C O N F I D E N T I A L BOGOTA 007731

SIPDIS

SIPDIS

E.O. 12958: DECL: 08/22/2016
TAGS: EINV ENRG EMIN VE CO
SUBJECT: 1.7 TRILLION CUBIC FEET METHANE GAS DISCOVERY AT
DRUMMOND COLOMBIA

REF: BOGOTA 4125

Classified By: DCM Milton Drucker for reasons 1.4 (b) and (d)


1. (C) U.S. based Drummond Corporation announced a 1.7
trillion cubic feet find of methane gas at their coal
facility in La Loma, Cesar and at another block in La
Guajira. The deposits increase by more than one-third
Colombia's total reserves, presently estimated at 4.7
trillion cubic feet. The President of Drummond Colombia,
Augusto Jimenez, told econoffs the company would like to sell
some 80 percent of the gas, the remainder to be utilized in
support of their coal operations. Drummond plans to make a
USD 1.3 billion investment to exploit the gas over the next 3
years.


2. (C) Drummond estimates that 70 percent of the find is
contained at its coal facility in La Loma, the remainder at
theSutterhome facility in La Guajira, a 70/30 joint venture
with state oil company Ecopetrol. Although Drummond
Corporation has never commercially exploited a gas deposit,
Jimenez indicated that the company intends to do so on its
own without outside partners. Drummond currently employs
3500 at its coal mining facilities, and 6500 throughout
Colombia, including Bogota headquarters and part-time
contractors at its port facility in Santa Marta. Company
officials claim that an additional 4000 jobs will be created
through investment in the exploitation of the gas.


3. (C) It is unclear at this stage how the surplus gas will
be utilized. Newly installed Minister of Energy and Mines
Hernan Martinez told the Ambassador in his introductory
meeting on August 22 that a domestic electrical energy crisis
was brewing, and that increased generation from thermal
sources would be required. The GOC may decide to utilize the
gas to supply electricity to major nearby population centers
of Barranquilla and Cartagena. Colombia has no present LNG
facility, complicating efforts to export the gas. Although
Jimenez told econoffs that Drummond was exploring exportation
to Venezuela viathe La Guijira-Maracaibo pipeline presently
under construction (reftel), post regards this possibility as
remote. Jimenez added that should Colombia successfully find
offshore deposits, a pipeline to Panama and Central America
might become economically feasible.

4, (C) Drummond's exuberance over the gas has not been shared
by the GOC since the company made public its finding without
any prior notice or data sharing with the GOC. Minister
Martinez -- a former coal executive with Exxon -- was clearly
annoyed that Drummond has presented no data in public or
private to back up its claim of "proven reserves". Until
such data is presented and verified by an independent third
party, the GOC cannot legally certify the wells.
WOOD

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