Colombia's Ecopetrol Catapults to New Heights with Record Profits

Ecopetrol has reported consolidated net income for 2008 of COP$11.63 trillion, or US $4.5 billion, a 124.5% increase compared to 2007.

Commenting on the Ecopetrol's full year results, Mr. Javier G. Gutierrez, Chief Executive Officer, said, "2008 was a period of significant achievement for Ecopetrol in key strategic areas. Oil and gas production continued its upward trend; we moved ahead with important exploration projects domestically and internationally; we acquired an interest in a producing field in the US Gulf of Mexico, which represents Ecopetrol's first production abroad; we considerably advanced our organizational consolidation to meet future goals and challenges; we made substantial efforts to improve the quality of our fuels; the acquisition and integration of Propilco was successfully completed; and we generated strong financial results that support our long term growth plans."

"Ecopetrol reported solid profitability for the fourth quarter of 2008 despite a sharp decline in international oil and natural gas prices resulting from market conditions," said Mr. Gutierrez. "Our 48.2% year-over-year growth in net income for the period was supported by higher production and the benefits of our favorable cost structure, which include: a high percentage of variable costs and competitive lifting and transportation costs compared to our peers."

Total sales volume increased by 14.5% in Q4 2008 compared to Q4 2007 as exports increased by 52.6%, partially offset by a net 3.3% reduction in domestic sales volumes.

The reduction in domestic sales volume was mainly due to a reduction in natural gas sales as a result of lower consumption in the thermo power generation sector and scheduled maintenance programs. Sales of propane and fuels decreased as a result of lower sales to wholesale clients, due to their expectations of lower prices they reduced purchases from Ecopetrol and utilized inventories. Lower sales of petrochemical and industrial products were principally due to a programmed plant stoppage and also expectations of lower prices. However, the sales of crude to the Cartagena refinery increased, based on lower prices for domestic crudes compared to imported crudes for the Refinery.

Export volume increased due to higher production levels and the Company's objective to identify additional commercial opportunities for domestically produced hydrocarbons, as well as the initiation of natural gas exports to Venezuela in 2008.

During the fourth quarter of 2008, the Company expanded its international presence through the sale of 4.0 MMBLS of Castilla crude oil to one of the most important companies in the Chinese petroleum sector. The entrance into this market was an important step in Ecopetrol’s costumer diversification strategy.

Financial Results

For the fourth quarter of 2008, net income increased by 48.2% to COP$2.05 trillion compared to COP$1.39 trillion in the fourth quarter of 2007. Net income for the fourth quarter of 2008 included COP$1.61 trillion in net financial income resulting primarily from foreign exchange gains and the reversal of certain provisions. In the fourth quarter of 2007, net financial income was COP$0.210 trillion. Earnings per share for the fourth quarter of 2008 amounted to COP$50.71, a 51.0% increase from the COP$33.58 reported for the fourth quarter of 2007.

2008 fourth quarter results were affected principally by the decrease of Ecopetrol’s average export prices, a reduction in domestic sales volume and higher costs of service, maintenance and labor.

Total sales in the fourth quarter of 2008 declined by 11.8% versus fourth quarter 2007 as a result of a decrease in international crude oil prices, which reduced Ecopetrol’s average export prices for its crude and products, and a reduction in domestic sales volume.

The basket of exported crude prices decreased 46.6%, from US$77.6 to US$41.4 per barrel, and the products 35.2%, from US$65.3 to US$ 42.3 per barrel. Nevertheless, local gasoline prices increased by 20.7% and diesel prices increased by 17.0%.

Cost of sales increased 17.7% from 2007 levels, as a result of higher costs of service and maintenance contracts related to increased production, and increased labor costs as the Company implemented new employee retention plans and increased personnel in line with the expansion of its operations. Variable costs represented 55.7% of cost of sales in the fourth quarter of 2008, as compared to 55.0% in the same quarter in 2007.

Gross profit for the fourth quarter of 2008 amounted to COP$1.47 trillion, a 50.8% decline from COP$2.99 trillion reported in the fourth quarter of 2007. Gross margin was 23.9% in the fourth quarter of 2008 compared to 42.9% in the fourth quarter of 2007.
Operating expenses increased by 61.4% versus fourth quarter 2007 primarily as a result of seismic activity which almost doubled and the consulting costs related to evaluating exploration and production opportunities abroad.

Non Operating Profit increased by 430.8% compared to the fourth quarter of 2007 as a result of exchange rate gains and returns on portfolio investments, primarily denominated in U.S. dollars. In the fourth quarter of 2008, with an average exchange rate of 2,154 COP$/US$, the variation in the foreign exchange rate had a net gain of COP$0.945 trillion, compared to a net loss of COP$0.044 trillion in the fourth quarter of 2007, with an exchange rate of 2,020 COP$/US$.

EBITDA for the fourth quarter of 2008 amounted to COP$1.15 trillion compared to the COP$2.41 trillion reported for the same period in 2007. EBITDA margin was 19% as compared to 35% in the fourth quarter of 2007.

Capital expenditures were COP$3.74 trillion for the fourth quarter of 2008 as compared to COP$2.50 trillion for the fourth quarter of 2007.

2008 Full Year Results

"Ecopetrol made important progress in 2008 in its evolution as a global integrated oil and gas company. As part of our strategic growth plan, we developed proven reserves, and we increased production."

"We also focused our exploration activities on sizeable exploration drilling and on existing mature and frontier fields, strengthened our portfolio and acreage position via joint ventures with several major oil companies and successful participation in bidding rounds, and bought an interest in K2 field in the US Gulf of Mexico.

"We also moved ahead with projects to modernize our refinery operations, improve fuel quality and develop alternative energy sources, as well as the construction of pipelines to transport heavy crudes from the Llanos Orientales.

"Thanks to significant achievement as well as the successful implementation of our investment plan for 2008, we were able to reduce the gap between current production and our goal of producing an average of one million barrels of oil equivalents per day for 2015," Mr. Gutierrez noted.

2009 Capital Investment Plan

On December 18, 2008 the Company announced its 2009 Capital Investment Plan which amounted to US$6.224 billion, a 29% increase compared to the US$4.824 billion invested during 2008. The plan will support the Company's previously announced strategic goals of producing one million barrels of oil equivalents per day by the year 2015, achieving higher operating efficiency and profitability, and generating greater value in its downstream operations.

Highlights of the Capital Investment Plan include:

  • 61% of the total investment, or US$3.76 billion will be in the areas of exploration and production activities.
  • 14% of the total investment, or US$870 million, will be used toward new acquisitions.
  • 13% of the total investment, or US$814 million will be invested in refining and petrochemicals projects.
  • 12.5% of the total investment, or US$776 million will be invested in transportation and other investments.

The investment in production capacity will be made primarily in the Llanos Orientales and Middle Magdalena regions, and will focus on the development of heavy crude and mature fields. Average gross crude oil and natural gas production goal for 2009 is 457 MBOED, with an estimated gross production for December of 2009 of 500 MBOED.

Financing for the Investment Plan is expected to be secured through internally generated funds, although Ecopetrol may also decide to access bank debt.