Ecopetrol Determined to Keep Lower Costs Even as Oil Rises

  • 100% of company’s oil production is now profitable: CFO
  • ‘Very close’ to announcing new bilateral loan: Suarez

With a new management team in place, Ecopetrol SA, Colombia’s state-controlled oil producer, will do “whatever it takes” to maintain its investment grade rating.

That’s the message from Chief Financial Officer Maria Suarez, a former Public Credit Director for Colombia who joined Ecopetrol in August as part of a drive to bring in outside talent. Suarez, in a May 13 interview at Bloomberg’s New York offices, said the company has hired expertise from BP Plc, Repsol SA and elsewhere to determine how best to venture forward at a time of depressed oil prices. The shares rose 2.1 percent to 1,435 pesos in Bogota on Monday.

Moody’s Investors Service cut the driller to the cusp of junk on Jan. 18, and confirmed the Baa3 rating earlier this month. Suarez said Ecopetrol this year has slashed investment spending, cut staffing and refocused on its most efficient operations to both survive the current low oil prices and convince investors the company has set itself on a new path.

What keeps Suarez awake at night? “Making sure that everything we’re accomplishing right now is structural,” she said. “One of the most difficult things that we have ahead is achieving the cultural transformation that we think the company needs.”

In September 2014, Ecopetrol hired Max Torres, formerly with Spain’s Repsol, as vice president of exploration. In November 2015, the company brought in Felipe Bayon Pardo, previously with BP America, as executive vice president.

Earnings Turnaround

The worst crude-market collapse in a generation has left producers worldwide short of cash needed to fund drilling, pay dividends and service debts. In March, Ecopetrol reported a fourth-quarter loss of 6.3 trillion pesos ($2.1 billion). Earlier this month, the company said it had returned to profit in the first quarter with a 127 percent year-over-year increase in net income attributable to shareholders.

At the time, Chief Executive Officer Juan Carlos Echeverry cited the company’s ability to cut costs at a time when Colombia’s weaker peso boosted the company’s cash flow.

All of Ecopetrol’s oil production is now profitable after the suspension of operations at Colombia’s Akacias and Cano Sur Este fields earlier this year, according to Suarez. The recent rise in oil prices doesn’t necessarily mean the taps will be turned back on; the determiner is how efficient they are, she said.

‘Positive for Profits’

The changes have drawn attention, according to Katherine Ortiz, a Bogota-based analyst with Corredores Davivienda SA.

“If oil prices go up and they manage to maintain the fixed-cost efficiencies that they’ve achieved, it’ll be very positive for the company’s profits,” Ortiz said in a telephone interview.

Ecopetrol’s financing needs are in the range of $1.5 billion to $1.9 billion this year, according to Suarez. The company secured a 990 billion peso loan from Bancolombia SA in February, plus a $175 million loan from The Bank of Tokyo-Mitsubushi UFJ Ltd. in January. 

“We are very close to announcing another bilateral financing,” she said. “After that we are still looking at different opportunities, either in the international bond market or the local bond market. It will all depend on cost. We have been focused and cost-orientated. We do see that the market has improved significantly since the beginning of the year.”

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