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In turnaround, Colombia reaps benefits from oil fields

How Colombia overcame rebel attacks and upped its oil production.

Canadian Pacific Rubiales Petroleum Company, Colombia oil
An employee of the Canadian Pacific Rubiales Petroleum Company ascends an oil storage tank in the Campo Rubiales oil field in Meta, eastern Colombia, April 21, 2010. (Jose Miguel Gomez/Reuters)

BOGOTA, Colombia — A decade ago Marxist rebels bombed one Colombian oil pipeline so often it was nicknamed “the flute.”

Back then, guerrilla attacks, extortion threats and kidnappings rendered many areas of the nation off-limits to oil companies. As production stagnated, fears grew that Colombia, long an oil exporter, would be forced to import.

But improved security, higher oil prices and more attractive regulatory conditions for investors have led to a surge in oil exploration and production. The government’s National Statistics Department estimated last month that daily oil production would double from the current 764,000 barrels to 1.5 million barrels by 2018.

“Colombia has changed a lot,” said Ronald Pantin, CEO of Pacific Rubiales Energy, which operates the Rubiales field in southern Colombia and is the country’s No. 1 private producer.

Rebels bombed the field 11 years ago but since Pacific Rubiales Energy took it over in 2007 “we haven’t had one guerrilla attack or extortion threat," Pantin said in an interview. "We feel very safe here.”

Colombia is South America’s fourth-leading oil producer behind Brazil (2.5 million barrels per day), Venezuela (2.4 million bpd) and Argentina (796,000 bpd), according to the U.S. government’s Energy Information Agency. Oil sales represent about 40 percent of Colombia's export income, with much of the oil destined for the United States.

Colombia’s turnaround began in 2002 with the election of President Alvaro Uribe. At the time, rebels patrolled vast tracts of rural Colombia where they abducted petroleum workers and forced companies, like Occidental Petroleum of Los Angeles, to fork over extortion payments to continue operating.

After the construction in 1986 of the Cano Limon-Covenas pipeline, which carries Occidental oil to Colombia's Caribbean coast, the rebels began blowing up the line to extract payoffs.

In his book "Dossier," a biography of the late Occidental Chairman Armand Hammer, Edward Jay Epstein writes that Hammer hired a former CIA agent and local mercenaries to negotiate a series of payments to the guerrillas.

A 1998 Colombian government report estimated that oil companies paid more than $40 million annually to the guerrillas.

But with the help of billions in U.S. aid, Uribe upgraded the Colombian army and launched military offensives that pushed the guerrillas out of many oil-producing areas. The surge included a battalion of U.S.-trained Colombian soldiers tasked with protecting the Cano Limon-Covenas pipeline — the line that had been dubbed “the flute.”

Colombia also took advantage of shifting business conditions.

As the price of oil rose, many producing countries changed investment laws and royalty rates, squeezing private companies and giving their governments a greater share of oil profits. But in some cases those policies scared away foreign investors.

Uribe took the opposite approach.

Foreign companies were allowed to own 100 percent stakes in oil ventures. Government royalties were reduced, exploring licenses were extended and state-run Ecopetrol was partially privatized and forced to compete with foreign firms.