On May 18th, 2017, the National Hydrocarbons Agency (the “ANH”) issued Agreement No. 2 of 2017 (the “New Agreement”) in order to set new rules to contract the exploration and production of hydrocarbons owned by the Nation. With the New Agreement, the provisions set forth in Agreement No. 4 of 2012 and its further amendments were comprehensively substituted.

The New Agreement modified some of the requirements for insurance and guarantees the ANH requests in the allocation of areas agreements (hydrocarbons exploration and production agreements). 

What requirements remain under the New Agreement?

The New Agreement, like the former, indicates that the specific requirements for insurance and guarantees (i.e. coverage, amounts and validities) shall be established by the ANH in the terms of reference or in the corresponding selection procedure, which must be in line with the Minutes of the Agreement. 
Also, with the New Agreement some requirements that State contractors must comply with when taking the insurances and guarantees required in each allocation of areas agreement are maintained: 

1. Taking insurance with insurers legally authorized in Colombia.
2. That the guarantees (if any) are demand guarantees.
3. That the insurance policies do not expire due to default in the payment of premiums or by unilateral termination. 
4. Restoration of the amount of the guarantee or insurance policy in case this has been reduced. 

Additionally, the ANH reserves its capacity to terminate unilaterally the allocation of areas agreement when there is breach by the contractor of its duty to constitute, extend, renew, or restore the guarantees and insurance affecting the Agreement.

What is new in the New Agreement?

Unlike the former agreement, the New Agreement individualizes the type of insurance the contractor must take: 

1. Compliance
2. Compliance of labor obligations
3. Tort liability

Notwithstanding the foregoing, the New Agreement does not indicate rules for setting the insured amounts and the coverage of such insurance, these shall be set forth in the terms of reference or in the corresponding selection procedure. 

On the other hand, the New Agreement imposes on the contractor the obligation to require from the subcontractors to contract the same insurance policies the ANH initially required from it and under the same conditions. In addition, the ANH requires the contractors to give notice to the insurer about all contractual amendments related to the allocation of areas agreement. 

Finally, in case of non-conventional hydrocarbons deposits, the contractor must take a special tort liability insurance with the following characteristics defined in article 72.8 of the New Agreement: 

1. The insured amount must be equal to $39,250,000 of 2016.
2. The insured amount of this insurance policy must be updated for every twelve (12) month subsequent period, in accordance with the percentage variation of the Producer Price Index, issued by the United States Labor Department. 
3. The validity of the insurance policy must be by annual periods, except for the last validity which must comprise the final annual period and three (3) more years.