EC Ecopetrol SA

BOGOTA, Colombia, March 6, 2017 /PRNewswire/ -- Ecopetrol S.A. ("Ecopetrol" or the "Company") (BVC: ECOPETROL; NYSE: EC) announced the Ecopetrol Group's financial results for the fourth quarter and full year 2016, prepared and expressed in billions of Colombian pesos (COP) pursuant to International Financial Reporting Standards applicable in Colombia.

Table 1: Ecopetrol Group's Consolidated Financial Results

* These figures are included for illustration purposes only. Unaudited.

Certain explanatory figures in this report are stated in US dollars (USD) and are indicated as such when applicable.

Juan Carlos Echeverry G., CEO of Ecopetrol S.A., commented:

"2016 was a year of enormous challenges for Ecopetrol. The oil industry experienced the lowest crude prices in 12 years, thus resulting in cuts in investment.

The quest for efficiencies and liquidity became the mantra in surviving the crisis. Added to this scenario were the challenges raised by the peace negotiation process, the closure of the border with Venezuela, El Niño climate Phenomenon, completion of the Reficar and Bioenergy projects, and approval of the tax reform.

Ecopetrol focused its efforts on reducing costs, producing profitable barrels, prioritizing investments, strengthening cash flow and, at the same time, maintaining its investment-grade rating.

Investment in 2016 totaled USD 2.5 billion. The company's operating and financial performance was solid, as a result of the adjustment measures. EBITDA and EBITDA margin rose to 18 trillion pesos and 38% respectively; EBITDA margin grew 3 percentage points over 2015, and is one of the highest in oil and gas industry.

At 718 thousand barrels of oil-equivalent per day, the company exceeded its 2016 production target by 3 thousand barrels. This was despite a drop in production by 25 thousand barrels of oil-equivalent per day for 45 days, due to the closure of the Caño Limón Coveñas oil pipeline; and a 16% drop in Brent prices.

The fourth quarter closed with a robust cash position of 14 trillion pesos (approximately USD 4.7 billion), reducing financial leverage and allowing opportunities for inorganic growth.

The resumption and operation of the Rubiales and Cusiana fields demonstrated our operating capacity, which has benefited from the efficiencies and structural changes achieved in practically every business line. Ecopetrol is currently operating at over 500 thousand barrels of oil-equivalent per day directly.

The improved recovery program is a reality. Eighteen pilot projects were active in 2016, 12 of which showed production increases. In this phase, the program has contributed 1.65 million barrels of accumulated reserves of oil. A significant share of these results was achieved in large fields such as Castilla and Chichimene.

The discovery of oil in the Warrior well, in the United States' Gulf of Mexico, is the result of Ecopetrol's new exploration strategy, which includes joint ventures with top-tier companies to diversify risk, engage in further exploration and increase the probability of discoveries. Warrior is Ecopetrol Group's fifth discovery in this prosperous oil region, and is contributing to increasing the company's contingent resources.

The exploration campaign has also yielded good results in the Lower Magdalena Valley (Bullerengue) and Middle Magdalena Valley (Boranda).

Colombia's offshore is a region of high potential. During the fourth quarter, two wells, Purple Angle (Kronos appraisal well) and Gorgon, were being drilled to have a better assessment of the potential of the Colombian Caribbean.

In refining, the greatest achievement was the startup of the 34 Reficar units, giving way to the stabilization and testing period. December saw a record load of crude for refining: Reficar, with 150 thousand barrels of oil, and Barrancabermeja, with 230 thousand barrels of oil per day, for 21 days. Average margin per barrel of Reficar rose from USD 2.8 per barrel between January and July to USD 8.4 since August, once all the units were fired up. In the future we will continue stabilizing and optimizing Reficar's load and margin.

Another refining milestone was the change in Barrancabermeja's operating layout, which stabilized operations and yielded an average conversion factor of 73%. This refinery's EBITDA also rose to 2.1 trillion pesos, two times higher than in 2014.

The company's priority is to extract greater value from the crude it markets. 2016 saw higher sales referenced to more liquid indicators, strengthening the crude basket. The Brent-basket spread for Ecopetrol's crude in 2016 was -9.4 dollars, 3 cents less than in 2015.

The quality and consistency of our crude is a significant value lever. As part of our dilution efficiencies strategy, we improved crude transport viscosity from 200 to 400 centistokes (cSt). Since the fourth quarter, the Ocensa oil pipeline has increased its viscosity handling capacity to 600 cSt. This has contributed to lower costs and a lower dilution factor, which fell from 19% to 17% between 2015 and 2016, and saved the Ecopetrol Group near one trillion pesos.

Consolidated savings for the year totaled 2.5 trillion pesos, exceeding the savings target of 1.6 trillion pesos set for 2016. Out of this, 2.2 trillion were structural savings. The principal savings levers were lower dilution of heavy crude by approximately 660 billion pesos, and 375 billion pesos in operating and maintaining transportation assets.

These greater efficiencies were critical for mitigating the impact of lower crude prices on the 2016 proven reserves balance. Reserves are at 1,598 million barrels of oil-equivalent, 14% less than the 1,849 million figure in 2015.

We estimate the price impact negatively affected reserves by 202 million barrels of oil-equivalent. In 2016, the SEC price used for valuation fell 20% versus 2015, from 55.6 dollars per barrel to 44.5 dollars per barrel. This decline in reserves, due to the price effect, was offset by an addition of 186 million barrels of oil-equivalent attributable to efficiencies and new drilling projects, among other factors.

Net profit attributable to Ecopetrol Group shareholders totaled 1.6 trillion pesos, versus a 2015 loss of 3.9 trillion pesos. This was despite of 6.8 trillion pesos in lower revenue during the year due to lower crude prices. The higher profits were due to savings and efficiencies. Not counting the impairment impact, the company saw earnings of 2.3 trillion pesos in 2016.

Challenges in 2017 are no less serious. Adding reserves and maintaining the pace of production are the Company's focus. The exploration campaign will be stepped up significantly in regions of high prospectivity. Investment in exploration will rise from USD 280 million to USD 650 million, thus increasing offshore wells from 2 to 6 and onshore wells from 5 to 11 from 2016 to 2017. Enhanced recovery will continue to leverage additional reserves in mature fields. We stress that a strong cash position allows us to assess opportunities for inorganic growth in the Ecopetrol Business Group's reserves.

The company will continue to pursue its Transformation to ensure operational and financial sustainability. We have named Phase 3.0 of the business Transformation plan Ecopetrol's New Frontier. It will focus on opening up new markets; multi-year field development plans; improved return on assets; attracting and retaining the best human talent; and committing ourselves to integrity, respect for the environment and shared prosperity with the communities in which we operate.

The 3.5-billion-dollar 2017 investment plan will focus on opportunities to generate value for the Business Group.

As for Reficar, the stabilization stage will be completed, and in the second half of the year global performance will be tested. Efforts will focus on improving margins and load, and on adding value.

The Company has launched a new Corporate Stakeholder´s Management strategy, seeking sustainable and shared prosperity with communities in the operating regions, the development of local governability, and contributions to the country's peace agreement. It has also strengthened its leadership in every area, its commitment to life and the effective mitigation of risks to individuals, facilities and processes.

Ecopetrol has once again addressed the challenges imposed by the price environment. It has ended the year as a transformed, operationally sustainable and financially robust company. The breakeven for the operational profit was reduced due to the efficiencies achieved over the past years.

The future looks promising. The 2020 Business Plan is based on three fundamental pillars: i) protection of cash and cost efficiency; ii) strict capital discipline; and iii) growth in reserves and production; these pillars will strengthen the company's financial sustainability and afford it opportunities for both organic and inorganic growth, generating value and profitability for its shareholders."

To review the full report please visit Ecopetrol's website: www.ecopetrol.com.co

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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
María Catalina Escobar
Phone: (+571) 234 5190
E-mail: investors@ecopetrol.com.co

Media Relations (Colombia)
Jorge Mauricio Tellez
Phone: (+ 571) 234 4329
E-mail: mauricio.tellez@ecopetrol.com.co

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SOURCE Ecopetrol S.A.