Ecopetrol Announces 2Q:15, 1H:15 Results

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(Ecopetrol S.A., 5.Aug.2015) – Ecopetrol announced Ecopetrol Corporate Group’s financial results for the 2Q:15 and the 1H:15, prepared and filed in Colombian pesos (COP$) and on the basis of International Financial Reporting Standards (IFRS).

According to Article 3 of Decree 2784 of 28.Dec.2012 , the application date of the new technical framework is 31.Dec.2015 , therefore, the financial information presented prior to this date is subject to adjustments.     As indicated in paragraphs 9 and 18 of International Accounting Standard 27 “Consolidated and Separated Financial Statements,” Ecopetrol and its Corporate Group must present their financial information on a consolidated basis, combining the financial statements of the parent company and its subsidiaries line by line, adding assets, liabilities, shareholder’s equity, revenues and expenses of a similar nature, removing the reciprocal items between the Corporate Group and recognizing the non-controlling interest.

The financial results in this report are not comparable line by line with the previously issued financial results for the 2Q:14, which were prepared in accordance with the Public Accounting Regime (Regimen de Contabilidad Publica) as adopted by the Colombian National Accounting Office. For the sake of comparison, the financial results that were already reported in the 2Q:14 are presented in this report under IFRS.

Some figures in this release are presented in U.S. dollars (US$) as indicated (Editor’s Note: Tables Not Available in this edition). The exhibits in the main body of this report have been rounded to one decimal. Figures expressed in billions of COP$ are equal to COP$1 thousand mln.

In the opinion of Ecopetrol’s CEO Juan Carlos Echeverry G.:

“Ecopetrol is disciplined with its costs adjustment program, aimed to gain efficiencies in different areas. Thus, we have already obtained savings of COP$0.6 tln. These savings are mainly the result of renegotiations with our contractors. We have solidified our long term relationship; our allies understand that the current circumstances call for extraordinary actions, and the mutual commitment to mitigate the effects of this scenario of low oil prices.

The Barrancabermeja refinery is now more efficient, thanks to the operation of the new turbo gas unit, which will translate into efficiencies in the energy generation cycle and a lower emission of greenhouse effect gases of 200 thousand tons equivalent per year. We also improved the cost of drilling by lowering the average number of days required by well, in Castilla and Chichimene fields, from 34 days in 2014 to 28 in 2015.

Facing a challenging oil price scenario, the company is adopting the adjustments required, based on its recently announced strategy, to continue searching for efficient and profitable barrels.

In our transformation plan we identified 630 initiatives throughout the company, aiming at savings of COP$ 1.4 tln in 2015. We are promoting ethic and transparency in our purchase and contracting processes, and investment projects.

We continue to prioritize the lives of people and workers, the well-being of the communities in which we operate and the environment. The accident frequency index in Ecopetrol was reduced by 38% between the 2Q:14 and the 2Q:15, from 0.77 to 0.49 accidents/million hours of labor, reflecting improved labor conditions.

On another front, Ecopetrol was subject of an irrational wave of attacks against our transportation infrastructure in June, in some provinces located next to Venezuela and Ecuador’s borders. The company demonstrated, once again, its capacity to face the crisis by deploying 500 workers to stop the leakage in the Mira River and do all the cleaning tasks necessary to mitigate the damage caused.

In the finance area, this quarter was better than the previous due to the growth trend shown by crude and product prices, while the exchange rate, which holds a negative correlation to these, reversed part of the trend toward devaluation shown in the first quarter. This was achieved despite the deterioration in environment conditions around Jun.2015, stemming from attacks on transport infrastructure, which as we have repeatedly said, not only affected operations but caused irreparable damages to the environment and surrounding communities.

Production in the 2Q:15 reached 768 Mboe/d, in line with the goal of 760 Mboe/d, announced for 2015, representing an increase of 5% compared to production in the 2Q:14. This was the result of the opening of new facilities and the new drilling campaigns in the fields Castilla and Chichimene, as well as the normal operation of Cano Limon field throughout most of the quarter.

In exploration, drilling continued on the well Kronos, located offshore in the southern Caribbean (operated 50-50 by Anadarko in partnership with Ecopetrol), and drilling began on the well Sea Eagle in the U.S. Gulf of Mexico (operated by Murphy, WI 35%; Petrovietnam, WI 15%; and Ecopetrol America Inc, WI 50%).

In Jul.2015, Kronos well confirmed the presence of gas in ultra-deep waters. The discovery proves the geological model proposed for an unexplored area, with high hydrocarbon potential.

The refining margin of the Barrancabermeja refinery was $17.20/bbl in the 2Q:15, 58% more than in the 2Q:14 ($10.9/bbl). This was the result of better prices of refined products compared to crude and the higher yield of medium distillates.

The volume of crude transported in the 2Q:15 declined by 4% compared to the 1Q:15, due to the increased number of attacks on transport infrastructure, with 2 in the 1Q:15 and 44 in the 2Q:15, 36 of these in the month of June. Compared to the 2Q:14, volume transported increased by 7.8%.

In our commercial activity, in line with our strategy of diversifying the destination of our products, we exported to South Korea and the U.S. East coast. Also, with the purpose of increasing our footprint in the Asian market, we announced our first shipment of crude to Japan, following the conclusion of negotiations with the company JX Nippon, which bought 2 MMbbls of Castilla crude to supply its refining systems.

The improved financial result in the 2Q:15 compared to the 1Q:15 is the outcome of better crude realization prices, which increased from $43/bbl in the 1Q:15 to $53/bbl in the 2Q:15. Although cost of sales showed an increase of 10% compared to the 1Q:15, given the higher costs of maintenance, purchases and product imports, when compared to the 1Q:14 we had a reduction of 11%, reflecting the cost optimization strategies that are gradually beginning to materialize. In line with this, we achieved a $2.32/bbl reduction of our lifting cost, as a result of optimizations, between the 2Q:15 and the 2Q:14.

Our operating expenditures continued under control. Although in the 1Q:15 we recorded the applicable wealth tax for year 2015, in the 2Q:15 financial expenses were also reduced due to a lower impact of the exchange rate difference.

Thus, in the 2Q:15, the Corporate Group’s net revenue, attributable to Ecopetrol shareholders, was COP$1.5 tln pesos, compared to COP$0.16 tln in the 1Q:15 and COP$2.6 tln in the 2Q:14.

On another note, this past 26.May.2015, we announced to the market our new 2015-2020 strategy, aimed at profitable growth in exploration and production and maximization of efficiencies in transport and refining.

The strategy prioritizes value over volume, with emphasis on financial discipline, streamlining investments and divestment of non-strategic assets. The plan also foresees profound transformations within the organization, both in the business segments as well as in project management, technology, environment relations and investment portfolio management.

One month after launching our strategy, we successfully placed bonds in the international market for $1.5 bln , with an 11-year term and 3 times oversubscribed. The issue demonstrated, once again, the appetite and confidence of institutional investors in our company.

Also during the quarter, the risk rating agencies Fitch Ratings, Standard & Poor’s Ratings Services and Moody’s Investors Service, confirmed Ecopetrol’s ratings of BBB, BBB and Baa2, respectively, all with stable outlook, providing us the support needed to continue with our strategic plans as an investment grade issuer in the international capital market.”

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