News and AnalysIs for

With investors walking away from Colombian oil and gas stocks but interest rates low and companies still upbeat about their prospects, there have been a number of announcements about new debt issues and debt intentions. Other less conventional uses of cash like share buybacks have also become more prevalent.

As reported by Dinero, by February this year the stock-market capitalization of the companies listed on the Colombia Stock Exchange (BVC) increased by 6% compared to February of 2012, going from US$248B to US$263B. This even though capitalization declined compared to January this year, when it was US$273B.

It came as a tweet inviting contractors and providers to review the company’s Corporate Code on Conduct and Ethics. But Pacific makes it clear as early as page 7 that “the principles listed in this Code form part of your contractual agreement with Pacific Rubiales Energy and its subsidiaries”. Having been burned at least once by ethical lapses on the part of its contractors, the company does not want it to happen again.

As reported by Portafolio, Fulvio Conti, president of power company Enel, announced that the company will enter “the gas-selling business, gradually, focusing on end customers, especially in Colombia and Chile.” Conti said that entering this business would be handled by Endesa and will be conducted over the next five years. Thus, Enel would replicate the business model that has in Europe, where subsidiary Endesa Gas is the second largest gas marketer in Spain.

Ecopetrol is sending out a number of press releases designed to bolster its corporate social responsibility credentials. This week, environmental issues have the focus especially the company’s considerable investment as part of its long-term strategy to produce “clean barrels”. From an Ecopetrol press release, translated and with commentary by Hydrocarbons Colombia.

We find the USO’s embracing of environmentalism incredibly cynical but they have seized on this as a way to connect with the broader public and justify their strategies. Ecopetrol understands this and so we have a recent detailing of their environmental investments. Pacific Rubiales also highlights its environmental record, but principally it seems for ethical investors.

Incidents were up this week to 44 just over the long term average. Again this week a higher than recent average number of the items were initiated by the Armed Forces which is a good sign. (On average during the past year, 75% of incidents have been initiated by the Armed Forces and this week the percentage is 87%.) Our 4-week Moving Average was flat at 42 incidents per week closer to what amounts to a long-term average.

Peace talks advance based on the approval of President Santos and new proposals from the FARC. In recent statements, Santos said: “My conclusion, after talking extensively with the committee that is in Havana, is that the process is going well: they are working on the construction of an agreement that never before has been done in Colombia.” Indeed, Santos was so optimistic with the progress that he said achieving peace is a matter of months: “This is how conflicts end, here and anywhere in the world: with serious and disciplined working on drafting an agreement with concrete commitments. If we keep the pace of the last few weeks, it is perfectly possible to complete the work in months.”

It is barely visible in the graph but February 2013 oil production in Colombia dipped to 997,581bd from 1,011,992bd in January 2013. We had predicted this based on the incidence of attacks just on the Caño-Limón pipeline and government ministers had shied away from predictions. What is not in this report by MinMinas is the fact that Pacific Rubiales claims that its production is running higher by over 30,000bd after royalties compared to December (probably over 37,000bd before royalties). That means the sum of the rest of the industry is producing less. From a MinMinas press release, translated and with commentary by Hydrocarbons Colombia.

As always, the Pacific Rubiales conference call was full of interesting insights on the company and the industry. The Quifa arbitration result warranted an US$62M provision to Pacific Rubiales Net Income and drew multiple questions from analysts. The company had not adjusted its reserves but said it only amounted to “4 or 5Mbl”, some 4 or 5% of Quifa 2P reserves and so a much smaller percentage of overall 2P reserves. But results of the STAR (Synchronized Thermal Additional Recovery) test in Quifa SW drew almost as much interest considering its potential for increasing production without additional water cut. Results, by contrast, got less attention even though both Revenues and EBITDA hit records. Another stunning fact was that production was up 30% in 2013 versus December of 2012.