For Newest Latin American Oil Power, a Lesson in Booms and Busts – Bloomberg Business

In a remote corner of Bogota’s sprawling airport complex, just a few miles before the city gives way to wind-swept savanna, a gleaming-white hangar stands testament to the crippling effect that the plunge in oil has had on Colombia’s economy.

It’s not the hangar itself, so much as what’s inside it: idled charter planes. Lots of them. So many, in fact, that they spill out onto the surrounding roads, pointed this way and that in a seeming state of disarray.

The planes belong to Jorge Campillo. 

Like many other people across this South American country, he got caught up in the oil frenzy of the past decade and began acquiring planes at a frenetic pace to meet soaring demand to shuttle workers back and from the fields. After crude sank 47 percent from last June’s peak, Campillo’s business was left in tatters: daily flights plummeted 80 percent; he laid off 20 of his 80 pilots; and now he’s eyeing his prized fleet of 32 planes to figure out how many to return by mid-year.

“It’s really almost a debacle,” Campillo, 54, who founded his charter company, Searca SA, in the 1990s, said on a recent weekday morning. “It’s very difficult.”

While much attention is given to how the collapse in oil has wreaked havoc on all the usual suspects — countries like Russia and Venezuela as well as drilling companies across the U.S. and Canada — it is the paralyzing effect on Colombia’s economic expansion that is perhaps the most surprising.

The Andean country is no traditional oil power. With output of about 1 million barrels a day, it ranks just 19th in a list of the world’s biggest producers. In Latin America alone, there are three countries ahead of it.

Explosive Growth

But with the surge in oil prices coinciding with government victories over Marxist rebels that opened up swathes of the Colombian countryside to exploration for the first time, the energy industry underwent explosive growth.

Oil exports doubled to 53 percent of Colombia’s total overseas sales by 2014 from 25 percent a decade earlier. And foreign-direct investment — a key to the country’s 4.8 percent annual growth rate over the past decade — soared to a record $16 billion in 2013. Almost a third of that money was earmarked for the oil sector.

Yet, as older oil powers like Mexico and Saudi Arabia have known for years, after the boom comes the bust. Bank of America Corp. predicts Colombia’s economic growth rate will sink to just 2 percent this year, the weakest pace since the 2009 global financial crisis.

Oil Dependence

It’s not just roughnecks and pilots feeling the pain, but hoteliers, restaurant employees, and even grass-cutters who thrived alongside the boom. While the oil industry accounts for around 120,000 jobs, the Colombian chamber of oil goods and services, or Campetrol, estimates about 660,000 non-energy jobs in the country are indirectly dependent on the industry.

Head out to Puerto Gaitan, the town nearest to Colombia’s biggest oil field, and the economic pain is on full display.

Victor Hugo Acevedo, owner of two hotels in the town, says he’s had to discount room rates by a third to about 30,000 pesos ($12) a night. He laid off seven of his 15 employees. He’s already too far along in construction of a third hotel — with a loan from a bank — to stop.

“I’m indebted up to the neck with the bank,” said Acevedo, 46, who built his second hotel in 2012 as demand for rooms jumped. “My God, I hope oil rises again.”

Drillers are feeling the pain in the stock market. In the past year, shares of Pacific Rubiales have lost almost 80 percent and Ecopetrol is down 40 percent.

Economic Stimulus

Francisco Rodriguez, Bank of America’s Andean region economist, said his 2 percent growth forecast may even be too optimistic. If the central bank doesn’t cut interest rates to stimulate the economy, it could be closer to zero, he said.

“There is no way for this not to have a massive effect on the Colombian economy,” Rodriguez said in a phone interview.

Omaira Arjona, the owner of a road-side restaurant about halfway between Puerto Gaitan and the Rubiales oil field, says that six months ago, she was routinely serving about 200 people per day, mostly oil workers. Now it’s about 30.

“I’m going to wait two months before closing my doors,” she says. “I’m already looking at other work opportunities.”

For Campillo, the owner of the charter-flight company, the hardest part has been firing workers. It was something he had never done in the company’s 23-year history. “That for me was a disaster,” Campillo said.

Earlier that day, he stood transfixed, staring down from a second-floor hangar walkway at all the idled planes glimmering white and blue in the morning sun.

A minute went by. Then another.

Campillo didn’t move.

He was trying to fathom, it seemed, how everything had gone so wrong in the great Colombian oil boom.

Source: For Newest Latin American Oil Power, a Lesson in Booms and Busts – Bloomberg Business

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