Bogota, Colombia — Colombia state-controlled Ecopetrol has lowered its projected 2020 spending budget for the second time and cut its production guidance for the second quarter by roughly 10%, the company said Tuesday.
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Ecopetrol slashed its spending budget by 30% to $2.5 billion to $3 billion on top of a 25% cut announced in March.
CEO Felipe Bayon said targets for near- and medium-term production also have been cut significantly as a result of lower global crude prices and demand destruction" caused by the coronavirus pandemic.
Second-quarter output will fall to 660,000-680,000 barrels of crude and equivalents per day, Bayon said, a 10.2% drop from the 735,100 boe/d pumped in the first quarter. For the full year, Ecopetrol now anticipates output will decline to as low as 664,000 boe/d, down 12.6% from the 760,000 boe/d targeted in early March.
Spending in the company's Permian Basin joint venture with Occidental Petroleum is being slashed to between $180 million to $200 million, from $800 million planned earlier, Bayon said. Ecopetrol's Permian production is now expected to average 4,000-5,000 b/d in 2020, down from 9,000 b/d.
Bayon insisted the company is in "solid" financial condition, thanks to severe cost cutting undertaken after crude prices collapsed in 2014, and further overhead reductions of nearly $500 million annually announced in March when the pandemic began to impact global demand and prices.
Ecopetrol reported production averaged 735,100 boe/d in the first quarter, up 1% on the year and up 7.3% from Q4 2019. Of Q1 output, 597,100 b/d was crude, flat year-on-year but down 1% from the fourth quarter. Natural gas output was 138,000 boe/d, up 5.4% on the year and down 1.4% from the fourth quarter.
The company's natural gas production was aided by the reversion of the Pauto Sur and Florena fields to 100% Ecopetrol control, and by the acquisition from Chevron of the Chuchupa and Ballena natural gas fields in Guajira province, which have long been primary sources for domestic consumption.
Crude exports rise
Ecopetrol exported 424,500 b/d of its crude during the first quarter, up 4% on the year. It exported no natural gas as the company produced only enough to meet domestic demand.
Crude exports primarily headed to US Gulf Coast refineries, which took an average 200,000 b/d, or 47.1% of total Q1 exports. Outflow volumes were up 39% on the year.
Asia, mainly China and India, purchased 190,700 b/d of Ecopetrol crude in the first quarter, up 34.4% on the year.
Bayon said while he anticipates a drop in US crude purchases in the coming months, rising demand from China should compensate, with the Asian giant accounting for 50% of exports the remainder of the year.
The plunge in prices impacted Ecoeptrol's financial results. For the first quarter, the company reported net income of 133 billion Colombia pesos ($34.1 million), down 95% from a 2.75 trillion peso profit in the same quarter last year. Total sales were 15.1 trillion pesos ($3.87 billion), down 5.5% on the year.
The revenue drop was attributable in large part to the decline in the Colombia crude basket price, which plunged to average $40.30/b in the first quarter, down 28.3% on the year.
Colombia's crudes fetch lower prices because more than half the crude it pumps is heavy oil, which increases the cost of pumping, processing and transportation. Bayon said Ecopetrol's production is "sustainable" at $30/b.
Bayon added that Ecopetrol has reacted "quickly and decisively" to the coronavirus crisis, with 85% of the company's 13,000-plus permanent employees now working from home. The company also sold bonds to raise cash and now has around $3 billion in cash on hand.
Still, he emphasized the situation is fluid given that the executives "still don't know how much deeper and how long the crisis will go for."