Could Calgary-based Parex Resources file an investor-state challenge if the Colombian government bans fracking?

Photo: PBI-Canada was present as CREDHOS president Ivan Madero introduced a session with residents of Puerto Wilches opposed to fracking, June 28, 2022.

Colombian President-elect Gustavo Petro has made it clear that he intends to ban fracking once he is sworn into office on August 7.

Now, Infobae reports: “This announcement by the leader of the Pacto Historico [Historical Pact] would become a problem for the four oil multinationals that signed the contracts with the Colombian State, for the commercial and experimental development of crude oil and gas in unconventional fields in Colombia.”

The article continues: “These are: ExxonMobil, with whom Ecopetrol will carry out two pilot projects of Integral Research, in Puerto Wilches; Drummond Energy (with four contracts), ConocoPhillips (with two contracts) and Parex Resources (with one contract), these companies would enlist their legal artillery, given the fact that the new government announced its veto on fracking.”

Parex Resources is a Calgary-based company that operates in Colombia.

Earlier this year, Parex noted: “On September 18, 2014, Parex Colombia signed an E&P Contract with the ANH for Block VMM-9. Block VMM-9 is approximately 152,314 gross acres in size and is subject to an initial base royalty of 9%. The first phase of the agreement has a term of 36 months, which has since been extended, and a current commitment of approximately $89 million. Currently the E&P Contract is suspended due the lack of regulations to explore and exploit unconventional hydrocarbons.”

The outgoing Minister of Mines and Energy Diego Mesa has commented: “If the measure is taken [by Petro], the country is exposed to large lawsuits for breach of contractual agreements. Both the seven contracts that were active with the ruling of the Council of State, and the two agreements for fracking pilots, were granted rights to the interested companies that are scheduled to develop them, and by ignoring them, the country would be badly placed in international courts.”

Reuters has also noted: “A decision by Colombia’s top administrative court [the Council of State], which ruled against a lawsuit seeking to nullify regulations affecting fracking, will allow seven non-conventional energy contracts worth $517.4 million to move forward, Mines and Energy Minister Diego Mesa said on Friday [July 8].”

That article further explains: “While Thursday’s ruling has no bearing on the pilot projects, it will allow seven contracts [signed between 2013 and 2016] for non-conventional energy projects to advance to the next step, Mesa said in a video shared with journalists.”

It is conceivable that Parex Resources could use the investor-state dispute settlement (ISDS) mechanism in the Canada-Colombia Free Trade Agreement (CCFTA) to sue for lost investment and future profits if Petro bans fracking as promised.

Transnational corporations could claim that their rights related to “indirect expropriation”, “national treatment” and a “minimum standard of treatment” have been violated.

As Public Citizen explains: “Foreign corporations have used ISDS to attack an increasingly wide array of climate, financial, mining, medicine, energy, pollution, water, labor, toxins, development and other non-trade domestic policies.”

Beyond the seven contracts, Ecopetrol has also stated that it will proceed with the two fracking pilot projects in Puerto Wilches.

Ecopetrol says: “We currently have two contracts signed and in force with the [hydrocarbons agency] ANH for the execution of the pilots … from which legal obligations are derived for the company with which we must comply.”

Semana has reported that Ecopetrol and the National Hydrocarbons Agency (ANH) signed a contract for the Kalé pilot in December 2020, while a contract between ExxonMobil and the ANH for Platero was signed in June 2021.

In April 2021, after the ANH awarded a contract to ExxonMobil for a fracking pilot project, Toronto-based Sintana Energy Inc. stated: “Regarding Project Platero, Sintana has been and continues to be in positive communications with both ExxonMobil and the ANH to ensure that the integrity of both the Company’s commercial arrangements with ExxonMobil and the Contract for VMM-37 with the ANH are honored.”

The Canadian company owns a 30 per cent non-operating share in VMM-37.

We continue to follow this situation closely.