On February 19, Colombia’s National Hydrocarbons Agency (the ANH) and Ministry of Mines and Energy officially launched Colombia Open Round 2014, under which hydrocarbons blocks will be offered to Colombian and international oil and gas companies at an auction scheduled for July 2014.

According to the provisions of the draft Terms of Reference published by the ANH1 in the last week of February for feedback and comments from interested parties, a final version of which will be published together with the final contracts on April 11, the ANH will be offering a total of 89 areas in this new selection process, 76 of which are inland areas and 13 are offshore areas (for a total of 16,662,213 hectares).

The areas have been classified by the ANH under three categories defined in terms of the available technical information and geological knowledge, as follows:

  • Type 1 Areas: located in mature basins and for which extensive geological knowledge is already available. The ANH will offer a total of 47 Type 1 areas, of which 41 are inland areas and six are offshore. Of the 41 inland areas, 11 correspond to already discovered deposits.
  • Type 2 Areas: located in basins with new prospectivity, for which ANH affirms that some geological knowledge is available. The ANH will offer a total of 19 Type 2 areas, which in their entirety are inland areas classified as prospects for unconventional deposits.
  • Type 3 Areas: located in frontier basins, for which the ANH says it has little or no geological knowledge. These Type 3 areas, as opposed to the Type 1 and 2 areas, which will be allocated through exploration and production (E&P) contracts, will be granted only under Technical Evaluation Agreements (TEAs). The ANH will offer a total of 23 Type 3 areas, of which 16 are inland areas and six are offshore. All the Type 3 areas are rated as prospective conventional deposits.

One of the most important aspects of Colombia Open Round 2014 is that it plans to offer different types of areas as well as require different levels of technical and financial qualifications for the bidders for each type of area. This should in principle generate a more varied and active investor participation. In fact, Colombia Open Round 2014 includes not only inland and offshore areas, but also areas with prospectivity for: (i) deposits discovered but not yet developed; (ii) conventional deposits, and (iii) unconventional deposits.

Technical and financial requirements

In terms of requirements for the qualifications and capabilities that must accredited by the bidders, the preliminary Terms of Reference distinguish between the capabilities that must be evidenced by those companies that wish to be qualified as operators and those who only wish to participate through investment in the project.
Because the operator must always hold a stake of at least 30%, the operating companies must demonstrate the following capabilities: (i) legal, (ii) economic-financial, (iii) technical-operational, (iv) environmental, and (v) corporate social responsibility.

The requirements for accrediting economic-financial and technical-operational capacities vary depending on the area, i.e., depending on whether they are areas for discovered deposits, conventional deposits (both for E&P or TEA), or for unconventional deposits and offshore areas (both for E&P and for TEA). The same goes for the minimum exploration programs that must be performed by those bidders who are successful in their offers, in the sense that they vary depending on the area to be developed. Finally, bidders interested in participating as investors but not operators must evidence only their legal capacity and their economic and financial capacity.

The ANH has foreseen that the award criteria in Colombia Open Round 2014 will also be defined by the type of area for which the bid is made. In particular, the criteria are determined as follows:

Click here to view table.

Furthermore, in regard to the contractual terms and conditions that will apply to the successful bidders, the ANH has already stated there will be certain changes to the existing E&P and TEA models.

In particular, changes have been announced regarding the phases of the exploration stage of contracts for unconventional deposits that seek to give the contractor more time to advance with its exploration commitments (going from six to nine years). Likewise, the term of the production stage in the contracts for unconventional deposits will be extended so as to have a duration of 30 years in addition to the nine years of the exploration stage.

Revised fee and royalty structure

The ANH has also announced changes to some of the economic considerations to be paid by contractors. In particular, the ANH has contemplated a modification of contracts for offshore areas that seeks to increase the number of barrels produced and raise the base oil price that trigger the obligation to pay a surcharge (derecho económico por concepto de precios altos). The variation both in the number of barrels and in the base oil price may vary depending on the depth of the wells (deep or ultra-deep water).

Along the same lines, the ANH will also be modifying the model contract for the exploration and production of hydrocarbons from unconventional deposits by increasing the base price that triggers the obligation to pay a surcharge for higher oil prices and giving a 40% discount over the rates applicable to royalties paid for oil from conventional reservoirs.

Coalbed methane

Finally, the ANH has announced that on June 30, 2013, the agency will begin the process of awarding eight additional areas totaling 1,265,892 hectares that are to be allocated for exploration and production of coalbed methane (CBM). This award process, which will take place during the second half of this year, will form part of the same Colombia Open Round 2014.

The terms of reference defining the conditions for the assignment of the CBM areas will be published by the ANH on that same day, June 30; however, it has already been mentioned that the mining companies holding mining rights over the areas to be awarded will have the right of first refusal to contract, provided certain conditions regarding experience are met.

The Colombia Open Round 2014 process schedule follows below.

Click here to view table.