Slide 1: Resilient and Transitioning to Overcome Growth Challenges
ECOPETROL Resilient and Transitioning to Overcome Growth Challenges October 2016 0
Slide 2: Disclaimer
Disclaimer This document was prepared by Ecopetrol S.A. (the “Company” or “Ecopetrol”) with the purpose of providing the market and interested parties certain financial and other information of the Company. This document may include strategy discussions and forward-looking statements regarding the p
Slide 3: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017-2020: Business Plan Update 2
Slide 4: Key Highlights
Key Highlights Decreasing lifting cost: 2014: USD$11.23/bl, 2015: USD$7.39/bl and LTM(1): USD$6.1/bl World-class operator of 80% developed proved reserve base (total oil and gas reserves: mature assets and a national ~1.8 bn barrels as of December 31st, 2015) leader CAGR(2) production of 7.9%
Slide 5: Key Financial Metrics: Resilience to Lower Crude Oil Price Environment
Key Financial Metrics: Resilience to Lower Crude Oil Price Environment 1Q 2016 2015 2014 2Q 2016 1Q 2016 1H 2016 1H 2015 Crude Basket (USD$/bl) 38.1 25.1 (52%) 30.7 47.9 (35.9%) Net Income 0.78 (1) 0.36(1) (117%) 1.2 (1) 1.7 (1) (29.4%) Ebitda 4.5 (1) 4.1(1) (9.8%) 8.7 10.3 (15.5%) Ebitda margin 38.
Slide 6: 2015 Balance: Proven Reserves 2015
Proven Reserves 2015 (1) 2015 Balance Million of barrels of oil equivalent (MMBOE) Net Addition: 16 MMBOE 2,084 -251 -404 275 47 -1 1,849 154 -55 1P 2014Production 1P 2014 Efecto Price Precio(3) Effect(3) Additions(4) ProyectosOptimization(4) Revisions(4) Consumo Interno Consumption of Subsidiaries
Slide 7: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017-2020: Business Plan Update 6
Slide 8: We do things differently, obtaining efficiencies in our operational key metrics
We do things differently, obtaining efficiencies in our operational key metrics USD 230 UPSTREAM USD 480 MIDSTREAM MM Opex MM Opex Transportation maintenance Fluid treatmentFluido cost (COP/boe) Costo decost Mantenimiento (COP/bl) Costo Tratamiento (COP/boe) -12% -11% -9% -3% Transporte (COP/bl) Ene
Slide 9: Sustained Lifting and Dilution Cost Reduction Enhances Heavy Crude Profitability
Sustained Lifting and Dilution Cost Reduction Enhances Heavy Crude Profitability Key drivers for lifting reduction: Lifting cost USD$/barrel 8 Optimized subsurface and above ground (18%) maintenance 6 Increased self generation with less expensive fuels 4 and lower tariffs 7.4 6.1 4,8 5,4 2 Opt
Slide 10: Dilution Costs in heavy and extra heavy crude as structural reduction example
Dilution Costs in heavy and extra heavy crude as structural reduction example Optimization Emphasis Dilution Optimization Strategies Dilution factor decrease (% diluent / Normalized heavy crude volume) Viscosity: 200 cSt 300 cSt 405 cSt 600 cSt 1,8 Codilution Ahorro Diluyente Diluent Savings 20,0% K
Slide 11: Upstream Optimization Achievements
Upstream Optimization Achievements Drilling Days in the Company´s Main Fields Significant drilling-days reduction 34 (44%) 36 (42%) 26 26 21 Standardized designs and operations 19 14 12 14 Cutting-edge drilling technology Operational discipline Castilla Chichimene Fee renegotiation and impro
Slide 12: Initiatives Aimed to Increase Efficiency and Reduce Cost in Down & Midstream
Initiatives Aimed to Increase Efficiency and Reduce Cost in Down & Midstream Refining cash cost(1) Downstream: USD$/barrel Strategies for optimization in (40%) maintenance and support services 7,2 4,4 3,5 4,3 Renegotiation of contracts and 2014 2015 1Q 2016 2Q 2016 new procurement strategies Tra
Slide 13: Cost Efficiencies: Opportunities Realized since 2015
Cost Efficiencies: Opportunities Realized since 2015 2015 Savings* 1H 2016 Additional USD$ Millions Savings USD$ Millions 1.009 Fixed and Variable 192 214 Costs 172 Operational 68 Expenses 213 410 53 8 Total Savings 260 110 87 152 2016 Savings Cost P&L ECP 2015 Capex Dilution Dilution&and Sales Subs
Slide 14: Capital Discipline: Capex Adjustment since 2015 with Significant Cuts
Capital Discipline: Capex Adjustment since 2015 with Significant Cuts CAPEX 2011 - 2016 Δ 2014 - 2016 USD$ Billions % (25%) (66%) Production (76%) 9.4 9.2 8.7 0.5 8.7 0.2 0.0 0.2 0.1 0.0 Exploration (80%) 0.2 0.0 1.7 1.0 1.6 1.3 Downstream (49%) 6.7 1.9 0.1 0.0 2.1 2.1 1.9 0.9 Midstream (56%) 1.3 1.
Slide 15: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017-2020: Business Plan Update
Slide 16: Since 2014, cash flow focus has been the pillar of a solid financial basis
Since 2014, cash flow focus has been the pillar of a solid financial basis 1. Challenging price 2. Ambitious saving 3. Efficient cost scenario targets reductions Brent USD/bl USD (Bn) COP (Bn) 70 10 9,1 65 Target 2020 +38% USD 1,5 Bn -18% CAGR 60 -61% -31% 8 1,1 7,1 55 +120% 50 1 6,1 0,8 6 45 0,7 40
Slide 17: Exploration: Pursuing high-value and quality prospects
Exploration: Pursuing high-value and quality prospects Basin Potential – Main Countries Recent Exploratory Discoveries and 2016 Activity ECOPETROL AMERICA OFF-SHORE COLOMBIA ON-SHORE COLOMBIA • 2Q 2016: APPRAISAL 2014: ORCA discovery 2014: discoveries: CPO WELL ‘LEON 2’ UNDER 2015: KRONOS 09,
Slide 18: Refining: Completion of Reficar's start up
Refining: Completion of Reficar's start up Start up Stabilization Optimal Operation Jul/2016 2H 2016 2017 The start up of the 34 units of the modernization project was completed in July Begin of the stabilization stage and performance tests: • Design capacities test • Performance and operational
Slide 19: Downstream: Improved Refining Capacity; High-Value Products and Clean Fuels
Downstream: Improved Refining Capacity; High-Value Products and Clean Fuels Reficar 165 KBD 3% Processing ~100 MBD of Heavy 2% Crude, Extra Heavy Crude and Sour 35% Propylene 70% local crude and 30% LPG imported crude Naphta & Gasoline Mid- International Fuel Quality 60% Distillates Standards:
Slide 20: Midstream: Increasing Transport Capacity Enhances the Group's Cash Flow
Midstream: Increasing Transport Capacity Enhances the Group's Cash Flow Pipeline System Capacity* Key Transportation Assets Thousand barrels per day (mbod) 1,268 1,328 1,336 Santa Marta Pipelines: 5,269 km(1) and 32 pumping stations Cartagena Coveñas Multipurpose: 3,717 km Ayacucho and 30 pumping st
Slide 21: 2016: Ongoing Transformation into a more Efficient and Competitive Company
2016: Ongoing Transformation into a more Efficient and Competitive Company • Focus on capital discipline and cash flow protection Capital Discipline • 2016 CAPEX reduction Efficiency Focus • Ecopetrol Group´s savings amounted USD$260 million in 1H 2016(1) Profitable Barrels • Value over volume: 715
Slide 22: Optimizations: Reduction in Direct and Indirect Employees
Optimizations: Reduction in Direct and Indirect Employees Ecopetrol´s Employees* 53,600 (47%) 39,000 28,400 44,450 30,300 19,700 9,150 8,700 8,700 2014 2015 2Q 2016 Direct Employees Indirect Employees Ecopetrol´s total employees, including outsourcing, decreased from 53,600 in December 2014 to 28,40
Slide 23: 2016 Cost-efficient Financing Strategy: ~85% of Requirements Fulfilled
2016 Cost-efficient Financing Strategy: ~85% of Requirements Fulfilled Outstanding Debt 2016 Financing Needs USD$ million USD$ million 1,500 - 1,900 Company Total (%) Ecopetrol 13,489 75% Remaining Financing Reficar 2,915 16% Bicentario 561 3% Reopening ODL 323 2% 500 Bioenergy 165 1% Ocensa 500 3%
Slide 24: 2016-2017 Divestment Program: Portfolio Rotation to Generate Cash
2016-2017 Divestment Program: Portfolio Rotation to Generate Cash 2Q 2016 Divestments (COP$ Bn) Council of Release of First Second Stage Ministers Decree Stage 2Q 2016 3Q 2016 4Q 2016 2017 348 377 Divestment in Minor Fields Public Data Room Assets Auction ISA EEB Offering Access Transfer 2Q 2016 2Q
Slide 25: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017-2020: Business Plan Update 24
Slide 26: Ecopetrol's 2020 Corporate Strategy Pillars
Ecopetrol’s 2020 Corporate Strategy Pillars Cash flow focus & cost efficiency Transformation Program Reserves & Strict Capital Production Discipline growth 25
Slide 27: Capital Discipline: Lower investments while achieving goals
Capital Discipline: Lower investments while achieving goals CAPEX Financial strength Projects Reduction 3.0 to 3.5 25% between Gross Debt/EBITDA 100% units of the 2014 and 2015 ratio New Cartagena Refinery in 54% between operation 2015 and 2016 due to challenging prices 26
Slide 28: Transformation Model
Transformation Model Changes in leadership, procurement & surroundings relations Leadership Procurement Surroundings • 18 new Senior • New procurement model • New model for Management shared members, out of 20 • ˜3400 reduction in development external headcount • Middle Managers • Elimination of Tra
Slide 29: Business plan secures the company's profitability and sustainability at 50 USD/bl
Business plan secures the company’s profitability and sustainability at 50 USD/bl Planning the Strategy at 50 USD/bl Brent (USD/bl) 90 Previous Plan 80 80 70 70 70 70 An increase in prices is not 60 contemplated 50 50 50 50 in the financial 50 44 plan 40 30 2016 2017 2018 2019 2020 Business plan @70
Slide 30: Profitable production growth: 760 Mboed in 2020 at 50 USD/bl
Profitable production growth 760 Mboed in 2020 at 50 USD/bl, upturn is subject to price performance Growth between 6% and 22% Profitable barrels Production (Mboed) EBITDA/barrel at 760 Mboed (USD/bl) 22% 328% 1.000 16% +6% 870 257% 30 830 30 760 750 715 25 20 71% 500 Business plan 12 May/2015 250 10
Slide 31: Current assets portfolio is the base for 2020 production target
Profitable production growth Current assets portfolio is the base for 2020 production target Production breakdown 2020 and comparison at 2016 (mboed) 1.000 +6% +9% 760 830 800 49 49 715 18 26 39 69 314 600 346 400 94% on 340 current assets 200 45% 340 0 2016 Basic Infill Drilling Secondary Tertiary
Slide 32: Proven ability to add production and reserves through Recovery Factor
Profitable production growth Proven ability to add production and reserves through Recovery Factor ‘La Cira Infantas’ – Mid-Magdalena Valley – Partnership 70000 Crude Rate (BOD) Infill and water injection recovery program 60000 Incremental since 2005. Reserves increased in 259 50000 Production Mmboe
Slide 33: Focus on main development and production assets
Profitable production growth Focus on main development and production assets Rubiales Castilla • Infill Wells • Infill Wells • ~USD 1.400 MM • ~USD 790 MM investment towards investment towards 2020 2020 Quifa Caño Sur • Infill Wells • Infill Wells • ~USD 370 MM • ~USD 470 MM investment towards inves
Slide 34: Colombia's offshore is the best long term gas supply opportunity
Profitable production growth Colombia´s offshore is the best long term gas supply opportunity 33
Slide 35: Flexible investment plan focused on Upstream
Profitable production growth Flexible investment plan focused on Upstream Investment level optimization Focus on Upstream vs. Mid & Down Ecopetrol Total Capex, 2017-20 (USD Bn) Capex distribution by segment (%) 31% 85% 30 100 24 10 (6,0/year) 15 80 41 17 20 (4,3/year) 60 13 12 (3,3/year) 40 75 10 47
Slide 36: Financial flexibility will allow further development in the Americas
Estimated reserves growth Financial flexibility will allow further development in the Americas Offshore GOM-US Offshore Colombia Onshore Mature Fields Colombia (Mid-term) Latam Off-shore • Mexico (Mid-longterm) • Ecuador • Brazil • Argentina • Venezuela 35
Slide 37: Profitable growth in Midstream and Downstream
Profitable growth in Midstream and Downstream Cash flow generation and profit maximization Operational excellence represents USD 0.7 Bn of impact in EBITDA by 2020 720 Transportation: Investment rationalization and profit 240 maintenance 110 70 Downstream: Profit and cashflow 180 maximization 55 300
Slide 38: Midstream, a cash flow source
Midstream, a cash flow source The expansive cycle has been fulfilled Capacity Main Pipelines Thousand barrels per day (mbd) 1,445 1,276 1,301 1,310 Santa Marta 1,096 Cartagena Coveñas 307 307 352 385 385 Ayacucho B/Bermeja Banadia 2012 2013 2014 2015 2016 e Sebastopol Vasconia Cusiana Crude Products
Slide 39: Competitive Growth: Operational excellence and additional efficiencies by 2020
Competitive Growth Operational excellence and additional efficiencies by 2020 Efficiencies through the Transformation plan(1) (USD Bn) +130% 1,5 1,2 1,4 1,1 0,7 0,8 1,1 0,3 2015 2016 2017 2018 2019 2020 Target Accumulated result 38 (1) Includes OPEX efficiencies and initiatives for revenue maximizat
Slide 40: Financial Sustainability: Group's viability at 50 USD/bl and upside
Financial Sustainability Group´s viability at 50 USD/bl and upside with higher prices Sources and Uses of cash, 2017-2020 (USD Bn) 25 21,3 16,5 20 15 10 4.0 4,8 5 0 Sources: Uses: Available cash Additional cash Operating Cash flow CAPEX and Interest @ 50 USD/bl @ 70 USD/bl And Divestments payments 3
Slide 41: Financial strength: Reduce Debt/Ebitda and preserve Investment Grade rating
Financial strength Reduce Debt/Ebitda and preserve Investment Grade rating Maintain strict Reduce Capital Discipline financial leverage 4 Focus on profitable projects 3,6 3,0 3 Divestment of non-strategic assets 2 40% Payout 2,5 1 Reduce leverage 0 2016 Target 2020 40
Slide 42: 2017-2020 Business plan: Seven main pillars
2017-2020 Business plan : Seven main pillars Segments 41 Main Pillars
Slide 43: Restricted use notice
Para uso restringido en Ecopetrol S.A. Todos los derechos reservados. Ninguna parte de esta presentación puede ser reproducida o utilizada en ninguna forma o por ningún medio sin permiso explícito de Ecopetrol S.A.