Ecopetrol S.A. (NYSE:EC) recently approved an updated strategic investment plan for the company that calls for $80 billion in capital spending through 2020 on various upstream and downstream projects across its portfolio.
Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Ecopetrol is based in Colombia, and is an integrated oil and gas company with operations in both the upstream and downstream areas. The company reported proved reserves of 1.7 billion barrels of oil equivalent (BOE) at the end of 2010, and estimates that production in 2012 will average 750,000 BOE per day. Ecopetrol is transitioning to a more private ownership of the company, and is currently 88% owned by the Republic of Colombia. (Find out how to take advantage of this market without having to open a futures account. For more, see A Guide To Investing In Oil Markets.)

Strategic Plan
Ecopetrol adopted a strategic plan several years ago, and updates it regularly as conditions in the industry and economy evolve. The strategic goals in the plan include reaching a production level of 1.3 million BOE per day by 2020 and 6.2 billion BOE of reserves. The company also hopes to increase the average life of these reserves to 10 years, and boost the average recovery rate on fields to 34% through the use of enhanced oil recovery methods.

Ecopetrol is looking to achieve a three year average return on capital employed (ROCE) of 28% in the upstream, and from 9 to 13% in other operations. In the downstream area, Ecopetrol is targeting a refining capacity of 415,000 barrels per day, up from the current level of 300,000 barrels per day.

In 2012, Ecopetrol has budgeted $8.4 billion towards achieving these goals, with 94% of the capital for projects in Colombia. The company will use the balance for projects in the United States, Peru and Brazil, and is using an oil price assumption of $70 per barrel for its investment plan.

From 2012 to 2020, Ecopetrol will spend $80 billion in capital, with 85% devoted to the upstream exploration and development. Ecopetrol expects to use internally generated cash to fund 75% of this capital plan through 2020. The company will fund an additional 16% with debt financing and 9% with equity offerings.

Exploration Success
One recent exploration success for Ecopetrol occurred in October 2011 in the deepwater area in the Gulf of Mexico, where the company has a 20% interest in a well operated by Statoil (NYSE:STO). Ecopetrol has interests in more than 100 blocks in the deepwater Gulf of Mexico, and has approved additional drilling in this area in 2012.

The deepwater Gulf of Mexico remains attractive to many operators despite increased regulation imposed after the oil spill at the Macondo prospect in early 2010. Nexen (NYSE:NXY) and CNOOC Limited (NYSE:CEO) recently entered into a joint venture in the Gulf of Mexico. The joint venture covers six deepwater exploration wells, including one currently being drilled.

The Bottom Line
Ecopetrol is investing tens of billions through 2020 in the upstream and downstream as the company hopes to move up in the rankings of global oil companies. Although this strategic plan seems achievable, Ecopetrol might consider using this multi-year growth plan to diversify away from Colombia and get more involved with international upstream projects. (For related reading, see Peak Oil: What To Do When The Wells Run Dry.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Eric Fox did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    The 5 Best Buy-and-Hold Energy Stocks

    Understand why energy companies' stock are volatile when oil prices are volatile. Learn about the top five energy companies to buy and hold.
  2. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  5. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  6. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  7. Markets

    How Energy’s Debt Bubble Affects Your Portfolio

    Depressed crude oil prices are here to stay for the foreseeable future. Here's how it will affect an oil industry riddled with unsustainable debt.
  8. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  9. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  10. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  1. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  6. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!