Ecopetrol has reported financial results for the third quarter ended September 30, 2008. The financial statements were prepared and presented in accordance with the Colombian Governmental Entity GAAP and in Colombian Pesos (COL$).
For the third quarter of 2008, net income increased 123% to COL$3.93 trillion from COL$1.76 trillion in the third quarter of 2007. Earnings per share reached COL$97.06, up from COL$49.28 earned in the prior year period.
Third quarter 2008 operating income increased 57.4% to COL$3.96 trillion from COL$2.51 trillion. Third quarter 2008 EBITDA was COL$4.62 trillion, a 61% increase over COL$2.87 trillion reported for the 2007 comparable period. EBITDA margin was 46% compared to 51% reported for last year’s third quarter.
Ecopetrol's third quarter sales increased 76.4% to COL$9.97 trillion from COL$5.65 trillion in the third quarter of 2007. Domestic sales increased 55% and accounted for 63% of total sales; international sales were up 131.5% and represented 37% of total sales.
Commenting on third quarter results, Javier G. Gutierrez, Chief Executive Officer, noted, "We are pleased to report that Ecopetrol's strong year-over-year growth was driven by a combination of increased oil and natural gas production, which resulted in higher exports, as well as higher selling prices. We continue to increase production through our 107 directly operated fields and 168 joint operation agreements."
Third quarter 2008 gross profit was COL$4.49 trillion, an increase of 55% from COL$2.90 trillion reported in last year's third quarter. Gross margin was 45%, compared to 51.3%% in the prior year. The year-over-year decline in gross margin was primarily attributable to the impact of higher year-over-year oil prices on Ecopetrol's purchases of hydrocarbons from the Agencia Nacional de Hidrocarburos (ANH), its purchases of crude from joint operation agreements and its purchases of imported products.
Additionally, cost of sales was impacted by the strengthening of the U.S. dollar against the Colombian Peso. Variable costs represented 75% of 2008 third quarter cost of sales, up from 59% in last year's third quarter, and accounted for approximately 90.6% of the year-over-year expense increase. During the period, Ecopetrol increased its investment in the upgrade and maintenance of existing production fields contributing to a slight increase in the Company’s fixed costs.
Selling, general and administrative expenses were COL$532 billion, or 5.3% of sales for the third quarter of 2008 compared to COL$383 billion or 6.8% of sales in last year’s third quarter. Administrative expenses increased during the 2008 third quarter due to an adjustment in salaries and variable compensation as well as the increase in the non-deductible value-added tax that was levied on the sale of crude oil to the Cartagena refinery.
"During this period of volatile oil prices," Gutierrez said, "Ecopetrol's exceptionally strong balance sheet gives us the financial flexibility to execute on our long term strategic growth plan, while maintaining our disciplined approach to capital investments and our commitment to improving operating margins and maximizing cash generation."
Exploration and Production Highlights
Oil and gas production, on a barrel-of-oil-equivalent basis, increased to 441,000 barrels per day in the third quarter compared to 392,000 barrels per day in the same period of the prior year. The WTI price, market reference for Ecopetrol, averaged US $118 per barrel during the 2008 third quarter compared to US $76 per barrel last year.
The average prices of the basket of crudes and byproducts exported by Ecopetrol were US $102 per barrel and US $92 per barrel, respectively. This compares with US $66 per barrel and US $58 per barrel, respectively, in last year's third quarter.
Seismic activity in the third quarter reached 872 kilometers for Company-operated fields and 77 for joint operation agreements, for a total of 949 kilometers. Through September 2008 the Company participated in the drilling of 8 exploratory wells. Of those, 5 were drilled by Ecopetrol alone and the other 3 jointly with partners.
Third Quarter Exploration & Production News
Discovery of Hydrocarbons at Lisama Norte-1 Well in Santander
September 29, 2008 – Ecopetrol announced the discovery of crude oil and natural gas at the Lisama Norte-1 well located in the department of Santander. The discovery exemplifies the Company's strategy to reduce risk by exploring areas that are near existing producing fields.
Ecopetrol Confirms the Presence of Hydrocarbons at Arrayan-1 in Huila
September 5, 2008 – Ecopetrol confirmed the presence of crude oil and natural gas at the Company's 100% owned Arrayan-1 well, which is located in the basin of the Magdalena River Valley in the department of Huila.
Ecopetrol Signs Important Transaction with Union Oil Company of California
September 2, 2008 – Ecopetrol, through its U.S. subsidiary, reached an agreement with Union Oil Company of California to acquire a 9.2% interest in K2, a deepwater oil and gas field located in the Gulf of Mexico. The US $510 million transaction is consistent with the Company's plans for strategic and international growth.
Ecopetrol and Pacific Rubiales Reach Joint Exploration Agreement
July 31, 2008 – Ecopetrol S.A. and Pacific Rubiales reached an agreement, subject to approval by regulatory agency ANH, by which the two companies would jointly develop the Alicante Block located in the Llanos Orientales region in Colombia.
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