OIL'S WELL

Colombia 2017 | ENERGY & MINING | INTERVIEW

TBY talks to Orlando Velandia Sepúlveda, President of the National Hydrocarbons Agency (ANH), on Colombia's increasing competitiveness, the impact of the tax reform, and the country's offshore strategy.

Orlando Velandia Sepúlveda

Which are the agency's strategies for increasing Colombia's competitiveness in attracting foreign investment in the hydrocarbons sector?

In the last decade, our country has implemented clear and strong policies to stimulate foreign investment. Along with the recognition of our legal and political stability and the entrenched democratic traditions that characterize our government and the peace process, these have positioned us as a more competitive country to facilitate business and foreign investors. We have attractive contractual and tax terms as well as a good degree of certainty and legal stability, which are the main determinants for national and foreign investors making investment decisions. These measures gave us international recognition as leaders and pioneers in confronting the fall of oil prices and were confirmed by the president of the World Bank during his visit to Colombia in January 2016. The results of these adjustments are now beginning to show as exploration activity picks back up. The first relates to the social viability of the oil industry. We implemented the Hydrocarbons Territorial Strategy (ETH) with the objective of fostering spaces for dialog with local communities. New methods have been implemented to deal with social unrest and have paved the way for companies to undertake their activities with every actor involved in the production chain. The second is related to environmental licensing. We are working to generate inter-institutional cooperation between the national and regional environmental authorities in order to generate shorter response times and the standardization of procedures and requirements for environmental permits. At the same time, we provide technical support to these authorities to facilitate their understanding of the oil industry. The third has been to improve the process of awarding exploration areas, including the contractual conditions that regulate their development. This focus led to a new regulation issued for the allocation and administration of areas for exploration and production, as well as the adoption of new contractual models adjusted to the current situation of the industry and our country. The fourth focus is to provide more geological information to more precisely identify the hydrocarbon potential of the country.

What impact will the tax reform have on the hydrocarbons sector?

One of the foundational drivers of the recent tax reform was the decline in tax revenue induced by low oil prices. This led to a substantial reduction in exploration, which consequently lowered the chances of increasing the country's oil reserves. Within the framework of the 2016 structural reform, we presented to the Congress of the Republic a series of measures to encourage the exploration and development of the oil industry. Three such fiscal measures were approved and are in force today. The first is the Certificate of Tax Reimbursement (CERT). It constitutes a tax-saving and refund mechanism for all oil companies that carry out exploratory activities for these specific investments. The second is a VAT refund for all exploratory activities carried out in offshore areas. This measure seeks to benefit offshore investment in consideration of the technical and economic characteristics of this activity, which involves large sums of capital and is more technically and operationally demanding than onshore projects. Allowing early repayment of the VAT allows for a greater cash flow, and beneficiary companies can have that return year after year and in turn reinvest it in more exploratory activity. The third measure is the amortization of investments. After complying with the rules and requirements established in the standard, oil companies may amortize expenses related to investments for exploration, development and construction of mine, oil, and gas fields carried out between January 1, 2017 and December 31, 2027, by the straight line method over a five-year term.

How does the offshore sector fit into Colombia's long-term hydrocarbon strategy?

40 years ago, the great discoveries of gas occurred in our country, which has guaranteed domestic supply. Since 2004, when we signed the first offshore contract, we gave the industry a new dimension. Today, we have 22 contracts signed with companies leading in exploration that have been recognized for their economic and technical strength. ANH welcomes Colombia's new horizon for hydrocarbons, as determined by the recent findings and prospects in the Colombian Caribbean. In recent years, characterized by low prices, the exploration investments developed in this border basin surpasses any other exploratory activity developed in the world. In fact, about 37,000sqkm of seismic activities were carried out in 2016 and approximately 30,000sqkm in 2015. This has had results with the recent findings by Ecopetrol and Anadarko.