The indelible traces of oil and gas in the Peruvian, Ecuadorian and Colombian Amazon

Petroleum geologists explore for economically significant reservoirs of oil and gas using technologies that have evolved in sophistication as the industry grew to dominate the global economy in the twentieth century. They begin with geological surveys that identify the various rock formations that lie within, underneath or adjacent to a sedimentary basin capable of holding oil and gas reserves. Next, they conduct seismic surveys to create a three-dimensional image of the underground landscape that is augmented with data from magnetic and gravitational instruments. They process data using super computers and artificial intelligence to discover and describe what is referred to as a Total Petroleum System.

This integrated analysis identifies the potential ‘source rocks’ with organic compounds that are the raw material of fossil fuels and unravels the tectonic history that provided the ‘maturation forces’ (heat and pressure) necessary to convert carbon-rich molecules into oil and gas. The methodological framework also identifies a pathway for hydrocarbons, which are buoyant, to ‘migrate’ through porous sedimentary rocks until they are contained by an impermeable rock layer that functions as a ‘trap’ where oil and gas accumulate to create a ‘reservoir.’ The methodological rigor required to develop a Total Petroleum System greatly improves the probability of discovering an economically significant hydrocarbon reserve. It remains a hypothesis, however, until an exploratory well verifies the existence of oil and/or natural gas.

Seismic surveys are first conducted at large scales using two-dimensional images collected along widely spaced transects; these are followed by higher-density studies that provide a three-dimensional image of the subterranean landscape. Most exploratory wells are so-called dry holes, but if they ‘strike’ oil or gas, then multiple (sometimes dozens of) production wells are drilled to exploit the resource. The whole process will span, at a minimum, a decade and demands the expenditure of hundreds of millions of dollars that may, or may not, yield a financial return.

There are several major sedimentary basins within the Amazon, but only five are actively being exploited for oil or gas. Most are located along the margins of the Amazon Craton, but there are two in the middle of the continent associated with Paleozoic shales in the Amazon Rift Valley. Currently, all the oil fields under active exploitation are conventional reserves, but the growing market for natural gas has motivated geologists to identify shales that could be exploited using hydraulic fracking technology.

The Putumayo – Oriente – Marañón (POM) Basin

The largest and oldest of the Amazonian oil fields is located in a sizeable sediment basin in the Western Amazon, which stretches from Southern Colombia (Putumayo sub-basin), across Eastern Ecuador (Oriente sub-basin) and into Northern Peru (Marañón sub-basin). Most of the reservoirs are located in Mesozoic sandstones overlying Paleozoic shales that are situated on top of the basement rocks of the Amazon Craton Approximately eight billion barrels of oil have been pumped out of the ground since Texaco drilled the first wells in Ecuador and Colombia in the 1960s and Occidental Petroleum in Peru in the early 1970s. More importantly, these two companies commissioned the construction of three roughly parallel pipelines that are the foundation of the oil industry: Oleoducto Transandino Colombiano (OTC) in 1969, Oleoducto Norperuano (ONP) in 1977 and the Sistema de Oleoducto Transecuatoriano (SOTE) in 1972. Texaco and Occidental surrendered their concessions in the 1990s, but they left behind an entrenched system operated and supervised by state-owned oil companies.

Exploitation in the POM basin focuses exclusively on petroleum because fields do not yield sufficient volumes of natural gas to justify the investment in a gas pipeline. Consequently, gas is either used locally to generate electricity, flared or re-injected. The areas under exploitation have declined over most of the last two decades. Nonetheless, the basin retains significant reserves of oil. The value of the oil extracted from the POM was approximately US$10 billion in 2020, but was twice that amount for most of the years between 2005 and 2015. All three countries (Colombia, Ecuador and Peru) are making a concerted effort to expand and prolong the productive life of an asset with a nominal value of ~US$200 billion. Investment is constrained by social pressure, particularly from Indigenous groups exasperated by the poor environmental performance of past and current operators.

The Marañón Sub-Basin – Peru

Located in the Department of Loreto, the Marañón sub-basin was the primary source of oil in Peru between 1980 and 2005. The seven blocks currently under contract have oil reserves of 156 million barrels with another five blocks in different stages of exploration. An additional 25 blocks, covering more than ten million hectares are available for exploration, but social conflicts have limited interest in the public auctions that are organized periodically by Perupetro. The total reserves are estimated to exceed 500 million barrels of oil, which would have a nominal value of between US$50 and US$100 billion. Despite its potential, exploratory interest peaked in the 1970s when ~20 exploratory wells were drilled annually, but the number of wells declined subsequently with an average of only three per year between 1990 and 2010. There has been no exploratory activity since 2015.

Declining production is reflected in the volume of crude oil transported by the Oleoducto Norperuano. It was designed to transport up to 500,000 barrels per day (bpd), but at no time has it moved more than 160,000 bpd (1980–1985) when the two largest fields, Block 192 and Block 8, were at peak production. Pipeline flows declined linearly to less than 40,000 bpd in 2016 when a catastrophic failure caused the government to close the pipeline for repairs. Operations were renewed in 2017, but volumes have not exceeded 20,000 bpd.

Underutilization of the pipeline has contributed to its physical deterioration. Low revenues have caused Petroperú to underinvest in maintenance, while air in the pipeline has created an environment conducive to oxidation. The physical deterioration of the pipeline and the subsequent oil spills have exacerbated the social conflict of communities, who complain of the impacts caused by inadequate remediation of previous incidents during the 45-year lifetime of this ageing infrastructure asset. This has created a negative feedback loop that now plagues Peru’s efforts to promote investment in the region. In the 2000s, major oil companies lost interest in the region, but they were replaced by second-tier companies, many privately owned, who are less exposed to the negative publicity that accompanies investment in the Amazon. Even these companies, however, are losing interest in the region.

There are two legacy concessions and both are beset with difficulties: Block 192 and Block 8 were operated by PlusPetrol Norte from 1996 to 2015, but an extended legal dispute with the environmental regulator (Organismo de Evaluación y Fiscalización Ambiental – OEFA) caused PlusPetrol to abandon the Marañón sub-basin and to liquidate its subsidiary in an attempt to evade legal liability for forty years of poor environmental management. Both concessions will be operated by Petroperú over the near term, presumably by service providers working as contractors. Production in the two areas has fallen from about 25,000 bpd in 2015 to less than 3,000 bpd in 2020. The proven reserves are reported at ~80 million barrels.

There have been three greenfield discoveries. One is located in Block 64 where seismic and exploratory wells predict a reservoir with 160 million barrels of crude oil. Two companies have taken and abandoned the concession due, in part, to their inability to obtain a FPIC agreement with Indigenous organizations. Perupetro insists the resource will be developed and has delegated the task to Petroperú. Apparently, the two state-owned companies are confident they can reach FPIC agreements with individual Indigenous communities, regardless of the opposition from their umbrella organizations. In the meantime, however, there is no production from Block 64.

A similar, but quite different, issue has impeded the development of Blocks 39 and 67, which are being developed by Perenco, an Anglo-French independent that discovered an ~200-million-barrel reserve between the Napo and Tigre rivers near the Ecuadorian frontier. The company has plans to establish eighteen drilling platforms that would sink 200 wells, requiring the construction of a 200-kilometre feeder pipeline to connect with the Oleoducto Norperuano. Development at this scale would produce about 100,000 bpd and provide the Oleoducto Norperuano with sufficient volume to justify continued operations, while generating between US$2.5 and 3.5 billion in annual revenues. The uncertainty in its future operations stems from evidence that the area is home to a group of Indigenous people living in voluntary isolation. A proposal to create an Indigenous territory was first tendered in 2003 and passed an important milestone in July 2017 when the Ministry of Culture approved the content of a study verifying the existence of a population of uncontacted Indigenous groups. Perenco asserts that the tribe does not actually exist and has filed an injunction to impede the establishment of an Indigenous reserve.

The only discovery moving forward is Block 95, which has been a site of interest since an exploratory well revealed the presence of oil in 1974. Exploration was initiated in 2005 in a joint venture by companies specializing in high-risk projects in Latin America. They eventually sold their project in 2017 to PetroTal, a Peruvian company that was incorporated to develop this and other resources being abandoned by international oil companies. Block 95 would appear to be a small reserve (20 million barrels) that the company will exploit using thirteen wells to produce 20,000 bpd by 2025. At that rate the proven reserves will be exhausted in a little more than a decade, while generating between US$500 and US$750 million in gross revenues. PetroTal has developed multiple logistical pathways for exporting its oil, all of which depend on barge transport. Some of the production will go to the refinery in Iquitos, but the lion’s share will be shipped to the river terminal that connects to the Oleoducto Norperuano or exported to refineries in Manaus, Brazil.

Despite its progress in moving the project to production and commercialization, the operators of Block 95 have not been immune to social conflict. The production platform is located on land occupied by a community of the Kukama Kukamiria ethnic group, who filed an (as yet) unsuccessful formal territorial claim in 2013. The company and the community remain in conflict and, apparently, the community itself is divided regarding the benefits from the company’s operations, which include a compensation fund. The conflict led to violence in 2020 when police officers assigned to provide security shot and killed a protestor.

Iquitos, the regional capital, is a major logistical staging area for the oil industry. It hosts a small refinery and several service companies that provide services to the oil and gas sector, particularly in the transportation subsector, which connects the refinery to population centers such as Pucallpa and Yurimaguas in Peru, but also Leticia in Colombia and Tabatinga in Brazil. The regional government, once heavily dependent upon oil royalties (Canon Petrolero), is very supportive of the industry.

The Oriente Sub-Basin – Ecuador

Ecuador has enjoyed considerably more success in discovering and developing Amazonian oil resources, but has also underutilized the capacity of its pipeline infrastructure. Annual production doubled from ~200,000 in 1980 to ~300,000 bpd in 1991 when Petroecuador assumed operational control of the Texaco concessions. Production approached the maximum transport capacity in 2000 when it reached 350,000 bpd, as new discoveries by private companies were yielding a type of petroleum that was classified as ‘extra heavy’.

As the name implies, the molecular composition of this type of petroleum makes it more difficult to transport, which Petroecuador manages by mixing the heavy oil with lighter crude to pump via the Sistema del Oleoducto Trans Ecuatorian (SOTE). This became more problematic as the proportion of heavy crude increased and, in 2001, the private companies formed a joint venture to build and operate a second pipeline: the Oleoducto de Crudos Pesados (OCP). It was financed by loans from multilateral agencies and essentially doubled the country’s capacity to transport its Amazonian oil to its refinery and export terminal on the Pacific coast.

By 2015, production had increased to 471,000 bpd, of which about eighty per cent was produced by Petroecuador and twenty per cent by private companies. Geologists estimate that only about half of the recoverable reserves have been exploited and, at current rates, the proven and probable reserves should last another 47 years. If estimated ‘resources’ are located and verified, however, the oil industry in Amazonian Ecuador could function for another century. Between 2013 and 2015, Ecuador invested between US$2.5 and US$3.5 billion annually in the exploration of new production, a figure that fell to about US$1.5 billion in 2020. The government’s goal is to increase production to 800,000 bpd by 2027.

Ecuador’s relations with the private sector have been fraught with legal and political uncertainty. Its legal battle with Texaco (now Chevron) over past environmental liabilities is just one example. It has also nationalized the operations of other well-known international corporations or unilaterally modified contracts causing some operators to abandon the country. Companies from China have acquired these operations either directly by purchase or indirectly via a bidding process managed by the energy ministry. Reportedly, this is part of the government’s strategy to amortize its US$18 billion debt with Chinese development banks.

Despite the important role of private corporations and the state-owned companies from China, the largest developer of new fields is Petroecuador, which takes a lead role in exploration and expansion, particularly in controversial developments such as of Block 43, which is located on the northern edge of Yasuní National Park. Also known as the Ishpingo-Tambococha-Tiputini (ITT) concession, the state-owned company continues to develop new production wells within the national park right up to the border of the Zona Intangible, an area that enjoys special status as both a protected area and Indigenous territory.

Less media attention has focused on eight other blocks which overlap, or are adjacent to, Yasuní National Park. Totaling more than 1.5 million hectares, they are believed to have commercially exploitable oil fields. The entire area is covered by primary forest and is home to dozens of Indigenous communities. Two of these blocks (79 and 83) were awarded in 2016 to the Andes Petroleum Ecuador Ltd, a joint venture between China National Petroleum Corp (CNPC) and China Petrochemical Corp (SINOCHEM). However, the two companies abandoned the concessions when it became clear that the opposition by the Kichwa communities made the project unattractive, if not unviable. The other six concessions (14, 16, 17, 31, 56, 67) have ongoing operations within either the park or Indigenous territories, a source of conflict with the government that is unlikely to be resolved.

Finally, there are an additional sixteen blocks in the provinces of Pastaza and Morona Santiago, referred to as the Bloque Suroriental, which have been held in reserve by the Secretaria de Hidrocarburos. These concessions have long been viewed by the oil and gas sector as an expansion area that will, eventually, be made available via some sort of competitive bidding process. That process was put on hold by the administration of Guillermo Lasso in 2022, however, as part of a commitment to formalize the regulatory process so that it adequately reflects the principles of free prior and informed consent.

The Putumayo Sub-Basin – Colombia

Oil production of the Putumayo has reached only a fraction of its potential due to the lack of investment caused by the civil conflict that has long plagued the region. The sub-basin, which extends northward through Caquetá, has enormous potential with perhaps six million barrels of recoverable oil. Successive governments have made the development of this region a priority, but the decades-long civil conflict impeded investment and damaged critical infrastructure. Presumably, this period in Colombia’s development has ended, at least as it concerns the development of its energy assets.

There are currently eleven concessions operated by four companies. However, an additional 49 blocks have been taken up by an additional eighteen companies. Most of the oil reserves are believed to be a heavy crude similar to that found in Ecuador, and, in 2016, one of the four concessionaires built the Oleoducto Binacional Ameriser (OBA) to connect its fields in Colombia with the OCP pipeline just over the border in Ecuador. Like most of the regional pipelines, the OBA remains underutilized with only ~10 per cent of its capacity used in 2021. Nonetheless, its construction in 2016 demonstrates a belief that the region will eventually produce greater volumes of oil. The rest of the current production is transported over the Andes via the Oleoducto Transandino Colombiano, which is likewise vastly underutilized (~20 per cent of its capacity of 85,000 bpd).

Approximately, half of this exploration is taking place on previously deforested ranchland in Putumayo and adjacent areas of Caquetá with the remainder occurring in nearby natural forest. Dozens of Indigenous communities exist in the area, including highland populations displaced by the civil war and lowland tribes inhabiting lands situated between the Putumayo and Caquetá rivers. All have legal recourse to the FPIC protocols, which are enshrined in the Colombian constitution, and all of the oil companies purport to comply with these norms. Nonetheless, communities living near existing oil wells and logistical facilities have long accused companies and regulatory agencies of ignoring their complaints and associated demands for remediation.

Banner image: In the provinces of Orellana and Sucumbíos, in Ecuador’s northern Amazon, there are hundreds of pools filled with crude oil that have been abandoned for five decades. The oil residues contaminate water sources and cause diseases in the population. However, the Ecuadorian state has not fulfilled its responsibility to remediate the damage and make reparations to the affected population. Instead, it promotes the expansion of hydrocarbon operations. Photo: Armando Lara.

“A Perfect Storm in the Amazon” is a book by Timothy Killeen and contains the author’s viewpoints and analysis. The second edition was published by The White Horse in 2021, under the terms of a Creative Commons license (CC BY 4.0).

To read earlier chapters of the book, find Chapter One here, Chapter Two here, Chapter Three here and Chapter Four here.