Turmoil at Colombia’s Ecopetrol raises revenue fears forward of US funding determination

By Nelson Bocanegra

BARRANCABERMEJA, Colombia (Reuters) – Alleged interference by Colombian President Gustavo Petro in majority state-owned Ecopetrol and purges of tons of of workers to make means for pro-government replacements are fueling fears in regards to the power firm’s future earnings and contributions to the economic system. 

The troubles, in accordance with interviews with staff, ex-employees, a former board member and analysts, come forward of a March deadline for Ecopetrol to resume – or finish – its joint oil enterprise with Occidental Petroleum (NYSE:OXY) in Texas.

Petro halted a separate $3.6-billion cope with Occidental to purchase 30% of shale producer CrownRock in August, due to his opposition to fracking and fears in regards to the firm taking up extra debt, in accordance with two former Ecopetrol board members who resigned over the choice. The leftist president has stated he desires to extend Colombia’s use of renewable power and reduce its reliance on fossil fuels. 

Ecopetrol, Colombia’s largest firm, has let go tons of of workers since CEO Ricardo Roa took over in April 2023, a few of whom have been unfairly fired to make means for pro-government replacements, half a dozen staff and former staff stated. 

A former chief of Ecopetrol’s know-how and innovation part, who was dismissed in August, stated about 600 individuals have been let go throughout operations, or 3% of the corporate’s workforce.

The magnitude of the turnover has not beforehand been reported.

“There are governance issues at Ecopetrol, however the elementary drawback is that 88.5% of the corporate belongs to the federal government and President Petro and his ministers don’t need oil or fuel,” Juan Jose Echavarria, one of many former board members, advised Reuters.

Ecopetrol shares have fallen 28% this 12 months.

Banks Citi, Santander (BME:SAN), Goldman Sachs and JPMorgan have minimize their goal costs on Ecopetrol and American depositary receipts, a safety that enables a overseas firm’s shares to commerce within the U.S. 

JPMorgan, Ecopetrol’s second-biggest shareholder, downgraded the inventory to “promote” twice – in mid-September and late October.

“The highest fear is the deterioration of company governance,” stated Citigroup (NYSE:C) analyst Andres Cardona. 

Petro’s workplace didn’t reply to questions. Ecopetrol stated Roa had beforehand answered Reuters questions at press conferences.

CEO DENIES ALLEGATIONS

Roa has denied accusations of poor administration and stated Petro doesn’t meddle in firm affairs. 

“They wish to discredit me, destabilize me and thereby destabilize the corporate,” he stated at a November press convention.

Roa, who has individually confronted scrutiny in an investigation into Petro’s 2022 election marketing campaign that he headed, has highlighted offers with Brazil’s Petrobras and Canada’s Parex Sources, in addition to a 2025 spending plan of as much as $6.4 billion, as proof of the corporate’s well being.

Echavarria stated Ecopetrol’s current outcomes have certainly been optimistic. Manufacturing of 752,000 barrels of oil equal per day is the very best in 9 years, and although web revenue fell 25.6% between January and September from the year-earlier interval, earnings in 2022, 2023 and 2024 are the corporate’s highest ever.

However Ecopetrol’s contributions to nationwide revenue are set to plunge in 2025, sources with data of the corporate’s interior workings and analysts say, as Petro’s ban on new oil contracts – together with the CrownRock deal – reduces income and reserves.

The dividends paid by Ecopetrol to the federal government are set to fall 31% in 2025 to about $1.8 billion, in accordance with an evaluation by funding holding firm Corfi.

The most important danger to Ecopetrol’s manufacturing figures, Corfi added, is whether or not the Texas Permian Basin mission with Occidental is renewed.

Ecopetrol generated greater than $13 billion for presidency coffers in 2023 – about 11% of the nationwide finances – by way of dividends, royalties and taxes, in accordance with the Finance Ministry. It pumped $5.2 billion extra into the economic system through contractors and buying.

Petro’s authorities has minimize 2024 spending by $6.4 billion amid decrease tax revenues and lawmakers this month blocked a $2-billion tax-reform proposal.

‘A LOT OF FEAR’

The previous chief stated her opposition to stress from senior managers to alter long-standing suppliers and rent folks that appeared unqualified made her a goal.

“Should you aren’t on the identical web page as the federal government, then you do not slot in,” she stated.

“There’s a whole lot of worry,” stated one engineer who has labored on the firm’s refinery in Barrancabermeja for nearly three many years, talking on situation of anonymity. 

Ecopetrol didn’t reply to questions on turnover and Roa has stated hiring practices comply with the regulation.

The corporate’s joint operation with Occidental in Texas, during which Ecopetrol holds 49%, accounted in 2023 for a tenth of its earnings earlier than curiosity, taxes, depreciation and amortization and far of the corporate’s elevated output in current quarters.

If Ecopetrol opts out of the deal, it may have a knock-on impact on Colombia’s economic system, through lowered revenue from the corporate, stated Andres Duarte, monetary evaluation supervisor for funding holding firm Corfi.

Ecopetrol’s board had already authorised the choice to purchase 30% of CrownRock earlier than reversing course in August simply 24 hours earlier than the deadline, drawing sharp public critique from Occidental CEO Vicki Hollub.

“They advised us in an off-the-cuff assembly … that Petro had advised Ricardo Roa and several other members of the board that he did not agree with the mission as a result of investing in fracking meant placing Ecopetrol in additional debt and it concerned sending sources from Colombia overseas,” Echavarria and Luis Alberto Zuleta stated of their August joint resignation letter.

Weeks later, Roa stated the deal fell by way of due to the debt, denying stress from Petro. Petro has not commented publicly on the matter.

“With these messages it is tough for an investor to belief in Ecopetrol,” Echavarria stated within the interview. “It is not the present outcomes, however the messaging in regards to the future.”