Ecopetrol (EC) Eyes $2.4B Cost Cuts in the 2019-2023 Period

Ecopetrol S.A. EC recently announced its intention to launch a cost-saving program to scrimp COP$8 trillion ($2.43 billion) in the 2019-2023 time period, per Reuters. It is targeting well drilling and completion, construction of facilities, application of improved technologies, creation of synergies, optimization of transport routes, as well as other activities to reduce costs.

The Colombian state-run company expects 71% of its cost savings to be generated from exploration and production. In addition, downstream, commercial, midstream and digital and corporate activities are likely to result in 10%, 8%, 6% and 5%, respectively, of total cost savings. This plan is partly included in its 2019-2021 savings plan.

The company started its transformation program in 2015. Since then, it achieved structural efficiencies equivalent to COP$10.2 trillion by first-quarter 2019. The move was supported by strategies like the dilution of heavy crudes, which facilitates transportation.

Moreover, it reduced drilling costs from $482 per foot in 2014 to $258 in 2018. In first-quarter 2019, the company recorded earnings of COP$ 2.75 trillion, up 5% year over year, on the back of improved operating efficiencies and higher production.

It has plans to invest $3.5-$4 billion in 2019, of which 80% will be allocated toward upstream activities in Colombia, the United States, Brazil and Mexico. The objective of the plan is to ramp up output and explore for more hydrocarbons. For 2019, the company has plans to double the number of rigs it used last year and drill 700 wells. Production for the current year is expected in the range of 720-730 thousand barrels of oil per day.

Price Performance

Ecopetrol’s shares have gained 10.1% year to date compared with 9% collective growth of the industry it belongs to.

 

 

Zacks Rank and Other Stocks to Consider

Currently, Ecopetrol carries a Zacks Rank #1 (Strong Buy). Other top-ranked players in the energy space include Repsol SA REPYY, TOTAL S.A. TOT and Chevron Corporation CVX. While Repsol sports a Zacks Rank #1, TOTAL and Chevron carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.  

Repsol’s earnings per share estimates for 2019 have increased from $2.03 to $2.04 in the past 60 days. It has witnessed two positive estimate revisions during the said time period.

TOTAL’s earnings growth is projected at 6.9% through 2019.

Chevron’s second-quarter 2019 earnings growth is projected at 14.6%.

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Ecopetrol S.A. (EC) : Free Stock Analysis Report
 
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