OPEC Deal Will Not Hinder Colombia's Production, But Guerrillas Can

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The OPEC deal created huge a mess in the oil markets.

Colombia's peace deal proceeds in the right way, but it is too early to celebrate.

Ecopetrol shows growth amid optimism of investors and new technologies.

Saudi Arabia has created a huge mess in the oil sector. For the moment, the overreacting markets are playing into the hands of both OPEC and non-OPEC countries, but the situation can change in the near future. Let's see what has happened to Colombia since the deal of the century was concluded on Nov. 30.

The fact is that Colombia is not a member of OPEC, and production cuts are not going to hit its oil sector badly. What does that mean? Less volatile oil prices and an opportunity to pump as much as they can. Of course, it's not that easy, considering the political problems in the country. As you might remember from our previous article about Colombia, the country's oil sector is hindered by continuous internal problems, the biggest of which are associated with the Revolutionary Armed Forces of Colombia (FARC) trying to destroy the efforts of the government.

Nevertheless, all bad things come to an end sooner or later. And it seems as if this time, the government's peace deal -- approved by the the country's Congress on Wednesday -- will bring that to fruition. Despite the split among Colombians about the outcome of the deal, it is a real breakthrough for the state over the last several decades. Still, the Congress needs to adopt a series of bills to reinforce the deal in the shortest time possible, while the FARC guerrillas remain in their hideouts and don't have a chance to mess up the agreement. If the deal works, the oil producers will be able to implement some of the long-awaited projects in southern Colombia.

But what about Colombia's other guerrillas? While everybody is talking about the FARC, the combatants of the National Liberal Army (NYSE:ELN) are doing their dirty work -- and doing it "well." Crude production at Colombia's second-largest Cano Limon oilfield was suspended on Friday. That means the loss of another 23 kbbl/d (kbd) per day in addition to the 22 kbbl/d (kbd) reduction during the year. While trying to cope with the FARC, the government of Juan Manuel Santos has completely forgotten about the ELN.

But we will see the outcome of the suspension in the coming months. Let's consider what Colombia's common oil export trend was from Oct. 25 to Nov. 25.

Colombia oil exports in November 2016

Tanker tracking data. Source: Bull And Bear Investor's calculations.

Overall performance was a little bit better than in September. Despite a significant decline on Nov. 8-14, compared to a similar trend during the previous months the speed of oil output was showing all signs of growth until the end of November. We cannot tell for sure, but the most obvious reason for the decline in the middle of the month was the attacks on the pipelines performed by the ELN guerrillas.

Colombia oil exports in Novermber 2016 by destination country pie chart

Tanker tracking data. Source: Bull And Bear Investor's calculations.

Trinidad and Tobago appeared among the importers of Colombian oil, which means the country is exploring the new markets despite all of the internal difficulties. According to our data, Trinidad and Tobago received nearly 538 kbbl/d (kbd) of Colombia's oil in November. The export of the country's oil to another sovereign island country in the Caribbean Sea, Saint Lucia, amounted to 1.1kbd.

We can see that Colombia's oil exports slightly lean toward the Caribbean Sea region, which is not surprising amid Ecopetrol's (NYSE:EC) plans to begin off-shore oil exploration in this region in 2017. An overall investment announced by the company amounts to $652 million. And if the plan works out, in the third quarter of 2017 Ecopetrol will be able to compensate for losses in southern Colombia. Though the company's ambitions are pretty high, shares saw a decrease in price. Apparently, this is due to the recent decision to suspend the Cano Limon oilfield's production.

Colombia's state-owned company never gives up. Not only are the new oil drills expected in 2017, but its innovative oil recovery methods will be applied on Ecopetrol's Chicimene field. The thing is that most oil reserves in the world lie in inaccessible layers, and it's really difficult to keep oil flowing. This is why the scientists from one Russian university designed new methods to increase oil recovery and decided to share them abroad, starting with Latin America. According to Vice-Rector of Research at Kazan Federal University Danis Nurgaliev, their technology allows them to bring oil recovery coefficients up to 70%-80%. This s good news for Colombia. Colombia's government has tried desperately to get a bigger piece of the oil sector pie. But its efforts are hindered by the guerrillas' attacks. For the moment, the country's sector shows little sign of decline, but the situation can worsen at any moment. The only thing the government can do is act faster and smarter than the combatants, while the market trend amid the OPEC deal is quite positive.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The material presented in this article is provided for informational purposes only and is based upon information that is considered to be reliable.