Wednesday, 18 February 2009

Ecopetrol Posts Biggest-Ever Annual Profit for a Colombian Company. What is Behind The Story of Record Net Income, High Prices and Small Reserves?

Ecopetrol SA, the Colombian state-controlled oil company, posted record profits last year: 11.6 trillion pesos ($4.6 billion), the best annual financial result posted by any Colombian company in the modern era. Remarkable. But, is it all gold that's shinning?

Well, what are the reasons behind this amazing result?
the high oil and fuel prices we endured last year, the high domestic fuel prices policy that is surely hurting the pockets of millions of Colombians, and a very modest investment plan that is taking more time than expected to deliver. Digging further into the release, non-operational net income rose 430 percent, because of the decline of the Colombian peso against the dollar, as well as the gains reported in the company's investment portfolio. It wasn't all gold what shone last year. Production rose 12 percent last year -- too little for a company that raised more than $5 billion from investors last year and enjoyed the best scenario for the industry since the oil crisis of the 1970s. Ecopetrol has now the task of ramping up investment and discoveries this year in order to boost output to at least 500,000 barrels/day this year, from 447,000 barrels/day in 2008. The company will have to invest more than 12 billion pesos (the equivalent of last year's profits) this year as part of the Uribe administration's 2009 Investment Plan.

Click here for the link to the company's report (in Spanish.)

We believe that the dividend policy will be less aggressive in 2009 and that the company will try to maximise its downstream activities, in order to boost Colombia's refining capacity. Both things are positive, especially at a time where funding is scarce and good projects require deploying large pools of capital. In the light of stable domestic fuel prices, declining global and local demand for oil and fuels and low international oil prices, results shouldn't be that spectacular in 2009. The company, which is trying to replicate the model of Petrobras in Brazil, needs to focus this year on finding new reserves, starting the upgrading works for the Cartagena refinery and step up exports of natural gas to Venezuela.

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