Concerns over Ecopetrol, Colombia’s largest state-owned firm, are increasing as a strategic decision about its joint venture with Occidental Petroleum is imminent.
Allegations of President Gustavo Petro’s involvement, combined with massive personnel purges to favour pro-government replacements, have raised concerns about the company’s future profitability and critical role in the national economy.
Ecopetrol’s strategic dilemma ahead of the March deadline
According to Reuters, Ecopetrol stakeholders face uncertainty as the deadline for renewing or terminating its Joint Venture agreement with Occidental Petroleum in Texas approaches in March.
Interviews with numerous Ecopetrol employees, past employees, and industry observers suggest a growing concern about the company’s future.
The political landscape has been compounded by Petro’s recent activities, including cancelling a $3.6 billion deal with Occidental to acquire a 30% interest in shale producer CrownRock.
Petro’s opposition to fracking and concerns about expanding the company’s financial burden were major factors in this decision, according to two former board members who left in protest.
Petro, representing a socialist government, has developed a program for Colombia to transition to renewable energy, to reduce reliance on fossil fuels.
However, while he advocates for this revolutionary agenda, the steps taken against Ecopetrol raise concerns about the potential detrimental impact on the company’s operational performance and profitability.
Staff purges raise concerns among employees
According to reports, Ecopetrol has reduced its employment significantly after the hiring of CEO Ricardo Roa in April 2023, with over 600 employees—or roughly 3% of its total workforce—being laid off.
Former employees and insiders have stated that these dismissals were motivated by political reasons rather than performance difficulties.
“Many of us were unfairly removed to make way for pro-government replacements,” said to Reuters a former head of Ecopetrol’s technology and innovation unit who was laid off in August.
The undocumented volume of this human turnover, along with the rising politicization of corporate operations, has sent shockwaves throughout the sector, sparking questions about governance and operational integrity within the organization.
“There are governance problems at Ecopetrol, but the fundamental issue is that the government owns 88.5% of the company, and President Petro and his ministers do not want oil or gas,” said Juan Jose Echavarria, a former board member.
Stock performance and market reaction
The market’s reaction to the unfolding events has been telling. Ecopetrol’s shares have fallen 28% this year, demonstrating investors’ loss of confidence.
Major banks, including Citi, Santander, Goldman Sachs, and JPMorgan, have reduced their target prices for Ecopetrol and its American depositary receipts—investment vehicles that allow US investors to purchase shares in foreign corporations.
This drop in share value highlights the broader ramifications of Petro’s intervention and the internal strife at Ecopetrol, a corporation that is a cornerstone of Colombia’s economy.
As concerns grow about the company’s ability to continue operations and contribute appreciably to national revenue, the stakes become increasingly high.
An uncertain future
As Colombia approaches a key point in its energy strategy, the future of Ecopetrol remains uncertain.
The potential termination of its joint oil venture with Occidental might change the landscape of Colombia’s energy industry, while continued purges and political intervention endanger not only the company’s viability but also the country’s economic structure.
Ecopetrol and its stakeholders urgently require clarity and stability.
The widespread concerns about Petro’s governance and the shake-up at Ecopetrol may continue to dominate talks about Colombian energy investment, necessitating immediate response from government officials and industry executives alike.
With major decisions on the horizon, all eyes are on Ecopetrol as it navigates an increasingly uncertain climate.
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