Ecopetrol continues acquisition binge, as Colombian oil rebirth rolls on
Ecopetrol is experiencing a renaissance as it grabs the revival of Colombia's oil sector with both hands
COLOMBIA's state-controlled Ecopetrol is experiencing a renaissance as it grabs the revival of the country's oil sector with both hands. Acquisitions, internationalisation and a massive new oil pipeline are at the heart of its strategy, writes Robert Olson.
Since debuting on the stock market in 2007, Ecopetrol, once written off as the lead firm in an oil province doomed by unlucky geography and an intractable civil war, has posted impressive growth. A string of take-overs, culminating with the opportunistic buy of 51% of BP's Colombian operations in August (PE 9/10 p31), at a cost of $0.9bn, and renewed success with the drillbit have revitalised the company.
Ecopetrol's new-found confidence has led it to unveil an ambitious $80bn capital programme for the rest of the decade and to target output of more than 1m barrels a day (b/d), more than double its production in 2008.
The BP purchase will add 12,000 barrels of oil equivalent a day (boe/d) of new production along with 123m boe of new oil reserves, Ecopetrol says. BP, which sold off its Colombian assets as part of its plan of disposals to help pay for the cost of Gulf of Mexico oil spill, had already been considering hundreds of millions of dollars of spending at its ageing fields in Colombia – a strategy designed to expand natural-gas output as industrial demand continues to grow.
Colombia's revival as a Latin American oil power has taken many observers by surprise: years of dismal drilling results and declining production seemed destined to continue. As the country's oil output slumped in recent years, Ecopetrol was one of the few companies buying assets. As a result it now controls the vast majority of national output.
Ecopetrol and partners produced more than 0.7m b/d of oil out of the less than 0.9m b/d pumped by the country as a whole earlier this year. Its success in reviving output has stoked interest from independent firms, however, which pledged more than $1bn in new investment in Colombia's June oil exploration bid round.
Ecopetrol's ambitions are reflected in a big increase in borrowing, however. The company plans to issue debt worth $23bn over the next decade, an ambitious figure for a state-controlled company in a country that is not yet rated investment grade by international bond-rating agencies.
While upstream oil and gas will receive the lion's share of the new funds, Ecopetrol is pushing new investments in downstream areas. It is eyeing $2.9bn in outlays to expand and modernise the country's two oil refineries – at Barrancabermeja and Cartagena – along with a $5.5bn spend to increase petrochemicals production more than fourfold, to 2.7m tonnes a year by 2020.
The centrepiece project is a $4.2bn oil pipeline that will connect prospective oilfields in the central plains with the Caribbean port of Coveñas. Ecopetrol hopes private-sector partners will join the venture, which aims to move 450,000 b/d of crude when it starts operations in the middle of the decade.
Much of Colombia's resurgence as an oil producer has depended on improved security. Former President Alvaro Uribe led an armed crackdown on leftist rebels, who regularly bombed oil pipelines and made working in remote areas unsafe. Although the rebels are a diminished force they have announced their continued presence since Juan Manuel Santos took power earlier this summer (PE 9/10 p28), including a car bombing outside a popular radio station in the capital Bogota and a number of ambushes that have killed dozens of security forces.