CARTAGENA ENERGY CONFERENCE HUGE SUCCESS

UNCLAS SECTION 01 OF 03 BOGOTA 005565

SIPDIS

DEPT PLS PASS TO DEPARTMENT OF ENERGY FOR A/S KAREN
HARBERT, DEPARTMENT OF COMMERCE FOR ITA/MAC/WLT,
ITA/USFCS/OIO/WH/RD

E.O. 12958: N/A
TAGS: SNAR ENRG PREL OVIP CO EINV
SUBJECT: CARTAGENA ENERGY CONFERENCE HUGE SUCCESS

REF: BOGOTA 5203


1. Summary. Department of Energy Deputy Secretary Clay Sell
and Assistant Secretary for International Policy Karen
Harbert led a delegation to Cartagena May 19-22 to attend an
oil and gas investment conference to promote foreign
investment and participation in Colombia's energy sector,
primarily from the United States. In his meetings with
President Uribe (reported reftel),Minister of Mines and
Energy Meija, National Hydrocarbons Agency Director Zamora,
Colombian legislators from key energy committees, and major
U.S. companies invested in the Colombian energy sector,
DepSec Sell affirmed USG support for President Uribe,s
security and energy policies and emphasized the USG view that
Colombia maintains one of the most attractive hydrocarbon
investment climates in the region. End Summary.


2. Post wishes to express thanks to Deputy Secretary of
Energy Clay Sell and the entire team from the Department of
Energy for the excellent preparation and execution of the
Cartagena Energy Conference. Thanks to their efforts, the
conference was successful beyond our most optimistic
expectations. Thanks also to Mrs. Sell who helped at
representational functions and visited a local USAID project.
The recruitment of U.S. companies by DOE was excellent and
promoted U.S. interests in increased energy production. In
addition, the GOC, from President Uribe to lower ranking
energy officials, were appreciative of USG efforts.

Presidential Initiative Backs Conference
--------------


3. In a November 2004 meeting in Cartagena, Presidents Bush
and Uribe discussed the idea of an oil and gas investment
conference that would promote the Colombian hydrocarbon
sector and increase U.S. involvement in developing Colombia's
energy resources. Follow-on high level meetings held between
DOE, USGS, the Colombian Ministry of Mines and Energy and
National Hydrocarbons Agency (ANH),the U.S. and Colombian
embassies, and private sector energy companies promoted
conference organization and participation.


4. Over 450 participants, including approximately 60 from
the United States, took part in Colombia's International Oil
and Gas Conference in Cartagena from May 19-21. Participants
included Colombian and U.S. industry representatives ranging
from small businesses to multinationals, GOC and USG
officials, and private sector experts. Small to medium-sized
U.S. companies attended with heavy representation from the
services sector. Major financial and organizational support
provided by ExxonMobil, Chevron, and Occidental Petroleum
ensured a successful event. (ExxonMobil is currently engaged
in a major exploration project here. Chevron and Occidental
are producing oil and gas.) Conference goals included
providing an overview of the Colombian hydrocarbon sector and
promoting the advantageous business and investment climate
and improved security situation. A third important component
was a specific focus on the details of financing, support
services, and the downstream market that guaranteed whole
industry coverage. U.S. and Colombian industry experts in
all three areas (OPIC provided representation for financial
services) provided relevant knowledge and fostered mutual
investment interest. USG and GOC discussions are underway to
conduct follow-up activities to the conference.

USG Supports Colombian Hydrocarbon Sector
--------------


5. In his opening remarks at the conference, Deputy Secretary
of Energy Clay Sell emphasized U.S. support for investment
climate improvements in the Colombian hydrocarbon sector and
for the U.S. commitment to Colombian efforts to develop its
energy resources. The Deputy Secretary said security
improvements, combined with regulatory reforms in the
hydrocarbon sector have contributed greatly to a favorable
investment climate, especially when compared to regional
neighbors. The DepSec added that he was confident the
conference would succeed in promoting Colombia's positive
environment for foreign investors by encouraging outside
interest in searching the more than 80 percent of the country
that remains unexplored for hydrocarbon resources.

Highlights of Colombian Energy Sector
--------------


6. Ministry of Mines and Energy (MME) Luis Mejia and
National Hydrocarbon Agency (ANH) Director Armando Zamora
provided an overview of the Colombian energy sector for the
conference. Colombia has proven oil reserves of 1.5 billion
barrels of oil and 6.7 trillion cubic feet of natural gas
located in 18 sedimentary basins. Colombia has proven coal
reserves of 7 billion metric tons with an estimated 17
billion metric tons of potential coal resources. Coal
production is significant, increasing from 39.5 million tons
in 2002 to 53.7 million tons in 2004. Coal exports grew from
USD 990 million to USD 1.7 billion during the same period.
Regarding electrical power, Colombia has an installed
capacity of 13.3 gigawatts transmitted by a 12,266 km
national network. The country has a 167 kilometer
international network that exports 621 megawatts of power to
Ecuador and Venezuela.

Regulatory Changes Enhance Investment Climate
--------------


7. The GOC has established an attractive investment climate
after completing a series of legislative and regulatory
reforms in 2003. Companies pay 8 percent royalty for fields
producing 5,000 boe/day to a maximum of 25 percent for fields
producing 600,000 boe/day. The new contract model does not
require shares in production with Ecopetrol or ANH and the
government take has been reduced to about 50 percent compared
to the world average of 67 percent. Also, there is no
requirement for investors to pay bonuses to the GOC for
contract signatures or discoveries and obtaining contract
extensions has been made easier.

GOC Fostering Greater Exploration Activity
--------------


8. The GOC hopes to expand exploration into the 85 percent
of the country that remains unexplored through short-term
expansion of exploration contracts and a long-term investment
program. In 2004, ANH approved a total of 25 exploration
contracts. In 2005, ANH,s goal is to approve 30 contracts;
it has already signed or is waiting to approve 18. Moreover,
there were about 21 A-3 wells and about 6,500 kms of 2-D
seismic testing in 2004; ANH estimates there will be 40 A-3
wells and over 12,000 kms of seismic testing in 2005 (16
wells have already been drilled in 2005). ANH plans to
invest USD 70 million in obtaining new geological information
in 2005. Long term exploration investment plans are also
ambitious. Under &Plan 20208 ANH and Ecopetrol plan to
invest approximately USD 15 billion in exploration and
development projects with the goal of discovering 4 billion
boe between now and 2020. ANH,s portion amounts to USD 800
million and will be focused on a heavy oil project in the
Llanos basin, and other projects in Tayrona, Pacific basin,
Sinu-San Jacinto, and Tello fields.


9. During the conference, ANH signed a technical agreement
with the University of Florida International,s Hemispheric
Center for Environmental Technology and Center for Energy and
Technology of the Americas. The agreement will facilitate
scientific interchange and technical support and training
between the Colombian government and the UFI. Both sides are
hopeful the agreement will provide greater opportunities to
study Colombia,s sedimentary basins for hydrocarbon
potential.

Defense Minister Uribe Outlines GOC Security Achievements
-------------- --------------


10. In a panel focusing on the Colombian business
environment, Minister of Defense Jorge Alberto Uribe
summarized GOC efforts to improve the security situation
during President Uribe,s administration. Minister Uribe
said the administration,s strategy has been to greatly
increase the numbers and units of armed forces and public
security in the field and specifically to regain control of
the country,s municipalities. The number of security forces
increased from 273,000 in 2003 to 373,000 in 2005. In 2002,
there were about 400 municipalities without a police
presence; in 2005 there are none without a presence. During
2003-2005 the number of homicides dropped from 22,690 (May
03-May 04) to 18,909 (May 04-April 05). Uribe added that,
during the past 12 months, terrorist attacks on energy
infrastructure have fallen 41 percent and kidnappings are
down 52 percent.
Meeting with Colombian Legislators
--------------


11. DepSec Sell met with a group of Colombian legislators
selected by the Ministry of Mines and Energy to obtain their
views on the Colombian energy sector and indicate USG support
for Colombian regulatory reforms in the hydrocarbon sector
and efforts to encourage foreign investment. Legislators
were members of committees covering energy and natural
resource issues and were generally supportive of GOC efforts
to promote the sector. Legislators offered a range of views
but there was consensus on the following points: 1) support
for President Uribe,s security policies and their enhancing
effect on the investment climate, 2) support for GOC efforts
to promote the hydrocarbon sector and the importance of this
for the nation,s long term economic health, 3) need for
continued U.S. support in consolidating security gains and
development in the energy sector. Several legislators asked
DepSec Sell to convey their gratitude for USG support for the
conference and for Plan Colombia to President Bush.

Meeting with the Council of American Companies (CEA)
-------------- --------------


12. DepSec Sell and A/S Harbert met with U.S. hydrocarbon
sector representatives operating in Colombia to discuss their
challenges and success stories. Mr. Sell opened the meeting
by asking for an update on the security situation in Colombia
and its impact on doing business here. Company
representatives gave their views on the security climate and
offered their perspectives on other significant challenges
they face. All praised the information sharing between the
GOC, U.S. Embassy, and inter-company exchange promoted
through the Overseas Security Advisory Council (OSAC). The
Colombian chapter of OSAC, Diplomatic Security,s program to
protect U.S. multinationals operating overseas, has 89 U.S.
multinational members and 31 guest companies.


13. Companies had varying views on the most important
challenges they face when operating in Colombia. Occidental
reported they had reached security agreements with the
Colombian military to provide for protection of oil pipelines
and other infrastructure and that their company regularly
shared information with the U.S. Embassy and U.S. corporate
headquarters. Occidental had benefited greatly from this
cooperation and credited President Uribe,s security policies
for significantly lowering attacks against oil pipelines. On
the other hand, Occidental stated that the GOC needed to
further develop its ability to secure remote areas if it
wanted to encourage further foreign investment. Drummond
executives stated that while security is an ongoing concern,
they have mitigated the problem by investing in a 6,000
member local workforce and contracting the Colombian military
to provide more than 900 soldiers for perimeter security at
one of the world,s largest surface coal mining operations.
Drummond,s main challenge has been training its local labor
force but believed job creation and the company,s social
investment in schools, hospitals, and roads has built
community support for its operations. As a result, attacks
against the company by illegal guerrilla groups operating in
the area have been drastically reduced. Chivor, an operator
of a 1000 MW electric plant in Colombia, stated its main
concern is focused on the capacity of the GOC to conduct
regulatory change. Colombia had made good progress in recent
reforms in the hydrocarbon sector and Chivor hopes that this
capacity can be maintained for future changes it may seek in
electrical power regulations.

Site Visit - Drummond Ltd. Mine
--------------


14. After the conclusion of the conference, DepSec Sell and
DCM Drucker conducted a site visit to one of the world,s
largest surface coal mining operations, operated by Drummond
Ltd., Cesar Department, northern Colombia. Post will report
details via septel.
DRUCKER