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Interview

with Carlos Rendon, General Manager, Ecopetrol Peru

25.02.2011 / Energyboardroom

Ecopetrol started its internationalization in 2006 by Peru, its junior oil and gas neighbor to the south. Out of so many options, why did you start by Peru?

At the end of 2006, Ecopetrol decided to come to Peru, Brazil and Golf of Mexico (USA) with the aim of becoming a truly international company. Some of the aspects we took into account when choosing which market to start with were the prospectivity, political stability and the general economic and investment conditions of these markets.

Peru has these three elements. The country had important discoveries such as the ones in the Talara, Marañon and Camisea areas, some of them accounting for more than 1 billion barrels of oil. The most interesting thing about Peru is its vastly unexplored assets, with many treasures yet to be found. There is a large need of more exploration and the E&P areas are very far from infrastructure, so there are a lot of challenges, with possible great rewards.

Naturally, the economic conditions played an important role for Ecopetrol to come to Peru. The trust in the government and its policies is very important for Ecopetrol, as for most other companies. The Peruvian state is applying sound policies to attract long-term investments, something crucial for the oil and gas industry to thrive.

Being so close to its headquarters, how much space has Ecopetrol Peru to follow its own local strategies?

Ecopetrol decided to choose a decentralized model. Headquarters dictates the general strategies and policies all its affiliate companies have to follow, but the operational model would be decentralized. The geosciences work has to be done here in Peru as well as the administrative, financial, and contracting processes.

Ecopetrol has been one of the most active bidders in the last bidding round, acquiring the block 179, where you’re the operator, and four other blocks as non-operator. What are your expectations and investment plans for these assets?

Ecopetrol currently has blocks 101, 134 and 158 with Talisman, who acts as operator. In the Block 101, with Repsol also as a non-operator, we have 30% interests; we have drilled a well in 2010, but it was not successful, so we are now analyzing the information of the area to take the next steps.

In blocks 134 and 158, where Talisman owns 55% and Ecopetrol 45%, we just finished the seismic acquisition and we are analyzing to determine the next steps. Ecopetrol is also in the block 117, where we have 25% interests, with Petrobras and Inpex, a Japanese company.
In the last bidding round of 2010 Ecopetrol in consortium with Repsol and YPF acquired four new blocks: 184, 182, 180 in the Huallaga basin, and block 176 (Ucayali basin) , with Repsol as operator; and as we also acquired block 179, in the jungle of the Marañon basin, being 100% operator.

At blocks 134 and 158, we have already got seismic shots and we are now analyzing the information, if it confirms the prospects in these areas we could be drilling a well in mid-2012. At Block 117, we are beginning the environmental studies with Petrobras and we shall shoot seismic in mid-2012. The recent blocks acquired are in frontier areas, so the exploration has just begun.

Ecopetrol’s experience in the foothill areas of Colombia will surely help the company to speed up the exploration process, and Repsol, our partner, also has that experience. Ecopetrol is very confident that it will find interesting assets in Peru, though at this stage it is very premature to state how much oil we could find.

Perupetro is expecting to bid around 25 new blocks in 2011. What are Ecopetrol’s expectations for new acquisitions this year?

Ecopetrol really wants to grow its presence in the Peruvian market and it will continue to analyze local investment opportunities. The company has already become one of the most important players in Peru, but we know that exploration has a high risk attached, so Ecopetrol is continuously analyzing new opportunities in order to guarantee a bright future in the local market.

If there are new blocks offered with interesting prospectivity, Ecopetrol Peru will be very interested in analyzing them. Ecopetrol Group current position is of 9 blocks with Ecopetrol Perú and 11 blocks through our JV Savia. We want to continue being aggressive in this market and Ecopetrol wants to pursuit new opportunities in order to have a solid portfolio for the short, medium and long term.

These blocks are owned in partnership with other major players in Latin America’s energy scene, such as Petrobras and Repsol. How strategic these partnerships are for Ecopetrol’s establishment in the Peruvian market?

When Ecopetrol started to internationalize, one of the ways of doing so was to go abroad with strong partners. In Colombia, we have strongly worked with these companies and have become very good partners. We know how the other behaves and they also know us, and we share very important values such as being socially and environmentally responsible. This happened in Colombia and Ecopetrol wants to repeat this success in Peru.

The acquisition of Offshore International Group (Petrotech, later on named Savia) together with KNOC in 2009 marked a major milestone in Ecopetrol’s presence in the Peruvian market, especially in offshore exploration. How is Ecopetrol capitalizing on the gained offshore expertise from Savia, since the company is mostly an offshore player?

Ecopetrol doesn’t have important experience offshore, but we understand that offshore E&P will be very important in the future. So we are, little by little, trying to get into this area. Ecopetrol recently began exploring in Colombia’s Caribean Sea and also in the Pacific. We are also working in the Golf of Mexico and Brazil in offshore exploration with our traditional partners. This is the best way Ecopetrol has to acquire the necessary expertise to engage in offshore exploration by itself in the future. The position Ecopetrol has in Peru is very important to achieve that.

What was the significance of entering the Lima Stock Exchange and how does this move facilitate your strategy for the Peruvian market?

Coming to Lima Stock Exchange was in line with our aim to raise more capital for our investments, even though in the short-term it won’t raise a considerable amount because of the size of the local stock exchange compared to the US, Canada or Colombia’s stock exchanges, but we know that Peru is a country where we will grow a lot, so we are preparing all the steps to have a wide presence in the local market.

Colombia is in many ways a mirror to Peruvian policy-makers on how to attract foreign-investors. How much more can Peru improve its investment climate and learn from Colombia in this area?

Peru has done very well in attracting important oil and gas investments, although there is always room for improvement. When trying to acquire experiences from other countries, Colombia has interesting things to show. The country has been successful in the last 10 years, since when its industry has been growing very fast. But this is a process that takes time and it has to be very consistent throughout different governments.

In Colombia people in the environmental ministry are very careful with environmental concerns, but the regulation applied is well balanced as to the amount of possible risks each project poses to the environment. They are not prohibiting everything just ‘because because’, they analyze the real impact of each process in the environment and act accordingly, case by case. In Peru companies spend a lot of unnecessary time to get permits, and time is money. One of the difficulties of big companies in Peru is to deal with its time-consuming model, though improvements have been made.

How is Ecopetrol working with the local government and local communities to overcome Peru’s sensitive environmental and social issues?

As Ecopetrol Peru has been up until recently a non-operator, we made sure that our partners were respecting all social and environmental standards so that we can have a sustainable development in the Peruvian market. Now that we will begin as operators in block 179, we want to better position Ecopetrol and show the Peruvian community that we are very strong operators with very high standards.

Peru has an extremely rich and diverse environment; hence Ecopetrol is planning to work with biodiversity programs as one of our strategic lines. Our plan is that, when we come to an area, we will have a positive impact in communities, in biodiversity, and the whole environment. Our team is working on it because Ecopetrol wants to be a very strong company in Peru, followed by others in the way it treats the environment and local communities.

When we look at Ecopetrol’s ambitions globally, it states that it wants to reach the 1 million barrels mark in the coming years. How do you expect Peru to contribute to this goal?

For 2015 Ecopetrol Group has the target of reaching the 1 million barrels mark, but for 2020 the target is 1.3 million, a very strong and challenging growth target. Peru’s contribution for the short-term will be small because Ecopetrol Peru is still mostly in the exploration phase, but for 2020 we expect Peru to be an important player in Ecopetrol’s production targets.

Ecopetrol Peru is confident that, thanks to our fast-growing investments in exploring Peru’s vastly untapped resources, we will gain the local and international relevance we deserve.

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