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Foreign Oil Companies Tolerate High Taxes in Colombia

December 18, 1994

YOPAL, Colombia (AP) _ It took 100 men and $42 million to drill one exploratory well in Colombia’s oil-rich eastern plains. After 14 months, the well came up dry.

″It’s not for poor people, this business,″ said Jaime Triana, an engineer for British Petroleum Co., part of a consortium of foreign oil companies operating in the region. Triana’s comment is especially true in Colombia, where taxes and levies on foreign oil companies are among the world’s highest.

The South American nation collects about 85 percent of any profit the companies make.

″We need better terms for the foreign companies to bring in their risk capital,″ said Gerardo Heller Ovalle, an economist with the Colombian Petrol Association.

The association has warned the government that investment by foreign oil companies is dropping because taxes and royalties are so high. In 1979, private companies drilled 53 exploratory wells in Colombia, Ovalle said. Last year, they drilled only 14.

But it’s apparently worth it for British Petroleum and others operating in the eastern Cusiana and Cupiagua oil fields, estimated to have reserves of 2 billion barrels.

A humming installation of warehouses and networks of pipes, tended by hundreds of workers in yellow hardhats, lies a 15-minute helicopter ride from Yopal, an oil town of 30,000 about 125 miles east of the capital Bogota.

Like the surrounding plains, the site was no more than a green field a couple of years ago.

Cusiana, found in 1991, is BP’s largest find since the discovery of the Prudhoe Bay field in Alaska in the late 1960s. It doesn’t compare in size, however, with the huge reserves in Mexico and Venezuela.

A consortium of BP, France’s Total S.A. and Triton Energy Corp. of Dallas run the fields along with Ecopetrol, Colombia’s state-owned oil company, which gets half the profits. British Petroleum says it plans to pump 50,000 barrels of oil by the end of the year, and 500,000 by the end of 1997.

The cost of drilling oil is high partly because of the threat of leftist guerrillas, who have attacked pipelines hundreds of times in a bid to force the government to oust foreign oil companies or tax them more heavily.

Five years ago, Colombia introduced a $1 ″war″ tax on every barrel to pay for security for the oil industry.

″Were it not for the world-class reserves, we couldn’t do it,″ said Roger Walls, BP’s production manager in Colombia. ″Even so, we’re struggling very hard.″

Hundreds of police and soldiers patrol the Cusiana region to ward off guerrilla attack, and installations are protected by barbed wire fences and armed security guards. Army escorts often accompany convoys of trucks carrying equipment to the oil fields from the coast.

The government has made efforts to ease the financial pressure on foreign companies, reducing transport costs via pipeline. Many firms remain willing to put up with the high costs.

For example, Texaco Inc., based in White Plains, N.Y., plans to invest $90 million in the next five years in its gas operations in Colombia, which produce 300 million cubic feet of gas a day.

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