BOGOTA, Colombia — Occidental Petroleum relishes its reputation for discovering oil and making money in politically turbulent environments. The late Chairman Armand Hammer's cloak-and-dagger adventures in Libya are part of oil industry lore.
And Colombia, where Oxy's Cano Limon oil field is now that country's largest-producing deposit, has offered up a rich complement of trouble: guerrilla wars, narco-terrorism and a rugged Andean terrain that boosts drilling costs tenfold and drove the price tag for Oxy's 470-mile oil pipeline to $1 billion.
Guerrillas have blown up the pipeline from the Amazon basin to the Caribbean more than 400 times since it came on line in 1985--including 26 times this year alone--because the company refuses to pay protection money.
Despite elaborate and costly security precautions, an Oxy engineer was kidnaped in 1988 and held for a year before being ransomed safely at a reported cost of $6 million. Families of all Occidental employees were later moved out of the country when the late narco-kingpin Pablo Escobar threw Colombia into chaos with assassinations and car bombs.
It is, of course, a symbiotic relationship. Los Angeles-based Oxy has become Colombia's leading oil producer, helping the country achieve energy self-sufficiency and become Latin America's fourth-ranking producer after Venezuela, Mexico and Brazil. In turn, Colombia has come to account for 15% of Oxy's global oil production, its second-largest source of foreign crude after Peru.
Now, after weathering extraordinary pressures, this happy connection is--from the oil industry's perspective--being gummed up by ordinary politicians struggling to maximize the government's take on a resource that, unlike illicit drugs, they can tax,
Oxy and other foreign oil producers complain that Colombia's government has threatened future oil production with tax rates that have helped make it one of the world's costliest places to produce oil.
Colombia's rationale is that oil revenue--which representd about 1.6% of the nation's gross national product--is crucial to its effort to diversify the economy. Oil recently surpassed coffee as its leading legal export and is seen as essential to building an economy based on growth industries other than illegal narcotics.
By hitting up the oil companies, Colombia's politicians have also sought cover from charges that they have allied themselves with a new generation of economic colonizers. Oil is a hot political issue here: The National Liberation Army, one of the strongest guerrilla groups, has made the oil companies its prime target for mayhem.
In any case, Colombia's taxes--it takes some 85% of oil revenues--make it "one of the seven most onerous" countries in the world in which to develop oil, said Rafael G. Quijano, director for Latin America at Petroleum Finance Co., a Washington, D.C.-based consulting and risk analysis firm.
Back in 1978, the biggest risk was failure. But Occidental's Hammer thought Colombia was worth a try, despite the repeated "dry holes" drilled by Exxon and Mobil in previous exploratory efforts. After four years, just before Occidental was ready to give up, its engineers indeed hit the jackpot at Cano Limon, a 1.1-billion-barrel reserve in Colombia's Arauca state.
Defying the naysayers, Occidental built an oil pipeline from Cano Limon, on the edge of the Amazon basin just a few hundred feet above sea level, up over 7,000-foot Andean mountains, back down to sea level to the Caribbean port of Covenas, all in just over two years.
With the pipeline complete, Oxy ceded a 50% interest in the Cano Limon oil field to the state-owned oil company Ecopetrol as required by Colombian law. It then sold half of its remaining interest in the oil field to Royal Dutch-Shell for $1 billion.
Occidental also turned over ownership of the pipeline to the Colombian government, which relieved Oxy of the responsibility of guarding and repairing the pipeline after the numerous guerrilla attacks. All the practice has reduced the average repair time to 36 hours, said Stephen T. Newton, president of Occidental de Colombia, which is based here.
"The National Liberation Army is the group that does it. Their position is that the oil companies are robbing the people of their oil, despite the fact that 87 cents of every dollar produced goes to the government," Newton said. Occidental employs 640 people here.
Newton, who directed Oxy's successful exploration effort in Peru amid guerrilla activity in the late 1980s before taking over the Colombia operation, added: "If you confine yourself to places where you have the luxury of total security, you may not find a lot of oil."
The pipeline has been equipped with numerous devices to assure immediate shut-off after bombings so as to minimize oil spills, said Newton, a 43-year-old Australian. Oxy also built several barriers that catch and contain oil spills around rivers and tributaries.
