Energy: Oil & Gas 2023 Comparisons

The ownership of hydrocarbons in Colombia is governed by the Political Constitution, which designates the state as the rightful owner of the subsoil and non-renewable natural resources. However, this ownership does not undermine the rights acquired and established under pre-existing laws. Although the majority of hydrocarbons fall under state ownership, there are exceptions where private ownership is permitted due to pre-existing private property laws.

The regulatory framework for hydrocarbons is unified at the national level, with no differentiation or division among federal laws or regulations.

The National Hydrocarbons Agency (ANH) serves as the state’s representative for overseeing exploration and production agreements. When it comes to exploiting non-renewable natural resources, the Constitution mandates that the state should receive an economic consideration in the form of royalties, while acknowledging the possibility of other compensation or rights being agreed upon. The specific conditions for exploiting non-renewable natural resources are to be determined by the law.

Division of the Hydrocarbon Regulation and Governmental Agencies

The regulation of the hydrocarbon industry is contingent upon the specific subsectors involved in hydrocarbon activities. Consequently, governmental agencies responsible for overseeing the industry are divided into four main categories: (i) upstream, (ii) midstream, (iii) downstream (liquid petroleum fuels), and (iv) natural gas. This division stems from the recognition that downstream activities and the natural gas market (excluding production) are deemed public utility services by law. As a result, both these activities are subject to tailored regulatory frameworks.

Governmental Agencies

The Ministry of Mines and Energy

MinEnergy is the national public entity responsible for creating the public policy concerning the energy and mining sector. The Ministry functions vary depending on each one of the hydrocarbons subsectors, as follows:

• upstream – establishing the technical regulation;
• midstream – issuance and implementation of technical regulation related to transportation of crude oil and liquid petroleum fuels;
• downstream – issuance and implementation of technical regulation related to transportation, refining, distribution, trading and export of petroleum fuels and biofuels, regulation of gasoline, fuels, ACPM and biofuels tariffs (certain tariffs determination are transferred to CREG); and
• natural gas – follow up and control the concessions of exclusive natural gas service areas and natural gas concession contracts. It also oversees increases or decreases in supply, and ensures adequate coverage areas are maintained.

National Hydrocarbons Agency (ANH)

The ANH seeks to promote the allocation of hydrocarbon blocks for upstream activities, issues regulation for the execution of the exploration and production agreements (“E&P Agreements”) and executes E&P Agreements. In addition, the ANH is the authority in charge of promoting the optimal and sustainable use of the country’s hydrocarbon resources. ANH was created in 2003. Before, Ecopetrol, the national oil company, had the dual role as regulatory entity and oil company.

Energy and Gas Regulatory Commission (CREG)

Sede electrónica Comisión de Regulación de Energía y Gas (CREG) regulates energy and gas public utilities. Its purpose is to regulate monopolies in the provision of domiciliary public utilities. Regarding hydrocarbons, CREG issues regulation regarding: (i) natural gas for transportation, trading, distribution and final provision to users of it and (ii) petroleum liquid fuels for refining, storage, distribution, and transport and also issues regulation regarding the agreements executed by the participants of the liquid fuels activates. Currently, CREG has issued the price for final users of diesel and gasoline. CREG works to promote competition among those who provide public utilities, so that the operations of monopolists or competitors are economically efficient, and produce quality services.

Mining-Energy Planning Unit (UPME)

UPME works to carry out the planning of the sustainable development of the Mining and Energy sectors of Colombia and collaborates in the formulation of state policies and decision-making of the Ministry of Mines and Energy for the benefit of the country, through the processing and analysis of information.

The principal oil and gas company with public participation is Ecopetrol SA. Ecopetrol has public and private participation and, as general rule, its commercial acts are ruled by private law. Ecopetrol SA explores, produces, transports, refines and markets petroleum fuels and petroleum products, in Colombia. Currently, the government owns approximately 88% of the shares of the company, with the remaining shares owned by private investors.

Upstream Activities

The principal hydrocarbon laws and regulations for upstream activities are as follows.

• Petroleum Code – by means of the Decree 1056 of 1953 the Petroleum Code was enacted. There are other additional provisions that can be found in various executive orders and circulars of the state agencies.
• Technical regulations issued by the Ministry of Mines and Energy – the Ministry of Mines and Energy issues regulations and technical guidelines applicable to upstream activities. Among these, Resolution 181495 of 2009 (as modified) sets out the main technical regulation for upstream activities.
• ANH agreements – ANH issues agreements which contains the regulation applicable to the upstream agreement’s allocation and performance. The contracts for the exploration and exploitation of non-renewable natural resources are subject to special legislation and ANH has the responsibility of determining the corresponding parameters in their internal regulations. Also, upstream agreements shall comply with certain principles of public procurement such as objective selection, transparency, economy and liability.
• Decree 1073 of 2015: Executive order that regulates the administrative sector of Mines and Energy – regarding upstream activities, Decree 1073 sets out public policy regulations and includes regulation regarding specific matters, among others, unconventional hydrocarbon activities.

Midstream Activities

The principal hydrocarbon laws and regulations for midstream activities are as follows.

• Petroleum Code – includes the main regulation applicable to oil midstream activities, including the legal regime of public and private pipelines, as well as oil transportation tariffs. Due to the limited infrastructure for transport, there is a principle of free access, which depends on the spare capacity of the pipes.
• Resolutions – (please note, modifications to these regulations are common and constant):
1. 72-145 of 2014 (as modified), establishes the proceeding, requirements and the obligations of the transporter to carry out the transportation of crude oil through pipelines; and
2. 72-146 of 2014 (as modified), states the regulation regarding the pipeline transportation tariffs of crude oil.

Downstream Activities

The principal hydrocarbon laws and regulations for downstream activities are as follows.

• Law 39 of 1987 – indicates the provisions regarding the distribution of petroleum and petroleum derivatives. Particularly, it states the Ministry of Mines and Energy is the entity in charge of the granting of licences to liquid petroleum fuels companies.
• Law 26 of 1989 – new provisions are established about the distribution of petroleum-derived liquid fuels.
• Decree 1073 of 2015 Section 2 – establishes the main regulation, requirements, obligations and penalties applicable to agents in the distribution chain of liquid petroleum fuels.
• Decree 1079 of 2015 – includes regulation applicable to the transport of petroleum fuels.

Also, the Ministry of Mines and Energy issues regulation applicable to downstream activities. Please note that the laws adopting the National Development Plans also contain provisions related to liquid petroleum fuels, including prices, fuel blending with biofuels and the implementation of air quality policies.

Natural Gas Market

Natural gas after production is considered a public utility and it is regulated by Law 142 of 1994. In addition, CREG issued regulation regarding each of the activities of the natural gas regulation market. Among these are the following CREG resolutions.

• 71 of 1999 – technical regulation of natural gas transportation.
• 185 of 2020 – commercialisation of transportation capacity in the wholesale natural gas market is established.
• 186 of 2020 – commercial aspects of the supply of the wholesale natural gas market are regulated.
• 175 of 2021 – general criteria for the remuneration of the natural gas transportation service and the general structure of charges of the National Transportation System are established, and other provisions regarding the transportation of natural gas are enacted.

Private investors obtain the right to explore for, develop and/or produce hydrocarbons if they are allocated a contract by the ANH. The allocation process requires a demonstration of sufficient financial, technical and environmental capacity, among others. If these conditions are met, the ANH awards a contract for oil and gas exploration and exploitation. The most frequent contracts are E&P Agreements and Technical Evaluation Contracts (TEA).

Technical Evaluation Contract (TEA)

The purpose of this contract is to grant the contractor exclusive rights to carry out technical evaluation studies in a specific area, at its sole cost and risk, in exchange for the payment of a fee for the use of the subsoil. The contractor has the commitment to deliver a share of the production and any other applicable compensation, in the event that all or part of the Area is subjected to the execution and subsequent performance of an exploration and production (E&P), in the exercise of the right established in the corresponding TEA Contract.

E&P (exploration and production) Contract

This is a type of concession agreement which grants the contractor exclusive right to undertake and develop exploratory activities in a determined area and to produce the hydrocarbons owned by the state that may be discovered within the same, at its sole cost and risk, in exchange for compensation consisting, for example, of the payment of royalties, economic rights and contributions for training, institutional strengthening and technology transfer. The exclusivity granted by these contracts is limited to the type of field for whose exploration and production they have been entered into.

Contracts Allocation

The execution of upstream activities requires the execution of a contract granting the right to explore and/or exploit hydrocarbons. These agreements must be entered to with the ANH. The ANH is responsible for managing the requests for assignment of upstream contracts, in co-ordination with the other departments involved in the process. ANH modifies the regulation applicable to contract allocation from time to time. Currently it is ruled by ANH Agreement 03, 2022 (as modified by Agreement 02, 2023 and 07, 2022). This agreement outlines the primary requirements for participation in a hydrocarbon round, encompassing legal, financial, technical, operational, environmental and social responsibility aspects. Specific terms of reference specify the minimum capacities required for compliance.

Selection of Contractors and Assignment of Areas

Article 16 of Agreement 03 of 2022 seta out the process to award upstream contracts. The process can be competitive, or in special cases can be a direct assignment. The type of process is decided depending on the particularities of the areas to assign, market conditions, objectives of the National Development Plan, technical analysis and other public policy instruments.

Competitive Process

By means of this proceeding the ANH assigns the available area and enters to contracts through an objective selection process of the best proposals. The ANH grants the right to explore, evaluate and produce hydrocarbons. Once the process is opened, the draft terms of reference that will provide guidance must be published and submitted to the observations and suggestions of the interested parties, indicating the deadlines to submit a response. After the evaluation of the responses, the definitive terms will be issued, and the selection process will continue. 

It is important to highlight there are two types of competitive proceedings: (i) open and (ii) specific, which can be divided into (a) open or (b) closed.

Direct Assignment

The ANH may determine the areas that can be directly assigned to the interested party, when they comply with the requirements of capacity established in the regulations of each particular case. Since there is a direct assignment, when this process is applied, it should be followed with the justification for the award. Thereafter, it is published and a time is given for other interested parties to present counteroffers.

As mentioned in 1.1 System of Hydrocarbon Ownership, according to the Political Constitution, the state is the owner of the soil, subsoil and non-renewable resources. The type of considerations and monetary conditions in upstream activities vary in each E&P allocation round and are according to the contracts entered with the ANH.

The primary government intake from upstream activities is from royalties. This intake is regulated in Law 2056 of 2020, whereby royalties are defined as the payment made by hydrocarbon and mining companies to the Colombian state for exploiting deposits of a non-renewable natural resource.

Agreement 03, 2022, sets out economic rights primarily concerning the surface payment for subsoil use and hydrocarbon depletion, the percentage share in production, additional participation in production, high-price remuneration and the exclusivity value. Additionally, the contracts include obligations related to technology transfer and programmes aimed at benefiting communities.

In addition to the general national and municipal taxes applicable to commercial activities, there are some specific rules applicable to companies involved in upstream activities. Law 2277, 2022 modified certain taxes related to upstream activities, in particular: (i) income tax has specific regulation regarding the non-deductibility of royalties and a surtax; (ii) Industry and Commerce Tax (ICA) is applicable under certain parameters, and (iii) Value Aggregated Tax (VAT) is addressed.

As a general rule, no special rights are conferred upon the national company, either at the national or local level. It is important to note that oil and gas contracts are governed by different regulations depending on the applicable law at the time of execution. Consequently, contracts executed under previous laws grant different rights and obligations.

Regulations applicable to the execution and performance of upstream contracts are established by ANH at the national level. Local governments hold specific authority, primarily concerning land and environmental matters. ANH Agreement 03 of 2022 pertains to social investment as the line of investment for resources related to programmes benefiting communities (PBC). These programmes encompass productive projects, infrastructure, health, basic sanitation and education projects within the areas of executing exploration, evaluation, eventual development, production activities and operations.

Additionally, ANH contracts stipulate an obligation for local employment in accordance with the relevant law. Furthermore, ANH Agreement 03 of 2022 specifies that the evaluation of proposals will consider the requirements outlined in the terms of reference applicable to each process. This evaluation might involve factors such as an increase in the investment commitment in PBC, a pledge to enhance the procurement of goods and services with local, regional and national content, or any other form of remuneration benefiting the Colombian state or the country.

ANH contracts and national regulations establish the main obligations of the contractor in the event of a discovery. The most recent Exploration and Production (E&P) Agreements executed by ANH define a discovery as an accumulation of hydrocarbons proven by exploration activities to be of significant quantity and potentially recoverable. Once a discovery is made, the contractor must inform ANH within a period of four months. Subsequently, if the contractor deems the discovery to have commercial value, it may create an evaluation programme to study its commercial potential and submit a report of the results. Following this results report, the contractor can issue a declaration of commerciality, which is a written communication expressing the contractor’s unconditional decision to commercially exploit the discovery.

Upon declaring commerciality, the contractor is required to submit a development plan to ANH, including components such as the drilling programme and the annual production forecast, along with the year’s operational programme. According to Article 16 of Resolution 181495 from 2009, approval is necessary for the drilling of each well.

In addition to contractual requirements, exploration and hydrocarbon activities must comply with land and environmental regulations.

Environmental Licence

When carrying out specific hydrocarbon activities (eg, seismic exploration, exploration drilling beyond existing hydrocarbon blocks, exploitation, or transport), Decree 1076 of 2015 stipulates that obtaining an environmental licence is necessary. These environmental authorisations are obligatory for conducting these activities and remain valid for the project’s duration. However, under particular circumstances, activities utilising natural resources that do not require an environmental licence may still necessitate specific individual environmental permits granted by local environmental authorities.

Prior Consultation

The entitlement to free and prior consultation for ethnic communities is established by means of a prior consultation process. This process must be conducted prior to initiating any activity related to the exploration or exploitation of hydrocarbons in areas inhabited by ethnic groups. Successfully completing the prior consultation process is a prerequisite for obtaining an environmental license.

Surface Rights

Hydrocarbon contracts grant the right to explore and exploit hydrocarbons situated in the subsoil. However, they do not grant rights to utilise the land’s surface. In Colombia, the subsoil is owned by the state, while the land itself is private property. Therefore, hydrocarbon activities require obtaining land use rights, which can be achieved through methods such as purchase agreements, leasing, or the establishment of a petroleum easement.

E&P Agreements have changed over time. This section will highlight certain key terms of modern E&P Agreements, specifically focusing on those most recently executed by ANH in January 2022. Please note that these agreements are governed by Agreement 2 of 2017, which was subsequently replaced by Agreement 3 of 2022.

• Duration – modern E&P Agreements typically comprise a term divided into a preliminary phase, exploration period, and exploitation period. The latest E&P Agreements executed by ANH consisted of: (i) a preliminary phase lasting 24 months for the development of prior consultations and other specific obligations related to incorporation and other requirements; (ii) an exploration period of six years commencing from the initial effective date, divided into two phases; and (iii) an exploitation period of 24 years. Extensions can be agreed upon with ANH as per the provisions of each individual agreement.
• Reversion rights – upon termination within a specific production area, the contractor is obligated to leave the productive wells, construction and other immovable property in good condition at that time. These assets will be transferred to ANH without any charge, including easements and assets acquired for production benefits up to the delivery point, even if they are situated outside the designated production area.
• Abandonment rights and obligations – the contractor is required to adhere to the abandonment of blocks and wells, and is required to establish an abandonment financial fund.
• Termination – each E&P Agreement sets out specific termination causes. The most recently executed E&P Agreements include causes such as the relinquishment of the contractor accepted by ANH, mutual agreement between the parties, expiration of the contract term, expiration of the exploration period without discovery notice, and expiration of the evaluation programme or relinquishment of it.
• ANH rights in case of breach – E&P Agreements confer specific rights to ANH in the event of a breach. The most recently executed E&P Agreements include fines, penalty clauses and the execution of securities as remedies. Breach of contract follows a prescribed procedure.
• Contract assignment, change of control and other corporate transactions – E&P Agreements regulate the assignment of the contract. Furthermore, the most recent provisions specify requirements in the case of a change of control of the contractor, including a definition of the actual beneficiary of the agreement. Other corporate transactions are also regulated in the contracts.
• Price for domestic supply – should the contractor be required to sell its own crude oil to meet the refining needs for domestic supply, the contract outlines the corresponding procedures in accordance with the relevant law.

The transfer of rights and interests in E&P Agreements is typically governed by each contract. The regulations pertaining to transfers have evolved over time. As a general principle, assignments require approval from ANH (or Ecopetrol and MME approval, in the case of agreements executed before the establishment of ANH). The stipulations and necessary approvals for changes in control or other types of corporate transactions have also undergone changes over time. Moreover, these regulations might differ if the assignor is affiliated with the contractor. The most recent E&P Agreements executed by ANH incorporate the following rules:

• Assignment – the assignment of the contract or any of its associated rights and obligations necessitates prior and explicit authorisation from ANH. In instances involving multiple contractors, the operator is required to maintain a minimum participation of 30% in the agreement and in the private agreement executed between the involved parties (eg, the Joint Operating Agreement or JOA). Additionally, the assignor must adhere to all the prerequisites fulfilled by the contractor for obtaining the contract (financial, technical-operational, and environmental).
• Other transactions and changes in control – any corporate transaction that results in a change in the actual beneficiary or the controlling individual of the contractor, along with actions like mergers or spin-offs, must be communicated to ANH in advance.

The regulation of the Colombian upstream market is based on the principles of private law and a free market approach. In accordance with the Petroleum Code and as stipulated in Resolution 181495 of 2009 (as amended), the Ministry of Mines and Petroleum supervises the exploitation of oil fields to prevent their premature depletion, the wastage of oil or gas, or any form of exploitation that goes against sound technical practices or economic considerations.

Colombia upholds the principles of economic freedom and investment, allowing economic activity and private initiatives to operate freely, within the bounds of the common good. Consequently, unless explicitly prohibited, private enterprises are free to engage in economic activities. However, the government retains the authority to require permits for commercial activities, as stipulated by law. The following are the main requirements for the midstream and downstream sectors.

Midstream

As indicated, the regulation of midstream activities is categorised into crude oil transportation via pipelines, liquid petroleum fuels transportation, and natural gas.

Crude oil transportation

The Petroleum Code distinguishes between two types of oil pipelines based on the services they provide: (i) private-use pipelines; and (ii) public-use pipelines. Private-use pipelines are exclusively built and operated by oil production and refining companies, along with their affiliated entities. Any other pipelines are designated as public-use pipelines.

The Petroleum Code sets out that entities involved in oil exploitation or refining have the authority to construct and operate one or more oil pipelines to serve their own exploitation or that of their affiliates. Moreover, any individual or legal entity can establish pipelines for public use, subject to a contract with the government and compliance with prevailing regulations. As a result, private investments in crude oil midstream activities must account for these regulations. For reference, please note there is a reduced number of competitors that are involved in crude oil midstream activities.

Liquid petroleum fuels transportation

The transportation of liquid petroleum fuels through pipelines is regulated, among other laws, by Decree 1073 of 2015, as amended in 2022. The Ministry of Mines and Energy has the authority to issue the Plan for Expansion of the Pipeline Network for liquid fuels derived from petroleum, based on projects adopted from the Indicative Plan for Liquid Fuel Supply by the UPME (Unit of Mining and Energy Planning). The requirements for the development of the expansion plan will be outlined by CREG (Energy and Gas Regulatory Commission), which is currently in the process of developing this regulation. The initial draft version was released for public comments on 12 April 2023.

Cenit SA, a subsidiary of Ecopetrol, handles the transportation of liquid petroleum fuels via pipeline. Additionally, liquid petroleum fuel transportation in Colombia relies on road and waterway networks.

Natural gas

The transportation of natural gas constitutes a public utility and is regulated by CREG. Natural gas transporters must establish themselves as public utility companies and adhere to applicable regulations. Notable natural gas transporters in Colombia include Transportadora de Gas Internacional SA ESP (TGI), Promigas, Progasur, Transcogas, Transmetano, Trans Oriente and Trans Occidente.

Downstream

The downstream market encompasses a range of activities including import, export, refining, storage, and wholesale and retail distribution of liquid petroleum fuels. Private investment significantly contributes to this sector. Ecopetrol also plays a pivotal role due to its involvement in export and refining activities. The company carries out hydrocarbon refining at the Barrancabermeja and Cartagena refineries. The retail fuel market comprises storage agents, wholesale and retail distributors, with private investment dominating the landscape. All market participants must receive authorisation from the Ministry of Mines and Energy to operate. Consequently, transactions in this sector often involve the transfer of granted authorisations.

Colombia’s Political Constitution incorporates the principle of a free market. As previously mentioned, the fuels market consists of various entities engaged in downstream sector activities. All companies within the downstream sector must obtain authorisation from the Ministry of Mines and Energy in accordance with Decree 1073 of 2015. While state companies such as Ecopetrol and Cenit are involved in downstream activities, the downstream market is open to private actors, allowing for free access.

It is important to note that certain tariffs within the downstream market are subject to regulation. The Ministry of Mines and Energy, along with CREG, establish these tariffs. It is worth mentioning that the prices of gasoline and diesel for end users are currently supported by the Fuel Establishment Fund (FEPC). FEPC seeks to protect final users from the volatility in the fuel price with a flat rate. To achieve this, the FEPC undertakes the following actions: (i) it collects certain funds from importers and refiners of liquid petroleum fuels during periods of low fuel prices in the international market, and (ii) it disburses specific amounts to importers and refiners when global fuel prices are high. This payment set-off should be developed each quarter; however, this schedule is not currently adhered to. Given the intricacies of the FEPC mechanism, the present administration is gradually raising fuel prices for end users with the goal of phasing out the FEPC mechanism.

Midstream – Please see 3.1 Forms of Private Investment: Midstream/Downstream and 3.9 Condemnation/Eminent Domain Rights.

Downstream – downstream activities in Colombia are subject to strict regulation. As a result, any downstream operation requires prior authorisation from the Ministry of Mines and Energy. This authorisation is granted through a resolution, after the applicant demonstrates compliance with all the relevant requirements for their specific activities. Moreover, it is crucial for each participant in the downstream market to restrict their actions solely to those authorised by Decree 1073 of 2015.

The specific requirements for authorisation may vary depending on the type of agent involved in the downstream market. Nevertheless, all agents are obligated to establish insurance policies in accordance with the guidelines outlined in Decree 1073 of 2015. This requirement serves to ensure responsible and secure operations within the downstream sector.

Commercial agreements in the context of midstream/downstream operations are common.

There is a key term used in Colombian regulation, known as surplus capacity, which is the difference between the effective capacity and the sum of: i) the capacity of the right of first refusal, ii) the capacity of the owner (only for private use pipelines), and iii) the contracted capacity.

The effective spare or surplus capacity will be available for third parties exercising their right of free access to the pipelines, under a nomination process, to transport their crude oil through contracts. It is important to mention that third parties will have to pay a tariff for the use of the pipelines, which is set by the government.

Regarding downstream operations, the commercial contracts are governed by private law. If the owner of a gas station is interested in selling its business, the buyer must obtain an authorisation resolution from the Ministry of Mines and Energy.

Midstream – in addition to the general national and municipal taxes applicable to commercial activities, there are some specific rules applicable to companies involved in midstream activities. There is a tax on the transport of oil and gas set out in Article 185 of Law 2056, 2020. This tax is charged to the owner of the transported oil or natural gas and it is distributed between the non-producer municipalities where pipelines are located.

Downstream – in addition to the general national and municipal taxes applicable to commercial activities, there are some specific rules applicable to companies involved in downstream activities. These include:

• carbon tax – regarding natural gas and liquid petroleum derivatives (as specified in law), the taxpayer for the tax will be: (i) the entity that acquires fossil fuels from the producer or importer; (ii) the producer when they make withdrawals for self-consumption or (iii) the importer when they make withdrawals for self-consumption. Taxpayers who certify themselves as carbon neutral can be exempted from the national carbon tax under specific requirements; and
• surtax on gasoline and diesel – municipal contribution (local) that varies between entities. This surtax is generated when the wholesale distributor, producer or importer sells the gasoline or diesel to the retail distributor or final consumer.

As a general rule, no special rights are conferred upon the national company. Commercial activities in Colombia, as general rule, are governed by the law applicable at the moment a right is consolidated for a contractor.

Please see 3.2 Downstream Operations Run by a National Monopoly: Rights and Terms of Access.

As explained, midstream activities are regulated by law, and regulation is different for oil, natural gas and liquid petroleum derivates transportation. Regarding oil transportation by pipelines, tariffs are regulated by the Ministry of Mines and Energy according to Resolution 72-146, 2014 (as modified).

Downstream activities are regulated under a private market structure. Each agent of the downstream market has specific obligations and rights. Each of the activities of the market must be authorised by Ministry of Mines and Energy. Also, liquid fuels are considered dangerous substances by law. Therefore, special safety and environmental requirements are applicable to downstream activities.

Eminent domain rights are different on private and public use pipelines. Article 50 of the Petroleum Code sets out that public use pipelines must be sold to the government at the expiration of the agreement. In respect of private use pipelines, this obligation is applicable in case of termination of the upstream contracts related to the pipelines. In addition, the Petroleum Code sets out rules regarding access to the pipeline, granting certain rights for the transportation of national oil.

Regarding surface rights, Colombian law grants private property over land. Therefore, the owner of a midstream infrastructure shall agree with landowners to use the private land space to construct pipelines pursuant private law. Article 194 of the Petroleum Code, establishes that no landowner may oppose the carrying out on his property of any studies required for the construction of private or public service pipelines. However, the owners of the pipelines must compensate the landowner for all damages that may be caused to them by such studies or construction.

Transportation of hydrocarbons is determined as a dangerous activity. Therefore, extensive regulation has been issued for hydrocarbon transportation, especially regarding safety, risk management and environmental protection.

Governmental bodies regulate the transportation of hydrocarbons were described in 1.2 Regulatory Bodies. These include the Ministry of Mines and Energy and CREG. Also, the Ministry of Transportation issues regulation for the transport by road of hydrocarbons.

In respect of the normative background that regulates transportation of hydrocarbons, there are different laws and executive orders. Among these are the Petroleum Code, Decree 1073, 2015 (mines and energy sector decree) and Decree 1079, 2015 (transportation sector decree).

As mentioned in the previous section, the Petroleum Code includes the principle of free access to transportation infrastructure and sets out that all privately-used oil pipelines must use the surplus effective carrying capacity, as long as such surplus exists, for the transportation of third-party petroleum and pursuant to certain regulation. This principle is also referred in Resolution No 72145, 2014. The same principle is established in the regulation applicable to the transportation of natural gas.

Hydrocarbon markets regulation does not include specific restrictions on product sales into the local market. However, regarding the natural gas market, CREG has issued a regulation regarding certain limits in the market integration. There is specific regulation applicable to the activities that can be developed by a natural gas company (as a public utilities company), as well as regarding how natural gas shall be sold to the market.

Article 430 of Decree 1165 of 2019 regulates the export of petroleum and liquid fuels derived from petroleum by polyducts and oil pipelines. This article sets out certain requirements for the authorisation of the export and the regulation of the proceeds of the export. Among these, a shipment authorisation is required.

As a general rule, transfers and negotiations in the midstream and downstream activities are conducted under the principles of private law. All agreements between private parties shall comply with legal requirements and regulation; authorisations and permit transfers included.

General foreign investment protections are also applicable to the hydrocarbon industry. Colombia has a strong legal framework regarding private property protection. Also, Colombia is a party to foreign investment international treaties. As a general principle, any foreign investor in Colombia has the same legal rights and guarantees as any domestic investor, owing to an “equal treatment” principle and international principles.

According to internal law there are certain countries with sanctions, and Colombian companies comply with these.

Colombia has a strong environmental law, and upstream, midstream and downstream operations have environmental requirements. These requirements vary depending on the specific activity to be performed. Some activities require an environmental licence.

The main regulations are Law 99, 1993, and Decree 1076/2015. Decree 1076/2015 comprises the regulations governing the environmental sector in general. It sets out the activities that require environmental licences and also set out in which cases individual environmental permits are required. As a general rule, an environmental permit will be required for the use of natural resources for large-scale commercial activities. 

The environmental sector has national and local authorities and each has different authority and powers. The Ministry of Environment and Sustainable Development (Inicio – Ministerio de Ambiente y Desarrollo Sostenible) is the governing body for the management of the environment and natural resources and public policy. Among others, MADS also issues relevant regulation for the hydrocarbon industry. Environmental licences for the hydrocarbon sector are granted by the National Authority of Environmental Licences (ANLA). Certain environmental licences are also granted by environmental autonomous regional corporations. Also, municipalities, districts and metropolitan areas are environmental authorities and may exercise certain powers regarding hydrocarbon projects developed within their territories.

In order for an investor to proceed with the activities of exploration and exploitation of hydrocarbons, it is necessary to obtain an environmental licence. In case of the presence of ethnic communities a prior consultation process must also be conducted (see 2.7 Development and Production Requirements). Obtaining an environmental licence is a prior condition for the exercise of the rights arising from permits, authorisations, concessions, contracts and licences issued by authorities other than environmental authorities. Upstream activities that require an environmental licence are listed in Decree 1076, 2015. These include hydrocarbon exploitation and certain exploratory activities. The request for an environmental licence requires the submission of an EIA, which must comply with the requirement issued by the environmental authorities.

When referring to the requirements of the offshore development, offshore upstream activities shall comply with proceedings and with several environmental laws on the management, control and reporting of incidents. Resolution 40295, 2020 issued by the Ministry of Mines and Energy set out the technical requirements for offshore upstream activities. This resolution regulated security of the activities, as well as other requirements. Also, the Ministry of Environment will issue specific terms of reference for the environmental impact assessment of offshore upstream operations.  In addition, offshore operations require certain authorisations granted by the Dirección General Marítima – DIMAR. The Colombian unit of risk management is involved in offshore operations. Abandonment requirements are specific for offshore operations.

Decommissioning of upstream activities is regulated by Resolution 40230 of 2022, of the Ministry of Mines and Energy. This resolution sets out the minimum technical requirements to carry out the operations of temporary suspension, and temporary or definitive decommissioning of wells. Offshore activities have specific requirements for well abandonment. Also, E&P Agreements set out the obligation to incorporate a financial abandonment fund.

General considerations for definitive decommissioning of wells – any definitive well abandonment programme must take into account the geological characteristics of the area, the reservoir pressure and the mechanical conditions of the well. Notwithstanding the above, the party interested in carrying out this type of operation must comply with the requirements set out in the relevant regulations.

In 2018, Colombian Congress enacted Law 1931, which outlines guidelines for climate change management applicable to both public and private entities. This law establishes the national climate change system and encompasses financial and planning instruments for effective climate change management. Additionally, in 2021, the Colombian Congress introduced the Energy Transition Law (Law 2099), which focuses on decarbonising the hydrocarbons sector, including the utilisation of hydrogen as an alternative energy source.

Law 1931 mandates the formulation of climate change management plans by each economic sector. Subsequently, in 2018, the Ministry of Mines and Energy issued the climate change management plan for the energy, mining and hydrocarbon industry, commonly known as “PIGCCme”. This plan was later modified through Resolution 40350 in 2021, with the objective of achieving carbon neutrality by 2050. Hydrocarbon PIGCCme, addresses energy efficiency, fugitive emissions as a climate change mitigation mechanism, and risk management related to oil and gas infrastructure as climate change adaptation measures.

In addition, the Ministry of Mines and Energy has issued Resolution 4066 of 2022 which regulates the detection and repair of leaks of fugitive emissions; as well as the use, flaring and venting of natural gas during hydrocarbon exploration and exploitation activities. ANH Agreement 03, 2023 also set out carbon management as a criteria to evaluate offers for E&P Agreement allocation.

Furthermore, through Resolution 4066, 2022, the Ministry of Mines and Energy regulates the detection and repair of fugitive emission leaks, as well as the use, flaring and venting of natural gas during hydrocarbon exploration and exploitation activities. ANH Agreement 03, 2023 introduced carbon management criteria to assess offers for E&P Agreement allocation, reflecting the Colombia’s climate change commitments.

Colombia, as a decentralised state, must apply the aforementioned in order to obtain an equilibrium within the activities of central and local authorities. Non-renewable resources belong to the state and their management is entrusted to national agencies (see 1.1 System of Hydrocarbon Ownership). As a general rule, local governments cannot limit the progress of oil and gas operations. Co-ordination and concurrence between national and local authorities is required.

• Land management – municipalities have the responsibility to issue territorial management plans and co-ordinate land use. Therefore, both central and local governments must work together under a co-ordination and concurrence principle to develop oil and gas projects. This is exemplified in ANH agreement 03, 2022, which outlines the procedures for collaboration between the nation and the territories.
• Environmental regulations – certain oil and gas operations require environmental licences, while others require individual minor environmental permits. Congress and the Ministry of Environment issue regulations for these permits. Also, Law 99 of 1993, establishes principles that allow local authorities to participate in projects within their territories. The subsidiary care principle (rigor subsidiario) grants local environmental authorities the authority to impose stricter regulations if superior regulations are inadequate to safeguard natural resources. Additionally, communities play a crucial role in project development, including the right to participate during the issuance of environmental licenses.

Colombia has regulated the development of unconventional upstream interests by Decree 3004 of 2013 and Resolution 90341 of 2014. In 2018 the supreme court for administrative law matters, the Council of State, ordered the temporary suspension of these regulations according to the precautionary principle of environmental law, since scientific evidence of the environmental impact of unconventional upstream projects was required. On 7 July 2022, the Council of State ruled that Decree 3004, 2013 complied with the Colombian legal framework and revoked the temporary suspension order.

Also, by Decree 328, 2020, Colombia issued regulation for the development of pilot projects for research in unconventional upstream projects to determine their environmental impact and potential risks. ANH executed special agreements for these research projects, which were called CPI agreements. The development of unconventional upstream projects are under debate in Colombia. Currently there are bills of law under Congress review that propose to limit or ban hydraulic fracturing projects.

The provision of natural gas is considered a public utility and is governed by Law 142 of 1994. Companies involved in providing natural gas as a public utility are subject to regulation, inspection, surveillance and control by both the Regulatory Commission of Energy and Gas (CREG) and the Superintendence of Public Utilities (SSPD).

However, it is worth noting that when the law was enacted in 1994, LNG activities were not explicitly included in its provisions. Nevertheless, Article 17 of Law 1955 of 2019 introduced a provision that grants the SSPD the authority to determine new activities to be part of a public utility (by assimilation) in case an activity has a significant impact on the proper provision of public utilities. If an activity is deemed to have such an impact, it is assimilated into the main or complementary activities of the public utilities market. Consequently, companies involved in these assimilated activities become subject to regulation, inspection, surveillance, and control by the relevant Regulatory Commissions and the SSPD.

In December 2020, the SSPD issued Resolution 20201000057975, which specified the assimilation of regasification and trading of imported natural gas. According to this resolution, regasification activity is treated as equivalent to transportation activity, while the trading of imported gas is considered similar to natural gas trading activity.

For the Caribbean regasification plan, CREG issued Resolution 62 of 2013 (as modified), which set out, among other things, a regulated income as consideration for the investment, administration, operation, maintenance and other regulated aspects related to the import, storage, regasification, and connection to the natural gas national transportation system for the supply of GNL to the thermal power generators group, as defined in such resolution. Additionally, Colombia has issued regulations and launched two public auctions for the development of a regasification plan on the Pacific coast. Currently, this auction is under development (Convocatoria pública UPME GN 001-2022).

Colombia has issued Law 2099 of 2021 concerning energy transition, which includes provisions regarding new technologies such as hydrogen, CCUS (carbon capture, utilisation and storage), and geothermal energy. The regulation of the natural gas market allows for certain regulated uses of renewable natural gases, such as biomethane. However, since the implementation of energy transition technologies is still under development, it is currently not clear which oil and gas assets will be used for the transition.

Decree 1476 of 2022, which pertains to hydrogen, does mention the use of natural gas pipelines and polyducts for transporting hydrogen. Decree 1382 of 2022 regulates the exploration and exploitation of geothermal resources for power generation, and in terms of oil and gas infrastructure, it addresses co-production with upstream activities and provides guidelines concerning the overlapping of geothermal and upstream areas.

Moreover, the Ministry of Mines and Energy has issued Resolution 4066 of 2022, which regulates the detection and repair of leaks of fugitive emissions, as well as the use, flaring and venting of natural gas during hydrocarbon exploration and exploitation activities. Lastly, Resolution 40230 of 2022, also issued by the Ministry of Mines and Energy, pertains to the temporary suspension, temporary or definitive abandonment of wells, and includes provisions regarding geothermal wells in the context of upstream activities.

Colombia has a strong regulation in place regarding hydrocarbons and has promoted investment in upstream activities. Key facts relating to the industry have been previously discussed.

The current Colombian government is addressing energy transition goals, especially in respect of the hydrocarbon industry. Over the past year, modifications in the allocation of E&P Agreements have been announced and certain bills regarding unconventional activities have been submitted to Congress for consideration (see 6.1 Unconventional Investments: Upstream). However, proposed modifications have not been formally enacted.