- 1.What is the legislation applicable to oil and gas activities in your country? Is it federal or state legislation, or both?
Colombia does not have a federal regime. It is a republic with a centralised national government.
Colombian legislation for oil & gas activities is mainly set forth in the Colombian Constitution, National Laws and the governmental regulations issued by the Colombian Mines and Energy Ministry (MME) and the Colombian National Hydrocarbons Agency (ANH).
Under articles 332 and 360 of the Colombian Constitution, the sub-soil and the non-renewable natural resources (ie, oil and gas) located within Colombian territory are property of the Colombian State, and the exploitation of such resources shall generate royalties to the benefit of the Colombian State.
The terms and conditions to exploit non-renewable natural resources, as well as the royalties third parties must pay for such exploitation, are determined by Law 141 of 1994, Law 756 of 2002, Decree 4923 of 2011 (for unconventional resources) and the relevant contract executed between the investor and the Colombian State.
The faculties, responsibilities and duties of the Colombian National Hydrocarbons Agency (ANH), as the governmental entity in charge of administering the country’s oil & gas resources, are set forth in Decree Law 1760 of 2003, as complemented and amended by Decree 2288 of 2004 and Decree 4137 of 2011.
The terms and conditions to award hydrocarbons exploration areas, directly or through competitive bidding processes, for the exploration and production of hydrocarbons, are mainly set forth in ANH’s Accord 008 of 2004 (as amended by other accords issued by the ANH).
Oil and gas activities are also regulated in the Colombian Petroleum Code, set forth in Decree 1056 of 1953 (as amended).
Technical regulations and definitions are set forth in resolution 1814195 of 2009 of the Ministry of Mines.
Environmental legislation to explore and exploit hydrocarbons is mainly set forth in Law 99 of 1993, Decree 2820 of 2010 and in the terms and conditions set forth in each environmental licence granted by the Colombian Environment Housing and Territorial Development Ministry (Environmental Ministry) to explore or exploit hydrocarbons.
New technical regulations are under discussion for the development unconventional resources.
- 2.Are oil and gas activities carried out by the state or a state-owned agency or national oil company (NOC)?
No. Subject to the legal royalty regime and the relevant granting instrument, any qualified local or foreign company may explore and exploit hydrocarbons in Colombia independently, without having to partner with the NOC or the Colombian state to undertake such operations.
Colombian laws and regulations set forth the principle of equal treatment of foreign and local investment, and both have the same legal rights to explore and exploit hydrocarbons in Colombia (subject to the legal royalties’ regime and the relevant granting instrument).
Until 2003, ECOPETROL SA (Ecopetrol), the Colombian NOC, acted in the double role of resource administrator and interested party in all exploration and production contracts of hydrocarbons in Colombian territory. Any private party wishing to explore or produce hydrocarbons had to enter into an association contract with Ecopetrol (essentially a production-sharing agreement where exploration risk was vborne by the private associate).
Pursuant to Decree 1760 of 2003, the role of resource administrator and regulator was spun-off to the ANH.
After the spin-off, Ecopetrol is treated as any other petroleum company and operator under the law, and is obliged to offer and bid like any other oil & gas company to acquire areas to explore and exploit hydrocarbons. However, it was allowed to keep all the areas and assets it directly operated before the spin-off, and all its interests in Association Contracts and other assets entered into or acquired before the spin-off (ie, pipelines and refineries).
- 3.Is oil and gas a regulated business that can only be carried out by companies that are licensed or that receive government concessions to operate?
Yes. As explained in the answer to question 1 above, the hydrocarbons located within Colombian territory are property of the Colombian state.
Thus, to explore and exploit hydrocarbons, a company needs to acquire such rights through a contract with the Colombian state (a Granting Instrument), which are essentially Exploration and Production (E&P) Contracts, or a Technical Evaluation Agreement with the ANH or contracts with Ecopetrol (a few older concession contracts signed prior to 1974 also subsist).
As of 2004, the ANH and Ecopetrol require companies wishing to enter into new contracts or to be assigned interests in contracts for the exploration and production of hydrocarbons to meet certain financial, technical and operational conditions. Depending on the vintage of each concession or granting instrument, such conditions may be more or less stringent.
The Colombian Mines and Energy Ministry (MME) must authorise local companies and branches of foreign companies undertaking exploration and production of hydrocarbons, or providing specialised services for such operations. This authorisation also allows them to benefit from special foreign exchange regulations.
- 4.What are the regulatory agencies charged with regulating oil and gas activities?
The ANH manages Colombia’s hydrocarbon resources and is charged with ensuring that their production benefits the country.
The MME is responsible for the overall regulation of the energy sector, including the adoption of the Colombian government’s policies on hydrocarbon exploration and production, and the technical regulation and oversight of upstream activities such as the drilling of exploration wells and inspecting the payment of royalties (which are based on production).
The Ministry of Environment, Housing and Territorial Development (MAVDT) is responsible for granting environmental licences for certain exploration and production activities, as well as for monitoring compliance with such licences and applicable environmental regulations.
- 5.Are all hydrocarbons in your country deemed to be originally owned by the state? If so, when does ownership transfer to the extractor or buyer of the hydrocarbon?
Yes. As explained above, under article 332 of the constitution, the state is the owner of the subsoil and all non-renewable natural resources.
Title to property over hydrocarbons is transferred to the concessionaire, according to the entitlement volume agreed in the relevant Granting Instrument, as soon as the hydrocarbon is lifted and available at the well’s mouth.
The transfer of property mentioned above has not been an obstacle for companies to certify reserves and secure reserve based loans in connection with Colombian E&P assets. The Colombian government allows companies to book reserves based on their rights under the relevant granted instruments, and in fact, companies with production must file reserve reports prepared under international standards with the ANH on a yearly basis.
- 6.How are oil and gas exploration rights or concessions granted? Is there more than one method for granting such rights (ie, concession and joint exploration agreements) or co-existing regimes applicable to different exploration or exploitation areas?
Colombian laws empower the ANH to grant areas for the exploration and production of hydrocarbons. Pursuant to ANH’s Accord 008 of 2004, there are three ways to be awarded an area for the exploration and production of hydrocarbons.
Direct contracting
In this type of contracting free areas are directly awarded to parties that meet certain legal, technical, financial and operational requirements set in Accord 008 of 2004 of the ANH (as amended). Direct awarding of areas is currently suspended by the ANH. At the time of writing this document, the ANH has announced a major amendment to Accord 008 of 2004 to be published in March 2012.
Open competitive bidding
Areas designated by the ANH as “special areas” or returned to the ANH upon termination of TEAs and E&P Contracts (as defined below) are awarded through competitive bidding processes normally called “rounds” The selection criteria varies for each process, but past rounds have been awarded on the basis of an additional government take offered to the ANH (X%), additional exploration investments (in excess of a minimum exploration commitment established by the ANH for particular areas) or both. Interested companies must evidence certain minimum legal, technical, operational and financial capacities defined in the terms of reference for each bidding process in order to qualify to bid.
Closed competitive bidding
Special areas with particular characteristics may be awarded through competitive bidding processes similar to those described above but in which companies may participate by invitation only.
The ANH enters into two types of agreements to grant parties the right to explore or exploit hydrocarbons in Colombia:
- Technical Evaluation Agreements (TEAs), which entitle the contracting party to evaluate the area via seismic acquisition and the drilling of stratigraphic wells. Parties to a TEA have the right to “convert” a limited acreage of the area originally under the TEA into an E&P Contract.
- Exploration and Production Contracts (E&P Contracts), which entitle parties to explore for hydrocarbons committing to a minimum exploratory program (usually seismic acquisition and exploratory wells) and developing and exploiting any discoveries made pursuant to such exploratory program. Parties must relinquish areas at the end of the E&P Contract’s exploration period, except for areas covering fields discovered during such period.
Interested parties may also farm-in into existing Granting Instruments, such as:
- ongoing E&P and TEA Contracts;
- Association Contracts entered into by Ecopetrol and other companies prior to 2003; or
- operating contracts of undeveloped fields Ecopetrol is not interested in operating directly.
To farm in and acquire all contractual interests in such Granting Instruments companies must obtain the prior authorisation of the ANH (or Ecopetrol if applicable).
- 7.Is there a public bidding or similar process? If so, is it open to foreign investors?
Yes. Please refer to the previous question. The ANH recently published the terms of reference for the Colombia 2012 Round, in which 109 exploration blocks are being auctioned.
- 8.Are there any minimum local content requirements related to international bidding processes?
- 9.Are there any restrictions on foreign participation in such rights or concessions or in companies holding any such rights?
No. As mentioned above, Colombian laws set forth an equal treatment principle for foreign and local investment.
Please note that companies incorporated abroad must establish a branch in Colombia to undertake permanent activities, such as the exploration and production of hydrocarbons.
- 10.Are there any restrictions on the participation in such rights or concessions by local national oil companies?
- 11.Are companies or consortia that are awarded exploration rights given priority to operate and exploit the fields? How is priority structured and documented?
Under TEAs, the contractor has the right to conduct a technical evaluation of the awarded block and may convert the TEA into an E&P Contract covering all or part of an area (up to a maximum acreage set forth in Accord 008). However, third parties may offer to enter into an E&P Contract over all or part of the block under the TEA too. The holder of the TEA has a contractual right to match the exploration program offered by the third party and in such case will be given a priority to enter into an E&P Contract.
Blocks awarded in bidding rounds have been awarded under “Special TEAS” where the holder of the TEA has an exclusive conversion right. After the holder of the TEA has exercised this right up to the maximum acreage permitted by applicable regulations, third parties or the holder may propose E&P Contracts for any acreage remaining of the original TEA and the holder may or may not have the right to match depending on who proposes the E&P Contract.
Under an E&P Contract, parties have an exclusive contractual right to explore and exploit the contracted area.
- 12.Who has title to assets imported to develop and produce petroleum hydrocarbons?
Under Colombian law, assets imported by any private party are the property of such party. However, pursuant to the terms of the ANH’s E&P Contract, upon termination of the contract the contractor’s assets that are permanently allocated to production operations will revert to the ANH at no cost, provided that the contract has been in the production phase for at least 18 years. A similar provision is set forth in Association Contracts entered into with Ecopetrol.
The contractor may freely dispose of its assets that are located before the point of delivery of crude to the ANH and are not essential for production. However, after the contract has been in production for 18 years or 80 per cent of the blocks proven reserves have been produced (whatever happens first), the contractor may not dispose of such assets without the ANH’s consent.
- 13.How are federal, state and local governments recompensed for granting companies rights or concessions to conduct oil and gas exploration and production?
During the exploration period, the ANH collects a “surface fee” which varies between US$1.66 and US$4.95 per hectare depending on the size of the area under exploration and the duration of the relevant exploration phase.
During the production period, the ANH collects a royalty which varies between 8 per cent and 25 per cent of production. If the area has produced more than 5 million barrels and the WTI price exceeds a reference price set out in the contract and updated every year, ANH receives an additional payment. The ANH may also receive an additional royalty if bid by the contractor in a competitive process.
The royalties are shared with non-producing regions and Congress recently enacted a law to “spread the jam”, amending the Constitution in order to share an increased share of the royalties with them and to exercise greater control over the spending of such royalties.
Local governments also directly benefit from the Industry and Commerce Tax levied on services provided within their territory, and which usually amounts to 1.5 per cent of the services, or lower if the tax base is calculated according to a lower base provided by law (such as civil constructions and drilling services).
- 14.May companies or consortia that hold oil and gas exploration rights compulsorily acquire property or rights of way to carry out exploration or production activities? Are these compulsory acquisitions governed by special judicial or administrative proceedings?
Yes. Law 1274 of 2009 establishes an expeditious procedure for the judicial determination of the compensation to be paid by E&P companies for the easements and rights of way necessary to explore, exploit, transport or manage hydrocarbons. A prior attempt to negotiate with owners or occupiers is required under the mentioned law.
- 15.Are natural gas exploration and production activities regulated separately or subject to the same regulation applicable to oil exploration and production? Are there different royalties or other government charges payable by companies that conduct natural gas production activities?
The exploration and exploitation of natural gas is, in most terms, subject to the same regulation applicable to oil exploration and production. However, the following differences exist.
Royalties
For gas fields on land or located off-shore at depths equal or less than 1,000 feet, the royalties applicable are equivalent to 80 per cent of the royalties applied to onshore light and semi-light crude fields. If the gas field is located off-shore at depths greater than 1000 feet, the royalties applicable are equivalent to 60 per cent of the royalties applied to onshore light and semi-light oil fields. In this case, one barrel of oil is equivalent to 5,700 cubic feet of gas.
Shale gas
Unconventional Hydrocarbons, such as shale gas, pay royalties equivalent to 60 per cent of the royalties applied to onshore light and semi-light crude fields.
Contractual Terms
E&P Contracts and other Granting Instruments set forth less stringent terms to retain areas to undertake the evaluation of gas discoveries, a greater production volume of BOE of Gas to trigger the high prices additional take, and less additional take in case of extension of E&P Contract.
It is worth noting that Decree 4923 of 2011, which sets forth a 40 per cent discount for royalties applicable to non-conventional hydrocarbons (NCHs), mentions the following as NCHs:
- coal bed methane;
- shale gas;
- oil shales;
- tar sands; and
- tight sands.
Coal bed methane is explicitly excluded from most E&P Contracts, including those of the upcoming Colombia Round 2012.
- 16.Do foreign ownership restrictions apply to the oil and gas sector in your country?
No. Please refer to our answers to the previous questions.
- 17.Are there any minimum domestic participation rules or any labour law rules relating to domestic and foreign workers (eg, permits for foreign workers)?
Currently there are no minimum domestic participation rules. Article 74 of the Colombian Labor Code, which previously contained minimum domestic participation quotas was recently abolished.
Visa requirements do exist.
- 18.Does local law mandate a particular entity with authority over the sector?
No. National law provides a mandate to the ANH and the MME as mentioned in the answer to question 1 above.
- 19.Are there any limitations on vertical integration in the oil and gas industry?
Pursuant to general antitrust laws and regulations (among others, Law 1340 of 2009) the Superintendence of Industry and Commerce (SIC) must authorise horizontal and vertical integrations in the oil and gas industry.
If the integration is below certain asset and revenue thresholds, or the integrated entity will hold less than 20 per cent of the relevant market, authorisation of the SIC will not be required and granting notice is sufficient.
- 20.Are oil and gas activities carried out through incorporated entities with limited liability or by consortia or other types of unincorporated joint ventures? Are joint venture partners jointly and severally liable for the obligations undertaking?
Oil and gas activities may be carried out through incorporated entities with limited liability (corporations, LLCs, etc), and by unincorporated joint ventures such as consortiums and Temporary Unions.
E&P Contracts set forth that members of joint ventures are jointly and severally liable, vis-à-vis the ANH, third parties and the Colombian Government, for damages or liabilities arising from operations and for the compliance of the relevant E&P Contract.
However, members of a joint venture may allocate responsibilities and liabilities vis-à-vis among themselves freely (ie, in a Joint Operating Agreement). If such allocation is set forth in an agreement under Colombian law, the parties cannot waive (condone) their right to future remedies or indemnity arising from the other party’s gross negligence or willful misconduct.
- 21.May oil and gas be pledged or encumbered to secure the repayment of debt? How?
Yes. The “entitlement” or rights of a party to a share of production under E&P Contracts may be encumbered to secure loans.
Security for Reserve Based Loans is usually structured through: (i) the pledge to the shares of the entity owning the contractual interest in the E&P Contract or other relevant Granting Instrument; and (ii) the encumbrance of the “entitlement” or economic rights already vested or to be vested upon a party pursuant to operations under an E&P Contract.
- 22.Can oil and gas rights that are subject to a lien be sold or transferred freely by the secured creditor?
This depends on the type of lien agreed and whether or not it provides restrictions to the transfer of the property subject to the lien. In principle, encumbered property may be transferred under Colombian law, unless provided otherwise by law or the relevant agreement.
- 23.Is oil and gas output freely exportable in your country? Are there any limits or quotas applicable to oil and gas production? Is there access to export pipelines? What licences are required for oil and gas exports? Are duties applicable?
Oil and gas may be freely exported subject to certain contractual and regulatory limitations. Firstly, pursuant to the Petroleum Code and subsequent regulations, E&P companies may be required to sell their production in Colombia to supply the domestic refining demand. In this case, the crude shall be paid at international with prices as established by Resolution 18-1709 of 2003 of the MME.
According to Decree 2100 of 2011, gas may be freely exported. However, exports (including new export agreements) may be limited if the gas is needed to satisfy domestic supply. In such case, producers will be paid the opportunity cost by those agents who are nto able to meet their commitments or did not contract sufficient firm capacity.
- 24.Are prices for oil and gas set or fixed by the government?
The parties may freely determine oil prices.
Prices of gas produced in the Guajira and Opon fields and sold domestically are capped by regulations issued by the Regulatory Commission for Energy and Gas (CREG).
Prices of gas produced in new fields and sold domestically can be freely determined although the sale of gas under firm contracts must be made by public auction pursuant to CREG resolution 118 of 2011. The prices of gas for export are freely established.
- 25.Are oil and gas exports taxed under the general income tax regime or is there specific petroleum tax legislation?
Oil and gas exports are subject to the general income tax regime.
- 26.Do special environmental rules apply to oil and gas exploration and production?
No. Decree 2820 of 2010 issued by the MAVDT establishes the basic procedures and requirements to obtain an environmental license for several activities including oil and gas exploration, and production.
There are specific terms of reference for the preparation of environmental impact assessments for oil and gas projects (which need to obtain environmental licenses).
Applicable environmental standards to the oil and gas industry, such as effluent and emissions standards, also apply to other industries and depend on the activity but not on the industry.
- 27.Are environmental regulations in your country consistent with any international standards?
- 28.Must companies in the oil and gas industry obtain special environmental or other government permits (other than licences or concessions to carry out oil and gas exploration and production) in to operate in your country?
If there are indigenous or African-Colombian territories or communities in the area of influence of the project, these communities will have to be consulted and agreements procured to mitigate the social and environmental impact of the exploration or production project in the areas where such communities live.
- 29.Does the government (including any development banks or agency) provide financing, subsidy or other support to companies undertaking oil and gas exploration or production?
- 30.Are there any tax stability or similar regimes available to foreign investors undertaking investment in the oil and gas industry in your country?
Law 963 of 2005, regulated by Decree 2950 of 2005 established the possibility for private investors to enter into legal stability contracts. These agreements are entered into with the respective ministry in charge of the sector where the investment is targeted. The purpose of these agreements is to promote fresh foreign or local investments in certain business areas such as tourism, mining, oil, energy and infrastructure, among others.
These agreements have the purpose of guaranteeing the application of a stable legal framework for the investor. As consideration for such stability, investors undertake to make a payment of a premium ranging from 0.5 per cent to 1 per cent of the amount to be invested.
The stability agreements shall specify the exact regulations applicable at the time of execution in order for these to be applied without change during a period of no less than three years and not exceeding 20 years.
- 31.Are oil and gas activities generally protected under bilateral investment treaties entered into by your country?
Yes. Oil and gas activities are generally protected under BITs or Bilateral Trade and Investment Agreements. Colombia has entered into the following treaties: Cuba, Chile, Canada Peru, United Kingdom, China, Spain, USA, Canada and the Belgium-Luxembourg Economic Union.
- 32.Are there any dispute resolution systems specific to the oil and gas industry? Does state immunity apply in disputes?
There are no dispute resolution systems specific to the oil and gas industry. Disputes under E&P and Association Contracts are submitted to arbitration in Colombia and under Colombian law taking into account the nature of the parties (a state entity and a Colombian branch of a foreign company or corporation).
E&P Contracts set forth an amicable resolution stage and arbitration under the rules of the Chamber of Commerce of Bogota.
- 33.Do anti-corruption rules apply to the oil and gas industry?
Contributing Authors
Contributing Editor
Carlos Albarracín
Chadbourne & Parke LLP
Questions
- 1.What is the legislation applicable to oil and gas activities in your country? Is it federal or state legislation, or both?
- 2.Are oil and gas activities carried out by the state or a state-owned agency or national oil company (NOC)?
- 3.Is oil and gas a regulated business that can only be carried out by companies that are licensed or that receive government concessions to operate?
- 4.What are the regulatory agencies charged with regulating oil and gas activities?
- 5.Are all hydrocarbons in your country deemed to be originally owned by the state? If so, when does ownership transfer to the extractor or buyer of the hydrocarbon?
- 6.How are oil and gas exploration rights or concessions granted? Is there more than one method for granting such rights (ie, concession and joint exploration agreements) or co-existing regimes applicable to different exploration or exploitation areas?
- 7.Is there a public bidding or similar process? If so, is it open to foreign investors?
- 8.Are there any minimum local content requirements related to international bidding processes?
- 9.Are there any restrictions on foreign participation in such rights or concessions or in companies holding any such rights?
- 10.Are there any restrictions on the participation in such rights or concessions by local national oil companies?
- 11.Are companies or consortia that are awarded exploration rights given priority to operate and exploit the fields? How is priority structured and documented?
- 12.Who has title to assets imported to develop and produce petroleum hydrocarbons?
- 13.How are federal, state and local governments recompensed for granting companies rights or concessions to conduct oil and gas exploration and production?
- 14.May companies or consortia that hold oil and gas exploration rights compulsorily acquire property or rights of way to carry out exploration or production activities? Are these compulsory acquisitions governed by special judicial or administrative proceedings?
- 15.Are natural gas exploration and production activities regulated separately or subject to the same regulation applicable to oil exploration and production? Are there different royalties or other government charges payable by companies that conduct natural gas production activities?
- 16.Do foreign ownership restrictions apply to the oil and gas sector in your country?
- 17.Are there any minimum domestic participation rules or any labour law rules relating to domestic and foreign workers (eg, permits for foreign workers)?
- 18.Does local law mandate a particular entity with authority over the sector?
- 19.Are there any limitations on vertical integration in the oil and gas industry?
- 20.Are oil and gas activities carried out through incorporated entities with limited liability or by consortia or other types of unincorporated joint ventures? Are joint venture partners jointly and severally liable for the obligations undertaking?
- 21.May oil and gas be pledged or encumbered to secure the repayment of debt? How?
- 22.Can oil and gas rights that are subject to a lien be sold or transferred freely by the secured creditor?
- 23.Is oil and gas output freely exportable in your country? Are there any limits or quotas applicable to oil and gas production? Is there access to export pipelines? What licences are required for oil and gas exports? Are duties applicable?
- 24.Are prices for oil and gas set or fixed by the government?
- 25.Are oil and gas exports taxed under the general income tax regime or is there specific petroleum tax legislation?
- 26.Do special environmental rules apply to oil and gas exploration and production?
- 27.Are environmental regulations in your country consistent with any international standards?
- 28.Must companies in the oil and gas industry obtain special environmental or other government permits (other than licences or concessions to carry out oil and gas exploration and production) in to operate in your country?
- 29.Does the government (including any development banks or agency) provide financing, subsidy or other support to companies undertaking oil and gas exploration or production?
- 30.Are there any tax stability or similar regimes available to foreign investors undertaking investment in the oil and gas industry in your country?
- 31.Are oil and gas activities generally protected under bilateral investment treaties entered into by your country?
- 32.Are there any dispute resolution systems specific to the oil and gas industry? Does state immunity apply in disputes?
- 33.Do anti-corruption rules apply to the oil and gas industry?
© Law Business Research Ltd 1998-2012. All rights reserved.
Company No.: 03281866
IMPORTANT: Please read our Terms & conditions.
W11 1QQ, UK
