Colombia, Venezuela get opportunity to overcome oil addiction. You’ll believe what happens next.

Venezuela and Colombia, where I’ve been hanging out for the last couple weeks, are terminal oil junkies. Both countries have built economies so oil dependent that with the current low price of crude, people are freaking out.

Of course crisis=opportunity and all that, so what better way to stimulate the local economy and set the countries up for the next cycle than invest in renewable energy? Good time to build some wind farms and microhydro projects, you might think. Good time to lay some solar panels onto reservoirs, you might think. Well, that’s not what’s happening.

In Venezuela, the government is bragging that it’s reactivating mature oil wells. And as the government faces the country’s worst financial crisis since at least the 1990s, it continues to give away gasoline to anyone who can take it. Free. Seriously. Younger people with dollar signs in their eyes are now investing their cash into oil, too. The folks behind Derwick Associates, led by Alejandro Betancourt, have spent about $250 million on shares of Bogota-based oil company Pacific E & P (formerly known as Pacific Rubiales), while their pal Francisco D’Agostino is part of a group that is putting more than $30 million into Harvest Natural Resources, a Texas oil company. Everybody’s betting on oil.

Here in Colombia, I heard Finance Minister Mauricio Cárdenas address an oil conference. He told the crowd that his country is committed to maintaining oil output at 1 million barrels a day or more, despite the fall in oil prices. “That’s why it’s important for the hydrocarbons sector to have all the stimuli, all the incentives, so that in this low-price scenario, it can invest, it can explore, and most of all, increase production. This is fundamental for the national economy, and indispensable for the public finance of the country.” (Link to story about his speech here, but the quote is from my own recording.)

The same day that he spoke, August 26, this report came out:

The consequences of global sea level rise could be even scarier than the worst-case scenarios predicted by the dominant climate models, which don’t fully account for the fast breakup of ice sheets and glaciers, NASA scientists said today (Aug. 26) at a press briefing.

What’s more, sea level rise is already occurring. The open question, NASA scientists say, is just how quickly the seas will rise in the future.

So you have these two tropical, coastal countries, facing the loss of their coral reefs and atolls, not to mention their glaciers and the unique alpine moors called páramos. Two countries that depend on a robust, constant hydrologic cycle for their energy supply and their basic survival. And their reaction to a crisis in the oil industry is to keep investing in oil.

Humanity! Never change.

Latin American currency: Colombia goes bananas

A good way to monitor Latin American currencies is against the Canadian dollar, rather than the US dollar. The USD, as world reserve currency, is mostly a measure of risk tolerance around the world. People fearing instability (still and despite it all) buy greenbacks. But the CAD, as the currency of a stable, developed, but resource-dependent country, is a nice comparison point for the Latin American currencies, as it cuts out a lot of the USD’s noise.

Against the CAD, the Colombian peso long tracked other currencies in the region, particularly the Peruvian nuevo sol and the Chilean peso. 

This first chart shows currencies against the CAD from 1 Jan 2010 to 1 Oct 2014. The Colombian peso (COP) is the red dotted line, green is Peru, navy blue is the Mexican peso, and fucsia is Chile. Up top, you see the Brazilian real and the Argentine peso doing their wacky and devaluatory deeds in red (solid line) and purple.

Here’s what the same currencies have looked like over the past calendar year:

This time, Argentina is down there with Peru and Chile, actually appreciating against the Canadian dollar. Mexico is drifting weaker, and Colombia is suddenly tracking Brazil in a big, painful devaluation. The are both big oil producers whose state-controlled companies were once stock market darlings. They are both economies that were overhyped circa 2011, and are now probably in an excessive backlash.

The upshot:

Here’s the 5-year chart. Colombia has detached from its usual peers and is devaluing mightily.

The upshot for me, as a consumer of Colombian Harina P.A.N. precooked corn flour in Canada, is that a kilogram of this white powder has dropped from CAD 4 to CAD 3.3 over the past year.

Given what we already saw in 2014, I suspect Colombia will get a competitive advantage in the production of other white powders. Next year’s coca production reports will likely show Colombian output surging.

 

Post-deal-collapse comment on Pacific Rubiales Energy Corp.

Actions speak louder than words. (As do bonos.)

 

Adding (later): At least nobody can accuse him of front-running anything. Practically pegged the bottom there.

ALFA wants to spend billions of dollars on this

Thanks to the indispensable Otto Rock, always with his ear to the ground for community (ahem) issues, I hear about this situation in Puerto Gaitan.

Following several days of protest around the Pacific Rubiales offices in Puerto Gaitan, Meta, a group of about 60 indigenous people entered and took over the multinational’s premises. The natives of the community Vencedor-Pirirí arrived with clubs and bows to demand that Pacific fulfill agreements it had with them, including maintenance of the Puerto Gaitan-Rubiales road, schools, and health centers. The situation in the morning became tense over the situation of Pacific employees, so the police intervened.

A police officer goes on to explain that some workers were briefly held captive until the police moved in. The host comes back to say that several vehicles have been burned in the protest.

In other news, a pal in Bogotá says Pacific has already taken its name down from its headquarters building, and I heard third-hand that signs in the oilfields are being replaced with signs that don’t have Pacific’s name. If anyone could get me a photo of either of those, I’d be quite grateful. I’d be happy to post it here with or without attribution, your choice.

PetroTiger CEO pleads guilty to FCPA violation in Colombia

PolitickerNJ has the story.

The former co-chief executive officer (CEO) of PetroTiger Ltd. – a British Virgin Islands oil and gas company with operations in Colombia and formerly with an office in New Jersey – pleaded guilty today to conspiring to pay bribes to a foreign government official in violation of the Foreign Corrupt Practices Act (FCPA)…

Sigelman admitted to conspiring with co-CEO Knut Hammarskjold, PetroTiger’s former general counsel Gregory Weisman, and others to make illegal payments of $333,500 to David Duran, an employee of the Colombian national oil company, Ecopetrol…

Colombia … announced in March of this year the arrests of Duran, his wife, a former employee of PetroTiger, and several other officials from Ecopetrol…

Go read it all

And here, yours at no extra charge, is the superseding indictment.

Derwick Associates has a very good day

As they portray themselves

Yesterday was a good day for the guys in charge of Derwick Associates.

Last week, a group of three companies, two in Panama and one in Barbados, disclosed they had bought a bit more than 10% of Pacific Rubiales Corp. The Panama companies were well anonymized, but the Barbados one less so. Alek Boyd said on Twitter April 28 that he got the paperwork for the Barbados company. It belongs, he says, to Alejandro Betancourt, chairman of Derwick Associates. This was a surprise, given as I’ve covered each of those companies extensively and the last we heard, a top Pacific Rubiales executive was saying he didn’t know the Derwick guys.

Otto does PREC

A few interesting Pacific Rubiales items recently, picked up by the always attentive Otto at IKN. Go over there, he’s better at this blogging stuff than I am.

For what it’s worth I watched the video he linked there, and I thought it desperately needed an edit. And I hate, hate hate documentaries with looming drama music. But if for nothing else, it’s worth watching the video to see the spectacular video of the Colombian llanos that are being exploited for both petroleum and palm oil these days. Good to know what kind of paradise you’re wrecking every time you fire up the old V-8.

Want to understand Colombia’s gold mining situation?

You need to read the newish Atavist book, The Devil Underground, by Nadja Drost.   Here, Drost has written the best explanation I’ve ever seen of the battle for Antioquia between the Urabeños and the Rastrojos. And has shown herself to be a brave, serious reporter who will stop at nothing to really understand a story. And has given readers an idea of what they buy when they buy gold, particularly Colombian gold. She has also written one of the most beautiful pieces of literary nonfiction I’ve read in a long time. I’ve been reading and writing a lot about Gran Colombia Gold, which is trying to turn Segovia into a normal professional mine. I have been reading about this situation for years, but now I feel like I am about 10 times closer to understanding it — even though this book barely mentions Gran Colombia. It’s well worth your US$3.99. Go read it.

UPDATE: I hadn’t seen this, which shows that a connection between crime and gold may remain present in Colombia.

Colombia trade trends: yes, it’s a coincidence

Yeah, Otto, it’s a coincidence. Colombia is importing more from lots of countries, not just the USA.

All figures from here. 2014 numbers are just through October, so that decrease is likely to disappear in final figures. As you can see, the big winners since 2010 have been Mexico (free trade agreement since 1995) and China (no free trade agreement), much more than the USA.

Commodity price trends and changes in Colombian access to consumer credit (for Chinese knickknacks) are probably bigger factors in this chart than trade agreements.

Colombia palm: So many issues at once

Nick Miroff has a great article in tomorrow’s Washington Post about palm oil in Colombia:

…the palm industry’s rapid expansion is yielding new evidence of a boom that benefited from the displacement of small farmers, indigenous groups and others by the armed conflict. Several of the regions where palm has spread during the past decade are places notorious for paramilitary violence and rural terror, like the north coast outside Cartagena, the Venezuela border region and the southeastern plains of the Meta department, where Mapiripan is located.

As the government and the country’s largest rebel group, the FARC, now attempt to reach a peace accord to end the fighting, Colombia faces the painstaking task of trying to sort out what happened in Mapiripan and other places like it, and how to move forward.

Central to the dispute is a clashing vision of rural development, between the traditional model that has been partly destroyed by the violence and an agribusiness vision that promises growth, jobs and modernization through the spread of commodity crops like African palm.