News and AnalysIs for

We wrote a few weeks ago that ‘Debt is the new black’ about how Colombian oil and gas companies were using debt rather than equity. At the CWC Oil and Gas Summitt and Exhibition in Cartagena recently, Scotiabank’s Rolf Schmitz gave a good explanation of why there is a strong interest in M&A in Colombia but that companies are using debt rather than equity to finance their activities.

The graph shows the percentage of oil and gas employment which is sourced locally. These survey estimates come the annual Hays “Oil and Gas Global Salary Guide”, a fascinating look into the structure of industry employment. Considering industry comments about finding talent, it is perhaps surprising to see that South America sits in the middle of the chart, with a level of local sourcing ahead of Africa and just behind North America.

The annual Hays “Oil and Gas Global Salary Guide” is always an interesting read, filled with information. This chart shows the average salary for a local worker in the oil and gas industry, the average salary for an imported i.e expat worker and the estimated average (the heavy line). There are lots of questions about sample size and methodology (why, for example, are imported workers to Argentina paid less than locals?) but the data is interesting none-the-less.

The French oil giant Total has had an important investment in Colombia. But its recently published 2012 Annual Report shows that commitment is dwindling and is now quite minor. Having sold its long-time interest in Cuisana to Emerald last October, it is left with participation in exploration block in Niscota and a small piece of the Ocensa pipeline. What would be its next move?

We made somewhat light of Ecopetrol’s announcement in March of a well with just over 200bd production. Now here is another announcement which is 3x the size! This is an improvement but it is still only a 0.1% increase in the company’s production. Like the last announcement, this one got wide coverage in the Colombian press. From an Ecopetrol press release, translated and with commentary by Hydrocarbons Colombia.

According to a publication on mining and energy issues from the newspaper El Nuevo Siglo, Colombia is a leader in the creation of jobs in this sector. According to a study conducted by the Oil & Gas Division of the recruiting company Hays; there will be a increased demand for production and transportation jobs of the mining and energy sector in Colombia.

Rafael Ramírez, president of Petroleos de Venezuela (PDVSA) said the company made net profit of US$4.2B last year, down from the US$4.5B reached in 2011. PDVSA’s total revenues in 2012 were US$124.5B while in 2011 they totaled US$124.7B. Business magazine America Economia reports Ramirez saying: “We have a difference that I think is not very important, US$200M (…) in a similar environment.”

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.

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.