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Investors in New York are still not convinced to support the Colombian state oil company, which went ahead with its ambitious mining plans
Executives from Ecopetrol, Colombia's state oil company, traveled to New York to seduce big investors with a bold new business plan that, among other advances, will see the company expand into unconventional oil fields. The strategy they presented required up to $15,000 million in investment by 2021, but it was not enough to change the position of analysts and investors, whose message to shareholders of Ecopetrol continues to be: sell.
For Wall Street, Ecopetrol's valuation remains very high and does not correspond to the average rating it receives from analysts, which continues to be the lowest compared to other large-cap oil companies.
"Although we recognize the considerable progress made by Ecopetrol, our neutral stance on this matter continues due to its premium valuation", commented Scotiabank analysts, led by Gavin Wylie.
The action of Ecopetrol is simply very expensive, in comparison with other companies established in the sector, to merit a better evaluation. This resulted in 8 recommendations of 'hold' and 6 of 'sell', but no recommendation of purchase by the analysts to whom the new strategy was presented.
Pressure to sell
Ecopetrol belongs 88.5% to the Colombian government, which suggested, through the finance minister, Alberto Carrasquilla, the intention to sell 8.5% of the company for a total value of $ 3,600 million dollars.
According to Bloomberg analysts, the pressure on the part of the government to sell participation within Ecopetrol comes from the same pressures that the government of Iván Duque faces to finance its plans without cutting social programs and current subsidies. But it could also come from a concern to keep the liquid company to face the ambitious plans that it holds in the future, especially now that Wall Street published its doubts about the current and future valuation of the second largest company in Colombia.
However, the president of Ecopetrol, Felipe Bayón, does not consider that the sale is necessary, and is confident that an increase in production and a successful migration to unconventional deposits make Ecopetrol a desirable business , which is not worth the price. worth selling.
"I do not think there is a need to sell now," said Bayón to Bloomberg. "We want to increase the volume of production from 1.1 million barrels to 1.25 million. In addition, profit margins before taxes are very good, from 75 to 80%, why would someone want to sell such a company?", he reiterated.
Advance the fracking agenda
According to Ecopetrol, over the next three years, $12,000 to $15,000 million will be invested to guarantee the increase in production. Of these, $500 million will be destined to fracking, an oil extraction practice that is controversial due to its worrying environmental impact, but which allows access to new and huge oil deposits that could make a difference for the oil industry in Colombia.
"Ecopetrol has allocated US $500 million in the period 2019-2021 for the development of pilots, whose realization is subject to the decisions of the Government in that matter and which, if successful, would allow to advance to a commercial expansion phase after 2022" read the company's statement about it.
It should be noted that the investment will be destined to pilot projects in the Magdalena Medio region, which will serve to monitor the impact of oil extraction by fracking. This action consists of fracturing the rock that harbors the black liquid through the injection of water under pressure, mixed with solids such as sand and additional chemical components.
While the future application of the technique depends on the performance of pilot projects like this one, Bayón maintains that fracking will have a place in the country's hydrocarbon strategy.
"We hope to demonstrate through pilot programs that this can be done responsibly, safely and with the use of the highest global standards," Bayón told RCN.
LatinAmerican Post | Pedro Bernal
Translated from "Ecopetrol avanzará con el fracking a pesar de no convencer en Wall Street"