Large production with 'fracking' in Texas saves Ecopetrol from a greater fall

The great performance of the Permian basin, a distant oil field on the border between Texas and New Mexico, has not managed to save the past year at Ecopetrol.

However, the 67,000 extra barrels per day on average that were extracted in one of the richest hydrocarbon regions in the world has been, perhaps, the only positive note in the general results of the majority state-owned Colombian company.

With the shadow of the lurches in the dollar price, and its impact on the minimum international price of crude oil, the income of the country's largest company plummeted 42% year-on-year in 2023. The projection in terms of reserves, a glassy issue Since the arrival of President Petro and his energy transition plans, it has gone from 8.2 years to 7.6.

The good performance of Permian, where Ecopetrol has held a 49% stake in drilling and production rights since July 2019, has translated into a 66% increase in the number of barrels per day, and was more than 10% of the entire the production of the main company in Colombia.

“In other words,” says engineer and academic Sergio Cabrales, “the Government is celebrating that production increased thanks to

fracking

that they have not allowed to do in Colombia.”

The other half of the strategic alliance in the unconventional field in Texas is borne by Occidental Petroleum (Oxy), through a contract that expires next year.

Last year's numbers in the Permian are unusual, experts say.

Because it has the hydraulic power of a young field, the hydrocarbon mantle in its subsoil allowed it to go from an average of 53,000 barrels per day to 89,000.

A record that, in any case, is eclipsed when looking at the general data of Ecopetrol.

Petroleum engineer Jaime Polanco clarifies: “Global production rose by just 27,000 barrels, 3.8% more.

This is not a very large value and it has the big problem that the reference price of crude oil fell a lot compared to 2022.

The president of the company, Ricardo Roa, already warned during the presentation of the company's results: production for 2024 will be “a little below” that of 2023.

Two weeks before the general meeting of shareholders is held, and in the midst of intense controversy to elect the new members of the board of directors of the fifth largest company in Latin America, the former Minister of Mines and Energy Tomás González emphasizes that the situation clearly summarizes all the dilemmas that overwhelm the company: “We are strongly feeling the tension caused by the discussion about the environmental concerns of the business and the fiscal part of the company.”

In Colombia, there is the impression that Ecopetrol is finding it increasingly difficult to face the pressures to continue with a profitable operation and at the same time make million-dollar transfers to the Government.

The change of focus in the company's orientation, from hydrocarbons to the generation of non-conventional energy, proposed by Gustavo Petro to advance its energy transition plans, plus the uncertainty regarding the suspension of new exploration and exploitation contracts, has not "Today the profitability is in fossils and we don't know how that pressure is going to be resolved," concludes Tomás González.

For Felipe Bayón, president of Ecopetrol until a year ago, it is still paradoxical that Permian is the enclave that “is showing its face for the company”: “The profit of that investment in the last three years has been between 600 and the 650 million dollars.

In Colombia people said that

fracking

was not a business, that it was very expensive.

But there is the production, there are the reserves and the profit.”

Hence, the director of the Colombian Petroleum Association, Francisco Lloreda, regrets the “inconsistencies” of a Government that has “outlawed

fracking

” in Colombia while benefiting from this technique in another country.

In the same way, Bayón recalls that by the end of last year the number of barrels per day in Texas reached 150,000, of which 100,000 corresponded to Ecopetrol.

“The original agreement expires in 2025. Suppose it were decided to stop production, how are we going to replace those 100,000 barrels?”

The question has rhetorical elements.

Bayón knows well the impact that it would have for Ecopetrol to go from an average of 750,000 barrels per day to the hypothetical 650,000 if it does not extend the contract in the United States.

It is not a minor issue, repeats the engineer.

At the beginning of this week, the American risk rating agency Morgan Stanley announced that it was lowering the rating of Ecopetrol's stock to “underweight”, which places it in an area undermined by various risks that could anticipate a 25.185% drop in the price. of the action or the plausible possibility that it will yield fewer benefits.

If only the activity in Colombia is separated, production decreased in 2023 by about 1,000 barrels per day.

“It is likely that this year Ecopetrol-Permian's performance will not be as high.

If the Government wants to push the energy transition faster, we first need to invest to extract more oil and more gas.

It is the only way to guarantee Colombians minimum energy consumption, first, and two, to develop other potentials,” says Jaime Polanco.

Economist Andrés Giraldo, a hydrocarbons expert, summarizes: “The 2023 results should not cause so much concern.

What was in the company's hands was managed well.

The big problem is in the future.

The decisions of the current Government have overshadowed investment and have allowed the oil business to slowly wither.”

In his opinion, Ecopetrol's horizon is nebulous: “They have already announced from the boards that they are studying the possibility of ISA abandoning some investments.

“Wasn't the energy company supposed to be Ecopetrol's spearhead for the transition to renewable energies?”

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