Ecopetrol cuts 2020 capital spending by US$1.2bn

Colombia's Ecopetrol has slashed its 2020 capital budget by US$1.2bn to mitigate the impact of an oil price freefall, the state-run company said on Tuesday. 

In a statement, Ecopetrol set a new guidance range of US$3.3bn to US$4.3bn, prioritizing the preservation of production and cash flow.

The company also announced an austerity plan that aims to reduce costs and expenses by 2tn pesos (around US$500mn).

"The measures are part of an intervention plan that aims to adapt to changing market conditions in a timely and orderly manner," the statement said. 

Brent crude dropped below US$30/b on Tuesday amid rising fears that the coronavirus outbreak will erode global energy demand. The market has been further impacted by Saudi Arabia's decision to lift production, breaking ranks with oil export group OPEC. 

Ecopetrol, which is responsible for around 60% of Colombia's total crude oil production, said its cost savings plan would take immediate effect. Measures include new staff travel restrictions, sponsorship cuts and reduced participation at events.

The Bogotá-based firm maintained its 2020 production forecast of 745,000 to 760,000boe/d and said it would implement new commercial strategies to maximize the value of crude and refined products. 

It said it has "flexibility" to access debt markets if required, citing a US$665mn international credit line and an additional US$242mn financing facility with local banks. 

"Along with the interventions announced today, the availability of these resources will allow Ecopetrol to continue mitigating risks associated with fluctuations in crude oil prices and minimize risks associated with liquidity stress scenarios," the statement said. 

In addition, Ecopetrol said its board of directors proposed a new dividend payment scheme in which minority shareholders would receive a 100% disbursement on April 23. The majority shareholder would be paid 14% of the dividend on the same date, with the remainder to be allocated in the second half of 2020, the company said. 

"[We] will continue to monitor the evolution of the market to determine the need to launch subsequent stages of the intervention plan, seeking an optimal balance between responding decisively to the current situation and preserving the company's long-term value," Ecopetrol added.