It wasn’t long ago that Colombia was considered a failed state best known for decades of internal conflict as the government battled narco-terrorism and left-wing insurgencies. But now, thanks to growing internal security and stability, it has become the fourth largest oil producer in Latin America.
Much of this can be attributed to the pioneering efforts of Canadian-domiciled oil explorers and producers Pacific Rubiales and Petrominerales. Now recent news from the Colombian oil patch sees three Canadian oil juniors operating in Colombia that show considerable potential for investors in 2014.
Gran Tierra Energy doubles its oil reserves
Debt-free Canadian oil junior Gran Tierra Energy (TSX:GTE) (NYSE:GTE) recently confirmed significant oil reserves at the Bretaña oil field in Peru. In a December 2013 reserve evaluation completed by GLJ Petroleum Consultants Ltd, reserves of 57 million barrels of oil (net of royalties) were identified at the field.
These reserves are equivalent to Gran Tierra’s total reserves at the end of 2012 of just over 56 million barrels of oil, effectively doubling its oil reserves to 113 million barrels. Such a significant increase in reserves has not only seen the value of Gran Tierra’s underlying assets double, but also significantly reduced much of its risk.
In the past the majority of Gran Tierra’s reserves have been located solely in the south of Colombia in the Putumayo basin. This part of Colombia has been subject to considerable guerrilla and paramilitary activity, disrupting production and the development of those reserves.
It is also expected that Gran Tierra’s average daily production will be over 22,000 barrels of oil for 2013, exceeding management’s minimum prediction of 21,500 barrels of oil and boding well for increased oil revenue given the price of oil has continued to remain above $90 per barrel.
Canacol Energy takes the lead in Colombian non-conventional oil exploration
Canadian domiciled Canacol Energy (TSX:CNE) continues to surge in value. Over the last year its shares have spiked by 82% and I believe there is still plenty of potential upside to run, with a number of positive catalysts yet to fully play out.
Key among these catalysts is that Canacol is now the leading unconventional shale oil and gas explorer in Colombia. Some industry analysts believe Columbia has significant unconventional oil and gas reserves, making it the next big oil play in South America after Argentina.
But recent estimates suggest that Canacol’s acreage alone — in the Middle Magdalena Valley in central Colombia — holds up to 2.9 billion barrels of oil. This has attracted the attention of oil majors Exxon Mobil and Conoco Phillips, who have partnered with Canacol to exploit those considerable oil resources.
But the good news doesn’t stop there. Canacol announced a light oil discovery in the Llanos basin in central Colombia in December 2013. Recent testing of that discovery saw it producing almost 2,000 barrels of light oil per day.
Finally, fiscal first quarter 2014 operational results were impressive — average daily oil and gas production surged 52% in comparison to equivalent period in 2013. For the same period oil and gas revenue shot up by 16% and operating netback – a measure of net profit on oil and gas production net of royalties – surged a massive 65%. All of which indicate that Canacol’s profitability can only continue to grow.
Parex Resources continues to grow production
Another stand-out Canadian domicile oil junior operating in Colombia’s oil patch is Parex Resources (TSX:PXT). Over the last year its share price has shot up by 21% and like its peers, there are a range of catalysts that promise to maintain that upward trend.
Key among these catalysts are increasing production, with full year 2013 production surging by 39% in comparison to 2012 and signs that production growth can only continue. Parex management have forecast that 2014 production in comparison to 2013 will grow by 11% and its exploration and development program will be fully funded by cash flow.
Another catalyst is Parex’s price per barrel of oil sold is indexed to Brent rather than West Texas Intermediate, unlike many of its peers operating in Canada. As such it is able to generate higher cash flows per barrel of oil produced than those peers.
All of which leaves it well positioned to continue growing revenue and boost profitability while self-funding its exploration and development program.
Foolish bottom line
Canada’s oil patch is host to a diverse range of companies that offer considerable opportunities to investors. But sometimes better opportunities exist outside of Canada. Despite the companies discussed having experienced strong share price growth, it is clear from recent news that all three continue to offer considerable potential upside to investors.