In 2017, the costs of production in Colombia showed a reduction of 8%

• According to a report released this week by the Colombian Petroleum Association, ACP, in 2017 costs ranged between 10 and 34 dollars per barrel, which evidences the diversity in the expense structure of the fields in the country.
• The account includes operating expenses and excludes capital expenditures invested in machinery, works, and production infrastructure.
• The devaluation of the peso, renegotiation of contracts with suppliers, and greater capacity to transport barrels through pipelines were the main causes of the reduction in costs for companies.

Bogotá, February 2018. A decrease in production costs meant relief for the difficult situation faced by the oil sector in 2017. According to a report published by the Colombian Petroleum Association, ACP, during that period the average cost of producing a barrel of oil in the country was 16.3 dollars per barrel, which means a decrease of 8.1% compared to the 17.7 dollars per barrel that were averaged the previous year.

The figure includes in its account the costs of crude extraction (lifting, administrative expenses, and others associated with crude processing) and transportation from the production field to the export port. However, it excludes capital expenditures (Capex) invested in machinery, works, and production infrastructure.

The study was conducted through surveys carried out with 29 companies with assets in Colombia, which concentrate 89% of oil and gas production in the country.

One of the significant data points from the report is the great diversity existing in different oil fields, where operating costs range from 10 dollars per barrel to 34 dollars per barrel, reflecting the different production and transportation conditions that vary mainly according to the type of crude (heavy or conventional) and the location of the field in relation to transportation infrastructure.

In the case of crude extraction, on average this process in Colombia recorded a cost of 7.7 dollars per barrel, which represents 47 percent of the total operating cost. According to the surveyed companies, the decrease in this cost is due to the fact that with the drop in crude prices in 2015 and 2016, it was necessary to renegotiate rates with contractors, increase operational efficiencies, among other actions to make the operation more efficient.

In terms of transportation, the survey averaged an operational cost of $8.6, a figure that according to respondents managed to decrease thanks to greater availability in the pipelines (due to lower production), a decrease in rates from land transporters (up to 70%), and the devaluation of the Colombian peso (since a good part of the expenses generated are in pesos). Despite the reduction, the transportation of hydrocarbons remains a concern for entrepreneurs, as it accounts for 53 percent of their operational costs, and the surveyed companies believe there are opportunities for improvement in pipeline rates.

Compared to other producing countries, transportation in Colombia still has a considerably higher value; this item accounts for 28 % of the total operational production cost averaged in other nations with oil operations.

“We must learn from past lessons; the rise we have seen in oil prices in recent months cannot lead us to lose sight of the challenges the country faces in terms of competitiveness so that the hydrocarbon industry continues to be a fundamental contribution to the economic and social development of Colombia and its regions,” said the president of the ACP, Francisco José Lloreda Mera.

According to the study, in general, for 2018, operational costs are expected to remain stable, although an increase in transportation costs by tanker truck is anticipated due to the need for investments in the maintenance and renewal of the fleet.

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