EM LATAM CREDIT: Ecopetrol: Potential Sale of Assets - Negative

(ECOPET; Ba1/BBneg/BB+neg)

• The Colombia govt.-controlled energy company has been under pressure from President Petro for almost a year to sell its U.S. fracking business in the Permian Basin for environmental reasons. The sale would be a credit negative but with little if any bond market impact.

• As a govt. owned entity that is reasonably levered and still manages to maintain production levels despite many challenges, Ecopetrol should continue to trade in line with the sovereign.

• Bonds have benefitted from the rally in the Colombia (COLOM; Baa3/BBneg/BB+neg) sovereign with 36s last quoted T+391bp, 75bp tighter since June 30th and 38bp tighter YTD. The spread to the sovereign is at the wider end of the range last quoted at a 108bp differential to the COLOM 35s, wider than the 97bp average for the past year.

• The Permian fracking assets are the fastest growing segment at Ecopetrol with production rising 18% YoY as of 2Q while the core company production in Colombia fell 4%. That has been a persistent trend with mature fields in the country and prohibitions against new exploration.

• Global oil majors such as Exxon have been expanding in the Permian this year so Ecopetrol should have no trouble selling if ultimately that is what is approved. The company paid USD1.5bn for the 49% share of a joint venture with Occidental Petroleum in 2019.

• Debt has been climbing amid cash burn, mostly driven by falling oil prices so while asset sales could reduce debt in the short run, it would likely impede longer term profitability and growth. Gross leverage is still at a manageable level, last reported at 2.4x as of 2Q 2025, up from 2.2x sequentially.