8 April 2010
The Colombian National Hydrocarbons Agency (ANH), Colombia’s hydrocarbons regulator, is promoting the Open Round Colombia 2010 for investment in Colombia’s hydrocarbons sector. Colombia is one of the largest oil producers in South America, with a production rate of approximately 800,000 barrels per day. The country’s reserves at the end of 2009 were estimated at 2.5 billion barrels.
In the upcoming June 2010 bidding round, ANH is offering a total of 225 onshore and offshore blocks, which cover an estimated area of 47 million hectares, or 117 million acres. ANH is offering three types of blocks in this round:
(i) Area type 1. This area comprises 138 onshore blocks in mature basins. These blocks are available for Exploration and Production contracts (E&P contracts).
(ii) Area type 2. This area comprises 31 onshore and offshore blocks in new, prospective basins. This area type is also available for E&P contracts.
(iii) Area type 3. This area comprises 56 onshore and offshore blocks located in new frontier basins. This area type is only available for Special Technical Evaluation contracts.
According to the Minister of Mines and Energy of Colombia, “there are small and medium blocks up to 200 hectares, with well-defined potential and ready to be put into production, and there are also other very large blocks, of which very little is known and thus will require technical analysis for their exploration.”
Bidding winners of blocks located in area types 1 and 2 will have to enter into long-term E&P contracts through which they will have to take on all risks and bear all costs associated with their operations. The minimum work program for areas 1 and 2 is based on two exploration phases of 36 months each, and will last 30 years: 6 years for exploration and 24 years for production. Blocks located in area type 3 will be subject to special technical evaluation agreements, a short-term agreement (36 months) which will allow for assessment of existing technical data related to the block in order to determine its prospectivity. These agreements will give companies the option right to convert to E&P contracts.
According to the timeline set by ANH, the data packages are currently available and can be purchased for $20,000 (area type 1) and $100,000 (areas type 2 and 3). Interested investors will have to submit their qualification documents by April 15, 2010. A company may apply individually or as part of a consortium to be qualified as (i) operator; (ii) restricted operator (if bidding exclusively for area type 1); or, (iii) non-operator investor. In all cases, applicants must individually meet the legal and financial requirements set by ANH.
The final list of qualified companies will be published on May 14, 2010, and the bid awarding ceremony will take place on June 22, 2010, in Cartagena, Colombia. Bids will be judged against set of criteria which will vary depending on the area type. For instance, in area types 1 and 3, the primary criteria will be based on the amount of investment offered by the bidder for the exploration phase. For bids in area type 2, the primary criteria will be based on the percentage of production which the bidder is willing to offer to ANH, in addition to the applicable royalties.
The director of ANH, Armando Zamora, has recently stated that nearly 100 data packages have already been sold. Companies such as BP, BHP, ExxonMobil and Petrobras, as well as 86 operators and 20 non-operators currently operating in Colombia, are expected to participate in the Open Round Colombia 2010.
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This client alert has been prepared by Tauil & Chequer Advogados, a Brazilian law firm in association with Mayer Brown.