Ecopetrol Drives Offshore Gas Exploration Despite Shell's Withdrawal

Ecopetrol (EC) will continue natural gas exploration in Colombian Caribbean deepwater blocks despite Shell's (SHEL) planned exit in April 2025 due to rising domestic gas demand and dwindling reserves; first output is not expected before 2029. Colombia's halt on new oil and gas exploration contracts under President Petro necessitates utilizing existing assets to sustain output, while Petrobras has shown acquisition interest in the region's gas projects. Ecopetrol's Sirius-2 well could significantly increase natural gas production if reserves are viable.

Analysis

Ecopetrol S.A. (EC) has affirmed its commitment to continue natural gas exploration in key Caribbean deepwater blocks—specifically COL-5, Purple Angel, and Fuerte Sur—following its partner Shell plc's (SHEL) decision to exit these projects and its broader Colombian oil and gas exploration activities by April 2025. Ecopetrol's strategy is underpinned by rising domestic gas demand in Colombia, dwindling national reserves leading to increased import dependency, and the potential for high returns from these offshore gas resources. However, the company anticipates that first production from these wells will not commence before 2029. This independent pursuit occurs within a challenging regulatory environment, as the Colombian administration under President Gustavo Petro has halted the issuance of new oil and gas exploration contracts since 2022, compelling operators to focus on existing assets to drive production. Notably, these Colombian gas projects, including the blocks Shell is vacating, have attracted interest from other international players, with Petrobras reportedly considering acquisitions in the region. Ecopetrol and Petrobras have a history of collaboration, marked by a gas discovery in 2024 at the Sirius-2 well in the Gujaira Basin, which holds potential to significantly boost Colombia's gas output if deemed economically viable. Despite these strategic long-term initiatives, both Ecopetrol and Shell currently carry a Zacks Rank #4 (Sell).

Key Decisions for Investors

• Investors should closely monitor Ecopetrol's progress in de-risking and advancing its Caribbean deepwater gas projects, especially given the extended timeline to first gas in 2029 and Shell's departure, as successful development is vital for Colombia's energy security.
• The Colombian government's policy of not issuing new exploration contracts presents a significant headwind; therefore, Ecopetrol's ability to secure alternative partnerships, such as with Petrobras, or enhance production from existing licenses will be critical for its growth outlook.
• While Ecopetrol's commitment to developing domestic gas resources aligns with Colombia's needs, the current Zacks 'Sell' rating for EC, coupled with project execution risks and a long lead time to production, warrants a cautious approach, balancing long-term strategic positioning against near-to-medium term uncertainties.