Customer Logins
Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Customer Logins
BLOG
Dec 08, 2022
Colombia tax reform impact on Gorgon gas asset
In 2022, the recently elected government of Gustavo Petro submitted to Congress a tax reform bill ("Reforma Tributaria para la Igualdad y la Justicia Social") aiming for a fiscal adjustment to make the tax system more egalitarian in the country. The tax reform was approved by the Congress on 3 November 2022, although it is still pending sanction from the president. The bill will increase government revenue in the short term which is expected to be applied on social strategic programs. For the oil and gas industry, there are two main changes. One is the suppression of the deductibility of royalties and the second is a new tax rate, oil producers will be taxed an additional 5%, 10% or 15% based on the yearly average of crude price compared to the average of the last 120 months.
The deductibility of royalties for income tax purposes will put
Colombia in a unique position when compared to other key oil and
gas countries in Latin America, such as Argentina, Brazil and
Mexico which consider the calculation of corporate income taxes
based on entitlement production resulted from the deduction of
royalties.
Tax changes for gas would create pressure on new developments
The Gorgon asset is a future gas project, located offshore, 68 km northwest of Arboletes in deep waters. The Gorgon-1 field was discovered in 2017 and it is adjacent to the Kronos-1 and Purple Angel-1 fields discovered in 2015 and 2017, respectively. Ecopetrol holds 50% interest in the field after signing an agreement with Shell EP Offshore Ventures Ltd, in 2020.
IHS Markit Vantage Latin America team has modelled the Gorgon asset
considering two development phases for optimum recovery of 2P
resources. Due to water depth and reservoir content, two spar buoy
platforms are considered to be deployed, each possessing a topside
module capable of processing 650 million cubic feet per day
(MMcf/d) of gas, and 5,000 barrels per day (b/d) of oil. A start
date in 2028 has been assumed for the project considering
operator's view.
To recover resources in place a total of 15 production wells were modelled per phase, 10 drilled from the topsides and 5 wells through a subsea tie-back. Each phase is assumed to account for 3,000 billion cubic feet (Bcf) of technical recovery.
The export route was modelled considering a 120 km pipeline to
shore. The gas pipeline was designed to account for the production
of both development phases in order to manage cost and capacity of
the pipeline over the life of the field. The total capital expenses
(capex) including premiums, escalations and inflation account for
approximately USD 7,000 million considering development capex and
decommissioning costs. Onshore gas processing facilities are not
included in the scope of the project.
The Gorgon field is under the Concession (Royalty/tax) regime and the Free Trade Zone fiscal status. Fiscal Terms applicable are fees, production participation taxes, windfall taxes, royalties and corporate income taxes.
Valuation analysis is based on Vantage's base case oil price
scenario (benchmark Brent oil price of USD 95 per barrel, adjusted
for oil quality and escalated at 2% every year) and the domestic
gas price is based on 2022 gas price estimated by IHS Markit Gas
Markets and projected forward using 2% inflation adjustment per
annum. It is important to note, however, that this is a pre-FID
project development concept and there are many unknowns related to
technical development feasibility and which considers no geological
risk.
Looking at the impact of the tax reform bill over the Gorgon asset,
the after tax NPV for base case scenario could decrease over USD
100 million when considering no deduction of royalties, while
government take will increase from 35 to 42%.
The tax reform is changing the rules of projects that have already started investments (seismic and exploration), nevertheless they are still far from their maturity, creating different conditions from those that existed when the companies signed contracts and assumed investment commitments with the Colombian government.
The challenge for Colombia's government will be achieving the
economics to support energy transition while diminishing oil and
gas investments and increasing its dependency on imported gas. The
tax reform will restrict the development of national resources and
lead to challenges in a world where focus is shifting away from
globalization to localization, and where the energy industry is
more actively thinking about energy security than ever before.
Solutions:
Find the full report in Tax reform impact on the most
promising gas asset of Colombia
For more information regarding asset evaluation, portfolio view,
and production forecasts, please refer to Vantage
For more information regarding well, field & basin summaries,
please refer to EDIN
For more information on natural gas demand see: Latin American Natural Gas Outlook:
Andean region
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
{"items" : [
{"name":"share","enabled":true,"desc":"<strong>Share</strong>","mobdesc":"Share","options":[ {"name":"facebook","url":"https://www.facebook.com/sharer.php?u=http%3a%2f%2fstage.www.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fcolombia-tax-reform-impact-on-gorgon-gas-asset.html","enabled":true},{"name":"twitter","url":"https://twitter.com/intent/tweet?url=http%3a%2f%2fstage.www.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fcolombia-tax-reform-impact-on-gorgon-gas-asset.html&text=Colombia+tax+reform+impact+on+Gorgon+gas+asset+%7c+S%26P+Global","enabled":true},{"name":"linkedin","url":"https://www.linkedin.com/sharing/share-offsite/?url=http%3a%2f%2fstage.www.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fcolombia-tax-reform-impact-on-gorgon-gas-asset.html","enabled":true},{"name":"email","url":"?subject=Colombia tax reform impact on Gorgon gas asset | S&P Global&body=http%3a%2f%2fstage.www.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fcolombia-tax-reform-impact-on-gorgon-gas-asset.html","enabled":true},{"name":"whatsapp","url":"https://api.whatsapp.com/send?text=Colombia+tax+reform+impact+on+Gorgon+gas+asset+%7c+S%26P+Global http%3a%2f%2fstage.www.spglobal.com%2fcommodityinsights%2fen%2fci%2fresearch-analysis%2fcolombia-tax-reform-impact-on-gorgon-gas-asset.html","enabled":true}]}, {"name":"rtt","enabled":true,"mobdesc":"Top"}
]}