March 2021

Colombia Moves Forward with Fracking Pilot Projects for Unconventional Reservoirs

Holland & Knight's ENR ISG Quarterly Newsletter
Claro Manuel Cotes

The Colombian National Hydrocarbons Agency (ANH) on Sept. 11, 2020, issued Agreement 006 of 2020, which adopts the regulations for the selection of contractors and special contractual conditions for the development of research pilot projects (PPII) that use the fracking technique for the exploration and production of unconventional reservoirs.

Said Agreement was issued under a political scenario of multiple social and environmental pressures to ban development of unconventional reservoirs through fracking. Bills to ban fracking for the development of hydrocarbons situated in unconventional reservoirs in Colombia have already been filed. However, the issuance of current Agreement reveals the government's support to assess and evaluate real difficulties for their development in an effort to adopt an informed decision to that extent.

The Agreement determines the following main particularities, considering the general legal framework for the development of research pilot projects under Decree 328 of 2020:

  • The areas in which the PPII must be located are in the Sedimentary Accounts of Valle Medio del Magdalena and Cesar-Ranchería.
  • Operators with contracts under such areas have a preferential right to nominate other areas for the development of PPII.
  • The ANH may authorize up to a maximum of two PPII, each with maximum of two wells.
  • Capacities that contractors must evidence are those under Agreement 2 of 2017 issued by the ANH. However, those operators previously qualified to develop unconventional reservoirs are already qualified.
  • To develop the PPII, operators must execute a special research project contract. Such contract allows a contractor to execute operations in the defined area at its sole cost and risk, with the obligation to deliver to the government scientific, technical, social and environmental information. In turn, the government will adopt a public policy decision regarding the development of the Multi-Stage Hydraulic Fracturing with Horizontal Drilling (FH-PH) technique.

The abovementioned is relevant to the country's economic growth after the pandemic crisis considering that petroleum reserve levels forestalls an oil shortage in approximately five years and 11 years for gas. Oil and gas are Colombia's leading export products and the main contributors to the state's finances.

Also, there are estimates that Colombia's Valle Medio del Magdalena basin (target of the PPII) holds an average of 4.5 billion barrels of recoverable unconventional crude oil. Thus, the current scenario to push forward with the unconventional oil and gas development is a measure that reveals the government's interest in promoting the hydrocarbons industry as a catalyst for the economy.

Although, the Colombian Council of State suspended provisionally all regulations related to the exploration and exploitation of unconventional reservoirs through fracking, the research pilot projects are a test to evidence the convenience of such activity, considering that results of the PPII will be conclusive for the Council to make a decision.

The government seems to acknowledge that the natural resources industry is one sector that will allow the economy to overcome the current pandemic crisis. The private sector and the hydrocarbons industry have been working steadily in providing assistance and guidance to public entities on how to improve investment opportunities to make the sector more competitive and procure reactivation of economy. The goal is to further promote and implement the natural resources sector as a mechanism to reboot economic growth and provide work opportunities for sectors affected by COVID-19.

Learn more about our Energy and Natural Resources Industry Sector Group.

Information contained in this newsletter is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the authors of this publication, your Holland & Knight representative or other competent legal counsel.

Related Insights