Colombia’s largest oil producer, government-owned Ecopetrol, has seen its stock price depreciate 46% since its peak in 2012 and 13% since August 2013 due to pipeline disruptions, community protests, and declining production.
It’s been a string of bad news for Ecopetrol. Caught in a vicious cycle of lower production, lower revenue, and consequently less re-investment to fix its core problems, Latin America’s 4th largest oil producer has a tough road ahead.
Plagued by consistent and increased attacks on its pipeline infrastructure by guerrilla groups, the company has been forced to use more costly means of transporting its crude from wells to export hubs. This, along with significant community pushback to project development, have both put significant bottlenecks on the company’s efficiency, dropping profit margins and making exploratory and production operations more difficult and costly.
Meanwhile, Ecopetrol’s competitors are showing signs of dynamic growth. While the company’s stated goal of an average output of 1 million barrels per day for 2015 seems highly unlikely (its average daily production for the first six months of 2014 was only 750,000 bpd), Canacol Energy, a Canadian firm, is announcing increased oil production, and Pacific Rubiales, another Canadian company, had strong first quarter earnings from its acquisition of Petrominerales.
However, investors seem to believe that the current share price has already incorporated all this bad news and that there are still some signs of future growth if current issues can be overcome. Ecopetrol still has relatively low debt, government support seems to be strong, and its borrowing costs are relatively low and stable. Oil prices should remain strong for the foreseeable future, and if the planned refinery in Cartagena develops smoothly, the company can expect to develop a range of higher value-added products, which can offset revenue declines.
Ecopetrol is responsible for 64% of total oil production in Colombia, and has a proven hydrocarbon reserve position of roughly two billion barrels.