Ecopetrol Group Announces Third Quarter 2021 Results

Rhea-AI Summary

Ecopetrol announced strong Q3 2021 results, showcasing total sales of COP 23.3 trillion, a net income of COP 3.8 trillion, and an EBITDA of COP 10.4 trillion. Notable growth in sales was 89.3% year-over-year. The company cites favorable crude oil prices, rising to USD 68.0 per barrel, and expanded production, notably reaching 683.6 mboed. With the acquisition of a controlling stake in ISA, the integrated energy company is well-positioned for future growth. Positive cash flow and advancements in exploration and production bolster the optimistic outlook.

Positive

• Total sales increased to COP 23.3 trillion, up 89.3% year-over-year.
• Net income rose to COP 3.8 trillion, a 272.4% increase.
• EBITDA reached COP 10.4 trillion, representing a 97.4% growth.
• Acquisition of 51.4% stake in ISA enhances operational capabilities.
• Crude oil realization price improved to USD 68.0 per barrel.

Negative

• Variable costs surged 122.7%, impacting profit margins.
• Operating and exploratory expenses increased 32.4%.

BOGOTÁ, Colombia, Nov. 9, 2021 /PRNewswire/ -- Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC) announced today the Ecopetrol Group's financial results for the third quarter of 2021. 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)		3Q 2021	3Q 2020	∆ ($)	∆ (%)		9M 2021	9M 2020	∆ ($)	∆ (%)
Total sales		23,333	12,323	11,010	89.3%		59,983	35,836	24,147	67.4%
Depreciation and amortization		2,629	2,296	333	14.5%		7,195	6,685	510	7.6%
Variable cost		8,994	4,038	4,956	122.7%		21,992	14,304	7,688	53.7%
Fixed cost		2,883	2,010	873	43.4%		7,262	6,256	1,006	16.1%
Cost of sales		14,506	8,344	6,162	73.8%		36,449	27,245	9,204	33.8%
Gross income		8,827	3,979	4,848	121.8%		23,534	8,591	14,943	173.9%
Operating and exploratory expenses		1,723	1,301	422	32.4%		4,364	2,383	1,981	83.1%
Operating income		7,104	2,678	4,426	165.3%		19,170	6,208	12,962	208.8%
Financial income (loss), net		(697)	(956)	259	(27.1%)		(2,180)	(2,221)	41	(1.8%)
Share of profit of companies		111	15	96	640.0%		226	92	134	145.7%
Income before income tax		6,518	1,737	4,781	275.2%		17,216	4,079	13,137	322.1%
Income tax		(2,194)	(576)	(1,618)	280.9%		(5,499)	(1,209)	(4,290)	354.8%
Net income consolidated		4,324	1,161	3,163	272.4%		11,717	2,870	8,847	308.3%
Non-controlling interest		(516)	(289)	(227)	78.5%		(1,102)	(913)	(189)	20.7%
Net income attributable to owners of Ecopetrol before impairment		3,808	872	2,936	336.7%		10,615	1,957	8,658	442.4%
(Expense) recovery for impairment long-term assets		(2)	(21)	19	(90.5%)		2	(1,225)	1,227	(100.2%)
Deferred tax of impairment		1	4	(3)	(75.0%)		0	281	(281)	(100.0%)
Net income attributable to owners of Ecopetrol		3,807	855	2,952	345.3%		10,617	1,013	9,604	948.1%
EBITDA		10,371	5,254	5,117	97.4%		27,986	12,506	15,480	123.8%
EBITDA Margin		44.4%	42.6%	-	1.8%		46.7%	34.9%	-	11.8%

The figures included in this report were extracted from the Company's unaudited 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, 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 results for the third quarter of 2021 confirm Ecopetrol's technical, operational, and financial capacity to seize the favorable price environment. They also evidence the benefits of the structural adjustments that we have implemented in response to recent challenges. With the culmination of the purchase of a controlling 51.4% stake in Interconexión Eléctrica ("ISA"), the quarterly figures include the consolidated results of this subsidiary for one month, which represents a transformational milestone that allows us to present the results of the new Ecopetrol Group for the first time.

During this quarter, we continued delivering record results, with a consolidated revenue of COP 23.3 trillion, a net income of COP 3.8 trillion and an EBITDA of COP 10.4 trillion (EBITDA margin of 44%). In the first nine months of the year, our consolidated revenue amounted to COP 60.0 trillion, a net income of COP 10.6 trillion (6.3 times the net income generated throughout 2020), and an EBITDA of COP 28.0 trillion (EBITDA margin of 47%).

On the commercial front, we highlight the improvement in the realization price of our crude oil basket, which went from 38.4 USD/Bl in the third quarter of 2020 to 68.0 USD/Bl in the third quarter of 2021, demonstrating the good results of the strategy for diversification of destinations and close relation with our customers, in addition to the operational flexibility of the company by consolidating the delivery at place (DAP) mechanism. Additionally, we highlight the signing of diesel and motor gasoline supply contracts with wholesale distributors, a milestone that represents a referent for the industry and marks the beginning of a new commercial stage that consolidates the liquid fuels distribution chain in the country.

In exploration, the Liria YW12 well stands out, which proved the presence of hydrocarbons in a new structure near a production field, being a milestone that continues to drive our exploration activity in the Piedemonte Llanero. Ecopetrol and its partners completed 10 wells during the first nine months of the year, exceeding the target of 9 wells for 2021. The accumulated production of the exploratory assets accounted for more than 1.2 million boe at the end of the third quarter of 2021 (4,517 boed on average), with 67% of the production corresponding to oil and 33% to gas. Additionally, in August the Flamencos-1 and Boranda discoveries, located in the Middle Magdalena Valley, were declared commercial, which are part of the "Near Field Exploration" strategy in areas close to existing infrastructure that seeks the incorporation of production and reserves in a short period of time. In the international field, and in line with the growth and geographic diversification strategy of the Ecopetrol Group, our subsidiary, Ecopetrol Óleo e Gás do Brasil, acquired a 30% stake in the block S-M-1709, located in the Santos basin in Brazil during the "Rodada 17" bidding session organized by the National Petroleum Agency (ANP for its Portuguese acronym). The acquisition of this block, which will be operated by Shell, is focused on the basins with the highest potential in the continent.

The average production of the Ecopetrol Group continues its recovery path, after experiencing a significant impact during the first half of the year associated with operating restrictions in the Castilla field and the public order situation in Colombia. During the third quarter, production reached 683.6 mboed, accounting for a growth of 3.5% when compared to the second quarter. Some of the relevant milestones of the quarter are: i) full production stabilization in the Castilla field, ii) normalization of production, previously affected by roadblocks due to public order disturbances in the second quarter of the year, and iii) the contribution from the new Flamencos-1 and Boranda commercial discoveries. Given the average production level for the quarter and the projections for the fourth quarter of the year, we estimate the 2021 yearly production to be around 680 mboed.

Natural gas and LPG production experienced an increase of 3.5% in the third quarter of 2021 compared to the same period of the previous year, as a result of higher sales volumes from Ecopetrol, Hocol, and Permian, primarily associated with a recovery in demand. During the third quarter, the contribution of gas and LPG to the Group's total production was 20.6%, with a combined EBITDA margin of 60.0%.

At Permian, operations continue to advance according to plan, employing 4 drill rigs and 2 completion crews. We drilled 22 wells in this quarter, for a total of 69 so far this year. In addition, 16 new wells started production, for a total of 91 wells in production (22 in 2020 and 69 in 2021). It is worth highlighting that the level of production of the operation already exceeds 50.0 mboed, generating 24.4 mboed before royalties for Ecopetrol in the third quarter (equivalent to net 18.9 mboed after royalties).

In terms of the Comprehensive Research Pilot Projects in Unconventional Reservoirs (PPII) Kalé and Platero, we continue advancing with the work schedules according to plan. On October 29, we submitted PPII-Kalé's Environmental Impact Assessment (EIA) to the National Authority for Environmental Licensing (ANLA for its Spanish acronym), and on July 8, we conducted the first territorial dialogue and environmental monitoring as requirements for filing PPII-Platero's EIA. To date, 450 dialogue and educational meetings have taken place within the influence area.

In the midstream segment, during the quarter we transported 1,012.2 mbd, which represented a recovery of 52.3 mbd compared to the immediately previous quarter. The volume transported during the first nine months of the year was 993.3 mbd, a decrease of 2.0% compared to the same period of 2020, as a result of a lower production of crude oil in the country, mainly in the Llanos area.

In terms of renewable energy self-generation in the segment, in September we started operating six new solar plants at the stations of Baranoa, Miraflores, Mansilla, Tocancipá, Yumbo, and Pereira, in order to reduce approximately 513 tons of CO2 per year, also in line with our decarbonization targets by 2050. Similarly, we finished the construction of the San Fernando Solar Park last October 22, 2021, which will provide 61 MWp of available capacity and it is considered the largest renewable energy self-generation facility in the country.

Regarding transportation disputes, the agreement announced by Frontera, CENIT and Bicentenario on November 17, 2020, was approved by the Administrative Tribunal of Cundinamarca by means of an order that was notified on November 5 of 2021. It is important to mention that the agreement has a favorable opinion from the Attorney General's Office (Procuraduría General de la Nación), received on March 24, 2021, also, it puts an end to all disputes between the parties regarding to the transportation contracts for the Bicentenario Pipeline and the Caño Limón - Coveñas Pipeline, as well as other contracts for storage and port services. With this agreement, all existing arbitration proceedings arising from these disputes are concluded.

The downstream segment continued with the positive trend observed throughout 2021, with a consolidated throughput of 358.0 mbd and an integrated gross margin of 9.5 USD/Bl as of September 2021. This segment closed the third quarter with a throughput of 353.8 mbd and an integrated gross margin of 9.0 USD/Bl, respectively. These results are largely attributable to: i) the improvement of the refined products basket, in line with the generalized increase in demand due to the reactivation of the productive sector, ii) selling of inventories due to a favorable price environment and the positive operating performance at the Barrancabermeja refinery, iii) the adoption of commercial strategies at Esenttia to mitigate the weakening of the Polypropylene Margin, iv) the stability of Invercolsa as a result of higher natural gas sales and installations, and v) the segment's cash cost stability. The aforementioned, despite the operational events originated at the Cartagena refinery during the quarter, which have already been solved.

In the new electric power transmission and toll roads segment (which arose out of our acquisition of ISA) only consolidates one month of results into the quarter, we highlight the following: i) in the electric power business, the entry into operation of three projects (in Chile, Brazil, and Colombia), as well as the granting of the Environmental license for the UPME07-2017 Sabanalarga-Bolívar 500 kV project in Colombia, and ii) in the road concessions business, the construction of eight projects continued in Colombia and Chile, which will add 246 km to the existing road network.

It is important to note that a Transition Management Office (TMO) was established, which has made possible the transition process from ISA to the consolidation and reporting of the Ecopetrol Group. The main efforts in the last 12 weeks since the acquisition have been focused on ensuring compliance with the legal and regulatory requirements associated with accounting consolidation, reporting, and financial planning processes, as well as matters related to compliance and corporate governance. The next steps will be aimed at prioritizing opportunities and synergies to accelerate the capture of joint value.

In TESG, we continued to make progress in each pillar of the strategy throughout the year.

In the environmental front, particularly in renewable energy projects, Ecopetrol was included as a relevant participant in the Colombian Hydrogen roadmap launched by the Ministry of Mines and Energy on September 30. Moreover, we highlight the contract entered with South Pole on August 6, 2021, who will be our structuring partner for the Nature-Based Solutions projects, and the Cooperation Agreement signed with The Nature Conservancy, which seeks to leverage the implementation of the Ecopetrol Group's decarbonization plan. As of September 2021, we had fulfilled 79% of the goal established for 2021 within the framework of the "Sembrar Nos Une" national initiative with 3,149,716 trees planted.

In the social dimension, during the first nine months of the year, the Company allocated social investment resources for a total of COP 269 billion in strategic and mandatory investments. Similarly, by means of the "Obras por Impuestos" (Works in lieu of Taxes) mechanism, we completed 25 projects by the end of the third quarter, with a total value of COP 201 billion, mainly focused on the improvement of roads and endowments to student residences. Additionally, Ecopetrol's Diversity and Inclusion Program was granted the Equipares-Icontec Silver Seal, highlighting the communications efforts carried out within the framework of this program due to its coherence, assertiveness, connection, and impact as a fundamental pillar for the strategy.

In corporate governance, the TMO team appointed within the Company has been presenting on a regular basis the developments around the successful incorporation of ISA into the Ecopetrol Group to the Board of Directors, in line with our commitment to advance in a transition that ensures the continuity of the strategy and the robustness of Ecopetrol and ISA's governance principles. Identifying and aligning the best practices of both companies will ensure the implementation of a corporate governance structure that stands out for its experience and transparency. Last October 22 of 2021, ISA's extraordinary General Shareholders' Meeting took place, in which new Directors were appointed and Ecopetrol exercised its right to nominate candidates in virtue of the controlling position it currently holds on ISA.

In digital transformation, we have captured benefits in the digital agenda for a total of USD 36.5 million by the end of the third quarter of 2021, with advancements in the digital agenda, digital factories, intelligence, and innovation projects."

Ecopetrol is the largest company in Colombia and one of the main integrated energy companies in the American continent, with more than 17,000 employees. In Colombia, it accounts for more than 60% of hydrocarbon production, and most of the hydrocarbon transportation, logistics, and refining systems, and has leading positions in petrochemicals and gas distribution. With the acquisition of 51.4% of ISA's shares, it participates in energy transmission, management of real-time systems (XM) and the Concesión Costera Barranquilla - Cartagena. At the international level, Ecopetrol focuses on strategic basins on the American continent, with E&P operations in the United States (the Permian basin and the Gulf of Mexico), Brazil and Mexico, and through ISA and its subsidiaries it has leading positions in the transmission business in Brazil, Chile, Peru and Bolivia, in road concessions in Chile, and in telecommunications. This press release contains statements relating to business prospects, estimates of operating and financial results, and Ecopetrol's growth prospects. All are projections, and therefore are based solely on management's expectations of the company's future and its continuous access to capital to finance its sales plan. Achieving these estimates in the future depends on its performance under given market conditions, regulations, competition, the performance of the Colombian economy and industry, and other factors; therefore, they are subject to change without prior notice. 

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 Ecopetrol's prospects for growth and its ongoing access to capital to fund Ecopetrol'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, Ecopetrol'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 details, please contact: 

Head of Capital Markets 
Tatiana Uribe Benninghoff 
Email : investors@ecopetrol.com.co 

Media Engagement (Colombia) 
Jorge Mauricio Téllez 
Email : mauricio.tellez@ecopetrol.com.co 

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SOURCE Ecopetrol S.A.

FAQ

What were Ecopetrol's Q3 2021 financial results?

Ecopetrol reported total sales of COP 23.3 trillion and a net income of COP 3.8 trillion for Q3 2021.

How much did Ecopetrol's net income increase in Q3 2021?

The net income increased by 272.4% compared to Q3 2020.

What is the EBITDA margin for Ecopetrol in Q3 2021?

Ecopetrol's EBITDA margin for Q3 2021 was 44.4%.

What impact did the acquisition of ISA have on Ecopetrol?

The acquisition of a 51.4% stake in ISA is expected to enhance Ecopetrol's operational capabilities.

What was the average production level for Ecopetrol in Q3 2021?

Ecopetrol's average production in Q3 2021 was 683.6 mboed, indicating a growth of 3.5% from the previous quarter.