Oil and gas firms with Colombian assets fell on Monday after Gustavo Petro won the presidential election on a platform of weaning Colombia from its dependency on oil exports. Canacol Energy Ltd., a Toronto-listed Colombia-focused oil producer, saw the highest intraday drop among Toronto-listed Colombia-focused oil producers, falling as much as 9.3 percent Monday. Gran Tierra Energy Inc. and Parex Resources Inc. both dropped 11%. Nonetheless, Phil Skolnick of Eight Capital believes the retreat is a “buying opportunity.”
Skolnick wrote in a Monday research note, predicting that Petro will struggle to get his agenda passed in a divided congress. He said, “We continue to believe it is difficult for radical changes to be made due to the balance of powers in Colombia.”
Petro has stated that he intends to put a halt to fresh oil and gas exploration block auctions. Many operators, however, have assets in locations that are unlikely to be affected, according to Skolnick, who also pointed out that royalties, profits, and taxes from state-owned oil producer Ecopetrol SA account for 20% of the government’s revenue.
When US markets resume Tuesday after the Juneteenth holiday, more private-sector oil and gas businesses, such as Geopark Ltd., could face challenges. Skolnick noted that Colombian presidents are “limited to one single four-year term” meaning, “the winner is essentially a lame duck, in our view.”
This news does not come as a surprise for many analysts, who warned of the fact the oil and energy industry could take a major hit if Petro were elected. Petro had been causing major anxiety amongst investors due to his vows to stop issuing new drilling projects and instead focus on renewable energy sources. Corficolombia recently warned that there could be massive macroeconomic effects and fallout as a result of Petro’s actions.
The long-term economic effects, both in Canada and Colombia, remain to be seen but for now Canadian energy stocks will take a hit, particularly those with a vested interest in Colombia and South America. As well, how long it takes (and to what degree) for Petro’s actions to be implemented is yet to be determined.
Featured Image: Megapixl © Urbanraven
