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Ecopetrol S.A. EC has warned that its profits may take a significant hit following the recent slump in oil prices. The decline in oil prices could lower its profits by up to 12 trillion pesos in 2025 and may also require the company to halt production in certain fields.
U.S.-China Trade Tensions Fuel Oil Price Uncertainty
Per Reuters, EC’s president Ricardo Roa had mentioned that the company may have to cease production in some fields and focus on assets having lower costs. The ongoing tensions due to the intensifying trade war between the United States and China have pushed down crude oil prices, including Brent crude, currently trading at approximately $65 per barrel and West Texas Intermediate, close to $62 a barrel.
On Friday, Brent futures traded close to $63.45 per barrel, which raises concerns for the Colombian oil company. Ecopetrol’s president noted that the company operates several fields where the breakeven price of production comes close to this price. This implies that if oil prices slip even lower, production in these fields will no longer be profitable. He also stated that they already have the first list of such fields, and the company might pause operations in these fields and focus on the ones having lower costs.
Impact on Overall Production
Ricardo Roa pointed out that 20 to 30 fields might be at risk of being shut down. EC operates 158 fields in total, of which the fields that might be closed were not significant to its total oil production. However, the accurate impact on its production is uncertain. EC’s president further added that oil prices will be closely watched in the upcoming days to determine if the company will eventually need to shut in other fields as well if they are no longer profitable.
2025 Profit Forecast Faces 12 Trillion Peso Downside
Apart from the production impact, lower oil prices also translate to a major hit for the company’s profitability. Its financial results are extremely sensitive to changes in oil prices in the international market. Ricardo Roa noted that even a $1 per barrel drop in oil prices in the international market implies a decline of 900 billion pesos in EBITDA and a 700 billion peso hit in net profit for the company. For 2025, EC considered the average benchmark oil price to be approximately $73 per barrel. However, benchmark prices are significantly down at present and are expected to have a significant impact on its profit, up to 12 trillion pesos, if prices continue to decline.
EC’s Zacks Rank and Other Key Picks
EC, the Colombian majority state-owned energy company, currently carries a Zacks Rank #2 (Buy).