Colombia Outlines Plan to Reverse Production Decline

Colombian authorities have drawn up a seven-point plan to revitalize the oil industry, President Alvaro Uribe said at an oil sector regulations symposium in Cartagena. Uribe said the plan would have a considerable impact on the sector, "so that we can revert the tendency of declining oil production in Colombia," government news service SNE reported.

As recently as June, Uribe issued a decree splitting state oil company Ecopetrol into three parts, a move that also sought to revert declining production by stripping the company of its non-core and regulatory aspects to make it more focused and efficient. The seven points cover:

  • Seismic studies: The plan will exempt income earned through seismic studies from taxation, as well as making the sale of seismic studies tax-free.
  • Exploration phase taxation: Exploration work will be exempted from taxation on presumed income because it does not generate income.
  • Heavy crude: At present exploration for heavy crude in existing contracts is very expensive and will be reviewed.
  • Association contracts: The plan calls for ways to extend existing association contracts to be made more flexible, on the condition that the results are not detrimental to Colombia. It will also establish obligations for companies that have their contracts extended.
  • Capital risk: Ecopetrol will establish a capital risk fund of at least US$25mn to stimulate the development of small and medium-sized prospects.
  • Standardization: A decree will be issued establishing a standard quality of crude, as well as a way to convert different crudes to this standard and a methodology for fixing export prices.
  • Sales tax: the oil and mining sectors will be exempted from sales tax on imported capital goods after 2006, when the rule that currently exempts those sectors expires.

    One of the first association contracts to be extended will be ChevronTexaco's offshore Catalina natural gas contract, mines and energy minister Luis Ernesto Mejia said at the symposium. The extension will be signed December 15, and there are a further seven contract extension requests, SNE reported. Extending the Catalina contract has been a controversial process, and the government comptroller said earlier this year that doing so would cost the country US$100mn in lost royalties.