EX-99.1 2 v385451_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

Ecopetrol Announces Its Results for the

Second Quarter of 2014

 

·Financial results show the positive effect of international crude prices that partially offset the strong impact of the difficult operational environment on production and sales

 

·Significant progress in the international exploration strategy: One discovery in the Gulf of Mexico (U.S.) and acquisition of a 10% stake in two blocks in Angola.

 

·Changes in organizational structure: new regional model and creation of the General Operations Directorate.

 

BOGOTA, July 31 of 2014. Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC; TSX: ECP) announced today its unaudited financial results, both consolidated and unconsolidated, for the second quarter of 2014. The financial results were prepared and filed in Colombian pesos (COP$) in accordance with the Public Accountancy Legal Framework (Régimen de Contabilidad Pública, RCP) of Colombia’s General Accounting Office.

 

Some figures in this release are presented in U.S. dollars (US$), as indicated. The financial results in the main body of this report have been rounded to one decimal place. Figures presented in COP$ billion are equivalent to COP$1 thousand million (COP$1,000,000,000). Additionally, some 2013 figures have been reclassified to be comparable to those of 2014.

 

Summary of Ecopetrol S.A.’s financial results

 

Unconsolidated
(COP$ Billion)  2Q 2014*   1Q 2014*   Var. %   2Q 2013*   Var. % **   1H 2014*   1H 2013*   Var. % 
Total sales   14,976.6    15,741.7    (4.9)%   15,322.7    (2.3)%   30,718.3    30,094.6    2.1%
Operating profit   4,161.0    4,552.6    (8.6)%   4,907.1    (15.2)%   8,713.6    10,052.5    (13.3)%
Net Income   2,847.8    3,225.9    (11.7)%   3,253.8    (12.5)%   6,073.6    6,749.6    (10.0)%
Earnings per share (COP$)   69.26    78.46    (11.7)%   79.14    (12.5)%   147.72    164.15    (10.0)%
EBITDA   6,770.5    7,704.6    (12.1)%   7,302.1    (7.3)%   14,475.1    15,048.0    (3.8)%
EBITDA Margin   45%   49%        48%        47%   50%     

 

Consolidated
(COP$ Billion)  2Q 2014*   1Q 2014*   Var. %   2Q 2013*   Var. % **   1H 2014*   1H 2013*   Var. % 
Total sales   17,749.3    18,262.0    (2.8)%   17,595.6    0.9%   36,011.2    34,341.3    4.9%
Operating profit   4,921.1    5,882.8    (16.3)%   5,927.2    (17.0)%   10,803.9    11,481.1    (5.9)%
Net Income   2,787.5    3,287.4    (15.2)%   3,407.5    (18.2)%   6,074.9    6,819.2    (10.9)%
Earnings per share (COP$)                              
EBITDA   6,681.6    7,793.0    (14.3)%   7,516.1    (11.1)%   14,474.6    15,112.6    (4.2)%
EBITDA Margin   38%   43%        43%        40%   44%     

 

* Not audited

** Between 2Q 2014 and 2Q 2013

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

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In the opinion of Ecopetrol S.A.’s CEO, Javier Gutiérrez:

 

“The results of the second quarter of 2014 show the positive effect of international crude prices that offset the strong impact of the difficult operational environment (29 attacks to the transport infrastructure during the quarter and 64 in the first semester of the year) on production and sales.

 

Even though we produced an average of 714 thousand barrels in June (Ecopetrol S.A. not including affiliates and subsidiaries), mainly due to normality in the operation, the results of April and May were hit by the forced shutdown of the Caño Limón - Coveñas pipeline during 40 days between March 25 and June 3, as well as the shutdown of the Transandino pipeline since June 10, and repeated communities’ blockades of production fields.

 

During the quarter, net income reached COP$2.85 trillion, 11.7% less than that of the first quarter of the year. EBITDA was COP$6.77 trillion, with a margin of 45% and a decrease of 12.1% compared to the previous quarter.

 

In this quarter, it is very important to highlight the progress of our international exploration strategy with the discovery in the Rydberg well on the U.S. Gulf of Mexico coast, and the acquisition of a 10% stake in blocks 38/11 and 39/11 in Angola. Subsidiaries keep delivering positive financial results, where transport subsidiaries stand out. Finally, 9 plants of the new Cartagena refinery had their mechanical completion and the overall progress of the project stands at 92%.

 

Regarding the operation, two very important milestones were reached and became effective on July 1. The first is the change in the organizational structure with the creation of the General Operations Directorate and to which the vice presidents of exploration, production and development, transportation and downstream report directly. This new structure will improve the coordination among the business areas. The second milestone is the Regional model under which the operation is grouped into four major regions: 1) Caribbean coast and Pacific coast, 2) Central, 3) Orinoquía and 4) Southern. Each will have with its own regional vice-presidency, which will help provide greater agility in decision making.

 

With respect to production, the progress of secondary recovery pilot projects in the Magdalena valley and the 7% growth in the production of companies in which Ecopetrol has a share interest stand out.

 

In relation to financial results, I highlight the offering of international bonds for US$2 billion with a 31-year term and a favorable yield, and S&P left unchanged our BBB/Stable rating in foreign currency. Both events show the confidence of capital markets and financial strength of our company.

 

Finally, this quarter was challenging for results and the operation, but with important progress in the strategy that allows us to be optimistic about the future of the company."

 

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Ecopetrol presents its results for the second quarter of 2014

 

Table of Contents

 

I. Unconsolidated Financial Results 4 
     
a. Availability of Crude, Natural Gas and Refined Products 4 
     
b. Sales Volumes 5 
     
c. Crude, Refined Product and Natural Gas Prices 6 
     
d. Financial Results 7 
     
e. Cash Flow 9 
     
f. Balance Sheet 10 
     
g. Risk rating 11 
     
h. Financing 11 
     
II. Consolidated Financial Results 12 
     
b. Segment results 12 
     
III. Operating Results 15 
     
a. Investment plan 15 
     
b. Exploration 15 
     
c. Production 17 
     
d. Transportation 19 
     
e. Refining 20 
     
IV. Organizational Consolidation and Corporate Governance 22 
     
a. Organizational consolidation 22 
     
b. Corporate Responsibility 22 
     
V. Conference Calls 23 
     
VI. Additional Exhibits 24 
     
VII. Exhibits of Subsidiary Results and Shareholder Interest 30 

 

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I.Unconsolidated Financial Results

 

a.Availability of Crude, Natural Gas and Refined Products

 

The availability of Ecopetrol S.A. crude, natural gas and refined products is summarized by the following:

 

Ecopetrol S.A. (unconsolidated) *
     
1) Crude Oil (mbod)  2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
(+) Net Production **   482.3    517.8    (6.9)%   493.5    522.2    (5.5)%
(+) Purchases ***   174.8    188.3    (7.2)%   177.4    192.2    (7.7)%
(+) Diluent ****   60.7    64.7    (6.2)%   69.6    64.8    7.4%
Total   717.8    770.8    (6.9)%   740.5    779.2    (5.0)%
                               
2) Natural Gas (mboed)   2Q 2014     2Q 2013     ∆ (%)     1H 2014     1H 2013    ∆ (%)  
(+) Net Production **   102.0    104.1    (2.0)%   104.7    103.7    1.0%
(+) Royalties Paid   22.6    0.0    N.D.    23.1    0.0    N.D. 
(+) Purchases ***   2.5    9.5    (73.7)%   2.4    10.2    (76.5)%
Total   127.1    113.6    11.9%   130.2    113.9    14.3%
                               
3) Products (mbd)  2Q 2014    2Q 2013    ∆ (%)    1H 2014    1H 2013    ∆ (%)  
(+) Production*****   230.9    216.8    6.5%   232.9    214.8    8.4%
(+) Local Purchase   3.8    5.9    (35.6)%   4.0    6.2    (35.5)%
(+) Imports   65.5    51.8    26.4%   61.6    53.5    15.1%
Total   300.2    274.5    9.4%   298.5    274.5    8.7%

 

* Does not include variation in inventories

** Does not include royalties

*** Includes royalties purchased from the ANH, royalties from EC and local purchases from third parties

**** Includes refined products used as diluent

***** Does not include diluent production

 

The main results of the second quarter of 2014 were:

 

·Lower crude production (-35.5 mbod)1

 

·Lower purchases of crude oil (-13.5 mbod): mainly due to the decreased royalty purchases driven by lower production in Colombia.

 

·Lower purchases of gas (-7.0 mboed): principally because of the decline in royalty purchases in accordance with Resolution No. 877 of 2013, which establishes the cash collection of royalties and compensation due to the development of gas fields.

 

·Decreased local purchases of refined products (-2.1 mbod): less availability of Reficar S.A. jet fuel as a result of the scheduled shut down of the Cartagena refinery starting in March.

 

·Increased imports (+13.7 mbod) of Diesel and Gasoline due to increase in demand

 

 

1 During the second quarter 2014, total production by Ecopetrol and its affiliates and subsidiaries fell by 5.7% compared to the same period of 2013, as a consequence of: 1) attacks on transport infrastructure and unscheduled stoppages, 2) operational problems associated with blockages from communities, 3) delays in the development of facilities in key projects and 4) scheduled maintenance.

 

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b.Sales Volumes

 

Ecopetrol S.A. (unconsolidated)                
Sales volume                    
             
Local sales volume (mboed)  2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Crude Oil   45.4    36.2    25.4%   50.7    29.6    71.3%
Natural Gas   83.3    64.1    30.0%   81.8    62.0    31.9%
Gasoline   74.4    66.4    12.0%   72.9    68.5    6.4%
Medium Distillates   118.2    117.1    0.9%   118.6    114.2    3.9%
LPG and propane   14.3    14.4    (0.7)%   14.7    14.3    2.8%
Fuel oil   2.9    1.7    70.6%   3.1    1.8    72.2%
Industrial and Petrochemical   14.7    13.2    11.4%   15.4    12.5    23.2%
Total Local Sales   353.2    313.1    12.8%   357.2    302.9    17.9%
                               
Export sales volume (mboed)  2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Crude Oil   447.0    481.0    (7.1)%   447.8    457.0    (2.0)%
Products   64.1    60.4    6.1%   61.1    58.4    4.6%
Natural Gas   6.6    25.5    (74.1)%   13.1    23.5    (44.3)%
Total Export Sales   517.7    566.9    (8.7)%   522.0    538.9    (3.1)%
                               
Sales to free trade zone (mboed)  2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Crude Oil   0.0    69.4    (100.0)%   18.9    72.7    (74.0)%
Products   2.9    1.0    190.0%   2.8    2.0    40.0%
Natural Gas   9.4    2.7    248.1%   7.4    2.9    155.2%
Total sales to free trade zone   12.3    73.1    (83.2)%   29.1    77.6    (62.5)%
                               
Total sales volume   883.2    953.1    (7.3)%   908.3    919.4    (1.2)%

 

b.1) Market in Colombia: Sales to the Colombian market comprised 41% of total sales in the second quarter of 2014 (40% excluding sales to free trade zones):

 

The increase of 12.8% in local sales volumes in the second quarter 2014 is explained mainly by:

 

·Natural Gas (+19.2 mboed): 1) higher sales to the industrial sector owing to the increased amount of gas owned by Ecopetrol due to the expiration of the ANH trading contract, and 2) higher thermal demand.

 

·Crude (+9.2 mbod): increase in sales to affiliates Hocol and Equión, thus making use of transportation synergies.

 

·Gasoline (+8.0 mbod): higher demand as a result of: 1) economic growth, 2) increase in client inventories, and 3) restrictions on fuel imports from Venezuela.

 

·Industrial and Petrochemical products (+1.5 mboed): higher asphalt sales.

 

b.2) International market: Sales to the international market comprised 59% of total sales in the second quarter of 2014 (60% including sales to free trade zones):

 

The 8.7% decline in volume exported by Ecopetrol in the second quarter of 2014 can be explained primarily by the following:

 

·Crude (-34.0 mbod): lower production.

 

·Natural Gas (-18.9 mboed): 1) decline in the Guajira field’s production, 2) attacks on the Caño Limón-Coveñas pipeline resulting in the shutdown of the Gibraltar field, and 3) implementation of Scheduled Rationing Resolution 456 of 2014, which restricts exports and prioritizes national demand.

 

In addition, sales volumes to free trade zones fell by 83.2%, owing mainly to the following:

 

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·Crude (-69.4 mbod): as a result of a general scheduled shutdown since March of 2014 of the Cartagena refinery to ensure the new refinery’s mechanical completion.

 

Export highlights include the Asian markets as the main destination of crude exports and Europe’s increased participation because of a greater demand of medium crudes.

 

As regards products, the Central American and Caribbean market’s share was still the highest while the Asian market declined as other fuel oil markets emerged, such as the Gulf Coast and Eastern Coast of the United States, as a result of the greater dynamism of the maritime transport sector.

 

Export destinations - Crudes 
Destination  2Q 2014   2Q 2013   1H 2014   1H 2013 
Asia   42.7%   34.1%   43.5%   34.1%
U.S. Gulf Coast   24.5%   44.0%   25.0%   42.9%
Europe   17.0%   6.7%   15.7%   7.2%
U.S. West Coast   5.7%   10.4%   8.5%   8.8%
Central America / Caribbean   8.0%   1.7%   5.2%   2.6%
South America   2.1%   1.9%   2.1%   3.2%
U.S. East Coast   0.0%   1.2%   0.0%   1.2%
    100.0%   100.0%   100.0%   100.0%

 

Export destinations - Products 
Destination  2Q 2014   2Q 2013   1H 2014   1H 2013 
Central America / Caribbean   49.1%   31.3%   43.2%   34.8%
Asia   29.3%   54.5%   27.2%   50.0%
U.S. East Coast   15.1%   14.2%   14.4%   15.2%
U.S. Gulf Coast   6.5%   0.0%   8.5%   0.0%
U.S. West Coast   0.0%   0.0%   6.7%   0.0%
    100.0%   100.0%   100.0%   100.0%

 

c.Crude, Refined Product and Natural Gas Prices

 

Prices of crude references
(Average, US$/Bl)		  2Q 2014   2Q 2013   ∆ (%)   ∆ ($)   1H 2014   1H 2013   ∆ (%)   ∆ ($) 
Brent   109.8    103.3    6.3%   6.5    108.8    107.9    0.8%   0.9 
MAYA   95.8    97.7    (1.9)%   (1.9)   92.5    100.2    (7.7)%   (7.7)
WTI   103.0    94.2    9.3%   8.8    100.7    94.3    6.8%   6.4 

  

Sales price
(US$/Bl)		  2Q 2014   2Q 2013   ∆ (%)   Sales Volume
(mboed)
2Q 2014		   1H 2014   1H 2013   ∆ (%)   Sales Volume
(mboed)
1H 2014		 
Crude oil basket   99.0    94.2    5.1%   492.4    96.7    98.1    (1.4)%   517.4 
Products basket   109.7    105.1    4.4%   291.5    109.0    109.6    (0.5)%   288.6 
Natural gas basket   24.5    27.6    (11.2)%   99.3    25.0    27.8    (10.1)%   102.3 

  

Crudes:

 

Between the second quarter of this year and the same period of last year, the sale price of Ecopetrol´s crude basket increased by US$4.8 per barrel as a result of:

 

·The higher international prices of heavy crudes owing to higher demand: 1) the increase in conversion capacity of India and China refineries, and 2) higher refining margins in the Gulf of Mexico (U.S.).

 

·An increase in the prices of medium crude as a consequence of: 1) concerns about supply cuts due to the conflict Iraq, and 2) lower supply of crudes due to the shutdown of a platform in the U.S. Gulf coast because of a fire.

 

During the second quarter of the year, the crude oil export basket of Ecopetrol was indexed to Brent (62%) and Maya (38%).

 

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Products:

 

During the second quarter of 2014, the price of the product sales basket increased US$4.6 per barrel versus the same period for last year, owing to the recovery of international prices, especially for gasoline and distillates.

 

Natural gas:

 

During the second quarter of 2014, sale prices decreased by US$3.1 per barrel equivalent due to 1) lower sales prices of Cusiana-Cupiagua, and 2) and de-regulation of prices in the Guajira field.

 

d.Financial Results

 

Unconsolidated Income Statement                    
(COP$ Billion)  2Q 2014*   2Q 2013*   ∆ ($)   ∆ (%)   1H 2014*   1H 2013*   ∆ ($)   ∆ (%) 
Local Sales   5,637.4    4,756.7    880.7    18.5%   11,477.2    9,485.2    1,992.0    21.0%
Export Sales   8,756.9    8,955.1    (198.2)   (2.2)%   17,509.8    17,203.3    306.5    1.8%
Sales to free trade zone   103.3    1,211.5    (1,108.2)   (91.5)%   876.4    2,621.0    (1,744.6)   (66.6)%
Sales of services   479.0    399.4    79.6    19.9%   854.9    785.1    69.8    8.9%
Total Sales   14,976.6    15,322.7    (346.2)   (2.3)%   30,718.3    30,094.6    623.7    2.1%
Variable Costs   7,874.7    7,613.6    261.1    3.4%   15,934.8    14,394.8    1,540.0    10.7%
Fixed Costs   2,049.9    2,033.5    16.4    0.8%   3,935.8    3,764.5    171.3    4.6%
Cost of Sales   9,924.6    9,647.1    277.5    2.9%   19,870.6    18,159.3    1,711.3    9.4%
Gross profit   5,052.0    5,675.6    (623.7)   (11.0)%   10,847.7    11,935.3    (1,087.6)   (9.1)%
Operating Expenses   891.0    768.5    122.5    15.9%   2,134.1    1,882.8    251.3    13.3%
Operating Profit   4,161.0    4,907.1    (746.2)   (15.2)%   8,713.6    10,052.5    (1,338.9)   (13.3)%
Non Operating Profit/Loss   185.6    224.6    (39.0)   (17.4)%   556.6    375.8    180.8    48.1%
Income tax   1,498.8    1,877.9    (379.1)   (20.2)%   3,196.6    3,678.7    (482.1)   (13.1)%
Net Income   2,847.8    3,253.8    (406.1)   (12.5)%   6,073.6    6,749.6    (676.0)   (10.0)%
                                         
Earnings per share (COP$)   69.26    79.14    (9.88)   (12.5)%   147.72    164.15    (16.43)   (10.0)%
EBITDA   6,770.5    7,302.1    (531.60)   (7.3)%   14,475.1    15,048.0    (572.90)   (3.8)%
EBITDA Margin   45%   48%             47%   50%          

 

* Not audited

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

The following is an explanation of the main variations in results of the second quarter 2014 compared to those of the same period in 2013:

 

Total sales in the second quarter 2014 dropped 2.3% (-COP$346.2 billion) mainly because of the 7.3% reduction in volumes sold, and was the combined result of:

 

·Lower sales volume (-70.0 mboed): -COP$1,341 billion.

 

·Increase in the price of the average sales basket of US$3.3 per barrel: +COP$746 billion.

 

·Devaluation of the COP$/USD exchange rate: +COP$244 billion.

 

Cost of sales in second quarter 2014 rose 2.9% driven by:

 

·Variable costs: increase of 3.4% (+COP$261 billion), as a result mainly of:

 

a)Increases in:

 

oCrude, gas and product purchases, and imports (+COP$566 billion), the net result of:

 

§Higher average purchase price (+US$10.5 per barrel) due to rising international benchmark prices: +COP$357 billion

 

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§A 7.6% devaluation in the average COP/USD exchange rate: +COP$140 billion

 

§Purchases, mainly higher imports of diesel, naphtha and gasoline (+14.5 mbd): +COP$68 billion.

 

oHydrocarbon transport costs (+COP$140 billion) due to: 1) payment of Bicentenario pipeline shipping fee starting November of 2013, 2) payment of the dilution service for the transportation of crude from the Rubiales pumping station, provided by ODL starting July of 2013.

 

b)Decreases in:

 

oUse of inventories due to lower sales, generating a lower cost of sales of -COP$494 billion.

 

·Fixed costs: increase of 0.8% (+COP$16 billion) as a result mainly of the following:

 

a)Increases in:

 

oOil pipeline and well maintenance: +COP$42 billion.

 

oLabor costs because of an increase in staffing, coupled with increases in retention policies: +COP$37 billion.

 

oPartnership Contracted Services: +COP$19 billion.

 

b)Reductions in:

 

oNon-deductible VAT: -COP$21 billion.

 

oLower costs of non-capitalized projects: -COP$82 billion.

 

Operating expenditures rose by COP$122.5 billion (+15.9%), owing mainly to:

 

·Exploratory expenditures: +COP$91 billion.
   
·Dock services: +COP$52 billion.
   
·Customs operation: +COP$33 billion.
   
·Other factors, mainly services and projects: +COP$21 billion.
   
·Lower provisions: -COP$74 billion.
   

The operating margin of the second quarter was 28% versus 32% in the same period of 2013.

 

The non-operating result registered a drop in earnings of -COP$39 billion, as the net result of:

 

·Lower affiliated company profits: -COP$146 billion. According to the equity method, COP$133 billion in income was recorded in second quarter 2014 compared to COP$280 billion in second quarter of 2013. This decline was the result of:

 

oExploration and Production (-COP$88 billion): 1) Ecopetrol America Inc., which reported two dry wells during the period (Logan 1 and Deep Nansen) and lower profit of Equion, -COP$46 billion, partially offset by 2) Higher profit by Hocol of +COP$75 billion, higher results of OIG of COP$22 billion, and lower losses of Ecopetrol Oleo e Gas do Brasil of COP$113 billion.

 

oRefining, petrochemicals and biofuels (-COP$64 billion): Mainly the higher losses of 1) Reficar (-COP$40 billion) from the lower sales due to the plant shutdown and higher depreciations; and, 2) Bioenergy (-COP$27 billion), principally from sugar cane loss and other costs.

 

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Equity Method: Net income per segment
(COP$ billion)
   2Q 2014   2Q 2103   1H 2014   1H 2013 
Exploration and Production   (144.0)   (56.0)   (21.0)   (7.0)
Refining   (112.0)   (47.0)   (223.0)   (175.0)
Transportation   348.0    353.0    942.0    569.0 
Corporate   41.0    31.0    59.0    46.0 
Total   133.0    281.0    757.0    433.0 

 

·Positive exchange rate difference resulting from the year to date revaluation of the COP/USD (mark to market of net dollar balance): +COP$289 billion.

 

·Lower expenditures on retiree health and education: +COP$19 billion

 

·Higher portfolio mark to market: +COP$14 billion.

 

·Lower income from the sale of property and equipment: -COP$155 billion (in the second quarter of 2013 the fields Difícil, Guarimena and Entrerríos were divested).

 

·Higher interest expenses from debt raised in 2013 and 2014: -COP$65 billion

 

The 20% reduction (-COP$379 billion) in the income tax expenditure was mainly driven by the lower earnings.

 

Net income amounted to COP$2,848 billion decreasing 12%. Net margin was 19% vs 21%. EBITDA fell 7%, and EBITDA margin was 45%, compared to 48% in the second quarter of last year.

 

e.Cash Flow

 

COP$ Billion*  2Q 2014   2Q 2013   1H 2014   1H 2013 
Initial Cash   5,338.9    8,588.6    5,105.4    10,693.1 
Cash generated from operations (+)   15,236.9    15,975.1    30,697.9    30,774.5 
Cash used in operations (-)   (12,939.0)   (15,081.8)   (24,335.3)   (25,366.6)
Capex (-)   (2,788.3)   (3,147.5)   (5,893.1)   (6,128.4)
Acquisitions (-)   -    -    -    - 
Dividend payments (-)   (1,230.3)   (2,956.9)   (2,540.1)   (6,872.3)
Equity offering (+)   -    -    -    - 
New debt (+)   3,919.4    284.9    4,004.0    284.9 
Other inflows (+/-)   362.9    554.4    861.7    831.6 
Final Cash   7,900.5    4,216.8    7,900.5    4,216.8 

 

Note: the exchange difference was included in the line “Other inflows”

 

*For reporting purposes, the balances in US$ are converted to COP$ monthly using the average exchange rate. The initial cash balance for each quarter is estimated based on the average rate for the first month and the final balance is estimated based on the average rate for the last month of the quarter

 

** The Capex figures differ from those in the exhibit “Invest Plan” (pg. 15) and in the Cash Flow Statement (pg.28) because they are estimated based on outflows as reported in the company´s bank statements, and do not consider accounting accruals. Opex outflows are included in “Cash used in operations”.

 

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f.Balance Sheet

 

Unconsolidated Balance Sheet        
(COP$ Billion)  June 30, 2014   March 31, 2014   ∆ $   ∆ (%) 
Current Assets   22,646.1    22,967.4    (321.3)   (1.4)%
Long Term Assets   94,897.8    92,689.5    2,208.3    2.4%
Total Assets   117,543.9    115,656.9    1,887.0    1.6%
Current Liabilities   22,660.8    27,236.2    (4,575.4)   (16.8)%
Long Term Liabilities   27,502.6    23,952.1    3,550.5    14.8%
Total Liabilities   50,163.4    51,188.3    (1,024.9)   (2.0)%
Equity   67,380.5    64,468.6    2,911.9    4.5%
Total Liabilities and Equity   117,543.9    115,656.9    1,887.0    1.6%
                     
Debit Memorandum accounts   149,866.1    137,518.3           
Credit Memorandum accounts   100,909.6    98,985.3           

 

Some March figures were reclassified for the sake of comparison with June figures

 

In the second quarter of 2014, assets increased by +COP$1,887.0 billion because of:

 

a) A decrease in current assets of -COP$321.3 billion caused by:

 

oDecrease in advances, prepayments and deposits in the amount of -COP$2,179 billion, mainly after 1) applying the prepayment of income tax corresponding to the second and third installments in April and June, respectively, for -COP$2,913 billion, offset in part by 2) an advance to official entities for taxes, advances in partnership operations and advances for hydrocarbon transport of +COP$734 billion.

 

oLower receivables from the Stabilization Fund of fuel prices for the payment corresponding to the the fourth quarter of 2012, and to the first and second quarters of 2013: -COP$625 billion.

 

oAn increase in temporary investments explained by purchase of debt securities and fund-raising instruments using proceeds primarily from the US$2.0 billion bond offering May of 2014: +COP$3,294 billion

 

b) Non-current assets increased +COP$2,208 billion, as a result of:

 

oIncrease in permanent investments of +COP$1,185 billion owing to: 1) Equity investments of +COP$1,077 billion, especially capitalizations in Andean Chemical for COP$306 billion and Ecopetrol Global Energy for COP$350 billion; 2) investment in long-term securities for COP$108 billion.

 

oIncrease in natural and environmental resources of +COP$2,838 billion due to 1) exploration projects amounting to COP$1,945 billion that were transferred from property, plant and equipment, and 2) capitalizations in the second quarter for COP$954 billion, mainly from well drilling and workovers in the Castilla, Pauto, Casabe, Rubiales, Cusiana, La Cira Infantas and Moriche fields.

 

oLower value in property, plant and equipment of COP$1,823 billion caused mainly by: 1) transfer of COP$1,945 billion into natural and environmental resources owing to recognition of exploration projects associated with the execution of wells under development, partially offset by 2) capitalizations for COP$102 billion during the quarter, in the Rubiales, Cusiana, Castilla, Chichimene, Casabe, La Cira Infantas fields, among others.

 

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As of the end of the second quarter, liabilities represented 43% of assets, and decreased by -COP$1,025 billion, compared to March 31 of 2014, due mainly to:

 

oLower taxes, rates and contributions payable for –COP$4,462 billion mainly due to: 1) Lower income tax payable of –COP$3,996 billion with application of the provision for the payment of the April and June installments, and 2) payment of the equity tax for COP$238 billion.

 

oIncrease in financial obligations for COP$3,631 billion: 1) international bond offering in May for COP$3,835 billion (USD$2.0 billion), and 2) Disbursements from Exim Bank in April and June for $COP 125 billion (US$ 66 million).

 

Equity amounted to COP$67,380 billion, with an increase of +COP$2,911 billion compared to March 2014, explained by: 1) quarterly net income of COP$2,847 billion, and 2) increase in surplus in the equity method for COPS$54 billion.

 

g.Risk rating

 

During the second quarter of 2014, the risk rating agency Standard & Poor’s maintained its long-term international rating of BBB with Stable outlook.

 

Ecopetrol S.A.’s ratings as of June 30, 2014, in local and foreign currency can be reviewed on the Moody’s Investors Services, Standard & Poor’s and Fitch Ratings websites.

 

h.Financing

 

The following is the summary of the international debt bond offering for US$2 billion:

 

Term: 31 years
Maturity date: May 28 of 2045
Amount: US$2.0 billion
Amortization: Bullet
Price: 99.336
Yield: 5.922%
Spread to Benchmark U.S. Treasury Bond: 255 basis points
Coupon rate: 5.875%
Interest payment date: May 28 and November 28 commencing
on November 28, 2014

Ratings:

Moodys

S&P

Fitch

Baa2

BBB

BBB

 

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II.Consolidated Financial Results2

 

a.Income Statement and Balance sheet

 

Consolidated Income Statement                        
(COP$ Billion)  2Q 2014*   2Q 2013*   ∆ ($)   ∆ (%)   1H 2014*   1H 2013*   ∆ ($)   ∆ (%) 
Local Sales   6,436.2    5,691.8    744.4    13.1%   12,315.7    11,430.0    885.7    7.7%
Export Sales   10,602.3    11,296.5    (694.2)   (6.1)%   22,337.2    21,776.0    561.2    2.6%
Sales of services   710.8    607.3    103.5    17.0%   1,358.2    1,135.3    222.9    19.6%
Total Sales   17,749.3    17,595.6    153.7    0.9%   36,011.2    34,341.3    1,669.9    4.9%
Variable Costs   8,604.3    8,016.2    588.1    7.3%   17,035.4    15,773.0    1,262.4    8.0%
Fixed Costs   2,687.8    2,476.2    211.6    8.5%   5,098.9    4,539.1    559.8    12.3%
Cost of Sales   11,292.1    10,492.4    799.7    7.6%   22,134.3    20,312.1    1,822.2    9.0%
Gross profit   6,457.2    7,103.2    (646.0)   (9.1)%   13,876.9    14,029.2    (152.3)   (1.1)%
Operating Expenses   1,536.1    1,176.0    360.1    30.6%   3,073.0    2,548.1    524.9    20.6%
Operating Profit   4,921.1    5,927.2    (1,006.1)   (17.0)%   10,803.9    11,481.1    (677.2)   (5.9)%
Non Operating Profit/Loss   28.5    (45.7)   74.2    (162.4)%   (202.2)   (77.3)   (124.9)   161.6%
Income tax   1,979.0    2,262.1    (283.1)   (12.5)%   4,090.1    4,256.9    (166.8)   (3.9)%
Minority interest   183.1    211.9    (28.8)   (13.6)%   436.7    327.7    109.0    33.3%
Net Income   2,787.5    3,407.5    (620.0)   (18.2)%   6,074.9    6,819.2    (744.3)   (10.9)%
                                         
EBITDA   6,681.6    7,516.1    (834.5)   (11.1)%   14,474.6    15,112.6    (638.0)   (4.2)%
EBITDA Margin   38%   43%             40%   44%          

 

* Not audited

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

Local and export sales of 2013 were reclassified as a result of eliminations of Reficar sales in the consolidation of financial results

 

Consolidated Balance Sheet        
(COP$ Billion)  June 30, 2014   March 31, 2014   ∆ $   Δ (%) 
Current Assets   30,730.2    30,406.0    324.2    1.1%
Long Term Assets   106,400.6    104,098.9    2,301.7    2.2%
Total Assets   137,130.8    134,504.9    2,625.9    2.0%
Current Liabilities   26,397.8    31,559.7    (5,161.9)   (16.4)%
Long Term Liabilities   39,212.4    35,161.0    4,051.4    11.5%
Total Liabilities   65,610.2    66,720.7    (1,110.5)   (1.7)%
Equity   66,504.4    63,053.2    3,451.2    5.5%
Minority interest   5,016.2    4,731.0    285.2    6.0%
Total Liabilities and Equity   137,130.8    134,504.9    2,625.9    2.0%
                     
Debit Memorandum accounts   167,790.8    157,551.7           
Credit Memorandum accounts   99,617.8    100,831.2           

 

Some March figures were reclassified for the sake of comparison with June figures

 

The highest contributions to total sales by affiliates individually (without the effect of eliminations) in second quarter of 2014 came from Hocol, COP$1,057 billion, Cartagena Refinery (Reficar) COP$1,040 billion, Cenit COP$734 billion, Equion COP$707 billion, Ocensa COP$666 billion, Propilco COP$380 billion, and Bicentenario COP$209 billion.

 

 

2 For purposes of consolidation of the second quarter of 2014, besides Ecopetrol S.A. results, those of the following subsidiaries have been included:

 

Ecopetrol Oleo e Gas Do Brasil, Ecopetrol América Inc, Ecopetrol del Perú S.A., Hocol S.A., Hocol Petroleum Limited, Bioenergy S.A., Andean Chemicals Limited, ECP Global Energy, Propilco S.A., Comai, ODL Finance S.A., Black Gold Re Ltd., Ecopetrol Pipelines Limited, Oleoducto de Colombia, Ocensa S.A., Reficar, Oleoducto Bicentenario, Ecopetrol Capital A.G., Equión Energía Limited, Ecopetrol Global Capital SLU, Cenit Transporte y Logística de Hidrocarburos S.A.S. (“Cenit”).

 

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The highest earnings of each of the companies of the group (before eliminations) came from of Cenit COP$348 billion, Ocensa COP$324 billion, Equion COP$100 billion, Hocol COP$99 billion, Bicentenario COP$67 billion, ODC COP$41 billion, and ODL COP$31 billion. The highest net losses were reported by Ecopetrol América Inc. COP$340 billion, and Reficar COP$131 billion.

 

Ecopetrol del Perú, Ecopetrol Oleo & Gas do Brasil, Ecopetrol America and Bioenergy have no earnings to report either because they are in the pre-operating stage or are carrying out exploratory activities with no production as of yet (with the exception of Ecopetrol America).

 

In midstream, the financial results of all affiliates are consolidated at the business group level. Therefore, the financial information presented for Cenit corresponds to its individual results, and the earnings of the other transportation companies are accounted under the equity method.

 

By means of the equity participation method, Offshore International Group generated income of COP$41.9 billion, Invercolsa COP$21.4 billion, Ecodiesel, COP$5.6 billion, and Transgas, COP$1.2 billion.

 

Consolidated EBITDA for second quarter 2014 was COP$6,682 billion, equivalent to an EBITDA margin of 38%.

 

b.Segment results

  

Quarterly Results by Segment

 

   E&P   Refining & Petrochem.   Transportation and Logistics   Eliminations   Ecopetrol Consolidated 
COP$ Billion  2Q 2014   2Q 2103   2Q 2014   2Q 2103   2Q 2014   2Q 2103   2Q 2014   2Q 2103   2Q 2014   2Q 2103 
Local Sales   1,876    2,207   5,796   5,089   218   49    (1,453)   (1,653)  6,436   5,692 
Export Sales   9,337    10,361    1,358    2,177    -    4    (93)   (1,245)   10,602    11,297 
Sales of services   20    28    -    36    1,597    1,796    (907)   (1,253)   711    607 
Total Sales   11,233    12,595    7,154    7,302    1,816    1,849    (2,453)   (4,151)   17,749    17,595 
Variable Costs   4,618    4,675    6,332    6,569    101    126    (2,446)   (3,354)   8,604    8,016 
Fixed Costs   1,441    1,372    469    460    778    979    (0)   (334)   2,688    2,476 
Cost of Sales   6,059    6,046    6,801    7,029    878    1,105    (2,446)   (3,687)   11,292    10,493 
Gross profit   5,174    6,549    353    273    937    744    (7)   (463)   6,457    7,103 
Operating Expenses   1,011    681    390    283    135    212    -    0    1,536    1,176 
Operating Profit   4,163    5,868    (37)   (10)   803    532    (7)   (463)   4,921    5,927 
Non Operating Profit/Loss   176    101    (90)   (137)   (51)   10    (7)   (20)   29    (46)
Income tax benefits (expense)   (1,798)   (2,155)   (50)   167    (122)   (273)   (8)   (1)   (1,979)   (2,262)
Minority interest   (49)   (93)   3    1    (137)   (119)   -    (1)   (183)   (212)
Net Income   2,492    3,722    (174)   21    492    149    (23)   (485)   2,787    3,407 
                                                   
EBITDA   5,759    6,742    201    113    742    936    (21)   (275)   6,682    7,517 
EBITDA Margin   51.3%   53.5%   2.8%   1.6%   40.9%   50.6%   0.8%   6.6%   37.6%   42.7%

 

Some reclasifications  between fixed and variable cost were maden in 2013 and 2014 as a result of the cost distribution in the partnership contracts        

 

Accumulated Results by Segment

 

   E&P   Refining & Petrochem.   Transportation and Logistics   Eliminations   Ecopetrol Consolidated 
COP$ Billion  1H 2014   1H 2013   1H 2014   1H 2013   1H 2014   1H 2013   1H 2014   1H 2013   1H 2014   1H 2013 
Local Sales  3,795   4,320   11,173   10,531   488   369   (3,140)  (3,790)  12,316   11,430 
Export Sales   19,933    20,253    3,201    4,117    -    6    (797)   (2,600)   22,337    21,776 
Sales of services   37    43    6    63    3,270    2,807    (1,954)   (1,778)   1,358    1,135 
Total Sales   23,764    24,616    14,380    14,711    3,757    3,182    (5,890)   (8,168)   36,011    34,341 
Variable Costs   10,071    9,351    12,733    13,621    222    206    (5,990)   (7,405)   17,035    15,773 
Fixed Costs   2,759    2,494    924    845    1,416    1,534    (0)   (334)   5,099    4,539 
Cost of Sales   12,830    11,845    13,657    14,466    1,638    1,740    (5,990)   (7,739)   22,134    20,312 
Gross profit   10,934    12,771    723    245    2,120    1,442    100    (429)   13,877    14,029 
Operating Expenses   2,083    1,474    735    623    255    451    (0)   0    3,073    2,548 
Operating Profit   8,851    11,297    (12)   (378)   1,864    991    100    (429)   10,804    11,481 
Non Operating Profit/Loss   93    244    (194)   (271)   (98)   (20)   (3)   (30)   (202)   (77)
Income tax benefits (expense)   (3,482)   (4,031)   (11)   242    (598)   (467)   2    (1)   (4,090)   (4,257)
Minority interest   (131)   (119)   3    1    (308)   (209)   -    (1)   (437)   (328)
Net Income   5,330    7,391    (214)   (406)   860    295    99    (461)   6,075    6,819 
                                                   
EBITDA   12,028    13,801    562    26    1,800    1,528    86    (242)   14,475    15,113 
EBITDA Margin   50.6%   56.1%   3.9%   0.2%   47.9%   48.0%   (1.5)%   3.0%   40.2%   44.0%

 

Some reclasifications  between fixed and variable cost were maden in 2013 and 2014 as a result of the cost distribution in the partnership contracts        

 

Exploration and Production

 

Earnings for the second quarter of 2014 decreased 11%, due mainly to the decline in crude sales because of lower production, and lower purchased and traded volumes.

  

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Cost of sales for the second quarter was 0.2% higher due to:

 

·A 5% rise in fixed cost: 1) higher depreciation from new assets, and 2) increase in surface maintenance in Castilla and Chichimene fields.

 

·A 1% reduction in variable costs from lower purchases of crude for trading.

  

A 48% rise in operating expenditures, principally due to:

 

·Additional security services to protect fields.

 

·Higher exploration expenditures from dry wells (manly Deep Nansen and Goliat).

 

As a result of the above, net income for the segment fell 33% versus the second quarter of 2013.

 

Refining and Petrochemical

 

Earnings for second quarter 2014 fell by 2% compared to the same period of last year. Although there was an increase in national sales due to greater demand for fuels and increased deliveries of petrochemical and industrial products, export sales dropped due to the Cartagena refinery scheduled shut down since March 2014 in preparation for the new refinery.

 

Segment cost of sales decreased 3% compared to same period of last year, due to the lower price of feedstock for the Barrancabermeja refinery (heavier feedsctock), and no purchases of crude in Reficar owing to the shutdown of the refinery, all of which offset the higher imports of fuels to meet demand.

 

Operating expenditures during the second quarter 2014 were up by 38% in relation to the same period of last year, due to Reficar maintenance expenditures, and depreciation and amortization, no longer considered a cost but an expense following the refinery’s shutdown, and project costs corresponding to the delivery and receipt of the new refinery.

 

Non-operating results improved by 34% owing to lower retiree health expenditures and the favorable effect of the exchange rate difference of dollar-denominated debt (effect of the revaluation in the second quarter of 2014). As a result, the segment recorded a net loss of COP$174 billion.

 

Transportation

 

Earnings for the second quarter of 2014 decreased 2% owing to the lower volumes transported caused by the attacks that mainly affected the Caño Limón–Coveñas and Transandino oil pipelines. This decrease, however, was partially offset by the start-up of operations of the Bicentenario oil pipeline in November of 2013, which increased earnings in the second quarter by COP$0.1 trillion.

 

The segment’s cost of sales dropped 21% due to the change in the scheduling of maintenance work, which was postponed until the second quarter of the year, and energy costs were down because of the lower volume transported. These decreases were offset in part by the higher cost from the start-up of operations of the Bicentenario oil pipeline as well as the costs of repairing the damage from the attacks on transport infrastructure during the second quarter of 2014.

 

As a result of the above, net income for the segment recorded a positive variation of COP$343 billion compared to the second quarter of last year.

 

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III.Operating Results

 

a.Investment plan

 

Ecopetrol´s Capex:

  

Capex* (US$ million)
1H 2014
Business Unit  Ecopetrol S.A.   Affiliates and
Subsidiaries***		   Total   Allocation by
segment		 
Production   1,437.2    232.6    1,669.8    48.1%
Refining, Petrochemicals and Biofuels   99.8    761.5    861.3    24.8%
Exploration   251.8    319.6    571.4    16.5%
Transportation   36**   287.4    323.4    9.3%
Corporate   40.0    0.0    40.0    1.2%
Supply and Marketing   2.5    0.0    2.5    0.1%
Total   1,867.3    1,601.1    3,468.4    100.0%

 

*The figures shown in the Investment Plan exhibit differ from the Capex figure shown in the Cash Flow statement in pg 28. Investments in this section´s exhibit include Opex and Capex flows of investment projects, while in the Cash Flow Statement includes only Capex.

 

** Cenit reimburses Ecopetrol these investments

 

*** Prorated according to Ecopetrol’s stake

 

During the first half of 2014, the corporate group invested US$3,468.4 million (53.8% in Ecopetrol S.A. and 46.2% in affiliates and subsidiaries).

 

Capex was allocated primarily to the following projects:

 

1) Production: a) construction of facilities mainly in the Castilla, Chichimene and Rubiales fields and b) drilling activities primarily in the Orinoquia region.

 

2) Downstream: Modernization project of the Cartagena refinery and the Barrancabermeja refinery Industrial Services Master Plan and the

 

3) Exploration: acquisition of seismic and drilling of exploratory, stratigraphic and appraisal wells.

 

b.Exploration

 

Exploration in Colombia (Ecopetrol S.A. and Hocol S.A.):

 

A3 Drilling in Colombia
    2Q 2014  1H 2014 
Company  Drilled   Hydrocarbon Presence*   In evaluation   Dry   Drilled   Hydrocarbon Presence*   In evaluation   Dry 
Ecopetrol S.A.   4    0    0    4    9    1    1    7 
Hocol S.A.   0    0    0    0    2    0    0    2 
Total   4    0    0    4    11    1    1    9 

  

*geological success

 

Additionally, during the second quarter one stratigraphic and five appraisal wells (A1) were drilled.

  

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International exploration:

  

U.S. Gulf of Mexico (Ecopetrol América Inc):

 

During the second quarter of 2014, the drilling of two the exploratory wells were finalized: 1) Aleatico #2 well (Rydberg) operated by Shell and in which Ecopetrol has 28.5% interest, this well at the end of the quarter was under evaluation and determined to be successful in July, and 2) Deep Nansen (operated by Anadarko and in which Ecopetrol has 15% interest) which had presence of hydrocarbons but was declared non-commercial.

 

As of June 30, three exploratory wells were being drilled: 1) Leon (operated by Repsol and in which Ecopetrol has 40% interest), 2) K2 Exploration Tail (operated by Anadarko and in which Ecopetrol has a 9.2% interest), and 3) Titan (operated by Murphy and in which Ecopetrol has 30% interest).

 

Angola:

 

As part of the strategy of diversifying and strengthening its international exploration portfolio, Ecopetrol S.A. created a new subsidiary in Frankfurt am Main (Germany), which will incorporate a new subsidiary in Angola. Ecopetrol S.A. holds an indirect share interest of 100%.

 

Ecopetrol Germany GmbH reached an agreement with the Norwegian company Statoil to acquire a 10% participation in the blocks 38/11 and 39/11 in the Kwanza basin, located offshore Angola (Africa). The agreement is subject to approval by Sonangol E&P, the Angolan Petroleum Ministry and the other partners in each block.

 

The negotiation includes participation in the well Dilolo-1 on block 39/11, where drilling began in June 2014. Later the company will be participating in a second well on block 38/11, with drilling is expected to begin in the fourth quarter of this year.

 

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c.Production

 

Ecopetrol´s gross production (including interests in affiliates and subsidiaries)

 

Gross* Oil and Gas Production

 

Ecopetrol S.A. (mboed)  2Q 2014   2Q 2013   ∆ (%)   ∆ (bls)   1H 2014   1H 2013   ∆ (%)   ∆ (bls) 
Crude Oil   561.4    606.5    (7.4)%   (45.1)   574.7    613.5    (6.3)%   (38.8)
Natural Gas**   123.5    125.7    (1.8)%   (2.2)   126.5    125.5    0.8%   1.0 
Total   684.9    732.2    (6.5)%   (47.3)   701.2    739.0    (5.1)%   (37.8)

 

Hocol (mboed)  2Q 2014   2Q 2013   ∆ (%)   ∆ (bls)   1H 2014   1H 2013   ∆ (%)   ∆ (bls) 
Crude Oil   22.2    20.5    8.3%   1.7    22.4    21.0    6.7%   1.4 
Natural Gas   0.1    0.3    (66.7)%   (0.2)   0.2    0.2    0.0%   0.0 
Total   22.3    20.8    7.2%   1.5    22.6    21.2    6.6%   1.4 

 

Savia (mboed)  2Q 2014   2Q 2013   ∆ (%)   ∆ (bls)   1H 2014   1H 2013   ∆ (%)   ∆ (bls) 
Crude Oil   6.2    5.8    6.9%   0.4    6.1    5.6    8.9%   0.5 
Natural Gas   0.3    0.1    200.0%   0.2    0.4    0.2    100.0%   0.2 
Total   6.5    5.9    10.2%   0.6    6.5    5.8    12.1%   0.7 

 

Equion (mboed)  2Q 2014   2Q 2013   ∆ (%)   ∆ (bls)   1H 2014   1H 2013   ∆ (%)   ∆ (bls) 
Crude Oil   9.9    10.3    (3.9)%   (0.4)   9.9    10.8    (8.3)%   (0.9)
Natural Gas   7.6    7.5    1.3%   0.1    7.7    6.8    13.2%   0.9 
Total   17.5    17.8    (1.7)%   (0.3)   17.6    17.6    0.0%   0.0 

 

Ecopetrol America-K2 (mboed)  2Q 2014   2Q 2013   ∆ (%)   ∆ (bls)   1H 2014   1H 2013   ∆ (%)   ∆ (bls) 
Crude Oil   1.0    1.3    (23.1)%   (0.3)   1.3    1.3    0.0%   0.0 
Natural Gas   1.9    0.1    1,800.0%   1.8    1.0    0.2    400.0%   0.8 
Total   2.9    1.4    107.1%   1.5    2.3    1.5    53.3%   0.8 

 

Ecopetrol including affiliates
and subsidiares (mboed)		  2Q 2014   2Q 2013   ∆ (%)   ∆ (bls)   1H 2014   1H 2013   ∆ (%)   ∆ (bls) 
Crude Oil   600.7    644.4    (6.8)%   (43.7)   614.4    652.2    (5.8)%   (37.8)
Natural Gas   133.4    133.7    (0.2)%   (0.3)   135.8    132.9    2.2%   2.9 
Total Group's production   734.1    778.1    (5.7)%   (44.0)   750.2    785.1    (4.4)%   (34.9)

* Gross production includes royalties

** Gas production includes white products

  

During the second quarter 2014, total production by Ecopetrol and its affiliates and subsidiaries fell by 5.7% compared to the same period of 2013, as a consequence of: 1) attacks on transport infrastructure and unscheduled stoppages, 2) operational problems due to blockages from communities, 3) delays in the development of facilities in key projects and 4) scheduled maintenance.

 

Increased Recovery Factor Projects:

 

The milestones of the second quarter were the following:

 

·Beginning of the water injection pilot project at the Chichimene field (Llanos Orientales).
·Agreement with Occidental Andina to develop of a steam injection project at the Teca-Cocorná field (Magdalena Valley).
·Progress in the air injection pilot in Chichimene field (injection expected to begin by end of year).
·Progress in the steam injection pilot in Caño Sur field (basic and conceptual engineering expected to be completed by end of year).

 

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Production of main fields:

 

Average production main fields per region (mboed)            
   2Q 2014   2Q 2013   Δ (%)   1H 2014   1H 2013   Δ (%) 
Mid Magdalena Region   113.5    110.1    3.1%   113.9    110.1    3.5%
100% EC Assets                              
1) La Cira - Infantas Field   24.2    23.0    5.2%   24.6    23.1    6.5%
2) Casabe Field   22.0    23.7    (7.2)%   21.7    23.7    (8.4)%
3) Yarigui Field   17.6    15.6    12.8%   17.3    15.4    12.3%
4) Other Fields   24.0    22.2    8.1%   24.4    22.4    8.9%
Assets in partnership*                              
1) Nare Field   17.7    17.4    1.7%   17.8    17.2    3.5%
2) Palagua and other fields   8.0    8.2    (2.4)%   8.1    8.3    (2.4)%
Central Region   177.6    187.0    (5.0)%   177.5    193.2    (8.1)%
100% EC Assets                              
1) Castilla Field   103.0    114.4    (10.0)%   103.4    117.4    (11.9)%
2) Chichimene Field   49.3    49.8    (1.0)%   48.3    52.0    (7.1)%
3) Apiay and other fields   25.3    22.8    11.0%   25.8    23.8    8.4%
Assets in partnership*   N/A    N/A    N/A    N/A    N/A    N/A 
Eastern Region   148.4    157.3    (5.7)%   150.9    155.9    (3.2)%
100% EC Assets                              
1) Caño Sur and other fields   2.0    1.0    100.0%   1.8    0.8    125.0%
Assets in partnership*                              
1) Rubiales Field   109.1    120.7    (9.6)%   109.9    120.9    (9.1)%
2) Quifa Field   31.4    30.1    4.3%   33.3    28.7    16.0%
3) Other Fields   5.9    5.5    7.3%   5.9    5.5    7.3%
North Eastern Region   152.5    158.1    (3.5)%   155.9    158.9    (1.9)%
100% EC Assets                              
1) Cupiagua Field   38.8    27.9    39.1%   37.6    32.8    14.6%
2) Gibraltar and other fields   3.1    6.1    (49.2)%   4.7    6.3    (25.4)%
Assets in partnership*                              
1) Guajira Field   51.3    59.9    (14.4)%   53.5    59.0    (9.3)%
2) Cusiana Field   34.1    32.9    3.6%   33.8    32.4    4.3%
3) Piedemonte and other fields   25.2    31.3    (19.5)%   26.3    28.4    (7.4)%
Catatumbo Orinoquia Region   32.3    54.8    (41.1)%   42.0    56.6    (25.8)%
100% EC Assets                              
1) Tibu, Sardinara and other fields   2.9    2.8    3.6%   3.0    3.1    (3.2)%
Assets in partnership*                              
1) Caño Limón Field   15.4    35.1    (56.1)%   24.5    35.6    (31.2)%
2) Rancho Hermoso and other fields   14.0    16.9    (17.2)%   14.5    17.9    (19.0)%
Southern Region   55.2    58.0    (4.8)%   56.0    57.5    (2.6)%
100% EC Assets                              
1) San Francisco Field   9.3    10.0    (7.0)%   9.5    10.0    (5.0)%
2) Huila Area   9.0    8.5    5.9%   9.2    8.7    5.7%
3) Tello and other fields   16.9    17.0    (0.6)%   17.0    16.5    3.0%
Assets in partnership*                              
1) Guando Field   8.2    9.3    (11.8)
%   8.1    9.4    (13.8)%
2) Cohembi and other fields   11.8    13.2    (10.6)%   12.2    12.9    (5.4)%
Minor Fields Region   5.4    6.9    (21.7)%   5.0    6.8    (26.5)%
100% EC Assets   3.2    3.5    (8.6)
%   2.8    3.5    (20.0)%
Assets in partnership*   2.2    3.4    (35.3)%   2.2    3.3    (33.3)%

* Ecopetrol´s net interest

 

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Ecopetrol S.A. production per type of crude:

 

Production per type of crude*                
mbod                        
   2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Light   44.4    49.0    (9.4)%   45.2    50.8    (11.0)%
Medium   189.6    214.5    (11.6)%   200.3    216.6    (7.5)%
Heavy   327.4    343.0    (4.5)%   329.2    346.1    (4.9)%
Total   561.4    606.5    (7.4)%   574.7    613.5    (6.3)%

 * Does not include subsidiaries

 

Lifting cost of Ecopetrol S.A.:

 

Lifting cost per equivalent barrel (produced by Ecopetrol S.A.) during the first half of 2014 was US$11.07 (based on the U.S. SEC methodology, not including royalties), US$0.78 per barrel more than in the same period of last year. This change was the net result of:

 

·Higher costs (+US$1.12 per barrel) due to: 1) management and disposal of water, 2) surface and subsoil maintenance activities, 3) safety services, and 4) windfall profit clause which increased the cost of operations in partnership.

 

·Higher costs (+US$0.46 per barrel) owing to the lower volume of crude produced.

 

·Lower costs (-US$0.80 per barrel) from devaluation of the COP/USD exchange rate.

  

d.Transportation

 

Transported Volumes (mbod)  2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Crude   908.2    944.0    (3.8)%   930.2    950.1    (2.1)%
Refined Products   248.0    240.0    3.3%   247.8    239.1    3.6%
Total   1,156.2    1,184.0    (2.3)%   1,178.0    1,189.2    (0.9)%

 

In the second quarter of 2014, the total volume of crude transported by Cenit’s system and those of its affiliates fell by 3.8% compared to the same quarter of last year, owing mainly to unrests and attacks on infrastructure, which mainly affected the Caño Limón- Coveñas, Bicentenario and Oleoducto Transandino systems. Out of the total volume of crude transported by oil pipeline, approximately 74.6% was Ecopetrol’s crude.

 

As for refined products, the volumes transported by Cenit S.A.S. and affiliates during the second quarter of the year increased 3.3% compared to the same period of last year, as a result of a higher volume of naphtha, used for diluting heavy crude, transported thru the Pozos Colorados – Galán system. 48.1% of the total volume transported by product pipelines, belonged to Ecopetrol.

 

Cost per barrel transported:

 

Ecopetrol’s cost per barrel transported during the first half of 2014 was US$7.14 per barrel, which, compared to the result of US$6.31 per barrel for the same period last year, generated an increase of US$0.83 per barrel, which was the result of:

 

·Fees (+US$0.96 per barrel):

 

·Higher costs in third-party transport systems, due to higher shipping fees.

 

·Higher fees of tank truck services, which increased by approximately US$4.20 per barrel because of the need for longer routes to substitute the Caño Limón-Coveñas and Bicentenario oil pipelines which were shutdown due to attacks.

 

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·Volumes (+US$0.33 per barrel):

 

·Lower volumes transported for Ecopetrol between the first half of 2013 and the same period of 2014, the result of capacity constraints in the Caño Limón – Coveñas, Bicentenario and Oleoducto Transandino (OTA) systems because of public order issues.

 

·Lower costs from the higher COP/USD exchange rate: -US$0.46/barrel.

 

e.Refining

 

e.1) Barrancabermeja Refinery:

  

   2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Refinery runs* (mbod)   230.7    219.7    5.0%   227.0    218.3    4.0%
Utilization factor (%)   81.9%   84.3%   (2.8)%   82.4%   82.1%   0.4%

* Includes volumes loaded in the refinery, not total volumes received.

  

The refinery’s throughput in the second quarter of 2014 increased because of higher availability of crude and the operational stability of processing units.

 

The utilization factor decreased in the second quarter of 2014 owing to implementation of an operating plan in the second quarter of 2013 with two viscosity reduction units, which generated a higher utilization factor in the 2013 quarter.

 

The Industrial Services Master Plan reached 89% completion as of June 30, 2014, among whose highlights was the continuation of the construction of works at the Cogeneration Unit, which is expected to be operational by the first quarter of 2015.

 

Costs and margins of the Barrancabermeja Refinery

 

The cash operating cost of the refinery for the first half of 2014 was US$6.15 per barrel, US$0.60 per barrel less that in the same period of last year, which was the result of:

 

 

·Devaluation of the COP/USD exchange rate: -US$0.44 per barrel.

 

·Lower costs from higher throughput at the refinery: -US$0.24 per barrel.

 

·Higher operational costs: +US$0.08 per barrel.

 

   II trim. 14   II trim. 13   Cambio %   I sem. 14   I sem. 13   Cambio % 
Margen de Refinación (USD/bl)   10.9    11.1    (1.8)%   13.5    12.8    5.5%

 

 

Gross refining margin in the second quarter of 2014 was slightly lower than that of the same period of 2013, due to lower production of gasoline because of the heavier feedstock.

 

e.2) Reficar (Cartagena Refinery):

 

   2Q 2014   2Q 2013   ∆ (%)   1H 2014   1H 2013   ∆ (%) 
Refinery runs* (mbod)   0.0    72.6    (100.0)%   21.0    74.1    (71.7)%
Utilization factor (%)   0.0%   84.3%   (100.0)%   10.8%   82.4%   (86.9)%

* Includes volumes loaded in the refinery, not total volumes received.

 

The refinery did not operate during the second quarter of 2014 because of the scheduled shutdown of the units since March 3 of this year. Therefore, it did not generate a refining margin in the quarter.

 

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   II trim. 14   II trim. 13   Cambio %   I sem. 14   I sem. 13   Cambio % 
Margen de Refinación (USD/bl)   0.0    3.7    (100.0)%   4.8    4.9    (2.0)%

 

As of June 30, 2014, the expansion and modernization project was 92.3% complete. The progress in each of the work streams was as follows:

 

Work Streams  Percentage 
Detail engineering   100.0%
Procurement   99.9%
Module construction   100.0%
Construction (began October 2011)   84.8%

 

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IV.Organizational Consolidation and Corporate Governance

 

a.Organizational consolidation

 

Health, safety and environment:

 

HSE*  2Q 2014   2Q 2013   1H 2014   1H 2013 
Accident frequency index (accidents per million labor hours)   0.90    0.75    0.94    0.90 
Environmental incidents   10    5    19    10 

 

*Results are subject to change after the end of the quarter given that certain accidents and incidents could be reclassified depending on the final results of the investigations.

 

Science and technology:

 

During the second quarter of 2014, the Superintendence of Industry and Trade granted Ecopetrol on behalf of the Colombian government three invention patents in the following technologies:

 

·Improved method for acquiring diesel from renewable sources by means of controlling the unsaturation level.

 

·Process for acquiring soil conditioner organic-mineral fertilizer from vinasse from the alcohol-Ecocarbovin industry.

 

·Triggering mechanism for smooth rod rotators in mechanical pumping units.

 

Recognitions:

 

Gold prize for the best intellectual property department in Latin America, presented in New York at the 7th International Legal Alliance Summit & Awards.

 

b.Corporate Responsibility

 

Social investment:

 

In the first half of 2014, social investments amounted to COP$12,418 million, and were allocated as follows: 1) COP$3,657 million for education and culture, 2) COP$4,536 million for regional competitiveness, and 3) COP$4,225 million for education and culture.

 

Stakeholders:

 

The main milestones of the second quarter of 2014 were the following:

 

·A public hearing on accountability in Facatativá (Cundinamarca) attended by some 500 people, among them community leaders, workers, housewives, students and regional leaders.

 

·Roundtables with special interest groups in Facatativá, Villeta, Albán, Toledo, Chinácota, Talaigua Nuevo, Monterrey, Maní and Yopal. The topics discussed were social investment, environmental management, hiring of local labor, among others.

 

Dirección de Relacionamiento con el Inversionista Tel: 2345190,  correo electrónico: investors@ecopetrol.com.co
www.ecopetrol.com.co

22
 

 

V.Conference Calls

 

Ecopetrol’s management will host two conference calls to review the second quarter of 2014 results:

 

Spanish English
August 5, 2014 August 5, 2014
9:00 a.m. Bogota 10:30 a.m. Bogota
10:00 a.m. New York / Toronto 11:30 a.m. New York / Toronto

 

The webcast will be available on Ecopetrol’s website: www.ecopetrol.com.co

 

Please access the site 10 minutes in advance to download any necessary software and to check the proper operation of the webcast in your browser. We recommend using the latest versions of Internet Explorer (V.11), Google Chrome and Mozilla Firefox (V.28).

 

About Ecopetrol S.A.

 

Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC; TSX: ECP) is the largest company in Colombia based on revenue, profit, assets and net worth. Ecopetrol is the only vertically integrated crude oil and natural gas company with operations in Colombia, Brazil, Peru, and the U.S. Gulf Coast. Its subsidiaries include: Andean Chemicals Limited, Bioenergy S.A, Bionergy Zona Franca S.A.S, Black Gold Re Ltd, Cenit Transporte y Logística de Hidrocarburos S.A.S, COMAI, Ecopetrol América Inc, Ecopetrol del Perú S.A, Ecopetrol Oleo e Gas do Brasil Ltda, Ecopetrol Germany GmbH, Ecopetrol Capital AG, Ecopetrol Global Energy, Ecopetrol Global Capital S.L.U, Ecopetrol Pipelines International, Equión Energía Limited, Hocol Petroleum Limited, Hocol S.A., ODL Finance S.A, ODL S.A, Propilco, Oleoducto Bicentenario de Colombia S.A.S, Ocensa S.A, Oleoducto de Colombia, Refinería de Cartagena S.A, Santiago Oil Company and Colombia Pipelines Limited. Ecopetrol S.A. is one of the 50 largest oil companies in the world and one of the four main oil companies in Latin America. The company is majority owned by the Republic of Colombia (88.5%) and its shares trade on the Bolsa de Valores de Colombia S.A. (BVC) under the symbol ECOPETROL, on the New York Stock Exchange (NYSE) under the ticker EC, and on the Toronto Stock Exchange (TSX) under the symbol ECP. The company has three business segments: 1) exploration and production 2) transport and 3) refining, petrochemicals and biofuels.

 

Forwarding-Looking Statements

 

This news release may contain forward-looking statements related to the prospects of the business, estimates of operating and financial results, and growth forecasts for Ecopetrol. These are projections, and, as such, are based solely on the expectations of management with regard to the company’s future and its continuous use of capital to finance the company’s investment plan. Such forward-looking statements depend essentially on changes in market conditions, government regulations, competitive pressures, performance of the Colombian economy and the industry, among others. Therefore, they are subject to change without prior notice.

 

Contact Information:

 

Investor Relations Director

Alejandro Giraldo

Telephone: +571-234-5190

E-mail: investors@ecopetrol.com.co

 

Media Relations (Colombia)

Jorge Mauricio Tellez

Telephone: + 571-234-4329

E-mail: mauricio.tellez@ecopetrol.com.co

 

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www.ecopetrol.com.co

23
 

  

VI.Additional Exhibits

 

Income Statement

Ecopetrol S.A.

 

COP$ Million  2Q 2014*   2Q 2013*   1Q 2014*   1H 2014*   1H 2013* 
Income                         
Local Sales   5,637,345    4,756,710    5,839,825    11,477,170    9,485,159 
Export Sales   8,756,940    8,955,104    8,752,838    17,509,778    17,203,285 
Sales to free trade zone   103,276    1,211,473    773,156    876,432    2,621,006 
Sale of Services   479,044    399,416    375,872    854,916    785,066 
Total Income   14,976,605    15,322,703    15,741,691    30,718,296    30,094,516 
Cost of Sales                         
Variable Costs                         
Purchase of Hydrocarbons   2,955,326    2,857,290    2,907,044    5,862,370    6,154,523 
Amortization and Depletion   889,494    926,571    919,104    1,808,598    1,732,738 
Imported products   2,297,078    1,829,500    2,449,141    4,746,219    3,764,757 
Hydrocarbon Transportation Services   1,384,835    1,245,019    1,397,160    2,781,995    1,967,793 
Inventories and other   347,928    755,230    387,720    735,648    775,005 
                          
Fixed Costs                         
Depreciation   325,783    285,711    316,032    641,815    643,183 
Contracted Services   754,891    735,244    662,653    1,417,544    1,288,622 
Maintenance   412,344    369,852    364,203    776,547    663,100 
Labor Costs   345,945    308,956    330,454    676,399    598,237 
Other   210,963    333,747    212,494    423,457    571,360 
Total Cost of Sales   9,924,587    9,647,120    9,946,005    19,870,592    18,159,318 
Gross Profits   5,052,018    5,675,583    5,795,686    10,847,704    11,935,198 
Operating Expenses                    
Administration   176,737    169,792    145,240    321,977    325,111 
Selling and operational expenses   551,547    526,666    852,658    1,404,205    1,416,611 
Exploration and Projects   162,734    72,027    245,161    407,895    141,095 
Operating Income/Loss   4,161,000    4,907,098    4,552,627    8,713,627    10,052,381 
Non Operating Income (expenses)                         
Financial Income   923,123    768,691    1,314,483    2,237,606    1,587,705 
Financial Expenses   (591,248)   (739,006)   (1,296,101)   (1,887,349)   (1,329,884)
Interest expenses   (166,736)   (104,843)   (148,368)   (315,104)   (190,583)
Non Financial Income   49,705    241,950    52,317    102,022    292,243 
Non Financial Expenses   (162,206)   (221,730)   (175,992)   (338,198)   (416,892)
Results from Subsidiaries   133,027    279,509    624,611    757,638    433,188 
                          
Income before income tax   4,346,665    5,131,669    4,923,577    9,270,242    10,428,158 
Provision for Income Tax   1,498,819    1,877,863    1,697,749    3,196,568    3,678,669 
Minority interest                         
Net Income   2,847,846    3,253,806    3,225,828    6,073,674    6,749,489 
                          
EBITDA   6,770,481    7,302,086    7,704,576    14,475,057    15,048,041 
EBITDA MARGIN   45%   48%   49%   47%   50%
EARNINGS PER SHARE  $69.26   $79.14   $78.46   $147.72   $164.15 

 

* Unaudited

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

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www.ecopetrol.com.co

 

24
 

  

Income Statement

Ecopetrol Consolidated

 

COP$ Million  2Q 2014*   2Q 2013*   1Q 2014*   1H 2014*   1H 2013* 
Income                         
Local Sales   6,436,256    5,691,809    5,879,480    12,315,736    11,429,941 
Export Sales   10,602,285    11,296,542    11,734,951    22,337,236    21,776,035 
Sale of Services   710,772    607,297    647,466    1,358,238    1,135,300 
Total Income   17,749,313    17,595,648    18,261,897    36,011,210    34,341,276 
Cost of Sales                         
Variable Costs                         
Purchase of Hydrocarbons   3,126,238    3,149,520    3,761,399    6,887,637    7,155,813 
Amortization and Depletion   1,021,880    1,062,586    1,039,950    2,061,830    1,999,696 
Imported products   3,480,314    2,660,303    3,066,189    6,546,503    5,368,790 
Hydrocarbon Transportation Services   425,903    532,010    350,642    776,545    826,245 
Inventories and other   549,925    611,814    212,944    762,869    422,506 
                          
Fixed Costs                         
Depreciation   512,663    426,633    511,182    1,023,845    852,263 
Contracted Services   819,750    751,107    695,406    1,515,156    1,311,600 
Maintenance   553,951    452,060    480,781    1,034,732    822,086 
Labor Costs   366,311    328,989    351,956    718,267    638,633 
Other   435,080    517,400    371,853    806,933    914,511 
Total Cost of Sales   11,292,015    10,492,422    10,842,302    22,134,317    20,312,143 
Gross Profits   6,457,298    7,103,226    7,419,595    13,876,893    14,029,133 
Operating Expenses                         
Administration   402,602    317,246    297,961    700,563    541,677 
Selling and operational expenses   586,950    575,712    872,900    1,459,850    1,570,933 
Exploration and Projects   546,592    283,073    365,998    912,590    435,490 
Operating Income/Loss   4,921,154    5,927,195    5,882,736    10,803,890    11,481,033 
Non Operating Income (expenses)                         
Financial Income   1,190,563    1,043,975    1,569,986    2,760,549    1,971,030 
Financial Expenses   (854,252)   (988,598)   (1,542,513)   (2,396,765)   (1,696,337)
Interest expenses   (230,302)   (144,251)   (208,368)   (438,670)   (269,794)
Non Financial Income   49,059    249,356    128,723    177,782    317,806 
Non Financial Expenses   (183,640)   (235,930)   (192,944)   (376,584)   (435,737)
Results from Subsidiaries   57,043    29,785    14,478    71,521    35,740 
Income before income tax   4,949,625    5,881,532    5,652,098    10,601,723    11,403,741 
Provision for Income Tax   1,978,974    2,262,057    2,111,150    4,090,124    4,256,861 
Minority interest   183,113    211,890    253,567    436,680    327,670 
Net Income   2,787,538    3,407,585    3,287,381    6,074,919    6,819,210 
                          
EBITDA   6,681,639    7,516,080    7,792,966    14,474,605    15,112,560 
EBITDA MARGIN   38%   43%   43%   40%   44%

 

Notes

* According to the Public Accounting Framework, Colombian companies only have the obligation to consolidate their financial statements at the end of each fiscal year. Therefore, the quarterly figures in this report are not audited and they do not constitute a formal consolidation of Ecopetrol's financial statements though they do adjust to the methodology defined for this purpose.

 

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

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www.ecopetrol.com.co

 

25
 

 

Balance Sheet

 

   Ecopetrol S.A.   Ecopetrol Consolidated 
COP$ Million  June 30, 2014   March 31, 2014   June 30, 2014   March 31, 2014 
                 
Assets                    
Current Assets                    
Cash and cash equivalents   3,952,429    4,722,884    8,750,742    9,511,484 
Investments   3,910,192    615,537    4,874,763    1,330,673 
Accounts and notes receivable   6,181,314    6,813,050    6,191,661    6,426,445 
Inventories   2,532,926    2,602,048    3,422,177    3,293,102 
Other   6,069,266    8,213,918    7,490,855    9,844,335 
Total Current Assets   22,646,127    22,967,437    30,730,198    30,406,039 
Non Current Assets                    
Investments   37,903,965    36,719,227    1,809,545    1,693,845 
Accounts and notes receivable   1,622,517    1,599,460    821,805    540,144 
Property, plant and equipment, net   18,427,939    20,250,706    44,596,695    46,041,973 
Natural and environmental properties, Net   21,073,298    18,234,923    25,295,179    21,261,797 
Resources delivered to administration   322,061    315,737    382,063    390,556 
Other   15,548,039    15,569,480    33,495,279    34,170,558 
Total Non Current Assets   94,897,819    92,689,533    106,400,566    104,098,873 
Total Assets   117,543,946    115,656,970    137,130,764    134,504,912 
                     
Liabilities and Equity                    
Current Liabilities                    
Financial obligations   315,704    207,877    825,035    748,134 
Accounts payable and related parties   16,518,774    16,832,439    17,996,063    18,236,939 
Estimated liabilities and provisions   1,740,111    1,691,007    2,229,074    2,378,960 
Other   4,086,265    8,504,910    5,347,618    10,195,669 
Total Current Liabilities   22,660,854    27,236,233    26,397,790    31,559,702 
Long Term Liabilities                    
Financial obligations   15,762,796    12,240,060    26,222,107    22,090,642 
Labor and pension plan obligations   4,430,862    4,354,346    4,430,862    4,354,346 
Estimated liabilities and provisions   4,935,280    4,935,050    5,273,413    5,290,159 
Other   2,373,638    2,422,646    3,285,988    3,425,865 
Total Long Term Liabilities   27,502,576    23,952,102    39,212,370    35,161,012 
Total Liabilities   50,163,430    51,188,335    65,610,160    66,720,714 
Minority Interest             5,016,190    4,731,000 
Equity   67,380,516    64,468,635    66,504,414    63,053,198 
                     
Total Liabilities and Shareholders' Equity   117,543,946    115,656,970    137,130,764    134,504,912 
                     
Memorandum Debtor Accounts *   149,866,076    137,518,284    167,790,804    157,551,650 
Memorandum Creditor Accounts *   100,909,560    98,985,288    99,617,809    100,831,200 

 

Notes

 

* Under Colombian GAAP, these accounts represent facts or circumstances from which rights or obligations could derive and affect the Company, however, these accounts are not included in the Balance Sheet.

 

Dirección de Relacionamiento con el Inversionista Tel: 2345190,  correo electrónico: investors@ecopetrol.com.co
www.ecopetrol.com.co

 

26
 

 

Cash Flow Statement

Ecopetrol S.A.

 

COP$ million  2Q 2014*   2Q 2013*   1Q 2014*   1H 2014*   1H 2013* 
                     
Cash flow provided by operating activities:                         
Net income   2,847,846    3,253,806    3,225,828    6,073,674    6,749,489 
Adjustments to reconcile net income to cash provided by operating activities:                         
Depreciation, depletion and amortization   1,303,520    1,333,080    1,329,428    2,632,948    2,570,884 
Foreign Exchange   (289,478)   (261)   93,976    (195,502)   (48,877)
Provision for income tax   -    65,863    -    -    65,863 
Net provisions   139,036    234,863    53,923    192,959    343,345 
Disposal of property, plant and equipment   -    20,140    -    -    30,888 
Recovery of Property, Plant and equipment   -    -    -    -    - 
Loss for Good Will   -    -    -    -    - 
Loss (gain) valuation of Investments   392    (279,510)   (1,556)   (1,164)   (433,188)
Loss (Income) from equity method on affiliated companies   (133,027)   155,575    (624,611)   (757,638)   5,530 
Net changes in operating assets and liabilities:                         
Accounts and notes receivable   2,077,792    (647,232)   (333,768)   1,744,024    (1,760,956)
Inventories   12,030    386,619    (43,158)   (31,128)   15,927 
Deferred and other assets   (134,648)   (514,771)   659,193    524,545    (106,660)
Accounts payable and related parties   1,104,335    989,821    (1,057,286)   47,049    305,844 
Taxes payable   (4,473,217)   (3,683,400)   297,434    (4,175,783)   (3,419,931)
Labor obligations   44,589    (126,722)   (21,262)   23,327    (153,784)
Estimated liabilities and provisions   (19,668)   151,176    (115,302)   (134,970)   171,862 
Cash provided by operating activities   2,479,502    1,339,047    3,462,839    5,942,341    4,336,236 
                          
Cash flows from investing activities:                         
Payment for purchase of Companies, net of cash acquired   (13,005)   (121,223)   (1,764)   (14,769)   (121,223)
Purchase of investment securities   (4,984,836)   (1,882,229)   (1,471,607)   (6,456,443)   (5,355,770)
Dividends Received   670,381    48,820    -    670,381    48,820 
Interest Received   -    -    -    -    - 
Redemption of investment securities   591,507    3,872,539    1,002,920    1,594,427    7,918,723 
Sale of property, plant and equipment   -    2,000    -    -    2,000 
Sale of natural resources   -    100,790    -    -    100,790 
Investment in natural and environmental resources   (1,988,964)   (1,394,922)   (891,446)   (2,880,410)   (1,863,039)
Additions to property, plant and equipment   (165,550)   (361,738)   (74,199)   (239,749)   (997,722)
Net cash generated by investing activities   (5,890,467)   264,037    (1,436,096)   (7,326,563)   (267,421)
                          
Cash flows from financing activities:                         
Financial obligations   3,954,311    282,234    61,299    4,015,610    234,240 
Capitalization   -    10    43    43    10 
Dividends   (1,230,338)   (2,956,910)   (1,309,852)   (2,540,190)   (6,872,346)
Net cash used in financing activities   2,723,973    (2,674,666)   (1,248,510)   1,475,463    (6,638,096)
                          
Net increase (decrease) in cash and cash equivalents   (686,992)   (1,071,582)   778,233    91,241    (2,569,281)
Foreign Exchange in cash and cash equivalents   (83,463)   60,239    43,374    (40,089)   82,795 
Cash and cash equivalents at the beginning of the year   4,722,884    3,784,968    3,901,277    3,901,277    5,260,111 
Cash and cash equivalents at the end of the year   3,952,429    2,773,625    4,722,884    3,952,429    2,773,625 

 

NOTES:

* Not audited

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

Dirección de Relacionamiento con el Inversionista Tel: 2345190,  correo electrónico: investors@ecopetrol.com.co
www.ecopetrol.com.co

 

27
 

 

Cash Flow Statement

Ecopetrol Consolidated

 

COP$ million  2Q 2014*   2Q 2013*   1Q 2014*   1H 2014*   1H 2013* 
                     
Cash flow provided by operating activities:                         
Net income   2,787,538    3,407,585    3,287,381    6,074,919    6,819,210 
Adjustments to reconcile net income to cash provided by operating activities:                         
Minority interest   183,113    211,890    253,567    436,680    327,670 
Depreciation, depletion and amortization   1,695,150    1,448,949    1,728,028    3,423,178    3,123,602 
Foreign Exchange   (265,257)   -    105,520    (159,733)   - 
Provision for income tax   25,687    -    (31,509)   (5,823)   - 
Net provisions   160,338    380,080    68,918    229,256    396,350 
Loss for disposal of property, plant and equipment   337,811    413,618    95,955    433,765    424,366 
Recovery of Property, Plant and equipment   -    -    -    -    - 
Loss for Good Will   -    -    -    -    - 
Loss (gain) valuation of Investments   (7,957)   -    (4,630)   (12,587)   - 
Loss (Income) from equity method on affiliated companies   (57,044)   (29,785)   (14,478)   (71,521)   (35,740)
Net changes in operating assets and liabilities:                         
Accounts and notes receivable   1,946,539    (570,431)   (2,365,212)   (418,673)   (1,454,994)
Inventories   (55,136)   255,659    (35,332)   (90,468)   (111,917)
Deferred and other assets   (214,897)   (563,388)   783,376    568,479    (72,679)
Accounts payable and related parties   1,829,236    772,599    (732,271)   1,096,965    (26,656)
Taxes payable   (4,960,650)   (3,013,359)   674,089    (4,286,561)   (2,812,512)
Labor obligations   53,518    (118,798)   (42,479)   11,039    (168,277)
Estimated liabilities and provisions   (321,565)   313,025    (136,025)   (457,590)   585,046 
Cash provided by operating activities   3,136,424    2,907,644    3,634,898    6,771,325    6,993,469 
                          
Cash flows from investing activities:                         
Payment for purchase of Companies, net of cash acquired   -    -    -    -    - 
Purchase of investment securities   (4,471,361)   (906,782)   (783,790)   (5,255,151)   (4,358,431)
Dividends Received   44,173    -    -    44,173    - 
Redemption of investment securities   696,665    3,576,202    1,135,170    1,831,835    7,948,163 
Sale of property, plant and equipment   (5,502)   103,086    5,502    -    103,087 
Sale of natural resources   -    -    -    -    - 
Investment in natural and environmental resources   (2,899,331)   (2,135,411)   (927,620)   (3,826,951)   (3,001,818)
Additions to property, plant and equipment   (1,130,399)   (1,510,544)   (1,239,307)   (2,369,706)   (3,316,000)
Net cash used in investing activities   (7,765,755)   (873,449)   (1,810,045)   (9,575,800)   (2,624,999)
                          
Cash flows financing activities:                         
Minority interest   -    (8,758)   -    -    - 
Financial obligations   5,338,697    562,760    118,104    5,456,801    1,310,405 
Capitalization   (0)   10    43    43    10 
Dividends   (1,292,540)   (3,023,486)   (1,341,273)   (2,633,813)   (6,872,346)
Net cash used in financing activities   4,046,157    (2,469,474)   (1,223,126)   2,823,031    (5,561,931)
                          
Net increase (decrease) in cash and cash equivalents   (583,174)   (435,279)   601,727    18,556    (1,193,461)
Foreign Exchange in cash and cash equivalents   (177,568)   -    68,319    (109,252)   - 
Cash and cash equivalents at the beginnig of the year   9,511,484    7,182,508    8,841,438    8,841,438    7,940,690 
Cash and cash equivalents at the end of the year   8,750,742    6,747,229    9,511,484    8,750,742    6,747,229 

 

Notes

* According to the Public Accounting Framework, Colombian companies only have the obligation to consolidate their financial statements at the end of each fiscal year. Therefore, the quarterly figures in this report are not audited and they do not constitute a formal consolidation of Ecopetrol's financial statements though they do adjust to the methodology defined for this purpose. Not audited.

 

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

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28
 

 

Reconciliation of EBITDA

 

Ecopetrol S.A.

 

COP$ Millions  2Q 2014*   2Q 2013*   1Q 2014*   1H 2014*   1H 2013* 
RECONCILIATION NET INCOME TO EBITDA                         
Net Income   2,847,846    3,253,806    3,225,828    6,073,674    6,749,489 
Depreciations, depletions and amortizations   1,303,520    1,310,609    1,329,428    2,632,948    2,570,884 
Net Interest   110,377    45,028    90,684    201,060    73,269 
Interest, Tax, Depreciations and Amortizations in subsidiaries   807,808    587,864    722,156    1,529,965    1,098,713 
Other Taxes   202,111    226,916    638,731    840,842    877,017 
Provision for income tax   1,498,819    1,877,863    1,697,749    3,196,568    3,678,669 
UNCONSOLIDATED EBITDA   6,770,481    7,302,086    7,704,576    14,475,057    15,048,041 

 

Ecopetrol Consolidated

 

COP$ Millions  2Q 2014*   2Q 2013*   1Q 2014*   1H 2014*   1H 2013* 
RECONCILIATION NET INCOME TO EBITDA                         
Net income   2,787,539    3,407,585    3,287,381    6,074,920    6,819,210 
Depreciations, depletions and amortizations   1,695,153    1,647,605    1,728,028    3,423,178    3,126,913 
Net Interest   144,498    87,458    126,435    270,934    159,002 
Minority interest   (195,876)   (152,879)   (196,346)   (392,222)   (288,716)
Other Taxes   271,352    264,254    736,318    1,007,672    1,039,290 
Provision for income tax   1,978,973    2,262,057    2,111,150    4,090,124    4,256,861 
CONSOLIDATED EBITDA   6,681,639    7,516,080    7,792,966    14,474,605    15,112,560 

 

* Not audited

Some 2013 figures were reclassified for the sake of comparison with 2014 figures

 

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29
 

  

VII.Exhibits of Subsidiary Results and Shareholder Interest

 

Note: The financial results of subsidiary companies have not been audited.

 

Exploration and Production

 

1.Hocol:

 

Income Statement                
(COP$ Billion)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Local Sales   75.8    0.3    98.3    0.4 
Export Sales   981.9    543.4    2,276.7    1,314.3 
Sales of services   -    -    -    - 
Total Sales   1,057.7    543.7    2,375.0    1,314.7 
Variable Costs   741.9    350.0    1,717.0    866.6 
Fixed Costs   154.1    90.9    282.2    179.7 
Cost of Sales   896.0    440.9    1,999.2    1,046.3 
Gross profit   161.7    102.8    375.8    268.4 
Operating Expenses   37.0    51.0    82.8    73.6 
Operating Profit   124.7    51.8    293.0    194.8 
Non operating, net   15.9    2.3    3.3    (2.7)
Profit/(Loss) before taxes   140.6    54.1    296.3    192.1 
Income tax   41.1    20.2    92.4    66.8 
Net Income/Loss   99.5    33.9    203.9    125.3 
                     
TOTAL EBITDA *   262.4    154.7    537.4    395.5 
EBITDA margin   24.8%   28.5%   22.6%   30.1%
EBITDA to EC GROUP**   262.4    154.7    537.4    395.5 

 

* Total EBITDA of the company under COLGAAP

**EBITDA (COLGAAP) contribution to EC group

 

Balance Sheet        
(COP$ Billion)  June 30, 2014   March 31, 2014 
Current Assets   1,432.7    1,413.7 
Long Term Assets   2,398.2    2,377.0 
Total Assets   3,830.9    3,790.7 
Current Liabilities   1,191.5    1,228.8 
Long Term Liabilities   231.9    238.8 
Deferred taxes   -    - 
Total Liabilities   1,423.4    1,467.6 
Equity   2,407.5    2,323.1 
Total Liabilities and Shareholders´ Equity   3,830.9    3,790.7 

 

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30
 

 

Savia Perú:

 

Income Statement

US$ million  2Q 2014   2Q 2013   1H 2014   1H 2013 
Local Sales   97.5    85.0    190.8    173.3 
Export Sales   -    -    -    - 
Sales of services   -    -    -    - 
Total Sales   97.5    85.0    190.8    173.3 
Variable Costs   25.5    30.7    51.4    58.5 
Fixed Costs   22.2    21.7    41.0    43.6 
Cost of Sales   47.7    52.4    92.4    102.1 
Gross profit   49.8    32.6    98.4    71.2 
Operating Expenses   15.7    21.2    30.8    37.8 
Operating Profit   34.1    11.4    67.6    33.4 
Profit/(Loss) before taxes   34.1    11.4    67.6    33.4 
Income tax   7.8    0.2    16.8    6.0 
Employee profit sharing   -    -    -    - 
Deferred taxes   2.2    3.9    3.5    5.7 
Minority interest   -    -    -    - 
Net Income/Loss   24.1    7.3    47.3    21.7 
                     
EBITDA   55.4    34.4    106.8    76.4 
EBITDA margin   57%   41%   56%   44%

 

Balance Sheet        
US$ million  June 30, 2014   March 31, 2014 
Current Assets   209.9    202.3 
Long Term Assets   805.4    799.4 
Total Assets   1,015.3    1,001.7 
Current Liabilities   295.2    295.9 
Long Term Liabilities   18.6    30.6 
Deferred taxes   60.4    58.2 
Total Liabilities   374.1    384.7 
Equity   641.2    617.0 
Total Liabilities and Shareholders´ Equity   1,015.3    1,001.7 

 

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31
 

 

2.Equion:

 

Income Statement

(COP$ Billion)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Local Sales   73.6    50.4    146.2    98.8 
Export Sales   633.5    502.9    1,209.5    892.6 
Sales of services   -    -    -    - 
Total Sales   707.1    553.3    1,355.7    991.4 
Variable Costs   520.5    219.2    925.2    488.0 
Fixed Costs   38.0    37.5    67.1    67.7 
Cost of Sales   558.5    256.7    992.3    555.7 
Gross profit   148.6    296.6    363.4    435.7 
Operating Expenses   11.3    7.4    34.1    24.8 
Operating Profit   137.3    289.2    329.3    410.9 
Non operating, net   21.1    (8.6)   73.2    12.7 
Profit/(Loss) before taxes   158.4    280.6    402.5    423.6 
Income tax   58.7    90.6    134.4    179.9 
Employee profit sharing   -    -    -    - 
Deferred taxes   -    -    -    - 
Minority interest   -    -    -    - 
Net Income/Loss   99.7    190.0    268.1    243.7 
                     
TOTAL EBITDA *   229.0    339.1    532.0    538.1 
EBITDA margin   32.4%   61.3%   39.2%   54.3%
EBITDA to EC GROUP**   116.0    173.0    271.0    274.4 

 

* Total EBITDA of the company under COLGAAP

**EBITDA (COLGAAP) contribution to EC group

 

Balance Sheet

(COP$ Billion)  June 30, 2014   March 31, 2014 
Current Assets   2,375.3    2,536.0 
Long Term Assets   1,869.6    1,845.2 
Total Assets   4,244.9    4,381.2 
Current Liabilities   1,060.8    1,217.8 
Long Term Liabilities   173.1    186.5 
Deferred taxes   -    - 
Total Liabilities   1,233.9    1,404.3 
Equity   3,011.0    2,976.9 
Total Liabilities and Shareholders´ Equity   4,244.9    4,381.2 

 

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32
 

 

Refining and Petrochemical

 

1.Propilco:

 

Sales volume (tons)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Polypropylene   92,286    106,521    181,015    192,522 
Polypropylene marketing for COMAI   2,772    3,039    5,892    5,893 
Polyethylene marketing   7,083    4,027    12,301    7,935 
Total   102,141    113,587    199,208    206,350 

 

Income Statement

(COP$ Billion)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Local Sales   156.5    178.3    306.2    333.5 
Export Sales   224.4    195.9    459.0    355.4 
Sales of services   -    -    -    - 
Total Sales   380.9    374.2    765.2    688.9 
Variable Costs   329.2    320.2    650.7    589.3 
Fixed Costs   24.5    29.1    52.1    57.1 
Cost of Sales   353.7    349.3    702.8    646.4 
Gross profit   27.2    24.9    62.4    42.5 
Operating Expenses   29.7    36.0    65.6    61.5 
Operating Profit   (2.5)   (11.1)   (3.2)   (19.0)
Non operating, net   4.2    14.0    8.7    15.3 
Profit/(Loss) before taxes   1.7    2.9    5.5    (3.7)
Income tax   1.4    0.7    2.8    1.4 
Minority interest   -    -    -    - 
Net Income/Loss   0.3    2.2    2.7    (5.1)
                     
TOTAL EBITDA *   13.8    15.6    36.5    30.6 
EBITDA margin   3.6%   4.2%   4.8%   4.4%
EBITDA to EC GROUP**   13.8    15.6    36.5    30.6 

 

* Total EBITDA of the company under COLGAAP

**EBITDA (COLGAAP) contribution to EC group

 

Balance Sheet

 

COP$ Billion  June 30, 2014   March 31, 2014 
Current Assets   690.1    740.5 
Long Term Assets   483.0    509.4 
Total Assets   1,173.1    1,249.9 
Current Liabilities   424.1    482.9 
Long Term Liabilities   63.7    71.5 
Total Liabilities   487.8    554.4 
Equity   685.3    695.5 
Total Liabilities and Shareholders´ Equity   1,173.1    1,249.9 

 

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33
 

 

2.Reficar:

 

Sales Volume (mbd)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Local   34.6    47.3    34.8    48.4 
International   0.0    52.6    19.4    52.1 
Total   34.6    99.9    54.2    100.5 

 

Income Statement

(COP$ Billion)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Local Sales   1,040.3    915.5    1,556.2    1,928.6 
Export Sales   113.3    1,002.0    737.3    1,927.1 
Sales of services   -    -    -    - 
Total Sales   1,153.6    1,917.5    2,293.5    3,855.7 
Variable Costs   1,059.0    1,841.0    2,150.8    3,737.4 
Fixed Costs   55.8    64.4    96.2    125.4 
Cost of Sales   1,114.8    1,905.4    2,247.0    3,862.8 
Gross profit   38.8    12.1    46.5    (7.1)
Operating Expenses   135.0    43.8    195.0    102.9 
Operating Profit   (96.2)   (31.7)   (148.5)   (110.0)
Non Operating income   155.5    72.2    207.2    93.9 
 Non Operating expenses   (189.0)   (85.9)   (246.1)   (146.6)
Profit/(Loss) before taxes   (129.7)   (45.4)   (187.4)   (162.7)
Income tax   1.3    0.6    2.0    1.2 
Minority interest   -    -    -    - 
Net Income/Loss   (131.0)   (46.0)   (189.4)   (163.9)
                     
TOTAL EBITDA*   (88.1)   (6.50)   (81.40)   (48.40)
EBITDA margin   (7.6)%   (0.3)%   (3.5)%   (1.3)%
EBITDA to EC GROUP**   (88.1)   (6.5)   (81.4)   (48.4)

 

* EBITDA (COLGAAP) contribution to EC group

** Total EBITDA of the company under COLGAAP

 

Balance Sheet

COP$ Billion  June 30, 2014   March 31, 2014 
Current Assets   1,524.4    1,472.8 
Long Term Assets   14,361.7    13,964.4 
Total Assets   15,886.1    15,437.2 
Current Liabilities   997.7    971.0 
Long Term Liabilities   9,005.5    9,576.1 
Total Liabilities   10,003.2    10,547.1 
Equity   5,882.9    4,890.1 
Total Liabilities and Shareholders´ Equity   15,886.1    15,437.2 

 

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34
 

 

Transport

 

1.Cenit

 

The financial information presented corresponds to Cenit individually, recognizing application of the participation method to the earnings of the other transport companies of the business group.

 

Income Statement

 

(COP$ Billion)  2Q 2014   2Q 2013   1H 2014 
Sales of services   734.3    635.9    1,480.8 
Total Sales   734.3    635.9    1,480.8 
Variable Costs   26.1    14.8    54.2 
Fixed Costs   580.2    440.9    1,008.1 
Cost of Sales   606.3    455.7    1,062.3 
Gross profit   128.0    180.2    418.5 
Operating Expenses   91.8    73.8    113.8 
Operating Profit   36.2    106.4    304.7 
Non operating, net   387.3    214.5    782.6 
Profit/(Loss) before taxes   423.5    320.9    1,087.3 
Income tax   75.8    31.5    146.6 
Minority interest   -    -    - 
Net Income/Loss   347.7    289.4    940.7 
                
TOTAL EBITDA *   294.7    85.0    552.9 
EBITDA margin   40.1%   13.4%   37.3%
EBITDA to EC GROUP**   294.7    85.0    552.9 

 

* Total EBITDA of the company under COLGAAP

**EBITDA (COLGAAP) contribution to EC group

 

Balance Sheet

COP$ Billion  June 30, 2014   March 31, 2014 
Current Assets   772.0    1,218.9 
Long Term Assets   21,619.6    20,810.3 
Total Assets   22,391.6    22,029.2 
Current Liabilities   1,602.8    1,932.0 
Long Term Liabilities   144.2    132.3 
Total Liabilities   1,747.0    2,064.3 
Equity   20,644.6    19,964.9 
Total Liabilities and Shareholders´ Equity   22,391.6    22,029.2 

 

Dirección de Relacionamiento con el Inversionista Tel: 2345190,  correo electrónico: investors@ecopetrol.com.co
www.ecopetrol.com.co

 

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Biofuels

 

1.Ecodiesel

 

Sales volume (mboed)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Biodiesel   2.3    2.2    2.3    2.1 
Glycerin   0.2    0.2    0.2    0.2 
Total   2.5    2.4    2.5    2.3 

 

Income Statement

(COP$ Billion)  2Q 2014   2Q 2013   1H 2014   1H 2013 
Domestic sales   82.8    71.2    161.0    137.4 
Sales of services   -    -    -    - 
Total Sales   82.8    71.2    161.0    137.4 
Variable Costs   71.8    60.2    138.5    115.7 
Fixed Costs   -    -    -    - 
Cost of Sales   71.8    60.2    138.5    115.7 
Gross profit   11.0    11.0    22.5    21.7 
Operating Expenses   2.7    2.8    5.5    5.0 
Operating Profit   8.3    8.2    17.0    16.7 
Non operating, net   (0.7)   (1.6)   (1.1)   (2.9)
Profit/(Loss) before taxes   7.6    6.6    15.9    13.8 
Income tax   1.2    0.3    2.6    0.6 
Minority interest   (8.3)   -    -    - 
Net Income   6.4    6.3    13.3    13.2 
                     
EBITDA   9.7    10.2    19.9    19.9 
EBITDA margin   12%   14%   12%   14%

 

Balance Sheet

COP$ Billion  June 30, 2014   March 31, 2014 
Current Assets   60.2    68.2 
Long Term Assets   88.1    89.0 
Total Assets   148.3    157.2 
Current Liabilities   52.4    55.5 
Long Term Liabilities   27.1    29.9 
Total Liabilities   79.5    85.4 
Equity   68.8    71.8 
Total Liabilities and Shareholders' Equity   148.3    157.2 

 

Dirección de Relacionamiento con el Inversionista Tel: 2345190,  correo electrónico: investors@ecopetrol.com.co
www.ecopetrol.com.co

 

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