(Ecopetrol, 4.Aug.2022) — Ecopetrol S.A. (BVC: ECOPETROL;NYSE: EC) announced the Ecopetrol Group’s financial results for the second quarter of 2022. The financial results were prepared in accordance with the International Financial Reporting Standards applicable in Colombia.
Table 1: Financial Summary Income Statement – Ecopetrol Group
|Billion (COP)||2Q 2022||2Q 2021||∆ ($)||∆ (%)||6M 2022||6M 2021||∆ ($)||∆ (%)|
|Total sales||43,885||19,444||24,441||125.7 %||76,358||36,650||39,708||108.3 %|
|Depreciation and amortization||2,725||2,328||397||17.1 %||5,305||4,566||739||16.2 %|
|Variable cost||16,343||6,761||9,582||141.7 %||28,408||12,999||15,409||118.5 %|
|Fixed cost||4,010||2,342||1,668||71.2 %||7,303||4,378||2,925||66.8 %|
|Cost of sales||23,078||11,431||11,647||101.9 %||41,016||21,943||19,073||86.9 %|
|Gross income||20,807||8,013||12,794||159.7 %||35,342||14,707||20,635||140.3 %|
|Operating and exploratory expenses||2,199||1,457||742||50.9 %||4,205||2,637||1,568||59.5 %|
|Operating income||18,608||6,556||12,052||183.8 %||31,137||12,070||19,067||158.0 %|
|Financial income (loss), net||(1,991)||(831)||(1,160)||139.6 %||(3,514)||(1,484)||(2,030)||136.8 %|
|Share of profit of companies||237||62||175||282.3 %||439||115||324||281.7 %|
|Income before income tax||16,854||5,787||11,067||191.2 %||28,062||10,701||17,361||162.2 %|
|Income tax||(5,309)||(1,768)||(3,541)||200.3 %||(9,193)||(3,304)||(5,889)||178.2 %|
|Net income consolidated||11,545||4,019||7,526||187.3 %||18,869||7,397||11,472||155.1 %|
|Non-controlling interest||(1,075)||(295)||(780)||264.4 %||(1,826)||(587)||(1,239)||211.1 %|
|Net income attributable to owners of Ecopetrol||10,470||3,724||6,746||181.1 %||17,043||6,810||10,233||150.3 %|
|EBITDA||22,211||9,428||12,783||135.6 %||38,106||17,615||20,491||116.3 %|
|EBITDA Margin||50.6 %||48.5 %||–||2.1 %||49.9 %||48.1 %||–||1.8 %|
Financial information included in this report has not been audited and is expressed in billion or trillions of Colombian pesos (COP) or US dollars (USD), or thousands of barrels of oil equivalent per day (mboed) or tons, as noted. For presentation purposes, certain figures in this report were rounded to the nearest decimal place.
In words of Felipe Bayón Pardo, CEO of Ecopetrol:
“The Ecopetrol Group’s figures for the period ending June 2022 mark a new historical milestone for the Company, having achieved the best quarterly and half-yearly financial results in our history. During these first six months, the Company achieved a net income of COP 17.0 trillion, which exceeds the result for the full year of 2021.
These results are a reflection of: i) the effort and commitment of more than 18,000 direct employees and all the Ecopetrol Group’s contractors to our growth, diversification, and financial profitability targets, and our 2040 “Energy that Transforms” strategy, ii) the strength, stability, and reliability of our business segments, iii) a solid commercial strategy allowing the seizing of benefits even in adverse market conditions, iv) the capture of efficiencies by more than COP 1 trillion, allowing us to mitigate certain inflationary pressures seen across all industries on a global scale; and, v) the Company’s strict capital discipline.
Regarding our Competitive Returns pillar, this quarter we recorded consolidated revenues of COP 43.9 trillion, a net income of COP 10.5 trillion, an EBITDA of COP 22.2 trillion, and an EBITDA margin of 51%, the highest in the Company’s history. For the six-month period ended June 2022, our consolidated revenues amounted to COP 76.4 trillion, a net income of COP 17.0 trillion, an EBITDA of COP 38.1 trillion, and an EBITDA margin of 50%. As of June 30, 2022, the Gross Debt/EBITDA leverage ratio was 1.6x and the return on average capital employed (ROACE) was 17.1% for the same period. Thanks to the Company’s financial strength, in early July, S&P Ratings maintained its long-term international rating at BB+ with a stable outlook.
The Company’s operational, commercial and financial results reflect the effects of international crude oil prices (average Brent of 112 USD/Bl for 2Q22) and the exchange rate effect (average TRM of 3,915 COP/USD for 2Q22), which allowed us to attain a better realization price of our crude basket (+39.8 USD/Bl in 2Q22 vs. 2Q21), an increase in the volume of local product sales (+24.8% in 2Q22 vs. 2Q21) and an increase in exports (+14.9% in 2Q22 vs. 2Q21) driven, among other initiatives, by the recent entry into operation of Ecopetrol Trading Asia. We highlight the consolidation of our domestic crude oil purchasing strategy, which has allowed us to diversify sources of supply for refinery feedstocks and improve refining margins. In addition, we implemented a series of initiatives to anticipate and counteract inflationary pressures and limitations in the global supply chains.
In line with the Group’s target to protect its liquidity position and its focus on guaranteeing the annual investment plan, during the quarter we reached an agreement with the Ministry of Finance and Public Credit (MHCP for its Spanish acronym) for the payment and compensation of the COP 14.1 trillion account receivable due to us from the Fuel Price Stabilization Fund, (FEPC for its Spanish acronym), as of 1Q22. The accrued FEPC subsidy for 2Q22 due to us amounts to COP 10.6 trillion, which, by virtue of the provisions of the Government’s Medium-Term Fiscal Framework, are expected to be partially paid from fiscal surpluses during the current fiscal year or with resources approved by Congress as part of the 2023 Budget for such purpose.
There are several operational milestones I would like to highlight regarding our Grow with the Energy Transition strategic pillar:
On the exploration front, some of the most noteworthy activities are the concurrent activity of 2 drill-rigs in the Piedemonte and 2 in offshore areas, the recently announced confirmation of the presence of natural gas in deep waters in the Colombian Caribbean with the exploratory well Uchuva-1, the agreement reached with Oxy for joint exploration in deep waters in the northeast of the country and the acquisition of onshore seismic in Colombia stands out. Finally, it is worth noting that 60% of the hydrocarbon volumes identified in the exploratory portfolio correspond to gas, which illustrates the alignment between hydrocarbon exploration and the energy transition targets proposed by both Ecopetrol and the Nation.
In production, we recorded an average of 704.6 mboed during 2Q22, an increase of 43.7 mboed as compared to 2Q21, falling on the high end of our 2022 production target.
Gas, our transition fuel, continues to hold a prominent role in the Ecopetrol Group’s activities. During 2Q22, the contribution of gas to overall production was 20%. In our efforts to more effectively capitalize gas opportunities, and ensure their alignment with the 2040 Strategy, the Gas Vice Presidency was renamed the Low Emission Solutions Vice Presidency, to consolidate the gas, biogas, LPG, energy, renewables, hydrogen and CCUS (Carbon Capture, Use and Storage) areas under one vice presidency.
In addition to the above, the positive operating and financial results from our operations in the Permian basin reached historical records, surpassing the results achieved in 2021. Cumulative production as of June, 2022 was 26.8 mboed (net for Ecopetrol before royalties), almost doubling the contribution of 1H21. On the other hand, we continued working to reduce our emissions intensity through our zero routine flaring initiative and the substitution of ~36% of the volume of diesel used in our completion activities with compressed natural gas (CNG). Based on the good results to date, I am pleased to announce that Occidental Petroleum Corp. (“Oxy”) and Ecopetrol have agreed to optimize activity in the Midland area and expand the partnership to cover about 21,000 acres in the Delaware area, thereby strengthening Ecopetrol’s presence in the Permian. This agreement allows us to access a greater share of production (75%) while deferring carry obligations to 2025. The activity in Delaware will start in 4Q22 and its contribution to production and reserves will be reflected in the targets set for 2023.
Regarding unconventional reservoirs in Colombia, during 2Q22 the environment and community relationship plan continued, which consisted of different meetings and conversations held at the local and regional levels, as part of Ecopetrol’s efforts to facilitate and make viable the Kalé and Platero Comprehensive Research Pilot Projects (PPIIs for their Spanish acronyms).
The midstream segment reported its best result of the last two years. Total volumes transported increased to 1,077 mbd, or by 11.8% as compared to 2Q21 results. These figures are attributed to an increase in production and additional third-party barrels captured, as well as an increase in transported refined products.
The downstream segment registered record operating and financial results in the quarter, with a total throughput of 365.1 mbd and an integrated gross margin of 29 USD/Bl (vs. 360.4 mbd and 9.5 USD/Bl in 2Q21 respectively). This was the result of a high operational availability of the units, an active inventory optimization, a strategic scheduled shutdowns plan that allowed us to capture the good margins observed in the market, and a successful commercial strategy for products and petrochemicals, where volumetric maximization and the incorporation of additional products to the portfolio were key factors. During the first half of the year, 75% of the planned shutdowns for 2022 were executed. Additionally, we achieved the mechanical completion of the Interconnection of the Cartagena Crude Oil Plants (IPCC for its Spanish acronym) at the Cartagena refinery, whose commissioning and start-up is in progress and is expected to stabilize its operation during 3Q22. With this project we expect to capitalize on the benefits of a higher refining capacity reaching values of 420 – 430 mbd.
ISA reported strong quarterly financial results, with a 14.5% growth in revenues and a 10.1% growth in EBITDA, as compared to the same period in 2021. ISA’s subsidiary CTEEP was awarded the bid for one of the largest energy transmission projects in Brazil in recent history, further consolidating its leadership in this market. During this semester, ISA’s contribution to the Ecopetrol Group following its consolidation added COP 0.6 trillion to net income (net of non-controlling interest) and COP 4.2 trillion to EBITDA.
In our Generate Value Through TESG pillar, we can highlight the following milestones for 2Q22:
On the environmental front we continue moving forward with the maturation and implementation of an ambitious renewable energy plan, supported by solar, wind and geothermal projects in locations where the Ecopetrol Group already operates. To this end, the company has moved forward with the development and construction of two additional Solar Ecoparks, which would increase installed capacity by 49 MW, and subsequently contribute to the 400 MW target set for 2023. At the end of 1H22, the Ecopetrol Group has achieved the incorporation of 119 MW of renewable energy in its supply matrix, which represents 9% of the Group’s installed capacity (MW).
During 2Q22, a reduction of 4,281 tons of CO2e and operational cost-savings of COP 2,610 million were achieved supported by the Castilla, San Fernando and Cenit solar Ecoparks in 2Q22.
Additionally, we announced our commitment to having more than 200 sustainable vehicles to be used by our employees. These vehicles will reduce CO2e emissions by more than 500 tons per year, or the equivalent of planting more than 16,000 trees. Along these lines, our target for 2025 seeks that more than half of our employees to use sustainable means of transport.
During the quarter we also announced our adhesion to the Hydrogen Council as executive members furthering our effort to promote the domestic use of hydrogen as an energy resource while announcing the group of partner companies to develop our hydrogen roadmap. In this line, we also signed a three-year agreement with Toyota to conduct mobility tests using green hydrogen, which will initiate in 4Q22.
On the social front, we allocated resources for projects and initiatives of the sustainable development portfolio for a total of COP 154 billion accumulated as of 1H22.
The results obtained in the 2022 Merco Talent ranking are also notable as Ecopetrol was recognized as the company with the highest capacity to attract and retain talent in the country. The presence of Ecopetrol S.A. in first place, Reficar in sixth place, and Cenit in eighth place in the specialized oil and hydrocarbon sector ranking, as well as the presence of ISA in second place in the specialized energy sector ranking, stand out.
In terms of health and safety, the Company reported historical results, with a TRIF indicator of 0.30 accidents per million hours worked in 2Q22 and 0.26 accumulated at the end of 1H22, the latter with a 57% improvement over the same period of the previous year. We also highlight an intense semester in scheduled plant shutdowns for maintenance in the refineries with no recordable injuries, evidencing the Company’s commitment to safety and good practices.
On the corporate governance front, an extraordinary General Shareholders’ Meeting was held on June 17, where a modification to the maximum term for the payment of dividends to the Nation was approved, extending the term until October 2022, as well as the distribution of an extraordinary dividend of COP 168 per share. The above, in response to a request from the MHCP within the framework of the agreement for the payment of the outstanding account receivable balance due to us from the FEPC. This dividend was paid to our more than 250,000 minority shareholders on June 30, 2022.
Finally, on the Cutting-Edge Knowledge pillar, science, technology, and innovation (STI) play a crucial role in the implementation of the 2040 Strategy, for which the Science, Technology and Innovation Vice Presidency (VTI for its Spanish acronym) was created, which contains the Digital Vice Presidency (VDI for its Spanish acronym) and the Colombian Petroleum Institute (ICP for its Spanish acronym) and coordinates the teams responsible for the STI agenda across all segments of the Ecopetrol Group’s value chain.
On the Science, Technology, and Innovation front, we conducted the first 5G pilot test for industrial application in partnership with Accenture, Claro, and Microsoft. This test was conducted as part of maintenance operations at the Barrancabermeja refinery, with the use of secure devices for real-time remote assistance, which enabled a three-day reduction in maintenance, and the optimization of activities worth more than USD 1 million. Additionally, an automation plan for the VTI’s laboratories and pilot plants was undertaken with the participation of 13 domestic and international companies.
All the Ecopetrol Group’s employees will continue working towards generating value for all our stakeholders, taking advantage of the opportunities that align with the pillars of our 2040 Strategy, which focuses on a responsible energy transition through organized and decisive progress in our decarbonization plan within the framework of our country’s energy security and that of the regions where we operate as a Group.”