Ecopetrol S.A. (EC - Free Report) intends to boost capital expenditure for 2020 to $4.5-$5.5 billion, up from 2019 projected level of $3.5-$4 billion, to maintain sustainable growth. The state-run energy major expects the 2019-2021 Business Plan to provide it with the required strength to ramp up investments.
The plan assumes Brent crude price in the range of $50-$60 per barrel for 2020. With breakeven price at $30 per barrel, the company is set to generate higher profit from rising production.
More Investment Leading to Higher Production: Ecopetrol intends to drill 18 exploratory wells next year, of which 16 will be drilled in Columbia. The figure is much higher than 2019’s expected level of 12 wells. Moreover, the company expects to invest $76 million to continue evaluation and development of offshore natural gas discoveries located in the Colombian Caribbean. Notably, of the total 2020 capital budget, 78% will be directed toward projects in Columbia, lower than around 90% in the previous years. More funds will likely be dedicated to operations in Mexico, Brazil and the United States.
The higher level of investments is expected to increase average hydrocarbon output for 2020 to 750,000-760,000 barrels of oil equivalent per day (Boe/d), well above the 2019 expectation within 720,000-730,000 Boe/d. Notably, the company’s production in the first three quarters of 2019 was recorded at 723,000 Boe/d.
Deals to Boost Reserves & Output: The company’s fourth-quarter and full-year 2019 production is expected to incorporate the positive effects from the acquisition of a 49% interest in the Permian Basin from Occidental Petroleum Corporation (OXY - Free Report) . The deal is anticipated to add around 160 million Boe of proven reserves to Ecopetrol’s portfolio.
Moreover, the company has recently agreed to buy a 30% interest in Gato de Mato project offshore Brazil in the Santos Basin. Royal Dutch Shell plc (RDS.A - Free Report) is the operator of the project, partnered by TOTAL S.A. (TOT - Free Report) . Ecopetrol expects the move to add 90 million barrels of crude oil to its portfolio. The company’s share of oil production from the project is expected to reach 20,000 barrels a day in 2025.
Of its 2020 capital spending, 80% and 11% will likely be directed toward upstream and downstream operations, respectively. Funds are expected to be used for maintaining throughput volumes in Barrancabermeja and Cartagena facilities. The company plans to increase efficiency and improve fuel quality with low sulfur contents. Moreover, $85 million will be invested in the Cartagena refinery to raise throughput volumes.
Midstream & Others
Of the total budget, 7% is expected to be invested in midstream infrastructure to increase transportation volumes, as demand for refined products is expected to rise. This is important for the integrated company, as its third-quarter results were primarily aided by increased transported volumes. Moreover, it plans to invest $150 million in non-conventional renewable energy projects, which will likely reduce its carbon footprint.
Price Performance and Zacks Rank
Ecopetrol’s shares have lost 3.8% in the past year. It currently has a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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