Thursday, May 26, 2011

China Lures Crude From U.S.

Ecopetrol SA (ECOPETL), the Colombian oil producer which expects to more than double output this decade, said it plans to ship a greater share of its crude to Asia as growing demand in China competes for supplies with the U.S.

The company may no longer ship the majority of its crude to the U.S. in 10 years because Asia sales will be more profitable, Chief Executive Officer Javier Gutierrez said yesterday in an interview in Bogota. A pipeline the company is weighing that would carry oil to a new port on the Pacific coast to supply Asian refineries may also attract Chinese investment, he said.

“We are opening markets in the East -- China and India are starting to be significant for us,” Gutierrez said. Asian “markets will keep growing a lot,” he said.

China is buying oil assets in Latin America and helping finance exploration at companies such as Brazil’s Petroleo Brasileiro SA (PETR4) to meet rising demand as its economy surges. The U.S. is also seeking new sources of crude as traditional suppliers such as Mexico and Venezuela struggle to maintain output. U.S. President Barack Obama said in March that the U.S. wanted to become one of Brazil’s “best customers” for oil.

The Bogota-based company plans to boost output to 1.3 million barrels per day in 2020 as it taps reserves in Colombia, the U.S. Gulf of Mexico, Peru and Brazil through exploration and asset purchases. Ecopetrol, which had average output of about 615,900 barrels per day last year, plans to spend about $80 billion over the next 10 years to reach its goals, he said.
Investment Plan

Ecopetrol’s investment plan includes construction of the $4.2 billion Bicentennial pipeline, which will carry crude from fields in eastern Colombia to the Caribbean coast.

The company will need to build infrastructure to meet its goal of boosting exports because fuel transportation capacity has lagged gains in its production, Mauricio Restrepo, an analyst at Medellin-based brokerage Bolsa & Renta, said.

“There is more than enough oil -- what is lacking is a way to carry it,” Restrepo said in a telephone interview.

China, the world’s largest energy consumer, is snapping up more Colombian coal and crude after the Asian economy expanded 9.7 percent in the first quarter. China Petroleum Corp., known as Sinopec, also agreed to pay $7.1 billion for a 40 percent stake in Repsol YPF’s Brazilian unit in October as part of asset purchases the company made throughout Latin America last year.
Third-Largest Producer

Colombia, South America’s third-largest crude producer, may more than double output in 2020 to 2 million barrels per day, as Ecopetrol and other companies increase production, Gutierrez said. Improved security after the government repelled guerrilla groups has helped lure investors including billionaires Eike Batista and Carlos Slim to the nation’s energy reserves.

This year, Ecopetrol has had to repair pipelines in eastern and southern Colombia after guerrilla sabotage. Attacks by rebel groups on Colombian pipelines, roadways and bridges fell to 76 in 2009 from more than 800 in 2002, according to the government.

To fund expansion, Ecopetrol plans to sell shares for the first time since raising $2.7 billion in an initial public offering in 2007.

The sale will take place this year “in principle,” with the timing dependent on “market conditions,” Gutierrez said, declining to provide further information on the sale.

Ecopetrol rose 20 pesos, or 0.5 percent, to 3,960 pesos in Bogota trading. The stock has fallen 3.4 percent this year, while Colombia’s benchmark Colcap index had dropped 3.9 percent in the same period.
Ecopetrol Stake

Ecopetrol by law can sell as much as a 9.9 percent stake, which at current prices is worth about $8.6 billion. Colombia’s government said in March it will sell as much as 1.5 percent of Ecopetrol at year-end as part of a plan to ultimately divest up to 10 percent.

Colombia’s improved credit rating and greater security is luring international companies, increasing the chance of new oil discoveries, according to Gutierrez.

Carlos Slim’s Grupo Carso this year bought a stake in Geoprocesados SA’s Tabasco Oil Co., which is exploring in eastern Colombia. Batista’s OGX Petroleo & Gas Participacoes SA said last year that it may begin production in 2012 in Colombia after garnering exploration rights in a 2010 government auction.

The two billionaires “wouldn’t take the risk if they didn’t see the opportunity of a return,” Gutierrez said. “Colombia has awakened a lot of interest.”

Investment from more than 100 companies seeking oil reserves in Colombia may trim Ecopetrol’s share of the nation’s output to less than 50 percent over a decade from more than two- thirds currently, even as its production jumps, Gutierrez said.

Crude oil for July delivery fell $1.09 to settle at $100.23 a barrel on the New York Mercantile Exchange. Prices have increased 40 percent in the past year.

Oil in New York settled at $113.93 a barrel on April 29, the highest since September 2008.

Standard & Poor’s raised the nation’s foreign debt rating one step on March 16 to BBB-, the lowest level of investment grade. Moody’s Investors Service and Fitch Ratings rate Colombia one level below investment grade with a positive outlook.

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