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Cablegate: Ecopetrol to Expand Cooperation with Petrobras

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RR RUEHWEB

DE RUEHBO #3848/01 2961619
ZNR UUUUU ZZH
R 221619Z OCT 08
FM AMEMBASSY BOGOTA
TO RUEHC/SECSTATE WASHDC 5176
INFO RUEHBR/AMEMBASSY BRASILIA 8446
RUEHPE/AMEMBASSY LIMA 6672
RUEHCV/AMEMBASSY CARACAS 1214
RUEHQT/AMEMBASSY QUITO 7362
RUEHLP/AMEMBASSY LA PAZ OCT PANAMA 2534
RUEHRI/AMCONSUL RIO DE JANEIRO 0127
RUEHSO/AMCONSUL SAO PAULO 2344

UNCLAS BOGOTA 003848

SENSITIVE
SIPDIS

WHA/EPSC FOR FCORNEILLE; WHA/AND FOR RMERRIN; EEB/ESC FOR
MMCMANUS

E.O. 12958: N/A
TAGS: ENRG EINV ECON PGOV CO
SUBJECT: ECOPETROL TO EXPAND COOPERATION WITH PETROBRAS

REF: BOGOTA 570

1. (SBU) SUMMARY. Reinforcing its growing international
focus, Colombia's state-owned hydrocarbons company Ecopetrol
has agreed to increase cooperation with Brazil's parastatal
Petrobras. The companies recently announced they will
jointly cooperate in exploration in Colombia and Brazil,
block offerings in third countries, and downstream businesses
including refining, petrochemicals and biofuels. While the
companies have not yet dedicated specific resources to the
plan, Colombia-based representatives of both firms told us
the agreement represents a strategic step in cooperation
between two market-oriented state companies and will provide
Colombia new investment and capacity to complete Ecopetrol's
transition into a major regional hydrocarbons firm. END
SUMMARY.

A New Era
---------

2. (U) On October 13 in Rio de Janeiro, Ecopetrol President
Javier Gutierrez and Petrobras President Sergio Gabrielli
signed a memorandum of understanding which expressed the
firms' intent to expand coordinated exploration activities in
oil and gas blocks already in operation, as well as
participate in joint bids on block offerings in Brazil,
Colombia and third countries. In addition to increased
upstream cooperation, Gutierrez and Gabrielli agreed that
Ecopetrol and Petrobras will seek out opportunities for
downstream joint ventures in refining, distribution and
petrochemical production. Recognizing Brazil and Colombia's
regional leadership in biofuels, the firms also intend to
cooperate in biofuels blending and distribution.

3. (SBU) No specific amounts or investment projects were
announced as part of the signing, but Petrobas Colombia
President Abilio Ramos told Econoff that the agreement
nevertheless represented a important step in building a
strategic relationship between Petrobras and Ecopetrol.
While Petrobras began operating in Colombia in 1972, Ramos
noted that the relationship remained relatively limited until
the joint discovery of the Guando field in 2000. Since then,
Ecopetrol and Petrobras have expanded their cooperation in
specific projects and blocks including exploration offshore
of Colombia and Brazil. Ramos described the latest agreement
as the first time the firms have agreed to broadly cooperate
across the whole hydrocarbon commercial chain.

Following in Petrobras' Footsteps
---------------------------------

4, (SBU) Ecopetrol Vice President for Strategy and Growth
Alvaro Vargas echoed the assessment, saying his firm has
increasingly looked toward Petrobras as a model in adopting
market-oriented practices and expanding its strategic
business vision beyond national borders. Vargas noted that
Ecopetrol, which accounts for approximately 60 percent of
Colombian national oil production, expects much of its future
production growth to shift outside Colombian borders.
Ecopetrol previously announced that it will invest a large
portion of the capital generated in the 2007 privatization of
ten percent of the company in international exploration
ventures (reftel).

5. (SBU) Ramos told Econoff that Petrobras, which plans to
invest USD 361 million in its existing Colombian operations
between 2008 and 2012, is well-positioned to help Ecopetrol
become a full-scale oil and gas operator, including offshore.
Ramos characterized Ecopetrol as a company in transition
from a former regulator operating in a non-competitive
environment to a dynamic, market-oriented firm with the
potential to operate sophisticated fields without joint
venture partners. To complete the transition, Ramos said
Ecopetrol must build its technical capacity through closer
collaboration with major international firms. He cited
Ecopetrol's joint venture with Petrobras and ExxonMobil in
the offshore Tayrona block, where exploratory drilling is
underway, as the example Ecopetrol must follow to reach the
next level.

Comment
-------

6. (SBU) Given that details are vague and no specific
resources have been dedicated, the long-term impact of the
Ecopetrol-Petrobras agreement remains unclear. Nevertheless,
it represents a further step, along with Ecopetrol's
September listing on the New York Stock Exchange, away from
the model of a statist, internally-focused company and toward
an outward-looking firm eager to cooperate with major
international players. Such focus and access to technical
capacity are key if Ecopetrol is to permanently reverse the
slide in domestic oil production since 1999 and preserve
Colombia's net oil exporter status beyond 2015.
BROWNFIELD

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