THE PETROLEUM CONTRACTING SYSTEM IN COLOMBIA THE COMBINED EFFORT BETWEEN THE STATE OWNED OIL COMPANY AND THE FINANCIAL AND TECHNICAL CAPABILITY OF MULTINATIONAL PETROLEUM COMPANIES
| Jurisdiction | Derecho Internacional |
(Mar 1999)
THE PETROLEUM CONTRACTING SYSTEM IN COLOMBIA THE COMBINED EFFORT BETWEEN THE STATE OWNED OIL COMPANY AND THE FINANCIAL AND TECHNICAL CAPABILITY OF MULTINATIONAL PETROLEUM COMPANIES
Gamboa, Chalea, Gamboa & Useche
Bogota, Colombia
FOR THE ROCKY MOUNTAIN MINERAL LAW FOUNDATION
OIL AND GAS DEVELOPMENT IN LATIN AMERICA
CARACAS, VENEZUELA
March 17, 1999
INTRODUCTION
The Petroleum (Oil and Gas) sector has played a significant role in the economic growth of Colombia in recent years. It is well known that the foreign revenues of Colombia have been posed on diversified products, mainly coffee, although others, such as flowers, banana, coal, emeralds, leather and some minor exports have composed the traditional basket for international trade. Until the middle of the decade of the 80ths., exportation of coffee represented more than one half of these revenues. However the diversification of the economy and, specially, the increase in the oil production changed this situation in the last decade.
After the discovery of the giant Caño Limón field by Occidental Petroleum Company, which became in full production by 1986, oil has replaced coffee as the number one export product in Colombia. The discovery of other giant oil and gas field by British Petroleum, Cuisiana, as well as other important, although less significant discoveries in the last fifteen years, placed the hydrocarbon sector in the heart of the business opportunities in Colombia for both, national and foreign investors.
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The attached Table No. 1, Historical Oil Production, and Table No.2, Historical Oil Reserves, show the increasing trend of the oil sector during recent times.
Much of this change was attributed to the changes in the legislation and government policies made in the early 70ths. and, in particular, to the implementation of the Association Contract System, when the Empresa Colombiana de Petróleos (ECOPTROL), the State Oil Owned Company, was granted the exclusive competence to explore and exploit the hydrocarbons of the Nations, directly or in association with private investors.
The purpose of this paper will be to explain generally the current contracting system with a quick reference to the historical events that preceded the change.
AN OVERVIEW TO THE HISTORY
1. The presence of oil.
The historical records show the existence of oil in Colombia since the 16th. century, during the Spanish Conquest, when the Army commanded by Gonzalo Jiménez de Quesada, who later founded Santafé de Bogotá, arrived at a place known as La Tora, by the Magdalena River, where there was a settlement of the indigenous Yarigui community. This place is now the "Oil City" of Barrancabermeja, where the main industrial facilities of Ecopetrol including the largest refinery of the country, are located.
The Spanish expeditions found a black oily liquid flowing from the ground which was used by the Yariguies community for a variety of purposes, particularly as a soothing ointment for the body. The Spaniards used it to waterproof their vessels.
Later on, during the time of the Spanish Colony and lately the Independence from the Spanish Crown, oil seepage appeared in other parts of the country, such as Catatumbo (near to the Venezuelan frontier) and Orito, in the southern region, and were used as row material for primitive comsumptions.
2. The origin of the Oil Industry.
However, it was only in early this century when the oil industry started in Colombia. Under the General Rafael Reyes regime, the Government signed two Concession Contracts which are really the origin of this industry. These were the Barco Concession and the De Mares Concession, called in this manner for the name of the concessionaires, General Virgilio Barco and Mr. Roberto De Mares, respectively.
The Barco Concession was in the prolific Catatumbo area. After successive negotiations along the years, with Colombian and foreign investors, its remaining reserves are still in production. The De Mares Concession was located in the Barrancabermeja area. This concession was transferred years later to the Tropical Oil Company, which in turn was acquired by the Standard Oil Company of New Jersey.
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This Concession is particularly important in the oil history of Colombia because there the Cira-Infantas field, the first giant oil field oil in the country, was discovered and because it was the origin of Ecopetrol.
3. The Empresa Colombiana de Petróleos (Ecopetrol)
3.1 Law 165 of 1948.
The law 165 of 1948 authorized the Government to create an oil company which would have the purpose of exploring and producing the petroleum resources existing in the country and, particularly, the assumption of all the assets pertaining to the De Mares Concession which was to revert to the Nation on August 25, 1951.
3.2 Decree 30 of 1951.
Pursuant to the authorization of Law 165 of 1948, the Government created Ecopetrol as an independent company and absorbed the assets of the De Mares Concession. Consequently, the effective date of the initiation of operations of Ecopetrol was August 25, 1951.
3.3 Ecopetrol's present organization.
Ecopetrol is organized presently as an Industrial and Commercial Company of the State, attached to the Ministry of Mines and Energy, with independent administration and capital, and full autonomy for making decisions.
In the relationship with third parties, Ecopetrol functions as a commercial company, engaged in typical activities of exploration, productions, refining and trading of oil and oil derivatives. It is regulated by Private Law and the regulations set forth in its by-laws approved by Decree 1209 of 1994.
As a State Company is subjected to the tutelage control of the Ministry of Mines and Energy and fiscal supervision of the General Comptroller of the Republic.
The Board of Directors is the maximum authority of Ecopetrol. It is chaired by the Minister of Mines and Energy and is composed by four principal members with their respective alternates, all of whom are of free designation and removal by the President of the Country,
After the Board of Directors, the top executive figure of Ecopetrol is its President, who is a public official, also freely appointed and removed by the President of the Republic.
THE CONCESSION SYSTEM
1, The concept of Concession.
Concession was the ruling contracting system in the oil sector in Colombia until 1974. It basically consisted in a contract between the National Government, represented by the formerly called Ministry of Mines and Petroleum, and a private company or an individual (The Concessionaire), whereby the concessionaire was allowed to explore and exploit oil within a portion of the national territory, at its own cost and risk, in exchange of the payment of a royalty (ranging between 11.5% and 14.5% of the production) and rent for the use of the land.
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The concession was granted for a limited period of time, at the expiration of which all the equipment, machinery, installations and facilities should revert, free of cost, to the Nation.
2. The Petroleum Code.
Several laws and government regulations governed the Concession System Special Decree 1056 of 1952 is the most important of these legal statutes. It is the so-called "Petroleum Code" which was enacted as an integrated set of norms for the regulation of petroleum activities.
Although the Petroleum Code was envisaged mainly for the regulation of concession contracts, it is a comprehensive statute that superseded the abolishment of the concession system in 1974. It is still applicable to concessions under proces of termination and to all other matters, such as the incorporation of oil companies in Colombia and transportation by pipeline, which are not inherent to the concession system.
THE NEW CONTRACTING SYSTEM.
1. Legal background.
1.1 Law 20 of 1969
This law is very important because it reaffirms the constitutional principle according to which all the mines and hydrocarbons belong to the State and allows the private ownership acquired under preexisting laws.
It also became the basis of the current oil contracting system. Art. 12 of Law 20...
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