Area allocation: a step to concretize the reactivation of the sector

The coordination of all entities within a clear hydrocarbons policy, which guarantees legal security, is essential.

 The national government launched the Permanent Area Assignment Process (PPAA) for the exploration and production of oil and gas, onshore and offshore. A golden opportunity for the country after five years in which no areas were awarded, partly due to the depression of the sector. With the new competitive process, the National Hydrocarbons Agency, ANH, opens a window of opportunity for the country and investors.

The virtue of the new mechanism is its flexibility. It is equivalent to being permanently in a round, in which both the ANH offers areas and companies can express interest in specific areas, requesting their inclusion in a competitive process of bids and counterbids. With this scheme, it is expected to spark interest from companies already in Colombia and the entry of new players, of different sizes and specialties.

The first hearing to receive bids was positive: 18 proposals were presented (several per block), which translated into 11 initial bids. Then the counteroffer hearing was held in which a single counteroffer was presented for a block in the Lower Magdalena Valley. Six of the blocks are located in the Llanos, which reaffirms the potential of this region, three in the Middle and Lower Magdalena Valley, and one offshore in La Guajira.

These 11 blocks will represent investment commitments of more than US$500 million according to the ANH, a good preamble for what comes next, which is the nomination phase and request for area incorporation. This next stage of the process opens the opportunity for companies to apply for different areas of their interest, beyond the 20 offered by the ANH, and to be included in the list of areas to be bid by the Agency.

The request for new areas by companies, which is part of the novelty of the PPAA, is important because it allows for the reshaping of the exploration and production map: expanding knowledge to other areas and leveraging investors‘ resources to better understand the geological prospectivity of the country. If we add to this Ecopetrol's interest in developing ’frozen' areas it owns, the outlook is even more promising.

It is very good news that companies like Ecopetrol, Hocol, Geopark, Gran Tierra, and Parex, all currently present in Colombia, maintain their interest in continuing to invest in the country; however, the absence of new companies interested in entering is striking. The question we should ask ourselves in this scenario is, how are those companies that do not yet operate in Colombia viewing us today; what is the reason for not entering the country?.

The answer seems to lie in competitiveness. Despite the efforts made by the government, when it comes to making a decision on where to invest their resources, in addition to the potential in hydrocarbons, companies scrutinize legal security (institutional, regulatory, and contractual), fiscal conditions, social and environmental requirements, availability and costs of infrastructure, security in the territory, and political stability.

Unfortunately, some of these variables are still an obstacle to achieving the interest of new companies in the country and the desired volume of investment. And one of the reasons is the difficulty in executing projects. Hence the importance of providing guarantees and certainty to investors that, after signing a contract with the Colombian state, they will be able to fully meet their investment commitments and carry out their projects.

For this, the coordination of all state entities is essential, within the framework of a clear hydrocarbons policy that guarantees legal and institutional security, clear and stable rules of the game, and actions that ensure the safety and viability of operations in the territory. A non-embarrassing policy, like that of Chile with mining, Canada, Norway, and the UAE with oil, or Russia, Argentina, and Peru with natural gas.

And it is also key to guarantee operational viability in the territory. The ANH has taken important steps in terms of coordination and concurrency, to provide all relevant project information to local entities, in order to improve the relationship between the sector and local entities. Additionally, it has been providing sheets to the bidder that reflect the social and environmental reality of the areas being offered and assigned.

The industry applauds the launch of the permanent area assignment process and advocates for each of the stages to be successfully completed. Greater investment in the sector translates into the opportunity to explore and expand our already depleted reserves, to increase production, to generate resources for fiscal and macroeconomic sustainability, and new opportunities for development, employment, and economic growth for the regions.

The country has managed to maintain a production level close to 900,000 barrels, but this is not guaranteed for the future. Hence the importance of making the reactivation materialize and ensuring it is sustainable. This will only happen if the importance of hydrocarbons for Colombia is understood, and if the State, in unison, decides to overcome the structural obstacles that we still have. Measures have been taken in the right direction, but our competitiveness is still fragile.