Colombia enacts sharply lower royalty rates

By an OGJ correspondent

BOGOTA, July 24 -- In a move to encourage hydrocarbon exploration in the country, outgoing Colombian President Andrés Pastrana signed a measure that will significantly reduce the amount of royalties oil and gas companies will have to pay the state. Congress approved the new Royalty Law on June 20.

At the official signing act, Pastrana said that his government had seen the biggest surge in foreign investor interest in Colombian oil and gas in recent times and that the future governments should continue to attract foreign investment in the petroleum sector. During 2000-01 period, 60 new association contracts were signed, compared with 32 contracts signed during 1997-99.

The royalties on newly discovered small and medium- sized oil fields producing fewer than 125, 000 b/d—based on an average daily output—were cut to 8-20%. The previous rate was a flat 20%.

All of Colombia's biggest oil fields—except the BP PLC-operated Cusiana-Cupiagua field—produce less than 125, 000 b/d.

Private companies producing 400,000-600,000 b/d would see royalties of 20-25%, based on average daily production.

The news was well-received by oil companies, whose operating costs have been driven up considerably by frequent attacks on infrastructure by left-wing guerrillas. The new royalties are crucial if foreign firms are to continue to do business in Colombia, say industry observers.

Pastrana said he would distribute $278 million in oil royalties to rural municipalities to cover pension costs.