The Canadian company that operates Colombia’s largest oil field will turn over its share of the the site to state-controlled oil giant Ecopetrol tonight at midnight.
The contract between Pacific Exploration & Production Corporation and Ecopetrol to jointly control the vast Campo Rubiales field expires today, forcing the Canadian firm to cede its 43% stake in the holding. Ecopetrol says it will increase production by 60,000 barrels per day at the field, which has recently produced roughly 135,000 barrels per day. As part of the contract, Pacific Exploration also gives up all ties to the smaller Pirirí field, also located in the department of Meta.
While Ecopetrol’s gains in the Rubiales Field are part of its long-term strategy, the company continues to face difficulty operating in a world with low oil prices. It has been selling off assets of late, most recently in a June 23 auction of 20 oil and gas blocks. More than 180 firms from 21 countries attended the auction, according to the state-run company, and the final sale is planned for September 30.
This move followed a February announcement that the company would cut 10% of its 30,000-person workforce and begin selling other, non-oil related assets. It set a goal of bringing in $1.4 billion USD by the end of 2017. “This is a difficult year, so we are now depending on what the prices allow us to do,” said Ecopetrol CEO Juan Carlos Echeverry at a February conference in Houston, per Reuters.
Ecopetrol’s revenues fell 17.9% in the first quarter from the final quarter of 2015 — and 14.8% year over year — as production dipped to 736,600 barrels per day, according to Bancolombia analysts. In a first quarter conference call, the company said that, even after taking control of Rubiales, it will target an average of only 715,000 barrels per day for 2016, leading Bancolombia’s analysts to project a looming production decline in the second half of the year.
“In addition to the strictly financial deterioration, the situation seems to have already begun to impact the operation of the company via the closure of some fields because of economic infeasibility and declines linked to lower investment possibilities,” wrote Bancolombia in May.
In January, Moody’s downgraded the company’s credit rating to Baa3 and confirmed this decision in May with a negative outlook. “The negative outlook on Ecopetrol’s ratings,” wrote Moody’s, “reflects the weak results in its exploration and production business in terms of cash margin, production growth, and reserve levels … A ratings downgrade could occur if Ecopetrol’s fails to post EBITDA in the $4 billion USD neighborhood in the next 12 months or if it faces liquidity constraints.”
For Pacific Exploration, the contract’s expiration has not only cost the Canadian energy company nearly half its oil production — it cost it half its name. The firm formerly called Pacific Rubiales became Pacific Exploration last year in August after Ecopetrol announced it would not be extending the contract. While the loss meant the the firm would be losing some 65,000 barrels of its 145,000 barrel-per-day global production in 2015, per Reuters, Pacific maintained that it had already began diversifying its operations away from the location.
“We have more than replaced the Rubiales production from a combination of other heavy oil production in Colombia, light and medium oil production in Colombia and Peru, and natural gas production in Colombia,” said company CEO Ronald Pantin in a statement last year. “A large portfolio of undeveloped reserves plus resources underpin further potential production growth beyond 2016.”
Analyst firm Morningstar noted that Pacific Exploration was struggling to replace the output, however, especially after its CPE-6 and Rio Arari blocks failed to deliver. “To date, progress to replace the Rubiales Field production has been underwhelming,” Morningstar wrote in November 2015.
According to Pacific Exploration, it still maintains around 50 energy exploration and production blocks in Colombia. It continues to produce oil at Llanos Basin fields in Quifa, Guatiquia, and Cubiro. It also operates La Creciente, its largest gas field in the country.
Photo: Ecopetrol headquarters in Bogotá, Colombia (Credit: Dvalencia)