To expand its reserves and reach a goal of producing up to 725,000 barrels of petroleum-equivalent per day next year, Colombian state-controlled oil giant Ecopetrol has unveiled an ambitious plan to invest between $3.5 billion USD and $4 billion USD in 2018, the company announced last week.
The large outlay — something Ecopetrol categorizes as “self-financing” from “internal cash generation” — is a further step in a new direction for the company, which while already having begun to make more capital expenditures this year is still transitioning into a new operational mode that have helped its daily production numbers begin to recover. This follows an extended downturn following the global fall of oil prices that hit in late 2014 and pushed Ecopetrol to bunker down and prioritize “cost reduction and capital discipline” in previous years.
But the new exploration plan calls for drilling at least 620 development wells and 12 exploration wells in 2018. This is an increase of around 140 wells, as well as 16 rigs, compared to the already-significant uptick seen in the 2017 plan.
Though Ecopetrol has placed an increased effort on offshore plays in the Gulf of Mexico over the past two years, the vast majority of the investment (96%) will be carried out in Colombia or in Colombian offshore waters, according to the Bogotá-based company. It said that the remaining 4% will be divided between ongoing efforts in the U.S. Gulf of Mexico, Mexico, Brazil, and Peru.
“The plan provides that 85% of funds [in 2018] will be allocated to strategic investments in the exploration and production segments, with over $1 billion USD more invested in those segments than in 2017,” said the company in a statement. It added that, “the investments will allow the Ecopetrol Group to resume its path of production growth, leveraged on some 20 pilot projects to implement improved recovery technologies.”
Some 14% of the investment will go toward refining and transportation, specifically including funds dedicated to “ensuring the reliability, integrity, performance standards, and operating efficiency of the entire oil pipeline and polyduct network and the Barrancabermeja and Cartagena refineries.”
Ecopetrol “anticipates stable and safe operations” next year at the Cartagena refinery, which despite years of being weighed down by cost overruns and scandal “will be capable of self-sustained financing, funding its own investments, and generating profits. Ecopetrol estimates that the Cartagena refinery will return an EBITDA in 2018 of “at least” 500 billion pesos, or around 166 million USD at the current exchange rate.
Overall, this will allow the company’s operations to “benefit from having two complementary refineries…with capacity to achieve efficiencies in purchasing and crude mixtures, fuel production, and exports.” The company expects the two sites are expected to process between 350,000 and 375,000 barrels per day combined in 2018.
The company noted that its more aggressive investment plan is aided by the tax overhaul passed by the Colombian Congress in late 2017. Ecopetrol stated that it expects its effective tax rate to fall by 7%-11% in 2018 “as a result of the elimination of the wealth tax, the lower nominal rate of income tax resulting from the tax reform,” and fiscal gains realized by its subsidiaries.