Transitory measures adopted by the National Hydrocarbon Agency during COVID-19

The National Hydrocarbon Agency (“ANH”) issued the Acuerdo 002 de 2020 (the “Agreement”) of April 7^th by means of which it establishes transitory measures to mitigate the adverse effects of COVID-19 and the drop in oil prices that have affected the world.

These measures, related to Technical Evaluation (TEA) and Exploration and Production (E&P) contracts, refer to 4 issues mainly:

1. Extension of terms and deadlines
2. Reduction of guarantees
3. Transfer of exploration activities or investments
4. Programmes to benefit the communities (PBC)

The extension of terms and deadlines established in the E&P and TEA contracts gives the contractor more time to adapt to the new economic conditions without having to incur in default. The Agreement allows the extension to be requested as long as: (i) the term or deadline object of the request has not previously been suspended; (ii) the term or deadline expires within 12 months of the filing of the request; (iii) the request is accompanied by the documents that prove the progress of the activities in order to comply with the commitments acquired (since the extensions are conditioned to the commitment to undertake specific tasks necessary to perform the pending activities established in the contract) (iv) the reference price Cushing WTI and WTI Light Sweet Crude Oil Futures CL is under USD$40 during the 30 days prior to the filling of the request; (v) the contractor has no penalties imposed by the AHN pending of payment; and (vi) the performance guarantees, labor obligations guarantees and civil liability guarantees are extended for the same period of the extension. If any of these requirements are not fulfilled, the benefit will not be granted. Extensions will be conferred for 12 months than can be extended once for 6 more months (if requested 3 months prior to the expiration of the initial extension).

The extension of terms and deadlines may be requested for the fulfilment of the obligations related to evaluation programmes, the exploration period and declaration of commerciality, among others. 

Moreover, regarding the reduction of guarantees, the Agreement states that, at the contractor’s choice and with prior authorization from the ANH, the contractor is allowed to modify the terms and percentages of the performance guarantees provided that the resulting value is insured by means of a letter of credit, bank guarantee or another instrument approved by the ANH.

In addition, the ANH enabled the possibility to transfer exploration activities or investments between contracts and agreements granted by the ANH. This applies to the contracts established in AHN’s Acuerdo 001 de 2020, that is, TEA, E&P or any other contract with the object of exploring and producing hydrocarbons. The measure establishes that the transfer can be performed without having to offer an additional investment (which under normal conditions is equal to 5% of the total investment that has not been executed). In this case, it is required to fulfil the conditions mentioned in (iv) and (v) above.

Finally, the Agreement determines that contractors may allocate the resources of the programs for the benefit of the communities (PBC) in strengthening the measures adopted by the National Government to mitigate the effects of COVID-19 in territories where exploration and exploitation activities are carried out.

These measures are important as they can represent a significant relief for contractors during this difficult time. Contractors can simply request them by filing the necessary documents before the ANH.