With Positive Third Quarter Results and Higher Oil Prices, Ecopetrol Plans Production Increase of 25,000 Barrels Per Day

With a positive third-quarter earnings report this week and higher oil prices calming its fiscal fears, Ecopetrol says that it is planning to ramp up production in 2017. By developing projects, it expects to “gradually increase” its output by 25,000 barrels per day next year.

The state-controlled oil giant already increased its production by 3.9% this quarter over the second quarter — to hit 723,000 barrels of oil equivalent per day — and that is only set to grow further, said Ecopetrol CEO Juan Carlos Echeverry.

“The group has overcome the period of low oil prices and has returned to the path of growth in production,” said Echeverry. He added that, “Ecopetrol has an optimistic view of the future.”

Financial Results

The Ecopetrol Group reported an EBITDA of 4.9 trillion Colombian pesos ($1.55 billion USD) and an EBITDA margin of 40% in the third quarter. Net profit attributable to Ecopetrol shareholders in the third quarter rose to COP 229 billion pesos ($72.6 million), per the company.

In terms of EBITDA and EBITDA margin, this was the best showing in the last five quarters for Ecopetrol. Echeverry credits the success to rising crude prices, austerity measures implemented earlier this year, capital discipline, and better efficiency. “This good result demonstrates our commitment to operational excellence, cost efficiency, and capital discipline,” said the chief executive.

The results and capital situation have improved enough this year that Ecopetrol opted to pay off a $340 million USD loan from Bancolombia early. The funds weren’t due until 2024, but its prepayment last month”was made possible by the solid cash position of the company as a result of cost efficiencies,” said Ecopetrol in a statement.

Market Response

The market response to the news has been active. More than 650,000 Ecopetrol shares traded hands yesterday, according to the Press Telegraph, and it has gained a bit of steam on the New York Stock Exchange.

The uptick since the results were publicized has added to a minor rally in the lead up to the announcement that has taken the share price from $7.69 USD on November 11 to $8.22 in mid-day trading today.

Shares for the beleaguered firm remain well below their 2016 high of $10.00 seen in mid-July, which followed a bottoming out in January 20 of just $5.40. At the company’s soaring heights in mid-2013, shares were trading at more than $63 on the New York Stock Exchange.

Production Increases

A big win for Ecopetrol’s results this year was its takeover of the Rubiales field, the largest oil-producing area in Colombia. In a move announced in the summer of 2015, it officially ended its long-time partnership with Pacific Exploration & Production Corporation this July to assume a 100% holding in the lucrative field.

Some questioned whether the transition would be seamless and if Ecopetrol would be able to pull the same margins as it assumed all operating responsibility. Production at the site has dropped — but only slightly — so thus far, Echeverry says he has been pleased with the results.

“Although during the quarter the production of the field continued to decline from 138,000 barrels per day to 127,000 barrels per day, it’s noteworthy that the challenge of resuming the 100% of the operation was successful,” stated Bancolombia in a note to investors. “The declines reported are due in part to the few investments made during the first half by its former operator.”

Production also began this year at the Gunflint site in the Gulf of Mexico, where Ecopetrol has a partial stake in what is expected to become one of the best holdings for its Ecopetrol Americas subsidiary. “We’ve started to reap the benefits of investments made in previous years,” said Echeverry of the Gunflint project.

Additionally, the company commenced in the startup of 34 units at the Cartagena refinery in July, when it “initiated the stabilization and performance testing period,” said Echeverry.

In a conference call, it elaborated on its expansion plans going forward. “The company indicated that during the remainder of the year and during 2017 it will continue exploration activity both offshore and onshore,” stated Bancolombia. “In the short term, drilling of appraisal wells is expected in search of a better understanding of the reservoir around the already announced exploratory success at Kronos. Also important will be the drilling of the Molusco well, the first 100% offshore well held by Ecopetrol, where work would begin towards the third quarter of 2017.”