Country to make fiscal and bidding changes as it looks to sweeten outlook for playersKathrine SchmidtHouston16 Mar 2018 00:00
Colombia aims to launch a new fiscal framework and bidding process by the end of the month aimed at making its oil and gas contracts more competitive.
The country’s National Hydrocarbons Agency (ANH) also aims to offer about 20 blocks to bidders by the middle of the year – potentially involving onshore, offshore and unconventionals – under that new regime, ANH president Orlando Velandia told Upstream on the sidelines of an industry conference.
Meanwhile, the ANH also expects to make awards by early April for its ongoing bid process in the onshore Sinu-San Jacinto basin, for which six companies have been qualified.
“Many of these measures that we adopted in 2015 and 2016 to confront the crisis of the fall in oil prices, we are working to establish as fixed and permanent in future contracts,” Velandia told Upstream. “We also aim to bring to the Congress of the Republic a series of fiscal measures to make us much more competitive in the Latin American environment.”
Colombia has in the past won praise for its investment climate, but its oil industry was hit especially hard by the market downturn.
In addition, while the Farc guerilla group signed a peace agreement in 2017, pipeline attacks by other groups, including the ELN, have persisted, and community activism against upstream activities has continued to flare.
Meanwhile, high-profile wildcats from the likes of Petrobras and Anadarko helped stoke optimism for the country’s offshore sector, but mixed results have since tempered that enthusiasm.
Anadarko revealed in its latest annual report that it accrued about $243 million in exploratory costs from its campaign in the area, and it cited “insufficient progress on contractual and fiscal reforms needed for deep-water gas development”.
However, Velandia highlighted a range of changes planned for Colombia’s new offshore bill, including tax discounts for making new investments.
The government will also establish three free trade zones to facilitate the import and export of goods, with savings that could represent a "significant impact" of 20%, Velandia said.
The ANH has also proposed raising the price ceiling at which a higher government take would kick in, allowing “a bigger margin of profitability” for companies.
Onshore, the new ANH regime intends to cut royalties for unconventional blocks by 40%. It is also aiming to introduce a new dispute-resolution mechanism that will allow the option for companies to transfer their investments to alternative areas if they cannot carry out activities due to above-ground risk.
The new “permanent” process of bid awards would aim to incentivise competition for areas, Velandia explained.
Once the government publishes its latest inventory of available blocks, the first company making an offer for a tract, including a work programme and government take, would see its offer and its eligibility verified within 10 days.
Other companies would then have 30 days to make counter offers. If none were made, the first company would take the block.
If a block offer were matched, the first company would have the change to improve its offer against the competition.
The idea is for the award process to take about two months, Velandia said.
For onshore, the blocks have an exploratory period of six years and 24 for production. For offshore, the term is nine years for exploration and 30 for production.
Of the 18 companies with offshore blocks at present, nine are working under technical evaluation agreements that do not require wells or seismic study.
The majority of those companies have expressed interest in moving onto a full exploration and production contract, Velandia said, but are awaiting the publication of the new terms before those are consolidated.
On the unconventionals front, environmental approvals are still pending for the production phase of early projects, he said.
As for above-ground difficulties with community activism, regulators saw a "wave" of local opposition emerge in the last year.
"We need to make adjustments to the prior consultation mechanism. But I think we are administering things in a better way," Velandia said.
"Today there is more tranquility in the communities. I can’t say the issue is completely surpassed but I think we have advanced with dialogue and information."
Despite the difficulties, Velandia said companies had favourably viewed the country's larger peace agreement, and the regulators remained optimistic about future potential.
"We think this will result in a better environment on the surface for their operations, that we can go into many regions where we haven’t been able to explore."
Kathrine SchmidtHouston Bureau ChiefUpstream, the International Oil & Gas Newspaper2 Memorial City Plaza820 Gessner, Suite 775