Héctor Manosalva Rojas
Vice President of Development and Production
Ecopetrol
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View from the Top

Colombian NOC Impressed by Mexican Biddin Rounds

Wed, 01/21/2015 - 12:32

Q: How does participating in Mexico’s Round One fit into Ecopetrol’s development strategy?

A: The plummeting oil prices have obliged us to make some adjustments to Ecopetrol’s strategy, just as many companies have done. Our strategy is primarily focused on reducing costs and increasing efficiency and productivity in order to protect our margins and cash flow. We also revised our portfolio, decided to keep investments in productive assets, and to defer certain exploration investments. For the latter issue, we are heading towards more concrete and substantial objectives that enable the company to support the incorporation of reserves to withstand production levels. This strategy is mostly focused on offshore operations in Colombia. Assuming that oil prices will probably recover in 2016, certain exploratory activities that are already defined in our portfolio will be postponed until then. In terms of production, we have seen reserves replacement well above 150% over the last six years. We are aiming to maintain said levels above 100% in the coming years. We will continue with our growth curve to guarantee that our reservesproduction ratio for 2020 is between nine to ten years. In the current low-price scenario, these strategies have enabled us to continue operating without stopping any field operation while protecting our cash flow. In this context, Mexico has significant potential in resources and reserves, which is clearly aligned with Ecopetrol’s mid-term strategy. To capitalize on these, we are evaluating the various bids that have already been launched in the country. Our midand long-term investment outlook in Mexico will soon be submitted to the board to see how we can bring it to life.

Q: What types of fields included in Round One are the best match for Ecopetrol’s capabilities and priorities?

A: We are currently closing the technical assessments for the bid that was launched on December 2014 for 14 exploration blocks in shallow waters. Our technical team, split between Mexico City, Houston, and Bogota, is in charge of assessing these opportunities. We are also assessing the second bid that was launched in February 2015 for the development and production of shallow water blocks. We are now awaiting the third bid, which relates to onshore production development. I am under the impression that all players are anxiously expecting the technical information about the blocks to be tendered. The bidding for deepwater blocks might also present opportunities for Ecopetrol. In contrast, we do not see Ecopetrol bidding on unconventional fields because of our lack of experience in this segment although participating in the farm-outs for unconventional blocks could be interesting. Once we have done the proper technical evaluations and finished assessing the different rounds, we will define the best scenarios for resources, reserves, and investment in the blocks we will bid for.

Q: Why are the first bidding rounds particularly important for Ecopetrol?

A: Mexico’s bidding round has one of the highest hydrocarbon potentials in the world. Proof of this can be found in its contingent resources, its exploratory potential, the inventory of reservoirs, and the country’s current production levels. This means that the opening of the market represents an opportunity for many companies, including Ecopetrol, to develop their activities in areas with enormous potential. For us, it is of paramount importance to have Mexico on our radar, to closely follow the opening of the sector, to study the implications of government-driven policies, and to monitor the entire process of licensing rounds in order to plan and implement our investments in the country.

Q: What sets Ecopetrol apart from other E&P companies that have shown interest in Mexico?

A: There is an important affinity between the investment environment in Colombia and Mexico and an equally significant proximity between ourselves and PEMEX. Although its size and reach is considerably larger than ours, there are similarities in terms of strategy, objectives, and opportunities in exploration and production matters. Likewise, Ecopetrol has been building strategies to develop productive investments in mature fields and heavy crude oil fields, where we have been highly successful in Colombia.