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Ecopetrol plans 25% capex cut but maintains 2020 oil production target

Colombian state-controlled oil giant Ecopetrol SA joined the list of companies forced by the coronavirus outbreak to make emergency cost cuts, announcing March 17 that it will reduce its capital investment by $1.2 billion from what it had planned for 2020 but will not change its crude oil production target.

The company is maintaining its full-year production target of between 745,000 and 760,000 barrels of oil equivalent per day for 2020, according to the statement.

The new target calls for the company to spend between $3.3 billion and $4.3 billion during the full year, or about 25% less than the $5 billion to $5.5 billion range previously planned for 2020. In 2019, the company's capital spending was $4.4 billion, and it produced an average 725,000 boe/d, a level of output that was about flat from the previous year.

The company said that in addition to capital expenditure reductions, it immediately will work to cut annual overhead by 2 trillion Colombian pesos, or about US$493 million, by imposing austerity measures including unspecified cuts of operational expenses and reductions to travel, sponsorships and participation in conferences.

Although all hiring has been frozen, no layoffs of permanent or contract employees are planned, according to an Ecopetrol source who spoke on condition of anonymity.

The company recently went through a wrenching overhaul of operations, cutting more than $3 billion in overhead from 2015 through 2018, with measures that included layoffs of nearly half its permanent and contract workers. The leaner operations produced record profits in 2019, adds to staff and plans for significantly higher spending this year that were reaffirmed by Ecopetrol CEO Felipe Bayon last month in a conference call with analysts.

But the shock waves from the coronavirus outbreak and the 40% drop in oil prices since the end of 2019 have forced plan revisions by Ecopetrol and many other energy companies. Ecopetrol's preliminary plan for 2020 capital spending announced in November 2019 assumed prices this year would stay in the $50 per barrel to $60/bbl range. Brent prices on March 17 hovered around $30/bbl.

The statement did not address whether the cost cuts would affect the company's participation in three pilot projects planned for later this year to develop the country's reserves of nonconventional oil and gas reserves associated with coal and shale. Colombia's nonconventional reserves have been estimated as high as 7 billion barrels, the second largest in Latin America after Argentina.

As of March 16, US$1 was equivalent to 4,090.50 Colombian pesos.

Chris Kraul is a reporter with S&P Global Platts. S&P Global Market Intelligence and S&P Global Platts are owned by S&P Global Inc.