Ecopetrol Boosts 2009 Spending By 35 Percent

• The Company: Ecopetrol SA, Colombia’s state-run oil company.
  The Filing: Annual Report for the year-ended December 31, 2007.
  The Finding: Unlike many of its peers, Ecopetrol SA announced plans to boost spending on oilfields, refineries and other investments by 35 percent to $6.22 billion in 2009 to accelerate its goal of becoming a global energy player by 2015. Current law, however, limits how much additional equity the company can issue (9.9 percent).

The Upshot: Ecopetrol, which is principally owned by the Republic of Columbia — with a controlling interest of about 90 percent of the company — is committed to increasing reserves to 1,280 million barrels of oil equivalent (boe) by 2015 and achieving a daily output of one million barrels a day by such time.

Investment in the exploration and production segment represents $3.7 billion, or 60.5 percent, of the total capital investment plan for 2009. Of the planned spending for 2009, an investment of $1 billion is targeted to spudding 28 exploratory wells, 24 of them directly in Colombia and seven in the Gulf of Mexico (United States), Perú and Brazil (in association with other companies).

Approximately 72.7% of Ecopetrol’s fields are considered mature. However, these reservoirs, discovered over 20 years ago, still have significant reserves, according to management. Approximately $2.7 billion of capital spending will be allocated to the Llanos Orientales and Middle Magdalena region in order to continue the expansion and development of heavy crude in the Castilla and Rubiales fields.

At September 30, 2008, the company had cash and cash equivalents of $2.56 billion, cash flow from operations of $2.3 billion, and no debt. The company may look to borrow $1 billion to finance its expansion plans, according to Chief Executive Officer Javier Gutierrez.

The Question: By law, Ecopetrol is not permitted to own more than 25 percent of a natural gas transportation company or sell transportation capacity pipeline. In addition, guerrillas (Revolutionary Armed Forces of Colombia) and drug cartels have occasionally attacked the company’s crude oil pipelines, resulting in unscheduled shutdowns. Will the company be able to successfully execute its strategic plan, given economic and political events?