Colombia Awards Blocks in Heavy Oil Round; Reconsiders New Oil Tax

Colombia Awards Eight Heavy Oil Blocks

The National Hydrocarbons Agency (ANH) has announced the award of eight heavy oil blocks in the eastern zone of the eastern Llanos. The ANH said in a statement that technical evaluation contracts (TEAs) would be signed in the coming months. The state oil company Ecopetrol came away with the largest number of blocks, winning two in association with the Anglo-Dutch major Shell and one with Canada's Talisman. Ecopetrol announced in July 2007 that it had formed a partnership with Shell to explore for heavy oil in the eastern Llanos and Shell's participation in the round will be seen as a reaffirmation of the company's interest in Colombia's heavy oil potential. However Shell was not the only major to come away with a block, ExxonMobil also won the rights to CPE-3. The presence of the Canadian company Pacific Rubiales, which won two blocks, was also significant as this company has been expanding its presence in the Colombian hydrocarbons sector recently. President Alvaro Uribe yesterday welcomed the award of the contracts saying that there were expectations of good oil discoveries.

Participation in the heavy oil licensing round was by invitation only. However, other rounds planned this year will be open to more companies. The ANH plans to offer a total of 151 blocks in licensing rounds planned for 2008.

Government Re-Evaluates Oil Tax, According to Report

Meanwhile, a report in Portafolio last week indicated that the government would revise a proposal for a new oil tax intended to raise additional revenue to fund a fuel subsidy. According to the report, the decision was taken during a meeting between the Mines and Energy Minister Hernán Martínez and representatives of oil companies operating in the country, who expressed concerns that the proposal would reduce the sector's competitiveness and return the tax burden to the level seen in the former association contract model, which was less attractive for investors.

Outlook and Implications

The rise in resource nationalism seen across the region in recent years means that any sign of a shift in policy is of particular concern to foreign investors. This is particularly the case in Colombia as the investment boom in the hydrocarbons sector of the past few years has been attributed in large part to earlier fiscal reforms that made the sector more attractive. The potential negative impact on investment of a change to the fiscal regime for oil companies operating in Colombia was also a concern because unlike Brazil, another country that is considering increasing the state's share of hydrocarbon revenue, the increase in oil production seen in Colombia over the past few years has been mainly as a result of small and medium-sized discoveries and these types of fields require a more favourable legal framework to make them attractive to investors than large fields.

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