Canacol Energy Ltd., a Calgary, Canada, firm that operates in Colombia, said Wednesday it will explore for shale oil with ConocoPhillips in Colombia's Middle Magdalena basin.
Under the terms of the deal, ConocoPhillips will pay $13.5 million in cash and carry the cost of the drilling, completing, and testing of up to 13 wells.
The deal signals Colombia's growing appeal as an attractive place for oil and gas companies to do business in South America.
In a statement, Canacol said the agreement between the two companies calls for exploration and potential development of the Santa Isabel contract, one of five contracts that Canacol has interest in totaling 334,000 net acres "that expose [Canacol] to a potentially large unconventional shale oil play as supported by recent drilling results."
Texas' ConocoPhillips will get 70% of any shale oil found in the deeper areas while Canacol would retain the other 30% and keep 100% of the rights of shallower reservoirs.
The ConocoPhillips deal adds to partnerships Canacol has with two other major international oil companies, the local units of ExxonMobil Corp. (XOM) and Royal Dutch Shell PLC (RDSA).
Analysts in Colombia quickly praised Canacol's latest partnership.
"We think this is a brilliant move for Canacol," said Celfin analysts in a research note. "It is a large carry that allows the company to de-risk the block at no real cost and still allows it to have full control over anything they find that is small enough to fit in their budget."
Canacol's shares were up more than 4% Wednesday morning. Shares of ConocoPhillips were up less than 1% at $58.18 Wednesday morning.
For ConocoPhillips, an exploration and production company with market capitalization of $70 billion and operations all over the world, the venture is "not a needle-mover," Raymond James analyst Pavel Molchanov said.
But it does highlight growing interest in oil exploration in Colombia, where daily crude oil output grew by about 40% from 2009 to 2011, according to the U.S. Energy Information Administration, compared to meager growth or flat production in countries such as Venezuela and Ecuador, which produce much more oil.
In the last year, ConocoPhillips has announced plans to shed nearly $12 billion in assets, including some in Nigeria, Algeria and Kazakhstan to focus its spending on North American shale development.
"They absolutely need the money" from asset sales, Mr. Molchanov said. "But, it's still a multinational company, operating in over a dozen countries, and certainly Colombia on an all-in basis, is a relatively appealing place to invest."
At a gathering of the World Affairs Council of Houston last week, ConocoPhillips Chief Executive Ryan Lance highlighted Colombia's business climate as a bright spot in South America and a sign of Venezuela's waning influence in the continent.
ConocoPhillips and Exxon Mobil have pending disputes with Venezuela relating to the country's nationalization of oil assets in 2007, and ConocoPhillips no longer works in Venezuela. The company's only other operations in South America are in Peru, but it announced last year that it would not continue exploring there.a
