The board of directors of the Bogotá-based company approved the move on July 12, and now, after receiving approval from Mexican authorities, Ecopetrol has formally launched ECP Hidrocarburos México S.A. de C.V. in the Mexican capital.

Ecopetrol S.A. is the sole owner of the new offshoot, with Ecopetrol Global Energy SLU, a subsidiary incorporated in Spain, holding 99% of the shares and the U.S.-incorporated Ecopetrol America Inc. holding the remaining 1%.

The “exclusive purpose” of ECP Hidrocarburos México “is the exploration and extraction of hydrocarbons,” said Ecopetrol in a statement. It will manage and oversee the oil contracts awarded to the company in Mexico, including stakes in multiple offshore blocks recently won at auction.

Finding new reserves, either offshore or within Colombia, is an increasingly urgent strategy push for Ecopetrol. Though it is one of the largest oil companies in Latin America, at current production levels, the publicly controlled giant only has an oil reserve life of around six years.

Mexican waters offer promise that is intriguing companies across the world. A few years ago, the country opened up its oil industry after more than seven decades of state monopoly, and auctions for exploration blocks are now occurring in earnest.

Earlier this summer, Ecopetrol won two holdings at auction in joint bids with other leading oil firms, including Mexican state oil company Pemex and Petronas of Malaysia. Other companies who were awarded blocks in the same shallow water auction include Royal Dutch Shell, Repsol of Spain, Total SA of France, and Eni SpA of Italy.

Two recent discoveries are already showing the vast potential of foreign investment in Mexico’s formerly closed petroleum sector. A massive find that could hold up to two billion barrels of oil — at a block jointly held by Talos Energy (U.S.), Sierra Oil & Gas (Mexico), and Premier Oil (U.K.) — is “being described as one of the largest shallow-water oil finds of the past 20 years,” according to the Financial Times.

The discovery adds optimism not just for its size but for how quickly it was made. The find was the product of the first well in Mexico drilled by a company other than Pemex in around 75 years. Another discovery, by Eni SpA of up to 1.3 billion barrels of crude at the Amoca field, per the Financial Times, has also shown how fast these investments can start to pay off.

In addition to looking for more oil in Mexican waters, Ecopetrol has also ramped up its exploration efforts in the Colombian Caribbean and the Gulf of Mexico through its Ecopetrol Americas division. Among its partial offshore holdings in the area are the Gorgon, Purple Angel, Kronos, Gunflint, and Warrior wells, each of which are either already in production or have proven oil or gas reserves.

These type of plays will continue to be a key component of the company’s strategy. After spending recent years looking to rein in costs and improve operational efficiency in response to the global plummet of oil prices, Ecopetrol has planned to more than double its exploration investment this year compared to 2016.

The projected expenditure was expected to increase from $280 million last year to $650 million USD in 2017, according to former Ecopetrol head Juan Carlos Echeverry, who resigned last week.

“Adding reserves and maintaining the pace of production are the company’s focus,” said Echeverry in March. “The exploration campaign will be stepped up significantly in regions of high prospectivity. Investment in exploration will rise from $280 million USD to $650 million USD, thus increasing offshore wells from two to six and onshore wells from five to 11 from 2016 to 2017.”

“This second discovery in the Gulf of Mexico in the last eight months is in line with the goal we have set to position Ecopetrol as a Pan-American company.” – Ecopetrol President Juan Carlos Echeverry

Warrior-2, which was drilled to a depth of 31,646 feet, is operated by the Texas-based Anadarko Production Corporation. Ecopetrol subsidiary Ecopetrol America Inc. owns 30% of the block.

The two companies also have joint control of the nearby K2 production field, which Ecopetrol has a 9.21% stake in. The Bogotá-based firm believes that the associated Marco Polo platform presents a “clear competitive advantage” given its ability to help facilitate “streamlined” operations in the exploration of the Warrior-2 well.

If the volume of the discovery proves significant, this could be another step forward for Ecopetrol as it ramps up its exploration activity this year in an attempt to begin to extend a reserve life that sat at 6.8 years as of February.

“This second discovery in the Gulf of Mexico in the last eight months is in line with the goal we have set to position Ecopetrol as a Pan-American company,” said Juan Carlos Echeverry, president of Ecopetrol S.A. “This good news confirms the success we are achieving with our strategy to search for new hydrocarbon reserves.”

The state-controlled firm says that its new arm will have two shareholders. Ecopetrol Global Energy SLU, which is incorporated in Spain, will have a 99% equity interest, while Ecopetrol America Inc., incorporated in the United States, will have the remaining 1% equity stake. Both companies are owned by Ecopetrol S.A.

“This new subsidiary, the sole corporate purpose of which will be the exploration and extraction of hydrocarbons, will be responsible for the subscription and execution of the petroleum contracts in which Ecopetrol participates in Mexico, starting with the recently awarded Blocks 6 and 8,” said Ecopetrol in a statement.

This decision to form a Mexican subsidiary is part of Ecopetrol’s exploration strategy, the firm said. This builds on the two shallow-water blocks in Mexico, Blocks 6 and 8, that the company won the right to explore last month.

As it continues to open up its oil industry, Mexico put 10 holdings up for bidding in June. Ecopetrol will develop one of its new blocks, which has an area of 559 square kilometers, with PC Carigali Mexico, a subsidiary of Malaysian company Petroliam Nasional Berhad (Petronas).

The second block, Area 8, measures 586 square kilometers and will be developed with Mexican state-owned oil company Petróleos Mexicano (Pemex) as a partner. The Mexican government will receive an operating profit of 20.1%.

Photo: Ecopetrol headquarters in Bogotá, Colombia (Credit: Dvalencia)