Colombian oil industry cracking under pressure from low oil prices

The Colombian oil industry has been doing everything it can to weather the oil crisis caused by the dual problems of falling oil prices and dwindling reserves. However, it is starting to crack under the strain of the long wait for a recovery in oil prices. On Tuesday, the Colombian Petroleum Association (ACP) told the press that the country would not be able to meet its oil production target of 1 million bpd if oil prices stay at $30 per barrel.

The combination of low oil prices, operational challenges, and high taxes are putting the oil industry under severe strain. The ACP called on the Colombian government to do everything it could by reforming the country’s “uncompetitive” tax structure, in which it takes 70% of oil companies’ profits. ACP President Francisco Lloreda also called on the Colombian people to accept that, “There is a new oil reality and we need to understand this.”

Colombian state-owned oil company Ecopetrol has been battered by the country’s oil crisis. On Tuesday, Ecopetrol’s bonds fell after Moody’s downgraded the company to Baa3, just one step above junk status. Moody’s also put Ecopetrol on review for another downgrade, explaining that the company’s credit numbers are imperiled by continued low oil prices.

In response to Moody’s decision, Ecopetrol released a statement reaffirming its commitment to cutting costs in response to low oil prices. Ecopetrol also pointed to Moody’s praise for Ecopetrol’s “strong efforts to improve operating efficiencies and reduce capex to protect its liquidity position,” and for the Colombian company’s steady cash flow.