Big Oil Withdraws from Colombia as Regulations Tighten
Major international oil and gas companies are significantly reducing their presence in Colombia’s offshore exploration and production sectors. This shift follows the implementation of stricter regulations under leftist President Gustavo Petro, who took office in 2022. The combination of heightened barriers to investment and underwhelming results from exploration drilling has led to a notable exit from the region by key players in the industry.
Since President Petro’s administration began, there has been a marked increase in regulations affecting conventional oil and gas exploration, alongside a complete ban on fracking. In November 2022, the government raised taxes on the hydrocarbon sector, a critical component of Colombia’s economy. The tax structure was adjusted to start at 5% when the international price of Brent crude reached $67.30 per barrel. This rate doubles to 10% when prices exceed $75, and peaks at 15% at $82.20 per barrel.
In a notable development, the Colombian government attempted to eliminate royalty payments as a tax deduction for exploration and production companies. However, this initiative faced legal challenges and was ultimately overturned by Colombia’s Constitutional Court in a ruling made in November 2023. The efforts to pivot away from fossil fuels have inadvertently led to increased energy import reliance, as declining oil and gas production has sparked energy shortages in the country.
The adverse investment climate has prompted several major companies to reassess their operations in Colombia. Earlier this year, Shell announced its withdrawal from offshore gas projects in the Caribbean, which it had co-owned with the Colombian state-owned oil company Ecopetrol. Similarly, Chevron has exited its last remaining offshore block, now limiting its operations in Colombia to downstream activities. According to company sources, Chevron maintains “a sizeable downstream presence in the country,” which includes six terminals and over 500 pump stations.
As Big Oil downsizes its operations in Colombia, these companies are redirecting their investments towards other South American nations that are emerging as new hotspots for exploration. Countries such as Brazil and Argentina are attracting attention for their more favorable investment climates and abundant resources.
The shift in corporate strategy highlights the challenges facing Colombia’s oil and gas sector amid changing political landscapes and regulatory frameworks. The future of the industry remains uncertain as both domestic and international stakeholders adapt to the evolving economic environment.
