Ecopetrol and Occidental to co-develop acreage in Permian Basin

Colombian state-run oil company Ecopetrol has formed a joint venture (JV) with Occidental Petroleum to develop 97,000 net acres of the latter’s Midland Basin properties in the Permian Basin.

The JV enables Ecopetrol to buy approximately 160MMboe of proved undeveloped reserves at transaction closing. It will progressively increase the company’s production until 2027, when production for Ecopetrol in the JV is estimated to reach 95kboed.

Ecopetrol will pay $750m in cash and $750m of carried capital to acquire a 49% stake in the JV. Occidental will be the operator and own the remaining interest.

Ecopetrol would pay 75% of Occidental’s share of capital expenditures during the carry period, as part of the agreement.

In addition to the share of future production from the development acreage, Ecopetrol said it will apply expertise acquired by its employees in the Permian to develop shale assets in Colombia.

Ecopetrol will also ensure technology and knowledge transfer from the Permian Basin to its Colombian assets.

The JV agreement is completely in line with the company’s strategic priorities as outlined in the 2019-2021 business plans, focussing on reserves and production growth.

It allows Occidental to accelerate its development plans and retain production and cash flow from its existing operations in the Midland Basin.

Ecopetrol created two new companies to facilitate the JV, namely Ecopetrol Permian and Ecopetrol USA.

The company also converted its US Gulf of Mexico-focused business Ecopetrol America Inc into Ecopetrol America LLC.

Ecopetrol CEO and president Felipe Bayon said: “This is a key step to enhance our reserve base and production growth whilst we strengthen our capabilities in shale development and bring this technology to Colombia for the economic benefit of the country.”

Expected to close this year-end, the transaction is subject to approvals from the US authorities.