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Ecopetrol Beats Top Global Oil Companies as Rebels Loom

Ecopetrol Beats Top Global Oil Companies as Rebels Loom
Ecopetrol is sticking with its production goal after structuring plans with the military and defense ministry to protect infrastructure. Photographer: Paul Smith/Bloomberg

Ecopetrol SA is the best-performing major oil company after turning decades-old fields in areas once overrun by guerrillas into drivers of double-digit output growth. The success is putting it back on the rebels’ radar.

Colombia’s state-owned producer has returned 35 percent in U.S. dollar terms in 2012, the best performance worldwide by oil companies with a market value of more than $50 billion. The performance makes Ecopetrol the seventh most valuable producer at $115 billion, overtaking Total SA and China Petroleum & Chemical Corp. and on the heels of BP Plc’s $125 billion value.

Bets Ecopetrol will meet targets to almost double production in 2020, combined with an emerging-market beating rally by the Colombian peso, have fueled gains in the stock. Record annual output also makes the company a high-profile target for cocaine-funded rebels who have increased attacks on pipelines and oil fields in a fifth-decade of armed conflict.

“Ecopetrol has built an image of a prosperous and efficient state-run company,” said Alfredo Rangel, a former member of Colombia’s Security Council. “Undermining and sabotaging that image is in the political and economic interest of the Colombian guerrilla movement. There’s a big increase in attacks.”

Rebels killed five oil workers at an Ecopetrol well in southern Colombia and blasted pipelines in the past week, slowing production that rose more than 17 percent annually in the last three years. Chief Executive Officer Javier Gutierrez said June 15 the company will reach its target of a record 800,000 barrels a day from 724,100 barrels a day in 2011.

‘Deplorable’ Killings

Rising profit at oil companies have made them a target for extortion and kidnapping as guerrillas seek new revenue sources after a government crackdown on cocaine production, Rangel said. Colombia is the largest supplier of the drug to the U.S.

The “deplorable” killings at Ecopetrol’s field won’t derail nationwide oil production targets that fund government social programs, Mines and Energy Minister Mauricio Cardenas, who is on Ecopetrol’s board, said last week in speech.

Ecopetrol will coordinate plans with the military to increase security for a $4.2 billion pipeline project to avert terrorist sabotage and construction setbacks, Cardenas said today in an e-mailed statement. Guerrillas in February took workers hostage near the pipeline site in eastern Colombia, contributing to delays in the first stage of the project.

Rebels have set explosives along Ecopetrol’s 771-kilometer (479-mile) Cano Limon-Covenas pipeline in eastern Colombia, where engineers are finishing repairs after an attack last week. Guerrillas also have blasted the company’s southern Transandino and OSO pipelines, which is being secured by the military after an assault on July 8.

Pipeline Attack

Incidents of sabotage nearly tripled to 37 in the first four months of the year from 13 in the same period last year, according to government statistics. Attacks on pipelines, energy towers, roads and bridges jumped last year in Colombia for the first time since 2008.

“A pipeline attack can brake the company’s production,” said Santiago Melo, an analyst at Bogota-based brokerage Alianza Valores SA. “Something that takes days to repair can push back output for the quarter.”

Ecopetrol is sticking with its production goal after structuring plans with the military and defense ministry to protect infrastructure, the company said yesterday in an e-mailed statement. Ecopetrol has “very good” response times to ensure the return of normal operations after infrastructure incidents, according to the e-mail.

Investment Plan

Ecopetrol’s $80 billion investment plan through 2020 drove an 18 percent gain in production last year and in 2010, in part by tapping fields discovered decades ago. Those include Ecopetrol’s Castilla, discovered in 1969, Casabe, found in 1941, and Rubiales, Colombia’s largest oil field, first uncovered in the 1980s. Ecopetrol owns 60 percent of Rubiales, while Pacific Rubiales Energy Corp. owns the remainder and operates it.

Rubiales has increased output in eastern Colombia’s Meta province, where a lack of security once deterred investment. Since the government began to increase strikes against rebels and crack down further on cocaine production to cut the movement’s funding, attacks on infrastructure have fallen to 196 last year from 917 in 2002, according to government figures. Kidnapping for the purpose of extortion declined to 208 from 1,708 over the same period.

Rising output of crude and natural gas has buoyed Ecopetrol’s share return, which surpassed the return of China’s Cnooc Ltd., the second-best performer among oil companies in dollar terms this year with a 14 percent return. China Petroleum & Chemical, or Sinopec, and Petroleo Brasileiro SA, or Petrobras, are the worst investments among major oil companies, according to data compiled by Bloomberg.

Record Profit

Ecopetrol trades at 12.2 times reported earnings, costlier than Petrobras, which trades at 7.9, and Exxon Mobil Corp., the world’s largest oil producer by market value, which fetches 10.1 times profit, the data show.

Profit at Ecopetrol climbed to a record 15.5 trillion pesos ($8.7 billion) in 2011, when production rose to an all-time high. Earnings per share will rise 25 percent this year, according to the median estimate of five analysts in a Bloomberg survey.

Renewed guerrilla attacks this year are endangering Ecopetrol’s production target, said Juan David Pineros, an analyst at Interbolsa SA, Colombia’s largest brokerage. It will be tougher for Ecopetrol to meet its goal of 1 million barrels a day of equivalent oil and natural gas in 2015, also as delays in Colombian environmental permits slow output, Pineros said.

’Catch Up’

“The company will have to push to catch up,” he said.

Shares of Ecopetrol slid 0.4 percent to close at 4,970 pesos as Colombia’s benchmark IGBC index declined 1.1 percent.

The attacks should prompt action by the government, which owns 88.5 percent of Ecopetrol, said Rodrigo Nieto, who helps manage about $50 million in mutual funds at Cia. de Profesionales de Bolsa SA in Bogota.

“It’s a state-run company so you expect the government to get out and protect it,” he said.

Rising oil revenue and exports helped Colombia garner an investment-grade credit rating last year. The country was raised to Baa3 from Ba1 by Moody’s Investors Service, while Standard & Poor’s increased Colombia to BBB-. The Colombian peso has rallied 8.3 percent this year, the largest gain among 25 currencies in emerging markets tracked by Bloomberg.

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