South American company looks to the Permian for oil and gas production

Adrian Hedden
Carlsbad Current-Argus

A South American oil and gas company entered into a joint venture with Houston-based Occidental Petroleum to develop non-conventional oil and gas deposits in the Permian Basin.

The partnership was announced in a Wednesday press release from Columbia-based Ecopetrol and noted the areas to be developed were in the Midland Basin – the Texas side of the Permian which extends through southeast New Mexico and West Texas.

About 160 million barrels of oil equivalent would be developed by Ecopetrol under the agreement scheduled to close at the end of 2019, read the release, marking a 10 percent increase in the company’s reserves compared with 2018.

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It would also allow Ecopetrol to increase production in the region through 2027 when the company estimated it would produce up to 95,000 barrels per day, increasing by 50,000 barrels per day over the next decade.

The move would also allow Ecopetrol to diversify its assets to include developing light crude as the company traditionally focused on heavy crude.

Ecopetrol would also allow the company to incorporate short-cycle assets characterized by less exploratory risk and shorter time frames between the start of activities and actual production.

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Occidental Petroleum celebrates the opening of a new frac sand transloading facility about 15 miles south of Carlsbad during a ribbon cutting ceremony, Feb. 22, 2018 at the facility near Brantley Road.

Occidental will own 51 percent of the new company, contributing about 97,000 acres in the Midland Basin, the release read.

The company’s unconventional production reached 260,000 barrels per day in 2019, making it a leader in such production in the U.S.

For Ecopetrol’s 49 percent stake, the company will pay $1.5 million total – 50 percent at the close of the deal and 50 percent in deferred investments over time during the development.

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Ecopetrol President Felipe Bayón said the deal will strengthen his company’s position as a global oil and gas producer and increase its knowledge in unconventional assets pioneered by American operators.  

“This is a milestone for Ecopetrol because we enter the big leagues of the non-conventional deposits, we will increase our reserves and production, and we will strengthen our knowledge in this technology together with a first level partner,” he said.

“It is a fundamental step to advance in the path of sustainability and profitable growth that we have set for more than two years, with the objective of generating more resources for our shareholders and all Colombians.”

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The operation established new company Ecopetrol Permian which would be consolidated by Ecopetrol USA, which already holds assets in the Gulf of Mexico where it produces about 15,000 barrels per day.

The transaction is awaiting regulatory approval from the U.S.

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Oil prices show slight dip, continue to stagnate amid global tensions

August began with an about $2 drop in the price per barrel for West Texas Intermediate – a grade of crude oil used as a benchmark for domestic pricing – to about $56 per barrel.

The shift followed frequent fluctuations in the price in July, which started at $59 per barrel, dropping to $56 but then peaking at about $60.50 per barrel.

That was followed by a slump to about $55.50, then climbing to $58 per barrel at the end of the month before the dip reported Thursday.

Prices remained in the $55 to $60 range starting in the middle of June, after a recovery from a drop of about $10 per barrel starting at $62 per barrel in mid-May and sliding to about $52 at the start of June.

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The shifts in prices, and their consistency in that range were credited to “lingering” tensions in the Middle East, per a Wednesday report from DrillingInfo, and concerns for global demand and growth.

The growth to $58 per barrel earlier this week was supported by an announcement that the U.S. Federal Reserve would cut interest rates for the first time in more than a decade, read the report.

The move gave confidence to economic and demand growth in the U.S.

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But global market tensions remained as Iran refused to release a U.K. oil tanker seized near the Straight of Hormuz, where about a fifth of the world’s oil supply crosses.

And the continued trade dispute between the U.S. and China fueled a stagnation of oil prices despite the conflict in the Middle East.

 “Even though tensions continue to escalate around the Strait of Hormuz, the price reaction to the events have been limited due to persistent concerns about global economic health and demand growth as well as disappointing manufacturing data and growth from Asia and Europe,” the report read.

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China and the U.S. planned to meet in Shanghai to discuss a path forward from the ongoing trade war, but the report said expectations were low and the conflict would continue to limit any significant price gains.

“The main catalyst driving the concerns for global economic growth is the US–China trade dispute, which still poses a threat to the global economy even after the truce agreed upon during the G20 meeting,” read the report.

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Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.