The looming changes in Mexico’s oil patch have the potential to negatively impact what has been a Latin American success story: Colombia. In this week’s Oilgram News column At the Wellhead, Chris Kraul looks at the issue with an experienced Colombia oil hand.

With production and investment in Colombia’s oil patch in decline and competition from Mexico heating up for exploration capital and personnel, the pressure is on the government of President Juan Manuel Santos to improve his country’s standing in the regional race for E&P dollars.

Although Colombia’s near term self sufficiency in crude is safe, the mid- to long-term outlook is clouded at best and requires action now, says Alejandro Martinez, an energy lobbyist and consultant. He resigned in June after 20 years at the helm of the Colombian Petroleum Association trade group, better known by its Spanish initials ACP

Few in Colombia have better perspectives on the energy sector than Martinez, who left ACP to launch his Bogota-based consultancy, AMV Consultores. He says he’s worried by what he sees.

Over the first half of this year, Colombia’s average production was 983,000 b/d. That’s twice as many barrels as the country was pumping in in 1994 when he signed on at ACP, but 2.5% less than the 1,007,000 b/d averaged during all of 2013 when the country cracked the 1 million-barrel-a-day club.

The year-to-date average is also 100,000 b/d under the target set by the government to balance its 2014 books.

The situation is more dire in natural gas. Colombia produces about 1.2 billion cubic feet per day currently, enough to meet domestic needs, but reserves are falling fast. Regulators have warned the nation could be forced to import as soon as 2017 unless new reserves are found.

More alarming for Martinez is that foreign direct investment in oil and gas fell 10% last year and could post another year-on-year loss in 2014. The drop comes as many multinationals prepare to invest in Mexico, which, after relaxing rules on private investment earlier this year, is expected to start auctioning off exploration blocks next year.

Encouraged by Mexico’s investment rules, oil companies big and small have served notice that they will jump into the Mexican oil patch. One of them, Pacific Rubiales Energy, Colombia’s second largest oil producer with a net 149,000 b/d, said recently that it had set aside $1 billion to invest in joint ventures there.

“Many oil companies are simply transferring their [E&P] budgets to Mexico where the geology is more favorable than in Colombia and where they see better opportunities,” Martinez said in an interview at his Bogota office.

The second task confronting President Santos, who was sworn into a second four-year term in office on August 7, is to come up with ways of quelling the community protests and blockades thrown up against oil producers in several parts of Colombia in recent months.What specific measures should the Colombian government take to enhance its competitive position? The first is to reduce environmental permit processing from the current average of one year or more to half that time. Delays in permits are causing companies to postpone or cancel investment plans, Martinez said.

The unrest has been ignited partly by a change in the way Colombia distributes royalties from oil and gas sales that has cost many municipalities a big chunk of the oil revenue they once received. The disturbances, combined with an uptick in terrorist attacks on pipelines and tanker trucks by leftist guerrillas, has turned off investors, Martinez said, and cost the country at least 30,000 b/d in production so far this year.

“The problem is, the rural communities where most of the oil is being produced aren’t seeing the local benefits of the oil boom, aren’t seeing the investments in schools, roads, hospitals that they should,” said Martinez. “They are impatient to see it.”

A third problem the government must address is the widespread perception that oil drillers are causing water scarcities in some parts of the country, particularly Casanare province, where the capital, Yopal, has faced periodic water rationing for the past three years.

“It’s a legitimate worry because there is no doubt water levels have declined. But the oil sector is not to blame and it is up to the government to explain the reasons,” Martinez said.

Martinez became president of ACP in 1994 when the country was producing less than 500,000 b/d . Martinez and ACP helped spearhead policy changes to make Colombia the desirable investment destination it became over most of the last 15 years.

The policy changes, which included lowering the government take from 85% to the current 70%, improving tax incentives including speedier amortization of oil field investment, and creating the independent and transparent National Hydrocarbons Agency to conduct bid rounds, led to the production boom that saw average output nearly double over the six-year period that ended last year.

But Colombia, like other countries, competes for investment on a global stage amid shifting conditions, Martinez warns, and it is time for the country to sharpen its game.