Magdalena basin, Major Companies with Gross Acreage, Acres, August

2012................................................................................................................................... 41 Table 15: Oil and Gas Exploration and Production, Colombia, Major Fields in Valle Superior Del

Magdalena Basin, MMboe, 2011 ......................................................................................... 44 Table 16: Oil and Gas Exploration and Production, Colombia, Major Blocks in Caguan-Putumayo Basin,

2011................................................................................................................................... 45 Table 17: Oil and Gas Exploration and Production, Colombia, Major Discoveries in Caguan-Putumayo

Basin, 2007-Present ........................................................................................................... 46 Table 18: Colombia, Caguan-Putumayo Basin, Top 10 Fields Based on Oil and Gas Production, MMboe,

2011................................................................................................................................... 48 Table 19: Oil and Gas Exploration and Production, Colombia, Major Blocks in Cordillera Oriental Basin,

2011................................................................................................................................... 48 Table 20: Oil and Gas Exploration and Production, Colombia, Major Blocks in Valle Inferior Del

Magdalena Basin, 2011 ...................................................................................................... 51 Table 21: Oil and Gas Exploration and Production, Colombia, Major Discoveries in Valle Inferior Del

Magdalena Basin, 2007-2012.............................................................................................. 52 Table 22: Colombia, Valle Inferior Del Magdalena Basin, Major Fields by Oil and Gas Production, boe,

2011................................................................................................................................... 53 Table 23: Oil and Gas Exploration and Production, Colombia, Major Companies by Participation, Number

of Exploration Blocks, 2011................................................................................................. 56 Table 24: Oil and Gas Exploration and Production, Colombia, Major Companies by Crude Oil and Natural

Gas Production, MMboe, 2011............................................................................................ 58



1.2 List of Figures Figure 1: Oil and Gas Industry, Colombia, Proved Oil Reserves, billion bbl, 2006-2011 ......................... 9 Figure 2: Oil and Gas Industry, Colombia, Proved Natural Gas Reserves, bcm, 2006-2011 ................. 10 Figure 3: Oil and Gas Industry, Colombia, Foreign Direct Investments in the Petroleum Sector*, $bn,

2005-2010.......................................................................................................................... 11 Figure 4: Oil and Gas Industry, Colombia, Exploratory Wells Drilled and Technical Success Rate, %,

2002-2011.......................................................................................................................... 12 Figure 5: Oil and Gas Industry, Colombia, Locations of Unconventional Acreage in the 2012 Licensing

Round ................................................................................................................................ 13 Figure 6: Exploration and Production Sector, Colombia, Value and Number of M&A and Asset

Transactions, $m, 2007-2012 (until July 15)......................................................................... 15 Figure 7: Oil and Gas Exploration and Production, Colombia, Map of Major Tectonic Domains, 2012... 18 Figure 8: Oil and Gas Exploration Market, Global, Top Countries by Oil and Gas Discoveries, 2007-2012

(August) ............................................................................................................................. 20 Figure 9: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production,

MMboe, 2000-2011............................................................................................................. 21 Figure 10: Oil and Gas Exploration and Production, Colombia, Share of Light Oil, Heavy Oil and Natural

Gas in Production, %, 2011................................................................................................. 22 Figure 11: Oil and Gas Exploration and Production, Colombia, Contribution of Basins in Production, %,

2011................................................................................................................................... 23 Figure 12: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production,

MMboe, 2012-2020............................................................................................................. 24 Figure 13: Oil and Gas Exploration and Production, Colombia, CPE 3 Block Location Map, 2012 .......... 26 Figure 14: Oil and Gas Exploration and Production, Colombia, CPE 8 Block Location Map, 2012 .......... 27 Figure 15: Oil and Gas Exploration and Production, Colombia, Number of Discoveries in Llanos Basin,

2007-2012 (July)................................................................................................................. 28 Figure 16: Oil and Gas Exploration and Production, Colombia, Oil Production in Llanos Basin, MMbbl,

2009-2012*......................................................................................................................... 30 Figure 17: Oil and Gas Exploration and Production, Colombia, Number of Discoveries in Valle Medio Del

Magdalena Basin, 2007-2010.............................................................................................. 35 Figure 18: Oil and Gas Exploration and Production, Colombia, Oil Production in Valle Medio Del

Magdalena Basin, MMbbl, 2009-2012* ................................................................................ 36 Figure 19: Oil and Gas Exploration and Production, Colombia, VSM 9 Block Location Map, 2012.......... 39 Figure 20: Oil and Gas Exploration and Production, Colombia, VSM 12 and VSM 13 Blocks Location Map,

2012................................................................................................................................... 40 Figure 21: Oil and Gas Exploration and Production, Colombia, Number of Discoveries in Valle Superior

Del Magdalena Basin, 2007-Present.................................................................................... 42 Figure 22: Oil and Gas Exploration and Production, Colombia, Oil Production from Valle Superior Del

Magdalena Basin, MMbbl, 2009-2012* ................................................................................ 43 Figure 23: Oil and Gas Exploration and Production, Colombia, Tacacho and Terecay Blocks Location

Map, 2012 .......................................................................................................................... 46 Figure 24: Oil and Gas Exploration and Production, Colombia, Oil Production in Caguan-Putumayo Basin,

MMbbl, 2009-2012*............................................................................................................. 47 Figure 25: Oil and Gas Exploration and Production, Colombia, Muisca Block Location Map, 2012 ......... 49 Figure 26: Oil and Gas Exploration and Production, Colombia, Oil Production in Cordillera Oriental Basin,

MMbbl, 2009-2012*............................................................................................................. 50 Figure 27: Oil and Gas Exploration and Production, Colombia, Valle Inferior Del Magdalena Basin, Oil

Production, MMbbl, 2009-2012* .......................................................................................... 53 Figure 28: Oil and Gas Exploration and Production, Colombia, Major Companies by Participation, Number

of Exploration Blocks, 2011................................................................................................. 55 Figure 29: Oil and Gas Exploration and Production, Colombia, Number of Exploration Blocks of

Companies, 2006-2011....................................................................................................... 56 Figure 30: Oil and Gas Exploration and Production, Colombia, Major Companies by Number of

Discoveries, 2011-2012 (August)......................................................................................... 57 Figure 31: Oil and Gas Exploration and Production, Colombia, Major Companies by Oil and Gas

Production, MMboe, 2011 ................................................................................................... 58 Figure 32: Oil and Gas Exploration and Production, Colombia, Major Companies by Crude Oil and Natural

Gas Production, MMboe, 2006-2011 ................................................................................... 59



2 Introduction

2.1 Overview Colombia is increasingly gaining global importance for its exploration and production of oil. The main drivers for the growth of exploration and production in the country include a friendly fiscal regime for oil and gas investors, improved security in the country, and demand for the country’s oil and gas in the global energy market.

As a result of increasing exploration and production activity, Colombia has witnessed financial deals (mergers, acquisitions, and asset transactions) worth more than $7.7 billion since 2007. The country has witnessed significant activity in terms of mergers, acquisitions, asset purchases and partnerships in its oil and gas exploration and production industry.

The important basins in Colombia for exploration and production include the Llanos basin, the Valle Medio Del Magdalena basin and the Valle Superior Del Magdalena basin. The Llanos basin is considered to be one of the most prospective basins in the country. The Eastern Llanos basin holds most of the exploratory potential. Among the emerging basins in Colombia, the Caguan-Putumayo basin is considered to be the most important. The basin is estimated to have proved reserves of more than 365 million barrels of oil equivalent (MMboe).

The participation of oil and gas companies in Colombia has increased after the country’s government announced several regulatory reforms since 2000. Both local and international oil and gas companies have a presence in Colombia. Ecopetrol, the country’s National Oil Company (NOC), currently leads the way in Colombia in terms of both exploration and production.

2.2 GlobalData Report Guide This report provides market analysis of the exploration and production (E&P) in Colombia, including

the competitive landscape and forecasts to 2020. It begins with an executive summary chapter, which highlights the key features of the report. The main body of the report is structured as follows.

Chapter three provides an introduction on E&P in Colombia. It also describes some of the key drivers for the growth of E&P in Colombia.

Chapter four describes the oil and gas regulatory regime, and investment activities in Colombia. It also provides an analysis of financial deals that have taken place in the country since 2007.

Chapter five provides an insight on the significant oil and gas basins in Colombia. It also provides information on the discoveries of oil and gas reserves in the country since 2007.

Chapter six describes exploration and production in the Llanos Basin. It also describes major discoveries in the basin and key production fields.

Chapter seven provides an insight on exploration and production in the Valle Medio Del Magdalena Basin. It also discusses major discoveries in the basin and key production fields.

Chapter eight describes exploration and production in the Valle Superior Del Magdalena Basin. It also describes major discoveries in the basin and key production fields.

Chapter nine provides details on important emerging basins in Colombia - Caguan-Putumayo, Cordillera Oriental and Valle Inferior Del Magdalena. It also describes exploration and production activities in the three basins.

Chapter 10 describes the activities of important E&P companies in Colombia - Ecopetrol, Petrominerales Colombia Ltd and Pacific Rubiales.

Chapter 11 is the appendix of the report.



3 Colombia - A Snapshot of its Oil and Gas Sector

3.1 Colombia is an Emerging Oil Producer from South and Central America Colombia is an emerging oil producer from South and Central America. The country became a net crude exporter in the 1980s. Oil and gas production from Colombia’s Caño Limón, Cusiana and Cupiagua oilfields increased the country’s production significantly. Colombia’s production peaked in 1999, reaching more than 305 million barrels (MMbbl) in the year.

In the early 2000s, Colombia’s oil and gas reserves and production dropped significantly as a result of a decline in exploration activities. Additionally, foreign direct investment in the country’s petroleum sector declined. In 2003, foreign direct investment in Colombia’s petroleum sector dropped to about $278m from $521m in 2001. The country’s self-sufficiency status in terms of oil production and oil export was under threat. Continued guerilla attacks added to the troubles for the petroleum sector in Colombia. By that time, merely 15% of the country’s sedimentary basins had been explored.

In 2003, the government of Colombia initiated restructuring of the country’s hydrocarbon sector, mainly focusing on sector organization and public governance, corporate governance of Ecopetrol, and fiscal and regulatory regimes redesign.

To manage exploration bidding rounds and associated contracts, the National Hydrocarbons Agency (Agencia Nacional de Hidrocarburos, ANH) was created. Private companies were no longer required to partner with Ecopetrol, the national oil company of Colombia. All companies, including Ecopetrol, were allowed to compete in the exploration bidding rounds of ANH. The government also revised the fiscal regime to attract investments in the country. Additionally, security was tightened to ensure smooth operations in the petroleum sector.

After the establishment of ANH, Ecopetrol’s function as an administrator of oil sources in Colombia decreased. From a wholly state-owned entity, Ecopetrol was transformed into a company, which incorporated private capital of about 10.1% of the total. In 2007, the company floated its shares for the first time in an Initial Public Offering (IPO) for $2.8 billion.

Ecopetrol’s regulatory responsibilities were transferred to the ANH. Ecopetrol separated its investment budget from Colombia’s national investment budget. Additionally, national limits on Ecopetrol’s debt issuance were removed. Ecopetrol was relieved from about a $10 billion responsibility to refund gasoline and diesel price subsidies to refiners annually.



3.2 Colombia Recorded Two Billion Barrels of Proved Oil Reserves by the End of 2011

According to BP Plc’s Statistical Review of World Energy 2012, Colombia had two billion barrels (billion bbls) of proved oil reserves by the end of 2011. The country accounts for 0.12% of the global proved oil reserves. The oil reserve replacement (R/P) ratio of the country was 5.9 by the end of 2011.

The figure below shows the historical trend of Colombia’s proved oil reserves for the period 2006 to 2011.

Figure 1: Oil and Gas Industry, Colombia, Proved Oil Reserves, billion bbl, 2006-2011

1.5 1.51.4 1.4

1.92.0

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2006 2007 2008 2009 2010 2011

Prov

ed O

il R

eser

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(billi

on b

bl)

Source: BP Plc, 2012a

The BP Plc’s Statistical Review of World Energy 2012 also estimated that Colombia had 163 billion cubic meters (bcm) of proved natural gas reserves by the end of 2011. The country’s proved natural gas reserves were 0.08% of the total world’s proved natural gas reserves. The natural gas R/P of the country was 14.9 by the end of 2011.



The figure below shows the historical trend of Colombia’s proved natural gas reserves for the period 2006 to 2011.

Figure 2: Oil and Gas Industry, Colombia, Proved Natural Gas Reserves, bcm, 2006-2011

123.0 125.0

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163.0

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Source: BP Plc, 2012a



3.3 Key Drivers for the Growth of Colombia’s Oil and Gas Market 3.3.1 The Colombian Petroleum Sector has Attracted Substantial Foreign Direct

Investment in Recent Years The Colombian government has embarked on policies to create a more favorable business environment for investors and increase the country’s internal security. As a result, the Gross Domestic Product (GDP) of Colombia witnessed an Annual Average Growth Rate (AAGR) of 4.5% during 2001-2010, which was higher than Brazil’s GDP growth (3.8%) during the same period. In 2011, Colombia witnessed a GDP growth rate of 5.9%, which was one of the highest in Latin America. The important factors for such high growth in Colombia’s GDP include the strong global demand for the country’s commodities, such as oil, natural gas and coal.

As a result of strong global demand for Colombian commodities such as oil and gas, the country was also able to attract substantial Foreign Direct Investments (FDIs) in the petroleum sector. Many oil and gas companies such as Chevron Corporation, Pacific Rubiales, Gran Tierra Energy and Petrominerales have invested in the country.

The figure below shows FDI flows to the Colombian petroleum sector for the period 2005 to 2010.

Figure 3: Oil and Gas Industry, Colombia, Foreign Direct Investments in the Petroleum Sector*, $bn, 2005-2010

1.1

2.0

3.33.4

2.6 2.6

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3.5

4.0

2005 2006 2007 2008 2009 2010

Fore

ign

Dire

ct In

vest

men

ts ($

bn)

Source: Banco de la República, 2012 * Provisional figures

Colombia’s petroleum sector is expected to continue to witness a significant flow of FDIs in the petroleum sector in future, as demand for oil and gas is expected to continue to grow in the global market. In December 2011, Chevron renewed an agreement that was signed with PDVSA Gas S.A. (PDVSA) in 2007 for the supply of gas from Colombia to Venezuela. This extension of the agreement indicated that foreign investors are continuing to be bullish about Colombia’s petroleum’s sector.



3.3.2 Colombia is Witnessing Increasing Exploration Activities for Oil and Gas Oil and gas exploration in Colombia is increasing. The total area under exploration in the country had increased to 38 million hectares by the end of 2011, and this is still well below the 114 million hectares available for exploration in the country. The driving factors for increasing exploration activity include lowered royalty rates, an increase in the duration of exploration license periods, allowing foreign companies to hold 100% equity stakes in the oil fields, and improved security in the country.

In 2011, approximately 126 exploration wells were drilled, with a technical success rate of 48%. The year 2011 also witnessed the signing of approximately 67 exploration and production contracts.

The figure below shows number of exploration wells drilled and technical success rates for the period 2002 to 2011.

Figure 4: Oil and Gas Industry, Colombia, Exploratory Wells Drilled and Technical Success Rate, %, 2002-2011

10

2821

35

56

70

99

75

112

126

40%

21%

48%46%

39%41%

47%

53%56%

48%

0

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60

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120

140

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Expl

orat

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Wel

ls D

rille

d

0%

10%

20%

30%

40%

50%

60%

Tech

nica

l Suc

cess

Rat

e (%

)Exploratory Wells Drilled Technical Success Rate

Source: Ecopetrol, 2012

In Colombia, several areas are currently under oil and gas exploration. The Putamayo-Caguan Basin is presently witnessing significant exploration activities due to its geographical similarity to the high producing areas of the Llanos Basin. The Putamayo-Caguan Basin is located towards the south of Colombia and shares a border with Ecuador.

Colombia is also witnessing offshore exploration in the Choco province along the Pacific coast, while evaluation agreements were also signed for an area located in the south of Cauca Patia Basin and for the eastern area in the Amazon region.



3.3.3 Colombia to Offer Unconventional Oil and Gas Acreage for Bidding Under the 2012 Licensing Round

Colombia is planning to offer unconventional oil and gas acreage for licensing under the 2012 licensing round. Approximately 30% of the 109 offer blocks under the 2012 licensing round are expected to have unconventional oil and gas resources. The results of 2012 bidding will be announced in October 2012. The unconventional hydrocarbons that are expected to be present in Colombia include shale gas, coal bed methane, oil shale, oil sands and tight gas. These resources are present in the Cordillera, Catatumbo Del Magdalena, Valle Medio Del Magdalena and Valle Medio basins of the country.

The Cordillera basin has the highest number of unconventional hydrocarbon blocks (21 blocks), followed by Middle Magdalena Valley (five blocks) and Upper Magdalena Valley (three blocks). All the blocks are Type 2 (blocks located in new frontier basins, for which limited geographical information exists) or Type 3 (blocks for which little or no geographical information is available).

The figure below shows the locations of prospective unconventional hydrocarbon blocks in Colombia.

Figure 5: Oil and Gas Industry, Colombia, Locations of Unconventional Acreage in the 2012 Licensing Round

Source: ANH, 2012b

The Colombian government determined that production from unconventional hydrocarbons is more difficult than the conventional hydrocarbons. Therefore, in order to increase the interest of oil and gas companies in unconventional exploration, the royalty rates for unconventional hydrocarbon reservoirs were determined as 60% of those for the conventional reservoirs.



4 Colombia - Oil and Gas Regulatory Regime and Investment Activities

The Colombian government is attracting foreign investors by allowing the free flow of foreign capital and promoting laws which grant equal rights to domestic and foreign investors. Colombia’s government is open to private investors, and encourages direct negotiations with prospective investors. As Colombia has a coastline on the Atlantic and Pacific oceans, the country can offer easy access to the Gulf of Mexico, the east coast and west coast of North America, east Asia, and South and Central America. The Colombian government has also implemented new royalties or tax contract models to attract foreign investment.

4.1 Fiscal Terms and Regulatory Regime Prior to 2004, private sector companies in Colombia were allowed to operate only through production-sharing agreements with the country’s state-owned Ecopetrol SA. After a series of reforms in the petroleum sector in Colombia, private sector companies can obtain exploration and production rights directly through the National Hydrocarbons Agency of Colombia (ANH), which was formed in 2003 as a result of restructuring of the country’s hydrocarbon sector.

In Colombia’s current oil and gas fiscal regime, Ecopetrol does not have any regulatory and policy roles, and therefore operates alongside other companies under the same rules and contract terms. The new Colombian Royalty/Tax system replaced Ecopetrol’s 30-year-old Association Contract Model.

Under the Royalty/Tax system, there are no back-in rights for Ecopetrol or ANH. The contractor gets all of the reward for the exploration risk. The new exploration and production contract gives more autonomy to the contractor, with full ownership of the project assets.

The contractor can possess 100% of the working interest. An additional payment to ANH is conditional on high prices, and only applicable for light crude oil. Therefore, Colombia gains in windfall income, in excess of taxes and royalties, only when prices are high.

The contractor gets 100% of any cost saving before taxes. It does not have cost recovery limits.

Some of the key fiscal terms in Colombia are as follows:

Royalty

Colombia uses a sliding royalty regime for oil and gas production. The royalty applicable varies on a sliding scale between 5% and 25%, based on production. Hydrocarbons with equal or less gravity than 15° API incur 75% of the royalties applicable to light crude.

Additional Royalty

The ANH may also receive an ‘Additional Royalty’ or ‘X-Factor’, depending on the bid by the contractor in a competitive process. The X-Factor is also now one of the bid criteria for new Exploration Contracts, and the minimum X-Factor is one percent of the gross production.

Fees

Fees for Use of Subsoil: The contractor has to pay a fee for the right to use the subsoil, for each phase of the exploration period. This fee structure is not applicable to production areas. The fee depends on the date when the contract was signed.

Evaluation and Production Area: The contractor is liable to pay $0.1119 for each barrel of oil produced. For natural gas, the fee is $0.01162 per each one thousand cubic feet.

Technology Transfer Payment: For the production area, the contractor has to pay 10% of the amount of the fee applicable to the production area. The maximum limit for Technology Transfer Payment is $100,000 per calendar year.



Participation in Production

Fee for High Prices: For light crude oil, the contractor makes a payment to the ANH when the cumulative production is above 5 million barrels (MMbbl) and the price of the benchmark crude exceeds a base price. However, it depends on the API gravity of the crude.

For natural gas, it is payable from the fifth year of commencement of production, and when the benchmark price for US Henry Hub exceeds a base price.

Taxation

Corporate Income Tax: The contractor pays corporate income tax at a rate of 33%.

4.2 Colombia Has Emerged as an Active Destination for Mergers and Acquisitions in Oil and Gas Exploration and Production

Colombia has attracted a large number of foreign exploration and production (E&P) companies to invest in the country’s exploration and production sector. The country has witnessed significant activity in terms of mergers, acquisitions, asset purchases and partnerships in its oil and gas exploration and production industry. Since 2007, transactions worth more than $7.73 billion have been made in the Colombian upstream sector. The country has also witnessed an increasing number of deals during this period, except for the year 2010.

The figure and table below show the deal value and number of mergers, acquisitions and asset transactions in the Colombian upstream sector since 2007.

Figure 6: Exploration and Production Sector, Colombia, Value and Number of M&A and Asset Transactions, $m, 2007-2012 (until July 15)

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Source: GlobalData; Oil and Gas eTrack, Deals Database [Accessed on July 17, 2012]



Table 1: Exploration and Production Sector, Colombia, Value and Number of M&A and Asset Transactions, $m, 2007-2012 (until July 15)

Year Number of Deals Deal Value ($m)

2007 11 818

2008 22 1,172

2009 29 2,635

2010 16 2,361

2011 30 497

2012* 18 247

Note: Deal Value corresponds to the deals where the deal value was made public. *Deals from January 1, 2012 to July 15, 2012 Source: GlobalData, Oil and Gas eTrack, Deals Database [Accessed on July 17, 2012]

The number of M&A and asset transactions in the oil and gas E&P sector of Colombia witnessed a steady increase during the 2007-2009 period. In 2010, the number of transactions witnessed a decline, although the average deal value remained strong. The transactions in Colombia’s E&P sector regained momentum in 2011, with 30 transactions in the year. In 2012, 18 transactions have been announced up until July 15.

Major deals in the Colombian upstream sector during 2007-July 15, 2012 involved companies such as ExxonMobil Exploration, Talisman Energy, Ecopetrol, CEPSA, Sinochem, Maurel & Prom, Sinopec and Pacific Rubiales.

The table below lists the major E&P acquisitions and asset transactions by deal value during 2007-July 15, 2012 in Colombia.

Table 2: Exploration and Production Sector, Colombia, Major M&A and Asset Transactions, 2007-July 15, 2012

Announced Date

Completed Date Deal Headline Deal Type Deal

Status Deal Value

($m)

13-Jan-12 - Government of Colombia Plans to Sell 3% Stake in Ecopetrol Acquisition Planned 3,000.0

20-Apr-11 29-Jun-11 Parex Resources Acquires Remora Energy Colombia from Remora Energy International for $252.9m

Acquisition Completed 252.9

21-Dec-10 21-Dec-10 Sinopec Acquires Oil and Gas Assets in Colombia from Hupecol

Asset Transactions Completed 281.0

19-Aug-10 2-Dec-10 Houston American Completes the Sale of Hupecol Llanos and Hupecol Dorotea Acquisition Completed 281.0

3-Aug-10 24-Jan-11 Talisman Energy and Ecopetrol Acquire BP Exploration Company Colombia Acquisition Completed 1,750.0

12-Aug-09 5-Oct-09 Sinochem Acquires Emerald Energy Acquisition Completed 878.2

10-Mar-09 28-May-09 Maurel & Prom Sells Hocol Petroleum to Ecopetrol Acquisition Completed 744.0

8-Jul-08 3-Sep-08 Pacific Rubiales Acquires Kappa Energy Acquisition Completed 168.0

17-Mar-08 22-May-08 CEPSA Acquires 70% Interest in Caracara Block from Hupecol Caracara

Asset Transactions Completed 920.0

12-Nov-07 23-Jan-08 Petro Rubiales Acquires Pacific Stratus Acquisition Completed 664.9

22-Oct-07 4-Dec-07 Petro Rubiales Acquires Rubiales Holdings from PF One Acquisition Completed 143.65

Source: GlobalData, Oil and Gas eTrack, Deals Database [Accessed on July 18, 2012]



In January 2012, the Mines and Energy Minister of Colombia, Mauricio Cardenas, announced that the government intends to sell 3% interest in Ecopetrol SA for sale proceeds of up to $3,000m, as the country is looking for investments from abroad. Currently, the government has 88.5% interest in Ecopetrol.

In June 2011, Parex Resources Inc. completed the acquisition of Remora Energy Colombia Ltd. from Remora Energy International LP, an oil and gas company, for $252.9m in cash, net of closing adjustments. Remora Energy Colombia holds 50% interest in four Llanos basin blocks in Colombia. The four blocks include LLA-16 (78,772 net acres), LLA-20 (72,105 net acres), LLA-29 (34,943 net acres) and LLA-30 (58,636 net acres) in Llanos basin. The acquisition has an effective date of January 1, 2011.

In January 2011, Talisman Energy Inc. and Ecopetrol S.A. completed the acquisition of all of the issued and outstanding shares of BP Exploration Company Colombia Limited (BPXC), an oil and gas company, from BP p.l.c., for $1,750m in cash.

Under the terms of the agreement, Talisman acquired a 49% interest in BPXC, while Ecopetrol acquired the remaining 51% interest. Following the transaction, BPXC was renamed Equion Energia Limited. Equion Energia assumed ownership of all assets and businesses that the BP subsidiary held in Colombia. Additionally, Equion Energia also assumed the interest that BP had in Oleoducto Central S.A.-Ocensa (24.8%), Oleoducto de Colombia (14.57%) and Oleoducto del Alto Magdalena (4.25%), as well as 20% of Transgas de Occidente and interest in Casanare gas plants.

BPXC’s assets included interests in five producing fields in four association contracts: Tauramena (31%), Rio Chitamena (31%), Recetor (50%) and Piedemonte (50%). The company also held a 40.56% interest in the RC4 and RC5 exploration blocks located in offshore Cartagena; 24.8% interest in the OCENSA crude oil pipeline; and interests in four pipelines and the Cusiana gas processing facility, totaling approximately 1,600km of crude and 400km of gas pipelines.



5 Oil and Gas Exploration and Production in Colombia Colombia is attracting oil and gas investors to explore and produce from hydrocarbon resources in the region. The Colombian National Hydrocarbons Agency suggests that the country’s national oil company, Ecopetrol, estimates the country’s potential reserves to be 47 billion barrels of oil equivalent (billion boe). Colombia has a significant unexplored area. Discoveries can be expected in fields such as Cusiana, Cupiagua, Caño Limón, La Cira-Infantas, and Chuchupa-Ballena. These fields have proven reserves of more than one billion boe.

5.1 Llanos Basin is the Epicenter for Exploration and Production Activities in Colombia

Colombia can be divided into three main tectonic domains - the Eastern region, the Central region, and the Western region. The Eastern region consists of a Paleozoic and Precambrian basement with a Paleozoic-Cenozoic sedimentary cover. The Central region comprises the Eastern Cordillera, Sierra Nevada de Santa Marta, the Magdalena River valley and the Central Cordillera, extending to the Romeral fault system to the west. A sedimentary-metamorphic cover rests on a Grenvillian basement. The Western region located to the west of the Romeral fault system is composed of Mesozoic-Cenozoic oceanic terranes.

The figure below shows the map of Colombia with its main tectonic domains.

Figure 7: Oil and Gas Exploration and Production, Colombia, Map of Major Tectonic Domains, 2012

Source: ANH, 2007 Note: 1) Eastern Region; 2) Central Region; 3) Western Region. In red: regional faults. Gray and shadow areas: Main mountain ranges. R.F.S. Romeral fault system; S.N.S.M. Sierra Nevada de Santa Marta. Deep marine and Los Cayos basins are not included.



Major oil and gas basins in Colombia include Llanos basin, Putumayo basin, Valle Superior Del Magdalena basin, Valle Inferior Del Magdalena basin, Valle Medio, Del Magdalena basin, Catatumbo basin, Sinu offshore basin, Sinu-San Jacinto basin, Tumaco offshore basin and Los Cayos basin.

During 2007 to 2012, Colombia’s Llanos basin witnessed about 60% of the country’s total oil and gas discoveries. The other two basins which had a significant number of oil and gas discoveries during the period were Putumayo basin and Valle Superior Del Magdalena basin.

The table below shows the major basins in Colombia based on the number of discoveries during 2007 to 2012 (August).

Table 3: Oil and Gas Exploration Market, Colombia, Number of Oil and Gas Discoveries by Top Basins, 2007-2012 (August)

Basin Name Number of Discoveries

Llanos 81

Putumayo 14

Valle Superior Del Magdalena 12

CAG-VAU 8

Valle Medio Del Magdalena 9

Valle Inferior Del Magdalena 7

Catatumbo 2

Middle Magdalena Valley 1

Source: GlobalData, Oil and Gas eTrack, Discoveries Database [Accessed on August 24, 2012] Note: *The number of discoveries for basins is made available using data from publicly available sources and may vary slightly from the total for the country for the period.



5.2 Colombia has Witnessed the Third Largest Numberof Oil and Gas Discoveries in the World Since 2007

Colombia has emerged as one of the most attractive upstream investment destinations, as several discoveries in the country have attracted investors’ attention. Based on the number of oil and gas discoveries worldwide during 2007 to 2012, Colombia ranked third after Brazil and Australia. Colombia witnessed about 136 oil and gas discoveries during the period.

The figure below shows the rank of Colombia globally in terms of oil and gas discoveries during 2007 to 2012.

Figure 8: Oil and Gas Exploration Market, Global, Top Countries by Oil and Gas Discoveries, 2007-2012 (August)

261

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136127

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62 60 58

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Source: GlobalData, Oil and Gas eTrack, Discoveries Database [Accessed on August 24, 2012] Note: *Oil and gas discoveries until August 24, 2012 are considered.

Some of Colombia’s discoveries with high net pay units are Brillante SE-1X, Topoyaco-2, Moqueta-1, El Verdal-1X, and Nelson-2. In March 2010, Petrolifera Petroleum Limited announced that Brillante SE-1X well in Sierra Nevada block encountered hydrocarbon-bearing zones. The examination of the discovery indicated that the upper interval contains 184ft of gross pay and 158.5ft of net pay, while a deeper series of sandstones contains 85ft of gross pay and 56ft of net pay.

Alange Energy Corp. announced that in 2010, Topoyaco-2 well was spud to a total depth of 8,700ft, finding 114ft of total net oil pay sand and 125ft of oil-saturated carbonates. The well tested 310bbl/d of heavy oil with an API gravity of 10.5 degrees. Topoyaco-2 is located in Putumayo basin.

Gran Tierra Inc completed successful testing of Moqueta-1 discovery, located in the Chaza block in the Putumayo basin in Colombia.



5.3 Oil and Gas Production in Colombia has Increased with an Average Annual Growth of 12.8% Since 2007

Oil and gas production in Colombia increased from 239.8 MMboe in 2007 to 400.5 MMboe in 2011, witnessing an AAGR of 12.8%. Prior to this, the country’s oil and gas production was witnessing a decline during the 2000-2007 period.

The figure below presents the growth of oil and gas production in Colombia over the 2000-2011 period.

Figure 9: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production, MMboe, 2000-2011

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Source: US EIA, [Accessed on July 9, 2012]

Table 4: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production, MMboe, 2000-2011

Oil (MMboe) Gas (MMboe) Oil and Gas (MMboe)

2000 250.9 37.2 288.2 2001 220.6 38.6 259.2 2002 210.4 38.8 249.2 2003 197.5 38.2 235.7 2004 192.0 39.9 231.9 2005 191.6 42.7 234.2 2006 192.4 51.9 244.3 2007 193.0 46.7 239.8 2008 214.3 61.0 275.3 2009 244.3 65.7 310.0 2010 286.8 70.0 356.8 2011 334.0 66.5 400.5 Source: US EIA, [Accessed on July 9, 2012]



The country’s oil production declined to a low of 191.6 MMboe in 2005. Subsequently, backed by the government’s initiatives to restructure the sector to attract oil and gas investors, the country witnessed an increase in exploration activities as well as oil production, which increased from 191.6 MMboe in 2005 to 334 MMboe in 2011. The country’s natural gas production continued to increase between 2000 and 2011 at an AAGR of 5.3%. Natural gas production in the country was recorded at about 66.5 MMboe in 2011.

The majority of crude oil and natural gas production in the country is light oil, representing about half of the total production in 2011. Heavy oil currently accounts for about 31% of the country’s total oil and gas production. However, the significance of heavy oil in the country’s oil and gas production has been gaining prominence in the past few years.

The figure below presents the share of light oil, heavy oil and natural gas in Colombia’s total oil and gas production during 2011.

Figure 10: Oil and Gas Exploration and Production, Colombia, Share of Light Oil, Heavy Oil and Natural Gas in Production, %, 2011

Light Oil50%

Heavy Oil32%

Natural Gas18%

Source: ANH, 2012a

One of the key driving factors for Colombia’s increasing oil and gas production in recent years has been the increasing production of heavy oil in the country. In the past ten years, heavy oil production from the country has increased from almost nil to 127.8 MMboe in 2011.

Among the basins, Llanos basin accounts for the majority of oil and gas production in Colombia, followed by Valle Medio Del Magdalena Basin and Valle Superior Del Magdalena Basin. Together these three basins account for approximately 94.2% of the country’s total oil and gas production.



The figure below presents the contribution of various basins in Colombia’s total oil and gas production in 2011.

Figure 11: Oil and Gas Exploration and Production, Colombia, Contribution of Basins in Production, %, 2011

Valle Medio Del Magdalena Basin

12.0%

Valle Superior Del Magdalena Basin

7.2%

Others5.7%

Llanos Basin75.1%

Source: Ministry of Mines and Energy, Colombia [Accessed on August 30, 2012] Others include Caguan-Putumayo Basin, Cordillera Oriental Basin and Valle Inferior Del Magdalena Basin

Llanos basin accounts for about three quarters of Colombia’s oil and gas production. Besides this, Valle Medio Del Magdalena and Valle Superior Del Magdalena are other basins with significant oil and gas production in the country. Among the emerging oil and gas basins in Colombia, production from Cordillera Oriental and Valle Inferior Del Magdalena basins has increased significantly in 2011.



5.3.1 Oil and Gas Production in Colombia is Estimated to Grow at an Average Annual Rate of 4.8% During 2012-2020

Colombia’s oil and gas production is expected to continue the growth path that it has attained since 2005. It is estimated that the country’s oil and gas production will increase from the current levels to about 627 MMboe in 2020, representing an AAGR of 4.8% over the 2012-2020 period.

The figure and table below show the estimated oil and gas production in Colombia over the 2012-2020 period.

Figure 12: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production, MMboe, 2012-2020

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Source: GlobalData

Table 5: Oil and Gas Exploration and Production, Colombia, Crude Oil and Natural Gas Production, MMboe, 2012-2020

Year Oil and Gas Production (MMboe)

2012 427.8 2013 450.5 2014 472.2 2015 491.4 2016 517.0 2017 542.8 2018 567.5 2019 597.1 2020 627.0 Source: GlobalData

Colombia’s oil and gas production is estimated to increase from a projected level of 427.8 MMboe in 2012 to about 627 MMboe in 2020. This increase in production will be driven by increasing investments in the country enabled by the country’s attractive fiscal regime, the improving security situation and the country’s prospective oil and gas basins.



6 Oil and Gas Exploration and Production in Llanos Basin The Llanos basin is located in East-Central Colombia. This basin is considered to be one of the most prospective basins in the country. The Eastern Llanos basin holds the most exploratory potential in Colombia. About 1,500 MMbbl of recoverable oil is officially documented as a result of the development of the Llanos basin. Cano-Limon and the Castilla are two giant fields, while Rubiales, Apiay and the Tame Complex are other major fields in Llanos basin. Additionally, more than 50 minor fields are discovered in the basin.

6.1 Llanos Basin Has About 168 Exploration Blocks Colombia’s Llanos basin has about 168 exploration blocks. These blocks are primarily located in onshore areas. Some of the most active companies in the exploration activities in the basin are Ecopetrol, Compania Espanola de Petroleos, S.A., BHP Billiton, Meta Petroleum, Talisman Energy Inc., Pluspetrol Energy S.A., HOCOL S.A., Petrominerales Colombia Ltd, TECPECOL S.A. and Parex Resources Inc.

Llanos basin has five planned exploration blocks, namely, CPO 15, LLA-2, LLA-3, LLA-35 and LLA-28. The table below gives a list of the top 10 active exploration blocks in Llanos basin, based on their acreages.

Table 6: Colombia, Llanos Basin, Top 10 Exploration Blocks Based on Acreages, Sq km, 2000-2011

Block Name Operator Acreage (Sq Km)

CPE 5 BHP Billiton 31,367

CPE-3 ExxonMobil Corporation 26,217

CPE-8 Talisman Energy Inc. 23,924

Cano Sur Ecopetrol 16,143

CPE 7 Pluspetrol Energy S.A. 12,318

CPE-1 Meta Petroleum 9,900

CPE 4 Ecopetrol 9,643

CPE 2 Ecopetrol 7,607

CPE-6 Meta Petroleum 6,082

CPO 12 Meta Petroleum 2,868

Source: GlobalData, Oil and Gas eTrack, Exploration Database [Accessed on September 4, 2012]

CPE 5 Block: In terms of acreages, CPE 5 is the largest active exploration block in Llanos basin. The block, located in onshore Colombia, has heavy oil. BHP Billiton is the operator of the block. The block’s start date was September 2008, while the end date is August 2013. BHP Billiton holds 71.4% stake in the block. SK Energy Co., Ltd. has the remaining 28.6% interest in the block.

CPE 3 block: CPE 3 is the second largest active exploration block in Llanos basin. The block, located in onshore Colombia, has heavy oil. ExxonMobil Corporation is the operator of the block. The block’s start date was September 2008. ExxonMobil Corporation and Compania Espanola de Petroleos, S.A. each hold 50% stake in the block.



The figure below shows the location of CPE 3 block.

Figure 13: Oil and Gas Exploration and Production, Colombia, CPE 3 Block Location Map, 2012

Source: ExxonMobil Corporation, 2009

ExxonMobil was awarded the CPE 3 block, covering an area of 6.4 million acres, in 2008. The block is located in the eastern Llanos basin on trend with the Orinoco heavy oil belt.

CPE 8 Block: In terms of acreages, CPE 8 is the third largest active exploration block in Llanos basin. The block, located in onshore Colombia, has heavy oil. Talisman Energy Inc. is the operator of the block. The start date of the block was September 2008, while the end date is September 2014. Ecopetrol and Talisman Energy Inc. each hold 50% stake in the block.



The figure below shows the location of CPE 8 block.

Figure 14: Oil and Gas Exploration and Production, Colombia, CPE 8 Block Location Map, 2012


Cano Sur block: Cano Sur block is the fourth largest block in Llanos basin in terms of acreages. The block is located in the Llanos Orientales basin in the central state of Meta in onshore Colombia. The block has conventional oil and gas. The start date of the block was June 2005. Ecopetrol, the operator, holds 100% stake in the block. In July 2007, National Hydrocarbons Agency transferred 50% stake in Cano Sur block to Royal Dutch Shell Plc (Shell). In February 2011, Ecopetrol completed the acquisition of an additional 50% stake in Cano Sur block from Shell.

In July 2012, Ecopetrol reported that it had proven the presence of hydrocarbons in the horizontal exploratory well Embrujo-1 ST2, located in the eastern block of the Cano Sur exploration and exploitation contract. The exploratory well Embrujo 1-ST2, designed to follow a horizontal trajectory pointing southeast, reached a total depth of 5,121ft, and results indicated a stabilized average production of 434 barrels of oil equivalent per day (bopd) of 13.4° API (heavy crude), with a water cut and sediments in the order of 10%. The other discoveries in the block are Trasgo-1, Mito-1, Fauno-1, Pinocho-1, Draco-1, Mago-1 and CSE8-ST1.

CPE 7 block: CPE 7 is the fifth largest active exploration block in the Llanos basin. The block, located in onshore Colombia, has heavy oil. The start date of the block was September 2008. Pluspetrol Energy S.A. is the operator of the block. The company has 40% stake in the block. The other two stakeholders are CNPC and Korea National Oil Corporation, each holding 30% interest in the block.

In Llanos basin, Ecopetrol has acreages in 18 blocks, with Cano Sur, CPE 4 and CPE 2 being the largest blocks in terms of acreages. Compania Espanola de Petroleos, S.A. has acreages in 11 blocks, with CPE-3, Merecure and Caracara being the largest blocks in terms of acreages. BHP Billiton has acreage in one block; CPE-5.



The following table shows the companies with the largest gross acreage in Llanos basin.

Table 7: Llanos Basin, Major Companies with Gross Acreage, Acres, August 2012 Operator Total Gross Acreage of Company (Acres)

Ecopetrol 47,891

Compania Espanola de Petroleos, S.A. 32,739

BHP Billiton 31,367

Meta Petroleum 24,123

Talisman Energy Inc. 23,924

Pluspetrol Energy S.A. 13,667

HOCOL S.A. 11,363

Petrominerales Colombia Ltd 8,079

TECPECOL S.A 6,629

Parex resources Inc. 2,386

Source: GlobalData, Oil and Gas eTrack, Exploration Database [Accessed on August 7, 2012] Note: Gross Acreage is calculated based on the publicly available information about blocks, acreages and operators in the basin.

6.2 Llanos Basin Has Witnessed Nine Oil and Gas Discoveries in 2012 (until July)

Llanos basin of Colombia has been witnessing a significant number of oil and gas discoveries in the past few years. During the 2007 to 2012 (July) period, about 81 discoveries have been made in Llanos basin. In the initial seven months of 2012 alone, nine oil and gas discoveries were made in onshore Colombia in the Llanos basin.

The figure below shows the number of discoveries in Colombia’s Llanos basin by year.

Figure 15: Oil and Gas Exploration and Production, Colombia, Number of Discoveries in Llanos Basin, 2007-2012 (July)

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Source: GlobalData; Oil and Gas eTrack, Discovery Database [Accessed on August 8, 2012] Note: * For 2012, the discovery numbers are for January to July.



The majority of discoveries in the Llanos basin are oil discoveries made in onshore areas. The table below provides a list of major oil discoveries in Colombia’s Llanos basin in 2012.

Table 8: Oil and Gas Exploration and Production, Colombia, Major Discoveries in Llanos Basin, 2012

Discovery Name Block Name Discovery Operator

Pendare 1 CPO 13 TECPECOL S.A

Flami-1 LLA-27 Quetzal Energy, Inc.

Guala-1 Corcel Petrominerales Colombia Ltd

Kitaro-1 Cabrestero Parex Resources Inc.

Maniceno-1 LLA-32 P1 Energy Corporation

Ramiriqui-1 LLA 22 Compania Espanola de Petroleos, S.A.

Cernicalo-1 ST Central Cubiro Alange Energy Corp.

Puerto Gaitan 1 CPO 6 TECPECOL S.A

Mani-1 LLA-27 Quetzal Energy, Inc.

Source: GlobalData, Oil and Gas eTrack, Discovery Database [Accessed on August 8, 2012]

6.2.1.1 Pendare 1 Discovery

One of the most recent discoveries in Llanos basin is Pendare 1 in a block named CPO 13. PetroNova Inc., which holds 20% working interest in the block, announced the discovery in July 2012. TECPECOL S.A. is the operator of the block associated with the discovery.

In June 2012, the Pendare 1 well reached a depth of 3,265ft. Using a hydraulic pump, the well was tested for a 78-hour period in a 12-feet interval. Injection pressure of about 1,600 pounds per square inch was applied. The well produced about 166 barrels per day (bbl/d) of fluid with 15% basic sediment and water. The API gravity of the oil was 14.4 degrees. At the end of the test, the well accumulated 366 bbl of oil. According to PetroNova, testing production with an electro-submersible pump can yield better volumes. The well will be completed in the top of the basal Carbonera sand unit. The companies plan to perform extended production tests as they obtain the required permits.

PetroNova has 20% working interest in a nine exploratory well drilling campaign of Tecpetrol Colombia. The companies are drilling exploratory wells on CPO-06, CPO-07 and CPO-13 blocks. The Pendare 1 is the sixth well of the campaign.

6.2.1.2 Flami-1 Discovery

In July 2012, Brownstone announced completion of testing operations of the Flami-1 well at the Llanos 27 block. The well was drilled by NCT Energy Group C.A. Colombia (the operator of Llanos 27 block), along with Brownstone and other partners. The well reached a depth of 9,300ft. Well logs indicated 20ft of potential gross oil pay in the Mirador formation and 22ft in the Une formation. Following successful testing of the well, the company plans to put the well on extended production tests.

6.2.1.2.1 Test of Une Formation

On June 21, 2012, Brownstone announced a new oil discovery in the Une formation of the Flami-1 well. Over a 60-hour period in Phase 1 of the test, the well produced 1,514 barrels of oil equivalent per day (boepd) of 15.5 degree API oil. Cumulative oil production over the Phase 1 testing period was 3,786 bbl. The pressure test of the formation measured about 3,850 psi.

Phase 2 of the test resulted in cumulative oil production of 5,496 bbl in 73 hours. In the first stage, the well produced 1,403 boepd of oil. In the second stage, the well produced 1,832 boepd of oil. In Phase 3, the well produced 2,160 boepd of oil. An additional nine hours of testing, which made up the fourth phase, showed 2,464 boepd of oil production. The company will be performing additional tests for the well.



6.2.1.2.2 Test of Mirador Formation

Testing of Mirador formation began in July 2012. Over a 48-hour testing period, the formation produced 510 bbl of oil and 1,448 bbl of water. Due to lower productivity and higher watercut, testing for Mirador formation was terminated.

6.2.1.3 Guala-1 Discovery

In June 2012, Petrominerales Ltd. announced an oil discovery, Guala-1, on Corcel block in Colombia. The well measured a depth of about 12,432ft. Lower Sand 1 formation indicated 38ft of potential net oil pay, while Guadalupe formation indicated 9ft of potential net oil pay; thus the well logs indicated a total of 47ft of net oil pay.

Petrominerales installed an electric submersible pump and placed the well in Lower Sand 1 on production. Within 59 hours of start-up, the well reached a stabilized oil rate of 2,046 boepd with an API of 17 degrees, at a watercut of 6%.

6.3 Llanos Basin is the Major Oil Producing Area in Colombia Colombia’s Llanos basin has more than 200 producing fields currently. The basin’s production has increased by 48.7% from 163.6 MMbbl in 2009 to 243.20 MMbbl in 2011. Additionally, in the first six months of 2012, oil production from Llanos basin was recorded to be 125.8 MMbbl.

The figure below shows the trend of production from the basin during 2009 to 2012 (projected):

Figure 16: Oil and Gas Exploration and Production, Colombia, Oil Production in Llanos Basin, MMbbl, 2009-2012*

163.56

199.93

243.20251.54

0

50

100

150

200

250

300

2009 2010 2011 2012*

Oil

Pro

duct

ion

(MM

bbl)

Source: Ministry of Mines and Energy, Colombia [Accessed on August 30, 2012] Note: * For 2012, the oil and gas production numbers are annualized based on data for six months from January to June.

Some of the major fields in terms of their production are Rubiales, Castilla, Cusiana, Castilla Norte, Cano Limon and others. The table below shows the top 10 oil and gas producing fields in Llanos basin.



Table 9: Oil and Gas Exploration and Production, Colombia, Top 10 Fields in Llanos Basin Based on Production, MMboe, 2011

Field Name Operator Oil and Gas Production (MMboe)

Rubiales Meta Petroleum 60.39

Castilla Ecopetrol 24.96

Cusiana EQUION ENERGIA LIMITED 17.96

Castilla Norte Ecopetrol 14.76

Cano Limon Occidental Petroleum Corporation 14.12

Quifa Meta Petroleum 13.31

Chichimene Ecopetrol 9.91

Cupiagua Ecopetrol 7.09

Pauto Sur Piedemonte EQUION ENERGIA LIMITED 5.55

Caricare Occidental Petroleum Corporation 4.03

Source: GlobalData, Oil and Gas eTrack, Production Database [Accessed on September 4, 2012]

Rubiales Field: Rubiales field mostly consists of basal sands. The oil is a heavy type with an API of 12.5 degrees. Meta Petroleum, which holds about 40% stake in the field, is the operator of the field. Ecopetrol holds the remaining 60% stake in the field. The field’s oil production has increased from 0.57 MMbbl in 2001 to 60.39 MMbbl in 2011.

Castilla Field: Castilla field is the second largest oil producing field in Llanos basin. The field is operated by Ecopetrol, which holds a 100% stake. Oil from the field is of a heavy type with an API gravity of 13.5 degrees. The field’s production increased from 0.82 MMbbl in 2000 to 24.96 MMbbl in 2011.

Cusiana Field: Cusiana is the third largest field in Llanos basin in terms of hydrocarbons production. The field produces conventional oil and gas. Oil and gas production from the field started in January 1995. In December 2011, Cusiana field produced 3.22 MMbbl of oil and 83.72bcf of gas. Equion Energia Limited, which holds 31% stake in the field, is also the operator of the field. Additionally, Ecopetrol holds 50% interest, while Sinochem Corporation has 11.6% in the field. The remaining 7.4% interest is held by other equity partners.

6.4 Llanos Basin - Recent Updates More than 1.5 billion barrels of recoverable oil has been documented in the Llanos Basin to date. The basin is situated in central-east Colombia, and is one of the extremely high potential basins in Colombia. US-based Heavy Earth Resources (HEVI) is an emergent player in the Republic of Colombia’s speedily booming petro-basins. It has obtained a 50% working interest in the 57,000 acre Morichito Block situated in Colombia’s prolific Llanos Basin, and also has a stake in the 68,000 acre La Maye block located in Colombia’s Lower Magdalena Valley Basin.

In the first week of June 2012, Toronto-based Pacific Rubiales Energy (PRE.TO), a major operator with a $6.8 billion market cap and operations in the Llanos Basin, declared that it is taking over fellow Llanos Basin operator Petromagdalena Energy (PMD.V) in an all cash offer of $238.8m (Canadian dollars).

Also, PetroNova (PNA.V) has declared confident results from its Atarraya No. 1 exploratory well situated on the CPO-07 Block in the Llanos Basin. This discovery is substantial for Heavy Earth because both PetroNova’s discovery well and Heavy Earth’s Morichito block are within close proximity, and it is in correlation with the adjacent productive Caracara Field, which is estimated to produce 20,000 barrels of oil per day.

Heavy Earth has recently finished the first five stages of its Morichito work plan, which includes the ratification of discovery well No. 5, which has been proven to be commercially executable. Next, HEVI is setting up a 3D seismic program with the purpose of further delineating two substantial oil-bearing structures. Heavy Earth anticipates the discovery of potential reserves for drilling in the second half of this year.



In another update, in August 2012, Pacific Rubiales Energy Corp. announced that it has obtained the environmental license from Autoridad Nacional de Licencias Ambientales (ANLA), which is required to enhance the water injection by an additional 400,000 bbl/d at its Rubiales onshore oil field in the Llanos basin. In addition to the water injection license obtained, the company is looking to acquire commerciality approval for the exploitation of the Quifa North oil field from its partner Ecopetrol, and the necessary environmental exploration license from ANLA to begin its planned exploration program on the CPE-6 E&P block, in the third quarter of 2012.

In August 2012, Petroamerica Oil Corp. (PTA.V) announced preliminary results of its Las Maracas-4 well, drilled in the Llanos Basin of Colombia. The well was initiated on July 30, 2012, and has accomplished full depth with electrical logs suggesting more than 65 feet of potential oil pay in the Mirador and Gacheta formations. The company also announced that the Las Maracas-3 well is currently producing roughly 2,000 barrels of oil per day from the Gacheta formation.

The well reached a depth of 12,522 feet on August 13, 2012. Following wire-line logging, the well is expected to be cased and the Tuscany 119 rig is anticipated to move to the El Eden Block to drill the exploration well La Casona-1.

The Las Maracas-3 well is now producing from the Gacheta through the long-term test facility at rates of roughly 2,000 barrels of oil per day, and the Las Maracas-2 sidetrack well continues to produce at rates of 1,085 bopd from the Mirador Formation. As a result of these production additions, as of August 15, 2012, the company’s working interest production was 1,627 barrels of oil per day.



7 Oil and Gas Exploration and Production in Valle Medio Del Magdalena Basin

The Valle Medio Del Magdalena basin is located along the central line of the Magdalena River Valley between the Central Cordillera and Eastern Cordillera of the Colombian Andes. Exploration activities are being focused on to identify structural traps in the Paleogene sequences in the basin. The Paleogene sequence is made up of siliciclastic rocks deposited mainly under continental conditions.

7.1 Valle Medio Del Magdalena Basin Has 33 Exploration Blocks Valle Medio Del Magdalena basin has 33 active exploration blocks and seven planned blocks; VMM 5, VMM 19, VMM 20, VMM 8, VMM 10, VMM 7 and VMM 16. Several companies have been actively participating in exploration activities in Valle Medio Del Magdalena basin. Some of the most active companies operating in the basin are Ecopetrol, Royal Dutch Shell Plc, Serinpet Ltda., P1 Energy Corporation, HOCOL S.A., Petróleos Colombianos Limited, C & C Energy Ltd, Compania de Tratamiento de Lodos S.A., Montajes JM S.A. and Alange Energy Corp.

The table below gives a list of the top 10 active exploration blocks in Valle Medio Del Magdalena basin, based on their acreages.

Table 10: Oil and Gas Exploration and Production, Colombia, Major Exploration Blocks in Valle Medio Del Magdalena Basin, Sq km, 2012


DE Mares Ecopetrol 2,843

Rio Horta Ecopetrol 1,298

Playon Serinpet Ltda. 1,239

VMM 27 Royal Dutch Shell Plc 677

VMM 32 Ecopetrol 646

VMM 6 Ecopetrol 642

VMM 18 Montajes J.M S.A. 640

VMM 4 P1 Energy Corporation 627

VMM 28 Royal Dutch Shell Plc 546

VMM 1 Lewis Energy Group 521


DE Mares Block: In terms of acreages, DE Mares is the largest active exploration block in Valle Medio Del Magdalena basin. The block, located in onshore Colombia, has conventional oil and gas. The block’s start date was January 2007, while the end date is January 2013. Ecopetrol, the operator of the block, holds 100% stake in the block. In February 2006, oil and gas was found through Guariquies 1 discovery.

Rio Horta Block: Rio Horta is the second largest active exploration block in Valle Medio Del Magdalena basin. The block, located in onshore Colombia, has conventional oil and gas. Ecopetrol is the 100% owner and operator of the block. The block’s start date was January 2007, and the end date is January 2013.

Playon Block: Playon block, located in onshore Colombia, has conventional oil and gas. Serinpet Ltda. is the operator of the block. The start date of the block was January 2007, while the end date is July 2015. Dyas B.V., Ecopetrol and Serinpet Ltda. hold stakes in the block.

VMM 27 block: VMM 27 block has conventional oil and gas. The start date of the block was July 2010, while the end date is July 2013. Royal Dutch Shell Plc, the operator, owns 100% stake in the block. The block was awarded to the company under the licensing round of June 2010.



VMM 32 block: VMM 32 block, located in onshore Colombia, has conventional oil and gas. The start date of the block was July 2010. Ecopetrol is the operator of the block. The company has 51% stake in the block. The other stakeholder in the block is Cementaciones Petroleras Venezuela, S.A. The block was awarded under the licensing round of May 2010.

In Valle Medio Del Magdalena basin, Ecopetrol has acreages in seven blocks, with DE Mares and Rio Horta being the largest of those blocks in terms of acreages. Royal Dutch Shell Plc has acreages in three blocks - VMM 27, VMM 28 and VMM 3. Serinpet Ltda. has acreage in one block - Playon.

The following table shows the companies with the largest gross acreages in Valle Medio Del Magdalena basin.

Table 11: Valle Medio Del Magdalena Basin, Major Companies with Gross Acreage, Acres, August 2012

Operator Total Gross Acreage of Company (Acres)

Ecopetrol 6,209

Royal Dutch Shell Plc 1,560

Serinpet Ltda. 1,239

P1 Energy Corporation 868

HOCOL S.A. 735

Petróleos Colombianos Limited 726

C & C Energy Ltd 686

Compania de Tratamiento de Lodos S.A. 669

Montajes J.M S.A. 640

Alange Energy Corp. 544




7.2 Valle Medio Del Magdalena Basin Has Witnessed Eight Oil and Gas Discoveries Since 2007

During 2007-2010, about eight discoveries have taken place in Valle Medio Del Magdalena basin. The figure below shows the number of discoveries in Colombia’s Valle Medio Del Magdalena basin by year.

Figure 17: Oil and Gas Exploration and Production, Colombia, Number of Discoveries in Valle Medio Del Magdalena Basin, 2007-2010

3

2

1

2

0 1 2 3 4

2007

2008

2009

2010


Source: GlobalData; Oil and Gas eTrack, Discovery Database [Accessed on August 10, 2012]

7.2.1.1 Recio 1 Discovery

The Recio 1 discovery was made in March 2010. It is located in Sierra block (Sierra Exploration and Production Contract) of Valle Medio Del Magdalena basin. Rancho Hermoso S.A. is the operator of the block. The company has 25.5% interest in the block. Agencia Nacional de Hidrocarburos awarded the Sierra Exploration and Production contract to the company in 2007. The other partners in the block are TC Oil and Services S.A., Benchmark Energy Corporation and Winchester Oil & Gas S.A., with 24.5%, 25.5% and 24.5% stakes, respectively.

The Recio 1 well targeted the Lower Tertiary Honda formation, a prolific oil production zone within the Valle Medio Del Magdalena basin. The well reached a total depth of approximately 1,812ft in March 2010. The well ran potential oil pay of about 10ft within sandstone of the Middle Honda formation at 1,548ft to 1,558ft depth. Within sandstone of the Lower Honda formation at 1,608ft to 1,635ft depth, the well encountered 27ft of potential oil pay.

7.2.1.2 Zoe-1 Discovery

Zoe-1 discovery was made in February 2010 in Midas block in onshore Colombia. PetroLatina Energy Plc, the operator of the block, holds 85% interest, while North Riding Inc holds 15% interest in the block. The well encountered an oil flow rate of 42 barrels per day (bbl/d). The discovery depth was 10,924ft.



7.3 La Cira is the Most Active Oil Producing Field in Valle Medio Del Magdalena Basin

Colombia’s Valle Medio Del Magdalena basin currently has more than 50 producing fields. The basin’s production has surged by 27.3% from 37.4 MMbbl in 2009 to 47.6 MMbbl in 2011. Additionally, in the first six months of 2012, oil production from Valle Medio Del Magdalena basin was about 50 MMbbl.

The figure below shows the trend of production from the basin during 2009 to 2012 (annualized):

Figure 18: Oil and Gas Exploration and Production, Colombia, Oil Production in Valle Medio Del Magdalena Basin, MMbbl, 2009-2012*

37.4242.17

47.63

99.98

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2009 2010 2011 2012*

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Some of the major fields in terms of their contribution to the basin’s oil and gas production are La Cira, Casabe, Yarigui, Jasmin, and Girasol. The table below shows the top 10 oil and gas producing fields in Valle Medio Del Magdalena basin.

Table 12: Oil and Gas Exploration and Production, Colombia, Major Fields in Valle Medio Del Magdalena Basin, MMboe, 2011


La Cira Ecopetrol 9.49

Casabe Ecopetrol 6.05

Yarigui Ecopetrol 5.16

Jasmin Mansarovar Energy Colombia Limited 3.80

Girasol Mansarovar Energy Colombia Limited 3.74

Infantas Ecopetrol 1.76

Provincia Ecopetrol 1.11

Gala Ecopetrol 0.94

Nutria Ecopetrol 0.90

La Salina Petro Santander, Inc 0.70

Source: GlobalData, Oil and Gas eTrack, Production Database [Accessed on September 4, 2012]



In terms of production, La Cira is the largest field in Valle Medio Del Magdalena basin. The conventional oil producing field is operated by Ecopetrol, which owns 52% interest in the field. Occidental Petroleum Corporation has the remaining 48% in La Cira field. The oil is of a conventional type with API gravity of 23 degrees. La Cira’s production increased from 1.57 MMbbl in 2004 to 9.49 MMbbl in 2011. The field is an improved oil recovery (IOR) project with large amounts of reserves yet to be extracted.

Casabe is the second largest field in terms of oil production. The Ecopetrol operated field is 100% owned by the company. The field’s oil production increased from 2.03 MMbbl in 2004 to 6.05 MMbbl in 2011.

In terms of production, Yarigui is the third largest field in the Valle Medio Del Magdalena basin. The field is 100% owned and operated by Ecopetrol. During 2011, production from Yarigui field was about 5.16 MMbbl.

7.4 Valle Medio Del Magdalena Basin - Recent Updates On August 8, 2011, it was announced by Ecopetrol S.A. that it has signed eight exploration and production contracts with the National Hydrocarbons Agency (ANH), related to blocks awarded to the company in the Colombia Open Round 2010. The eight blocks cover a total area of more than 840,000 hectares, and are situated in the Llanos, Valle Medio del Magdalena (Cundinamarca and Caldas) and Sinu-San Jacinto (Antioquia and Cordoba) basins, and the Pacific offshore.

Ecopetrol has a 100% stake in six of the contracts. In the SSJS 1 contract, its stake is 70%, with the other 30% belonging to SK Innovation Co. Ltd. In the VMM 32 contract, it holds a 51% stake, with the other 49% belonging to the CPVEN S.A.

As for the other two blocks awarded to Ecopetrol in the Colombia Open Round 2010 (Cayos 1 and Cayos 5), the contracts will be signed once the ANH reinitiates the corresponding process, which involves a prior determination by environmental officials concerning the prerequisites for accomplishing explorative activities in the areas where the blocks are located. Ecopetrol has a 50% stake in these blocks, in partnership with Repsol and YPF.



8 Oil and Gas Exploration and Production in Valle Superior Del Magdalena Basin

The Valle Superior Del Magdalena basin lies at the head of the Magdalena River. The basin is bounded to the east and west mainly by the pre-Cretaceous rocks of the Eastern Cordillera and Central Cordillera, respectively. It is surrounded by the Algeciras-Garzón strike-slip fault system and the Eastern Cordillera foothills thrust system to the southeast. To its northeastern and northern limits, the Bituima and La Salina fault systems and the Girardot foldbelt exist. Natagaima-El pata high divides the basin into two sub-basins - Girardot and Neiva. In 1992, exploration activities were initiated in the basin with the Guataqui wells in the Girardot sub-basin.

8.1 Valle Superior Del Magdalena Basin Has Over 50 Exploration Blocks Colombia’s Valle Superior Del Magdalena basin has over 50 exploration blocks. These blocks are located in onshore areas. Some of the major exploration blocks in the basin are listed in the table below.

Table 13: Oil and Gas Exploration and Production, Colombia, Major Exploration Blocks in Valle Superior Del Magdalena Basin, Sq km, 2012


San Gabriel Ecopetrol 3,481

VSM 32 Emerald Energy Plc* 665

VSM 9 HOCOL S.A. 647

VSM 13 Pacific Rubiales Energy Corp. 587

VSM 12 Pacific Rubiales Energy Corp. 567

Source: GlobalData, Oil and Gas eTrack, Exploration Database [Accessed on September 4, 2012] *The company was acquired by Sinochem Corp. in 2009

San Gabriel is an active exploration block in the Valle Superior Del Magdalena basin. The block started in 2007. Ecopetrol has 100% interest in the block, and is also the operator of the block.

VSM 32 is an active exploration block in the Valle Superior Del Magdalena basin. The block started in 2009. The block is estimated to contain conventional oil. Sinochem Corp., after acquiring Emerald Energy Plc in 2009, obtained 100% interest in the block.



VSM 9 is an active exploration block containing conventional oil and gas. The block’s start date was July 2010. The block is owned and operated by HOCOL S.A. The figure below presents the location map of the VSM 9 block.

Figure 19: Oil and Gas Exploration and Production, Colombia, VSM 9 Block Location Map, 2012

Source: HOCOL, 2012

Blocks VSM 12 and VSM 13 are active blocks started in July 2010. The blocks were initially owned by Alange Energy Corp., which later became Petromagdalena Energy Corp. In July 2012, Pacific Rubiales Energy Corp. completed the acquisition of Petromagdalena Energy Corp.



The figure below shows the location of blocks VSM 12 and VSM 13.

Figure 20: Oil and Gas Exploration and Production, Colombia, VSM 12 and VSM 13 Blocks Location Map, 2012

Source: Pacific Rubiales, 2012

Several companies have been actively participating in exploration activities in Valle Superior Del Magdalena basin. Some of the most active companies operating in the basin are Occidental Petroleum Corporation, Ecopetrol, Carbopetrol S.A., HOCOL S.A., Repsol, YPF, S.A., Pacific Rubiales, Petroleo Brasileiro S.A., Telpico LLC, Emerald Energy Plc and Gran Tierra Energy Inc.

In Valle Superior Del Magdalena basin, Occidental Petroleum Corporation has acreages in two blocks - Cascabel and Bambuco. Ecopetrol has acreages in six blocks. San Gabriel and EL Pensil are the largest of these blocks in terms of acreages. Carbopetrol S.A. has acreage in one block - Andino Sur.



The following table shows the companies with the largest gross acreage in Valle Superior Del Magdalena basin.

Table 14: Valle Superior Del Magdalena basin, Major Companies with Gross Acreage, Acres, August 2012

Operator Total Gross Acreage of Company (Acres)

Occidental Petroleum Corporation 173,255

Ecopetrol 5,823

Carbopetrol S.A. 2,402

HOCOL S.A. 2,251

Repsol YPF, S.A. 1,420

Pacific Rubiales 1,154

Petroleo Brasileiro S.A. 892

Telpico LLC 766

Sinochem Corp 665

Gran Tierra Energy Inc 615




8.2 Twelve Discoveries Have Been Made in Valle Superior Del Magdalena Basin Since 2007

Since 2007, about 12 oil and gas discoveries have been made in the Valle Superior Del Magdalena basin in Colombia. Of these, three discoveries were made in 2010 - El Verdal-1X, Visure-1X and Tempranillo North-1.

The figure below shows the number of discoveries in Colombia’s Valle Superior Del Magdalena basin by year.

Figure 21: Oil and Gas Exploration and Production, Colombia, Number of Discoveries in Valle Superior Del Magdalena Basin, 2007-Present

3

2

4

3

0 1 2 3 4 5

2007

2008

2009

2010


Source: GlobalData, Oil and Gas eTrack, Discovery Database [Accessed on September 5, 2012]

8.2.1.1 El Verdal-1X Discovery

El Verdal-1X is an onshore gas discovery in Talora block in the Valle Superior Del Magdalena basin. The discovery was made in November 2010, with Petrodorado Ltd. as the operator. The well encountered 242ft of net pay and a discovery depth of 5,020ft. Petrodorado Ltd. has 65% stake in the block, while Sintana Energy Inc has 30% interest in the block.

8.2.1.2 Visure-1X Discovery

Visure-1X is an onshore oil and gas discovery in Buganviles block in the Valle Superior Del Magdalena basin. The discovery was made in November 2010. The discovery well has a depth of 2,099ft. Pacific Stratus Energy Ltd (a subsidiary of Pacific Rubiales Energy Corp.) has a 19.9% stake in the block, and is the operator of the block. Other stakeholders in the block include Petrodorado Ltd. (59.5%) and Kulczyk Oil Ventures Inc. (10%).

The Visure-1X well, drilled on the southwestern flank of the Visure prospect, was drilled to evaluate a structural trap, similar to the trap at Abanico field to the northeast. The three main exploratory objectives of the well were the Cretaceous Lower and Upper intervals of the Guadalupe formation and the Tertiary Barzalosa formation. In the Barzalosa formation, net pay was 24.5ft. In the Upper Guadalupe and Lower Guadalupe formations, net pay of the discovery was 45.5ft and 44ft, respectively.



8.2.1.3 Tempranillo North-1 Discovery

Tempranillo North-1 is an oil and gas discovery made in February 2010 in Pijao Potrerillo block. Ecopetrol is the operator, with 100% stake in the block. The well was spud in October 2009 and completed in February 2010. The depth of the discovery is 10,235ft. The well was drilled through two layers of the Caballos formation. Upper layer sands showed two intervals with a total of 40ft of pay below 8,500ft, and the third interval showed an additional 16ft of pay below 9,700ft.

Drill stem tests resulted in crude oil production of 24 API with an average volume of 1,000 bbl/d, supported by an artificial lift system, a low gas-oil ratio, and water cut of about 1%.

8.3 Guando is the Most Active Oil Producing Field in Valle Superior Del Magdalena Basin

Colombia’s Valle Superior Del Magdalena basin has about 35 producing fields currently. The basin’s production has decreased from 31.9 MMbbl in 2009 to 27.3 MMbbl in 2011. Additionally, in the first six months of 2012, oil production from Valle Superior Del Magdalena basin was 25.8 MMbbl.


Figure 22: Oil and Gas Exploration and Production, Colombia, Oil Production from Valle Superior Del Magdalena Basin, MMbbl, 2009-2012*

31.9029.58

27.30

51.64

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Some of the major fields in terms of their contribution to the basin’s oil and gas production are Guando, Matachin, Dina Terciarios, San Francisco, and Gigante. The table below shows the top 10 oil and gas producing fields in Valle Superior Del Magdalena basin.



Table 15: Oil and Gas Exploration and Production, Colombia, Major Fields in Valle Superior Del Magdalena Basin, MMboe, 2011


Guando Petroleo Brasileiro S.A. 6.21

Matachin Petroleo Brasileiro S.A. 3.00

Dina Terciarios Ecopetrol 2.76

San Francisco HOCOL S.A. 2.66

GIGANTE Emerald Energy Plc 0.92

Abanico Kappa Energy Company Inc 0.74

Rio Ceibas Ecopetrol 0.70

Palogrande Ecopetrol 0.51

Arrayan Ecopetrol 0.45

Santa Clara Ecopetrol 0.43

Source: GlobalData/ Oil and Gas eTrack, Production Database [Accessed on September 4, 2012]

Guando field is the largest field in terms of hydrocarbons production in Valle Superior Del Magdalena basin. Guando field produced about 6.21 MMbbl of oil in 2011. The start date of the field was January, 2001. During 2001, the field produced 0.49 MMbbl of oil. Ecopetrol has 75% stake in Guando field, while the remaining 15% and 10% is held by Petroleo Brasileiro S.A. and Nexen Inc., respectively. Petroleo Brasileiro S.A. is the operator of the field.

Matachin is the second largest field in the Valle Superior Del Magdalena basin, in terms of hydrocarbon production. The field has conventional type oil. Oil production from Matachin has decreased from 3.95 MMbbl in 2000 to 3.00 MMbbl in 2011. Ecopetrol has 55% stake in Matachin field. Petroleo Brasileiro S.A. holds 30% stake, while Compania Espanola de Petroleos, S.A. holds the remaining 15% stake in the field. Petroleo Brasileiro S.A. is the operator of the field.

Operated by Ecopetrol, Dina Terciarios field is the third largest field located in Valle Superior Del Magdalena basin producing conventional oil. Petrominerales Colombia Ltd has 69% interest and Ecopetrol has 31% interest in the field. The field’s oil production increased from 1.11 MMbbl in 2001 to 2.76 MMbbl in 2011.

8.4 Valle Superior Del Magdalena Basin - Recent Updates It was announced on August 17, 2011 that the Canada-based energy firm Drift Lake Resources Inc. will acquire a small percentage in a hopefully productive oil block in Colombia, operated by another Canadian firm, Petrodorado Energy Ltd. Under the agreement, Drift Lake unit Sintana will have a 30% share in the 108,336 acre Talora block, which is located in central Colombia in the Upper Magdalena Valley Basin.

Canadian firms in several aspects have been increasing their dealings in Colombia over recent years. A free trade agreement between Canada and Colombia came into effect from the first week of August 2011, while a US free trade deal with Colombia remains delayed after years of dispute. It was also stated that other oil fields in the region near the Talora block have turned out to be prosperous, including the Guando field south of Talora which is producing more than 20,000 barrels of oil per day.

The Guando field, which was discovered in 2000 by Brazil’s state-controlled energy company Petrobras, along with others, is one of the most renowned fields in Colombia due to the shallow position, good quality medium-gravity oil, and its close proximity to infrastructure and the populated areas near Bogota.



9 Oil and Gas Exploration in Colombia’s Emerging Basins

9.1 Oil and Gas Exploration and Production in Caguan-Putumayo Basin The Caguan-Putumayo basin is the northern extension of the Oriente Basin of Ecuador. On the north and west are the Upper Magdalena Valley and the Eastern Cordillera. To the south is the continuation of the basin into Ecuador. Caguan-Putumayo basin is estimated to have proved reserves of more than 365 MMboe.

In 1948, Texaco began exploration in Caguan-Putumayo basin. In 1963, the company discovered the Orito oil field, which was estimated to have about 250 MMboe of proved reserves.

Various oil fields discovered in Caguan-Putumayo basin indicate the existence of a petroliferous system. Significant production in the basin’s oil fields and the presence of giant oil fields in the nearby Oriente basin indicate exploration potential of the Caguan-Putumayo basin.

9.1.1 The Caguan-Putumayo Basin has 39 Exploration Blocks The Caguan-Putumayo basin has 39 exploration blocks, of which 36 blocks active and one is planned (PUT 5 block). The table below provides a list of major active exploration blocks in the Caguan-Putumayo basin based on their acreages.

Table 16: Oil and Gas Exploration and Production, Colombia, Major Blocks in Caguan-Putumayo Basin, 2011


Tacacho Pacific Rubiales Energy Corporation 2,384

Terecay Pacific Rubiales Energy Corporation 2,374

SAMICHAY A Ecopetrol 2,308

SAMICHAY B Ecopetrol 2,158

Sangretoro Rancho Hermoso S.A. 1,559

Cedrela Canacol Energy Inc. 1,294

Macaya Hupecol LLC 790

PUT 14 Montco Energy, L.C. 622

PUT 3 Vast Exploration 599

PUT 12 Montco Energy, L.C. 567


In terms of acreages, Tacacho is the largest active exploration block in Putumayo basin. The block, located in onshore Colombia, has conventional oil and gas. The block’s start date was November 2009, while the end date is May 2016. Pacific Rubiales Energy Corporation, the operator of the block, holds 50.5% stake in the block. Petrodorado Ltd. has the remaining interest of 49.5% in the block, which it acquired in November 2009 from Pacific Rubiales Energy Corp. In return, Petrodorado provided 100% of the total investment required to complete the first phase of the MEP for the block, equal to $8m.

In April 2011, Petrodorado Energy Ltd. announced that the Verdal-1 well (discovery announced in November 2010) had tested the fractured carbonate formation of Tetuan, with a peak rate of 770 Mscf/day. The company has initiated additional analysis to evaluate advanced engineering solutions to increase the production rate. Pacific Rubiales Energy Corporation plans to drill one exploration well in the block in the fourth quarter of 2012.

Terecay is the second largest active exploration block in the Caguan-Putumayo basin. The block, located in onshore Colombia, has conventional oil and gas. Pacific Rubiales Energy Corporation is the 100% owner and operator of the block. The block’s start date was November 2009, and the end date is May 2016.



The figure below presents the location map of Tacacho and Terecay blocks.

Figure 23: Oil and Gas Exploration and Production, Colombia, Tacacho and Terecay Blocks Location Map, 2012

Source: Pacific Rubiales, 2012

Several companies have been actively participating in exploration activities in Caguan-Putumayo basin. Some of the most active companies operating in the basin are Ecopetrol, Pacific Rubiales Energy Corporation, Gran Tierra Energy Inc, and Vetra Energy Group LLC.

9.1.2 Putumayo Basin Has Witnessed 14 Oil and Gas Discoveries Since 2007 Since 2007, about 14 discoveries have taken place in Putumayo basin. Below is a list of discoveries in the basin during the period.

Table 17: Oil and Gas Exploration and Production, Colombia, Major Discoveries in Caguan-Putumayo Basin, 2007-Present

Discovery Date Discovery Name Block Name

Feb-11 Tinkhana-1 NA

Dec-10 Topoyaco-2 Topoyaco

Jun-10 Moqueta-1 Chaza

Dec-09 Pinuna 1 Suroriente

Sep-09 Mirto 1 Maranta

Apr-09 Quriyana-1 NA

Dec-08 Costayaco-3 Chaza

Dec-08 Platanillo-2 Platanillo

Dec-08 Costayaco-6 Chaza

Aug-08 Costayaco-5 Chaza

Jul-08 Palmera 1 Azar

Jan-08 Costayaco-2 Chaza

Oct-07 Alea 1 Platanillo

Jul-07 Costayaco-1 Chaza




Within the basin, Chaza block has emerged as a highly prospective block for oil exploration in the past few years. The block has witnessed six discoveries since 2007. Besides Chaza block, Platanillo is another prospective block, with two discoveries since 2007.

Tinkhana-1 oil discovery was made in February 2011 in Putumayo basin, at a depth of about 6,812ft. The discovery is located in the block known as Western Area. The oil flow rate of the discovery was 140bbl/d during the initial testing. The well is part of exploratory work being carried out pursuant to the Western Area Production Agreement of the National Hydrocarbon Agency with Ecopetrol, which holds a 100% interest in the block.

In December 2010, Alange Energy Corp. (now acquired by Pacific Rubiales Energy Corp) confirmed a heavy oil discovery in the Topoyaco-2 exploration well in Topoyaco block, which tested net 310bbl/d of 10.5 degrees API oil. With this discovery in Lower Rumiyaco formation, the company diverted its attention from the originally planned target of Villeta and Caballos formations. Kappa Energy Company Inc and Alange Energy Corp. hold 50% interest in the block.

9.1.3 Caguan-Putumayo Basin Has Been Witnessing Increasing Levels of Oil and Gas Production Since 2009

Colombia’s Caguan-Putumayo basin has more than 32 producing fields currently. The basin’s production has surged 33.8% from 10.5 MMbbl in 2009 to 14.1 MMbbl in 2011. Additionally, in the first six months of 2012, oil production from Caguan-Putumayo basin was 13 MMbbl.


Figure 24: Oil and Gas Exploration and Production, Colombia, Oil Production in Caguan-Putumayo Basin, MMbbl, 2009-2012*

10.50

13.71 14.05

25.46

0

5

10

15

20

25

30

2009 2010 2011 2012*

Oil

Pro

duct

ion

(MM

bbl)

Source: Ministry of Mines and Energy, Colombia [Accessed on August 30, 2012] Note: * For 2012, the oil and gas production numbers are annualized based on data for six months from January to June

Some of the major fields in terms of their contribution to the basin’s oil and gas production are Costayaco, Cohembi, Pinuna, Juanambu, Sucumbios and others. The table below shows the top 10 oil and gas producing fields in Caguan-Putumayo basin.



Table 18: Colombia, Caguan-Putumayo Basin, Top 10 Fields Based on Oil and Gas Production, MMboe, 2011


Costayaco Gran Tierra Energy Inc 6.40

Cohembi Vetra Energy Group LLC 1.16

Pinuna Vetra Energy Group LLC 1.01

Juanambu Gran Tierra Energy Inc 0.72

Sucumbios Ecopetrol 0.33

Loro Ecopetrol 0.30

Caribe Ecopetrol 0.28

Acae Sur Ecopetrol 0.28

Capella Emerald Energy Plc* 0.27

San Antonio Ecopetrol 0.23

Source: GlobalData, Oil and Gas eTrack, Production Database [Accessed on September 4, 2012] *The company has been acquired by Sinochem Corp.

In terms of production, Costayaco field is the largest field in Caguan-Putumayo basin. The conventional oil producing field is operated by Gran Tierra Energy Inc, which owns 50% interest in the field. Solana Petroleum Corporation has the remaining 50% in Costayaco field. Costayaco’s production increased from 0.28 MMbbl in 2007 to 6.40 MMbbl in 2011. As of December 31, 2010, the field had oil reserves of 13.9 MMbbl.

Cohembi is the second largest field in terms of oil production. The Vetra Energy Group LLC operated field is owned by Ecopetrol, Vetra Energy Group LLC, Suroco Energy Inc., and Colombia Energy. The field’s oil production increased from 0.14 MMbbl in 2004 to 1.16 MMbbl in 2011.

9.2 Oil and Gas Exploration and Production in Cordillera Oriental Basin Cordillera Oriental basin has 16 active exploration blocks and four planned exploration blocks (COR 3, COR 2, COR 5 and COR 1). Several companies have been actively participating in exploration activities in Cordillera Oriental basin. Some of the most active companies operating in the basin are Nexen Inc, Ecopetrol, and Rancho Hermoso S.A.

The table below provides a list of the top 10 active exploration blocks in Cordillera Oriental basin, based on their acreages.

Table 19: Oil and Gas Exploration and Production, Colombia, Major Blocks in Cordillera Oriental Basin, 2011


BARBOSA Nexen Inc 2,381

Muisca Maurel & Prom Colombia B.V. 2,368

GARAGOA Nexen Inc 1,464

Chiquinquira Nexen Inc 1,192

Odisea Ecopetrol 1,111

Sueva Nexen Inc 961

COR 23 Kinetex Sucursal Colombia 776

COR-12 NA 768

COR 4 Australian Drilling Associates Pty Ltd 767

COR-11 Rancho Hermoso S.A. 716




In terms of acreages, Barbosa is the largest active exploration block in Cordillera Oriental basin. The block, located in onshore Colombia, has conventional oil and gas. The block’s start date was April 2011. Nexen Inc, the operator of the block, holds 100% stake in the block.

Muisca is the second largest active exploration block in Cordillera Oriental basin. The block, located in onshore Colombia, has conventional oil and gas. Maurel & Prom Colombia B.V. is the 100% owner and operator of the block. The block’s start date was September 2008, and the end date is September 2014. In September 2008, Maurel & Prom’s subsidiary, Hocol S.A., and the National Hydrocarbon Agency signed a new exploration and production contract (Muisca) in the Eastern Cordillera Region, around 100km northeast of Bogota. As per the contract, Maurel & Prom committed to acquiring 100km of 2D seismic. The Muisca contract covers an area of 2,368 km².

The figure below provides a location map of the Muisca block.

Figure 25: Oil and Gas Exploration and Production, Colombia, Muisca Block Location Map, 2012




9.2.1 Cordillera Oriental Witnessed a Rapid Increase in Oil Production in 2011 Colombia’s Cordillera Oriental basin has four producing fields currently. The basin’s production has increased from 0.03 MMbbl in 2009 to 0.4 MMbbl in 2011. Additionally, in the first six months of 2012, oil production from Cordillera Oriental basin was 0.44 MMbbl.


Figure 26: Oil and Gas Exploration and Production, Colombia, Oil Production in Cordillera Oriental Basin, MMbbl, 2009-2012*

0.03 0.04

0.40

0.89

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

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1.00

2009 2010 2011 2012*

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bbl)


The fields contributing to the basin’s oil and gas production are Balcon, Corrales, Buenavista and Condor-Medina.



9.3 Oil and Gas Exploration and Production in Valle Inferior Del Magdalena Basin

Valle Inferior Del Magdalena basin has 12 active exploration blocks. Several companies have been actively participating in exploration activities in the Valle Inferior Del Magdalena basin. Some of the most active companies operating in the basin are Petrolifera Petroleum Limited, Ecopetrol, OGX Petroleo e Gas Participacoes SA and others.

The table below gives a list of the top 10 active exploration blocks in the Valle Inferior Del Magdalena basin, based on their acreages.

Table 20: Oil and Gas Exploration and Production, Colombia, Major Blocks in Valle Inferior Del Magdalena Basin, 2011


Perdices Ecopetrol 5,435

VIM-6 HOCOL S.A. 3,043

SSJN 9 Maurel & Prom Colombia B.V. 2,648

VIM 5 OGX Petroleo e Gas Participacoes SA 2,584

Magdalena Petrolifera Petroleum Limited 2,407

Samán Ecopetrol 2,402

Guama Pacific Stratus Energy Ltd 743

VIM 2 SK Energy Co., Ltd. 601

Esperanza Shona Energy Company 450

La Mona Azabache Energy Inc. 445


In terms of acreages, Perdices is the largest active exploration block in the Valle Inferior Del Magdalena basin. The block, located in onshore Colombia, has conventional oil and gas. The block’s start date was August 2004. Ecopetrol, the operator of the block, holds 100% stake in the block.

VIM-6 is the second largest active exploration block in Valle Inferior Del Magdalena basin. The block, located in onshore Colombia, has conventional oil and gas. HOCOL S.A. is the 100% owner and operator of the block. The block’s start date was July 2010, and the end date is July 2013. The exploration license was awarded in the licensing round of June 2010.



9.3.1 The Valle Inferior Del Magdalena Basin Has Witnessed Seven Discoveries Since 2007

Since 2007, about seven discoveries have taken place in the Valle Inferior Del Magdalena basin. Below is a list of discoveries in the basin during the period.

Table 21: Oil and Gas Exploration and Production, Colombia, Major Discoveries in Valle Inferior Del Magdalena Basin, 2007-2012

Discovery Date Discovery Name

Feb-12 Cotorra-1X

Feb-11 Apamate-1X

Jan-11 Nelson-2

Oct-10 Pedernalito-1X

Mar-10 Brillante SE-1X

Jan-08 La Creciente D-1

Dec-07 LCA-3


Cotorra-1X is an oil and gas discovery made by the operator, Pacific Stratus Energy Ltd, in February 2012. Pacific Stratus Energy Ltd (a subsidiary of Pacific Rubiales Energy Corp) has 100% stake in the block. The discovery is located in the Guama block. The oil flow rate of the well was 245.50bbl/d, while the gas flow rate was 5.05 MMcf/d. The net pay of the discovery was 40ft, with an average porosity of 20%. The depth of the well was 7,210ft. Cotorra-1X well was drilled following the success of an earlier exploration activity on the block - the Pedernalito-1X well, drilled in 2010.

Apamate-1X is a gas discovery made on February 28, 2011 on the La Creciente block in Valle Inferior Del Magdalena basin. Pacific Stratus Energy Ltd, the discovery operator, holds 100% interest in the block. The gas flow rate of the discovery was 13 MMcf/d, while the discovery depth was 10,611ft.

Nelson-2 is a gas discovery made during January 2011 in onshore Colombia in the Esperanza block, by the operator Shona Energy Company. The company holds 100% interest in the block. The size of the discovery is expected to be 164bcf. The gas flow rate of the discovery was 77 million cubic feet per day (MMcf/d). The net pay was about 135ft.



9.3.2 Arianna is the Most Active Oil Production Field in the Valle Inferior Del Magdalena Basin

Colombia’s Valle Inferior Del Magdalena basin has more than eight producing fields currently. The basin’s production has increased from 0.18 MMbbl in 2009 to 0.29 MMbbl in 2011. Additionally, in the first six months of 2012, oil production from the Valle Inferior Del Magdalena basin was 0.31 MMbbl.


Figure 27: Oil and Gas Exploration and Production, Colombia, Valle Inferior Del Magdalena Basin, Oil Production, MMbbl, 2009-2012*

0.17 0.18

0.29

0.62

0

0

0

0

0

1

1

1

2009 2010 2011 2012*

Oil

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n (M

Mbb

l)


Some of the major fields in terms of their contribution to the basin’s oil and gas production are Arianna, Boquete, La Pinta, Apamate, Pedernalito and others. The table below shows the oil and gas producing fields in the Valle Inferior Del Magdalena basin.

Table 22: Colombia, Valle Inferior Del Magdalena Basin, Major Fields by Oil and Gas Production, boe, 2011

Field Name Operator Oil and Gas Production (boe)

ARIANNA Shona Energy Company 292,874.56

Boquete Ecopetrol 28,105.00

La Pinta Petrolifera Petroleum Limited 1,825.00

Apamate Pacific Stratus Energy Ltd 730.00

Pedernalito Pacific Stratus Energy Ltd 365.00

Brillante SE Petrolifera Petroleum Limited 365.00

Source: GlobalData, Oil and Gas eTrack, Production Database [Accessed on September 4, 2012] Pacific Stratus Energy Ltd is a subsidiary of Pacific Rubiales Energy Corp.



Arianna, Boquete and La Pinta are the top three fields in the Valle Inferior Del Magdalena basin, in terms of oil and gas production. Arianna is a conventional gas producing field, operated by Shona Energy Company, which owns 100% interest in the field. Boquete field produces conventional oil. The field is operated by Ecopetrol. La Pinta is an oil field which began producing conventional oil in December 2011. Petrolifera Petroleum Limited is the operator of the field and owns 100% interest in the field.



10 Major Oil and Gas Companies in Colombia - Competitive Landscape The participation of oil and gas companies in Colombia has increased after the country’s government announced several regulatory reforms since the year 2000. Regulatory reforms such as giving permission for foreign companies to hold 100% ownership in Colombia’s oil and gas ventures, decreasing the rates of royalties and increasing the duration of exploration licenses have increased the presence of both local and international oil and gas companies. Ecopetrol, the country’s NOC, currently leads the way in Colombia in terms of both exploration and production. Additionally, private players such as Petroleo Brasileiro S.A., Chevron Corporation, Petrominerales Colombia Ltd and Meta Petroleum have a presence in the country.

10.1 Ecopetrol Participates in the Largest Number of Exploration Blocks in Colombia

Ecopetrol was the company with participation in the highest number of exploration blocks in Colombia in 2011. The company had 56 exploration blocks in the country. The other prominent players in the country engaged in the exploration activities are HOCOL S.A., Petroleo Brasileiro S.A., Petrominerales Colombia Ltd, Compania Espanola de Petroleos, S.A., and Talisman Energy Inc. At the end of 2011, Colombia had 855 exploration blocks. About 50 companies are engaged in exploration activities in Colombia.

The table and figure below show the leading companies in Colombia based on participation, in terms of number of exploration blocks in 2011.

Figure 28: Oil and Gas Exploration and Production, Colombia, Major Companies by Participation, Number of Exploration Blocks, 2011

0

10

20

30

40

50

60

Ecopetrol HOCOL S.A. Petroleo BrasileiroS.A.

PetromineralesColombia Ltd

CompaniaEspanola de

Petroleos, S.A.

Num

ber o

f Exp

lora

tion

Bloc

ks




Table 23: Oil and Gas Exploration and Production, Colombia, Major Companies by Participation, Number of Exploration Blocks, 2011

Discovery Date Number of Exploration Blocks

Ecopetrol 56

HOCOL S.A. 18

Petroleo Brasileiro S.A. 17

Petrominerales Colombia Ltd 16

Compania Espanola de Petroleos, S.A. 15


There has been a rising trend for exploration activities in Colombia for the top five companies, in terms of number of blocks. The figure below indicates the growth in exploration activities of the companies active in this sector in Colombia.

Figure 29: Oil and Gas Exploration and Production, Colombia, Number of Exploration Blocks of Companies, 2006-2011

0

10

20

30

40

50

60

2006 2007 2008 2009 2010 2011

Num

ber o

f Exp

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Blo

cks

Ecopetrol HOCOL S.A.Petroleo Brasileiro S.A. Petrominerales Colombia LtdCompania Espanola de Petroleos, S.A.




10.2 Petrominerales Colombia Ltd Has Made the Largest Number of Discoveries in Colombia Since 2011

Petrominerales Colombia Ltd and Alange Energy Corp. (now part of Pacific Rubiales Energy Corp) have witnessed the largest number of oil and gas discoveries in Colombia since 2011. These companies have made four discoveries each in the country. The other prominent player in the country is Ecopetrol, with three discoveries since 2011.

The figure below shows the number of discoveries by major companies in Colombia.

Figure 30: Oil and Gas Exploration and Production, Colombia, Major Companies by Number of Discoveries, 2011-2012 (August)

4 4

3

2 2

0

1

2

3

4

5


Alange EnergyCorp.

Ecopetrol CompaniaEspanola de

Petroleos, S.A.

C & C Energy Ltd

Num

ber o

f Dis

cove

ries

Source: GlobalData; Oil and Gas eTrack, Discovery Database [Accessed on September 6, 2012] Alange Energy Corp is now part of Pacific Rubiales Energy Corp.

Of the four discoveries made by Petrominerales Colombia Ltd during this period, three were made in the Llanos basin and one was in the CAG-VAU basin. The discoveries in Llanos basin include Yatay-1 discovery and Mantis-1 discovery in January 2011, and Guala-1 discovery in June 2012. In the CAG-VAU basin, the company made the Heliconia-1 discovery in March 2011.

Alange Energy Corp. (now part of Pacific Rubiales) has made all four of the discoveries in the Llanos basin’s Central Cubiro block between August 2011 and February 2012. These discoveries are: Petirojo-1, Copa B-1, Copa A Sur-1 (Copa AS-1), and Cernicalo-1 ST.



10.3 Ecopetrol Leads in Terms of Oil and Gas Production in Colombia In terms of production, Ecopetrol is the leader in Colombia. In 2011, the equity weighted gross oil and gas production of Ecopetrol was 223.52 MMboe. The company’s production surged by more than 85% during the 2006-2011 period. In 2011, Ecopetrol contributed more than half of the country’s total oil and gas production.

The other prominent hydrocarbon producing companies in the country are Meta Petroleum (a subsidiary of Pacific Rubiales Energy Corp.), Chevron Corporation, Petrominerales Colombia Ltd, Occidental Petroleum Corporation and HOCOL S.A.

The table and figure below show the major oil and gas producing companies in Colombia.

Figure 31: Oil and Gas Exploration and Production, Colombia, Major Companies by Oil and Gas Production, MMboe, 2011

0

50

100

150

200

250

300

350

400

450

Ecopetrol Meta Petroleum ChevronCorporation


OccidentalPetroleum

Corporation

Cru

de O

il &

Nat

ural

Gas

Pro

duct

ion

(MM

boe)

Source: GlobalData; Oil and Gas eTrack, Production Database [Accessed on September 6, 2012] Meta Petroleum is a subsidiary of Pacific Rubiales Energy Corp.

Table 24: Oil and Gas Exploration and Production, Colombia, Major Companies by Crude Oil and Natural Gas Production, MMboe, 2011

Company Gross Crude Oil and Natural Gas Production (MMboe)

Ecopetrol 400.46

Meta Petroleum 223.52

Chevron Corporation 32.14

Petrominerales Colombia Ltd 18.55

Occidental Petroleum Corporation 17.53

Source: GlobalData, Oil and Gas eTrack, Production Database [Accessed on September 6, 2012] Meta Petroleum is a subsidiary of Pacific Rubiales Energy Corp. MMboe - Million barrels of oil equivalent.



Among these companies, Ecopetrol has witnessed a strong 12.4% AAGR in its oil and gas production over the 2006-2011 period. Besides this, other major companies with a strong focus on oil and gas production in Colombia include Pacific Rubiales Energy Corp, Petrominerales Colombia Ltd and Compania Espanola de Petroleos, S.A.

The figure below displays the increasing production trend of the top five companies in Colombia.

Figure 32: Oil and Gas Exploration and Production, Colombia, Major Companies by Crude Oil and Natural Gas Production, MMboe, 2006-2011

0

50

100

150

200

250

2006 2007 2008 2009 2010 2011

Equ

ity W

eigh

ted

Gro

ss C

rude

Oil

& N

atur

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as P

rodu

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n,

MM

boe

Ecopetrol Meta Petroleum

Chevron Corporation Petrominerales Colombia Ltd

Occidental Petroleum Corporation

Source: GlobalData; Oil and Gas eTrack, Production Database [Accessed on September 6, 2012]



10.3.1 Pacific Rubiales is Emerging as a Strong Independent E&P Company in Colombia

Besides Ecopetrol, of the top five companies based on production, Meta Petroleum and Petrominerales Colombia Ltd have been rapidly increasing their oil and gas production in Colombia. Meta Petroleum is a subsidiary of Pacific Rubiales Energy Corp, a company with a strong focus on exploration and production activities in Colombia and other countries in the region, such as Peru and Gautemala. Other subsidiaries through which Pacific Rubiales operates in Colombia include Petromagdalena (formerly Alange Energy), Pacific Stratus Energy Ltd, Kappa Energy Company Inc and Maurel et Prom Colombia B.V. (49.99% stake).

In 2011, Pacific Rubiales Energy Corp had an average gross oil and gas production of 218.5 Mboe/d (net production of 86.5 Mboe/d). The company’s net production increased by 52% over the net production in 2010. This was driven primarily by increased production from the Rubiales and Quifa SW fields in Colombia.



11 Appendix

11.1 Market Definitions Ranking of fields in all the basin chapters is based on the basis of production in 2011.

Historic data is taken from US EIA, BP Statistical review of World Energy, oil and gas ministry website, company websites and oil and gas related news journals.

All the capacities given in this report are annual capacities taken on 31st December of every year and have been rounded off to one decimal point.

The ownership stakes are taken from company news items, press releases and other forward-looking statements issued by companies/ministries.

Total active blocks are as of 31st December of each year.

By default, the number of blocks by company refers to the number of blocks in which the company has ownership stake.

Natural gas production is converted to barrels of oil equivalent using the following conversion factor, 1 Mcf = 0.176boe.

11.2 Abbreviations Average Annual Growth Rate (AAGR)

barrels of oil equivalent per day (bopd)

Billion barrels (billion bbls)

billion cubic feet (bcf)

billion cubic meter (bcm)

Exploration and Production (E&P)

Foreign Direct Investments (FDIs)

Gross Domestic Product (GDP)

Initial Public Offering (IPO)

Million barrels (MMbbl)

Million barrels of oil equivalent (MMboe)

National Hydrocarbons Agency (ANH)

11.3 Bibliography ANH (2007). Colombian Sedimentary Basins: Nomenclature, Boundaries and Petroleum Geology, a

New Proposal. National Hydrocarbons Agency (ANH) Available from: http://www.anh.gov.co/paraweb/pdf/publicaciones.pdf.

ANH (2012a) via Pacific Rubiales Energy Corporation. “Investor Presentation July 2012”. Available from: http://www.pacificrubiales.com/investor-relations/investor-presentations.html. [Accessed September 04, 2012].

ANH (2012b). Ronda Colombia 2012. National Hydrocarbons Agency (ANH). Available from: http://www.anh.gov.co/media/ronda_2012/Presentacion_Road_Show_TokyoJBIC.pdf. [Accessed September 11, 2012].

Banco de la República (2012). Statistics. Banco de la República. Available from: http://www.banrep.gov.co/statistics/sta_ext_sec.htm#5. [Accessed September 10, 2012].



BP Plc (2012a). Statistical Review of World Energy, 2012. BP Plc. Available from: http://www.bp.com/sectionbodycopy.do?categoryId=7500&contentId=7068481. [Accessed September 04, 2012].

Ecopetrol (2012). Energy for the Future. Ecopetrol. Available from: http://www.ecopetrol.com.co/english/documentos/Investor%20Presentation%20Ecopetrol%20Jan%202012%20V3.pdf. [Accessed September 11, 2012].

ExxonMobil Corporation (2009). “Financial and Operating Review”. Available from: http://docsearch.derrickpetroleum.com/files/00101/Exxon-09Financial%20&%20Operating%20Review_0053.pdf.

HOCOL (2012). Exploration Activities of HOCOL. Available from: http://www.hocol.com.co/scripts/contenido.php?idCont=10&lnk=E. [Accessed on September 04, 2012]

Ministry of Mines and Energy, Colombia (2012). Production Statistics. Available from: http://www.minminas.gov.co/minminas/otroidioma.jsp?cargaHome=3&id_categoria=288&id_subcategoria=842. [Accessed on August 30, 2012]

Pacific Rubiales (2012). “Investor Presentation July 2012”. Available from: http://www.pacificrubiales.com/investor-relations/investor-presentations.html. [Accessed September 04, 2012].

US EIA (2012). International Energy Statistics. Available from: http://www.eia.gov/countries/data.cfm#undefined. [Accessed July 09, 2012].

11.4 Methodology GlobalData’s dedicated research and analysis teams consist of experienced professionals with marketing, market research and consulting backgrounds in the energy industry, and advanced statistical expertise.

GlobalData adheres to the codes of practice of the Market Research Society (www.mrs.org.uk) and the Strategic and Competitive Intelligence Professionals (www.scip.org).

All GlobalData databases are continuously updated and revised.

11.4.1 Coverage The objective of updating GlobalData’s coverage is to ensure that it represents the most up-to-date vision of the industry possible.

Changes to the industry taxonomy are built on the basis of extensive research of company, association and competitor sources.

Company coverage is based on three key factors: market capitalization, revenues and media attention/innovation/market potential.

An exhaustive search of 56 member exchanges is conducted and companies are prioritized on the basis of their market capitalization

The estimated revenues of all major companies, including private and governmental, are gathered and used to prioritize coverage

Companies which are making the news, or which are of particular interest due to their innovative approach, are prioritized

GlobalData aims to cover all major news events and deals in the energy industry, updated on a daily basis.

The coverage is further streamlined and strengthened with additional inputs from GlobalData’s expert panel (see below).



11.4.2 Secondary Research The research process begins with exhaustive secondary research on internal and external sources being carried out to source qualitative and quantitative information relating to each market.

The secondary research sources that are typically referred to include, but are not limited to:

Company websites, annual reports, financial reports, broker reports, investor presentations and SEC filings

Industry trade journals and other literature

Internal and external proprietary databases

National government documents, statistical databases and market reports

News articles, press releases and web-casts specific to the companies operating in the market.

11.4.3 Primary Research GlobalData conducts hundreds of primary interviews each year with industry participants and commentators in order to validate its data and analysis. A typical research interview fulfills the following functions:

It provides first-hand information on the market size, market trends, growth trends, competitive landscape, and future outlook

It helps in validating and strengthening the secondary research findings

It further develops the analysis team’s expertise and market understanding

Primary research involves email interactions and telephone interviews, as well as face-to-face interviews for each market, category, segment and sub-segment across geographies

The participants who typically take part in such a process include, but are not limited to:

Industry participants: CEOs, VPs, business development managers, market intelligence managers and national sales managers

Outside experts: investment bankers, valuation experts, research analysts and key opinion leaders specializing in oil and gas markets.

11.4.4 Expert Panel Validation GlobalData uses a panel of experts to cross-verify research and forecast methodologies and drive its analytical content.

The GlobalData expert panel comprises marketing managers, product specialists, international sales managers from energy companies, academics and geologists from research universities, consultants from venture capital funds and distributors/suppliers of oil and gas goods and services.

Details of the makeup of the expert panel can be viewed through our website, and are available to clients on request.

11.5 Contact Us If you have any queries about this report or would like further information, please contact us using the following telephone numbers or email address.

North America: +1 646 395 5460

Europe: +44 207 406 6653 (or) +44 1204 543 523

Asia-Pacific: +91 40 6616 6700

Email: [email protected]



11.6 Disclaimer All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means; electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, GlobalData.

The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that GlobalData delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such, GlobalData can accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect.

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