Ecopetrol Sa · BVC:ECOPETROL

Ecopetrol Sa — Investor Presentation (June 2016)

33 slides from Ecopetrol Sa's investor presentation, Jun 24, 2016

  1. Slide 1: Resilient and Transitioning to Overcome Growth Challenges

    ECOPETROL Resilient and Transitioning to Overcome Growth Challenges June 2016 0

  2. 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

  3. Slide 3: Agenda

    Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 2

  4. Slide 4: Agenda: Key Highlights

    Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 3

  5. Slide 5: Key Highlights: Challenges and Management Decisions

    Key Highlights Challenges Management Decisions • Strengthen our exploratory activity  BCG(1) Assessment • Costs grew faster than 2014 revenues  Build the new strategy • Complexity of operations in Colombia • Plunge of oil prices  New Strategy (value over volume, new exploratory model, capital • E

  6. Slide 6: Key Highlights

    Key Highlights  Decreasing lifting cost: 2014: USD$11.23/bl, 2015: USD$7.39/bl and LTM(1): USD$6.70/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%

  7. Slide 7: Key Financial Metrics: Resilience to Lower Crude Oil Price Environment

    Key Financial Metrics: Resilience to Lower Crude Oil Price Environment 1Q 2016 2015 2014 1Q 2016 1Q 2015 2015 2014 Crude Basket (USD$/bl) 25.1 44.3 (43.4%) 43.9 87.3 (49.7%) Net Income 0.4 (1) 0.2 (1) +125% (7.2) (2)(5) 5.0 (2) (244%) Ebitda (3) 4.1 (1) 4.8 (1) (14.6%) NA(3) NA(3) Ebitda margin (3)

  8. Slide 8: 2015 Balance: Proven Reserves 2015

    Proven Reserves 2015 (1) 2015 Balance Million of barrels of oil equivalent (MMBOE) Net Addition: 16 MMBOE 2,084 (460) 322 154 1,849 (251) 1P 2014 Price Effect Production Optimization & Additions 1P 2015 Revisions Consumption of Nat. Subsidiaries Gas 45% Drop in Sales Prices(2) Natural Gas Consumptio

  9. Slide 9: Agenda: 2015 Navigating the Low Crude Oil Price Environment

    Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 8

  10. Slide 10: Cost Efficiencies: Opportunities Realized since 2015

    Cost Efficiencies: Opportunities Realized since 2015 2015 Savings* 1Q 2016 Savings USD$ Millions USD$ Millions 1,009 Fixed and Variable 107 214 Costs 172 Operational 22 Expenses 213 410 53 8 Total Savings 129 110 87 152 Cost P&L ECP 2015 Capex Dilution Dilution&and Sales Subsidiaries Total 2015 Logi

  11. Slide 11: Upstream Optimization Achievements

    Upstream Optimization Achievements Drilling Days in the Company´s Main Fields Significant drilling-days reduction 34 (44%) 36 (39%) 26 26 22  Standardized designs and operations 19 14 12 14  Cutting-edge drilling technology  Operational discipline Castilla Chichimene  Fee renegotiation and impro

  12. Slide 12: Sustained Lifting and Dilution Cost Reduction Enhances Heavy Crude Profitability

    Sustained Lifting and Dilution Cost Reduction Enhances Heavy Crude Profitability Lifting cost USD$/barrel Key drivers for lifting reduction: 12  Optimized subsurface and above ground 10 maintenance (34%) 8 (40%) 6  Increased self generation with less expensive fuels 11.23 and lower tariffs 4 7.39

  13. Slide 13: Initiatives to Increase Efficiency and Reduce Cost in Downstream and Midstream

    Initiatives Aimed to Increase Efficiency and Reduce Cost in Downstream and Midstream Refining cash cost(1) Downstream: USD$/barrel  Strategies for optimization in (39%) maintenance and support services 7.2 4.4 3.5  Renegotiation of contracts and 2014 2015 1Q 2016 new procurement strategies Transpo

  14. 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.

  15. Slide 15: Agenda: 2016 Transitioning to Growth

    Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation

  16. Slide 16: Exploration: Establishing a Robust and Diversified Portfolio

    Exploration: Establishing a Robust and Diversified Portfolio Basin Potential – Main Countries Recent Exploratory Discoveries and 2016 Activity ON-SHORE COLOMBIA ECOPETROL AMERICA OFF-SHORE COLOMBIA  2014: discoveries: CPO  1Q-2016: Leon 2  2014: ORCA discovery North appraisal well 09, Cacica y Ti

  17. Slide 17: Reserves Incorporation Strategy Towards Sustainability and Growth

    Reserves Incorporation Strategy Towards Sustainability and Growth Exploration Increase in OOIP* o Portfolio upgrade 60 +60% Bn boe 51 53 54 o Short term: onshore near field exploration 49 50 46 47 39 and key areas 40 34 35 o Mid & Long Term: offshore exploration and 30 20 appraisal 10 • Increased Re

  18. Slide 18: Strategic Focus on Exploration and Production from 2017 Onwards

    Strategic Focus on Exploration and Production from 2017 Onwards CAPEX 2016-2020 % 1% 3% 14% 7% 38% 90% 47% Approved 2016 2017-2020 (e) (average per year) UPSTREAM DOWNSTREAM MIDSTREAM OTHERS 17

  19. 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:

  20. Slide 20: Midstream: Increasing Transport Capacity Enhances Cash Flow

    Midstream: Increasing Transport Capacity Enhances the Ecopetrol 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

  21. 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$129 million in 1Q 2016(1) • Value over volume: 715 mboed targeted prod

  22. Slide 22: Optimizations: Reduction in Direct and Indirect Employees

    Optimizations: Reduction in Direct and Indirect Employees Ecopetrol´s Employees* 53,600 (48%) 39,000 44,450 28,000 30,300 19,300 9,150 8,700 8,700 2014 2015 1Q 2016 Direct Employees Indirect Employees Ecopetrol´s total employees, including outsourcing, decreased from 53,600 in December 2014 to 28,00

  23. Slide 23: 2016: Leveraging Cost-efficiencies by Enhancing Productivity and Sustainability

    2016: Leveraging Cost-efficiencies by Enhancing Productivity and Sustainability Management and Cultural Transformation Leadership Program Management team renovation New culture and leadership with international experience* model Re-inventing ourselves to compete globally Professional Development Rel

  24. Slide 24: 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 Remaining Financing Company Total (%) Ecopetrol 13,434 74% Reficar 3,065 17% Reopening Bicentario 555 3% ODL 324 2% 500 Bioenergy 160 1% Bilateral Loan

  25. Slide 25: 2016-2017 Divestment Program: Portfolio Rotation to Generate Cash

    2016-2017 Divestment Program: Portfolio Rotation to Generate Cash Divestment Program comprising non- Divestments strategic assets and equity (USD$ million) participations: USD$ 400-900 million o Second round of EEB offering o Second round of ISA offering o Propilco 500 o Minor fields: Ronda Campos 2

  26. Slide 26: Agenda: 2017 Strategy Implementation

    Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 25

  27. Slide 27: Securing the Company's Future: Mid-Term Strategy Update

    Securing the Company´s Future: Mid - Term Strategy Update May to August 2016 4Q-2016 I Baseline and business II III Business Plan Strategic Options portfolio Announcement Business segment • Alternatives prioritization • Company´s long term characterization at different objectives price scenarios • C

  28. Slide 28: 2017 Onwards: Continue Positioning for the Future

    2017 Onwards: Continue Positioning for the Future in order to Secure Long Term Growth, Financial Sustainability and Value Creation Flexibility Secure Financial Efficiencies Strength Association Scenario Strategy Planning with Partners 27

  29. Slide 29: Appendix

    Appendix YS.

  30. Slide 30: Financial Results: Net income increased by 127% between 1Q 2015 and 1Q 2016

    Financial Results: Net income increased by 127% between 1Q 2015 and 1Q 2016 Net Income (1) (COP$Bn) 39.5% 127% EBITDA Margin 38.9% 363 160 1Q -2015 1Q - 2016 (COP$Tn) 1Q 2016 1Q 2015 Revenues 10.5 12.3 - 15% Costs and Expenses 8.9 9.9 (11% ) Gross Margin 29% 30% EBITDA 4.1 4.8 29 Figures rounded for

  31. Slide 31: Ecopetrol Group's Net Income Variation 1Q 2015 vs. 1Q 2016

    Ecopetrol Group´s Net income Net Income Variation 1Q 2015 vs. 1Q 2016 (1) (COP$Bn) REVENUES COST OF SALES EXPENSES FINANCIAL RESULT (COP$1,816 Bn) COP$1,109 Bn (COP$51 Bn) COP$ 1,394 Bn (405) (28) (353) 160 179 (52) 363 1,799 ( 51) 265 844 (3,961) 1,966 TRM cambio Efecto Precio Compras Int. y otros

  32. Slide 32: Income by Segment

    Income by Segment Income Variation by Segment 1Q 2015 vs. 1Q 2016 (1) (COP$Bn) 1Q 2015 E&P Downstream Midstream Eliminations 1Q 2016 EBITDA Margin 1Q 2016 17.3% 11% 79.9% 31 (1)Figures under Colombian IFRS

  33. Slide 33: Cash Flow: Strong Cash Position

    Cash Flow: Strong Cash Position Cash Flow 1Q 2016 (1) (COL$mm) 1,315 596 3,725 1,058 788 458 7,636 6,550 Caja Inicial Initial Operación Inversión Pago dividendos Aumento neto Pago intereses Efecto variación Caja Final Final 1Q 2016 Operations Investments Dividend Netdeuda Increase Debtdeuda Interest

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