Ecopetrol Group Announces Its Results for the Fourth Quarter of 2015 and the Year Ended December 31, 2015
March 06, 2016 at 17:41 PM EST
BOGOTA, Colombia, March 6, 2016 /PRNewswire/ --
Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC) announced today Ecopetrol Group's financial results for the fourth quarter and full year 2015, prepared and filed in Colombian pesos (COP$) and under International Financial Reporting Standards (IFRS) applicable in Colombia.
In the opinion of Ecopetrol's CEO Juan Carlos Echeverry G.:
"2015 was one of the most challenging years for the oil industry. As many other oil and gas companies, Ecopetrol undertook profound adjustments on its operations to be more efficient and face lower crude prices. The Company intensified the interaction between operational and financial excellence to generate and protect its cash flow, secure its sustainability and, when price environment permits, be prepared to grow. In addition to prices other challenges were added: attacks on oil infrastructure, El Niño phenomenon, the closing of Venezuelan border, the completion of key Midstream and Downstream projects and the devaluation of the exchange rate.
In the midst of this defying environment, the Company maintained a solid operational performance while advancing the transformation of all of its business lines to increase its structural efficiency. It reduced operational costs without affecting reliability and safety of its operations, and strengthened an organizational culture based on integrity, cooperation and creativity. This change process has been led by a new management team that has leveraged Ecopetrol's strengths to introduce new and more efficient ways to conduct operations throughout its entire value chain.
As of the second half of 2015, Ecopetrol began to adjust its investment plan without sacrificing production and progress in important projects; to increase its efficiency levels and reduce costs and expenses; and established a savings target of COP$1.6 trillion for the year.
As of December 31, 2015, Ecopetrol's savings totaled COP$2.2 trillion, above the initially defined target. This achievement was possible thanks to renegotiation strategies in contracts (COP$0.98 trillion) and supply (COP$0.50 trillion), and higher operational efficiencies (COP$0.72 trillion). In addition, affiliates and subsidiaries contributed with COP$0.6 trillion, for overall total savings within the Group of COP$2.8 trillion. The company is working towards making these savings structural and supportive in securing its sustainability and competitiveness in the long term.
The higher efficiency achieved in 2015 enabled Ecopetrol to partially offset the impact of lower crude prices on the balance of proven reserves, which was 1,849 billion of oil equivalent barrels, 11% lower as compared to 2014. The 45% drop in prices used in reserves valuation led to an estimated reduction of 404 million of barrels of oil equivalent, which was offset by lower costs and higher efficiencies, which added approximately 275 million barrels of oil equivalent.
At the operational level, the company presented solid results, starting with the best historic industrial safety performance, measured by the Recordable Incident Frequency Rate and the Accident Frequency Index, which were 0.96 and 0.49, respectively. This is the result of a permanent and systematic effort to achieve industry standards and a strong indication of Ecopetrol's commitment for people's well-being.
In 2015, the Group slightly surpassed the 760 thousand barrels per day production goal, despite the low price environment, operational challenges and public order disruptions. As compared to 2014, production grew by 5 thousand barrels per day, mainly driven by the production increase at the Castilla (+17.4%) and Chichimene (+38.9%) fields, due to the entrance of new wells into production.
With regards to recovery factor increase, during 2015 eight pilot projects were initiated in water injection, solvent injection and improved water injection technologies, achieving the established goal. It's important to highlight the implementation of water injection pilot projects in fields with heavy crude, such as Castilla and Chichimene, with positive results in the intervened areas. Additional cumulative production represents a 1.2% increase in the recovery factor in the pilot area of Chichimene and 0.15% in the pilot area of Castilla.
The improvement in the recovery factor, mainly through infill drilling, will continue to be the main source of reserves growth in producing fields in coming years. Hence, it is necessary to increase well drilling efficiency, as has been done among different fields. For example, between 2014 and 2015, in Castilla, the average drilling days per well went from 34 to 26 and in Chichimene from 36 to 26.
In exploration, the discovery in May of the Kronos well in the Caribbean offshore area is considered one of the 20 largest discoveries worldwide in 2015. The exploratory campaign also included the drilling of the Calasú well (geological success) in the Caribbean Sea, and three additional wells: Muérgana Sur (sealed and abandoned), located at Llanos Orientales, Bullerengue (geological success), in the Lower Magdalena Valley, and Sea Eagle (dry well) in the US Gulf of Mexico.
By the end of 2015, the Leon 2 appraisal well was being drilled in the Gulf of Mexico deep waters, operated by Repsol, who has a 60% share, and Ecopetrol America Inc., with 40%. The well reached its final depth on February 2, 2016, and is currently under assessment.
As compared to 2014, during 2015 a growth of 2% in the transported volume was evidenced, mainly due to higher availability over the course of the year of the Caño Limón – Coveñas and Transandino systems, caused by a lower number of oil infrastructure attacks, which went from 130 in 2014 to 80 in 2015.
Tests to verify the performance of transportation systems with higher viscosity crudes through Oleoducto de los Llanos, Oleoducto de Colombia and Ocensa were successful, opening the possibility to decrease diluent consumption in 2016. This is a key aspect in increasing heavy oil production profitability, which today represents 57% of the Group's total production. The tolerance increase in transportation systems from 220 centi stocks (CST) to 300 CST of viscosity allowed a decrease of US$0.75/Bl in dilution cost. The 2016 goal is to transport at 400 CST.
For refining, the major achievement was the startup of the Crude Unit at the Cartagena Refinery, which led the sequential entry of the plants comprising the new refinery. On February 24 the Delayed Coking Unit started its operations, which allows reaching a 97% conversion factor. By the end of February two more plants started up: the Catalytic Cracking Unit, that takes diesel fuels from the Crude Unit and produces selectively streams of higher value, and the Naphtha Hydrotreater Unit which main function is to remove sulphur from gasolines to deliver clean fuels, with less than 50 parts per million of sulphur.
Ecopetrol expects to have all the plants in operation during the second quarter of 2016, and stabilize gradually the refinery to take it to full capacity by the third quarter of the year. It's worth highlighting that the refinery made its first fuel export in November 2015 with destination to the United States and the Caribbean, with a total of 200 thousand barrels of virgin naphtha and 50 thousand barrels of JET A1 aviation fuel.
Other important result was achieved at the Barrancabermeja Refinery, which reported a gross margin of US$16.8/Bl in 2015, as compared to US$14.6/Bl in 2014, due to a higher performance of medium distillates, the implementation of initiatives to enhance the value of LPG and residual streams, and price behavior of refined products.
2015 also included the consolidation of a new management team, with the renewal of half of the positions with top qualified and expert personnel on their knowledge fields, with distinguished experience in the oil and gas industry. Leadership style, in line with cultural transformation, is based on knowledge, trust, communication, and teamwork. In 2016, the company will deepen its work with mid-level management and will aim for the development of future leaders with high potential, who are prepared to assume the challenges of Ecopetrol.
The Company ended the year with a loss of COP$3.9 trillion, mainly due to accounting effects on the presentation of the financial statements caused by IFRS implementation. Excluding the impairment effect, the Company would have reported a net income of COP$2.4 trillion. This accounting effect, as well as the exchange rate difference, constitute an impact on the expenses account that affects the financial outcome, but that does not imply a cash outflow. Impairment expenses can be reverted once market conditions turn more favorable, except in the case of goodwill impairments. Nonetheless, despite the adverse price environment and strong impact on results, the Company kept its EBITDA margin at 35%, close to last year's level, and continued having in its internal cash flow generation, the main source to fund its operations.
Savings aren't the foundation for the future. Investment quality is the other key factor. We are currently strengthening the exploration and production portfolio, through an institutional change oriented to align incentives to identify the best prospectuses and place them under rigorous scrutiny and competition. A targeted and effective investment, and at lower costs, should redound in higher future reserves.
2016 is a transition year for the businesses of the Group. We will end relevant investments in refining and transport segments. In these segments we have enough installed capacity for the Company's mid-term growth. Finalizing the meaningful investments in refinery and transport means, that from 2017 onwards, close to US$1 billion of annual investments will be freed and 90% of total investment capacity will be allocated to exploration and production, while in the past 5 years we have dedicated only near 60%.
Breakeven prices have decreased and technical risk has been mitigated. As a result, the recognition of additional projects should improve the Company's growth potential.
Finally, 2016 will be a financial excellency year focused on cash generation and preservation. The divestment process, which was analyzed and structured during 2015, will be dynamic. These will strengthen the focus on financial sustainability and will pursue protecting the company's credit rating by keeping adequate indebtedness levels.
The 2016 investment plan for COP$4.8 trillion implies a decrease of 26% as compared to the execution in 2015. This reinforces capital expenditure discipline and focus on profitable investments, as well as the opportunity to achieve higher efficiencies without affecting Ecopetrol's operation. We will manage the CAPEX depending on the crude oil price, just like a stream whose flow is regulated by locks.
The company will continue promoting its 2016-2017 assets divestment program to obtain resources between US$400 and US$900 million, out of a potential pool of assets of US$1.4 billion. Within this phase, the company will pursue the divestment of non-strategic assets and stock holdings, such as Propilco, EEB, ISA and some others under current analysis.
It is a priority for Ecopetrol to maintain its investment grade rating, as well as access to capital markets. Adjustments made in 2016 imply financing needs between US$1.5 and US$1.9 billion, out of which US$475 million were already obtained through loans from local and international banks. The confidence in the Company and the appetite for Ecopetrol's credit has been ratified. This estimation does not include resources resulting from the divestment program, which in case of positive results, would strengthen the company's cash flow.
With regards to Reficar and the concerns expressed by the different control entities, it is important to note that all investigations are still at a preliminary stage. The Office of the General Comptroller initiated a review of Reficar in 2015, which was completed and disclosed in 2016. This report does not point to any conclusive findings on Reficar's finances. However, it has led to the commencement of specific investigations into the EPC contract for the project. Meanwhile, the Prosecutor's Office currently has two investigations underway: one which began in 2012 involving members of the board of directors of Reficar on such date and a more recent one, regarding delays in the completion of the project, into current and former officers of Ecopetrol as well as current and former members of the board of directors of Ecopetrol, including me. Meanwhile, the General Attorney's Office, in early February, began collecting and reviewing information about Reficar.
All the investigations are still at preliminary stages and I want to emphasize that Ecopetrol and Reficar are giving due importance to these processes through exhaustive cooperation with the control entities. Finally, I would like to highlight that, to date, none of the investigations allege any violations to the Code of Ethics nor do they affect the integrity of Ecopetrol's businesses.
Ecopetrol has rapidly and decisively responded to the challenges imposed by the price environment, with an internal deep transformation and management based on financial discipline, the search for increasing efficiencies, and improving quality and active rotation of its portfolio. The Company will continue seeking alternatives to confront the current scenario and prepare the exploration and production portfolio to take advantage of a future rise in oil prices. In addition, the Company will pursue value generation for its shareholders, prioritizing sustainability and long-term financial stability."
The complete report is available in www.ecopetrol.com.co
Bogota, Colombia, March 6, 2016
Ecopetrol is the largest company in Colombia and is an integrated oil & gas company; it is among the top 50 oil companies in the world and among the four top ones in Latin America. Besides Colombia - where it generates over 60% of the national production - it has exploration and production activities in Brazil, Peru & the US (Gulf of Mexico). Ecopetrol owns the largest refinery in Colombia and most of the pipeline and multi-product pipeline network in the country, and is significantly increasing its participation in bio-fuels.
This release contains statements that may be considered forward looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. All forward-looking statements, whether made in this release or in future filings or press releases or orally, address matters that involve risks and uncertainties, including in respect of the Company's prospects for growth and its ongoing access to capital to fund the Company's business plan, among others. Consequently, changes in the following factors, among others, could cause actual results to differ materially from those included in the forward-looking statements: market prices of oil & gas, our exploration and production activities, market conditions, applicable regulations, the exchange rate, the Company's competitiveness and the performance of Colombia's economy and industry, to mention a few. We do not intend, and do not assume any obligation to update these forward-looking statements.
For further information, please contact:
Head of Corporate Finance and Investor Relations
Media Relations (Colombia)
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SOURCE Ecopetrol S.A.