Ecopetrol divestment plan off to slow start

OREANDA-NEWS. September 16, 2016. Colombia's state-controlled Ecopetrol is off to a slow start with a \\$400mn-\\$900mn divestment campaign for 2016-17, meant to generate cash for core upstream spending.

A cornerstone of the plan is polypropylene subsidiary Polipropileno del Caribe (Propilco), now known as Esenttia, which Ecopetrol is supposed to offer in a first round auction in the fourth quarter after the government granted approval in June.

Ecopetrol has said a requisite presidential decree would be issued in the third quarter that would set conditions, price and timeline for the auction, but this has not happened yet, apparently because of difficult market conditions for the business.

One analyst told Argus that the first round auction to employees and special groups including Colombian pension funds will likely go through by the end of this year.

Ecopetrol acquired 100pc of Propilco in 2007 for \\$690mn, but at the end of 2015 the company reported in its 20F SEC filing a net equity of \\$407mn for the business.

In the first six months this year, Propilco produced 246,839t of petrochemicals, mostly polypropylene, up 7pc from the same period last year.

The company exports to Latin America, Spain, Turkey, China, US and Canada. A key issue for any potential buyer is propylene supply, which Propilco usually imports because Ecopetrol's new 165,000 b/d refinery Reficar has not been able meet demand.

Among other assets in Ecopetrol?s divestiture campaign are marginal oil and gas fields.

A 30 September auction for 20 small fields was pushed back to 25 November this year at the request of participants, Ecopetrol told Argus. The 20 fields on offer, of which 11 are active, produce a total of around 9,000 b/d of crude and 2.6mn ft3/d of gas.

Ecopetrol plans to transfer the upstream assets in second quarter 2017.

Ecopetrol failed to attract bidders in a third auction yesterday for its remaining stake in Medellin-based transmission firm Isa. It had been hoping to raise at least 113bn pesos (\\$38.4mn) by selling 13.6mn shares at a price of 8,326 pesos per share.

Ecopetrol raised 377bn pesos in April when it sold 76.8pc of its 5.32pc holding in Isa at 8,325 pesos/share. Ecopetrol also raised another 348bn pesos from the sale of its stake in Bogota-based utility EEB.

As of the second quarter this year, the company had raised \\$245mn from the sale of Isa and EEB shares.

Ecopetrol has been hard hit by the decline in oil prices since 2014, and needs the cash to invest in exploration and production. Output fell by 9.5pc in the second quarter to 695,000 b/d of oil equivalent compared to the same period last year.