Investing in Colombian Oil

March 11, 2010

Investing in Colombian Oil

Who Will Find Oil in the Jungle?

By Christian A. DeHaemer
Friday, February 26th, 2010

The last time I gave serious thought to Colombia, I was wearing red pants and white socks. My stereotype ideas were formed by a mixture of Miami Vice, the movie Romancing the Stone, and historical documentaries of the Medellín drug cartel.

Colombia, as most of us “know,” is a third-world hellhole where the rich ride around in bulletproof cars and have bodyguards to protect their families. Cocaine warlords rule the country, buying politicians and killing judges and prosecutors with impunity.

But like most stereotypes, things aren’t what they seem…

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In fact over the past ten years, the Colombian forces of law and order have made significant progress over the leftist rebels like FARC. And on the flipside, many of the right-wing paramilitary groups have been dismantled.

Uribe for King

Since President Uribe was elected with 63% of the vote in 2002, the country has seen dramatic improvements in both security and the economy. Uribe increased military funding, stopped negotiating with the rebels, and boosted foreign investment.

The guerrillas have lost control of vast amounts of territory… the homicide rate has been cut in half…kidnappings have fallen from 3,700 in the year 2000 to just 172 in 2009… the total number of insurgents has also been reduced to 8,900 from 16,900.

This turnaround has been remarkable — and the stock market reflects it.

If you had bought Bancolombia SA (NYSE) about eight years ago, you’d be up 2,900%. Take a look:

20100226 chart_1

It is no wonder that the President has a 85% approval rating…

Global Crisis

GDP in the country was growing at more than 7% in 2007 before the global crisis hit. It contracted 0.2% last year and is expected to grow at 2%-3% in 2010. Inflation remains moderate at about 4.06%, according to BusinessWeek.

The local currency (peso) is at 1,942 to the U.S. dollar. So far it’s up 5.2% this year, boasting the biggest gain of the 26 most-traded emerging market currencies tracked by Bloomberg.

In other words, Colombia isn’t your father’s banana republic anymore…

Snow and Oil

Tomorrow, I’ll be braving the so-called “snowicane” in Manhattan to attend a meeting on Colombian oil.

The forecast is calling for 15 inches of snow and 70mph winds in New York City. If the train gets stuck in Newark, I will be pissed.

But it will be worth it if I can get you the real scoop on what may be a very fine investment indeed: Colombian oil.

Have you ever wondered why Venezuela is the United States’ fourth-largest supplier of oil… yet right next-door, in a very similar geographic location, Colombia is not even part of the conversation?

The reason: violence.

Oil explorers are a bold lot, but even they didn’t want to spend five years tied up in the jungle listening to Marxist rants and waiting for their families to come up with some money.

That has all changed over the last decade. And those oil companies who got in early will make a fortune.

According to Oil and Gas Journal:

Colombia had 1.36 billion barrels of proven crude oil reserves in 2009, the fifth-largest in South America. The country produced 600,000 barrels per day (bbl/d) of oil in 2008, up from 540,000 bbl/d in 2007. Colombia exports about half of its oil production. The bulk of those exports (155,000 bbl/d) to the United States in 2007.

But the feeling on the ground is that there is a lot of oil in the hinterland, on the border with Venezuela, that is just now being discovered.

Welcome, Foreign Investment, Welcome

For the past ten years, Colombia has taken free market measures to increase its economy and develop its natural resources. They allow 100 percent foreign stakes in oil ventures and have a lower royalty rate than most countries.

They have sold shares of their nationalist oil company Ecopetrol (EC) on the New York Stock Exchange. The changes have worked and in 2007 — when oil was pushing $150 a barrel — there was a “gold rush” in Colombian oil fields. There is now more exploration and development drilling than ever before.

Black Gold Cartagena-T

Colombia’s oil production is centeredin the Andean foothills and the eastern Amazonian jungles. The old fields, like the Cusiana/Cupiagua complex and Cano Limon, have been in decline for years.

It is in the vast and unexplored hydrocarbon-rich areas deep in the jungle that the oil boys are looking today. These are the areas that share geological features with Colombia’s neighbor and OPEC member, Venezuela.

About a year and a half ago, Colombia gave licenses to nine companies to explore this area, officially called the Llanos Basin. It is an area that is greatly unexplored but that has the potential to hold large amounts of heavy oil.

I hope to find out more about these companies — the Llanos Nine — tonight at my meeting.

Like Picking 10-Baggers off a Tree

As you are aware, small exploration companies that find hidden pools of oil in dark places can see their stock prices rise exponentially. I know of one such company that has proven reserves of 114 million barrels — with a low cost of extraction.

This is a Mongolian company. The President of Mongolia has recently been quoted as saying Mongolia has 8 billion barrels of oil. The company I’ve recommended to my readers could have the license to about a billion of those barrels.

It is already up 67% since I recommended last month, and it still trades for under $60 million — crazy cheap!

But it won’t be for long… You can read more about this time-sensitive oil opportunity — and your chance to cash in — right here.

Christian DeHaemer

Editor, Energy and Capital
Editor & Founder, Crisis and Opportunity

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