BOGOTA, Dec 9 (Reuters) - Companies in Colombia’s million-barrel-per-day oil sector expect to cut investments over the next two years after a sharp drop in crude prices that come on top of persisting regulatory obstacles, the head of the Colombian Oil Producer’s Association (ACP) said on Tuesday.
The cuts will focus on exploration, said ACP chief Francisco Jose Lloreda, with 47 percent of 37 companies it surveyed planning to cut spending on searching for oil. When it came to production, only 26 percent said they planned to reduce spending on that area.
The companies surveyed in October and November produce 96 percent of Colombia’s oil.
“When prices fall, companies tend to invest a bit more in production and less in exploration,” Lloreda said.
Crude oil prices have tumbled around 40 percent since June and the fall is unlikely to be reversed soon. That is expected to stoke global growth but take a toll on oil-dependent economies like Colombia, which now faces a 2015 budget shortfall.
In 2014, companies invested far less than they had planned in seismic exploration and drilling, though the main reasons were linked more to difficulties obtaining needed environmental permits on time than oil prices, Lloreda said.
Only 110 wells are forecast to be drilled in 2014, versus the 207 the companies had initially planned. Only 54 percent of total planned spending on seismic exploration was made.
Slow issuance of permits, which the government admits takes much longer than its 180-day target, is hurting Colombia’s appeal while competition for oil investment is rising in the region, said Lloreda.
A tax reform on its way through Congress will, unless modified, raise the government’s ‘take’ from each oil barrel to 75 percent from 70 percent now. The current level was roughly in the middle of the international range, Lloreda said.
“There is uncertainty for 2015 ... The tax could kill the incentive to make investments,” he said. The ACP has asked the government to exclude investments in production from being counted as taxable under the proposed new tax law.
Oil provides around 6 percent of the Andean country’s GDP, the ACP said. It could potentially incorporate 6.5 to 9 billion barrels into reserves that stood at about 2.4 billion by the end of last year, Lloreda said. (Editing by David Gregorio)