TERRORISTS STOP OIL PRODUCTION AT PIPELINEPosted On: Jul. 27, 1997 12:00 AM CST
BOGOTA, Colombia-A three-company consortium operating an oil field in Colombia has lost $34 million after two terrorist attacks on its oil export pipeline earlier this month.
Los Angeles-based Occidental Petroleum Corp., which leads the consortium, has business interruption insurance coverage for such events, though this loss is not expected to meet its deductible.
Leftist terrorists from the National Liberation Army, or ELN, on July 6 bombed the pipeline leading from the Cano Limon oil field in eastern Colombia to the export terminal at Covenas on the Caribbean coast. The pipeline attack was coordinated with a separate attack on a helicopter carrying Colombian army troops on surveillance duty in the area, killing 20 soldiers. The rebels also killed 10 other soldiers patrolling the area on foot. The ELN dynamited the pipeline again on July 10, just one hour after it was repaired.
Occidental declared force majeure-meaning all legal and fiscal terms of the contract for oil production between the consortium and the government stopped-on the field on July 10 and temporarily laid off about 200 of its employees at the site.
According to an Occidental spokesman in Bogota, production could not continue because all storage facilities at the field were full. Production resumed again on July 18, once repairs were complete. The Cano Limon oil field produces 173,000 barrels per day, about 27% of the country's total oil production of 630,000 barrels per day.
The Cano Limon-Covenas oil pipeline has been a regular terrorist target for the ELN rebel group-which is opposed to all foreign investment in the oil industry-ever since the field began operations in 1985. It has been attacked about 48 times a year. Terrorism in Colombia has escalated, and the line already has been bombed 38 times this year.
The Occidental spokesman said the terrorists are becoming ever more expert in their attacks. "They bomb the pipeline in the late evening so a repair team can't get access at night. Then the transportation for the repair team is also a target."
Occidental and Shell de Colombia, a wholly owned subsidiary of Royal Dutch Shell BV, each hold a 25% stake in the Cano Limon field and operate it as joint venture partners. The Colombian state oil company, Empresa Colombiana de Petroleo, or Ecopetrol, holds the other half.
Despite the many past attacks, this was the first time that Occidental declared force majeure on the field. According to Ecopetrol, attacks on this pipeline have cost $1.6 billion in lost oil exports, damage and repairs since 1985.
The Occidental spokesman was unable to give details of Occidental's insurance program. "There is a business interruption cover but it only goes into effect after an unheard of amount of days because of past history of attacks."
Occidental's manager in Bogota, Stephen Newton, said in an interview with the local press in April that the company will pay $20 million in security costs this year in Colombia. This figure accounts for 10% of the company's overall expenses.
But insurance executives in Bogota note that most oil companies in the country self-insure their pipelines due to the costs of insurance. "All the pipelines owned by Ecopetrol are self-insured. The only thing insured (in oil production installations) are tank farms and pumping stations," according to Rodrigo Fajardo, managing director of Johnson & Higgins Colombia S.A., a wholly owned subsidiary of Marsh & McLennan Cos. Inc.
Large oil pipelines are a major terrorist target because of the political impact and publicity associated with the attack, Mr. Fajardo said. "The most effective attack is on Cano Limon. Sometimes they (the terrorists) only use one stick of dynamite, which wouldn't break up the line but would weaken it and so oil production would have to stop," says Mr. Fajardo.
But oil multinationals working in Colombia have no problem insuring their other installations. "Where there is security, such as at storage tanks or pumping stations, you normally get cover. Ecopetrol has not suffered any losses on the property they are insuring," Mr. Fajardo said.
The state oil company has a statutory right to participate with a share of between 50% and 75% of all commercial oil production in the country that has been discovered and is being operated by foreign or private-sector oil companies.
Insurance industry sources in Colombia say that because of the current soft market, Ecopetrol was able to obtain a 40% to 50% reduction on its property damage insurance premiums at its last renewal. The company now pays a premium of between $5 million and $6 million annually.