Merak Fiscal Model Library

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Colombia Association (2002)

Fiscal Term Description
The latest Association Contracts for new fields include sliding scale Royalty, R-Factor Production
Fiscal Regime Type Sharing, Income Tax, and NOC participation.
Governing Legislation Model Association Contract for new fields.
• At declaration of commerciality, Ecopetrol participates with 30% of the development
investment and operational costs.
• Ecopetrol also reimburses the contractor 30% of its prior direct successful exploration costs
NOC Participation (plus inflation) out of 50% its share of production net of royalty for liquid fields (100% for gas
fields). Inflation effect has not been modeled. Ecopetrol reimburse the carried costs to the
Contractor as a Net After Tax payment.
• Ecopetrol participates in operating costs in the same proportion as its share of production
(per R-Factor).
Signature Bonus None.
Fees Various small entered as surface rental and training fees ( $ 40,000 / year ).
Sliding scale royalty based on the field’s BOE production rate.

Average Daily
Royalty Rate (%)
Production (MBOED)
0–5 8%
8% increasing
5 – 125
linearly to 20%
125 – 400 20%
Royalty 20% increasing
400 – 600
linearly to 25%
> 600 25%

Other rates % of above

1000 feet deep onshore 80%
1000 feet deep offshore 60%
API < 15 75%
Production Sharing, after royalties have been deducted, is 30% for Ecopetrol and 70% for the
contractor, for the first 60 millions cum barrels. When the production exceeds 60 million cum
barrels, the distribution is based on R-Factor (accumulated income/expenses ratio) as follows:

Production Sharing R-Factor Contractor (%) Ecopetrol (%)

< 1.5 70 30
1.5 – 2.5 70 / (R -0.5) 100 - Contractor
> 2.5 35 65
June 2007 Page 1 of 2
Colombia Association (2002)

Fiscal Term Description

Where; R-Factor = Cum Contractor Prod Share Revenue after Royalty (in constant dollars)
Cum Contractor Costs – any carry payback
The factors in the above table are negotiable and ring fenced by contract area.
For Gas only fields after the first 900 giga cubic feet:
R-Factor Contractor (%) Ecopetrol (%)
0 to 2 70 30
2 to 3 70 / (R –1.0) 100 - Contractor
>3 35 65
• 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.
• Municipal tax is a deduction for CIT.
• Depreciation of capital costs to calculate Taxable Income for Income Tax:
o Wells and facilities (drilling & completion, locations and roads, gathering lines, power
lines, power generation, disposal pits, injection facilities, treatment plants, on-shore/off-
shore facilities): 5-year Straight Line
o Pipelines and buildings (transportation pipelines, camps, offices): 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.
Income Tax
o Platforms: costs related to the construction of offshore platforms: 10-year Straight Line
o Successful exploration drilling; costs related to successful exploration efforts: 5-year
Straight Line
o G&A and G&G capital depreciated 5-year Straight Line (Other Cost Group)
o Operating costs are expensed
• Local VAT and 1.2% import duty are considered part of costs.
• For income tax purposes there is no ring fence.
• 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.
• 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
Income Tax Payment prior 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.
Municipal tax Typically 0.4% of the field’s gross revenue after royalty.
• There is also a remittance tax of 7% of repatriated dividends. The withholding tax rate is no
Withholding Tax
longer valid starting in 2007.
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June 2007 Page 2 of 2