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1 Libertad y Orden Agencia Nacional de Hidrocarburos Agencia Nacional de Hidrocarburos A new era in the Colombian oil and gas industry Armando Zamora Reyes.

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Presentation on theme: "1 Libertad y Orden Agencia Nacional de Hidrocarburos Agencia Nacional de Hidrocarburos A new era in the Colombian oil and gas industry Armando Zamora Reyes."— Presentation transcript:

1 1 Libertad y Orden Agencia Nacional de Hidrocarburos Agencia Nacional de Hidrocarburos A new era in the Colombian oil and gas industry Armando Zamora Reyes Director General January 2005 Libertad y Orden

2 2 Agencia Nacional de Hidrocarburos Agenda New Institutional Structure New E&P contract E&P Opportunities Colombia at a glance Improved business environment Security issues

3 3 Libertad y Orden Agencia Nacional de Hidrocarburos New institutional structure Association contract New E&P contract Ecopetrol Inc. Operator ANH Resource administrator Ecopetrol Operator & regulator

4 4 Libertad y Orden Agencia Nacional de Hidrocarburos Functions Hydrocarbon potential Exploration opportunities E&P information systems Policy & planning E&P Policy & planning E&P Knowledge of resource base Knowledge of resource base Licensing E&P Licensing E&P Oil & gas policies Security of supply Design E&P contracts Promotion and negotiation Assignment of areas Contract administration Integral administration of the nation's hydrocarbons resource Realizing the benefits Realizing the benefits Royalty collection Collection of other economic rights Community participation

5 5 Libertad y Orden Agencia Nacional de Hidrocarburos Agenda New Institutional Structure New E&P contract E&P Opportunities Colombia at a glance Improved business environment Security issues

6 6 Libertad y Orden Agencia Nacional de Hidrocarburos New E&P contract basic elements 100% production to the contractor, after royalty payment Sliding scale royalty + Tax Eventual payment of 30% of surplus income over trigger price of ~ US$ 27/bbl WTI for light crude. Natural gas and heavy oil with a very high trigger price and other incentives Assets belong to contractor 100% production to the contractor, after royalty payment Sliding scale royalty + Tax Eventual payment of 30% of surplus income over trigger price of ~ US$ 27/bbl WTI for light crude. Natural gas and heavy oil with a very high trigger price and other incentives Assets belong to contractor Autonomy and flexibility to the contractor Follow up by ANH Autonomy and flexibility to the contractor Follow up by ANH ExplorationMinimum program, per phase, adjustable EvaluationAt contractor's discretion ExploitationPlan accepted by ANH, with updates Annual work programs ExplorationMinimum program, per phase, adjustable EvaluationAt contractor's discretion ExploitationPlan accepted by ANH, with updates Annual work programs Exploration6 yrs + 4yrs extension Evaluation1-2 yrs + 3 yrs extension Exploitation24 yrs + Life of Field extension, per field Extensions by default on fulfillment of pre-established conditions Exploration6 yrs + 4yrs extension Evaluation1-2 yrs + 3 yrs extension Exploitation24 yrs + Life of Field extension, per field Extensions by default on fulfillment of pre-established conditions Royalty / Tax + High price participation 100% WI to contractor through contract life Royalty / Tax + High price participation 100% WI to contractor through contract life Type of contract Duration Work Programs Operations Economic Terms

7 7 Libertad y Orden Agencia Nacional de Hidrocarburos New E&P contract - elements Contract type: royalties + taxes (+ ANH high price participation rights) Phases length: - Exploration 6 years +4 years extension - Evaluation1-2 years +3 years extension - Exploitation 24 years +extension to final depletion Assignment: though modern, transparent, and efficient procedures Follow-up:with high international standards

8 8 Libertad y Orden Agencia Nacional de Hidrocarburos Economic terms (mboed) % production 10% % 12% 16% 8% 4.8% Discount 20% Production (mboed) Light crude Gas Onshore Heavy Oil Gas Offshore (>1000 ft) % - 25% - 40% Per field 20% 12% 16% 8% 4.8% Sliding scale royalty 30% of surplus income over trigger price As a % of actual field realization price Trigger price Light crude: ~ US$ 27/bbl WTI Heavy crude: US$ 40/bbl WTI Gas: agreed (Henry Hub) Adjusted with US inflation Payment to ANH contingent to high prices and when cumulative production > 5 mmbls

9 9 Libertad y Orden Agencia Nacional de Hidrocarburos International competitiveness 0% 10% 20% 30% 40% 50% 60% 10%20%30%40%50% Profitability Contractor Take (1 - State Take) Malaysia United Kingdom Venezuela Pakistan Peru Gabon Colombia Association contract Thailand Norway Indonesia Angola China Australia India Argentina Ecuador Trinidad & Tob. Sudan Bolivia Egypt Turkmenistan Kazakhistan Brazil 100% 90% 80% 70% 60% 50% 40% State Take Source: PEPS-USGS and calculations ANH Colombia New Model

10 10 Libertad y Orden Agencia Nacional de Hidrocarburos Summary of new E&P contract Top quartile Full materiality, 100% of prize to exploration risk No need to commit in advance re. cost oil, reserves, or profitability Time enough to discover, make it feasible and realize the reward Standard or better than industry Evaluation: grace period to make feasible a discovery Exploitation period per individual discovery / field Extensions w/o negotiations until field depletion Autonomy and flexibility Right to monetize discoveries Non intrusive follow up – easy contract administration Top quartile Stake take (50%) and profitability Robustness, lower downside - better upside potential 100% cost effectiveness / incentive (before tax) Simplicity – easy mathematics, known crude marker, no cost control Incentives for gas and heavy oil Type of contract Economic Terms Work programs and operations Duration

11 11 Libertad y Orden Agencia Nacional de Hidrocarburos Agenda New Institutional Structure New E&P contract E&P Opportunities Colombia at a glance Improved business environment Security issues

12 12 Libertad y Orden Agencia Nacional de Hidrocarburos Diverse portfolio for all players from High risk exploration in frontier basins e.g. Caribean deepwater, Los Cayos, Caguan, foothills to Low risk re-entry to drilled wells that have tested hydrocarbons with a P/L nearby in between heavy oil gas upgrades companies wanting to share risk E&P Opportunities ~ 100 million hectares in sedimentary basins with unkown potential and exciting exploration opportunities 95% under-explored 5 giant discoveries Only ~2000 wildcats All services available

13 13 Libertad y Orden Agencia Nacional de Hidrocarburos Opportunities in Colombia Diversity Risk Various Models Geologist Complexity Multidimensional Unknown potential Exciting exploration Under explored country

14 14 Libertad y Orden Agencia Nacional de Hidrocarburos Modern E&P Information System new EPIS website

15 15 Libertad y Orden Agencia Nacional de Hidrocarburos Agenda New Institutional Structure New E&P contract E&P Opportunities Colombia at a glance Improved business environment Security issues

16 16 Libertad y Orden Agencia Nacional de Hidrocarburos Colombia's Location

17 17 Libertad y Orden Agencia Nacional de Hidrocarburos Colombia at a Glance A Few facts about Colombia Total Area: 1,138,910 sq km. Roughly twice the size of Alberta. It is the only South American country with coastlines on both North Pacific Ocean and Caribbean Sea. Population: 42,310,775 Median age total: 25.8 years. Male: 24.9 years. Female: 26.7 years. Life expectancy total population: years, Male: years, Female: years Multicultural population: Mestizo 58%, White 20%, Mulato 14%, Black 4%, Black Amerindian 3%, Amerindian 1% Literacy Rate Total Population: 92.5% male: 92.4% female: 92.6%

18 18 Libertad y Orden Agencia Nacional de Hidrocarburos Colombia at a Glance A Few facts about Colombia Labor force: 18.3 million (1999 est.) Labor force - by occupation: services 46%, agriculture 30%, industry 24% GDP 2003 USD$78,600 MM (At purchasing power parity $262,000 MM) Real growth rate: 3.95% for 2003 and 4.00% for Natural Resources: petroleum, natural gas, coal, iron ore, nickel, gold, copper, emeralds, hydropower. Industries: textiles, food processing, oil, clothing and footwear, beverages, chemicals, cement; gold, coal, emeralds Exports: $12.96 billion f.o.b. (2003 est.) Exports - commodities: petroleum, coffee, coal, apparel, bananas, cut flowers More than 400 multinational companies currently work in Colombia.

19 19 Libertad y Orden Agencia Nacional de Hidrocarburos Multiple Regional Development Areas Colombia is highly urbanized, with cities and towns throughout the country. While the population of many Latin American countries is concentrated in one or two major cities, Colombias population is well distributed throughout the country, with three of its cities boasting more than two million inhabitants. There are another 11 cities with population exceeding 500,000 and 22 cities with more than 100,000 inhabitants Colombia at a Glance

20 20 Libertad y Orden Agencia Nacional de Hidrocarburos Political, Economic and Social Stability According to the IFC, Colombia together with Slovakia are the countries where the conditions have improved the most for doing business. Colombia enjoys a very strong democratic tradition. Since 1900, only once has Colombia been ruled by a non democratically elected government (from 1954 to 1958 when the country was ruled by Military Dictatorship). Colombia has always respected its commitments. Colombia has never defaulted its debt. Colombia is an active member of all UN related social organizations (ILO. FAO, Unicef). Colombia at a Glance

21 21 Libertad y Orden Agencia Nacional de Hidrocarburos Agenda New Institutional Structure New E&P contract E&P Opportunities Colombia at a glance Improved business environment Security issues

22 22 Libertad y Orden Agencia Nacional de Hidrocarburos Business environment è GDP Growth: 2.5% avg. last 10 years to 4 + % 2003 and 1H04 è Unemployment Rate: 15.6% Agu.02 to current 12.9% è Fiscal Deficit: from -5% to -2.5% of GDP in 4 years è Foreign Investment : +25% in 2003 and +73% 1H04 è Stock Exchange Index: +100% last 12 months è External Debt : sustained at 50% GDP, never default è President Uribe popularity rating 70% Fiscal Deficit % GDP -3% -2% -1% -4% % Inflation 6% 7% 8% 9% 04 Dow Jones Stock Exchange Colombia Dow Jones % GDP growth 1% 2% 3% 4% 04

23 23 Libertad y Orden Agencia Nacional de Hidrocarburos Industry status THE BASIS Long and relatively rich oil industry – proved basin Exciting exploration open to unknown potential 5 giant discoveries, many skilled professionals, km plus pipelines 5 giant discoveries, many skilled professionals, km plus pipelines Relatively under-explored country Geological modeling: more questions unresolved than answers Relatively under-explored country Geological modeling: more questions unresolved than answers

24 24 Libertad y Orden Agencia Nacional de Hidrocarburos Agenda New Institutional Structure New E&P contract E&P Opportunities Colombia at a glance Improved business environment Security issues

25 25 Libertad y Orden Agencia Nacional de Hidrocarburos Eliminate drug trafficking Illicit coca crops Source: Ministry of Defense

26 26 Libertad y Orden Agencia Nacional de Hidrocarburos Maintain deterrent capability Presidential Period: Total 10,899 Individual demobilization 6,308 Collective demobilization 4,591 Demobilization Source: Ministry of Defense

27 27 Libertad y Orden Agencia Nacional de Hidrocarburos è Democratic and Social Security Policy implemented è Financing sources + number of rebels forces weakened è Coca illegal crops from (2000) to ca has. today è Circa rebels demobilized è Over displaced persons have received humanitarian assistance and returned home è Attacks against infrastructure - 57% è Only 1 attack against towns during 2004 è Illegal road blocks –60% è Kidnapping –52% Other security numbers Dramatic turnaround of the security and drugs trend

28 28 Libertad y Orden Agencia Nacional de Hidrocarburos Business environment is clearly, rapidly and sustainly improving Separation of state roles: Ecopetrol as operator – ANH as resource administrator Top quartile new contractual scheme Diverse E&P opportunities with unknown potential and exciting exploration Positive industry response Conclusions

29 29 Libertad y Orden Agencia Nacional de Hidrocarburos Colombia: THIS IS THE TIME AND THE PLACE Colombia: THIS IS THE TIME AND THE PLACE Thanks for your attention


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