After the issuance of the National Development Plan, the National Government undertook the challenge of increasing the reserves to preserve hydrocarbons self-sufficiency in the medium and long term. Therefore, on October 26, 2018, it appointed an Independent Interdisciplinary Commission (the “Commission”) to determine if it is possible to carry out Integral Research Pilot Projects (“PPII” from its acronyms in Spanish) through the horizontal drilling and hydraulic rock fractures technique (better known as “Fracking”).

In 2019, the Commission concluded that in Colombia it is possible to carry out PPII through Fracking, provided that some requirements are met. Accordingly, the Commission published a full report, which contains the main conclusions and recommendations that the National Government must consider when implementing PPII related to unconventional deposits using Fracking.

In that sense, on February 28, 2020, the Ministry of Mines and Energy (“MME”) published Decree 328 through which the guidelines to carry out the exploration activities in the PPII were established;  and in compliance with article 2.2.1.1A.2.2 of Decree 328 of 2020, on July 7, 2020, the MME issued Resolution 40185, which established the technical guidelines for the development of PPII.

Thus, taking into account the foregoing, on September 11, 2020, the National Hydrocarbons Agency ("ANH") issued Agreement 6 of 2020, whereby it adopts the regulations establishing the conditions for the contractors selection and the special contractual terms for the execution of the PPIIs (the "Agreement"). 

Among the rules included in the Agreement are the following:

1.    PPIIs must be located in the Middle Magdalena Valley and Cesar Rancheria Sedimentary Basins; the areas in which the PPIIs may be carried out would be the portion of land identified and delimited by the interested company and authorized for such purpose by the ANH, which includes: (i) the surface to be used for the location and facilities; (ii) the total extension of the well; and (iii) a protection area of about 100 meters measured from the maximum theoretical extension of the fractures.

2.    The company interested in developing PPII must prove that it has the legal, economic-financial, technical-operational, environmental, and corporate social responsibility capacities required for the operator pursuant to Agreement 02 of 2017. Moreover, operators of contracts entered into pursuant to Agreement 3 of 2014 or Agreement 2 of 2017 for the development of unconventional fields will be considered qualified.

3.    The qualified company must submit an offer through written communication addressed to the ANH for each of the proposed PPII, taking into account that the ANH will authorize the execution of up to two PPIIs for each interested party, with a maximum of two wells for each project.

4.    Once the offer is submitted, the ANH shall review and verify compliance with the requirements outlined in the Agreement and the Terms of Reference issued for such purpose. Those that meet the requirements shall be evaluated and qualified according to the following rules and criteria: 

(i)    a PPII may be allocated for each one of the interested parties that have submitted an offer. 
(ii)    a second PPII may be allocated to the same interested party, provided that less than four offers are submitted. 
(iii)    when more than four offers are presented, four PPIIs will be selected according to the following criteria: 
(a)    First award criteria: (i) higher investment to be executed in the development of the research and operational activities program; and (ii) higher offer of economic participation to the communities.
(b)    Second award criteria (tie-breaker): In the event of a tie between two or more offers, the applicable evaluation and qualification factor will be the highest offer of local content in the procurement of goods and services for the execution of PPII.
(iv)    if more than one proposal is submitted on the same area, these rules will apply: 
(a)    the operator of contracts for the exploration and production of hydrocarbons from conventional fields shall have the preferential right for the area that overlaps, in whole or in part, with the area already contracted, and 
(b)    the selection shall be carried out by applying the evaluation and qualification factors aforementioned.

5.    To carry out PPII, a special research project contract (“CEPI” for its Spanish acronyms) must be signed, which will authorize the contractor to execute, only and exclusively, PPII in the delimited area, at its sole cost and risk, provided that no right is granted to the contractor to carry out unconventional hydrocarbons’ exploration and production activities.

6.    The activities to be executed by the contractor as part of the compensation called economic participation of the communities shall be aligned to the needs identified with the communities of the areas of influence of the respective PPII pursuant to the social investment lines approved by the ANH. This investment shall correspond to at least 0.2% of the costs of each well.

7.    The CEPI will not establish economic rights; however, it will be subject to Law 1530 of 2012 and those that replace or modify it in terms of royalties.

Please click here to consult the Agreement.