Oil industry fears more chaos after Colombia rebels disarm

Bloomberg

While Colombia’s recent agreement to end 52 years of internal war with its largest insurgent group has been heralded across the globe as a rare victory for peace, the nation’s oil industry fears the deal may increase turmoil, not reduce it.
Parts of the accord with the Revolutionary Armed Forces of Colombia, or FARC, will amplify the risk of corruption, political meddling and delays to oil projects, according to Campetrol, the Colombian chamber of oil goods and services. Meanwhile, attacks on oil infrastructure have spiked this year by the Andean nation’s second-largest rebel group, the National Liberation Army, or ELN. New environmental committees, an extension of the “prior consultation” process to more communities and added institutional protection for protests may make it even harder for companies to operate if the deal is ratified by Colombians on Oct. 2, Campetrol executive president Ruben Lizarralde said.
“This series of social and political elements in the peace agreement can easily be taken advantage of,” Lizarralde said in an interview in Bogota Sept. 9. “Oil service companies are already subject to extortion by local associations. With this deal it’s going to be exacerbated.” A report in April by the Corporacion Comite Minero Energetico, a body made up of energy and mining companies and government representatives, also pointed to the challenges emanating from a “proliferation of new entities and committees.” Drillers including state-controlled Ecopetrol SA, Gran Tierra Energy Inc. and Amerisur Resources Plc have suffered from local blockades this year as communities object to oil projects or use them as leverage to extract demands from the government. Ecopetrol shares were down 3 percent to 1,295 pesos at 10:40 a.m. in Bogota on Tuesday.
A recent protest by coca growers facing crop eradication in the southern Putumayo province lasted over a month, restricting oil activity as bridges were blown up and roads blocked. The protests “jeopardized” Ecopetrol’s 40,000 barrel-a-day production in the area, the company said Aug. 30.
Partially as a result of the protests, average oil production in Colombia this year will fall to about 800,000 barrels a day, Lizarralde said, down from Campetrol’s previous estimate of 885,000 barrels.
Attacks on oil infrastructure have also contributed to the declines. The Cano Limon pipeline restarted operations Aug. 17 after pumping was halted for over a month following a rebel attack attributed to the ELN. The pipeline outage caused Occidental Petroleum Corp. to halt production at three fields with a combined output of 56,000 barrels a day, according to the USO oil workers’ union.
While the new measures in the FARC peace agreement do amount to more red-tape for companies, they are also necessary, according to the Washington Office on Latin America, or WOLA.
“Historically the balance was tilted too much towards large extractive projects,” Adam Isacson, a Colombia specialist at WOLA, said by phone. “This moves the needle back towards a view that tries to balance all interests in the country.”
ELN ranks are swelling with former FARC members who are distrustful of the recent peace agreement, former ELN rebel Victor Builes said in a June 14 interview from an army base in Medellin. On Monday the ELN started a three-day armed shutdown in the east of the country. “We’re seeing that in many areas where the FARC used to be, the ELN now has a presence. We have to make a new map,” Lizarralde said.