Historically, for new field production commencing prior to July 25, 2002, a flat 20 percent royalty applied. The Company has no Exploration Contracts subject to this flat 20% royalty.
For new field production commencing after July 25, 2002, royalties are calculated on a per field basis using a sliding scale that ranges from eight percent (for production up to 5,000 bbl/d) up to a maximum of 25 percent (for production above 600,000 bbl/d), illustrated as below, whereby the royalty rate increases one percent for every 10,000 bbl/d of production for fields over 5,000 bbl/d until the field reaches 125,000 bbl/d.
| Field Production (bbl/d) | Royalty Rate* | |
| 0 – 5,000 | 8% | |
| 5,001 – 125,000 | 8% – 20% | |
| 125,001 – 400,000 | 20% | |
| 400,001 – 600,000 plus | 20% – 25% |
* For new discoveries of heavy oil, classified as those with an API equal to or less than 15°, the royalties will be 75% of the royalty rates for light and medium oils presented above.
All of the Company’s Exploration Contracts and Incremental Production Contracts are subject to this sliding scale royalty. High Price Participation Payment Certain terms, such as those relating the high price participation payment, have changed in subsequent bid rounds since the first ANH Exploration Contracts were signed.
In certain Exploration Contracts held by Petrominerales (the older ANH contracts), the high price participation payment commences once an exploitation area has cumulatively produced more than five million barrels of oil, determined before the deduction of royalties. In these contracts, the payment is paid at a 30 percent factor of the price received in excess of the threshold prices, based on the oil quality produced. High Price Participation Payment Threshold Prices Quality 2011 Threshold Prices (“Po”)
| Less than 10° API | Nil | |
| 10° to 15° API | $48.14/bbl | |
| 15° to 22° API | $33.71/bbl | |
| 22° to 29° API | $32.50/bbl | |
| Greater than 29° API | $31.29/bbl |
Threshold prices are adjusted annually for inflation.
As an example, crude oil production with a quality above 29 degrees API and a realized oil price of US$85/bbl results in a high price participation payment which is equivalent to an incremental 19 percent royalty ($85-$31.29=$53.71×30%=$16.11/$85=19%), bringing the total government take to 27 percent for a field with production less than 5,000 bbl/d.
In more recent Exploration Contracts held by Petrominerales (the newer ANH contracts), the high price participation payment commences once the block has cumulatively produced more than five million barrels of oil, determined before the deduction of royalties. In these contracts, the payment is determined at an established percentage using a sliding scale factor of the price received in excess of the threshold prices (“Po”), based on the oil quality produced. The sliding scale factor is:
| Realized Monthly Average Price (P) | Established Percentage | |
| P<Po | 0% | |
| Po≤P<2Po | 30% | |
| 2Po≤P<3Po | 35% | |
| 3Po≤P<4Po | 40% | |
| 4Po≤P<5Po | 45% | |
| 5Po≤P | 50% |
As an example of the more recent Exploration Contracts, crude oil production with a quality above 29 degrees API and a realized oil price of US$85/bbl results in a high price participation payment which is equivalent to an incremental 22.1 percent royalty ($85-$31.29=$53.71×35%=$18.80/$85=22.1%), bringing the total government take to 30.1 percent for a field with production less than 5,000 bbl/d.
The high price participation payment does not apply to Petrominerales’ Incremental Production Contracts.
Petrominerales is currently in a dispute with the ANH regarding the interpretation of the high price participation provision contained in the Corcel Exploration Contract. See “Legal Proceedings”. X-Factor For certain Exploration Contracts acquired in the 2008 Heavy Oil Bid round and in subsequent bid rounds, the ANH required an additional royalty percentage, or X-Factor, to be paid by the Contractor to the ANH. The X-Factor is also now one of the bid criteria for new Exploration Contracts, and the minimum X-Factor is one percent. The X-factor does not apply to Petrominerales’ Incremental Production Contracts.
Summary of Fiscal Terms by ANH Exploration Contract
Each Exploration Contract with the ANH has a sliding scale royalty of 8%-25% based on the average monthly production level of a field, plus potentially two additional payments that vary by contract, a high price participation payment and an X-factor. The following table summarizes the high price participation factors and X-factors applicable to Petrominerales’ Exploration Contracts.
| Block | X-factor % | Basis for High Price Participation Payment |
| Colombia | ||
| Deep Llanos | ||
| Corcel(1) | -% | Exploitation Area + 30% factor |
| Guatiquia | -% | Exploitation Area + 30% factor |
| Block 25 | 1% | Exploitation Area + sliding scale factor |
| Block 31 | 1% | Exploitation Area + sliding scale factor |
| Block 59 | 1% | Block + sliding scale factor |
| Block 15 | 1% | Block + sliding scale factor |
| Central Llanos | ||
| Mapache | -% | Exploitation Area + 30% factor |
| Casimena | -% | Exploitation Area + 30% factor |
| Castor | -% | Exploitation Area + 30% factor |
| Casanare Este | -% | Exploitation Area + 30% factor |
| Llanos Heavy Oil | ||
| Chiguiro Este | -% | Exploitation Area + 30% factor |
| Chiguiro Oeste | -% | Exploitation Area + 30% factor |
| Rio Ariari | -% | Exploitation Area + 30% factor |
| Middle Magdalena | ||
| Antorcha | -% | Exploitation Area + 30% factor |
| Putumayo | ||
| Las Aguilas | -% | Exploitation Area + 30% factor |
Notes:
- The Corcel Block is subject to an eight percent net profits interest granted to the original owner. This is the only third-party interest that affects the Company’s Exploration Contracts. The Corcel NPI is calculated by applying eight percent to net profit, if positive. Net profit is calculated by subtracting from oil sales the following costs: royalties, transportation, operating expenses, an overhead allocation and capital expenditures. The NPI account is a cumulative balance and no amount is payable when the account has a negative balance.