Guerrilla Activity Forces Oxy to Shut Down Colombian Oil Field

Colombia’s escalating guerrilla activity has forced Los Angeles-based Occidental Petroleum to indefinitely shut down production at its principal oil field there, a move that costs Oxy 8% of its total oil production and Colombia one-quarter of its oil exports.

The suspension of production at Oxy’s Cano Limon oil field on the edge of Colombia’s Amazon basin comes after guerrilla attacks along the 400-mile pipeline connecting the field with Caribbean oil depots, which have cost the lives of 30 Colombian soldiers and one civilian since July 6.

Oxy has removed nearly all its 300 employees from the oil field site, saying it does not know when production will resume, and has served notice that it cannot fulfill its contractual obligations to deliver the oil. The company says each day of lost production costs it $100,000.

The closure at Cano Limon, the third since 1992, is the latest example of increasing lawlessness in Colombia as oil producers are met with deadly opposition from rebels who depict foreign oil companies as public enemies.

The trouble is cutting into both current and future production. In May, British Petroleum suspended the development of its new Cusiana-Cupiagua oil field in Colombia for three weeks after guerrillas threatened workers.

And Oxy has been frustrated in its efforts to develop its Samore oil field close to Cano Limon because of opposition from the U’wa, an indigenous tribe whose members threaten mass suicide if development goes forward. Oxy insists that guerrillas have forced the tribe to oppose the field.

The suspension of Cano Limon oil production comes as U.S. refiners, particularly on the Gulf of Mexico coast, are counting more and more on Colombian oil. Exports from Colombia to the United States now average 330,000 barrels a day, a 50% increase from last year’s daily average. That’s about 5% of U.S. oil imports.

Although oil futures contracts ticked upward Tuesday after Oxy disclosed its Cano Limon problems, Scott Ryll, an analyst and trader at GSC Energy in Atlanta, said the loss of production should not have a lasting effect on U.S. oil prices as long as the closure is short-lived.

Oxy opened the Cano Limon oil field in 1985 but has since turned over 60% ownership to state-owned Ecopetrol and sold a 20% interest to Shell. So of the 175,000 barrels of oil produced there daily, Oxy claims 23,000 per day, or 8%, of its 300,000 in worldwide production.

Oxy is used to adversity in Colombia: Guerrillas have bombed the Cano Limon pipeline 471 times since it went online. But the oil company says the attacks have taken a murderous turn, with guerrillas ambushing soldiers sent to protect the repair efforts on the bombed pipeline.

The soldiers were killed after guerrillas from the FARC rebel group bombed the pipeline, then shot down a helicopter with 20 soldiers arriving to protect workers in the repair effort, Oxy spokesman Larry Meriage said. On July 10, guerrillas killed 10 more soldiers in an ambush near the pipeline.

The shutdowns are a major problem for Colombia’s finances and image. The field accounts for about one quarter of its 636,000 barrels of daily oil production and more than half of the 330,000 barrels it exports.