Protests in Colombia

It looks like a buying opportunity

Over the past month, there have been protests in Colombia. This morning, Parex Resources dropped this headline, which has spooked its Canadian shareholder base yet again. The company said their current production is at 50k bpd, which is 4-10k bpd lower than annual guidance, but also said their previous guidance levels included expectation for situations like this, and left the annual production target unchanged.

The gist of the story is this:

  • Petro, who was elected President in 2022, has been in conflict with the Supreme Court and the Congress for much of his Presidency
  • The Attorney General of Colombia has been very critical of Petro. However, his term just expired, and the Supreme Court has to pick a new Attorney General.
  • The Supreme Court requires a high consensus to elect a new Attorney General (Fiscal in Spanish), and while the successor to the outgoing AG is favored, they have not yet reached a consensus.
  • Colombian President Petro called on his supporters to go to the streets and protest in order to pressure the Supreme Court into selecting an AG that favors Petro.
  • The Supreme Court is holding strong and says it will do its job.
  • The police and the army are enforcing the law, but some roads on which oil is exported by truck were blocked, and at some others, oil workers are unable to go to their work. Colombian production is reportedly down by ~7% (some 55k barrels per day).
  • To me, the situation appears to be a buying opportunity for weak Colombian shares, which are very cheap, such as FEC.TO, PXT.TO, EC, and GPRK.
Colombian police outside the Supreme Court

I also reached out to Ian Bezek, who is a LatAm expert and lives in Colombia, for his read on the situation:

In summary, nothing appears to have happened other than temporary production issues. It’s worth keeping an eye on, but I think today’s move is an over reaction and Parex Resources, which is debt free, buying back shares like there’s no tomorrow, and sporting a capital yield in the mid to high teens, is worth being long. I added ~60% to my position in the company this morning.

Though the situation may bare some similarity at first glance to what happened in Panama to copper miner First Quantum, the protests are far more peaceful and the army and police are much more proactively engaged in maintaining rule of law.

I don’t foresee more than a short term blip impact on Colombian oil production, unless things worsen considerably going forward. In fact, it’s worth pointing out that the situation had already been going on for about a month without really making major headlines.

If you’re going to be investing in Latin America, this is par for the course. The stocks aren’t cheap for no reason. I think the value here is compelling and Colombia remains a well run country with good checks and balances.