Lures Exxon and Shell to auction with Shale Oil

Colombia, South America’s third largest oil supplier, plans to attract investment in new crude reserves and so called unconventional energy deposits with its first government auction of blocks in two years.

Units of Royal Dutch Shell Plc (RDSA), Exxon Mobil Corp. (XOM) and state controlled Ecopetrol SA are among companies that have pre- qualified to bid today on 115 blocks, including more than two dozen areas holding oil and natural gas trapped in shale rock, according to the website of the National Hydrocarbons Agency. 

Companies will submit proposals from about 9 a.m. Bogotá time with preliminary results released during the day.

Colombia needs to find new reserves to ensure future increases in oil production that jumped 72 percent since 2.007 as improved security drew record international investment. 

The nation’s reserves of about 2.3 billion barrels are equivalent to almost seven years of output, lagging reserves of smaller producers Ecuador and Argentina, U.S. government figures show.

“Seven years is a relatively small amount for a country that depends a lot on oil,” Juan David Pineros, an analyst at the nation’s largest brokerage, Interbolsa SA, said yesterday in a telephone interview from Medellin, Colombia. “

It’s a big step to ensure future reserves.”

Blocks will be awarded based on proposals for investment and the government’s share of production. Companies that have qualified to bid also include units of Brazil’s Petroleo Brasileiro SA (PETR4) and OGX Petroleo e Gas Participacoes SA, the government said last month. Rio de Janeiro-based Petrobras and OGX didn’t immediately respond to emails seeking comment.

The country will award rights to blocks covering about 13.5 million hectares (33.4 million acres) across mountainous central Colombia, its eastern plains and offshore in the Caribbean, according to Bogotá based National Hydrocarbons Agency.

The auction may draw $500 million in investment to unconventional reserves, the government said in March. 

Ecopetrol (ECOPETL), Colombia’s largest oil company, already is seeking partners to drill for the fuels.

A surge in production of unconventional energy in the U.S. is leading companies to search for new sources overseas, Piñeros said. 

Production and reserves of U.S. shale natural gas more than quadrupled in 2.010 from 2.007, according to the website of the U.S. Energy Information Administration.

Patrick McGinn, a Houston based spokesman for Exxon, declined to comment on the auction in an e-mail yesterday. Kelly OpDeWeegh, a Houston based U.S. media relations officer for Shell, said the company is evaluating its participation, in an e-mail yesterday.

Colombia expects to produce more than 1 million barrels a day of crude at the end of december, Energy and Mines Minister Federico Rengifo said last week. 

Output was 956,300 barrels a day in September.

Venezuela and Brazil are South America’s largest oil producers. 

Ecuador and Argentina surpass Colombia in crude reserves, with 6.5 billion barrels and 2.5 billion barrels, respectively, according to figures from the U.S. energy Information administration.