Big Profit Margins Can't Save Ecopetrol as Drilling Fizzles

(Bloomberg) -- Normally if one of the world’s most profitable oil producers also happened to be the worst performing stock, investors would see an opportunity to buy. Not in Colombia, where new deposits are proving hard to find.

Ecopetrol SA shares have slumped 54 percent in dollar terms in the past year, the worst rout among producers in the BI Global Integrated Oils Valuation Peers Index even as it posted the highest trailing 12-month earnings before interest, taxes, depreciation and amortization margin at 33.5 percent, according to data compiled by Bloomberg. Newly appointed Chief Executive Officer Juan Carlos Echeverry has said he plans to boost reserves and focus on the most profitable fields.

The Bogota-based company couldn’t replicate its production growth in the last decade with exploration success, according to Greg Lesko, a money manager at Deltec Asset Management LLC. At current production rates, Ecopetrol’s reserves have the shortest span among the 18 index members, and about half the group average, the data show.

“If you’re betting on higher crude prices, there are better ways of playing it than Ecopetrol,” Lesko, who manages about $300 million in emerging-market equities, said by telephone from New York. “There have been a lot of headlines about awesome projects in Colombia over the last five years. Many haven’t turned out to be so great.”

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Ecopetrol reserves increased 83 percent between 2008 and 2014 and will last about 8.6 years at current production rates, the company said in an e-mailed response to questions. The Orca-1 well off Colombia’s Caribbean coast was named the largest discovery in Latin America last year by industry consultant Wood Mackenzie, it said.

Oil rose to $60 a barrel in New York for the first time since December, extending the biggest monthly advance since May 2009 on signs the U.S. supply glut is easing.

The company’s share price slump has further to go, according to analysts. Ecopetrol, Pacific Rubiales Energy Corp. and Isagen SA are the only members of Colombia’s Colcap index whose analyst targets are lower than their actual prices.


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