Oil and Gas

Last verified on Tuesday 12th June 2018

Colombia

Federico Chalela
Chalela Abogados
  1. 1.

    What is the legislation applicable to oil and gas activities in your country? Is it federal or state legislation, or both?

  2. While not organised with a federal form of government, territorial organisations (termed departments and municipalities) preserve regulatory powers in respect of certain aspects associated to the field conduction of oil and gas operations, in general. 

    National legislation and regulation enacted by the Congress and the National Hydrocarbons Agency (ANH), together with the relevant exploration and production contract, govern the authorisation to explore and produce hydrocarbons located in the subsurface owned by the Republic of Colombia.

  3. 2.

    Are oil and gas activities carried out by the state or a state-owned agency or national oil company?

  4. Administration of the non-renewable resources located in the surface is vested in the ANH. However, Ecopetrol SA, a government-controlled business entity, conducts upstream and midstream activities in a market driven environment.

  5. 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?

  6. While incorporation of an oil and gas company or formation of a domestic branch is not subject to governmental approval, oil and gas owned by the Republic of Colombia may only be explored and produced as a result of the authorisation granted by means of the ANH exploration and production contracts.

  7. 4.

    Identify the regulatory agencies charged with regulating oil and gas activities in your country and describe the role each agency plays in regulating such activities. 

  8. The following governmental agencies or entities are vested with some form of regulatory powers in the oil and gas activities:

    • ANH, entitled to manage the hydrocarbon resources, is vested with regulatory powers adopted by means of the board of direction rulings, and resolutions of the President of the Agency. In addition, ANH awards contracts which provisions govern the exploration and production (or the technical evaluation) in certain given areas and blocks.
    • Ministry of Mines and Energy is vested with regulatory powers in respect of the conduction of exploration and production operations, crude transportation via pipeline, oil and gas processing, and a number of other downstream activities.
    • Regulation Commission for Energy and Gas (CREG) is vested with regulatory powers in respect of the natural gas marketing from production (usually a wellhead), transportation and distribution.
    • Superintendency of Public Utility Services is vested with regulatory and oversight powers in respect of the agents conducting gas marketing from production, transportation and distribution

    Other agencies vested with regulatory powers issue regulation that may affect oil and gas activities: ‘Agencia Nacional de Licencia Ambientales’ and department or municipal environmental entities, on environmental affairs; Superintendency of Companies, on corporation affairs; among others.

  9. 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 hydrocarbons?

  10. Non-renewable resources located in the subsurface are nationally owned, except where individual ownership was recognised before. Oil and gas companies are deemed become the owners of the production on governmental control point

  11. 6.

    How are oil and gas exploration and production 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 production areas?

  12. Since 2004, ANH contracts follow a form of specific concession by means, either as an exploration and production contracts (an E&P contract) or as a technical evaluation contract (a TEA contract). Prior to 2004, Ecopetrol was entitled to manage the resources and opted form various forms of joint exploration forms of contract: the association contract (where production risk and (successful) exploration risk where shared); the joint venture or joint risk forms of contract; etc.

  13. 7.

    Is there a public bidding or similar process for oil and gas exploration and production licences? If so, is it open to foreign companies and investors?

  14. While not the only form of awarding an exploration and production contract, ANH most widely used process has been in the form of ‘open bidding processes’.

    Foreign companies and investors are usually permitted to participate in the ‘open bidding processes’ and meet the terms of reference requirements and conditions.

    However, upon execution (usually 60 days) foreign companies and investor are required, contractually and statutorily, to form a (non-incorporated) domestic branch.

  15. 8.

    Are there any minimum local content requirements related to international bidding processes?

  16. Terms of reference governing the ‘open bidding processes’ conducted by the ANH contemplate a number of standards that participants acting as operator of the contract have to be met (legal, financial, operational, environmental, HSE, workforce), part of which have to be met by participants acting with a non-operating working interest.

  17. 9.

    Are there any minimum capital or technical requirements related to international bidding processes?

  18. ANH sets out staggered capital and technical determined in light of the nature of the area or basin (onshore mature basis, onshore non-mature basins, onshore unexplored basins, offshore deep-water basins, offshore shallow-water basins, etc).

  19. 10.

    Are there any restrictions on foreign participation in such rights or concessions or in companies holding any such rights?

  20. No general rules have been enacted to restrict foreign participation in the exploration contracts.  Certain specific requirements have to be met in terms of legalisation of public documents issued abroad, translations for non-Spanish languages, formation of a domestic branch, public registration of the foreign investment increases and decreases, etc.

  21. 11.

    Are there any restrictions on the participation in such rights or concessions by state-owned entities or local national oil companies?

  22. No general rules have been enacted to restrict the participation of state-owned entities in the exploration and production contracts. These contracts, however, usually include a ‘diplomatic clause’ whereby the beneficiary waives any form of diplomatic protection.

  23. 12.

    Are companies or consortia that are awarded exploration and production rights given priority to operate and exploit the corresponding oil and gas fields? If so, how is such priority structured and documented?

  24. Companies awarded with a contract have been usually given an exclusivity commitment in respect of the subsurface block.

    Recent forms of exploration and production contracts have been limiting the extent of the exclusivity in a number of forms: ie, aggregated formations expressed in terms of depth or geological age; conventional or unconventional nature of the resources; etc.

    Statutory and contractual provisions govern potential unitisation rights or obligations in respect of wells that may transcend the surface limits of the area or block.

  25. 13.

    What rights does the holder of an exploration and production licence or concession have to the hydrocarbons discovered during exploration and subsequently produced? 

  26. The holder of an exploration and production license has the right to explore oil and gas resources located in the subsurface whose ownership is vested in the Republic of Colombia.

    In turn, these contracts grant the right to produce upon satisfaction of a number of conditions: reach TD with a given form of drilling; reach a given oil and gas finding potentially commercial; assess the extent of the finding to declare a discovery; and present a commercial notice of written declaration.

    Reserves discovered may be, subject to the applicable exchange of regulatory body rules, booked by the holders of an exploration and conduction contract.

  27. 14.

    May a holder of an exploration and production licence or concession transfer such right?

  28. Transfer of any such rights is permitted in the form of assignment of the contract, conditioned upon the approval of the ANH.

  29. 15.

    Who has title to assets imported to develop and produce hydrocarbons, including any technology or expertise provided by foreign participants in the local oil and gas sector? 

  30. Title to assets are usually vested in the company contributing the assets to the project.

    In the former joint operating forms of agreement, partners were required to contribute in proportion to each party working interest and ownership of the assets so contributed was vested in each working interest ownership in proportion of such interest.

  31. 16.

    How are federal, state and local governments recompensed for granting companies rights or concessions to conduct oil and gas exploration and production?

  32. Constitution sets out two types of compensations as a result of the conduction of oil and gas production activities.

    On the one hand, statutes set forth an incremental royalty system that, in turn the national government is required to allocate with the national, state and local governments.

    On the other hand, contractual compensations may be agreed upon in the relevant oil and gas agreement. Current exploration and production agreements of the ANH set forth:

    • Economic rights for the use of the subsoil;
    • Contribution to training, institutional strengthening and transfer of technology: usu. 25 per cent of the economic rights for the use of the subsoil in the exploration and evaluation period, and 10 per cent in the production period;
    • Monetary participation rights with respect to the production, whose percentage is usually determined as a result of the competitive bidding processes (and, in any case, at least 1 per cent);
    • Monetary participation in high prices situations, contingent upon the aggregate number of barrels produced, which threshold varies depending on the basin and nature of contract.
  33. 17.

    May companies or consortia that hold oil and gas exploration and production 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?

  34. Oil and gas activities are deemed as a “public benefit” activity and, pursuant to Act 1274 of 2009 land is required to tolerate statutory easements – including the right to build the necessary infrastructure – as required to conduct oil and gas exploration, production and transportation activities. 

    Ay such easement may be imposed as a result of a negotiation between the landowner and the oil and gas company and, in the event the negotiation is unsuccessful the company may initiate an expedite judicial process to obtain a preliminary authorisation for the easement, and a final determination of the monetary payments that, based on a formal appraisal, the company is required to pay to the landowner.

  35. 18.

    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 exploration and production activities?

  36. Crude oil and natural gas exploration activities are governed by the same contract and statutes. Royalties statutes, however, contemplate differentiated systems for crude oil and natural gas.

  37. 19.

    Do foreign ownership restrictions apply to the oil and gas sector in your country?

  38. No. As a national constitutional principle, foreigners enjoy the same civil rights of a Colombian citizen. 

    With respect to oil and gas activities, foreigners are entitled to participate in any bidding round initiated by the ANH. However, in order to become a party to an oil and gas contract foreigners are required to establish a branch in Colombia.

  39. 20.

    Are there any minimum domestic participation rules or any labour law rules relating to domestic and foreign workers?

  40. Non-qualified labor force shall be provided by persons located in area of the oil and gas project, and if qualified labour force is available in such area, at least 30 per cent shall be hired locally. 

    Pursuant to migration laws, foreigners are required to hold work visa, register with the national migration authority, and request foreign citizenship card. Such visa will only be granted if the foreigner can prove a valid labour contract. Employers, on the other hand, are required to meet certain information obligations in respect of such employees.

  41. 21.

    Are there any limitations on vertical integration in the oil and gas industry in your country?

  42. Oil and gas exploration, production and marketing (from the production) activities are not subject to integration. Downstream distribution and marketing are subject to certain integration restrictions, particularly with respect to natural gas markets.

  43. 22.

    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 undertaken in connection with such activities?

  44. ANH can award contracts for the exploration and production of hydrocarbons to: (i) national companies; (ii) foreign companies, which are then required to form a Colombian branch; (iii) public companies; (iv) private companies; or (v) partially state-owned companies

    Companies can participate individually, or by means of a consortium, temporary union or promesa de sociedad futura.

    In the consortium, the parties will be joint and severally liable for all the obligations under the contract. This also applies for temporary union, but in the case of temporary unions, the penalties for the breach of the obligations will be imposed according to the participation of each member of the union

  45. 23.

    May oil and gas reserves be pledged or encumbered to secure the repayment of debt? How?

  46. Oil and gas reserves are owned by the Republic of Colombia and cannot be transferred, pledged nor encumbered.  Ownership of oil and gas passes to the producing company on the governmental control point.

  47. 24.

    Can oil and gas rights that are subject to a lien be sold or transferred freely by the secured creditor? What issues, if any, do secured creditors face in enforcing liens on oil and gas rights?

  48. Oil and gas rights cannot be subject to a lien. Secured creditors may require a lien on the production, which can be then sold or transferred subject to the statutes applicable to security interests on movable assets. Accordingly, secured creditors may face certain issues taking over or enforcing the liens on the production.

  49. 25.

    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 or tariffs applicable?

  50. Colombian statutes do not restrict the exportation of crude oil. Natural gas exports are subject to strict regulation and may be restricted by the government. 

  51. 26.

    Are prices for oil and gas set or fixed by the government?

  52. Crude oil prices are not fixed by the government. Transportation services and other downstream sales are subject to a tariff-driven regulation.

    Gas prices are not fixed by the government but subject to a special set of regulatory rules for public utilities, some of which govern the structure of the price, some that frame the price formation process.

     

  53. 27.

    Are oil and gas exports taxed under the general income tax regime or is there specific hydrocarbons tax legislation?

  54. Crude oil sold in Colombia is subject to VAT, whereas natural gas is not. Oil and gas for export are exempted from VAT.

    No particular income tax benefits are granted for the oil and gas industry. However, free trade zone statutes may be applicable to offshore oil and gas activities (with an income tax rate of 20 per cent, and a special customs duties regime).

  55. 28.

    Do special environmental rules apply to oil and gas exploration and production?

  56. Seismic exploration is not subject to environmental permit; but drilling exploration and production is subject to an environmental permit. Oil and gas transportation activities is subject to environmental permits.

  57. 29.

    Are environmental regulations in your country consistent with any international standards?

  58. Act 99 of 1993, as amended from time to time, is deemed to be consistent and further universal and sustainable development principles contained in the Rio de Janeiro Declaration of 1992.

    As to technical regulation, most of the regulation is locally designed consistent with international standards such as ISO rules (for example, ISO 14001).

  59. 30.

    Do special health and safety rules apply to oil and gas exploration and production?

  60. Not applicable.

  61. 31.

    Must companies that participate 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) to operate in your country?

  62. See question 27.

  63. 32.

    Does the government (including any development banks or agency) provide financing, subsidy or other support to companies undertaking oil and gas exploration or production?

  64. No.

  65. 33.

    Are there any tax stability or similar regimes available to foreign investors undertaking investment in the oil and gas industry in your country?

  66. Act 1607 of 2012 contemplates contractual stability programmes. Currently, there are no tax stability regimes applicable to foreign investment in Colombia.

  67. 34.

    Are oil and gas activities generally protected under bilateral investment treaties entered into by your country?

  68. Oil and gas activities are generally protected (and not excluded) from the investment protection mechanisms agreed under existing BITs or MITs.

  69. 35.

    Are there any dispute resolution systems specific to the oil and gas industry? Does state immunity apply in such disputes?

  70. No. State immunity shall be waived under the exploration and production contracts.

  71. 36.

    Do anti-corruption or anti-money laundering rules apply to the oil and gas industry in your country? If so, what is the impact of breach of the regulations on hydrocarbon exploration and exploitation activities?

  72. Yes. General anti-corruption rules are applicable to the oil and gas industry. Moreover, participants in oil and gas bidding rounds are required to submit anti-corruption commitments for the prevention and monitoring of money laundering and financing of terrorism.

  73. 37.

    Has your jurisdiction adopted any legislation or regulations governing the exploitation of shale gas (fracking)? Are any special licences or environmental permits required for such activities?

  74. Source rock exploration and production activities are subject to specific terms and conditions. In addition, the Ministry of Mines and Energy has issued technical and procedural requirements that have to be met in the conduction of source rock exploration and production activities. Environmental authorities have adopted specific terms of reference for environmental permits applicable to source rock exploration and production activities.

  75. 38.

    Has your jurisdiction adopted any legislation or regulations governing ultra-deep-water exploration or drilling activities? Are any special licences or environmental permits required for such activities?

  76. Bidding processes including deep-water prospects usually contemplate particular terms and conditions with respect to offshore projects of such nature.

  77. 39.

    Have there been any recent material amendments to the laws, rules or regulations governing hydrocarbon exploration and exploitation? Have any new laws, rules or regulations governing hydrocarbons exploration and exploitation been passed in your jurisdiction?

  78. In the second quarter of 2017, the ANH issued a new set of rules governing bidding processes and individual requests of acreage for the conduction of oil and gas activities. These new rules contemplate a general registry for qualification of potential bidders and contractors, set forth general requirements for the participation in bidding rounds dependent on the applicable basin, regulate call options to source rock exploration and production activities in areas governed by contracts that do not contemplate the authorisation to explore and produce hydrocarbons from source rock, options to migrate commitments from one contract to a separate contract, among others.

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Questions

  1. 1.

    What is the legislation applicable to oil and gas activities in your country? Is it federal or state legislation, or both?


  2. 2.

    Are oil and gas activities carried out by the state or a state-owned agency or national oil company?


  3. 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. 4.

    Identify the regulatory agencies charged with regulating oil and gas activities in your country and describe the role each agency plays in regulating such activities. 


  5. 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 hydrocarbons?


  6. 6.

    How are oil and gas exploration and production 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 production areas?


  7. 7.

    Is there a public bidding or similar process for oil and gas exploration and production licences? If so, is it open to foreign companies and investors?


  8. 8.

    Are there any minimum local content requirements related to international bidding processes?


  9. 9.

    Are there any minimum capital or technical requirements related to international bidding processes?


  10. 10.

    Are there any restrictions on foreign participation in such rights or concessions or in companies holding any such rights?


  11. 11.

    Are there any restrictions on the participation in such rights or concessions by state-owned entities or local national oil companies?


  12. 12.

    Are companies or consortia that are awarded exploration and production rights given priority to operate and exploit the corresponding oil and gas fields? If so, how is such priority structured and documented?


  13. 13.

    What rights does the holder of an exploration and production licence or concession have to the hydrocarbons discovered during exploration and subsequently produced? 


  14. 14.

    May a holder of an exploration and production licence or concession transfer such right?


  15. 15.

    Who has title to assets imported to develop and produce hydrocarbons, including any technology or expertise provided by foreign participants in the local oil and gas sector? 


  16. 16.

    How are federal, state and local governments recompensed for granting companies rights or concessions to conduct oil and gas exploration and production?


  17. 17.

    May companies or consortia that hold oil and gas exploration and production 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?


  18. 18.

    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 exploration and production activities?


  19. 19.

    Do foreign ownership restrictions apply to the oil and gas sector in your country?


  20. 20.

    Are there any minimum domestic participation rules or any labour law rules relating to domestic and foreign workers?


  21. 21.

    Are there any limitations on vertical integration in the oil and gas industry in your country?


  22. 22.

    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 undertaken in connection with such activities?


  23. 23.

    May oil and gas reserves be pledged or encumbered to secure the repayment of debt? How?


  24. 24.

    Can oil and gas rights that are subject to a lien be sold or transferred freely by the secured creditor? What issues, if any, do secured creditors face in enforcing liens on oil and gas rights?


  25. 25.

    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 or tariffs applicable?


  26. 26.

    Are prices for oil and gas set or fixed by the government?


  27. 27.

    Are oil and gas exports taxed under the general income tax regime or is there specific hydrocarbons tax legislation?


  28. 28.

    Do special environmental rules apply to oil and gas exploration and production?


  29. 29.

    Are environmental regulations in your country consistent with any international standards?


  30. 30.

    Do special health and safety rules apply to oil and gas exploration and production?


  31. 31.

    Must companies that participate 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) to operate in your country?


  32. 32.

    Does the government (including any development banks or agency) provide financing, subsidy or other support to companies undertaking oil and gas exploration or production?


  33. 33.

    Are there any tax stability or similar regimes available to foreign investors undertaking investment in the oil and gas industry in your country?


  34. 34.

    Are oil and gas activities generally protected under bilateral investment treaties entered into by your country?


  35. 35.

    Are there any dispute resolution systems specific to the oil and gas industry? Does state immunity apply in such disputes?


  36. 36.

    Do anti-corruption or anti-money laundering rules apply to the oil and gas industry in your country? If so, what is the impact of breach of the regulations on hydrocarbon exploration and exploitation activities?


  37. 37.

    Has your jurisdiction adopted any legislation or regulations governing the exploitation of shale gas (fracking)? Are any special licences or environmental permits required for such activities?


  38. 38.

    Has your jurisdiction adopted any legislation or regulations governing ultra-deep-water exploration or drilling activities? Are any special licences or environmental permits required for such activities?


  39. 39.

    Have there been any recent material amendments to the laws, rules or regulations governing hydrocarbon exploration and exploitation? Have any new laws, rules or regulations governing hydrocarbons exploration and exploitation been passed in your jurisdiction?


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