(Ecopetrol, 11.May.2020) — Ecopetrol S.A. announced the Ecopetrol Group’s financial results for the first quarter of 2020, prepared in accordance with International Financial Reporting Standards (IFRS) applicable in Colombia.
The figures included in this report were extracted from the audited financial statements. The financial information is expressed in billions of Colombian pesos (COP) or US dollars (USD), or thousands of barrels of oil equivalent per day (mboed) or tons, and are so noted as applicable. For presentation purposes, certain figures of this report have been rounded to the nearest decimal place.
In words of Felipe Bayón Pardo, CEO of Ecopetrol:
“2020 began as a year with growth prospects and a defined path. However, by the end of the first quarter, we confronted challenging and unexpected market conditions, reflected in a Brent price decline over 65% in comparison to year-end 2019. This change was triggered by external shocks, such as the substantial increase in oil supply, and the COVID-19 pandemic, which has generated a significant contraction of the demand for crude oil and products.
The Group is in a stronger operational and financial position, with a competitive investment portfolio from an industry standpoint, and a level of leverage that provide the flexibility to navigate through this environment. Although this scenario demands a quick response and major adjustments in the short-term, our focus on capital discipline, cash protection, production and reserves growth remain as pillars of the Company’s sustainable value promise in the mid and long-term.
The life and safety of our employees across our operations remain our maximum priority. In response to the COVID-19 emergency, we promptly implemented remote work, even prior to authorities’ decree of the mandatory lockdown measures. We have developed the “Minimum Operating Vital” concept in order to ensure reliable operations. Currently, out of the 13,000 employees of the Ecopetrol Group, more than 9,000 are working remotely through a secure digital connection.
Furthermore, Ecopetrol Group has contributed with COP 69 billion in social investment to confront the pandemic. These resources are been allocated in strengthening the country’s healthcare system and providing humanitarian aid to different regions across the country.
From a financial standpoint, Ecopetrol has set an intervention plan that includes optimization and austerity measures in order to timely align the capital efficiency and costs to a volatile market, preserving the Company’s long term value. On March 17, 2020 we announced the first stage of this plan that includes a set of actions in four fronts: i) An increase in revenues; ii) A COP 2 trillion reduction in costs and expenses in order to strengthen the Company’s competitiveness; iii) A USD 1.2 billion decrease in the 2020 investment plan, and iv) Ensure financing and cash protection.
We have successfully completed the first stage, achieving optimizations in costs and expenses of COP 3.5 trillion. Furthermore, we have raised around USD 3.1 billion equivalent in financing through the disbursement of the contingent line of credit, short-term facilities, and a bond within international markets. With these actions, we have strengthened our cash position and anticipate any liquidity requirements caused by the deterioration of market conditions. These interventions will be reflected during the following quarter results.
During the first quarter of the year Ecopetrol Group achieved a consolidated net income, including impairment effect, of COP 133 billion and a consolidated EBITDA of COP 5.3 trillion. These results are mainly explained by the decrease in the international Brent price, which declined from 64 USD/Bl in 1Q19 to 51 USD/Bl in 1Q20, and a weakening of crude oil and product basket. By the end of this quarter, the crude basket spread vs. Brent was -10.5 USD/Bl versus -7.6 USD/Bl vis-à-vis the same period in 2019. These results were partially offset by the strengthening of gasoline, naphtha and diesel spreads and a average exchange rate devaluation of 13% during the first quarter of 2020.
The strenghtening of our commercial strategy has allowed us to promptly respond and quickly adapt to the new market conditions. We have been able to anticipate the sale of export crude, diversify end customers, and execute tactical hedges.
On the exploratory campaign, the Group and its partners completed the drilling of three wells in Colombia. In the international front, it is worth to highlight Gato do Mato-4 appraisal well, located offshore in the Santos basin in Brazil’s Pre-salt. Currently, Ecopetrol and Shell continue to move forward with the COL-5, Purple Angel and Fuerte Sur project, and negotiations for the Joint Operating Agreement (JOA) are underway as scheduled.
During the first quarter, Ecopetrol Group’s average production reached 735 mboed, 7.1 mboed more than in the first quarter of 2019, despite public order events and the deterioration of market conditions. Two important milestones stand out: i) on March 1st, Ecopetrol recovered the operation of the Pauto Sur and Floreña fields, with the termination of the Piedemonte association contract that Equion operated for 9 years, and ii) on April 7 the Superintendence of Industry and Commerce approved the agreement signed between Hocol, subsidiary of the Ecopetrol Group, and Chevron Petroleum Company to acquire the participation of the latter in the Chuchupa and Ballena fields, located in the Department of La Guajira. We continue to move forward with our energy transition strategy and increase our natural gas portfolio.
In the international front, within the framework of the JV with Oxy, a change in the 2020 Plan was agreed, which focuses on prioritizing the preservation and protection of the Company’s cash flows. This new plan will result in an average 2020 production of between 4 and 5 mboed, with a total of 21 to 23 operating wells in production by year-end. This plan is already executed thanks to the flexibility of short-cycle assets.
In the midstream segment, transported volumes remained consistent when compared to 1Q19 and maintained its operational stability. We highlight the increase in volumes towards Coveñas through the Ayacucho-Coveñas and ODC corridors due to the decrease in maintenance times for the Caño Limón -Coveñas Pipeline repairs. No reversals cycles were reported for this quarter.
The downstream segment was affected by the decrease in demand for its main products, especially in March, as a result of the COVID-19 pandemic. The gross margin for downstream was 9.5 USD/Bl and the average throughput was 345,000 barrels per day, a 1.7% decrease as compared to the same period of 2019.
We continue our commitment to provide Colombia with cleaner fuels. During the first quarter, the diesel distributed had an average of 10 part per million of sulfur (ppm), and 100 ppm in gasoline. Both levels are below those required by Colombian legislation of 50 ppm for diesels and 300 ppm for gasoline.
As part of our efforts to contribute to the conservation of the environment and move towards decarbonization, during the first quarter we achieved a reduction of 178,099 tons of CO2 equivalent, verified by Ruby Canyon Engineering, which will be registered in order to obtain an equivalent number of Certified Emission Reductions.
In February, the competitive bidding process of the San Fernando Solar Park began through a Power Purchase Agreement scheme which, with an installed capacity of 50 MW, will be the largest solar self-generation park in the country. Likewise, progress continues in the maturation of other projects for an additional 120 MW of solar generation expected to be awarded in 2020.
It would like to highlight two events which took place during this quarter: first, we conducted the first 100% virtual Ecopetrol’s General Shareholders’ Meeting, in compliance with the measures decreed by the Government in response to the COVID-19 pandemic; and second, a COP 180 dividend per share was approved by the General Shareholders’ Meeting, supported by the solid financial performance of the Company in 2019. The latter, in line with the current situation, will be paid out in its majority during the second half of this year.
Current low price environment and a weak demand determined the new reality that we need to incorporate. Therefore, we have decided to move forward with the implementation of additional measures, with the objective of ensuring a sustainable operation and a positive cash flow in the short term, in a Brent price environment between 30 – 40 USD/Bl during 2020. This measures include: i) revenue protection through a profitable production, a proactive commercial strategy and the execution of strategic hedging; ii) an additional COP 1.5 trillion reduction of costs and expenses, reaching a reduction of COP 3.5 trillion to date, to achieve a target of between COP 3.5 – 4.5 trillion in 2020; iii) an adjustment to the investment level to a new range between USD 2.5 – 3.0 billion. We have prioritized those strategic projects which allow us to fulfill our long-term vision and generate value to our shareholders.
Certainly the current environment and the measures adopted to address it will affect the former targets established in the 2020 business plan, which must be reviewed and adjusted to the current price scenario. We will provide an update of the Plan during the second half of the year.
Now, more than ever, Ecopetrol reaffirms its commitment to operational excellence, the safety and care of its employees, the environment protection, joint growth with communities, and the value creation for our shareholders.“