Ecopetrol Facing Falling Profits, Governance Crisis As Profits Plunge While Colombia’s President Intervenes To Block Deal With Occidental

Ecopetrol (NYSE: EC), Colombia’s state-owned oil company, announced a significant decrease in its second-quarter 2024 financial performance. The company’s net profit dropped by 17.4% to 4.22 trillion pesos ($1.08 billion), attributed to a decline in oil prices and lower production levels. Total revenue for the quarter also saw a reduction of 9.8% year-over-year, reflecting the challenging conditions in the global energy market.

The company reported an EBITDA margin of 44.8%, which, although robust, indicates the impact of external market pressures. Ecopetrol’s production averaged 698,000 barrels of oil equivalent per day, down from the previous quarter. This decline was influenced by operational challenges and a reduction in international oil prices, which affected the company’s revenue stream.

Internal Disputes Over Oslo Project Approval

In a related matter, controversy arose within the company regarding the approval of Project Oslo, including the CrownRock purchase, with Occidental Petroleum (NYSE: OXY), a key initiative intended to expand Ecopetrol’s portfolio and increase future production. Former board member Andrés Moreno publicly confirmed that the Oslo project had indeed been approved by the board, countering claims by Ricardo Roa (above right), the current Ecopetrol CEO and former campaign manager for Colombian President Gustavo Petro (above left),that suggested otherwise.

Occidental CEO Vicki Hollub In Bogotá, Colombia (photo: Loren Moss)

Moreno’s statements come amid ongoing debates within Ecopetrol about the direction of the company’s investments and its commitment to balancing profitability with environmental stewardship. The former board member emphasized that the decision to proceed with the Oslo project was made following thorough deliberations, considering both the potential benefits and risks involved.

Ecopetrol and Occidental had negotiated details of the deal for months, but in the final phase, Colombian President Gustavo Petro, who is anti-petroleum and especially anti-hydraulic fracturing, intervened to block the deal behind the scenes, leaving Ecopetrol’s board to face investor and public scrutiny.

“We worked on that deal from March until last week, and we thought we were done, but President Petro of Colombia did not approve it,” said Occidental CEO Vicki Hollub said in a conference call with investors. “He (President Petro) has made it very clear to the world that he is anti-oil, anti-gas, anti-fracking and anti-United States . And with those three attacks, he practically took Ecopetrol out of the agreement,” Hollub remarked.

Hollub did not hide her wrath, saying that “Unfortunately, there are others in the world like Petro. And there are some, in fact, in the United States like Petro, who believe that oil and gas should disappear and believe that we should no longer be an industry and that renewable energy will be all that is needed to move forward and help with the climate transition.”

The Oslo project, which would have boosted production and diversify Ecopetrol’s assets, has faced criticism over its potential environmental and financial risks. Some stakeholders have expressed concerns about the project’s alignment with the company’s long-term sustainability goals, especially in light of global shifts towards renewable energy.

Future Outlook

Ecopetrol’s management said that it remains committed to navigating the current market challenges while focusing on operational efficiency and strategic investments. The company plans to continue its exploration and production activities, with an emphasis on maintaining financial stability and enhancing shareholder value.

As Ecopetrol moves forward, it will need to address both the external economic pressures, lack of credibility and internal disagreements that have surfaced, particularly regarding major projects like Oslo. The outcome of these discussions and the company’s ability to adapt to changing market conditions will likely play a crucial role in shaping its future trajectory.