Merak Fiscal Model Library

A world-class collection of standardized fiscal models

Colombia RT (2004)
Fiscal Term Description
Fiscal Regime Type Royalty / Tax system with a possible additional tax on surplus income.
• Exploration and Exploitation Model Contract issued by Agencia Nacional de Hidrocarburos
(ANH) on May 26 of 2004.
Governing Legislation • Tax regulations for Petroleum companies operating in the Republic of Colombia.
• Act 756 of July 23 of 2002 that establishes criteria for the calculation and distribution of
royalties.
State Participation None.
Signature Bonus None.
• From the second exploration period. Negotiable and established in $ / hectare according to the
following table (Modeled as Surface Rental)
Area Size US $ / Hectare
(Hectare) Up to 100,000 Hectare Over 100,000 Hectare
<= 12 > 12 <= 12 > 12
Phase Duration
months months months months
Inside Polygons
Surface Rental 0.75 1.0 1.0 1.5
A and B
Outside of
0.5 0.75 0.75 1.0
Polygons
Offshore 0.25

This is a monthly payment.

• The Royalty rate is a Direct sliding scale based on monthly averaged production rate (BOE/day)
with discount for Gas and heavy oil for different types of reservoirs as shown in the table.
Royalty Rate (%)
Gas Heavy Gas
Prod. Rate Light
Offshore Crude Offshore Slope
(BOE/Day) Crude
< 1,000 ft < 15 API > 1,000 ft
Royalty (Base)
(20% Disc.) (25% Disc.) (40% Disc.)
0 8.00% 6.40% 6.00% 4.80% -
5,000 8.00% 6.40% 6.00% 4.80% Flat
125,000 20.00% 16.00% 15.00% 12.00% Interpolation
400,000 20.00% 16.00% 15.00% 12.00% Flat
600,000 + 25.00% 20.00% 18.75% 15.00% Interpolation
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Colombia RT (2004)

Fiscal Term Description

Municipal tax Typically 0.4% of the field’s gross revenue after royalty.
Exploration and Evaluation Areas
(See Surface Rental)
Exploitation Areas
• Based on Contractor’s Oil production after royalty
(US$/bbl) Year
0.10 After 2004
Subsurface Fee (0.10) x I (n-2) After 2006
Factor I (n-2) = Annual variation (as a fraction) of the CPI as reported two years before the
year of the actual calculation
• Based on Contractor’s Gas production after royalty
(US$/mscf) Year
0.01 After 2004
This is a semi-annual payment.
• The ANH payment is applied to Light Crude fields only. Natural Gas and Heavy Crude fields
are exempt.
• The ANH payment triggered after cumulative sales production in the contract area exceeds 5
MMBOE.
• ANH payment is a deduction for Income Tax calculation.
• The ANH payment is 30% of real surplus income of the contractor using the formula;
P = Actual Price Marker Crude WTI
Po = Trigger Price Marker Crude
For P (WTI) > Po,
ANH Pmt = [Actual Oil Price @ Delivery Point] x [Actual Contr Gross Sales Vol] x {(P – Po) / P}
x 30%

ANH Payment (for High Oil • The Trigger Price (Po) depends on the actual quality of the hydrocarbon produced in degrees
Prices) API as in the following table:

Hydrocarbon Quality Trigger Price

(°°API) (Po)
Heavy Oil (< 10) 0
10 -15 40
15 – <= 22 28
22 – <= 29 27
> 29 26
Natural Gas To be agreed
• The Trigger Price (Po) will be adjusted annually after January 1 of 2006 using the following
formula.
Po = Po (n-1) x (1+ I (n-2) )
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Colombia RT (2004)

Fiscal Term Description

Po (n-1) = Value of Po of the previous year
• API entered on Oil Production tab is used for this calculation.
• This is a monthly payment.
• Tax rate was originally 35%, going to 38.5% in 2003, and to 36.75% in 2004, 34% in 2007, and
33% in 2008 an after.
• Bonuses, Municipal tax, Surface Fee and ANH Payments are deductible for Income Tax.
• Depreciation of capital costs to calculate Taxable Income for Income Tax:
o Wells and facilities (dev drilling & completion, locations and roads, power lines, power
generation, disposal pits, injection facilities, on-shore/off-shore facilities): 5-year Straight Line
o Platforms: costs related to the construction of offshore platforms: 10-year Straight Line
o Pipelines, Plants and Gathering(transportation pipelines, treatment plants camps, offices):
Income Tax 7.5% annual. (5% annual based on 8 hours/day of work. Additional 1.25% per each
additional 8 hours work shift. Thus, for a 24 hours/day operation, 7.5%/year). Modeled as
13-year Straight Line.
o Successful E&A Drilling costs related to successful exploration efforts: 5-year Straight Line
o G&A and G&G capital: depreciated 5-year Straight Line
o Operating costs are expensed
o There is an Income Tax Allowance that is applicable on new investments [Development
Drilling Success and Facilities Capital]. The Income Tax Allowance Rate is set to 30 %
before 2007 and 40 % in 2007 and after.
• After the first year of commercial production, the Contractor should acquire a letter of financial
warranty for the value of the Abandonment Fund (AMA).
AMA = (PAH / RIH)2 x CAB
Where,
PAH = Cum volume of hydrocarbons produced in the area until December 31st of the
Abandonment Fund actual year (in BOE)
RIH = Cumulative production for that year plus Remaining Reserves (in BOE) for the area
CAB = Estimated Abandonment Cost (for the area)
(Note :Included in model as UOP accrual)
• Deductible for Income Tax purposes
• The current year’s tax liability is paid in two pieces an “advance payment” in the current year
and the balance the following year. The amount of the advance payment depends on the prior
Income Tax Payments two years taxes. When tax liabilities are rising year to year, the advance payment is 75% of the
average of the prior two years. When tax liabilities are declining, the advance payment is 75%
of the prior year’s taxes.
There is also a remittance tax of 7% of repatriated dividends. The withholding tax rate is no longer
Withholding Tax valid starting in 2007.
• Around the contract area for Royalty and ANH payment.
Ring Fencing
• No Ring Fence for Income Tax.

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 Colombia RT (2004)

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June 2007 Page 4 of 4

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