EM LATAM CREDIT: Colombia's Ecopetrol 1Q 2025 Earnings Results
Ecopetrol (ECOPET; Ba1 /BB+neg /BB+neg)
• Colombia government majority owned oil and gas E&P company Ecopetrol reported flat sales, and a drop in margins and net income.
• Operating profit fell 14.5% YoY while EBITDA fell 6.9% with the EBITDA margin shrinking 320 bps to 42.3%. The negative impact of lower oil prices was offset by FX effects and an improved differential that led to better realized prices on sales.
• The better differential was helped by US tariff policies influencing the supply of Mexican and Canadian oil as well as the end of production licenses in Venezuela that limited heavy crude supply to the market.
• Margins were impacted by the higher cost of imported oil and gas needed to meet local demand, partly due to maintenance outages at refineries.
• Ecopetrol confirmed in its earnings report what was made public a few days ago regarding USD9.4bn that is owed to the government tax agency Directorate of National Taxes and Customs ("DIAN") as a value added tax (VAT) for oil and gas purchases, including USD6.1bn for Ecopetrol, USD1.1bn for the company owned refinery and USD2.2bn in interest as the taxes were incurred from 2022-2024. Please see our post a few days ago for more information:
https://mni.marketnews.com/4d4mtWJ
• The refinery was notified of the claims February 24 and March 6, 2025, and on April 11, 2025 for Ecopetrol. The company will contest these claims as they have a different regulatory interpretation.
• Ecopetrol free cash flow generation was roughly flat after accounting for capex, dividends and the final payment to Spain based energy company Repsol in February 2025 to acquire the remaining 45% of its participation in the CPO-09 Block, for an amount of USD452mn.
• The company reported gross debt/GDP of 2.2x. With USD9.4bn of additional debt that leverage number would increase to 2.9x. Ecopetrol had COP17tn (USD4bn) of cash/ investments 1Q2025.
• Considering that ECOPET’s valuation is derived more from its ownership by the government than its balance sheet, that the bonds already trade at a spread to the sovereign and that 2.9x would not be disastrous we see the worst case scenario of having to pay the tax as manageable, though attracting demand for the new bonds to fund the payment might be challenging given the lack of investor sponsorship for the sovereign in general.
• ECOPET 2036s were last quoted T+523bps, 71bps wider MTD and 92bps YTD. Oil prices (WTI) are almost 2% lower today and down 17% YTD, approaching USD58bbl. For WTI and USD61 for Brent.
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TARIFFS: Trump Administration Officials Debating Exporter Tax Credit - Bloomberg
There’s been a mildly negative but slow to build reaction in equity indices since the below story, potentially because it signals another lack of off-ramp on tariff policy. It also followed shortly after surprisingly weak consumer credit data.
- Bloomberg writes that “Trump administration officials are debating the merits of creating a new exporter tax credit, a move that offers an implicit acknowledgment of the harm that the White House’s tariff policies risk inflicting on US companies.” See the full Bloomberg story here.
- “The rebate, which would be geared toward boosting US manufacturers, would be issued at the end of the year to offset the effects of retaliatory tariffs as American companies seek to sell their goods in foreign markets, according to people familiar with the deliberations.”
- The anonymous sources note that “Neither President Donald Trump nor Treasury Secretary Scott Bessent have been formally briefed on the plan, and the idea has divided the administration’s economic team, they said.”
- There’s been a slow mildly negative reaction in equity indices since the headlines, which followed shortly after surprisingly weak consumer credit data, potentially because it signals a lack of off-ramp on tariff policy.
US TSYS: Late SOFR/Treasury Option Roundup
SOFR option volumes picked up as the day progressed, took a bearish tone as underlying futures retreated from early highs. While projected rate cuts through mid-2025 have cooled from this morning's highs - they still reflect first full 25bp cut still priced in for June and over a full point by year end. Current levels vs. early morning (*) as follows: May'25 at -11.1bp (-13.1bp), Jun'25 at -33.3bp (-35.3bp), Jul'25 at -55.4bp (-60.6bp), Sep'25 -72.4bp (-80.4bp).
- SOFR Options:
- +10,000 SFRU5 96.12/96.43/97.25 call flys 4.0 vs. 96.44/.08%
- +10,000 0QJ5 97.25/97.75 call spds 2.25 ref 96.835
- -20,000 2QM5 96.75/97.00 call spds 9.0 over 95.50/95.75 put spds vs. 96.78/0.18%
- +5,000 SFRK5 95.68/95.93/96.18 call flys, 10.0 ref 96.07
- +5,000 0QK5 97.50/98.00 call spds, 4.0 ref 96.855
- Block, 10,000 SFRZ5 95.12/95.62 put spds, 1.5 vs. 96.665/0.05%
- Block, 24,000 SFRM5 96.25/96.87 call spds, 13.25 splits
- -7,500 SFRZ6 96.75/97.75 call spds, 38.5-39.0
- -10,000 SFRH7 96.75/97.75 call spds, 38.5-38 ref 96.875
- -7,000 0QU5 97.00/98.00 call spds, 23.5 ref 96.935
- +7,500 0QN5 96.75/97.25/97.75 call flys vs 0QU5 97.25/97.75 call spds, 2.75 Sep over
- -6,000 SFRU5 96.25/96.62 3x2 put spds, 26.5
- 2,500 SFRK5 95.75/95.87/96.00 put flys
- Block 3,000 SFRU5 96.12/96.50 3x2 put spds 27.0 ref 96.52
- 1,500 0QK5 97.50/98.00 call spds vs. 0QM5 98.00 calls
- 12,750 SFRM5 95.62/95.75 put spds ref 96.13
- Block/screen, 20,000 SFRK5 95.68/95.93/96.18 call flys, 9.0-9.5
- 3,000 SFRK5 95.50/95.62/95.75 put flys ref 96.175
- 3,000 SFRM5 96.50/97.00/97.50 call flys ref 96.195
- 2,500 0QK5/0QM5 98.00 call spds, 2.0 ref 97.07
- 2,000 SFRZ5 95.87/96.37 call spds ref 96.885
- 1,500 SFRZ5/SFRH6 99.50 call spds
- over 9,100 0QJ5 97.50/98.00 call spds ref 97.115 to -.105
- Treasury Options:
- 1,500 TYK5 110.5/114 strangles 40 ref 112-00
- 3,000 FVK5 109/111.25 call spds vs 107.5 puts ref 108-31.75
- 5,000 TYK5 112/113/114 call trees ref 112-04
- 9,500 TYK5 112.25 puts, 55-56 ref 112-08.5 to -07.5
- 5,000 TYK 110 puts
- Block: 40,000 TYK5 114 calls vs. 35,000 TYM5 116 call spds vs. 5,998 TYM at 113-01.5
- Block, 1635 WNM5 113/119 put spds 53 vs. 124-19/0.14%^
- -1,000 TYM5 111/112/113 call flys, 9
- +4,000 UXYM5 112/113 put spds, 9
- 3,000 TYM5 109/110/112 broken put flys ref 113-04 to -03.5
- 2,800 TYK5 111 puts, 8 ref 113-15.5
MNI: US FEB CONSUMER CREDIT -$0.8B
- MNI: US FEB CONSUMER CREDIT -$0.8B
- US FEB REVOLVING CREDIT +$0.1B
- US FEB NONREVOLVING CREDIT -$0.9B
