Turmoil at Colombia’s Ecopetrol raises profit fears ahead of US investment decision
2024.12.20 07:11
By Nelson Bocanegra
BARRANCABERMEJA, Colombia (Reuters) – Alleged interference by Colombian President Gustavo Petro in majority state-owned Ecopetrol and purges of hundreds of staff to make way for pro-government replacements are fueling fears about the energy company’s future profits and contributions to the economy.
The worries, according to interviews with workers, ex-employees, a former board member and analysts, come ahead of a March deadline for Ecopetrol to renew – or end – its joint oil venture with Occidental Petroleum (NYSE:) in Texas.
Petro halted a separate $3.6-billion deal with Occidental to buy 30% of shale producer CrownRock in August, because of his opposition to fracking and fears about the company taking on more debt, according to two former Ecopetrol board members who resigned over the decision. The leftist president has said he wants to increase Colombia’s use of renewable energy and lessen its reliance on fossil fuels.
Ecopetrol, Colombia’s largest company, has let go hundreds of staff since CEO Ricardo Roa took over in April 2023, some of whom were unfairly fired to make way for pro-government replacements, half a dozen workers and former employees said.
A former leader of Ecopetrol’s technology and innovation section, who was dismissed in August, said about 600 people have been let go across operations, or 3% of the company’s workforce.
The magnitude of the turnover has not previously been reported.
“There are governance problems at Ecopetrol, but the fundamental problem is that 88.5% of the company belongs to the government and President Petro and his ministers don’t want oil or gas,” Juan Jose Echavarria, one of the former board members, told Reuters.
Ecopetrol shares have fallen 28% this year.
Citi, Santander (BME:), Goldman Sachs and JPMorgan have cut their target prices on Ecopetrol and American depositary receipts, a security that allows a foreign company’s shares to trade in the U.S.
JPMorgan, Ecopetrol’s second-biggest shareholder, downgraded the stock to “sell” twice – in mid-September and late October.
“The top worry is the deterioration of corporate governance,” said Citigroup (NYSE:) analyst Andres Cardona.
Petro’s office did not respond to questions. Ecopetrol said Roa had previously answered Reuters questions at press conferences.
CEO DENIES ALLEGATIONS
Roa has denied accusations of poor management and said Petro does not meddle in company affairs.
“They want to discredit me, destabilize me and thereby destabilize the company,” he said at a November press conference.
Roa, who has separately faced scrutiny in an investigation into Petro’s 2022 election campaign that he headed, has highlighted deals with Brazil’s Petrobras and Canada’s Parex Resources, as well as a 2025 spending plan of up to $6.4 billion, as evidence of the company’s health.
Echavarria said Ecopetrol’s recent results have indeed been positive. Production of 752,000 barrels of oil equivalent per day is the highest in nine years, and though net profit fell 25.6% between January and September from the year-earlier period, profits in 2022, 2023 and 2024 are the company’s highest ever.
But Ecopetrol’s contributions to national income are set to plunge in 2025, sources with knowledge of the company’s inner workings and analysts say, as Petro’s ban on new oil contracts – including the CrownRock deal – reduces revenue and reserves.
The dividends paid by Ecopetrol to the government are set to fall 31% in 2025 to about $1.8 billion, according to an analysis by investment holding company Corfi.
The biggest risk to Ecopetrol’s production figures, Corfi added, is whether the Texas Permian Basin project with Occidental is renewed.
Ecopetrol generated more than $13 billion for government coffers in 2023 – about 11% of the national budget – through dividends, royalties and taxes, according to the Finance Ministry. It pumped $5.2 billion more into the economy via contractors and purchasing.
Petro’s government has cut 2024 spending by $6.4 billion amid lower tax revenues and lawmakers this month blocked a $2-billion tax-reform proposal.
‘A LOT OF FEAR’
The former leader said her opposition to pressure from senior managers to change long-standing suppliers and hire people that appeared unqualified made her a target.
“If you aren’t on the same page as the government, then you don’t fit in,” she said.
“There’s a lot of fear,” said one engineer who has worked at the company’s refinery in Barrancabermeja for almost three decades, speaking on condition of anonymity.
Ecopetrol did not respond to questions about turnover and Roa has said hiring practices follow the law.
The company’s joint operation with Occidental in Texas, in which Ecopetrol holds 49%, accounted in 2023 for a tenth of its earnings before interest, taxes, depreciation and amortization and much of the company’s increased output in recent quarters.
If Ecopetrol opts out of the deal, it could have a knock-on effect on Colombia’s economy, via reduced income from the company, said Andres Duarte, financial analysis manager for investment holding company Corfi.
Ecopetrol’s board had already approved the decision to buy 30% of CrownRock before reversing course in August just 24 hours before the deadline, drawing sharp public critique from Occidental CEO Vicki Hollub.
“They told us in an informal meeting … that Petro had told Ricardo Roa and several members of the board that he didn’t agree with the project because investing in fracking meant putting Ecopetrol in more debt and it involved sending resources from Colombia abroad,” Echavarria and Luis Alberto Zuleta said in their August joint resignation letter.
Weeks later, Roa said the deal fell through because of the debt, denying pressure from Petro. Petro has not commented publicly on the matter.
“With these messages it’s difficult for an investor to trust in Ecopetrol,” Echavarria said in the interview. “It’s not the current results, but the messaging about the future.”
