Ecopetrol SA, the state-owned oil company of Colombia, has chosen not to pursue a $3.6 billion acquisition of Permian Basin assets from Occidental Petroleum Corp.
The decision was communicated to Occidental on Wednesday, and the company formally announced its withdrawal in a filing on Thursday.
Following the announcement, Occidental’s stock experienced a 2% decline, while Ecopetrol’s American depositary receipts fell by 1.5% in New York trading on Thursday.
Impact of the Deal on Ecopetrol’s Growth
The proposed deal would have allowed Ecopetrol to increase its production by approximately 50,000 barrels per day (bpd), offering a significant opportunity for growth beyond Colombia.
According to Bloomberg Intelligence analyst Will Hares, this acquisition could have provided much-needed growth visibility for Ecopetrol.
Additionally, BTG Pactual estimated that the deal would have expanded Ecopetrol’s reserves by 11%.
Colombian Government’s Climate Policy
Colombian President Gustavo Petro has prioritized climate change mitigation, which has influenced Ecopetrol’s decision.
President Petro’s administration has been firm on not granting new contracts for exploring new drilling sites, despite the country’s decreasing reserves.
This policy reflects the government’s commitment to reducing the country’s reliance on fossil fuels and addressing environmental concerns.
Strategic Implications for Ecopetrol
Ecopetrol’s decision to forgo the Permian Basin deal signals a shift in strategy, likely influenced by the Colombian government’s climate policies and the company’s focus on sustainability.
The move highlights the broader challenge facing oil companies in balancing growth opportunities with environmental responsibilities and governmental regulations.
Conclusion
Ecopetrol’s withdrawal from the $3.6 billion acquisition of Permian Basin assets represents a significant decision in the context of Colombia’s climate policies and the company’s strategic direction.
While the deal could have bolstered Ecopetrol’s production and reserves, the company has opted to align with the Colombian government’s focus on combating climate change and refraining from expanding fossil fuel exploration.