Ecopetrol’s 2Q profit seen falling on oil price

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Ecopetrol SA will likely report a decline
in net profit for the second quarter from a year earlier as oil prices fell from
2008 records, analysts said.

A Dow Jones Newswires survey of four local analysts produced a median estimate
of 1.22 trillion Colombian pesos ($598 million), down 64% from the COP3.36
trillion reported for the same period in 2008.

“The oil price is the main factor,” said Johanna Castro, a market analyst with
local brokerage Corredores Asociados. “The net profit in 2009 will be back to
2007 levels,” she added.

The state-controlled oil company posted a record net profit of COP11.63
trillion in 2008, more than twice 2007’s COP5.18 trillion, which also was a
record.

The benchmark price of West Texas Intermediate crude oil fell to $69.82 a
barrel on June 30, from $139.96 a year earlier.

A decline in Ecopetrol’s second-quarter revenue is expected to be partly
offset by an increase in production. The company produces 482,000 barrels of oil
equivalent a day, up from an average of 447,000 barrels of oil equivalent a day
in 2008.

“The company has room to improve its efficiency and reduce its costs,” Castro
said. “There may be a surprise regarding costs coming from the earnings report,”
she added.

Ecopetrol will release its second-quarter earnings report on Monday. The
company doesn’t comment on earnings before their offical release.

The company last year started a major investment program to raise output to
one million barrels of oil equivalent a day by 2015. Ecopetrol will invest $60
billion over 2008-2015. The company invested $4.8 billion in 2008 and plans to
invest $7 billion this year.

So far this year, Ecopetrol has spent about $2 billion to take over other
firms. It bought 50% of Peru’s Petrotech Peruana SA for $450 million, a 51%
stake in the Cartagena refinery from Swiss commodity company Glencore
International AG for $549 million and the Colombian unit of France’s
Etablissements Maurel et Prom (5107.FR) for $748 million. The company also
bought a stake in an oil pipeline from Enbridge Inc. (ENB) for $418 million.

Those acquisitions, together with the investment in its own operations and in
seeking new oil reserves, should help Ecopetrol boost production and revenue
within a couple of years.

However, the numbers for the second and third quarters will likely be dire, as
oil prices hit records during that period in 2008, said Andres Otalora, a market
analyst with local brokerage Profesionales de Bolsa SA.

He recommends buying the shares but not for a couple of years. In the short
term, the price will keep following oil prices, he added.

Shares of Ecopetrol rose 2% on Thursday to COP2,760, while the IGBC stock
index ended up 2.2%.

Another factor that may hurt Ecopetrol is the exchange rate. Over the second
quarter, the Colombian peso appreciated 19%, reducing the value of Ecopetrol’s
assets abroad in peso terms, said Mauricio Restrepo, a market analyst with local
brokerage Bolsa y Renta.

The company may have to include the new valuation of its assets on the balance
sheet as a hefty accounting loss, he added.