Colombia is an oil-rich country with a significant potential for value creation through the application of modern technology and exploitation strategies to undercapitalized producing fields. Alongside this potential, in the last decades the Colombian government has demonstrated its willingness to encourage needed foreign participation in new exploration projects, especially with the introduction of a new legal framework and regulatory regime favorable to participation of foreign companies.
The regulatory regime in Colombia underwent a significant change effective in June 2003 with the formation of ANH, which is now responsible for managing areas where hydrocarbons can be found in Colombia and is tasked with significantly increasing the amount of new exploration and production in the country. ANH began offering all undeveloped and unlicensed exploration areas in the country under two new contract types: exploration and production contracts, which provide companies with 100% of new production, (subject to a royalty payment between 8% and 25%, an economic rights for high oil prices, and a surface fee) according to Law 756 of 2002, as amended by Decree 4923 of 2011, and TEAs, which provide companies with low-cost access to larger areas for preliminary evaluation prior to committing to broader exploration programs.
Moreover, on May 4, 2012, the ANH released Accord 04 of 2012 whereby the procedures for awarding of areas were substantially modified. As of such date, areas will be generally allocated through competitive processes and exceptionally by direct contracting. Additionally, Accord 04 of 2012 modified the qualification of proponents and introduced additional requirements. Environmental and corporate social responsibility capacities were added to the requirements that proponents shall comply to explore and produce hydrocarbons in Colombia. Pursuant to such accord, the competitive process can be conducted either by public bidding process (open procedure or “rounds”, where a participation over the contract is requested instead of payment of money) or by invitation of a determined group of companies (closed procedure).
The exploration and production contracts have significantly changed the manner the industry views Colombia. In place of the earlier association contracts where ECOPETROL (The Colombian National Oil Company) had an immediate back-in to production, the new agreements are considered as a modern form concession agreement which provide full risk/reward benefits for the operator. Under the terms of these contracts the operator will retain the rights to all, production and income from any new exploration block, subject to existing royalty and income tax regulations with a windfall profits provision and a percentage over the production that is offered by the interested contractor within the competitive process.
Additionally, the U.S.-Colombia Trade Promotion Agreement which entered into force on May 15, 2012 has contributed to further Colombia’s growth curve. This agreement improves legal security and the investment environment and grants investors the right to establish, acquire, and operate investments on an equal footing with local investors and investors of other countries with bilateral investment treaties or investment chapters in free trade agreements with Colombia.
Regarding dispute resolution mechanisms, foreign investors have found the arbitration process in Colombia complex and dilatory, especially with regard to the enforcement of awards. In October 2012 the new National and International Arbitration Statute (Law 1563 of 2012) entered into force. The Law is modeled after the United Nations Commission on International Trade Law. Colombia is a member of the New York Convention on Investment Disputes, the International Center for the Settlement of Investment Disputes (ICSID), and the Multilateral Investment Guarantee Agency (MIGA). This gives investors recourse to international arbitration, both commercial and investment-state arbitration, granting foreign investors with an impartial, transparent, binding and effective dispute resolution mechanism for breach of contracts and investment agreements.
These, among other regulatory and political changes, have made Colombia one of the most attractive countries in which to carry on business.