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Occidental and Ecopetrol in joint venture

Colombia’s state-run Ecopetrol is set to make its debut in the US Permian shale in a joint venture with Occidental Petroleum as it looks to boost its reserves and gain experience in unconventional development.

Ecopetrol is expected to pay $750 million in cash and $750 million of carried capital for a 49% interest as part of a joint venture to develop 97,000 net acres in the Permian's Midland sub-basin.

Occidental will be operator and the transaction is expected to close in the fourth quarter.

“This has been driven by maturing indigenous production in Colombia, which has forced Ecopetrol to look elsewhere,” senior research manager with Wood Mackenzie Maria Cortez said.

"However, these opportunities come at a cost, and value will have to be quickly created."

Colombia does not currently allow unconventional development, leaving Ecopetrol's unconventional pilot programmes at a standstill.

“Exposure to shale will help strengthen Ecopetrol’s own capabilities to develop this resource domestically. However, structural challenges — like security, environmental permits and community relations — remain unresolved and will likely postpone development,” Cortez said.

At closing, the deal will add 160 million barrels of oil equivalent to Ecopetrol’s proven reserves, a 10% increase when compared to the year-end 2018 reserves, the company said.

Occidental, meanwhile, was expected to close its multi-billion dollar acquisition of Anadarko Petroleum on 8 August after Upstream went to press this week.

For the second quarter, Occidental reported a net income of $635 million, compared to a net income of $848 million in the same period of 2018.

The company's second-quarter income includes a pre-tax item of $107 million of costs related to the Anadarko transaction and debt-financing fees.

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