KEYFACT Energy
Ecopetrol SA and Occidental Petroleum Corp. agreed to form a strategic alliance or joint venture (JV) in order to execute a joint plan for the development of Non-Conventional Deposits ( YNC) in the Permian Basin in the state of Texas (USA).
The transaction is aligned with the strategic priorities of the 2019-2021 business plan, focused on the growth of reserves and production under strict capital discipline, supported by exploration, recovery, Non-Conventional Deposits and internationalization.
The areas subject to this operation are located in the Midland, a high potential sub-basin located in the eastern part of the Permian basin, recognized as the one with the highest production of hydrocarbons in the world and one of the global focuses of the oil industry to the development of the YNC.
Currently, more than 4 million barrels of oil per day are produced in the Permian, which allowed the United States to become the world's largest oil producer and significantly reduce CO2 emissions thanks to the greater extraction of the so-called “shale” gas ”, which not only guarantees its internal self-supply, but also exports this clean fuel to different continents.
The strategic alliance would allow Ecopetrol a rapid incorporation of proven reserves (1P) for about 160 million barrels of oil equivalent (mbpe) at the close of the transaction, scheduled for the end of 2019, which would represent an approximate increase of 10% compared to the reserves of 2018, contributing to the oil and financial sustainability of the Company.
Similarly, this alliance would enable the Ecopetrol Group to increase production progressively until 2027, when a net production that Ecopetrol estimates at about 95,000 barrels equivalent per day (kbped) would be achieved. On average, production would increase by about 50 kbped over the next 10 years.
The participation in the new company will contribute to the diversification of the Ecopetrol portfolio thanks to the incorporation of assets considered as short-cycle, characterized by lower exploratory risk and very short periods of time between the start of activities and obtaining production. It also allows to increase the participation of light crudes (close to 40 API degrees on average) to balance the production matrix of the Ecopetrol Group, today concentrated in heavy crudes.
Diversification on these two fronts, together with the increase in gas and oil reserves, is key to strengthening the Company's position in a context of energy transition.
The alliance will also allow Ecopetrol to strengthen its knowledge in the evaluation, development and exploitation of Non-Conventional Sites. It contemplates a strong component of knowledge and technology transfer since Company personnel will participate directly in the activities in the country that has most successfully developed such technology.
The agreement announced today marks a milestone in the relationship of more than 40 years between the two companies. OXY will have 51% of the new company, will contribute its experience as an operator and about 97 thousand acres in the Midland of the Permian, an area with high hydrocarbon potential. With a cut to the first quarter of 2019, the production of OXY from YNC reached 260 thousand barrels of oil equivalent per day (kbped), becoming one of the leaders in unconventional production in the US.
For its part, Ecopetrol will have a 49% stake in the company and is linked to an initial payment of 50% at the close of the transaction and 50% in carry (investment deferred over time in activities contemplated in the development plan). The total payment of Ecopetrol is equivalent to US $ 1,500 million, in a competitive transaction compared to comparable operations carried out in the market in recent years.
“We are pleased to announce this alliance that is aligned with our strategy. This is a milestone for Ecopetrol because we enter the big leagues of the Non-Conventional Deposits, we will increase our reserves and production, and we will strengthen our knowledge in this technology together with a first level partner. It is a fundamental step to advance in the path of sustainability and profitable growth that we have set for more than two years, with the objective of generating more resources for our shareholders and all Colombians, ”said Ecopetrol President Felipe Bayón.
To enable the operation, the Company created Ecopetrol Permian LLC. In turn, it constituted Ecopetrol USA Inc., which will be responsible for the consolidation of Ecopetrol Permian LLC, the new company focused on YNC, and the subsidiary Ecopetrol America LLC, which will continue to manage the operations of the Gulf of Mexico- United States, where Ecopetrol already produces more than 15 kbped.
The operation is aligned with the Company's capital discipline, positively impacting ROACE (return on capital employed), continuing with the planned organic and inorganic investments, and will be carried out with own resources, without resorting to borrowing.
The transaction is subject to regulatory approvals in the US.