Ecopetrol Reported Earnings; A Letter To Trump
Dear President Trump,
As your former neighbor in zip code 10022, I have a suggestion for improving the performance and credibility of your administration. Please consider becoming Shomer Shabbat, Sabbath-observant, like your daughter Ivanka and son-in-law Jared Kushner. That would entail not writing or signing anything during the period between sundown on Friday night and the appearance of three stars on Saturday night.
The reason for my suggestion is that when the Kushners are observing the Sabbath and are not available to advise you to offset some of the other elements of your team, you make bad moves. The first time was when you attempted to block entry to the US by people from seven Islamic countries including ones already holding visas, which occurred on a Sabbath. Now apart from unblocking the arrival here of people with visas, you opted to remove Iraqis from the list of people banned from entering the US, after someone pointed out to you that the ones with the visas were probably helping US forces there and at some risk to their lives.
The second time was last Saturday when very early in the morning you posted a series of Twitter feeds accusing former President Obama of arranging wiretaps of your home and office in Trump Tower during the US election period. It turns out that everyone who would have been involved in this has issued a strong denial of these charges, and that there is no evidence.
So take a day of rest on Saturdays, and don't write or sign anything. (By the way, if there is a national emergency with life or death consequences, you can do what Orthodox Jewish doctors on duty in hospitals do: write on a pad which only keeps the message for a short time, but long enough to trigger US defenses or the record-keepers or the pharmacy.) The only excuse for Orthodox Jews violating the Sabbath is to save a life or lives. I am not Orthodox myself, but I do try to observe a day of rest on Saturdays.
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Latin Management
*Colombian oil producer Ecopetrol (EC) reported unaudited results for 2016 and its Q4 in Colombian pesos. A dollar is 2975 pesos. Its Q4 sales hit COP13.31 trillion, ($4.474 bn) up 4.1% from 2015 and its consolidated net profit came to COP 358 bn or $120.336 mn, down 95% from Q4 2015. Moreover, full-year sales fell to COP 47.732 trillion, $16.04 bn, down 8.4% from 2015 while full year consolidated net rose to COP 2.404 trillion vs a loss of 3.083 trillion the year before, despite lower oil prices. This is a very mixed result.
EC also announced a COP 23/sh dividend payable April 28. The conference call is still going on. Each ADR equals 20 Colombian shares so this is about 15 cents/ADR. Last year it paid $1.04.
CEO Juan Carlos Echeverry Garzon recalled 2016 as a year of “challenges” in the industry and Colombian politics. For oil production, he said “the quest for efficiencies and liquidity became the mantra” for “surviving the crisis”. Moreover, Colombia face “the peace negotiation process, the closure of the border with Venezuela, El Niño.., completion of the Areficar refinery and Bioenergy projects, and approval of tax reform.” Moreover, EC invested $2.5 bn in new projects.
He also stated that the EBITDA margin (a measure of operating profitability based on cash flow, or earnings before interest, taxes, depreciation, and amortization) rose 3 full percentage points in 2016 to 37.7% in 2016, one of the highest levels in the global oil industry. It also boosted production by 3000 barrels/day over its 718,000 bbl/d target despite the FARC attack on the Caño Limon pipeline which took it out of use for 45 days (or 25,000 bbls/d). It is now producing at 500,000 bbls/d thanks to the resumption of operations at Rubiales and Cusiana fields.
CEO Echeverry also stated that EC closed the year with COP 14 trillion pesos in cash, which he translated as $4.7 bn allowing for “inorganic growth” meaning new projects without need to raise more funding. Two new exploration results within Colombia in different parts of the Magdalena Valley were joined by a find via a jv in the Warrior field, in US Gulf of Mexico waters. EC is also drilling two offshore wells in Colombian Caribbean waters. For the current year, Ecopetrol has a $3.5 bn investment plan including spending on adding reserves, exploration, offshore drilling, and enhanced recovery.
While efficiency and running its transport arm by reducing the dilution of its heavy crude helped cut costs, the lower global oil price hurt the company's reserve estimate, as reported earlier, following SEC rules. Using the $44.5/bbl price took recoverable reserves down by 200 mn blls despite efficiency gains which counted as 186 mn bbls. This data was released last month and zapped EC stock but the number is likely to change if the oil price rises.
Its 2020 targets remain to protect cash and efficiencies; discipline in capital spending; and growing reserves and production. Recall that EC is a government-controlled company (perhaps why it insists on reporting in COP.)
Disclosure: None.