The Long and Short
Ecopetrol | Solid fundamentals
This material is a Marketing Communication and does not constitute Independent Investment Research.
Oil price volatility has moved prices around this year for the bonds of Ecopetrol, the Colombia oil company, but politics should start to matter more toward the end of the year. As credible presidential candidates emerge, politics after the administration of President Gustavo Petro should veer towards the center and make it easier to evaluate the spread between Ecopet and Colombia debt. A renewal of drilling licenses and less pressure to divest the Permian partnerships would have big influences on spreads. Before the Petro administration, Ecopetrol traded around 60 bp wide of the parent. Politics should get the upper hand from December through to the election in May. And post-Petro environment should tighten the spread, even when accounting for broad macro pressures within the economy.
Against this backdrop, Ecopetrol’s second quarter earnings were about in line with expectations as lower Brent read across to lower last-12-months EBITDA and a tick up in gross leverage to 2.4x from 2.2x in the preceding quarter. The ratio remains in compliance with the internal 2.5x guideline though clearly implies limited flexibility to manage any further price weakness. Operating cash flow should fund organic investments and dividends with no incremental leverage needed. For inorganic opportunities like CPO-09 as well as renewable energy, the company will likely consider project finance structures to protect net leverage for bond holders. Meanwhile, the FEPC is now fully funded by the government. As of June 2025, the outstanding balance was COP$2.5 trillion, following payments in the first half of the year.
Operational metrics remain strong with second quarter production of 755kboed and first-half 2025 production of 751kboed. Management reiterated its 2025 guidance of 740 to 750kboed, driven by stable Colombian operations and continued growth in the Permian basin. Cano Sur production was 57kbpd in the second quarter compared to 48 kbpd in the first half of 2025, while Rubiales and Castilla/Jacana continued to perform well despite electrical supply challenges. On the call, management reiterated that 99% of fields operate with breakeven levels below $50/bbl. Further, the company is on track to shave about $500 million from its original capital expenditure plan to aid in keeping leverage metrics in line. The overall capital initiative continue to focus on E&P initiatives in line with projects with a consolidated EBITDA/boe target of $55 compared to $44/boe for the group.
On the balance sheet, the company presently has no plans to issue new paper, either domestically or in the international markets, which lowers new issue pricing risk. This follows a concerted liability management exercise in recent quarters to address the amortization schedule for this year and the next. Any incremental capital raise would likely be related to M&A, though this too would be governed by the 2.5x gross debt/EBITDA internal limit, suggesting very limited additional capacity, as is.
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