OREANDA-NEWS. Colombia?s oil production is generally "unsustainable" at a price of $30/bl, and it "won't be easy" to meet an official 1mn b/d target for 2016, oil chamber ACP says.

The group warns that the country's tax regime, low oil prices and operational challenges are undermining the industry?s strength.

One oil industry economist told Argus that operators are closing oil projects and slashing services contracts in response to sub-$30/bl crude prices.

Operators in Colombia?s Middle Magdalena Valley, Arauca, Putumayo and eastern Llanos oil regions have been most affected.

In 2015, Colombia produced just over 1mn b/d crude, narrowly meeting the government's target.

"This is a decisive year for oil. If we don't convert this crisis into an opportunity, it's going to be very hard to recover momentum," the ACP says.

Oil companies operating in Colombia invested $650mn-700mn in exploration in 2015, half of $1.4bn invested in 2014.

Barring a rebound in oil prices, exploration investment should remain steady at around $700mn this year, according to the ACP.

The group is lobbying president Juan Manuel Santos' government to ease the country?s "uncompetitive" tax regime. Colombia takes around 70pc of companies' profits on average through taxes and royalties.

The finance ministry has pledged to introduce a tax reform this year.

Operational challenges also stand in the way of Colombia's 1mn b/d mark. The ACP reported 450 local blockades in 2015, unchanged from a year before.

Blockades spurred by community unrest and labor protests are the main cause of trapped production.

State-controlled Ecopetrol, Colombia?s largest oil producer, has come under particular pressure from the oil price collapse. Credit rating agency Moody's yesterday downgraded the company?s senior unsecured rating from Baa3 to Baa2 and cut the company's baseline credit assessment from Baa3 to Ba3. The ratings are on review for a further downgrade, the agency said.

"Ecopetrol's ratings downgrade was triggered by persisting stressed oil prices, which will continue to negatively affect the company's cash flow generation and credit metrics, increasing its credit risk. While Ecopetrol has no material debt coming due in the next two years, weaker cash generation and higher leverage, coupled with limited funding availability overall for the oil industry, will hurt the company's ability to continue with its capital spending program to sustain reserves and production," Moody's said.

Ecopetrol responded to the downgrade by pledging to further reduce costs in 2016.