Oil Goods and Services Office of the Vice Presidency of Foreign Investment

Transcription

1 Oil Goods and Services Office of the Vice Presidency of Foreign Investment

2 Hydrocarbons During the last century, oil was the energy engine that drove the world economy. There is therefore a high level of dependence on this resource, creating an intense demand for a finite good that is increasingly difficult to acquire. In response to this high demand, oil-producing countries have worked to increase their capacity and seek new reserves to meet their fossil fuel needs. Colombia fits this profile as an oil-producing country with strong growth trends and an outlook that attracts investors from around the world.

3 OUTLINE Structure of the Global Hydrocarbon Sector Structure of the Colombian Hydrocarbon Sector Oil Goods and Services Value Proposal Legal Incentives for Investment

4 World Oil Production (2010) Major Oil-Producing Countries # COUNTRY BARRELS* 1 Russia 10,270 2 Saudi Arabia 10,007 3 United States 7,513 4 Iran 4,245 5 China 4,071 6 Canada 3,336 7 Mexico 2,958 8 United Arab Emirates 2,849 9 Kuwait 2, Venezuela 2, Colombia 801 *Thousands of barrels of oil per day Total Latin American production is 6,701,000 BDP. Source: BP Statically Review of World Energy, June 2011

5 Historical Evolution of Production in Latin America 3500 History of Oil Production Colombia has become the region's third largest producer Argentina Colombia Ecuador Brazil Venezuela Peru Source: BP Statically Review of World Energy, June 2011

6 World Oil Reserves (2010) Main Countries with Reserves # COUNTRY BARRELS* 1 Saudi Arabia Venezuela Iran Iraq Kuwait United Arab Emirates Russia Libya Kazakhstan Nigeria Colombia 1.90 *Billions of Barrels of Oil Source: BP Statically Review of World Energy, June 2011 Total Latin American reserves amount to 237,200,000,000 BP.

7 World Natural Gas Production (2010) Major Gas-Producing Countries # COUNTRY METERS* 1 Canada Iran Qatar Norway China Saudi Arabia Indonesia Algeria The Netherlands Malaysia Colombia 11.3 *Billions of Cubic Meters Source: BP Statically Review of World Energy, June 2011 Total Latin American production is billion cubic meters.

8 Historical Evolution of Production in Latin America History of Gas Production Argentina Colombia Bolivia Brazil Venezuela Peru Source: BP Statically Review of World Energy, June 2011

9 The Largest Oil Companies in the World 1) Saudi Aramco Saudi Arabia 6) British Petroleum United Kingdom 2) National Iranian Oil Company Iran 7) Royal Dutch Shell The Netherlands 3) ExxonMobil USA 8) Chevron Corporation USA 4) Petróleos de Venezuela S.A. Venezuela 9) ConocoPhillips Corporation USA 5) China National Petroleum Corp. China 10) Total France Ranking determined by number of gas and oil reserves, refinery distilling capacity, and total sales of refined products. Source: Energy Intelligence Research and Advisory

10 Oil Sales by Type In the world of oil trading, there are two major oil price benchmarks, WTI and Brent, which define the value of a barrel of oil based on market estimates. One barrel of oil is currently valued in the USD 100 range. WTI BRENT West Texas Intermediate is a sales average for oil produced in the West Texas oilfields. This benchmark serves as a point of reference for oil-producing countries in the Americas (including Colombia), as well as some Asian Pacific markets. The Brent benchmark is a sales average of crude oil sourced from the North Sea. This is a light crude oil, although not as light as WTI oil. This type of oil has some of the lowest calorific values. Oil production in Europe, Africa and the Middle East tends to be sold according to Brent crude oil barrel price. Source: Trading Economics

11 Global Hydrocarbon Market Expectations Population growth and income growth are the two most powerful factors driving energy demand. Global integration processes are expected to continue in the next 20 years, with rapid growth among low-income, developing economies. The world's population has grown by 1.6 billion people in the last 20 years; it is expected to grow by another 1.4 billion in the next 20 years. The fundamental relationship between energy and the economy will become even stronger. People with higher incomes will spur production and consumption will continue to increase.

12 OUTLINE Structure of the Global Hydrocarbon Sector Structure of the Colombian Hydrocarbon Sector Oil Goods and Services Value Proposal Legal Incentives for Investment

13 Colombia's Oil Rush Oil production has increased 69% from 551,000 bpd in 2004 to 929,000 bpd in July 2011, nearly reaching the goal of one million bpd set by the Colombian government. Exploratory activity is robust. More than 570 wells are expected to be drilled in 2014, most in Vichada and the open sea. In 2003, only 4.8% of exploratory wells were successful. Today, that figure has exceeded 30%. The price of oil has created an incentive for growing and developing this industry around the world and specifically in Colombia. Source: Ministry of Mines and Energy

14 Government Goals for the Hydrocarbon Sector To expand hydrocarbon exploration and exploitation by building the infrastructure needed to ensure the supply of these products Results 2014 Goal Sign new oil exploration and exploitation contracts Drill new exploratory wells Increase average daily crude oil production by December 31, Kbpd 1,115 Kbpd Increase average daily natural gas production by December 31, ,100 Mcfd 1,350 Mcfd Increase fuel refining capacity in Colombia 80 Kbpd 165 Kbpd Source: Ministry of Mines and Energy

15 Oil GDP and Sector FDI Colombian GDP by Sector, % Trade, Rest. and Hotels 7,282% FDI in Colombia by Sector, Construction 3,523% Manufacturing 7,922% 91.9% Oil and Mines Other Financial Services 11,223% Mines and Quarries 34,416% OIL 35.6% Source: DANE - Bank of the Republic Cumulative investment in the oil sector: USD 5.29 billion

16 Hydrocarbon Sector Value Proposal Colombian Land Map as of April 2011 Colombia offers an attractive value proposal for oil sector investment: Unexploited potential estimated at 47 billion barrels of oil reserves. The Colombian government encourages and facilitates private investment in the oil and gas sectors through direct investment. Colombia's new Royalties and Taxes Contract is among the most attractive in the world. Source: ANH Yellow Areas: Exploration Red Areas: Exploitation Purple Areas: Technical Evaluation Qualified technical and professional labor.

17 Regulatory Entities in the Hydrocarbon Sector Responsible for coordinating, executing and overseeing public governmental policies related to mining and energy resources. Administers the country's hydrocarbonproducing areas, assigning them for exploration and exploitation. Evaluates the country's hydrocarbon potential. Sector Associations

18 Ecopetrol: State Oil Company Ecopetrol S.A. is the largest company in Colombia and the leading oil company in the country. It controls almost 80% of the market. Ecopetrol S.A. is among the 39 largest oil companies in the world and within the top five in Latin America. The company's assets include hydrocarbon extraction fields in the center, south, east and north of Colombia, two refineries, ports for importing and exporting fuel and crude on both coasts, and a transportation network of 8,500 kilometers of pipelines throughout the country connecting production systems with large consumption centers and maritime terminals. Ecopetrol S.A. is a leader in Colombia and an essential partner for exploring and producing hydrocarbons.

19 Other Large Producers Second Largest Producer Occidental Petroleum Co. USA Mansarovar China - India Petrominerales Canada Hocol Colombia Petrobras Brazil Canacol Canada Talisman Canada

20 OUTLINE Structure of the Global Oil Sector Structure of the Colombian Oil Sector Oil Goods and Services Structure and Value Proposal Legal Incentives for Investment

21 Colombia, an investment destination for... Establishing companies dedicated to oil service delivery and supplying the goods required for hydrocarbon production to meet the growing local demand for oil in addition to the dynamics of neighboring countries from a geo-regional platform.

22 Colombia has it all! Ecopetrol estimates that Colombia could have up to 47 billion barrels of oil in reserves. More than 80% of Colombia's territory has not been explored. Colombia is now the third largest oil producer in Latin America. The country's production increased 69% between 2004 and July 2011, when 929,000 bpd were produced. Ecopetrol is increasing its hydrocarbon refining capacity at plants in Barrancabermeja and Cartagena. Talks are also under way to build petrochemical plants. In light of growing hydrocarbon production in Colombia, there is a large demand for both land and pipeline transportation services. Current capacity is insufficient to meet this demand. Colombia provides investors a stable, predictable business environment and a solid legal system. Colombian law gives local and foreign investors equal rights.

23 The Global Oil Goods and Services Sector On the international level, this sector generated USD billion in Platform construction and drilling equipment were the most lucrative sectors, representing USD 55 billion. According to forecasts by Datamonitor, this market will be slowing down at an average annual rate of 4.1% through A directly proportional relationship can be observed between oil prices and investment flows along the hydrocarbon value chain. Planning for the entire sector is based on the behavior of barrel market prices. Source: Datamonitor 2009

24 TRANSPORT AND STORAGE (End) Oil Goods and Services Sector This sector consists of the goods and services needed along the hydrocarbon production value chain. UPSTREAM DOWNSTREAM EXPLORATION PRODUCTION TRANSPORT AND STORAGE (Midstream) REFINING Field geology and prospecting. Seismic studies. Drilling. Cementing. Well registry. Completion. Extraction system. Separation of gas and crude. Process plant. Crude transport to refineries or ports: -Ground transportation (truck, rail) -Maritime transportation -Pipeline Processing and storage. Storage and blending. Separation. Catalytic conversion. Heavy load conversion. Petrochemical conversion. Operational and General Maintenance Services along the Chain

25 Sector Participation Global Oil Goods and Services Participation, % 5% 5% 13% Schlumberger Limited Baker Hughes Inc 4% Smith International Halliburton Company 4% Weatherford International Otros According to Datamonitor, the top five players on the world market control more than 30% of the global sector market. These companies provide comprehensive services for the entire value chain. These five leading companies are already active in Colombia and have been classified according to their operating income from % Oil Goods and Services in Colombia, 2010 Revenue 2% 11% 19% 11% 16% Schlumberger Limited Halliburton Latin America Baker Hughes Wheatherford Smith International SA Other Source: Datamonitor BPR Benchmark

26 Sector Strategy Local Market The world's largest oil goods and services companies are already active in Colombia. The local market is receptive to small and medium businesses that meet specific needs along the production chain. In terms of goods, Colombia has the metal and mechanical potential to develop products required by exploratory companies and producers.

27 Business Landscape within the Oil Goods and Services Industry 180 companies dedicated to supplying oil goods and services in Colombia 114 dedicated to delivering services 85 dedicated to providing goods 84 are Colombian companies and 30 are foreign companies 62 are Colombian companies and 23 are foreign companies

28 Professional Training Programs Total Number of Graduates from Undergraduate Programs ( ) 507 Colombia has four universities with petroleum engineering programs located in areas with development in the sector, such as Santander and Huila. These programs place an emphasis on bilingual education requirements Source: Labor Observatory

29 Salary Ranges within the Oil Goods and Services Sector POSITION YEARS OF EXPERIENCE AVERAGE MONTHLY INCOME (USD) President (in Colombia) 10 to 15 $ 28,731 Executive Vice President 10 to 15 $ 21,572 Chief Executive of Hydrocarbon Engineering 8 to 10 $ 12,505 Chief Executive of HSEQ 10 to 15 $ 10,994 Chief Environmental Executive 8 to 10 $ 9,263 Chief Executive of Drilling 8 to 10 $ 8,072 Geophysicist 8 to 10 $ 4,105 Environmental Director 7 to 9 $ 5,911 Drilling Engineer 5 to 7 $ 6,480 Production or Oil Engineer 7 to 9 $ 3,897 Field Engineer 7 to 9 $ 3,574 Geological Engineer 2 to 5 $ 3,548 Specialized Machine Operator 0.5 to 1 $ 1,123 Maintenance Technician 0.5 to 1 $ 975 Source: Human Capital TRM COP$1,900 = US$ 1

30 Opportunities in the Colombian Oil Goods and Services Sector The oil sector is Colombia is going strong. There are opportunities in the Oil Goods and Services sector for growth and improvements on an international scale. Growth is projected in terms of the number of wells explored- 570 by and extraction- to nearly one million barrels of oil per day (2012). The Cartagena Refinery will enter operation in 2013 with a capacity of 165,000 BDP. The demand for goods and services at this facility as well as the Barrancabermeja Refinery will increase. Various investment opportunities exist in producing high-performing, high-quality goods and developing hightech oil services. Caribbean Zone Eastern Central Zone Southern Central Zone Bogotá - National Provider New Exploratory Areas A regional goods and services exportation platform can be established for meeting the needs of the Venezuelan, Peruvian and Ecuadorean markets.

31 Eastern Central Zone - Meta Meta: Production Ranking Active Companies BDP Produced ,219 Meta has become Colombia's largest producer of crude oil as it enters a promising new era of hydrocarbon exploitation. The Rubiales and Quifa fields have been particularly productive. As oil production is a relatively new phenomenon here, there is a high demand for goods and services along the entire chain. EXPLORATION Exploration, maintenance and administration stand out as the services with the greatest development potential along the chain. PRODUCTION TRANSPORT AND STORAGE (Midstream)

32 Eastern Central Zone - Casanare Production Ranking Active Companies BDP Produced ,453 Casanare: Department with the greatest amount of oil activity based on the number of companies in operation. The second largest producer in the country. The most productive well is Cusiana-Cupiagüa. There is high demand for maintenance services along the chain. The department's geographic location makes it possible to meet the demands of surrounding exploration sites such as those in the department of Vichada. EXPLORATION PRODUCTION TRANSPORT AND STORAGE (Midstream)

33 Eastern Central Zone - Arauca Production Ranking Active Companies BDP Produced ,775 Arauca: Home to one of the oldest oil wells in the country, Caño- Limón. Over the course of its history, Caño-Limón has produced more than one billion barrels of oil. The third largest producer in the country. Its production chain requires maintenance services. Its geographic location is convenient for meeting needs in Venezuela, specifically the Orinoco basin region. EXPLORATION PRODUCTION TRANSPORT AND STORAGE (Midstream)

34 Eastern Central Zone - Santander Production Ranking Active Companies BDP Produced ,558 Santander: Significant oil goods and service demands related to the B/bermeja Refinery, the country's largest. The Santander region has seen major growth in hydrocarbon exploration and production (Border Zone). Home to one of Colombia's four university petroleum engineering departments. The department is the fourth largest oil producer in the country. TRANSPORT AND STORAGE (Midstream) EXPLORATION PRODUCTION REFINING

35 South Central Zone - Huila Production Ranking Active Companies BDP Produced ,502 Huila: This department has reserves in the foothills of the Central Andes Mountain Range. Colombia's fifth largest producer. Strategically located in the central region for providing service operations to the neighboring departments of Caquetá and Valle. Neiva is home to one of Colombia's four university petroleum engineering departments. EXPLORATION PRODUCTION TRANSPORT AND STORAGE (Midstream)

36 South Central Zone - Putumayo Putumayo: Production Ranking Active Companies BDP Produced ,954 Reserves located along the Amazon in the border region with Peru. Colombia's seventh largest producer. High levels of exploratory activity that require oil services. Strategically positioned as a regional service center for operations in border regions with Ecuador and Peru. EXPLORATION PRODUCTION TRANSPORT AND STORAGE (Midstream)

37 South Central Zone Production Ranking Active Companies BDP Produced Cundinamarca: This department has reserves in the foothills of the Central Andes Mountain Range. Cundinamarca has large metal, mechanical and industrial production potential for providing products related to the value chain. (Packaging and pipe accessories.) Proximity to the country's capital makes the department an ideal goods and services operational center, without needing to assume the expenses arising from being located directly within the capital. EXPLORATION GOODS TRANSPORT AND STORAGE (Midstream)

38 Caribbean Zone - San Andrés and Providencia Production Ranking Active Companies BDP Produced ,189 Bolívar: High demand for oil goods and services related to the Cartagena Refinery and, to a lesser extent, oil production. The refinery is expected to increase crude processing capacity by 165,000 BDP. The oil services sector has high growth expectations. Exploration and refining services (maintenance) can be provided from Cartagena to the surrounding region. TRANSPORT AND STORAGE (Midstream) EXPLORATION PRODUCTION REFINING

39 Caribbean Zone- Atlántico Production Ranking Active Companies BDP Produced N.A N.A N.A Atlántico: Strength in metal and mechanical goods production for the oil industry (pipes and tools). Barranquilla is the country's fourth largest city with a strategic hub location for regional goods distribution. It is also one of the 10 Latin American cities that has experienced the greatest economic growth. GOODS

40 Bogotá D.C. - National Provider Bogotá D.C. Home to the most oil service companies. Has some of the most competitive labor and office costs in Latin America. Home to one of Colombia's four university petroleum engineering departments. Strategically positioned as a national service operations center and geo-regional platform for Colombia and neighboring countries.

41 New Exploration Blocks San Andrés and Providencia Caquetá Guaviare Vichada The ANH will soon be opening a new round of exploration block assignments for 200 wells in these departments. These wells may have enormous hydrocarbon potential. As departments without oil traditions, there is demand for comprehensive services along the entire chain so that oil activities can be developed here. At the moment, only Vichada has consolidated production. EXPLORATION

42 A few reasons to make the decision to invest: Unexplored potential to be discovered in addition to the more than one million barrels of oil stored in proven reserves. Colombia offers investors a stable business environment and a solid legal system. Colombia has an excellent geographic location with coasts along the Pacific and Atlantic Oceans to cover all of the world's markets. Colombia encourages and facilitates private investment in gas and oil sectors, which involve a large number of oil goods and services associated with the hydrocarbon production chain. The country's successful 80-year history in the hydrocarbon industry is its strongest endorsement for investment. This is a great time to invest in oil goods and services in Colombia!

43 OUTLINE Structure of the Global Oil Sector Structure of the Colombian Oil Sector Oil Goods and Services Structure and Value Proposal Legal Incentives for Investment

44 Legal incentives Tax Incentives: Pursuant to Article 189 of the Tax Code, for the purposes of calculating taxable bases and determining presumed income, net equity from goods directly related to companies whose business activity is mining can be subtracted from the previous year's total liquid assets. According to Paragraph E of Article 428 of the Tax Code, the temporary importation of heavy machinery for the mining and hydrocarbon industries does not result in sales tax (VAT) as long as said machinery is not produced in Colombia. Article 476 of the Tax Code provides a sales tax (VAT) exemption for hydrocarbon transport.

45 Legal incentives Exchange Incentives: The special exchange control system applies only to subsidiaries of foreign companies from the hydrocarbon and mining sectors that perform exploration, exploitation or service activities for the hydrocarbon sector. Said mining activity is related exclusively to coal, ironnickel and uranium exploration and extraction. Under this system, the subsidiaries are not required to reintegrate currency derived from sales into foreign currency or exports on the exchange market. Instead, they can choose to reintegrate only the currency needed to meet their local currency needs. These subsidiaries do not have access to the exchange market for acquiring foreign currency for their operations in Colombia or abroad.

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