(S&P Global Platts, 30.Oct.2019) — Colombia’s state-controlled Ecopetrol is targeting 2020 production of 740,000-760,000 barrels of crude and equivalents per day, up to 4% more than expected average output this year, CEO Felipe Bayon said during a conference call Wednesday to discuss third-quarter results.
He also announced a significantly higher than expected increase in the company’s 2019 cap-ex to as much as $5 billion, or 25% more than maximum investment anticipated at the start of the year. The increase is because of the cost of joint ventures announced in recent weeks with Occidental Petroleum in the Permian Basin and with Shell in Brazil’s offshore Pre Salt field.
The two investments could add 250 million barrels in 2P reserves and more than 100,000 b/d to output in coming years, Bayon said. The ventures are part of a significant increase in spending by Ecopetrol after dedicating much of its energies over the previous three years to cost-cutting measures that shaved $3 billion from overhead.
FRACKING PILOT PROJECTS
In addition to “inorganic growth” represented by the two foreign ventures, Ecopetrol signaled it is prepared to spend big bucks on developing Colombia’s unconventional oil and gas reserves, reputed to be South America’s second-largest after Argentina’s. Bayon said the company will spend $500 million on several in-country fracking pilot projects to start by the end of 2020.
While the government has approved the advance of pilot fracking projects, authorities have still not given the green light to actual E&P of the estimated reserves, which could total up to 7 billion barrels of crude and equivalents, according to industry estimates.
Overall third-quarter production at the company fell to an average 719,500 barrels per day of crude and equivalents, a 0.7% decrease from the 724,400 boe/d pumped over the same three-month period in 2018, and a drop of 0.5% from the 723,000 boe/d produced over the second quarter, which ended June 30.
The company blamed “external events” including 27 pipeline bombing attacks by suspected rebels over the quarter for the decline. Bayon said he expects fourth-quarter production will rebound to 734,000-740,000 boe/d. The inauguration this week of the Cupiagua liquid propane gas facility and the 9,000 barrels of crude equivalent per day that it will process will boost fourth-quarter output, Bayon said
WITHIN TARGET RANGE
Despite the year-on-year decline, the company’s year-to-date average crude and equivalents output of 723,000 boe/d for the nine months ended Sept. 30 is well within the 720,000-730,000 boe/d target executives set for 2019 at year’s start.
Of the total average output, 585,400b/d was in crude, down 1.5% from the 594,600 b/d produced in third-quarter 2018, and down 1.6% from the 594,900 in crude produced in this year’s second quarter. The rest was natural gas averaging 134,100 boe/d, up 3.3% from the 129,800 boe/d pumped in the year-ago quarter, and a 4.7% improvement from the 128,100 boe/d of gas produced in this year’s second quarter.
Of the crude produced, an average 402,500 b/d was exported, a 5.8% increase versus 380,400 b/d shipped abroad over the third quarter last year, and a 1.7% increase over the average 395,800 b/d sold abroad in the second quarter this year. Of those exports, 232,400 b/d on average, or 57.7%, was exported to Asia, up 35.6% from 171,400 b/d sent to the region during the same period last year and up 53.6% from the 151,300 b/d sent there over the previous quarter ended June 30.
The second leading destination for crude was US Gulf Coast refineries, where deliveries averaged 123,500 b/d, or 30.7% of the total, off a slight 1.4% from the 125,300b/d during 3Q 2018 and down 32% from the 181,400 b/d shipped there during second quarter of this year.
The company reported continued improvement in refining throughput at its two main refineries, while utilization factors dropped. The new ultramodern Reficar refinery reported average throughput of 160,500 b/d over the quarter, up 1.8% from 157,600 b/d in third quarter last year, with a utilization rate of 88.3%, down from 92.4% a year previous.
The larger and older Barrancabermeja refinery reported average throughput of 228,000 b/d, up 2.4% from the 222,700 b/d in third-quarter 2018. Utilization rate was 85.3%, down slightly from 85.8% over the year-ago quarter. Margins at both refineries declined, however, due to market conditions, officials said, to $8.40 per barrel at Reficar and $11.50 at Barrancabermeja, declines of 30.6% and 17.3%, respectively, from a year ago.
EXPORTS UP ON YEAR
As for products refined from crude, the company said it averaged exports of 127,800 b/d over the quarter, a 10.3% increase from the 115,900 b/d averaged over the same quarter last year, but off a slight 0.7% from the 128,700 b/d sold to foreign customers in this year’s second quarter.
The leading destination for the refined products was the US Gulf Coast, averaging receipts of 50,500 b/d, up 51.2% from the 33,400 b/d shipped there over the year-ago quarter and an increase of 17.4% from the 43,000 b/d during the second quarter.
Late Tuesday, Ecopetrol reported a third-quarter profit of 3.011 trillion Colombian pesos (about USD$871 million), an 8.5% increase over the 2.775 trillion peso net income reported for the same period in 2018 but a decrease of 13.7% from the 3.487 trillion pesos in net income reported for the second quarter ended June 30.
Total revenue for the company, which is 88.5% controlled by the state, over the recently ended quarter was 18.01 trillion pesos (about USD$5.3 billion), a slight 0.8% gain from the 17.88 trillion peso revenue figure reported for the same year-ago quarter but a decrease of 1.6% from 18.31 trillion pesos in sales for the second quarter.
The year-on-year sales gain came despite a drop in the average price of the Colombian basket of crudes to $57/b, down 15.4% from $67.40/b over the year-ago quarter. Net income was aided by lower lifting costs, $8.53/b versus $8.74 last year, and lower dilution costs of $4/b over the third quarter versus $4.85 over the same quarter in 2018 .
JOINT VENTURE WITH OXY
Slated to close by year-end, the company’s joint venture with Occidental to develop nonconventional oil and gas in Texas’ Permian basin will add not just 160 million barrels to the company’s reserves by the end of 2019, Bayon said, but output scaling up to as much as 95,000 boe/d by 2027.
The venture (ownership: Ecopetrol 49% and Oxy 51%) will also give Ecopetrol practical experience in drilling and fracking procedures that it can apply to Colombia when and if the government gives the green light.. So far, fracking permission has been denied by the environment ministry in the face of protests by environmentalists and farmers worried about air and water quality. The industry hopes the pilot projects allay those concerns.
Ecopetrol expects to have 25 of its staffers on-site in Texas by mid-2020 to learn about the fracking process firsthand, Bayon said. Some additional production from the Texas venture could be booked by year-end.
The company’s 30% investment in the offshore Gato do Mato project in Brazil with partners Shell (50%) and Total (20%) is the third major investment in that country’s deep waters and could add 90 million barrels in reserves next year and 20,000 b/d in production by 2025.