News and AnalysIs for

Just a few short weeks after filing its fiscal year-end results, Canacol reported its 3Q12 calendar (1Q13 fiscal) results and the story was not a happy one. Revenues were down and the company reported a net loss of US$6.2M, its worst since 2010. Revenues were down because production was affected by a number of community blockages. The shift from so-called “Tariff” to normal production (which the company labels NRI) in the Rancho Hermosa block also had an impact.

The facts are that in the region of Boyaca where Maurel & Prom Colombia is conducting 3D seismic on November 5, 2012 there was the sound of explosives, the earth shook and water pipes broke in some of the affected areas. Water was out for up to five days in some municipalities. The municipalities accuse Maurel & Prom and their subcontractor Compañía Geofísica Latinoamericana (CGL) of being responsible. The subcontractor denies responsibility. Extracted and translated from thestatement published by a citizens’ action committeeand with commentary by Hydrocarbons Colombia.

The Colombian press reports that President Juan Manuel Santos has announced a CoP $900B (US$496M) investment in a sector of the route Bogotá – Villavicencio. The investment will be carried out to improve traffic flow on this route. Work on this stretch will begin in 2013. Another CoP$800B will be invested on a route linking the municipalities of Cáqueza and La Calera with Bogotá.

Congress approved the presentation of a project (004, 2012) which intends that the oil and gas sector pay the industry and commerce tax (ICA). The industry is currently exempt from this municipal tax because royalties are presumed to fulfill the same role.

RCN reports a scandal over modifications at the wastewater treatment plant of Yopal (Casanare). The work has been the responsibility of the consortium Inisa since August 5, 2011, when the consortium signed a CoP$7.711B (US$4.25M) contract in which it committed to deliver results ten months later.

The USO is the Colombian petroleum workers union. Unrepentantly radically left, it often seems trapped in some Marxist-Leninist twilight zone from before the fall of the Berlin Wall or perhaps before the Second World War. Still its capacity for mischief is unmistakable and so we believe it is important for oil and gas industry stakeholders to keep track of what they up to. We will summarize major news items from their webpage or other sources and publish the summary every Monday. We will reproduce the tone of their items while not agreeing with their messages.

On November 1, 2012, Colombian President Juan Manuel Santos addressed a summit of mayors of the departmental capitals. The president wanted to address the mayors’ main concerns so the whole speech touched on health, security and royalties. Below we translate the portion of the speech dealing with the latter topic. It is important for the hydrocarbons industry that royalties are well spent and give visibility to its contributions. From the President’s website. Extracted, translated and with commentary by Hydrocarbons Colombia.

The Colombian Congress has approved a CoP$17.7T (US$9.2B) royalty budget for the period 2013 – 2014. The Governing Committee (Comisión Rectora) approved this amount to be distributed to the various funds of the royalty system over the next two years. This was announced by MinHacienda, Mauricio Cárdenas, who highlighted the importance of the initiative for creating equity in Colombia. Cárdenas also said two efforts are being unified, the one of government through the Nation’s Budget and the one of regions through royalties, so as many projects can be done as possible, for the progress and prosperity the country seeks.

This morning the legal firm of Norton Rose and the Canada-Colombia Chamber of Commerce (CCCC) held a seminar on anti-corruption practices with special emphasis on the American Foreign Corrupt Practices Act, the Canadian Corruption of Foreign Public Officials Act and the recent Colombian anti-corruption act. A large number of extraction industry firms are members of the CCCC and this issue is always a concern in these sectors. Indeed the only company ever prosecuted in Canada under the act was an oil and gas firm.

The current Finance Minister and former Mines and Energy Minister, Mauricio Cardenas gives his evaluation of the new royalty system. The system has been theoretically in place since January but it really only got going in 2Q12. From a MinHacienda press release. Translated and with commentary by Hydrocarbons Colombia.