The Long and Short
Politics in Columbia plays to Ecopetrol
This document is intended for institutional investors and is not subject to all of the independence and disclosure standards applicable to debt research reports prepared for retail investors. This material does not constitute research.
Political disarray in Columbia is oddly turning into a positive for the country’s oil and gas sector and for Ecopetrol. Attempts to reform the country’s health and pension systems along with its labor laws have sparked a fresh wave of street protests and promise prolonged legislative deadlock in Bogota. President Gustavo Petro’s approval ratings also have been on the decline, exacerbated by allegations of corruption at the highest levels. Columbia’s consequently limited capacity to focus on the oil and gas industry has relieved some pressure on Ecopetrol spreads.
Columbia’s recent fiscal update, which forecasts higher deficits in 2023 and 2024, has added strain to the sovereign spread performance, despite the expectation of lower fuel subsidies gradually reducing the deficit. However, the update did offer implicit support for Ecopet regarding the Fuel Price Stabilization Fund (FEPC) balance, which is a positive for the company’s credit fundamentals. As the market awaits indications of potential sovereign issuance levels in the coming weeks, the aftermath of a new issue or its delay is predicted to further tighten the sovereign spread differential, which has already converged by over 10 bp in recent sessions to approximately 127 bp in the mid-term and 128 bp in the long term.
Ecopetrol, despite a decrease in Brent crude prices during the second quarter this year, delivered a robust performance in terms of operating and financial results in the first quarter. The average daily production of 719.4 thousand barrels of oil equivalent (mboed) reflected a 4% year-on-year increase and remained relatively stable compared to the previous quarter. The refining segment achieved a record level by processing 412 thousand barrels per day (mbd).
EBITDA reached COP 17.8 trillion, marking a 12.2% gain year-on-year and an 11.5% improvement over the fourth quarter of 2022. This led to a gross debt/EBITDA ratio of 1.5x, remaining unchanged from the previous quarter, as higher volumes offset the impact of lower prices, with some influence from foreign exchange devaluation. The current leverage level indicates a slight under-leveraging of the credit, considering the target of around 2.0x, allowing room for incremental debt issuance. However, the recently announced dividend payout will absorb some of this capacity during the year. The dividend payment to the parent company will effectively offset the remaining COP 34.2 trillion FEPC receivable balance, with approximately COP 5 trillion remaining for 2022 and around COP 8 trillion accruing in the first quarter of this year.
The pro-forma low leverage provides a cushion to manage a potential decrease in average Brent prices in 2023, fund a capex plan of approximately $6 billion per year for the next couple of years, and handle higher taxes under the new regime. The new tax system for oil and gas operators in Colombia may exert some pressure on cash generation, although the progressive structure safeguards balance sheet metrics when oil prices fall below $67.3 per barrel, triggering a return to the generic, nominal 35% corporate tax rate.
Following the January bond issuance, the $1 billion bank debt issued in December 2022, and the recently announced Bancolombia loan, the company faces approximately $1.35 billion in maturities for the remainder of 2023, which is expected to be absorbed through additional bank lines and available cash. Consequently, the overhang from new issuances has completely dissipated for the company, while the FEPC remains as a shrinking liquidity concern. Furthermore, despite lower oil prices, the cash generation for the remainder of the year is projected to be sufficient for addressing the contingent liquidity issue. Additionally, the FEPC accrual has decreased from approximately COP3.3 trillion per month to less than COP2 trillion, thanks to lower international prices and higher domestic prices. Although the spread differential between Ecopet and Colombia in the mid-term and long-term has converged, the company’s solid fundamental drivers and the anticipated lower EBITDA are expected to contribute to its outperformance compared to the parent company. As a result, the relative spread differential is predicted to tighten further from its current levels, although the absolute spreads may be influenced by any forthcoming sovereign new issuances.
Figure 1: Summary Financials
Source: Company reports, Santander US Capital Markets
Figure 2: ECOPET 2033 vs COLOM 2033
Source: Bloomberg, Santander US Capital Markets
Figure 3: ECOPET 2045 vs COLOM 2045
Source: Bloomberg, Santander US Capital Markets
This material is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This message, including any attachments or links contained herein, is subject to important disclaimers, conditions, and disclosures regarding Electronic Communications, which you can find at https://portfolio-strategy.apsec.com/sancap-disclaimers-and-disclosures.
Important Disclaimers
Copyright © 2025 Santander US Capital Markets LLC and its affiliates (“SCM”). All rights reserved. SCM is a member of FINRA and SIPC. This material is intended for limited distribution to institutions only and is not publicly available. Any unauthorized use or disclosure is prohibited.
In making this material available, SCM (i) is not providing any advice to the recipient, including, without limitation, any advice as to investment, legal, accounting, tax and financial matters, (ii) is not acting as an advisor or fiduciary in respect of the recipient, (iii) is not making any predictions or projections and (iv) intends that any recipient to which SCM has provided this material is an “institutional investor” (as defined under applicable law and regulation, including FINRA Rule 4512 and that this material will not be disseminated, in whole or part, to any third party by the recipient.
The author of this material is an economist, desk strategist or trader. In the preparation of this material, the author may have consulted or otherwise discussed the matters referenced herein with one or more of SCM’s trading desks, any of which may have accumulated or otherwise taken a position, long or short, in any of the financial instruments discussed in or related to this material. Further, SCM or any of its affiliates may act as a market maker or principal dealer and may have proprietary interests that differ or conflict with the recipient hereof, in connection with any financial instrument discussed in or related to this material.
This material (i) has been prepared for information purposes only and does not constitute a solicitation or an offer to buy or sell any securities, related investments or other financial instruments, (ii) is neither research, a “research report” as commonly understood under the securities laws and regulations promulgated thereunder nor the product of a research department, (iii) or parts thereof may have been obtained from various sources, the reliability of which has not been verified and cannot be guaranteed by SCM, (iv) should not be reproduced or disclosed to any other person, without SCM’s prior consent and (v) is not intended for distribution in any jurisdiction in which its distribution would be prohibited.
In connection with this material, SCM (i) makes no representation or warranties as to the appropriateness or reliance for use in any transaction or as to the permissibility or legality of any financial instrument in any jurisdiction, (ii) believes the information in this material to be reliable, has not independently verified such information and makes no representation, express or implied, with regard to the accuracy or completeness of such information, (iii) accepts no responsibility or liability as to any reliance placed, or investment decision made, on the basis of such information by the recipient and (iv) does not undertake, and disclaims any duty to undertake, to update or to revise the information contained in this material.
Unless otherwise stated, the views, opinions, forecasts, valuations, or estimates contained in this material are those solely of the author, as of the date of publication of this material, and are subject to change without notice. The recipient of this material should make an independent evaluation of this information and make such other investigations as the recipient considers necessary (including obtaining independent financial advice), before transacting in any financial market or instrument discussed in or related to this material.
Important disclaimers for clients in the EU and UK
This publication has been prepared by Trading Desk Strategists within the Sales and Trading functions of Santander US Capital Markets LLC (“SanCap”), the US registered broker-dealer of Santander Corporate & Investment Banking. This communication is distributed in the EEA by Banco Santander S.A., a credit institution registered in Spain and authorised and regulated by the Bank of Spain and the CNMV. Any EEA recipient of this communication that would like to affect any transaction in any security or issuer discussed herein should do so with Banco Santander S.A. or any of its affiliates (together “Santander”). This communication has been distributed in the UK by Banco Santander, S.A.’s London branch, authorised by the Bank of Spain and subject to regulatory oversight on certain matters by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).
The publication is intended for exclusive use for Professional Clients and Eligible Counterparties as defined by MiFID II and is not intended for use by retail customers or for any persons or entities in any jurisdictions or country where such distribution or use would be contrary to local law or regulation.
This material is not a product of Santander´s Research Team and does not constitute independent investment research. This is a marketing communication and may contain ¨investment recommendations¨ as defined by the Market Abuse Regulation 596/2014 ("MAR"). This publication has not been prepared in accordance with legal requirements designed to promote the independence of research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. The author, date and time of the production of this publication are as indicated herein.
This publication does not constitute investment advice and may not be relied upon to form an investment decision, nor should it be construed as any offer to sell or issue or invitation to purchase, acquire or subscribe for any instruments referred herein. The publication has been prepared in good faith and based on information Santander considers reliable as of the date of publication, but Santander does not guarantee or represent, express or implied, that such information is accurate or complete. All estimates, forecasts and opinions are current as at the date of this publication and are subject to change without notice. Unless otherwise indicated, Santander does not intend to update this publication. The views and commentary in this publication may not be objective or independent of the interests of the Trading and Sales functions of Santander, who may be active participants in the markets, investments or strategies referred to herein and/or may receive compensation from investment banking and non-investment banking services from entities mentioned herein. Santander may trade as principal, make a market or hold positions in instruments (or related derivatives) and/or hold financial interest in entities discussed herein. Santander may provide market commentary or trading strategies to other clients or engage in transactions which may differ from views expressed herein. Santander may have acted upon the contents of this publication prior to you having received it.
This publication is intended for the exclusive use of the recipient and must not be reproduced, redistributed or transmitted, in whole or in part, without Santander’s consent. The recipient agrees to keep confidential at all times information contained herein.
