Colombian government announces long-awaited reforms to oil industry

Experts on the Colombian oil industry have been calling for the government to stimulate the struggling sector, which has driven much of Colombia’s economic growth over the last two decades. The country’s oil sector is mired in a deep slump, because of the collapse in global oil prices and the lack of investment in exploring for new oil to replace Colombia’s dwindling reserves.

The Colombian government has decided to take decisive action to “restart the oil train.” Yesterday, the Ministry of Mines and Energy (Minminas) announced a plan to overhaul regulations for the hydrocarbons industry in Colombia, introducing changes to taxes, to contracting, and initiatives to boost investment. First, Minminas is going to design and introduce a model to assign and market seismic data on Colombia to reduce the uncertainty risk for oil companies interested in investing in the country.

Colombia will also introduce flexible contracting and bidding rounds to allow for projects to move more quickly and smoothly between the evaluation and exploration phases, for example. Colombia no longer auction off its fields in massive blocks at fixed times, but instead work much harder on promoting smaller auctions.

Minminas’ decisions were based on an extensive, long-term study of the Colombian oil industry, performed by McKinsey. Another of McKinsey’s recommendations was to change the model for calculating oil royalties to a more flexible model, allowing the sector to more quickly respond to collapses or rises in prices. If the reforms of the oil sector are successful, they should postpone a decline in the Colombian oil industry at least until 2030.