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In 2020, Chile ranked ninth out of ten producing South American countries with a modest 25.5 thousand barrels of oil equivalent (mboed), declining a steep 35.5% by 2025 to 16.7mboed.  The country’s energy industry is dominated by onshore natural gas production from the Magallanes Basin in the Magallanes Region. Total natural gas production drops from 140 million cubic feet per day (MMcfd) in 2020 to 92MMcfd in 2025. The largest project in Chile is the dry natural gas Arenal Complex, 100% owned and operated by Empresa Nacional del Petroleo (ENAP), the state-owned integrated oil and gas company.  The field produced 81.34MMcfd in 2020, 53% of Chile’s total production, and is estimated to decline 31% to 56.15MMcfd by 2025. Crude oil and condensate are produced in much smaller quantities, accounting for approximately 8.3% of the country’s total production in 2020.  Liquid production stems from Fell Complex, Caupolican Complex and other smaller fields and combined, total crude oil and condensate production declines to 1,343 barrels per day (bpd) in 2025 from 2,127bpd in 2020.

As a net importer of energy products, the Chilean Government endeavoured to create a successful oil and gas industry through its 2007 Magallanes Exploration and Production (E&P) round and licensed 10 blocks. To date, activities in the country have not generated significant discoveries to emancipate Chile from import dependence.  However, in 2014, the government, led by Sebastián Piñera, created an energy agenda that would provide for a cleaner, cheaper and more sustainable power generation supply to meet long term growth needs, moving away from conventional, non-renewable sources.  One of the primary objectives of the initiative on the onset was to eliminate the re-tape hampering Non-Conventional Renewable Energy deployment and increase power generation by these resources to 45% of the country’s installed capacity by 2025.  Additionally, the government also strengthened the corporate governance system to support ENAP E&P productivity and efficiency.

The energy agenda re-started the solar energy research and development programme promoting industrial innovation, improved bidding process regulations and redesigned the long-term and short-term bidding conditions, making more competitive environments to attract new investors. In December 2015, the energy agenda was updated and renamed Energy 2050 Agenda with a cornerstone policy update of 70% of Chile’s energy sources to be supplied from non-conventional renewable energy sources.  The Chilean Government has made a concerted effort in developing policies and investing heavily in a sustainable energy future that has allowed the country to capitalise and lead in the rapidly developing energy transition space.

Currently, there are no sanctioned upcoming projects in the project pipeline over the next five years. However, there have been several discoveries in 2020 owing to GeoPark Ltd approximately $80m self-funded investment and work programme.  GeoPark, an independent oil and gas E&P company primarily operating in Latin America, embarked on the work programme to increase its production levels to an estimated 45,000boed net with operating netbacks of $210m to $230m at a Brent price of $30 per barrel.  Prior to the severe market dip caused by the Covid-19 pandemic, GeoPark discovered the Jauke Oeste in February 2020, which has already been put into production. The Jauke Oeste 1 discovery well was drilled to a total depth of 9,596ft in the Tobifera formation, part of the larger Dicky geological structure, with test production averaging of 4.4MMcfd of natural gas and 52bpd of condensate with a wellhead pressure of 3,141 pounds per square inch. Jauke Oeste is located 0.6 miles (1km) from the existing Jauke gas field, which is part of the Fell Block operated by GeoPark Ltd. who has 100% working interest (WI).

Additionally, two more discoveries were made in the Tierra del Fuego region. The Leun exploration prospect, which is under evaluation, was drilled to a total depth of 7,808ft targeting the Tobifera formation in the Flamenco Block where GeoPark has 50% WI. The Huillin exploration prospect in the Isla Norte Block where GeoPark has 60% WI was drilled to a total depth of 9,432ft targeting the Tobifera and Springhill formations.  The well was subsequently plugged and abandoned after petrophysical logging interpretation yielded non-commercial accumulations.  No additional discoveries were made, though a 2022 work programme and investment guideline are to be released.  Already production from Jauke Oeste has started declining resulting in only a temporary bump in 2020 and a declining outlook to 2025.

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Chile recorded several capital-raising activities in 2020 and 2021 with multiple deals across the oil and gas value chain.  Geopark completed two private placements for $350m and $150m of 5.5% senior notes maturing in 2027 on January 16, 2020, and April 23, 2020, respectively.  ENAP completed three debt offerings from 2020 to 2021. Two were public offerings of 0.5%  senior unsecured bonds for $183.5m and 1.6% series H bonds for $115.2m due in 2025 covering multiple sectors including upstream.  The transactions were completed on September 29, 2020, and January 9, 2021, respectively. ENAP also had a private offering due 2031 completed September 16, 2021, for gross proceeds of $560m of 3.45% notes supporting downstream and upstream sectors.

No upcoming oil and gas bid rounds have been announced by the Chilean Government, though GeoPark is likely to continue its exploration and production work program in 2022.  Notably, however, the country in Q3 2021 received ten bids in the world’s first national hydrogen tender, leveraging wind and solar renewable energy sources.  The Chilean Government as part of its national plan aims to become carbon neutral by 2050 and has seen bids from Enel Green Power, CAP, Engie, GNL Quintero, IMELSA Energa, Linde, Hydrogène de France, Sociedad de Inversiones Albatros, Air Liquide Chile and the Copenhagen Infrastructure Energy Transition Fund. The winning tender/s will receive up to $30m in project financing. The government will spend up to $50m and the project once the bid/s is selected is carded to commence hydrogen production by 2025 with a minimum capacity of 10MW per project. Hydrogen activity will focus on  Atacama and Antofagasta regions in the north, Valparaiso and Aysén in the central region and Magallanes in the south.

In a role reversal, Chile intends over the long term to become the world’s premier exporter of green fuel.  This initiative aligns with the country’s external global commitments. During the COP26 conference in Glasgow, United Kingdom in October 2020, Chile among 46 countries, five subnational and 26 organizations pledged in total or in part to the Global Coal to Clean Power Transition initiative.  In 2020 Chile had a coal cumulative capacity of 4,778MW expected to decrease to 3,332MW in 2025 and be replaced with greener options.