Colombia’s state-controlled petroleum company Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC) has been hit with the double-whammy of the Coronavirus pandemic and the petroleum price war between Russia and Saudi Arabia, plunging both demand for petroleum, while the market is flooded with excess supply. Ecopetrol held an extraordinary session on Monday where its board of directors adopted a set of actions to address the challenging market conditions, which have resulted, among other matters, in a 40% decline in the Brent crude price as compared to the end of 2019.
These measures are part of an intervention plan that aims for Ecopetrol to adapt timely and orderly to changing market conditions.
The first stage of this plan includes the following actions:
- Effective immediately, a COP$ 2 trillion cutback in costs and expenses in order to strengthen Ecopetrol’s competitiveness, including austerity measures, prioritization of operational and administrative activities, and control over operational expenses, such as travel restrictions, sponsorships and involvement in events, among others.
- Implementation of new commercial strategies to maximize the value of the crudes and products sold by the Ecopetrol Group.
- A US$ 1.2 billion decrease in the 2020 investment plan so that the new range of the investment plan is now US$ 3.3 – 4.3 billion. The measures adopted aim to intervene investment opportunities on early stages, seeking to preserve production and cash flow, and maintaining the integrity and reliability of investments, as well as social investment commitments already made.
- Regarding the Earnings Distribution Proposal reported to the market on March 2, 2020 the Board of Directors proposed a new payment scheme consisting of: a first payment of 100% of the dividend to minority shareholders and 14% of the dividend to the majority shareholder, to be made on April 23, 2020, and the payment of the remaining 86% of the dividend to the majority shareholder to be disbursed during the second half of 2020.
The production target for 2020 remains unchanged, between 745 – 760 mboed.
As of December 31, 2019, Ecopetrol had a 1.2:1 Gross Debt/EBITDA ratio, providing Ecopetrol with flexibility to access the debt markets if needed. Furthermore, Ecopetrol currently has available committed credit facilities for US$ 665 million with international banks and terms for an additional committed facility have been agreed, for COP$ 990 billion with local banks, which is currently pending authorization from the Ministry of Finance and Public Credit. Along with the intervention measures announced today, the availability of these resources will allow Ecopetrol to continue mitigating risks associated with crude oil prices volatility and minimize risks related to liquidity stress.
Ecopetrol will continue to monitor market developments to determine the need to launch subsequent stages of the intervention plan, seeking to optimize the balance between decisive responses under current market conditions, and preserving Ecopetrol’s long-term value. These measures are aligned with Ecopetrol’s commitment to operational excellence, the safety and care of its workers, the protection of the environment, shared growth with communities and the generation of value for its shareholders.