By Daniel U. Alvarez
PEREIRA, Colombia (MercadAnalytic) – Ecopetrol S.A. (NYSE:EC) is the biggest corporation in Colombia and one of the top 40 oil companies in the world. It is also one of the four major oil companies of Latin America and currently has a market capitalization of $85.74 billion.
Not unlike most Latin American companies, Ecopetrol is structured as a Sociedad Anomina (S.A.) which is the equivalent to a U.S. corporation. The Ecopetrol S.A. website indicates that it went public in 2007. Ecopetrol S.A. owns the largest refinery in Colombia and most of the countries' oil pipe-line infrastructure. Ecopetrol’s footprint is mainly in Colombia, but it also has operations in Peru, Brazil and the Gulf of Mexico.
Ecopetrol’s financial and operational performance has been steadily improving since it became a public company. Its third quarter production results for the nine-month period ending September 30, 2011 shows an 18.5% increase compared to the same period in 2010, and its third quarter production results for the three-month period shows a production growth rate of 15.7% compared to the third quarter 2010.
Ecopetrol also posted the following nine-month period ending September 20, 2011 results:
Ÿ -- revenues increased by 52.3%;
Ÿ -- operating income increased by 94.6%;
Ÿ -- EBITDA increased by 74.6%; and
Ÿ -- net income increased by 96.6%.
Ecopetrol’s export sales increased from 363,000 to 513,000 barrels of crude and gas per day or 40%. At the end of the third quarter, the company also indicates that the United States led the way as its biggest export recipient with 58.8% of its total exports.
Transportation capacity grew by 15% from 936,000 to 1,076,000 barrels per day.
On November 21, 2011, Ecopetrol approved its 2012 – 2020 strategic investment plan “which includes a total of $8,477 million of which $7,452 is expected to be invested directly in Ecopetrol and $1.025 to be invested in other companies of the corporate group”. The following shows the allocations by component:
Exploration -- $1,419 million. The company plans to drill 42 exploratory wells of which 36 will be located in Colombia.
Production -- $4,113 million. Ecopetrol has established a 2012 production target of 750 thousand barrels of oil equivalent per day which is 10.6% higher than the 2011 goal.
Refining, Petrochemicals and Biofuels -- $601 million. This investment will primarily be used to improve operational requirements in its two refineries; Barrancabermeja and Cartagena.
Transportation -- $2,025 million. The company aims to increase crude evacuation capacity by 600 thousand barrels a day in 2012.
Other investments -- $318 million. This allocation will primarily be used for research and development and information technology and social responsible programs.
In the 2012 – 2020 strategic investment plan, the C.E.O. and President of Ecopetrol, Javier Gutierrez Pemberthy, states “our efforts are focused on fulfilling the goals we set forth for the years 2015 and 2020. 2012 is essential to make our vision as a corporate group a reality, which explains the importance of the approved investment plan [sic]”.
Earlier this year two rating agencies raised the credit-worthiness of Ecopetrol. On March 22, 2011, Standard & Poor raised Ecopetrol’s risk-rating from ‘BB+’ to ‘BBB-‘ and on June 23, 2011, Fitch raised its risk-rating from ‘BBB-‘ to ‘BBB’. Both risk-rating agencies assigned Ecopetrol with a rating outlook as “stable”.
One of the concerns in investing in Colombia is security and government stability. Under the previous Presidency of Alvaro Uribe Velez, the Colombian government made significant strides in establishing a safety and security for its citizens. The Uribe government is also credited for strengthening democracy in Colombia. The current government of Manuel Santos is following in Uribe’s footsteps and continues to make progress in transforming Colombia into a strong democratic government. Within the last year key leaders of the Fuerzas Armadas Revolucionarias de Colombia (FARC) were eliminated. A national program to re-integrate many of the FARC members in to society continues to show progress.
Ecopetrol financials are solid. Its current price/earnings ratio is $20.37 and its earnings per share is $2.08. Its stock price has a 52 week range of $37.48 - $46.35 and closed at $42.35 on December 6, 2011.
Disclosure: We do not own Ecopetrol S.A. stock but are considering long-positions and are looking at entry points at around the $39 per share level.
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