Ecopetrol SA walked away from a $3.6 billion deal to acquire a stake in Occidental Petroleum’s recently acquired CrownRock LP assets primarily because of the negative impact to the leverage ratio, Ecopetrol executives said during an Aug. 14 second-quarter earnings call.

Politics, anti-fracking sentiments and the potential of a recent gas discovery in Colombia also played a factor, Ecopetrol executives said.

Ecopetrol had been in talks with Occidental to buy a 30% stake in CrownRock. But the deal’s price tag would have exceeded its debt-to-EBITDA threshold of 2.5x, executives said.

“Ecopetrol already has a high level of debt and with the [Oxy] transaction we would exceed this threshold,” said Ecopetrol’s CEO Ricardo Roa. “A debt-to-EBITDA ratio of 2.5 times is too high.”

Ecopetrol’s ratio calculation factored in the potential for lower oil prices and the resulting impact, Roa said.

Oxy agreed to acquire CrownRock in December 2023 in a deal valued at $12 billion. Oxy’s planned divestment of a 30% interest in the CrownRock assets was part of its post-acquisition debt-reduction plan.

The deal closed on Aug. 1, after Occidental reported earlier that day that Ecopetrol “decided not to acquire any interest in the CrownRock assets.”

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Secondary factors doom deal

Roa said numerous secondary factors weighed on Ecopetrol’s decision to not move forward with the planned acquisition.

The company needed approval from Colombia’s Ministry of Treasury, which was not on board with the state oil giant taking on 100% in public debt. Roa said the government informed Ecopetrol that it was “unacceptable” to assume such a level of debt.

Ecopetrol —85.5% owned by majority owned by Colombia’s government – also had to consider Colombia’s energy resources and energy security issues faced by the administration of President Gustavo Petro.

Under Petro’s government, the exploration and exploitation of unconventional resources are no longer a top priority.

Ecopetrol initially moved into the Permian Basin to gain experience related to fracking. In 2019, the company established a joint venture in the Midland Basin with Occidental.

The plan under Colombia’s then president Ivan Duque contemplated Ecopetrol taking a leading role in the fracking and production of Colombia’s vast shale resources. However, those plans never materialized due to opposition from a Colombian council that questioned fracking.

Petro is in favor of green energies and against fracking and even importing gas from the U.S. that comes from the drilling process.

Occidental CEO Vicki Hollub said during the company’s Aug. 8 earnings call that executives though they had a deal with Ecopetrol but that “Petro of Colombia didn't approve of it and he's made it very clear to the world that he's anti-oil and gas, anti-fracking and anti-U.S.,” Hollub said.

Roa also highlighted a recent gas find at the Uchuva-2 offshore well that opened up potential for Colombia to develop an offshore gas hub. Ecopetrol expects first gas from its offshore region could flow in 2029. Such an achievement would assist the South American country reduce its reliance on LNG imports, principally from the U.S.

Additionally, Ecopetrol has changed its business priorities to focus more strongly on boosting onshore and offshore reserves and production in Colombia in a move to shore up the country’s energy security, Roa said.

Roa said that Ecopetrol, under his lead, was also more focused on developing projects related to the energy transition, decarbonization, energy efficiency, clean and renewable energies. Roa said all these areas formed part of Ecopetrol’s new investment plan.

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