Colombian driller sees Petro’s anti-oil plans ending up in court

Andrea Jaramillo and Lucia Kassai 2/11/2022

(Bloomberg) — A proposal to abruptly end oil and gas exploration in Colombia would lead to higher prices for local consumers and be challenged in court, according to the country’s state-run driller. 

Gustavo Petro, the leading candidate ahead of presidential elections in May, is looking to speed up Colombia’s transition to clean energy by ceasing exploration on day one of his government. While the industry needs to prepare for a future with less fossil fuel demand, the transition has to be “orderly,” Ecopetrol SA Chief Executive Officer Felipe Bayon said. 

“Our contracts allow us to do exploration for the next 20 years if we want,” Bayon said in an interview. “So even if allegedly he can come in and change everything, there will be challenges in the legal system not only from us but many people.”

The looming showdown between Petro and the hydrocarbons industries is the latest tension in efforts to combat climate change by weaning the world off fossil fuels. The former Bogota mayor says continuing to rely on those industries is the “politics of death.” But oil and coal account for nearly half of Colombian exports and are still widely used, including for cooking. Crude has surged back above $90 a barrel as roaring demand tightens supply. 

Companies around the world are reacting to shifting environmental, social and governance sentiment by attempting to clean up their operations and pivot to new opportunities. Ecopetrol, for example, has committed to net zero carbon emissions by 2050 and last year bought the government’s stake in a power transmission company.

Investors have been taking Petro’s words seriously. Since August when he first mentioned he would end oil exploration, Ecopetrol’s bonds have posted some of the biggest losses among emerging-market oil companies. And yields on government bonds have risen to their highest levels since the Covid-19 pandemic sparked a rout in credit markets two years ago.

While Petro hasn’t given much detail on his plans for the industry, he may simply opt to halt new bidding rounds, BTG Pactual analysts Daniel Guardiola and Alonso Aramburu wrote in in a report this week. He could also impose more onerous permitting rules or not honor existing contracts, they wrote.

“The first round of the presidential election is just four months away and we expect the energy transition to be a key issue during the campaign,” Guardiola and Aramburu wrote.

Bayon also points to the impact on consumer prices if the Andean nation is forced to import gasoline and natural gas, with about 80% of Colombians using cooking gas on a daily basis. Prices would go up by two or three times, he said.     

“Never mind the 250 trillion pesos we’ve given the government in the last decade,” said Bayon. “Look at the people and how they will be impacted in their daily lives. That’s what people need to acknowledge.” 

In the meantime, Ecopetrol is still struggling with the effects of Covid-19, with output in both 2021 and 2022 still below pre-pandemic levels.

Last year, output was “south of 700,000” barrels of oil equivalent per day and this year will see a modest increase to a range between 700,000 to 705,000 barrels, Bayon said. 

Through 2024, Ecopetrol plans to invest at least $17 billion, mostly in exploration, which will allow the company to get back to pre-pandemic production levels.

The outlook looks brighter for its project in the U.S. A venture with Occidental Petroleum Corp. in the Permian Basin is producing more than 50,000 barrels a day and should see growth this year and next, he said, adding that Ecopetrol will continue to invest there. 

“It turned out to be a very good investment,” said Bayon.

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