2012 Bid Round
One of the most widely followed developments in Colombia’s energy sector is the 2012 Bid Round, which is currently underway.
This year we are promoting what we call the 2012 Round. The 2012 Round is 109 blocks for exploration and production of hydrocarbons. One third of them are for unconventional hydrocarbons such as shale oil and shale gas. We are very optimistic about the interest on the part of the companies who eventually come and explore unconventional hydrocarbons in Colombia.
The 109 blocks being offered in the 2012 Bid Round include 98 onshore blocks and 11 offshore blocks. The blocks have been divided into three categories.
Type 1 blocks are for E&P contracts in smaller blocks located in mature basins. Type 2 blocks are for E&P contracts in larger blocks located in areas with new prospectivity. Type 3 blocks are located in frontier areas and fall under Technical Evaluation Agreements.
In total, the 2012 Bid Round includes 29 Type 1 blocks, 34 Type 2 blocks, and 46 Type 3 blocks, covering a total combined area of over 13m hectares.
Incentives for Unconventionals
One of the unique aspects of the 2012 Bid Round is its focus on unconventionals. Of the 109 blocks being offered, 31 are located in basins with a potential for unconventionals. To encourage investment in unconventionals, the government is implementing fiscal and contractual incentives.
What Colombia offers to the investors is basically I would say three things. The first one is a country which is friendly to foreign investment. It is a country that sees foreign investment not only as a flow of capital but also as a flow of ideas, technology, know how, and a different way to do things. So we consider foreign investment as a key component to our development. So that is the first part. The second part is that we do offer clear rules for investors, stable and clear rules for investors, and an attractive regime, very attractive fiscal and economic terms. That is the second part. The third part I would say is Colombia’s tradition of what it has been doing in terms of contract stability. We do respect contracts. Colombia has never in its history made any interventions into E&P contracts. We have made some oil policy changes in the past but always pulling forward never with retroactive effects. So it is a country that provides clear rules.
It is the first time that the Government of Colombia takes specific steps towards encouraging investment into the unconventionals. We have developed basically two fiscal incentives and contractual incentives for investors in the unconventionals. The first one is a discount, a forty percent discount, on our oil deal law. The second one is a new, what we call a new, p-zero, which means we have a high price participation formula in the contracts, which is a type of windfall tax, it’s not strictly speaking a tax. But the p-zero is the trigger from which the Government starts participating in the upside when international prices are high. So we have increased that p-zero, that trigger, up to $81 per barrel. So those are two specific measures that we have taken on the unconventionals.
The 2012 Bid Round has attracted significant interest from small and large companies alike. A large part of this interest stems from the overall investment climate in the country and its reputation for respecting the sanctity of contracts.
With the blocks on offer in the 2012 Round expected to be awarded in November, and the related contracts being signed before the end of 2012, Colombia’s energy sector looks poised for further growth in the years ahead.