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Colombia

Published on Wednesday 12th June 2019

    • Colombia

      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 (issued by the ANH), govern the authorisation to explore and produce hydrocarbons located in the subsurface owned by Colombia.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

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

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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 Licencias Ambientales’ and department or municipal environmental entities, on environmental affairs; Superintendency of Companies, on corporation affairs; among others.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      Non-renewable resources located in the subsurface are state owned, without prejudice to the rights acquired, and recognised according to pre-existing laws. Oil and gas companies are deemed become the owners of the production on governmental control point.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      As from February 2019, the ANH implemented a Permanent Competitive Bidding Procedure for Allocation of Areas (PPAA), with the purpose to permanently offer future investors the possibility to execute TEAs or E&P contracts under determined areas suggested by the ANH or by the investors themselves.

      Foreign companies and investors are permitted to participate in the PPAA as long as they meet the terms of reference requirements and conditions. However, upon execution of the respective contract (usually 60 days) foreign companies and investor are required, contractually and statutorily, to form a (non-incorporated) domestic branch.

      Previously to the PPAA, the ANH used ‘open bidding processes’ for awarding contracts.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      Terms of reference governing the PPAA conducted by the ANH contemplate a number of standards that participants acting as singular bidders or as operator of plural bidders of a contract have to be met (legal, financial, technical and operational, environmental, HSE, workforce), part of which has to be met by participants acting with a non-operating working interest.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      The ANH sets out staggered capital and technical determined in light of the nature of the area or basin (continental – prospective for the development of trap reservoirs (mature, emerging or immature); offshore – prospective for the development of reservoirs in traps or conventional; continental – prospective for hydrocarbon source rock reservoirs; discovered undeveloped reservoirs and returned producing areas in continental areas; undeveloped discovered reservoirs and returned producing areas, in offshore or prospective areas for accumulation in source rocks, etc).

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      The holder of an exploration and production license has the exclusive right in the assigned area to explore and develop exploratory activities, to make the investments required for such purpose, as well as to produce the hydrocarbons whose ownership is vested in the Republic of Colombia.

      Additionally, contractor is entitled to the percentage of production that may correspond to it in the assigned area, according to the terms of the corresponding license.

      Said percentage of production is granted 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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

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

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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);
      • additional monetary participation rights with respect to production during amendments of the production period: 10 per cent of the value of the base production of liquid hydrocarbons from reservoirs in traps and/or 5 per cent of hydrocarbons from source rock reservoirs, non-associated natural gas; heavy or extra heavy liquid hydrocarbons or hydrocarbons coming from offshore reservoirs; 
      • monetary participation in high prices situations, contingent upon the aggregate number of barrels produced, whose threshold varies depending on the basin and nature of contract.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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. 

      Any 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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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 the PPAA or any bidding round initiated by the ANH. However, to become a party to an oil and gas contract foreigners are required to establish a branch in Colombia.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      Non-qualified labour 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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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. 

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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).

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

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

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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 it is locally designed consistent with international standards such as ISO rules (for example, ISO 14001 and ISO 26000).

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      Article 365 of Law 1819 of 2016, implemented an incentive known as a Tax Reimbursement Certificate (CERT), to taxpayers increasing investments in hydrocarbons and mining exploration and exploitation. CERT corresponds to a percentage of the increase value, that is not constitutive of tax income or occasional gain and may be used for the payment of national taxes.

      Decree 2253 of 2017, establishes the conditions that must be met by the companies intending to make use of the CERT incentive.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      Yes. Generally, they are multilateral and bilateral investment treaties entered into by Colombia do not usually exclude the industry from the protection mechanisms.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      No, however, E&P and TEA contracts entered into with the ANH stipulate arbitration for dispute resolution. State immunity shall be waived under such contracts.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      The Ministry of Mines and Energy has issued certain regulations stating the criteria and procedures for the exploration and exploitation of unconventional reservoirs: Decree 3004 of 2013 modified by Decree 2638 of 2014, Resolution 90341 of 2014 and Single Regulatory Decree 1073 of 2015. The Ministry of Environment and Sustainable Development issued Resolution 0421 of 2014 which addresses environmental concerns for the exploration of such reservoirs and ANH issued Agreement No. 3 of 2014 and Agreement No. 2 of 2017, which include the set of rules for unconventional reservoirs. Notwithstanding there is a broad regulation for exploration and production of unconventional resources, additional complementary environmental regulations are still required in order to produce said resources.

      The National Environmental Licensing Authority (ANLA) must grant environmental licences allowing companies to develop unconventional reservoirs.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

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

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

    • Colombia

      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.

      Answer contributed by Federico Chalela from Chalela Abogados

      Last verified on Wednesday 10th July 2019

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