Reports Decreasing Production But Better than Expected Cash Flow in 1Q16
04 May 16
Ecopetrol reported 1Q16 production of 736,600 boe/d (FCC 748,932 boe/d); however, cash flow was stronger at US$856 mm (FCC US$507 mm), due to a reduction in the purchase of hydrocarbons and lower contracted services, maintenance and labour costs. The Company recently announced revised 2016e production guidance of 715,000 boe/d, due to a reduction in capital spending that is now expected to range between US$3.0 and US$3.4 billion. We have reduced our target price to US$8.50 per share, while maintaining our Underperform ranking.
REPORTS YEAR-END 2015 RESERVES
01 Mar 16
Market Impact: Negative. Ecopetrol reported that 1P reserves decreased 11% to approximately 1.85 billion boe at year-end 2015. Negative reserve revisions due to the lower crude oil price could not be offset by cost optimization and improved efficiencies achieved by the Company. For 2015, total net reserve additions were approximately 15 mmboe, which results in a reserve replacement ratio of 6%. We estimate upstream capital expenditures at approximately US$3.0 billion in 2015e, which implies a very high FD&A cost of approximately US$199/boe on 1P reserves. This estimate excludes changes in future development capital.
Revised Commodity Price Impact
08 Feb 16
We have materially reduced our Brent crude oil price outlook in 2016e, 2017e and future years, which has resulted in a substantial decrease in our cash flow and NAV estimates for most of our companies under research coverage. Companies that are most impacted by the commodity price revision include EnQuest, Pacific Exploration & Production, Premier Oil, and TransGlobe Energy. Companies that are exposed to natural gas prices and/or fixed commodity prices are least impacted, such as Valeura Energy and Wentworth Resources. Our Top Picks include Faroe Petroleum, Ithaca Energy, and Parex Resources.
Ecopetrol (ECP) Announces 2016 Capital Program
15 Dec 15
Ecopetrol has announced a 2016 capital program of US$4.8 billion and production guidance of 755,000 boe/d, which is in line with our expectations. FirstEnergy is currently forecasting 2016e capital expenditures of US$4.8 billion and production of 750,000 boe/d. For 2016e, we are forecasting cash flow of approximately US$3.4 billion, which is insufficient to cover capital expenditures of US$4.8 billion and estimated dividends of US$1.9 billion. The cash shortfall of approximately US$3.3 billion is expected to be financed with the disposition of non-core assets and increased bank debt. It would be reasonable to assume that Ecopetrol will need to consider a dividend reduction in 2016e.
ECOPETROL (ECP) ANNOUNCES 2016 CAPITAL PROGRAM
14 Dec 15
Market Impact: Neutral. Ecopetrol has announced a 2016 capital program of US$4.8 billion and production guidance of 755,000 boe/d, which is in line with our expectations. FirstEnergy is currently forecasting 2016e capital expenditures of US$4.8 billion and production of 750,000 boe/d.
Reports Better Than Expected 3Q15 Results on Realized Cost Improvements
19 Nov 15
Ecopetrol’s 3Q15 production of 740,900 boe/d and sales volumes of 939,000 boe/d were negatively impacted by restrictions to transportation systems. Fortunately, access has resumed to normalized operating levels and Ecopetrol states that production has recovered to reach the goal of 760,000 boe/d in 2015. Cash flow in 3Q15 of US$1.3 billion was better than anticipated, due to lower selling, operating, labour and administrative costs. Also, there were reduced diluent purchases. Lastly, the Colombian peso was 6% weaker than estimated, which results in lower reported US dollar costs. Our go-forward cash flow estimates and core NAV estimate have increased, as a result of the cost savings initiatives. Our target price has increased to $14.00 per share.