Slide 1: Resilient and Transitioning to Overcome Growth Challenges
ECOPETROL Resilient and Transitioning to Overcome Growth Challenges June 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: Strategy Implementation 2
Slide 4: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 3
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
Slide 6: Key Highlights
Key Highlights Decreasing lifting cost: 2014: USD$11.29/bl, 2015: USD$7.40/bl and LTM(1): USD$6.70/bl World-class operator of 80% developed proved reserve base (total oil and gas reserves: mature assets and a national ~1.8 bn barrels as of December 31st, 2015) leader CAGR(2) production of 7.9%
Slide 7: Key Financial Metrics: Resilience to Lower Crude Oil Price Environment
Key Financial Metrics: Resilience to Lower Crude Oil Price Environment 1Q 2016 2015 2014 1Q 2016 1Q 2015 2015 2014 Crude Basket (USD$/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)
Slide 8: 2015 Balance: Proven Reserves
Proven Reserves 2015 (1) 2015 Balance Million of barrels of oil equivalent (MMBOE) Net Addition: 16 MMBOE 2,084 (25) 16 24 (251) 1,849 1P2014 2014 Revisions Improved Recovery Extensions and Production 1P2015 2015 discoveries 45% Drop in Crude Oil Price(2) Natural Gas Consumption Good Production Perf
Slide 9: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 8
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
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
Slide 12: 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 Fewer number of well interventions due to subsoil USD$/barrel strategies 12 Improvements in maintenance routines and 10 equipment reliability (34%) 8 (41%) Lower con
Slide 13: Initiatives to Increase Efficiency and Reduce Cost in Downstream and Midstream
Initiatives Aimed to Increase Efficiency and Reduce Cost in Downstream and Midstream Refining cash cost(1) Downstream: USD$/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
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: Strategy Implementation
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 ECOPETROL AMERICA OFF-SHORE COLOMBIA ON-SHORE COLOMBIA 1Q-2016: Leon 2 2014: ORCA discovery Norte appraisal well 2014: discoveries: 2015: KRONOS CPO-
Slide 17: Production 2016: Profitable Barrels, Declining Break-Evens
Production 2016: Profitable Barrels, Declining Break-Evens & Challenging Trade- Offs Ecopetrol Group Production Recovery Factor Program Thousand barrels of oil equivalent per day (mboed) 1 Bn boe of contingent 11.3* 7.4* 4.9* resources incorporated in the 755 761 737 715 period 2014-2015 As of D
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
Slide 19: Downstream: Improved Refining Capacity; High-Value Products and Clean Fuels
Downstream: Improved Refining Capacity; High-Value Products and Clean Fuels Reficar Conversion Factor*: 97.0% 3% 2% Processing ~100 MBD of Heavy Crude, Extra Heavy Crude and Sour 35% Propylene LPG 70% local crude and 30% imported crude Naphta & Gasoline Mid- International Fuel Quality 60% Dist
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
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$129 million in 1Q 2016(1) • Value over volume: 715 mboed targeted prod
Slide 22: Optimizations: Reduction in Direct and Indirect Employees
Optimizations: Reduction in Direct and Indirect Employees Ecopetrol´s Employees* 53,600 (48%) 39,000 44,450 28,000 30,300 19,300 9,150 8,700 8,700 2014 2015 1Q 2016 Direct Employees Indirect Employees Ecopetrol´s total employees, including outsourcing, decreased from 53,600 in December 2014 to 28,00
Slide 23: 2016: Leveraging Cost-efficiencies by Enhancing Productivity and Sustainability
2016: Leveraging Cost-efficiencies by Enhancing Productivity and Sustainability Management and Cultural Transformation Leadership Program Management team renovation New culture and leadership with international experience* model Re-inventing ourselves to compete globally Professional Development Rel
Slide 24: 2016 Cost-efficient Financing Strategy
2016 Cost-efficient Financing Strategy: ~50% of Requirements Fulfilled 2016 Financing Needs Outstanding Debt* USD$ million USD$ million 1,500 -1,900 Company Total (1) (%) Remaining Financing Ecopetrol 12,934 74% Reficar 3,065 17% Bicentario 555 3% Bilateral Loan (Export ODL 324 2% Development Canada
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: o Second round of EEB offering (1) o Second round of ISA offering o Propilco 215* o Minor fields 122** o Others under analysis 201
Slide 26: Agenda
Agenda 1. Key Highlights 2. 2015: Navigating the Low Crude Oil Price Environment 3. 2016: Transitioning to Growth 4. 2017: Strategy Implementation 25
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
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
Slide 29: Appendix
Appendix YS.
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
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
Slide 32: Income by Segment
Income by Segment Income Variation by Segment 1Q 2015 vs. 1Q 2016 (1) (COP$Bn) 1Q 2015 E&P Downstream Midstream Eliminations 1Q 2016 EBITDA Margin 1Q 2016 17.3% 11% 79.9% (1)Figures under Colombian IFRS 31
Slide 33: Cash Flow: Strong Cash Position
Cash Flow: Strong Cash Position Cash Flow 1Q 2016 (1) (COL$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