ECOPETROL S.A. annual report, Q4 FY2022

Business context and reporting period

Ecopetrol S.A. filed an annual Form 20-F for the fiscal year ended December 31, 2022, not a standalone fourth-quarter report. The consolidated financial statements are prepared under IFRS as issued by the IASB and reported in Colombian pesos (COP). Ecopetrol is an integrated energy group, with major oil and gas, refining, transportation, and electricity-transmission operations; Colombia owns 88.49% of its voting capital.

Financial and operating performance

Revenue rose 73.7%, operating income 102.8%, and net income attributable to Ecopetrol shareholders 102.0%. The filing attributes the improvement principally to higher crude and refined-product prices, peso depreciation, increased sales volumes, refinery margins, and a full year of ISA results versus four months in 2021. Average Brent was USD 99.0/barrel, compared with USD 70.9 in 2021; the crude basket averaged USD 90.9/barrel and the refined-product basket USD 118.2/barrel. Production averaged 709.5 thousand boe/day, up from 679.0 thousand. Refinery throughput was 360,451 barrels/day.

Gross profit was about 44% of revenue and operating income about 38% (calculated from reported figures). Finance results were a net expense of COP 6.8 trillion, up from COP 3.7 trillion, primarily reflecting higher interest expense, debt-related costs, and foreign-exchange effects. Income tax expense was COP 19.0 trillion, at a 35.0% effective rate versus 33.3%. Cash used in financing activities was COP 18.9 trillion, mainly reflecting dividends and debt service. The current ratio was approximately 1.36, based on reported current assets of COP 77.3 trillion and current liabilities of COP 56.8 trillion.

Material changes versus the prior comparable period

• Revenue increased COP 67.7 trillion year over year; the filing cites higher benchmark prices, a weaker peso, greater sales volumes, and increased ISA consolidation as key drivers.
• Operating cash flow increased 60.8%, while capital expenditures increased 64.6%.
• Consolidated debt increased to COP 115.1 trillion. U.S.-dollar-denominated debt was USD 22.3 billion; approximately 26% of debt was floating-rate, leaving the group exposed to interest-rate changes.
• Proved reserves rose to 2.011 billion boe from 2.002 billion boe; the 2022 reserves replacement ratio was 104%, down from 200% in 2021.
• Refining and petrochemicals segment revenue grew 74.9%; the Cartagena and Barrancabermeja refineries reported stronger refining margins. ISA’s full-year consolidation increased reported transmission and toll-road revenue.

Outlook, commentary, risks and unusual items

• 2023 plan: Investment budget of USD 5.6–6.6 billion, based on Brent at USD 80/barrel and COP 4,500/USD. Management expects production of 720–725 thousand boe/day and plans to finance investment primarily with internal cash generation and FEPC collections, with gross debt/EBITDA below 2.1. The plan may be revised as assumptions change.
• FEPC liquidity exposure: At year-end, Ecopetrol recorded COP 24.4 trillion receivable from the Fuel Price Stabilization Fund and Cartagena Refinery recorded COP 1.9 trillion. The combined COP 26.3 trillion receivable was a significant working-capital burden; timing and certainty of collection remain important.
• Tax and regulatory changes: Colombia’s 2022 tax reform, effective in 2023, includes non-deductibility of oil and gas royalties and an oil-sector income-tax surcharge linked to international prices. The company also faces evolving climate, energy-transition, licensing, and hydrocarbon policies.
• Strategy and climate: Ecopetrol targets net-zero Scope 1 and 2 emissions by 2050, a 25% reduction by 2030 versus 2019, and zero routine flaring by 2030. These are targets, not assured outcomes; execution depends on technology, funding, permitting, and market development.
• Unconventional projects: Colombia’s policy direction on fracking and pilot projects remains uncertain. The Kalé pilot’s environmental obligations were suspended, and the ANH and Ecopetrol were still working on suspension terms at the report date.
• Debt and dividends: After year-end, Ecopetrol issued USD 2 billion of 8.875% notes due 2033 and conducted a tender offer for 2023 notes. The board proposed a COP 593/share dividend, totaling COP 24.4 trillion, subject to shareholder approval after the filing date.
• Legal matters: Ecopetrol reported 6,595 legal proceedings, including 4,720 filed against it in Colombian courts and arbitration tribunals; 358 had an accrual provision. Reficar’s ICC arbitration against CB&I remained unresolved, with Reficar seeking at least USD 2 billion plus lost profits.
• Management transition: Felipe Bayón was scheduled to step down as CEO on March 31, 2023. The board appointed Alberto Consuegra interim CEO beginning April 1 while the successor selection process continued.

Most important facts for investors to verify

• Whether and when the FEPC receivables are collected, and the resulting effects on working capital, liquidity, and funding needs.
• How the 2023 tax reform, especially royalty non-deductibility and the price-linked surcharge, affects effective tax rates and project economics.
• Whether the 2023 investment, production, and leverage targets are achieved under actual commodity prices and exchange rates.
• Debt maturity, refinancing, floating-rate exposure, and the impact of post-year-end bond issuance and tender activity.
• Reserves additions, development costs, and sensitivity of reserve and asset valuations to prices, discount rates, and operating plans.
• Outcomes of the Reficar arbitration, other material proceedings, and the evolving regulatory and permitting status of unconventional-resource projects.
• The shareholder vote and final terms for the proposed COP 593/share dividend.