After crisis, Ecopetrol spends big to boost output

Splattered with mud, a dozen workers wrestled a drill bit into position on a rain-soaked oil rig platform in central Colombia, readying it for work once the storm passed.The rig, at the Castilla oil field in the wide central plains of Meta province, is one of a fleet deployed by Colombian state-run oil company Ecopetrol under a $3.5-$4 billion investment plan this year to boost production and explore for more oil to replenish dwindling reserves. The company has boosted its investment by more than $1 billion, from $2.2 billion a year earlier, to finance drilling 620 wells in 2018. Ecopetrol is targeting output of 725,000 barrels per day (bpd) of crude and gas equivalent by the end of the year, up from about 700,000 now, and has set a more aggressive target of 870,000 bpd by 2020. Castilla, Ecopetrol’s most profitable oil field, is pumping about 115,000 bpd but should approach 125,000 by the end of next year, said Jose Cotello, vice-president for the Orinoquia region in eastern Colombia, which includes Castilla. The expansion would make it the country’s biggest producing field. It pumps heavy oil, which typically sells at a discount to lighter crude that is easier to refine. Right now, however, heavier crude is in demand among refineries worldwide because of a fall in output of similar oil from neighbouring Venezuela, where lack of investment has pushed production to its lowest level in decades. Ecopetrol has earmarked $1.1 billion of the investment budget for the Orinoquia region, nearly double the year before, but had to halt drilling for a month because protests closed Castilla and other nearby fields in February. Protesters angered by Ecopetrol’s alleged violations of labour agreements have blocked roads, invaded fields and burned buildings, including a control room. The disruptions led to about $100 million in losses over a month and delayed the start of operations at five wells. “The big question is on drilling, because we were stopped for a month,” Cotello said in an interview after visiting the Castilla field. Nationwide, Ecopetrol will double the number of rigs in operation this year from last. It will operate 28 rigs in the second half of the year, and an additional 25 rigs in joint operations with partners. The number of rigs had dwindled since the oil price crash of 2014-2015. The company is equally focused on finding more oil that it can produce in the future, Cotello said. The reserves on the company’s books have dipped to the equivalent of about 7.1 years of production, according to Ecopetrol. The country’s energy ministry has a less optimistic estimate of 5.6 years. Both are well below the average of nearly 12 years for the world’s top oil and gas companies. Investors look at reserves as a gauge for the long-term sustainability of oil and gas firms. Ecopetrol needed a big boost in spending after several years of underinvestment, said an executive working for an international oil company working in a joint venture with Ecopetrol. FASTER SPENDING: Ecopetrol expects to quicken investment in the second half of the year after spending just $405.4 million of the total budget during the first quarter of 2018. The country’s presidential election slowed spending, because anti-corruption laws make it difficult for public companies to open bidding processes for contracts during the electoral process, Ecopetrol said. Colombia’s incoming President Ivan Duque will be inaugurated in August and has promised to help the energy industry. He has said he will invest in the state-run company’s refineries and crack down on militant groups that have attacked oil pipelines. He has also promised tax cuts across the economy, including for the energy industry, although has yet to disclose detailed proposals. — Reuters Symmes Cobb and Nelson Bocanegra