COLOMBIA-ECONOMY/OIL Colombia gets crude awakening as oil price slump hits economy

Record ID: 344664

  • Title: COLOMBIA-ECONOMY/OIL Colombia gets crude awakening as oil price slump hits economy
  • Date: 10th March 2015
  • Summary: RUBIALES, COLOMBIA (FILE) (REUTERS) WIDE OF PACIFIC RUBIALES OIL FIELD VARIOUS OF WORKERS AT FIELD
  • Embargoed: 25th March 2015 12:00
  • Keywords:
  • Location: Colombia
  • Country: Colombia
  • Topics: General
  • Reuters ID: LVADJ23PONL0QK7UGQH1SNHHO1XL
  • Story Text: As fewer and fewer oil trucks roll through the streets of Puerto Gaitan, Mario Romero crunches the numbers. Unless crude prices pick up and Colombia's oil firms invest again in exploration and production, his hauling company will soon go bust.
    Just six months ago, Transportes Paraiso Regional had 320 drivers moving oil, machinery and personnel around Colombia's booming energy industry. Now, his 16 remaining drivers are looking for jobs.
    "I've already told my six staff members here in the office that we are going to hold out two months paying salaries and if things don't improve, I'll let them go. I have already had to make some cutbacks in cost to see if we can get to a good place to start (working) again with Pacific Rubiales, because here in Puerto Gaitan area, there are no other sources of work" said Romero, 49, in Puerto Gaitan, the nearest town to oilfields operated by Pacific Rubiales and other producers.
    Romero is far from alone. In a town until recently awash with cash to pave roads and host pop stars like Marc Anthony and Daddy Yankee, many businesses are now shuttered.
    The mayor's office says Puerto Gaitan, home to 45,000 people and set along the lazy Manacacias River in central Colombia, will see oil royalties fall by about two-thirds this year.
    The entire oil industry chain - from drillers and engineers to geologists and hotels - is in trouble, threatening consumer spending, tax revenue and broader economic growth.
    Colombia is not a major producer - it has less than seven years of reserves - but oil is its largest export and typically accounts for about 20 percent of government revenue.
    Security gains against Marxist rebel groups drove a decade-long boom as areas previously too dangerous to operate in were opened up.
    "The activities that are being affected are those related to support, activities related to exploration, and the search for crude, because this too obeys economic and administrative logic as well as being directly impacted by prices which indicate what is possible to invest in, and if there's nothing, then (activity) is suspended," Carlos Bello, the coordinator of Colombia's National Industry Workers Union, told Reuters.
    The industry pulled in $34.6 billion of foreign direct investment in the last 10 years, up from just $3.1 billion in the previous decade, and oil output doubled to about 1 million barrels per day.
    That helped fuel economic growth at or above 4 percent in all but two of the last 10 years.
    Latin America's fourth-largest economy probably grew at least 4.5 percent in 2014 but a 50 percent plunge in oil prices since June has taken a toll and economists expect growth to drop as low as 3.3 percent this year and 2.6 percent in 2016.
    Producers like state-run Ecopetrol and Canada-based Pacific Rubiales are Colombia's biggest source of tax and export revenue but have had to slash investments, stall exploration projects, lay off thousands of contract workers and tell employees their jobs may not be safe.
    "(The issue) is hoping that the majority of companies stop postponing projects especially related to exploration. That of course makes us worry because we need to incorporate more barrels into reserves in Colombia, and from there, we could review with the government temporary measures that would allow us to incentivise investment in production as well as investment in exploration," Francisco Jose Lloreda, the Colombian Petroleum Association President, told Reuters.
    Union leaders estimate as many as 25,000 jobs, or 20 percent of the industry, could be lost in coming months. Ecopetrol has cut overall spending by 26 percent to $7.9 billion for 2015 and Pacific Rubiales has reduced its by 27 percent to $1.1 billion.
    Nearly a dozen contractors have sought bankruptcy protection since January, regulators say, and half of all oil firms have canceled or reduced exploration. A fifth have cut production.
    For each dollar that oil falls, the government loses about $120 million in revenue. It has already cut $2.4 billion from the budget this year and royalties - which help fund education and healthcare in the $375 billion economy - could shrivel 40 percent.
    Oil companies and contractors are scrambling to eliminate costs. Pacific Rubiales employees now share bedrooms at the oilfields, they are bused instead of flown in, and have fewer canteen delicacies.
    Pacific Rubiales has also stopped sponsoring Colombia's national soccer squad and no gifts will be distributed at Ecopetrol's shareholder meeting this month.
    Investment cuts mean seismic tester EGS has laid off 75 percent of its 300-strong workforce since December. Other firms like Montajes JM, which builds oilfield infrastructure, say they have also lost contracts.
    After years of higher-than-average wages, workers from executives to pipeline labourers are paying off loans and cancelling gym memberships, Pacific Rubiales workers say.
    Emails circulate at its Bogota office offering BMWs and other luxury cars for sale.
    But the decline in oil revenue puts stress on state coffers, especially as the government estimates it will need to spend roughly $40 billion on new development projects if negotiations with guerrilla leaders lead to a peace deal.
    In Puerto Gaitan, small businesses from hotels to restaurants feel the worst of the slump.
    Bar owner Juan David Mogollon jokes that debt collectors outnumber his regulars and that customers have stopped drinking imported rum and whisky.
    "We've had to make cuts, let people go, close businesses. The problem is the banks. Here all us business owners, we owe the banks money. Because the oil boom came, and a bank opened, and as soon as it opened, everyone went to the banks (seeking credit). (The banks said,) 'What does David need?' And because things were going well, everyone (got credit), but now the banks have taken back the three hotels. Took them back. They are selling them off. What are we going to pay the banks with? Whether the bank sells or not, you've got to pay them back," said Mogollon.
    Real estate prices are also dipping as the economy slows. Prices are off 10 percent in Medellin and 5 percent in Bogota, economists say. The government says infrastructure investment, solid manufacturing output and consumer spending will support the economy and the finance minister still expects growth of above 4 percent a year over the medium-term.
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