Ecopetrol Facing a Tough Year in 2023 As Debt Matures, Credit More Costly

Colombia’s state-owned oil company will face debt maturities next year and will need to seek financing at a time when oil prices may be lower and credit more expensive due to inflation

Colombia's state-owned Ecopetrol could face a complex year in 2023
August 31, 2022 | 09:50 PM

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Bogotá — With a global economic slowdown under way, 2023 looks complex for many companies and countries, including Colombia, which could see economic growth of below 3%, and among the companies that will not escape this difficult scenario is state-owned oil company, Ecopetrol.

In addition to the complex scenario that the world is likely to face in 2023, Ecopetrol has several debt payment commitments coming up next year, and “the company has also increased its debt balance, especially since the third quarter of 2021 after its acquisition of ISA for $3.6 billion, covered in part with the issuance of bonds in 2021 for $2 billion, which are maturing in 2023″, according to a report by Casa de Bolsa.

The report also explains that of the $23 billion debt the oil company was saddled with as of the second quarter of 2022, 21% ($5 billion) are maturities or payments to be made next year.

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This means, according to Casa de Bolsa experts, that 2023 could be complex for the company because it must look for the best refinancing options in a scenario where there may be lower average crude oil prices due to lower demand as a result of the global slowdown, as well as higher financing costs due to higher interest rates.

However, according to other analysts, this year the oil company, due to high crude oil prices that exceed $100 per barrel, has achieved extraordinary profits that could allow it to face the debt commitments it has for 2023. This would leave lower profits for next year, but will also depend on the company’s budget, to be determined in the coming months.

In addition to the effects of lower crude oil prices and higher financing costs in 2023, Ecopetrol’s economic activity could also be affected by a tax on a percentage of oil exports that President Gustavo Petro’s government has proposed in its tax reform.

In addition, despite high international prices, as of the second quarter of 2022, “Ecopetrol’s total production stood at 704,600 barrels of daily crude oil production, which is still far below the 741,773 barrels produced in 2015″, according to the Casa de Bolsa report.

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“Ecopetrol aims to reach production levels of between 850,000 and 900,000 barrels per day by 2030. Looking forward to 2023, a marked rebound in production would not be expected in the event of lower average crude oil prices, which would have an impact on the company’s operating cash flow and EBITDA,” the report states.

For Casa de Bolsa analysts, amid a positive current situation for Ecopetrol framed by higher crude oil prices, there are warning signs regarding the international conditions that the company could face in the medium term, due to an impact on operating cash flow and revenues due to lower international crude oil prices, possible changes by the new government in terms of the company’s exploration contracts policy, and unconventional oilfields, among other factors, and the renegotiation of its debt in an environment of more contractionary conditions, higher rates and less liquidity, which would translate into higher financing costs for the oil company.