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Page added on December 16, 2015
$100 billion evaporates as world’s worst oil major plunge
Colombia is nursing paper losses of more than $100 billion after its oil boom fell short of expectations, wiping out 90 percent of the value of what was once Latin America’s biggest company.
From being the world’s fifth-most valuable oil producer at its zenith in 2012, worth more than BP Plc, state-controlled Ecopetrol SA now ranks 38th. Its market capitalization has fallen to $14.5 billion, down from its peak of $136.7 billion.
“They just haven’t found oil, it’s as simple as that,” Rupert Stebbings, the managing director of equity sales at Bancolombia SA, said from Medellin. “The whole oil sector got massively over-bought, and people assumed that one day they’d hit an absolute gusher.”
As the army wrested back territory from Marxist guerrillas over the last decade and a half, opening up more land for exploration, the outlook was bright for the oil sector in Colombia, which borders Venezuela, the nation with the world’s largest reserves. Ecopetrol’s share price soared to “irrational levels” as investors bet on surging output that then failed to materialize, Stebbings said.
With shares in the oil producer still high, the government opted in 2013 to sell a stake in electricity producer Isagen SA rather than Ecopetrol.
Finance Minister Mauricio Cardenas, who sits on the board of Ecopetrol, said in an August 2013 interview that the government didn’t want to sell a further stake in the company because its growth prospects were better than Isagen’s. Since then, Isagen shares have risen 4.2 percent, while Ecopetrol’s have fallen 74 percent. The Isagen stake sale has yet to take place due to a series of legal challenges.
Over the past year, Ecopetrol shares are down 55 percent in dollar terms, the worst performance among global oil drillers with a market capitalization over $10 billion. The company’s original 2015 production target of 1 million barrels of oil equivalent waschanged to 760,000 barrels.
Ecopetrol’s growth in oil production since 2006 is among the world’s best, with a 24 percent success rate in exploration in 2014, the company said in an e-mailed response to questions. The Kronos-1 and Orca-1 discoveries in the Colombian Caribbean “opened a new exploration frontier,” it said.
Despite some bright spots, including the gas discoveries, exploration budget cuts along with already-meager reserves are worrying, said Corredores Davivienda equity analyst Francisco Chaves.
Slumping oil prices may force the company to downsize its reserves next year, according to Chaves. A foray into Angola last year proved to be an expensive failure, while government hopes that shale exploration could help boost reserves no longer look viable at current oil prices.
“The U.S. may have the ability to adapt to low prices and continue with its shale oil and gas industry,” Ecopetrol Exploration Vice President Max Torres said in an interviewDec. 3. “But for a new industry like ours it’s very difficult. It’s for the future, when prices improve.”
12 Comments on "$100 billion evaporates as world’s worst oil major plunge"
makati1 on Wed, 16th Dec 2015 7:27 pm
$100 billion here. $100 Billion there. Who cares? A lot more is going to ‘disappear’ before we fall far enough to be free of the hydrocarbon age, capitalism and ‘democracy’.
Anonymous on Wed, 16th Dec 2015 8:08 pm
Maybe the problem isn’t a missing 100 billion in phantom dollars that never existed in the first place. ‘Market Cap’ is capitalist-speak for ‘We think it might be worth this much, based on a sorta-guestimate, or…. maybe not’. The ‘problem’ could be with the people that tacked on that 100 billion in ‘value’ in the first place. Where are they right now? Were they asked to comment on this story, maybe explain how they came up with 100 billion figure?
Im not picking on this Oil company Ive never heard of before in particular. We could say the same of other questionably valued entities like, Apple, Google, FB, Twitter and so on.
Spec on Wed, 16th Dec 2015 8:36 pm
Whatever. Those 100 billion barrels will magically reappear when the price rises (as it inevitably will). It is only a matter of time.
(OK, that is not 100% true . . . it is possible that we invent technologies that render oil pretty worthless. But I don’t anticipate that in the near term due to the massive installed base of ICE vehicles and the difficulty of doing aviation without oil.)
rockman on Wed, 16th Dec 2015 8:42 pm
FYI – Thru out the history of the oil patch the commercial success rate of drilling has been the inverse of oil prices: the higher the price (i.e. the bigger the hype and greed factor) the worst the success rate. My favorite story told many times: the late 80’s boom working for a pipeline company that needed to get access to NG to transport and sell. A PUBLIC company. Never having done oil/NG exploration they had to buy drilling deals from prospect generating Company A. And they paid a huge premium for those prospects: paying 150% of the total cost and earning only 65% to 75% of the revenue from the SUCCESSFUL wells.
But hey: find some big reserves and they could make a bundle. And that’s what management sold the board of directors. And how could it miss with oil/NG prices many times higher then they had been just a few years earlier.
How? By drilling 18 dry holes in a row. Yes: every well drilled found an insufficient amount of oil/NG to justify completing…even one of those wells. And that with oil at an all time high ($100+ per bbl in 2015 $’s).
And the main guys with the prospect generating company: retired millionaires. And remember: they didn’t sell $1 of oil/NG…they made all the money on the front end promote. And some may thinking I’m kidding when I explain that the oil patch really does have a technical term for investors like that pipeline company: STUPID MONEY.
From the Urban Dictionary: When one is said to have stupid money, it means they have lots of money that they frequently spend either foolishly or impulsively. Can also be used in a more extreme sense to refer to spending of money simply for the sake of spending it.
And yes: the pipeline company paid the Rockman more than 2X what Mobil Oil was paying his relatively inexperienced ass. LOL
rockman on Wed, 16th Dec 2015 8:52 pm
Spec – I think you missed a very important sentence: “They just haven’t found oil, it’s as simple as that.”. They didn’t have the value of their reserves drop $100 million…they lost that much by unsuccessfully drilling for oil. There’s little reserve base developed to recover most of that capex if oil rose to $200/bbl next month.
Like those 18 dry holes I mentioned above: if oil had been $1,000/bbl and NG $100/mcf the pipeline company still would have not made one $.
Again why we call it stupid money and not unsuccessfully invested money. LOL
GregT on Wed, 16th Dec 2015 9:57 pm
‘it is possible that we invent technologies that render oil pretty worthless.”
While it may be possible ( like interstellar space travel is possible ), it is also extremely unrealistic. There is no other energy source on this planet that can do for us what oil does, and oil, and other fossil fuels, are at the foundation of all of our technologies. Without fossil fuels, we go back to pre-industrial society. No trains, no planes, no automobiles. No electric grid, no communications networks, and no computers. Basically, back to the farms, with whatever we can scavenge that does not require fossil fuels to build, operate, or maintain.
antaris on Wed, 16th Dec 2015 10:35 pm
A funny thing about post secondary education. When you take engineering they make you do economics but when you take economics I don’t believe they make you do anything with engineering. Maybe that is why economic people think that some technology will come along to save the day.
antaris on Wed, 16th Dec 2015 10:36 pm
Because they have no fucking clue !
makati1 on Thu, 17th Dec 2015 1:30 am
antaris, you got it. Economists don’t live in the real world governed by the laws of physics. Every economist alive today has not ever seen a world where tech and energy weren’t able to ‘fix’ any problem (usually by causing a bigger one down the road). Their blinders are now welded tight. I predict a large suicide rate in that group in the near future.
rockman on Thu, 17th Dec 2015 8:09 am
antaris – “When you take engineering they make you do economics…”. Actually in the oil patch a big part of a reservoir engineer’s job is economic analysis. In my 40 years I’ve not once seen such analysis done by a company economist. It was always done by a reservoir engineer and more rarely a geologist.
As you imply oil/NG economic analysis isn’t just crunching numbers: one has to understand the physical dynamics so they can qualify the monetary dynamics.
theedrich on Fri, 18th Dec 2015 2:35 am
What causes “Stupid Money”? One would think that moneyed people would have the intelligence to do a little due diligence. But even the SM types seem to be suckers for simplistic propaganda, sort of like the electorate as a whole, or even like the politicians who apparently often themselves believe the blather they dish out to the low-information masses.
The only answer to this question seems to be that a blind craving for $uccess is built into the entire society, including the big-bucks moneybags. (Some, of course, like the Solyndra people, as they “invest,” can bribe politicians to back the “investments” with the “full faith and credit” of the U.S., so they might not be too worried about losing money.) Considering both the foreign adventures and domestic boondoggles carried out by our government with this kind of magical thinking, it would seem that modern society is constitutionally dependent on mental illness.
I’m glad that at least Rockman can profit from the madness.
Davy on Fri, 18th Dec 2015 7:24 am
I played with stupid money and have no regrets. I took chances and got my ass kicked. How many people on this board ever ran a business? How many have put their asses on the line for a gamble. All business is a gamble at the basis. Stupid money only looks stupid when it ends up being stupid. No one ever calls stupid money stupid when it succeeds.
I have turned money into stupid money but I learned valuable lessons. I was not stupid enough to lose everything. I twice took hits but they led me to where I am at. I am in a very good place and BTW not rich.
Yes we have stupid money with stupid people that are given money and have no real education from life. Many rich are stupid and have been given a silver spoon. I know I had a spoon up my ass for a time and I currently know stupid money. I took a gamble and went out on my own. I came close to losing everything twice. Those of you who like to pounce on me because of what I was born into just for your info my family lets family fall on their asses it they are bold enough to leave. Sure they would not have let me go homeless but it would have meant coming home with my tail between my legs and being a good boy. I never did that.
My point is money and risk are hard to determine until after the fact. We can see stupid people with money but generally stupid people with money don’t last long. I used to be a finance manager for a medium size corporation. I collected money as part of this job description. I saw plenty of people with money bite the dust. I also saw unlikely characters make it. I saw first-hand a corrupt system of patronage and ass kissing.
The business world and the world of the rich is not what it seems until you live it. I wish I never would have lived it. I wasted 20 years of my life living a life that I did not fit into. I wish I would have been born with a modest life in a rural area with good family. Stupid is modern man and our battle against nature. Ultimately that is what money is. Money is abstract. Nature is real.