20-F 1 tm214046d1_20f.htm FORM 20-F

 

 

As filed with the Securities and Exchange Commission on April 8, 2021

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

 

 

FORM 20-F
ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the fiscal year ended December 31, 2020

 

Commission file number: 001-34175

 

ECOPETROL S.A.
(Exact name of Registrant as specified in its charter)

 

 

 

N /A
(Translation of Registrant’s name into English)

 

 

 

REPUBLIC OF COLOMBIA
(Jurisdiction of incorporation or organization)

 

 

 

Carrera 13 No. 36 – 24
BOGOTA – COLOMBIA
(Address of principal executive offices)
Tel. (571) 234 4000

 

 

 

Lina María Contreras Mora

Investor Relations Officer
investors@ecopetrol.com.co
Tel. (571) 234 5190
Carrera 13 N.36-24 Piso 7
Bogota, Colombia

 

(Name, Telephone, E-Mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which
registered:

American Depository Shares (as evidenced by American Depository Receipts), each representing 20 common shares par value COP$ 609 per share  EC  New York Stock Exchange
Ecopetrol common shares par value COP$ 609 per share     New York Stock Exchange (for listing purposes only)
5.875% Notes due 2023  EC23  New York Stock Exchange
4.125% Notes due 2025  EC25  New York Stock Exchange
6.875% Notes due 2030  EC30  New York Stock Exchange
5.375% Notes due 2026  EC26  New York Stock Exchange
7.375% Notes due 2043  EC43  New York Stock Exchange
5.875% Notes due 2045  EC45  New York Stock Exchange

 

Securities registered or to be registered pursuant to Section 12(g) of the Act: None

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

 

41,116,694,690 Ecopetrol common shares, par value COP$ 609 per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 

☒ Yes  ☐ No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

☐ Yes  ☒ No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

☒ Yes  ☐ No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 

☒ Yes  ☐ No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☒ Accelerated filer ☐  Non-accelerated filer ☐  Emerging growth company ☐ 

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐ 

 

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.

 

☒ Yes  ☐ No

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

☐ U.S. GAAP ☒ International Financial Reporting Standards as issued by the International Accounting Standards Board ☐  Other

 

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

 

☐ Item 17  ☐ Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).

 

☐ Yes  ☒ No

 

 

 


 

Annual Report on Form 20-F 2020

Table of Contents

 

1. Introduction     4
  1.1 About This Annual Report 4
  1.2 Forward-looking Statements 4
  1.3 Selected Financial and Operating Data 5
2. Strategy and Market Overview 7
  2.1 Our Corporate Strategy 8
    2.1.1 2021 – 2023 Business Plan 8
      2.1.1.1 Energy Transition 10
    2.1.2 2021 Investment Plan 11
  2.2. Unconventional Energy Sources 11
3. Business Overview   12
  3.1 Our History   12
  3.2 Our Corporate Structure 12
  3.3 Recent Developments 13
  3.4 Our Business   14
  3.5 Exploration and Production 14
    3.5.1 Exploration Activities 15
      3.5.1.1 Exploration Activities in Colombia 15
      3.5.1.2 Exploration Activities Outside Colombia 17
    3.5.2 Production Activities 19
      3.5.2.1 Production Activities in Colombia 19
        3.5.2.1.1 Ecopetrol S.A.s Production Activities in Colombia 19
        3.5.2.1.2 Ecopetrol S.A.’s Affiliates and Subsidiaries’ Production Activities in Colombia 26
      3.5.2.2 Production Activities Outside Colombia 29
      3.5.2.3 Marketing of Crude Oil and Natural Gas 33
    3.5.3 Reserves 34
    3.5.4 Joint Venture and Other Contractual Arrangements 43
  3.6 Transportation and Logistics 47
    3.6.1 Transportation Activities 47
      3.6.1.1 Pipelines 50
      3.6.1.2 Export and Import Facilities 52
    3.6.2 Other Transportation Facilities 52
    3.6.3 Marketing of Transportation Services 53
  3.7 Refining and Petrochemicals 56
    3.7.1 Refining 56
      3.7.1.1 Barrancabermeja Refinery 56
      3.7.1.2 Cartagena Refinery 57
      3.7.1.3 Esenttia S.A. 58
      3.7.1.4 Invercolsa 59
      3.7.1.5 Biofuels 59
    3.7.2 Marketing and Supply of Refined Products 59
  3.8 Research and Development; Intellectual Property 59
  3.9 Applicable Laws and Regulations 60
    3.9.1 Regulation of Exploration and Production Activities 60
      3.9.1.1 Business Regulation 60
        3.9.1.1.1 Environmental Licensing and Prior Consultation 63
        3.9.1.1.2 Royalties 65
    3.9.2 Regulation of Transportation Activities 65
    3.9.3 Regulation of Refining and Petrochemical Activities 67
      3.9.3.1 Regulation of Liquefied Petroleum Gas (LPG) and Liquid Fuels 67
      3.9.3.2 Regulation Concerning Production and Prices 68

 

      3.9.3.3 Regulation of Biofuel and Related Activities 70
    3.9.4 Regulation of the Natural Gas Market 70
    3.9.5 Regulation of the Electric Energy Commercialization Activity 71
    3.9.6 Regulation of the Electricity Self-Generation Activity 72
  3.10 Technology, Environment, Social and Governance (TESG) Strategies and Initiatives 73
    3.10.2 Energy Initiatives 76
    3.10.3 HSE 77
      3.10.3.1 Ecopetrol S.A. 77
      3.10.3.2 Cenit 83
      3.10.3.3 Cartagena Refinery 83
  3.11 Related Party and Intercompany Transactions 83
  3.12 Insurance 89
  3.13 Human Resources/Labor Relations 91
    3.13.1 Employees 91
    3.13.2 Collective Bargaining Arrangements 93
4. Financial Review 94
  4.1 Factors Affecting Our Operating Results 95
  4.2 Effect of the COVID-19 Pandemic on our 2020 Results 96
  4.3 Effect of Taxes, Exchange Rate Variation, Inflation and the Price of Oil on our Results 98
    4.3.1 Taxes 98
    4.3.2 Exchange Rate Variation 101
    4.3.3 Effects of Inflation 103
    4.3.4 Effects of Crude Oil and Refined Product Prices 103
  4.4 Accounting Policies 103
  4.5 Critical Accounting Judgments and Estimates 103
  4.6 Operating Results 104
    4.6.1 Consolidated Results of Operations 104
      4.6.1.1 Total Revenues 104
      4.6.1.2 Cost of Sales 106
      4.6.1.3 Operating Expenses before Impairment of Non-Current Assets Effects 107
      4.6.1.4 Impairment of Non-Current Assets 109
      4.6.1.5 Finance Results, Net 110
      4.6.1.6 Income Tax 111
      4.6.1.7 Net Income (Loss) Attributable to Owners of Ecopetrol 111
      4.6.1.8 Segment Performance and Analysis 111
      4.6.1.9 Exploration and Production Segment Results 113
      4.6.1.10 Transportation and Logistics Segment Results 116
      4.6.1.11 Refining and Petrochemicals Segment Results 117
  4.7 Liquidity and Capital Resources 119
    4.7.1 Review of Cash Flows 119
    4.7.2 Capital Expenditures 120
    4.7.3 Dividends 120
  4.8 Summary of Differences between Internal Reporting (Colombian IFRS and IFRS) 121
  4.9 Financial Indebtedness and Other Contractual Obligations 123
  4.10 Off Balance Sheet Arrangements 124
  4.11 Trend Analysis and Sensitivity Analysis 124
5. Risk Review   126
  5.1 Risk Factor Summary 126
  5.2 Risk Factors 128
    5.2.1 Risks Related to Our Business 128
    5.2.2 Risks Related to Colombias Political and Regional Environment 142
    5.2.3 Legal and Regulatory Risks 145
    5.2.4 Risks Related to Our ADSs 148
    5.2.5 Risks Related to the Controlling Shareholder 150
  5.3 Risk Management 151
    5.3.1 Integrated Risk Management System and Internal Control System 151

ii

 

    5.3.2 Managing Low Carbon Economy and Climate Change Risks 152
    5.3.3 Managing Information Security and Cybersecurity 153
    5.3.4 Managing Financial Risk 154
  5.4 Legal Proceedings and Related Matters 156
6. Shareholder Information 164
  6.1 ShareholdersGeneral Assembly 164
  6.2 Dividend Policy 164
  6.3 Market and Market Prices 165
  6.4 Description of Ecopetrol Registered Debt Securities 166
  6.5 Description of Ecopetrol ADRs 166
  6.6 Taxation 167
    6.6.1 Colombian Tax Considerations 167
    6.6.2 U.S. Federal Income Tax Consequences 172
  6.7 Exchange Controls and Limitations 174
  6.8 Exchange Rates 176
  6.9 Major Shareholders 176
  6.10 Enforcement of Civil Liabilities 176
7. Corporate Governance 177
  7.1 Bylaws 179
  7.2 Code of Ethics and Conduct 182
  7.3 Board of Directors 183
    7.3.1 Board Practices 186
    7.3.2 Board Committees 186
  7.4 Compliance with NYSE Listing Rules 188
  7.5 Management 190
  7.6 Compensation of Directors and Management 193
  7.7 Share Ownership of Directors and Executive Officers 194
  7.8 Controls and Procedures 194
8. Financial Statements 197
9. Signature Page 198
10. Exhibits 199
11. Cross-reference to Form 20-F 201

iii

 

1.Introduction

 

1.1About This Annual Report

 

We file our Annual Report on Form 20-F and other information with the U.S. Securities and Exchange Commission.

 

We file reports, including annual reports on Form 20-F, and other information with the SEC pursuant to the rules and regulations of the SEC that apply to foreign private issuers. The materials included in this annual report on Form 20-F may be downloaded at the SEC’s website: http://www.sec.gov. Any filings we make are also available to the public over the Internet at the SEC’s website at www.sec.gov and at our website at www.ecopetrol.com.co. (This URL is intended to be an inactive textual reference only. It is not intended to be an active hyperlink to our website. The information on our website, which might be accessible through a hyperlink resulting from this URL, is not and shall not be deemed to be incorporated into this annual report.)

 

Unless the context otherwise requires, the terms “Ecopetrol”, “we”, “us”, “our”, “Ecopetrol Group”, or the “Company” are used in this annual report to refer to Ecopetrol S.A. and its subsidiaries on a consolidated basis.

 

For purposes of the section Business Overview—Exploration and Production, “we” refers to Ecopetrol S.A., its subsidiaries and the partnerships in which Ecopetrol has an interest.

 

References to the Nation in this annual report relate to the Republic of Colombia (Colombia), our controlling shareholder. References made to the Colombian government (or the Government) correspond to the executive branch including the President of Colombia, the ministries and other governmental agencies responsible for regulating our business.

 

1.2Forward-looking Statements

 

This annual report on Form 20-F contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are not based on historical facts and reflect our expectations for future events and results. Most facts are uncertain because of their nature. Words such as “anticipate”, “believe”, “could”, “estimate”, “expect”, “should”, “plan”, “potential”, “predicts”, “prognosticate”, “project”, “target”, “achieve” and “intend”, among other similar expressions, are understood as forward-looking statements. We have made forward-looking statements that address, among other things:

 

our exploration and production activities, including drilling;

 

import and export activities;

 

our liquidity, cash flow, and sources of funding;

 

our projected and targeted capital expenditures and other cost commitments and revenues; and

 

dates by which certain areas will be developed or will come on-stream.

 

Our forward-looking statements and sensitivity analysis are not guarantees of future performance and are subject to assumptions that may prove incorrect and to risks and uncertainties that are difficult to predict. Actual results could differ materially from those expressed or forecasted in any forward-looking statements as a result of a variety of factors. These factors may include, but are not limited to, the following:

 

general economic and business conditions, including crude oil and other commodity prices, refining margins and prevailing exchange rates;

 

competition;

 

our ability to obtain financing;

4

 

our ability to find, acquire or gain access to additional reserves and our ability to develop existing reserves;

 

uncertainties inherent in making estimates of our reserves;

 

significant political, economic and social developments in Colombia and other countries where we do business;

 

natural disasters, pandemics and other public health events, including the coronavirus (“COVID 19”) pandemic, military operations, terrorist acts, wars or embargoes;

 

regulatory developments, including regulations related to climate change;

 

receipt of government approvals and licenses;

 

technical difficulties; and

 

other factors discussed in section Risk Review—Risk Factors of this document as “Risk Factors.”

 

All forward-looking statements attributed to us are qualified in their entirety by this cautionary statement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information or for any other reason. Accordingly, readers should not place undue reliance on the forward-looking statements.

 

1.3Selected Financial and Operating Data

 

The following table sets forth, for the periods and at the dates indicated, our selected historical financial and certain key operating data. The selected financial data has been derived from and should be read in conjunction with, and is qualified in its entirety by reference to, our consolidated audited financial statements, presented in Colombian Pesos.

 

Table 1 – Selected Operating Data

 

Operating Information  2020   2019   2018   2017   2016 
Oil and gas production (mboed)   697.0    725.1    720.4    715.1    717.9 
Proved oil and gas reserves (mmboe)(1)   1,770    1,893    1,727    1,659    1,598 
Exploratory wells(2)   18    20    17    20    6 
Refinery throughput (bpd)(3)   322,038    375,754    375,444    347,483    332,751 
1P Reserves replacement ratio   48%   169%   129%   126%   (7)%

 

 

(1)Proved oil and gas reserves include natural gas royalties and exclude crude oil royalties.
(2)Gross exploratory wells.
(3)Refinery throughput includes the Barrancabermeja, Cartagena, Apiay and Orito refineries.

5

 

Financial Information

International Financial Reporting Standards (IFRS)

(Expressed in millions of Colombian Pesos, except for the net income per share, net operating income per share and dividends declared per share, which are expressed in Colombian Pesos, and common shares and weighted average shares outstanding, which are expressed as number)

 

Table 2 – Selected Financial Data

 

Financial Information  2020   2019   2018   2017   2016 
Revenue   50,223,393    71,488,512    68,603,872    55,954,228    48,485,561 
Operating income   7,181,765    21,027,158    22,458,414    16,171,855    8,904,548 
Net income (loss) attributable to Ecopetrol’s shareholders   1,586,677    13,744,011    11,381,386    7,178,539    2,447,881 
Net operating income per share   175    511    546    393    217 
Weighted average number of shares outstanding   41,116,694,690    41,116,694,690    41,116,694,690    41,116,694,690    41,116,694,690 
Net income per share (basic and diluted)   39    334    277    175    59.5 
Total assets   137,694,169    133,890,296    124,643,498    117,847,412    118,958,977 
                          
Total equity   53,499,363    58,231,628    57,107,780    48,215,699    43,560,501 
Subscribed and paid-in capital   25,040,067    25,040,067    25,040,067    25,040,067    25,040,067 
Number of common shares   41,116,694,690    41,116,694,690    41,116,694,690    41,116,694,690    41,116,694,690 
Dividends declared per share   17    180    314    89    23 
Total liabilities   84,194,806    75,658,668    67,535,718    69,631,713    75,398,476 

 

Our consolidated financial statements for the years ended December 31, 2016, 2017, 2018, 2019 and 2020 were prepared in accordance with IFRS as issued by IASB. References in this annual report to IFRS mean IFRS as issued by the IASB.

 

IFRS differs in certain significant aspects from the current reporting standards as in effect in Colombia (Colombian IFRS), which is the accounting standard we use for local reporting purposes. As a result, our financial information presented under IFRS is not directly comparable to our financial information presented under Colombian IFRS. For a description of the differences between Colombian IFRS and IFRS, see section Financial Review—Summary of Differences between Internal Reporting Policies and IFRS.

 

Our consolidated financial statements were consolidated line by line and all transactions and balances between subsidiaries have been eliminated. These financial statements include the financial results of all subsidiary companies controlled, directly or indirectly, by Ecopetrol S.A. See Exhibit 1 – Consolidated companies, associates and joint ventures, to our consolidated financial statements included in this annual report.

 

As indicated in IFRS 10 “Consolidated Financial Statements,” we must present our financial information on a consolidated basis as if we were a single entity, combining the financial statements of Ecopetrol S.A. and its subsidiaries line by line, adding assets, liabilities, shareholder’s equity, revenues and expenses of similar nature, removing the reciprocal items among companies that are members of the Ecopetrol Group (Ecopetrol Group or EG) and recognizing non-controlling interest. We present our operating information on a consolidated basis in accordance with IFRS.

 

In this annual report, references to “US$” or “U.S. dollars” are to United States dollars and references to “COP$” “Colombian Peso” or “Colombian Pesos” are to Colombian Pesos, the Ecopetrol Group’s functional and presentation currency under which we prepare our consolidated financial statements. This annual report translates certain Colombian Peso amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise indicated, such Colombian Peso amounts have been translated at the rate of COP$3,691.27 per US$1.00, which corresponds to the average Tasa Representativa del Mercado (TRM), or Representative Market Exchange Rate, for 2020. Such conversion should not be construed as a representation that the Colombian Peso amounts correspond to, or have been or could be converted into, U.S. dollars at that rate or any other rate. On April 5, 2021, the Representative Market Exchange Rate was COP$3,679 per US$1.00. Certain figures shown in this annual report have been subject to rounding adjustments, and, accordingly, certain totals may therefore not precisely equal the sum of the numbers presented. In this annual report a billion is equal to one with nine zeros.

6

 

 

2.Strategy and Market Overview

 

Containment measures and economic disruptions related to the COVID-19 outbreak led to a slowdown in production and mobility worldwide, producing a significant drop in global demand for oil in 2020. Demand contracted for most refined products (especially jet fuel and gasoline), which brought the Brent price to US$20/Bl by the end of April 2020. Although demand recovered throughout the second half of the year, it did not reach pre-COVID-19 pandemic levels. The U.S. Energy Information Administration (EIA) estimates that demand contracted by 9.0 mmbd as compared to 2019, the largest annual decline registered in EIA data since 1980. 

 

Oil supply slowly reacted to low prices. Moreover, a price war between Saudi Arabia and Russia in March and April further delayed the supply response. However, the Organization of the Petroleum Exporting Countries (OPEC) and its allies (including Russia) agreed to a supply cut at the end of April 2020. This, in conjunction with the drop in United States production, was key in balancing the oil market. In total, supply was reduced by 6.4 mmbd in 2020, of which OPEC’s share was 4.1 mmbd, the US’s share was 0.9 mmbd and the remaining 1.4 mmbd was contributed by others.

 

The drop in demand resulted in an increase in inventory and a decline in price during the first half of 2020. During much of the second half of the year, reduced oil production from the 14 OPEC member countries and ten of the world’s major non-OPEC oil-exporting nations, including Russia (OPEC+) and the United States, along with a rising oil consumption, caused inventory to fall, driving Brent prices to a monthly average of US$ 50/Bl in December 2020.

 

Graph 1 – Supply/Demand Balance vs ICE Brent Price Evolution

 

 

Source: EIA: Short Term Report (January 2021)

7

 

Although international oil prices and global demand and supply dynamics are significant factors affecting our business and financial condition, Colombia’s local economic factors have also influenced, and will continue to affect our performance, given that we conduct most of our business in Colombia.

 

The performance of Colombia’s gross domestic product (GDP) is one of the main drivers of fuel consumption in Colombia. According to the National Administrative Department of Statistics (DANE for its acronym in Spanish), in 2020 Colombia’s GDP fell 6.8% in real terms, as compared to 2019. The main reason for this contraction was derived from the COVID-19 pandemic and from the measures taken by the Colombian government to stop the spread of the virus, which included, among other measures, mandatory lockdowns and work slowdowns in certain industries. These measures particularly affected the construction, transportation, and mining industries, whereas the agriculture, financial services and real estate industries were still able to post positive growth rates along 2020. Within this context, local sales of liquid fuels decreased by 19.9% during 2020, primarily due to lower diesel and gasoline demand.

 

Natural gas demand in Colombia decreased by 1.4% in 2020 compared with 2019, due to lower demand from the industrial sector and refineries. In 2020, the natural gas market was challenged from the supply side itself, primarily due to the decrease in demand needs due to the COVID-19 pandemic, the latter generated several blockades and quarantines in different countries leading to a decrease in natural gas requirements for electricity generation as in the industrial sector. Additionally, it faced the harshness of the hurricane season in the Gulf of Mexico, which also forced the suspension of the mobilization of LNG ships, causing some terminals to suspend their operations. During the months of May to July, natural gas prices for Hubs such as TTF and JKF reached similar ranges to the ones of Henry Hub, placing them in ranges between US$1.43 – US$ 2.38 million British thermal unit (MMbtu). However, these same markers showed a significant recovery by the end of 2020, primarily due to the commencement of the winter season, leading to the production of natural gas from the Gulf of Mexico turning to serve the Asian market.

 

2.1Our Corporate Strategy

 

2.1.12021 – 2023 Business Plan

 

The Ecopetrol Group’s Organic Business Plan (the “Business Plan”) for the 2021-2023 period, is aimed at restoring the Ecopetrol Group’s growth trajectory post COVID-19, increasing competitiveness, laying the foundations of energy transition and going deeper into the Technology, Environment, Social and Governance (TESG) agenda through positive social and environmental impact in the territories where we operate. The Business Plan also seeks to maintain the effective response of the Ecopetrol Group to uncertain economic and environmental conditions, ensure the financial sustainability of the Ecopetrol Group and keep the value promise to stakeholders in the medium and long terms. The organic investment included in the Business Plan is expected to be financed mainly with internal cash generation. The Brent price assumptions under the Business Plan are as follows: US$ 45/Bl in 2021, US$ 50/Bl in 2022 and US$ 54/Bl in 2023.

 

The Business Plan features an organic investment between US$ 12 billion and US$ 15 billion for the three-year period, mainly focused in Colombia, and seeks to ensure capital allocation towards incorporation of more competitive reserves and resources within a new scenario of oil and gas prices, competitive positioning in the energy transition (such as gas, decarbonization, short-cycle hydrocarbons and the incorporation of renewable energies), reliability investments necessary for a responsible and sustainable operation, and strategic technologies and social investment for the future of the Ecopetrol Group.

 

76% of the investments are expected to be allocated towards growth opportunities aimed at continuing the exploration and profitable development of existing assets and accelerating adaptation to the energy transition, with investments focused on the continuation of the enhanced recovery programs and the growth of the gas value chain. The remaining 24% of investments are expected to be allocated to operational continuity, seeking to preserve the value of the assets and bring reliability and integrity to the Ecopetrol Group’s consolidated operations.

 

The most relevant operational goals of the Business Plan are the following: (i) to reach production levels between 700 and 710 thousand barrels of oil equivalent per day in 2021, with a growth trajectory that allows the Ecopetrol Group to reach production levels of approximately 750 thousand barrels of oil equivalent per day by 2023; (ii) to reach a joint throughput at the Barrancabermeja and Cartagena refineries of between 340 and 365 thousand barrels per day in 2021, with a growth path that allows reaching a joint throughput at such refineries of approximately 420 thousand barrels per day by 2023 in an expected scenario of recovery in demand and refining margins, as well as the interconnection of the crude plants at the Cartagena refinery; and (iii) to reach transported volumes of over one million barrels per day – in line with the evolution of the production and demand for liquid fuels in the country.

8

 

Upstream

 

In terms of the upstream segment, the Business Plan allocates an investment range of between US$ 9 billion and US$ 11 billion. The Business Plan maintains the growth of this segment as a strategic objective, with a focus on accelerating the progression of resources and reserves, through exploration, drilling and enhanced recovery.

 

Of the aforementioned resources, (i) 69% is expected to be be allocated in production activities, including the Rubiales, Castilla, Piedemonte and the Middle Magdalena Valley fields, with a continued focus on maturity and development of improved recovery activities, (ii) 22% is expected to be allocated internationally, where the main focus areas will be Brazil and the Permian Basin in the United States and (iii) 9% of the resources are expected to be allocated in exploration activities, with an expected drilling of more than 40 wells located in the basins of greater materiality, with emphasis on the Llanos Orientales, Middle Magdalena Valley, Lower Magdalena Valley and Sinú-San Jacinto areas.

 

In terms of unconventional reservoirs, the Ecopetrol Group will continue the development process for the initiatives associated to the Comprehensive Research Pilot Projects (PPII for its Spanish acronym) in the Middle Magdalena valley basin in Colombia, and well as increasing development activities in the Permian Basin in Texas.

 

Regarding the growth of the natural gas chain (one of the Ecopetrol Group’s strategic pillars), between 9% and 10% of the investment called for by the Business Plan is expected to be allocated towards the development of Piedemonte and other sources of gas in the Middle Magdalena Valley, Guajira and the Sinú-San Jacinto basin areas in Colombia. Additionally, the Business Plan calls for investments for the evaluation and development of the largest offshore gas discoveries in the Colombian Caribbean.

 

The Business Plan foresees the achievement of reserves replacement ratio greater than 100% after 2022. However, such goal is subject to revision based on the evolution of both the Business Plan and market conditions.

 

Midstream

 

In terms of the midstream segment, the Business Plan allocates an investment of between US$ 780 million and US$ 960 million, mainly aimed at strengthening the integrity and reliability of the infrastructure, prioritizing resources for the growth of the multi-pipeline business, while advancing in increasing flexibility and efficiency in logistics for the evacuation of heavy crude and the growth of the pipeline infrastructure. These investments are also expected to enable future operating costs optimization by upgrading equipment and improving its performance.

 

Downstream

 

In terms of the downstream segment, the Business Plan allocates an investment between US$ 1.2 billion and US$ 1.4 billion focused on ensuring (i) the integrity and competitiveness of existing assets, and (ii) compliance with the fuel quality path. Regulatory compliance investments and major maintenance investment are expected to be made a part of the compliance with the life cycle of the plants in the Cartagena and Barrancabermeja refineries. The expected investments also call for the execution of the final phase of the interconnection project of the crude plants of the Cartagena refinery in an aggregate amount of approximately US$ 77 million, which is expected to commence operations in 2022.

 

In order to advance with the production of cleaner fuels for the country, investments in the 2021-2023 period are expected to make possible to guarantee sustained internal quality of diesel of between 10 and 15 ppm of sulfur, and to bring gasoline to a maximum of 50 ppm of sulfur across Colombia.

 

Commercial Strategy

 

The Business Plan maintains the Ecopetrol Group’s strategy of diversifying clients and destinations, with an important emphasis on the independent refining sector in China, while maintaining an active participation in the refining market of the United States. The foregoing is expected to be leveraged on our operational flexibility at ports, a stable quality of our crude oil and optimization of logistics.

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TESG

 

In terms of TESG, the Business Plan allocates approximately COP$ 1.7 trillion for the 2020-2024 period for social and environmental investment, aimed at closing social gaps and promoting the development and well-being of the communities where the Ecopetrol Group operates, with strategic projects expected in infrastructure, public services, education, sports and health, inclusive rural development and entrepreneurship and business development. Additionally, support will continue to be provided with resources in order to meet the COVID-19 pandemic needs of the communities and areas where the Ecopetrol Group operates.

 

Between US$ 100 million and US$ 150 million are expected to be allocated to the development of the Ecopetrol Group’s digital strategy, in order to capture benefits related to artificial intelligence technologies, block chain and bots, among others. Furthermore, we expect to invest between US$70 million and US$110 million in projects to increase the recovery factor, energy transition and strategic studies on water issues and new materials.

 

In connection with the Ecopetrol Group’s energy transition strategy, the Business Plan allocates investments of more than US$600 million in initiatives focused on the decarbonization agenda, among which stand out solar, wind and geothermal energy projects, followed by energy efficiency and fuel quality projects, among others. Similarly, in March 2021, intermediate and long-term emissions reduction goals and achievement plan were defined in line with the Ecopetrol Group’s growth strategy.

 

In 2021, the Ecopetrol Group also expects to consolidate its evaluation of opportunities associated with the hydrogen value chain and will seek to materialize partnerships in international agreements and with governments to identify business opportunities.

 

For more information on the TESG agenda see section entitled Technology, Environment, Social and Governance (TESG) Strategies and Initiatives.

 

2.1.1.1Energy Transition

 

To acknowledge the risks and opportunities that transitioning to a low carbon economy implies for the Ecopetrol Group, we have defined four lines of action, including the aforementioned, to face the energy transition, as described below:

 

(i)Continue strengthening the competitiveness of the oil and gas business: The Ecopetrol Group plans to gain resilience in the oil and gas portfolio, which is expected to continue to be our core activities until the peak in oil demand is reached, while increasing its commitment to new businesses resilient to the energy transition.

 

(ii)Diversification of our business portfolio into low-carbon businesses: The Ecopetrol Group is exploring new business opportunities in the electricity value chain specifically in the energy transmission market as well as other potential future low-carbon businesses such as green hydrogen, carbon capture, utilization and storage (CCUS), nature-based solutions, among others, as long as that they meet the Ecopetrol Group’s growth, cash protection, and capital discipline criteria.

 

(iii)Achievement of decarbonization targets: Focused on accelerating and prioritizing energy efficiencies and reductions in carbon emissions the Ecopetrol Group plans on achieving the decarbonization goals mentioned in the section entitled Technology, Environment, Social and Governance (TESG) Strategies and Initiatives. Such targets are aligned with the Ecopetrol Group’s objectives of reducing the carbon emissions associated with its operations, as well as reducing the vulnerability of its operation and infrastructure to climate change.

 

(iv)Achievement of sustainability through the TESG strategy: The Ecopetrol Group’s TESG strategy places a clear focus on climate change (including decarbonization targets), water management, and territorial development as well as biodiversity, circular economy, health, safety and environmental (HSE) practices and diversity, leveraged on technology as a key enabler.

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Oil and gas companies are evaluating options to reposition themselves along the energy value chain in new business segments aligned with the market trends towards decarbonization and electrification, such as renewable generation, commercialization, and services to end customers, among others. It is Ecopetrol’s view that the need to connect and integrate multiple points and types of generation will reinforce the role of transmission as an indispensable actor in the energy value chain, and a required enabler of the growth of clean generation and electrification.

 

Our announced interest in acquiring a 51.4% stake in Interconexión Eléctrica S.A. (ISA) is part of this strategy as it would allow us to achieve a relevant position in a strategic sector for the energy transition. Through a single transaction, we would position ourselves in a key link in the electricity business with clear prospects for future growth. For more information on this potential transaction see the section entitled Business Overview-Recent Developments.

 

2.1.22021 Investment Plan

 

In December 2020, the Board of Directors approved between US$ 3.5 billion and US$ 4.0 billion for the 2021 investment plan at US$ 45/Bl Brent. The Ecopetrol Group plans to produce between 700 and 710 thousand barrels of oil equivalent per day during 2021. The Ecopetrol Group expects to allocate 80% percent of these investments to projects in Colombia and the remainder to the positioning and development of the Ecopetrol Group’s operations in the United States and Brazil.

 

The table below sets forth the details of the investment plan per business segment announced in December 2020:

 

Table 3 – 2021 Investment Plan

 

Business Segment  % Percentage(1) 
Exploration   6%
Production   71%
Midstream   7%
Downstream   11%
Other   5%
TOTAL   100%

 

 

(1)Percentage over the upper range.

 

2.2.Unconventional Energy Sources

 

Ecopetrol’s strategy for unconventional resources is based on the significant acreage position it has in the Middle Magdalena Basin in Colombia. In September 2019, the Colombian Council of State authorized the execution of the PPII to do the research on the eventual effects of using unconventional technology and made mandatory recommendations in respect of the pilot stage. However, a final decision on the development of unconventional reservoirs will not be issued until the government has evaluated the PPII results.

 

On February 28, 2020, the Ministry of Mines and Energy issued Decree 328 providing the general guidelines for developing PPII on unconventional reservoirs. Furthermore, on December 24, 2020, Ecopetrol signed a contract with the Agencia Nacional de Hidrocarburos - National Hydrocarbons Agency (the “ANH”) in respect of a pilot program in the Middle Magdalena Basin pursuant to which the potential environmental and social impacts are to be evaluated and the multi-stage hydraulic fracturing in horizontal wells concept is to be assessed.

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3.Business Overview

 

3.1Our History

 

We were formed in 1951 by the Colombian government as Empresa Colombiana de Petróleos and began operating the crude oil fields at La Cira-Infantas, the oldest Colombian oil field, where production started in 1918, and the pipeline that connected that field with the Barrancabermeja refinery and the port of Cartagena. In 1961, we assumed the direct operation of the Barrancabermeja refinery and continued its transformation into an industrial complex. In 1974, we acquired the Cartagena refinery (as defined below), which had been in operation since 1957. Pursuant to Decree 0062 of 1970, we were transformed into a governmental, industrial and commercial company.

 

In 2003, pursuant to Decree Law 1760, the Agencia Nacional de Hidrocarburos - National Hydrocarbons Agency (the ANH) was created and Ecopetrol’s public role as administrator and regulator of the national hydrocarbons resources was transferred to the ANH. Ecopetrol modified its organic structure and became Ecopetrol S.A., a publicly-held corporation, one hundred percent state-owned, and continued the development of exploration and production activities in a competitive basis with autonomy over business decisions. Since 2006, according to Law 1118, we have been evolving from a wholly state-owned entity to a mixed-economy company with private capital. This process has resulted in a substantial change in the legal framework to which we are subject and in the nature of our relationship with the Nation, as our controlling shareholder.

 

We carried out our initial public offering in November 2007, when our common shares were listed on the Colombian Stock Exchange. Our American Depository Shares (ADSs) were listed on the New York Stock Exchange in 2008.

 

3.2Our Corporate Structure

 

We operate in the following business segments: (i) Exploration and Production; (ii) Transportation and Logistics; (iii) Refining, Petrochemicals and Biofuels; and (iv) Sales and Marketing.

 

Our subsidiaries, Refinería de Cartagena S.A.S. (Reficar or Cartagena Refinery), Cenit Transporte y Logística de Hidrocarburos S.A.S. (Cenit) and Oleoducto Central S.A. (Ocensa) are significant subsidiaries, as such term is defined under SEC Regulation S-X.

 

We have a number of directly and indirectly held subsidiaries both in Colombia and abroad. As of December 31, 2020, we have eight directly owned and 19 indirectly owned subsidiaries.

 

During 2020, the following changes were made to the Ecopetrol Group’s structure:

 

  (i) On March 10, 2020, Bioenergy and Bioenergy Zona Franca S.A.S, were admitted to reorganization processes by the Superintendence of Companies under Law 1116 of 2006. The reorganization ended on June 24, 2020, with the applicable regulatory authority ordering the judicial liquidation processes for both companies. Furthermore, as these entities were not material subsidiaries and are not currently under our control, these processes did not have a material adverse effect on Ecopetrol’s results of operations or financial condition. For further information see section Risk Review—Legal Proceedings and Related Matters.

  

(i)On December 18, 2020, the liquidation process of ECP Germany Oil and Gas GmbH was completed, with no material adverse effect on Ecopetrol’s consolidated results.

 

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Graph 2 – Ecopetrol’s Corporate Structure(1)

 

 

The stock ownership percentage listed refers to Ecopetrol S.A.’s direct and indirect participation as of December 31, 2020. The data in this structure shows neither the whole ownership nor its decimal figures, so they will be used only for information purposes.

 

Exhibit 8.1 to this annual report identifies our principal operating subsidiaries, their respective countries of incorporation, and our percentage ownership in each (both directly and indirectly through other subsidiaries).

 

3.3Recent Developments

 

Sale of Ecopetrol’s stake in Offshore International Group

 

On January 19, 2021, Ecopetrol signed a Share Purchase Agreement with De Jong Capital LLC, through one of its subsidiaries as buyer, pursuant to which Ecopetrol sold its 50% ownership interest in Offshore International Group (OIG). This divestment was the result of a competitive process between a number of bidders, jointly carried out by Ecopetrol and its partner, in respect of the sale of 100% of the capital stock of OIG.

 

Non-binding offer to acquire 51.4% of ISA’s outstanding shares

 

On January 27, 2021, Ecopetrol announced its interest in acquiring 51.4% of the outstanding shares of ISA, currently owned by the Colombian Ministery of Finance and Public Credit (MHCP by its Spanish acronym). Ecopetrol is pursuing this transaction with a view that an equity stake in ISA can materially increase its exposure to global trends in electrification and decarbonization, provide access to growth opportunities and improve its risk profile by adding stable cash flows to the Ecopetrol Group’s revenue composition. The transaction is expected to be funded through a combination of equity to be issued, in which the MHCP would maintain at least 80% of Ecopetrol's share ownership, cash from operations and/or other financing alternatives available to Ecopetrol. To the extent we decide to finance the ISA acquisition through an equity offering, we are analyzing whether to offer preemptive or similar rights to our existing shareholders.

 

ISA operates and maintains transmission networks in Colombia, Peru, Bolivia, Brazil and Chile, among others, and participates through its subsidiaries in the toll-road business, telecommunications and management of real-time systems. Based on its public reports as filed with the Superintendencia Financiera de Colombia (the “SFC”), ISA’s consolidated operational revenues and net income for 2020 totaled COP 10.2 trillion and COP 2.1 trillion, respectively; and its total assets were COP 54.0 trillion as of December 31, 2020. As of March 31, 2021, ISA’s market capitalization as reported on the Colombian Stock Exchange (BVC) was COP 24.9 trillion.

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On February 12, 2021, Ecopetrol and the MHCP signed an exclusivity agreement through which the parties will carry out non-binding preliminary conversations on the terms and conditions of the potential transaction. The exclusivity period is initially scheduled to end on June 30, 2021 unless extended by mutual agreement of the parties. During this period, Ecopetrol will carry out a detailed due diligence of ISA and the MHCP has agreed to negotiate exclusively with Ecopetrol.

 

Although the Colombian Government, through the MHCP, is the majority shareholder of both ISA and Ecopetrol, and will be acting as seller in the proposed transaction for Ecopetrol’s acquisition of ISA's shares, the transaction has been structured and negotiations will be carried out on an arm's length basis, with seller and buyer independent from each other. Ecopetrol and the Colombian Government will each engage their own financial and legal counsel for purposes of carrying out this transaction. In addition, for purposes of determining ISA's valuation, Ecopetrol has engaged two experienced investment banking firms. Ecopetrol intends to engage a separate independent advisor to deliver a fairness opinion related to ISA’s valuation and Ecopetrol’s final purchase price proposal. Moreover, the Board of Directors of Ecopetrol, which is composed by a majority of independent members, retains full oversight and autonomous decision rights over Ecopetrol’s interest in the transaction.

 

In line with the aforementioned, on March 25, 2021, the Ecopetrol Group’s Board of Directors approved the establishment of a Special Committee that will act as a temporary mechanism to evaluate the valuation of ISA, the price range and/or the price of the potential transaction and make the necessary recommendations to the Board of Directors. The committee will be comprised of the following independent members of Ecopetrol’s Board of Directors:

 

Carlos Gustavo Cano

 

Sergio Restrepo

 

Esteban Piedrahita

 

Santiago Perdomo, who will chair the committee

 

For information on the regulation of the electricity sector in Colombia, see section Applicable Laws and Regulations—Regulation of the Electric Energy Commercialization Activity and Regulation of the Electricity Self-Generation Activity.

 

The potential acquisition of a percentage of ISA’s shares would be subject to the approval of the Ecopetrol´s Board of Directors. Likewise, the required authorizations from regulatory and supervisory entities in Colombia and other countries in which ISA has operations are being evaluated.

 

3.4Our Business

 

We are a vertically integrated oil and gas company with presence primarily in Colombia and with activities in the U.S., Brazil and Mexico. The Nation currently owns 88.49% of our voting capital stock. We are among the world’s largest public companies, ranking 313 on the Forbes Global 2000 Ranking – 2020, and the largest Colombian company in this ranking. We play a key role in the local Colombian hydrocarbon market.

 

3.5Exploration and Production

 

Our exploration and production business segment includes exploration, development and production activities in Colombia and abroad. We began local exploration in 1955 and international exploration in 2006. Exploration and production activities are conducted directly by Ecopetrol S.A., and through some of our subsidiaries, as well as through joint ventures with third parties. As of December 31, 2020, we were the largest operator and the largest producer of crude oil and natural gas in Colombia, maintaining the largest acreage exploration position in Colombia.

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Unless otherwise stated, all figures are given before deducting royalties.

 

3.5.1Exploration Activities

 

Under our Business Plan, Ecopetrol is aiming to incorporate resources in high reward projects concentrated in: (i) near field exploratory activity, (ii) underexplored onshore basins in Colombia, such as Putumayo and Piedemonte, (iii) offshore Colombia, and (iv) international areas such as offshore Brazil in Pre-salt Santos and the U.S. Gulf of Mexico.

 

Graph 3 – Sedimentary basins where Ecopetrol executes exploration activities

 

 

During 2020, the exploration strategy was directed at leveraging our goal on three working fronts: onshore Colombia, offshore Caribbean, and strengthening our exploration overseas.

 

3.5.1.1Exploration Activities in Colombia

 

During 2020, Ecopetrol and its subsidiaries drilled sixteen (16) wells in Colombia, of which ten (10) were exploratory and six (6) were appraisal wells. As of December 31, 2020, two (2) wells were successful, five (5) were plugged and abandoned, and nine (9) were under evaluation. This activity was concentrated mainly in the following basins: Llanos, Lower Magdalena Valley, Middle Magdalena Valley, Upper Magdalena Valley and Sinú San Jacinto.

 

In 2020, Ecopetrol participated in the drilling of two (2) successful wells in Colombia:

 

(i) the Cayena-1 ST1 well, drilled at sole risk by our partner Parex Resources in the Fortuna Association contract (where Ecopetrol holds a 20% working interest and Parex Resources, as the operator, holds the remaining 80% working interest); and

 

(ii) the Arrecife-3 well, where Ecopetrol holds a 100% working interest, through its subsidiary Hocol, at the VIM 8 Block.

 

Furthermore, during 2020 the Merecumbé-1 well was tested and declared successful after showing gas production in the Chengue Formation. This well was drilled by Lewis Energy in partnership with our subsidiary Hocol in 2019. As of the date of this annual report, this well is closed and under evaluation.

 

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The following table sets forth, for the periods indicated, the number of gross and net productive, dry and under evaluation exploratory wells drilled by us and our joint venture partners, and the exploratory wells drilled by third parties pursuant to sole risk contracts with us.

 

Table 4 – Exploratory Drilling in Colombia

 

   For the year ended December 31, 
   2020   2019   2018 
   (Number of wells) 
COLOMBIA            
Ecopetrol S.A               
Gross exploratory wells               
Owned and operated by Ecopetrol               
Productive   -    1.0    - 
Dry(1)   2.0    1.0    - 
Under Evaluation(2)(3)   1.0    -    - 
Total   3.0    2.0    - 
Operated by a partner in Joint Venture               
Productive   -    4.0    5.0 
Dry(1)   -    1.0    1.0 
Under Evaluation(2)   1.0    1.0    3.0 
Total   1.0    6.0    9.0 
Operated by Ecopetrol in Joint Venture               
Productive   -    -    - 
Dry(1)   -    -    - 
Under Evaluation(2)   2.0    -    1.0 
Total   2.0    -    1.0 
Net Exploratory Wells(4)               
Productive   -    2.8    1.9 
Dry(1)   2.0    1.4    0.3 
Under Evaluation(2)   2.5    0.4    2.0 
Total   4.5    4.6    4.2 
Sole Risk               
Productive   1.0    1.0    - 
Dry(1)   1.0    5.0    2.0 
Under Evaluation(2)(5)   3.0    -    - 
Total   5.0    6.0    2.0 
Hocol               
Gross Exploratory Wells               
Productive   1.0    1.0    1.0 
Dry(1)   2.0    2.0    4.0 
Under Evaluation(2)   2.0    2.0    - 
Total   5.0    5.0    5.0 
Net Exploratory Wells(4)               
Productive   1.0    0.5    1.0 
Dry(1)   2.0    2.0    3.2 
Under Evaluation(2)   1.0    1.0    - 
Total   4.0    3.5    4.2 

 

 

(1)A dry well or hole is an exploratory well found to be incapable of producing either crude oil or natural gas in sufficient quantities to justify completion as a crude oil or natural gas well.
(2)An “under evaluation” well is an exploratory well where there is not yet enough information to determine its result as successful or dry. This classification is maintained until additional well testing operations are carried out to determine the hydrocarbon production capacity or some petrophysical parameter of the rocks or fluids in the reservoir.
(3)The Flamencos-2 well was classified as “under evaluation” for the year ended December 31, 2020. However, as of January 2021, it has been declared successful.
(4)Net exploratory wells were calculated according to our percentage of ownership in these wells.
(5)The El Niño-1 well was classified as “under evaluation” for the year ended December 31, 2020. However, as of January 2021, it has been declared successful.

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As a result of our divestment strategy, Hocol transferred 50% of its interest to Lewis Energy for the exploration of natural gas in a frontier play in the Perdices block. Additionally, the Agencia Nacional de Hidrocarburos approved the transfer of our 50% working interest in the COL-5, Purple Angel and Fuerte Sur blocks, where the Gorgon and Kronos gas discoveries are located, to Shell. With the arrival of a new operator with deep-water offshore experience, offshore drilling will recommence with an appraisal well, Gorgon-2, in December 2021. The appraisal well will be drilled in a 2,400 meters water depth, with an expected total depth of 4,543 meters. In case of success, additional drilling is to follow, with the expectations of accelerating the development of this material gas discovery.

 

Seismic

 

In Colombia, Ecopetrol purchased 273 km2 of 3D seismic and 1,328 km of 2D seismic surveys in the Llanos, Middle Magdalena Valley and Upper Magdalena Valley basins, with the objective of improving our geological understanding of these prolific basins.

 

3.5.1.2Exploration Activities Outside Colombia

 

Our international exploration strategy aims to expand and renew our exploration portfolio in basins with long term potential, dilute our risks and improve the possibility of increasing our reserves. Some key aspects of this strategy include participating in bidding rounds to secure blocks available for exploration and entering into joint ventures with international and regional oil companies that contribute with operational expertise and technology.

 

In 2020, Ecopetrol America LLC signed a cross-assignment with Chevron, through which new blocks in the US Gulf of Mexico were acquired and participation in other blocks was transferred to Chevron. As a result, Ecopetrol America LLC was able to diversify its portfolio while reducing risk and capital exposure.

 

On June 12, 2020, Ecopetrol Óleo e Gás do Brasil Ltda. officially entered the Gato do Mato discovery in the Brazilian Pre-Salt, located in the BM-S-54 and Sul de Gato do Mato blocks, where Ecopetrol holds a 30% working interest, Total holds a 20% working interest and Shell as the operator holds the remaining 50% working interest. The Gato do Mato-4 appraisal well was drilled and was declared successful.

 

In the pre-salt of the Santos Basin, Ecopetrol Óleo e Gás do Brasil Ltda. also drilled, together with its partners Shell (as operator) and Chevron, the Saturno-1 well, which was declared a dry hole. Further technical evaluations are being carried out during 2021 to decide the path forward with regards to remaining potential in the Saturno exploration block.

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The following table sets forth information on our international exploratory drilling for the periods indicated.

 

Table 5 – Exploratory Drilling Outside Colombia

 

   For the year ended December 31, 
   2020   2019   2018 
   (Number of wells) 
UNITED STATES               
Ecopetrol America LLC               
Gross exploratory wells               
Productive   -    1.0    - 
Dry(1)   -    -    - 
Under Evaluation(2)   -    -    - 
Total   -    1.0    - 
Net Exploratory Wells(3)(4)               
Productive   -    0.2    - 
Dry(1)   -    -    - 
Under Evaluation(2)   -    -    - 
Total   -    0.2    - 
BRAZIL               
Ecopetrol Óleo e Gás do Brasil Ltda.               
Gross exploratory wells               
Productive(5)   1.0    -    - 
Dry(1)   1.0    -    - 
Under Evaluation(2)   -    -    - 
Total   2.0    -    - 
Net Exploratory Wells(3)(4)               
Productive   0.3    -    - 
Dry(1)   0.1    -    - 
Under Evaluation(2)   -    -    - 
Total   0.4    -    - 

 

 

(1)A dry well or hole is an exploratory well found to be incapable of producing either crude oil or natural gas in sufficient quantities to justify completion as a crude oil or natural gas well.
(2)An “under evaluation well” is an exploratory well where there is not yet enough information to determine its result as successful or dry. This classification is maintained until additional well testing operations are carried out to determine the hydrocarbon production capacity or some petrophysical parameter of the rocks or fluids in the reservoir.
(3)Net exploratory wells were calculated according to our percentage of ownership in these wells.
(4)None of our international wells were drilled pursuant to a sole risk contract.
(5)Gato do Mato-4 appraisal well was drilled before Ecopetrol Brasil formal entrance into the joint venture with Shell, while pending the governmental authorities’ approval. Therefore, the well expenditure was part of the acquisition cost under the sale and purchase agreement executed between Ecopetrol Brasil and Shell Brasil Petróleo Ltda. Due to that, the Gato do Mato-4 well cost was recorded as “acquisition cost” in the 2020 financial statements of of Ecopetrol Brasil.

 

Seismic

 

Our subsidiary, Ecopetrol America LLC, purchased 2,423 km2 of 3D seismic data to evaluate the exploratory potential of 77 U.S. Gulf of Mexico blocks, and to further evaluate the discovery made with the Esox-1 well drilled in 2019.

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3.5.2Production Activities

 

In 2020, our consolidated average production was 697 thousand barrels of oil equivalent per day (boepd), a decrease of 28 thousand boepd as compared to 2019. This was primarily due to the following factors: (i) the effects of the COVID-19 pandemic, which caused a significant reduction in oil and gas demand, (ii) the drop in oil prices which led to a slowdown in activity and investment, and (iii) public order issues caused by the slowdown in the economy, impacting our operations in different regions. The aforementioned situations were reflected in the temporary closure of some wells, negatively affecting the production of some fields. However, as of the date of this annual report, all affected wells have been reactivated.

 

The following table summarizes the results of our oil and gas production activities for the periods indicated:

 

Table 6 – Ecopetrol Group’s Oil and Gas Production

 

   For the year ended December 31, 
   2020   2019   2018 
   Oil   Gas(1)   Total   Oil   Gas(1)   Total   Oil   Gas(1)   Total 
   (Thousand boepd) 
Total gross production in Colombia(2)   537.4    138.1    675.5    576.6    130.5    707.1    578.4    125.0    703.4 
Total international gross production(3)   17.4    4.2    21.5    15.0    3.0    18.0    14.1    2.9    17.0 
Total gross production of Ecopetrol Group   554.7    142.3    697.0    591.6    133.5    725.1    592.5    127.9    720.4 
                                              
Total production of Ecopetrol Group for presentation of reserves(4)   508.5    138.8    647.3    528.9    133.7    662.6    524.3    129.8    654.1 

 

 

(1)Conversion between million cubic feet per day (mcfpd) and boepd is performed at 5,700 mcfpd to 1 boepd.
(2)Total production in Colombia corresponds to Ecopetrol S.A., Hocol and Equion (until February 2020). Includes royalties.
(3)Total International production corresponds to Ecopetrol Permian LLC; Savia Perú and Ecopetrol America LLC. Includes royalties.
(4)For the Company’s presentation of reserves, the Company deducts from its total gross production the 100% of crude royalties from Ecopetrol Group companies and gas royalties from non-Colombian Ecopetrol Group companies, Savia Perú S.A. (Peru), Ecopetrol Permian LLC (United States) and Ecopetrol America LLC (United States). Gas royalties derived from Colombian production are not deducted because according to local regulation the Company is entitled to such gas royalties. Also includes self-consumption, which is only comprised of natural gas self-consumption and is immaterial. Oil production include NGL, which is inmaterial.

 

3.5.2.1Production Activities in Colombia

 

3.5.2.1.1Ecopetrol S.A.’s Production Activities in Colombia

 

For the year ended December 31, 2020, Ecopetrol S.A. was the largest participant in the Colombian hydrocarbons industry, accounting for approximately 66.1% of crude oil production and 55.6% of natural gas production (calculations based on information from the Ministry of Mines and Energy). During 2020, Ecopetrol S.A. completed the drilling of 201 development wells, mainly in the Central and Orinoquía regions (156 through direct operations and 45 through associated companies).

 

Ecopetrol S.A. manages its production operations through a regional organization, which comprises a total of 79 oil fields with active production in 2020:

 

Central Region

 

Orinoquía Region

 

Andina Oriente Region (resulting from the integrations of the former Oriente and South regions)

 

Piedemonte Region

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Additionally, we operate 104 fields with active production through Associated Operations with different partners.

 

In February 2020, the Vice-Presidency of Gas was created in order to lead and execute the Ecopetrol Group’s integrated gas strategy.

 

The map below shows the locations of Ecopetrol S.A.’s operations by regions.

 

Graph 4 – Ecopetrol S.A. Operations in Colombia

 

 

Note: Associated Operations are conducted through a countrywide Vice-presidency of Associated Operations.

 

Crude Oil Production

 

The average daily production of crude oil in Colombia by Ecopetrol S.A. (excluding its subsidiaries), was 516 mbod in 2020, 32 mbod lower than in 2019, which represents a year-to-year decrease of 6%.

 

The following chart summarizes Ecopetrol S.A.’s average daily crude oil production in Colombia by region, prior to deducting royalties, for the periods indicated.

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Table 7 – Ecopetrol S.A.’s Average Daily Crude Oil Production in Colombia by Region

 

    For the year ended December 31,  
    2020     2019     2018  
    (Thousand bpd)  
Central Region                        
La Cira – Infantas     19.51       25.90       28.10  
Casabe     13.11       13.20       13.90  
Yarigui     18.90       17.90       14.40  
Other     16.95       15.90       17.30  
Total Central Region     68.47       72.90       73.70  
Orinoquía Region                        
Castilla     112.22       114.10       113.90  
Chichimene     68.80       69.10       67.70  
CPO-09     5.25       10.90       4.50  
Apiay     6.33       7.30       7.60  
Other     7.16       5.60       4.40  
Total Orinoquía Region     199.76       207.00       198.10  
Piedemonte Region                        
Floreña(1)(2)     25.54       22.70       25.90  
Cupiagua(3)     6.22       7.20       8.30  
Cusiana(3)     2.13       3.10       4.00  
Total Piedemonte Region     33.90       33.00       38.20  
Andina Oriente Region(4)                        
Rubiales     106.27       119.30       119.50  
Caño Sur     5.06       4.50       3.20  
San Francisco     4.05       6.20       6.00  
Huila Area     5.55       3.80       3.50  
Tello     4.33       3.40       3.60  
Other     7.50       10.40       11.70  
Total Andina Oriente Region     132.77       147.60       147.50  
Associated Operations                        
Quifa     14.73       20.50       21.20  
Caño Limon     24.14       25.70       25.30  
Nare     9.53       10.90       12.00  
Floreña(1)(2)     2.62       -       -  
Other     30.15       30.40       32.70  
Total Associated Operations     81.17       87.50       91.20  
Total average daily crude oil production Ecopetrol S.A. (Colombia)     516.03       548.00       548.70  

  

 

(1)The Piedemonte fields changed their name to the Floreña fields as of December 2020.
(2)The Floreña fields were included in Associated Operations until February 2020, when the association contract with Equión ended. Starting in March 2020, these fields are reported under the Piedemonte Region.
(3)In our annual report on form 20-F for the year ended December 31, 2019, the Cupiagua and Cusiana fields were included in the Orinoquía Region, whereas for the year ended December 31, 2020, these fields are reported under the Piedemonte Region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(4)In July 2020, the former Southern and Eastern regions joined to form the Andina region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.

 

Table 8 – Ecopetrol S.A. Production per Type of Crude

 

    2020
(Mbod)
   Year-on-Year
∆ (%)
   2019
(Mbod)
   Year-on-Year
∆ (%)
   2018
(Mbod)
 
Light    39.0    6.8%   36.5    (10.3)%   40.7 
Medium    140.6    (6.5)%   150.3    (2.7)%   154.4 
Heavy    336.4    (6.9)%   361.2    2.1%   353.6 
Total    516.0    (5.8)%   548.0    (0.1)%   548.7 

 

Ecopetrol S.A.’s crude oil production in Colombia during 2020 was approximately 35% light and medium crudes and 65% heavy crudes. In 2019, approximately 34% of the crude oil production consisted of light and medium crudes, and 66% consisted of heavy crudes. In 2018, approximately 36% of the crude oil production consisted of light and medium crudes, and 64% consisted of heavy crudes.

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Natural Gas Production

 

In 2020, the average daily production of natural gas by Ecopetrol S.A. (excluding its subsidiaries) reached 121.82 mboed, including natural gas liquids (NGLs), corresponding to a 4.3% increase compared to 2019 production. This production was supplied from the following fields: Cupiagua (35%), Cusiana (24%), Floreña (18%), Guajira (11%), and the remaining 12% from other fields.

 

By the end of December 31, 2020, the Liquefied Petroleum Gas (LPG) plant of the Cupiagua field produced 7,500 LGP barrels per day. The plant produces LPG and other products such as natural gas liquids (NGL) and penthane (C5).

 

Starting May 2020, our subsidiary Hocol took in the position of operator of the Chevron’s stake in the Chuchupa and Ballena fields, following the approval of the transaction by the Superintendence of Industry and Commerce of Colombia in November 2019.

 

Table 9 – Ecopetrol S.A.’s Average Daily Natural Gas Production in Colombia

 

   For the year ended December 31, 
   2020   2019   2018 
   Thousand bpd   mmcfpd   Thousand bpd   mmcfpd   Thousand bpd   mmcfpd 
Central Region                              
La Cira – Infantas   0.10    0.57    0.12    0.68    0.16    0.91 
Provincia   1.48    4.84    1.58    4.96    1.96    7.30 
Yarigui   0.42    2.41    0.43    2.45    0.42    2.39 
Gibraltar   5.71    29.12    6.25    31.86    6.87    34.94 
Other   2.00    10.42    1.68    8.84    1.86    10.20 
Total Central Region   9.71    47.36    10.06    48.79    11.27    55.75 
Orinoquía Region                              
Apiay   0.32    -    0.29    -    0.49    - 
Other   0.58    -    0.64    -    0.25    - 
Total Orinoquía Region   0.90    -    0.93    -    0.74    - 
Piedemonte Region                              
Floreña(1)(2)   22.22    109.93    1.95    8.72    2.06    9.41 
Cupiagua(3)   42.68    194.99    36.45    196.08    26.97    153.73 
Cusiana(3)   29.57    136.63    35.72    164.67    34.73    159.83 
Total Piedemonte Region   94.47    441.55    74.12    369.47    63.76    322.96 
Andina Oriente Region(4)                              
Huila Area   0.19    0.34    0.09    0.40    0.13    0.68 
Tello   0.08    0.47    0.07    0.40    0.11    0.63 
Other   0.19    0.53    0.25    0.23    0.25    0.23 
Total Andina Oriente Region   0.46    1.34    0.41    1.03    0.49    1.54 
Associated Operations                              
Guajira   12.80    72.92    17.92    102.14    23.02    131.21 
Floreña(1)(2)   2.15    9.91    12.50    57.51    12.20    55.46 
Other   1.33    5.37    0.82    3.48    1.01    4.50 
Total Associated Operations   16.28    88.20    31.24    163.13    36.23    191.18 
Total Natural Gas Production (Colombia)   121.82    578.45    116.76    582.43    112.49    571.43 

 

 

(1)The Piedemonte fields change their name to the Floreña fields as of December 2020.
(2)The Floreña fields were included in Associated Operations until February 2020, when the association contract with Equión ended. Starting in March 2020, these fields are reported under the Piedemonte Region.
(3)In our annual report on form 20-F for the year ended December 31, 2019, the Cupiagua and Cusiana fields were included in the Orinoquía Region, whereas for the year ended December 31, 2020, these fields are reported under the Piedemonte Region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(4)In July 2020, the former Southern and Eastern regions joined to form the Andina region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.

Note: Conversion between mcfpd and boepd is performed at 5,700 mcfpd to 1 boepd. Conversion was done only in respect of natural gas, since natural gas liquids cannot be converted into mcfpd. Therefore, when the Company’s natural gas production is measured in boepd, it is higher as that includes natural gas and natural gas liquids. The Company’s sales of natural gas liquids represented less than 1% of the Company’s consolidated sales for the periods presented in this annual report.

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Projects to Increase Recovery Factor

 

In 2020, Ecopetrol continued the implementation of secondary and tertiary recovery programs to improve the fields’ recovery factor. By the end of 2020, the fields with secondary and tertiary recovery programs contributed with 36% of the daily production of the Ecopetrol Group, underpinned by the good results obtained from the water injection expansion projects in the Chichimene, Castilla and Llanito fields.

 

The recovery programs increased proven reserves by 113 million boe with an investment of approximately US$ 345 million executed throughout the year. Of 42 recovery projects, 34 correspond to secondary recovery and eight to tertiary recovery.

 

Development Wells

 

The following table sets forth the number of gross and net development wells drilled in Colombia, both solely by Ecopetrol S.A. and with its associates, that reached total depth for the years ended December 31, 2020, 2019 and 2018.

 

Table 10 – Ecopetrol S.A.’s Gross and Net Development Wells in Colombia(1)

 

   For the year ended December 31, 
   2020   2019   2018 
  

Productive

Wells

   Dry
Wells
   Productive
Wells
   Dry
Wells
   Productive
Wells
   Dry
Wells
 
Central Region                              
Gross development wells owned and operated by Ecopetrol   51.0    -    84.0    1.0    12.0    - 
Orinoquía Region                              
Gross development wells owned and operated by Ecopetrol   32.0    -    87.0    2.0    77.0    - 
Andina Oriente Region(2)                              
Gross development wells owned and operated by Ecopetrol   73.0    -    124.0    -    134.0    4.0 
Piedemonte Region(3)                              
Gross development wells owned and operated by Ecopetrol   -    -    -    -    -    - 
Total gross development wells owned and operated in Colombia   156.0    -    295.0    3.0    223.0    4.0 
Associated Operations                              
Gross development wells in joint ventures   45.0    -    268.0    5.0    311.0    4.0 
Net development wells(4)   29.0    -    137.0    2.6    148.7    1.8 
Total gross development wells in joint ventures Ecopetrol S.A. in Colombia   45    -    268.0    5.0    311.0    4.0 
Total net development wells in joint ventures Ecopetrol S.A. in Colombia(4)   29.0    -    137.0    2.6    148.7    1.8 
Total gross development wells Ecopetrol S.A. in Colombia   201    -    563.0    8.0    534.0    8.0 
Total net development wells Ecopetrol S.A. in Colombia(4)   185.0    -    432.0    5.6    370.7    5.8 

 

 
(1)Includes only wells that were drilled and completed.
(2)In July 2020, the former Southern and Eastern regions joined and formed the Andina Oriente region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(3)In our annual report on form 20-F for the year ended December 31, 2019, the Cupiagua and Cusiana wells were included in the Orinoquía Region and the Floreña wells were included in Associated Operations, whereas for the year ended December 31, 2020, these wells are reported under the Piedemonte Region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(4)Net wells correspond to the sum of wells owned and operated by Ecopetrol plus the net wells in our associated operations. Net wells in the associated operations are the result of our working interest in wells owned in joint ventures with our partners, as defined in the contract obligations.

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The following tables set forth activities by geographical area, including the number of gross and net wells in the process of being drilled, completed, or waiting on completion for the year ended December 31, 2020.

 

Table 11 – Ecopetrol S.A.’s Gross and Net In Process Wells

 

   For the year ended December 31, 2020 
   Drilled but
not
completed
   Mobilization   Being
drilled
   Being
completed
 
   (Number of wells) 
COLOMBIA   
Central Region                    
Gross in process wells owned and operated by Ecopetrol   7.0    -    4.0    8.0 
Orinoqula Region                    
Gross in process wells owned and operated by Ecopetrol   -    -    -    - 
Andina Oriente Region(1)                    
Gross in process wells owned and operated by Ecopetrol   1.0    1.0    2.0    - 
Piedemonte Region(2)                    
Gross in process wells owned and operated by Ecopetrol   -    -    -    - 
Total gross in process wells owned and operated in Colombia   8.0    1.0    6.0    8.0 
Associated Operations                    
Gross in process wells in joint ventures   8.0    -    1.0    - 
Net in process wells(3)   6.2    -    1.0    - 
Total gross in process wells in joint ventures Ecopetrol S.A.   8.0    -    1.0    - 
Total net in process wells in joint ventures Ecopetrol S.A.(3)   6.2    -    1.0    - 
Total gross in process wells Ecopetrol S.A. in Colombia   16.0    1.0    7.0    8.0 
Total net in process wells Ecopetrol S.A. in Colombia(3)   14.2    1.0    7.0    8.0 

 

 
(1)In July 2020, the former Southern and Eastern regions joined to form the Andina Oriente region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(2)In our annual report on form 20-F for the year ended December 31, 2019, the Cupiagua and Cusiana wells were included in the Orinoquía Region and the Floreña wells were included in Associated Operations, whereas for the year ended December 31, 2020, these wells are reported under the Piedemonte Region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(3)Net wells correspond to the sum of wells owned and operated by Ecopetrol plus the net wells in our associated operations. Net wells in the associated operations are the result of our working interest in wells owned in joint ventures with our partners, as defined in the contract obligations.

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Production Acreage

 

The following table sets forth Ecopetrol S.A.’s developed and undeveloped gross and net acreage of crude oil and natural gas production in Colombia for the year ended December 31, 2020.

 

Table 12 – Ecopetrol SA.’s Developed and Undeveloped Gross and Net Acreage of Crude Oil and Natural Gas Production in Colombia

 

   As of December 31, 2020 
   Developed   Undeveloped 
   Gross   Net   Gross   Net 
   (Acres) 
Ecopetrol S.A.   471,969    371,489    4,633,683    3,443,517 

 

Gross and Net Productive Wells

 

The following table sets forth Ecopetrol S.A.’s total gross and net productive wells by region as of December 31, 2020.

 

Table 13 – Ecopetrol S.A.’s Gross and Net Productive Wells by Region(1)

 

   For the year ended December 31, 2020 
   Crude Oil(2)   Natural Gas(3) 
   Gross   Net(4)   Gross   Net(4) 
   (Number of wells) 
COLOMBIA                
Central Region   2,049    1,548    4.0    4.0 
Orinoquía Region   996    985    -    - 
Andina Oriente Region(5)   1,087    1,034    8.0    8.0 
Piedemonte Region(6)   58    58    17.0    17.0 
Associated Operations Region   2,711    1,473    34.0    16.0 
Total   6,901    5,098    63.0    45.0 

 

 
(1)Includes only wells that were drilled and completed.
(2)We consider crude oil wells to be those in which the main operation is oil production, although many of these wells produce gas associated with oil production that, in some cases, have a commercial purpose.
(3)Natural gas wells are those in which operations are directed only toward the production of commercial gas.
(4)Net productive wells are calculated by multiplying gross productive wells by our ownership percentage.
(5)In July 2020, the former Southern and Eastern regions joined and formed the Andina Oriente region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.
(6)In our annual report on form 20-F for the year ended December 31, 2019, the Cupiagua and Cusiana wells were included in the Orinoquía Region and Floreña wells were included in Associated Operations, whereas for the year ended December 31, 2020, these wells are reported under the Piedemonte Region. Information as of December 31, 2019 and December 31, 2018 was reclassified in this annual report to conform to the presentation as of December 31, 2020.

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3.5.2.1.2Ecopetrol S.A.’s Affiliates and Subsidiaries’ Production Activities in Colombia

 

In 2020, the subsidiaries’ production in Colombia came from Hocol and Equión. During the year, the production obtained from these two companies was 37.6 thousand boepd, which represents 5.4% of the Ecopetrol Group’s total production.

 

Crude Oil Production

 

The following table sets forth our average daily crude oil production from Hocol and Equion, prior to deducting royalties, for the periods indicated.

 

Table 14 – Ecopetrol S.A.’s Subsidiaries in Colombia Average Daily Crude Oil Production(1)

 

   For the year ended December 31, 
   2020   2019   2018 
   (Thousand bpd) 
COLOMBIA               
Hocol               
Joint venture operation   1.06    2.00    2.30 
Direct operation   19.14    18.80    18.40 
Total Hocol   20.20    20.80    20.70 
Equion(1)               
Joint venture operation   -    -    - 
Direct operation   1.13    7.90    9.00 
Total Equion   1.13    7.90    9.00 
Production Tests   -    -    - 
Total Average Daily Crude Oil Production   21.33    28.70    29.70 

 

 
(1)Equion fields were in operation until February 2020.

 

The 86% decrease in Equion’s production in 2020, as compared to 2019, was mainly due to the termination of the Piedemonte’s association contract in February 2020.

 

Natural Gas Production

 

The following table sets forth our subsidiaries’ average daily natural gas production, prior to deducting royalties, for the periods indicated.

 

Table 15 – Ecopetrol S.A.’s Subsidiaries in Colombia Average Daily Natural Gas Production

 

   For the year ended December 31, 
   2020   2019   2018 
   Thousand
bpd
   mmcfpd   Thousand
bpd
   mmcfpd   Thousand
bpd
   mmcfpd 
COLOMBIA                              
Hocol                              
Joint venture operation   2.18    12.43    2.00    11.40    1.60    9.10 
Direct operation(1)   13.24    75.48    6.70    38.20    5.90    33.60 
Total Hocol   15.42    87.91    8.70    49.60    7.50    42.80 
Equion(2)                              
Joint venture operation   -    -    -    -    0.20    1.10 
Direct operation   0.86    4.10    5.00    23.29    4.80    22.34 
Total Equion   0.86    4.10    5.00    23.29    5.00    23.44 
Production Tests   -    -    -    -    -    - 
Total Average Daily Gas Production (Subsidiaries in Colombia)   16.28    92.01    13.70    72.89    12.50    66.24 

 

 

 

(1)In November 2019, our subsidiary Hocol acquired Chevron’s interest in the Chuchupa and Ballena fields and took the position of operator, this represents the increase in production related to direct operation.
(2)Equion fields were in operation until February 2020.

Note: Conversion between mcfpd and boepd is performed at 5,700 mcfpd to 1 boepd. Conversion was done only in respect of natural gas, since natural gas liquids cannot be converted into mcfpd. Therefore, when the Company’s natural gas production is measured in boepd, it is higher as that includes natural gas and natural gas liquids. The Company’s sales of natural gas liquids represented less than 1% of the Company’s consolidated sales for the periods presented in this annual report.

26

 

Development Wells

 

The following table sets forth the number of gross and net development wells drilled exclusively by our subsidiaries and in their joint ventures in Colombia for the periods indicated.

 

Table 16 – Ecopetrol S.A.’s Subsidiaries in Colombia Gross and Net Development Wells(1)

 

   For the year ended December 31, 
   2020   2019   2018 
   Productive
Wells
   Dry
Wells
   Productive
Wells
   Dry
Wells
   Productive
Wells
   Dry
Wells
 
   (Number of wells) 
Hocol                        
Gross development wells owned and operated by Hocol   24.0    -    21.0    2.0    12.0    - 
Gross development wells in joint ventures   -    -    2.0    -    2.0    - 
Net development wells(2)   24.0    -    22.0    2.0    13.0    - 
Equion                              
Gross development wells owned and operated by Equion(3)   -    -    -    -    -    - 
Gross development wells in joint ventures   -    -    -    -    -    - 
Net development wells(2)   -    -    -    -    -    - 
Total gross development wells owned and operated in Colombia   24.0    -    21.0    2.0    12.0    - 
Total gross development wells in joint ventures in Colombia   -    -    2.0    -    2.0    - 
Total net development wells (Subsidiaries in Colombia)(2)   24.0    -    22.0    2.0    13.0    - 

 

 

(1)Includes only wells that were drilled and completed.
(2)Net wells correspond to the sum of wells owned and operated by Ecopetrol plus the net wells in our associated operations. Net wells in the associated operations are the result of our working interest in wells owned in joint ventures with our partners, as defined in the contract obligations.
(3)Equion fields were in operation until February 2020.

Note: There were no dry wells in our Colombian subsidiaries’ operations for the year ended December 31, 2018 and December 31, 2020.

27

 

Table 17 – Ecopetrol S.A.’s Subsidiaries in Colombia Gross and Net In Process Wells(1)

 

   For the year ended December 31, 2020 
   Drilled but
not
completed
   Mobilization   Being
drilled
   Being
completed
 
   (Number of wells) 
Hocol                
Gross in process wells owned and operated by Hocol   -    1.0    -    1.0 
Gross in process wells in joint ventures   -    -    -    - 
Net in process wells(1)   -    1.0    -    1.0 
Equión(2)                    
Gross in process wells owned and operated by Equión   -    -    -    - 
Gross in process wells in joint ventures   -    -    -    - 
Net in process wells(1)   -    -    -    - 
Total gross in process wells owned and operated in Colombia   -    1.0    -    1.0 
Total gross in process wells in joint ventures in Colombia   -    -    -    - 
Total net in process wells (Subsidiaries in Colombia)   -    1.0    -    1.0 

 

 

(1)Net wells correspond to the sum of wells owned and operated by Ecopetrol plus the net wells in our associated operations. Net wells in the associated operations are the result of our working interest in wells owned in joint ventures with our partners, as defined in the contract obligations.
(2)Equion fields were in operation until February 2020.

 

Production Acreage

 

The following table sets forth our subsidiaries’ developed and undeveloped gross and net acreage of crude oil and natural gas production in Colombia for the year ended December 31, 2020.

 

Table 18 – Ecopetrol S.A.’s Subsidiaries in Colombia Developed and Undeveloped Gross and Net Acreage of Crude Oil and Natural Gas Production

 

    As of December 31, 2020 
    Developed   Undeveloped 
    Gross   Net   Gross   Net 
    (Acres) 
Hocol(1)    62,774    37,608    3,005    2,967 
Equión(2)    -    -    -    - 
Total    62,774    37,608    3,005    2,967 

 

 

(1)In November 2019, our subsidiary Hocol acquired Chevron’s interest in the Chuchupa and Ballena fields and took the position of operator since May 2020, this represents the increase in acreage related to Undeveloped Gross and Net Acreage of Crude Oil and Natural Gas Production.
(2)Equion fields were in operation until February 2020.

28

 

 

The following table sets for the expiration dates of material concentrations of the Company’s consolidated undeveloped acreage by geographic area as of December 31, 2020.

 

Table 19 – Undeveloped Production Acreage as of December 31, 2020 by Expiration Year

 

   For the year ended December 31, 
   2021   2022   2023   2024   2025 and beyond 
   Gross   Net   Gross   Net   Gross   Net   Gross   Net   Gross   Net 
   (Acres) 
COLOMBIA                                        
Ecopetrol S.A.   -    -    -    -    -    -    -    -    551,999    321,721 
Hocol   -    -    -    -    -    -    -    -    -    - 
Equión(1)   -    -    -    -    -    -    -    -    -    - 
Total Colombia   -    -    -    -    -    -    -    -    551,999    321,721 
PERÚ                                                  
Savia Perú(2)   -    -    -    -    57,671    28,836    -    -    -    - 
Total Perú   -    -    -    -    57,671    28,836    -    -    -    - 
UNITED STATES OF AMERICA                                                  
Ecopetrol America LLC   -    -    -    -    -    -    -    -    -    - 
Ecopetrol Permian LLC   -    -    -    -    -    -    -    -    -    - 
Total United States of America   -    -    -    -    -    -    -    -    -    - 

 

 

(1)Equion fields were in operation until February 2020.
(2)Savia’s fields will end operation in November 2023 when the contract expires.

 

Gross and Net Productive Wells

 

The following table sets forth our subsidiaries’ total gross and net productive wells in Colombia for the year ended December 31, 2020.

 

Table 20 – Ecopetrol S.A.’s Subsidiaries in Colombia Gross and Net Productive Wells(1)(2)

 

   For the year ended December 31, 2020 
   Crude Oil   Natural Gas 
   Gross   Net(3)   Gross   Net(3) 
   (Number of wells) 
Hocol(4)   279.0    240.0    52.0    34.0 
Equión(5)   -    -    -    - 
Total (Subsidiaries in Colombia)   279.0    240.0    52.0    34.0 

 

 

(1)Information in the table above reflects productive wells that directly contribute to hydrocarbons production and therefore excludes wells used for injection, disposal, water abstraction or other similar activities. We consider crude oil wells to be those in which the main operation is oil production, although many of these wells produce gas associated with oil production that, in some cases, have a commercial purpose. Natural gas wells are those in which operations are directed only towards production of commercial gas.
(2)Includes only wells that were drilled and completed.
(3)Net wells correspond to the sum of wells entirely owned by us or our subsidiaries and our ownership percentage of wells owned in joint ventures with our partners.
(4)In November 2019, our subsidiary Hocol acquired Chevron’s interest in the Chuchupa and Ballena fields and took the position of operator since May 2020, this represents the increase in the increase in Gross and Net Productive Natural Gas Wells.
(5)Equion fields were in operation until February 2020.

 

3.5.2.2Production Activities Outside Colombia

 

In 2020, the subsidiaries’ production outside Colombia came from Ecopetrol America LLC, Ecopetrol Permian LLC and Savia. In 2020, the production obtained from these three companies was 21.4 thousand boepd, which represents 3.1% of the Ecopetrol Group’s total production.

29

 

Crude Oil Production

 

The following table sets forth our average daily crude oil production outside Colombia, prior to deducting royalties, for the periods indicated.

 

Table 21 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Average Daily Crude Oil Production(1)

 

   For the year ended December 31, 
   2020   2019   2018 
   (Thousand bpd) 
PERÚ               
Savia Perú(1)   3.11    3.50    3.90 
UNITED STATES OF AMERICA               
Ecopetrol America LLC   10.41    11.40    10.20 
Ecopetrol Permian LLC   3.85    0.10    - 
Total average daily crude oil production (International)   17.37    15.00    14.10 

 

 

(1)In January 2021 Ecopetrol S.A. divested its 50% equity share in Savia Peru as the result of a competitive bidding process led jointly with its partner KNOC.

 

Natural Gas Production

 

The following table sets forth our average daily natural gas production outside Colombia, prior to deducting royalties, for the periods indicated.

 

Table 22 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Average Daily Natural Gas Production

 

   For the year ended December 31, 
   2020   2019   2018 
   Thousand
bpd
   mmcfpd   Thousand
bpd
   mmcfpd   Thousand
bpd
   mmcfpd 
PERÚ                        
Savia Perú(1)   0.91    2.44    0.90    3.99    1.10    2.90 
UNITED STATES OF AMERICA                              
Ecopetrol America LLC   1.78    10.15    1.80    10.26    1.80    10.30 
Ecopetrol Permian LLC   1.46    3.26    -    -    -    - 
Total average daily natural gas production (International)   4.15    15.85    2.70    14.30    2.90    13.10 

 

 

(1)In January 2021 Ecopetrol S.A. divested its 50% equity share in Savia Peru as the result of a competitive bidding process led jointly with its partner KNOC.

Note: Conversion between mcfpd and boepd is performed at 5,700 mcfpd to 1 boepd. Conversion was done only in respect of natural gas, since natural gas liquids cannot be converted into mcfpd. Therefore, when the Company’s natural gas production is measured in boepd, it is higher as that includes natural gas and natural gas liquids. The Company’s sales of natural gas liquids represented less than 1% of the Company’s consolidated sales for the periods presented in this annual report.

 

30

 

 

Development Wells

 

The following table sets forth the number of gross and net development wells outside Colombia, drilled exclusively by us and in joint ventures for the periods indicated.

 

Table 23 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Gross and Net Development Wells(1)

 

   For the year ended December 31, 
   2020   2019   2018 
Number of wells  Productive
Wells
   Dry
Wells
   Productive
Wells
   Dry
Wells
   Productive
Wells
   Dry
Wells
 
PERÚ                        
Savia Peru(2)                        
Gross development wells   -    -    -    -    -    - 
Net development wells(3)   -    -    -    -    -    - 
UNITED STATES OF AMERICA                              
Ecopetrol America LLC                              
Gross development wells   -    -    2.0    -    1.0    - 
Net development wells(3)   -    -    0.5    -    0.3    - 
Ecopetrol Permian LLC(4)                              
Gross development wells   18.0    -    6.0    -    -    - 
Net development wells(3)   8.8    -    2.0    -    -    - 
Total gross wells (International)   18.0    -    8.0    -    1.0    - 
Total net wells (International)(3)   8.8    -    2.5    -    0.3    - 

 

 

(1)Includes only wells that were drilled and completed.

(2)In January 2021 Ecopetrol divested its 50% equity share in Savia Peru as the result of a competitive bidding process led jointly with its partner KNOC.

(3)Net wells correspond to the sum of wells entirely owned by us or our subsidiaries and our ownership percentage of wells owned in joint ventures with our partners.

(4)Includes only wells drilled and completed under direct operation by Occidental Petroleum Corp (OXY). Non-operated wells are not included because they are not considered material. Wells operated by others are not included because Ecopetrol’s share is not material.

 

Table 24 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Gross and Net In Process Wells

 

   For the year ended December 31, 2020 
   Drilled but
not
completed
   Mobilization   Being
drilled
   Being
completed
 
   (Number of wells) 
PERÚ                
Savia Perú(1)                
Gross in process wells   -    -    -    - 
Net in process wells(2)   -    -    -    - 
UNITED STATES OF AMERICA                    
Ecopetrol America LLC                    
Gross in process wells   -    -    -    - 
Net in process wells(2)   -    -    -    - 
Ecopetrol Permian LLC(3)                    
Gross in process wells   18.0    2.0    2.0    3.0 
Net in process wells(2)   8.8    1.0    1.0    1.5 
Total gross in process wells (International)   18.0    2.0    2.0    3.0 
Total net in process wells (International)(2)   8.8    1.0    1.0    1.5 

 

 

(1)In January 2021 Ecopetrol divested its 50% equity share in Savia Peru as the result of a competitive bidding process led jointly with its partner KNOC.

(2)Net wells correspond to the sum of wells owned and operated by Ecopetrol plus the net wells in our associated operations. Net wells in the associated operations are the result of our working interest in wells owned in joint ventures with our partners, as defined in the contract obligations.

(3)Includes only wells under direct operation by OXY. Non -operated wells are not included because they are not material.

31

 

Production Acreage

 

The following table sets forth our developed and undeveloped gross and net acreage of crude oil and natural gas production outside Colombia for the year ended December 31, 2020.

 

Table 25 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Developed and Undeveloped Gross and
Net Acreage of Crude Oil and Natural Gas Production

 

   For the year ended December 31, 2020 
   Developed   Undeveloped 
   Gross   Net   Gross   Net 
   (Acres) 
PERÚ                
Savia Perú(1)   79,575    39,787    57,671    28,836 
UNITED STATES OF AMERICA                    
Ecopetrol America LLC   55,440    14,479    23,040    6,566 
Ecopetrol Permian LLC   65,358    47,825    1,498    258 
Total (International)   200,373    102,091    82,209    35,660 

 

 

(1)In January 2021 Ecopetrol divested its 50% equity share in Savia Peru as the result of a competitive bidding process led jointly with its partner KNOC.

 

Gross and Net Productive Wells

 

The following table sets forth our total gross and net productive wells outside Colombia for the year ended December 31, 2020.

 

Table 26 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Gross and Net Productive Wells(1)(2)

 

   For the year ended
December 31, 2020
 
   Crude Oil 
   Gross   Net(3) 
   (Number of wells) 
PERÚ        
Savia Perú(4)   599.0    299.5 
UNITED STATES OF AMERICA          
Ecopetrol America LLC   16.0    3.9 
Ecopetrol Permian LLC(5)   22.0    10.8 
Total (International)   637.0    314.2 

 

 

(1)Includes only wells that were drilled and completed.

(2)Information in the table above reflects productive wells that directly contribute to hydrocarbons production and therefore excludes wells used for injection, disposal, water abstraction or other similar activities. We consider crude oil wells to be those in which the main operation is oil production, although many of these wells produce gas associated with oil production that, in some cases, have a commercial purpose. Natural gas wells are those in which operations are directed only towards production of commercial gas.

(3)Net wells correspond to the sum of wells entirely owned by us or our subsidiaries and our ownership percentage of wells owned in joint ventures with our partners.

(4)In January 2021 Ecopetrol S.A. divested its 50% equity share in Savia Peru as the result of a competitive bidding process led jointly with its partner KNOC.

(5)Includes only wells drilled and completed under direct operation by Occidental Petroleum Corp (OXY). Non-operated wells are not included because they are not material.

32

 

3.5.2.3Marketing of Crude Oil and Natural Gas

 

In 2020, Ecopetrol sold 883 mboed, out of which 425 mboed represented sales of crude oil (48%), 87 mboed of natural gas (10%) and 371 mboed of fuels and petrochemicals (42%).

 

Crude Oil Export Sales

 

In 2020, crude oil export sales increased by 13 mboed compared to 2019, mainly due to the greater availability of crude oil, supported by our sales and marketing strategy in response to lower crude oil runs at the refineries, which in turn was primarily due to a decrease in the domestic demand for fuels and refined products. Ecopetrol’s crude oil export sales are traded both in the spot and contract markets, primarily to refiners in the United States and Asia.

 

The Castilla blend is the main type of crude oil for export sales, with 371 mboed sold during 2020 (a 89% share of the crude oil basket) followed by Vasconia with 24 mboed (a 6% share of the crude oil basket), the domestic crudes sold by Ecopetrol America LLC with 8 mboed, (a 2% share of the crude oil basket), and Mares blend with 7 mboed (a 2% share of the crude oil basket).

 

Ecopetrol places its exports in markets that provide the best value for its crudes. In 2020, Asia was the main destination, representing 49% of crude oil exports, closely followed by the United States with 43%. The expansion of refining capacity in countries like China as well as the fast recovery in crude demand of key refining hubs in Asia after lockdown measures to curb the spread of the COVID-19 pandemic were eased in Asia have supported the increase of crude oil flows from Colombia to Asia.

 

Moreover, volatility in the production of regional competitors has given refiners in the United States, India and other markets an incentive to diversify their supply sources, which in turn has opened opportunities for Colombian producers. Our crude basket realization price decreased by US$ 24/Bl year over year due to market conditions stemming from the effects of the COVID-19 pandemic mentioned above.

 

Crude Oil Purchase Contracts

 

Ecopetrol has signed several crude oil purchase contracts with third parties and business partners. Ecopetrol also purchases the country’s crude oil royalties from the National Hydrocarbons Agency. These crudes are processed in Ecopetrol’s refineries or exported. The purchase price is referenced to export parity based on international market prices, plus a commercial fee. See section Business Overview—Related Party and Intercompany Transactions.

 

The table below sets forth the volumes of crude oil purchased from our business partners and third parties and volumes of crude oil purchased from the ANH from royalties for the years ended on December 31, 2020, 2019 and 2018.

 

Table 27 – Ecopetrol Consolidated Crude Oil Purchases

 

   For the year ended December 31, 
   2020   2019   2018 
   (Million barrels) 
Crude oil purchased from ANH royalties   31.0    35.4    37.6 
Crude oil purchased from third parties   34.0    30.0    20.7 
Crude oil imported from third parties   5.6    9.1    14.0 

33

 

During 2020, part of Ecopetrol’s crude strategy was centered on increasing the purchase and subsequent commercialization of crude oil from third parties, which enables further optimization of the supply chain and margin capture.

 

Import of Diluents

 

In 2020, Ecopetrol decreased the imports of diluent by 32% (17 mbod) compared to 2019, due to the use of domestic produced naphtha. Diluent is used to transport heavy crudes through the pipeline system.

 

Natural Gas Sales

 

Ecopetrol sells natural gas to distribution companies through firm, interruptible and conditional contracts. These distributors supply natural gas to the residential market, as compressed natural gas for vehicles market and to large industrials in Colombia. We also market and sell natural gas directly to the industrial sector and to gas-fired power plants.

 

Ecopetrol’s natural gas sales and self-consumption increased by 2% (2.9 mboed) compared to 2019, due to higher production primarily as a result of Hocol’s acquisition of Chevron’s interest in the Guajira association contract.

 

Natural Gas Delivery Commitments

 

The table below sets forth the commitments we have in Colombia under firm contracts with local natural gas distribution companies, local industries, gas-fired power generators and internal agreements with our refineries and fields.

 

Table 28 – Ecopetrol Consolidated Natural Gas Delivery Commitments

 

   For the year ended December 31, 
   2021   2022   2023   2024 
   (gbtud) 
Volume for sales third parties   503.3    483.3    420.9    311.1 
Volume for self-consumption   188.2    169.4    160.9    157.1 
Volume for intercompany sales   89.4    18.5    18.5    16.8 
Total Commitments   780.9    671.2    600.3    485.0 

 

The table above is based on current contracts of Ecopetrol S.A. and the official report made to the Ministry of Mines and Energy in 2020. Self-consumption volumes decreased over time as a result of more efficient operations in our refineries. Third party volumes do not include potential production coming from exploratory projects. According to current regulations, these volumes will be committed and commercialized after declaring exploratory success.

 

3.5.3Reserves

 

The reserves reporting process was conducted in accordance with SEC definitions and rules set forth in Rule 4-10(a) of Regulation S-X and the disclosure guidelines contained in the SEC’s Modernization of Oil and Gas Reporting final rule dated December 31, 2008 and effective as of January 1, 2010.

 

The estimated reserve amounts presented in this annual report, as of December 31, 2020, are based on the average prices during the 12-month period prior to the ending date of the period covered in this annual report, determined as the unweighted arithmetic averages of the prices in effect on the first day of the month for each month within such period, unless prices were defined by contractual arrangements, as required by the SEC regulations.

 

Our crude oil and natural gas net proved reserves include reserves from our subsidiaries located in the United States and Peru, and from Hocol’s assets in Colombia.

34

 

 

Estimated Net Proved Reserves

 

The following table sets forth our estimated net proved developed reserves of crude oil and gas by region for the years ended December 31, 2020, 2019 and 2018.

 

Table 29 – Net Proved Developed Reserves

 

   Colombia   North
America
   South
America
excluding
Colombia
   Total 
Net Proved Developed oil reserves in million barrels oil equivalent                    
At December 31, 2020(1)   757.4    16.3    2.3    776.0 
At December 31, 2019   832.0    12.0    3.8    848.0 
At December 31, 2018   814.0    13.0    5.0    832.0 
Net Proved Developed NGL reserves in million barrels oil equivalent                    
At December 31, 2020   57.0    1.1    0.4    58.0 
At December 31, 2019   49.0    0.1    0.5    50.0 
At December 31, 2018   50.5    -    0.6    51.1 
Net Proved Developed gas reserves in billion standard cubic feet                    
At December 31, 2020(2)   2,617.0    15.0    4.4    2,636.4 
At December 31, 2019   2,645.0    11.0    7.0    2,662.0 
At December 31, 2018   2,865.5    10.0    7.0    2,882.5 
Net Proved Developed oil, NGL and gas reserves in million barrels oil equivalent                    
At December 31, 2020   1,273.3    20.0    3.5    1,296.8 
At December 31, 2019   1,345.0    14.0    6.0    1,365.0 
At December 31, 2018   1,368.0    14.0    7.0    1,389.0 

 

 

(1)Oil Reserves included 14 million barrels of Fuel Oil.

(2)Gas Reserves included 411 bcf of Fuel Gas.

Totals may not exactly equal the sum of the individual entries due to rounding. The conversion rate used is 5,700 standard cubic feet = 1 barrel of oil equivalent.

 

We are required, as are all oil companies undertaking exploratory and production activities in Colombia, to pay a percentage of our production to the Government as royalties. However, the ANH’s Resolution 877 of 2013, Resolution 351 of 2014 and Resolution 640 of 2014 require natural gas royalties to be paid in cash, which means that the determination of the property rights to the quantities of natural gas we produce is based on the total volume produced without deductions on account of royalties. The main producing gas fields are Cupiagua, Pauto, Cusiana, Chuchupa and Gibraltar.

 

Ecopetrol S.A. owns 100% of Cenit, a subsidiary that operates in Colombia and is dedicated to the storage and transportation of hydrocarbons through pipelines. Cenit provides transportation services for the entire Ecopetrol Group and we fully consolidate Cenit into our consolidated results of operations. Therefore, the difference between the tariffs set by the Ministry of Mines and Energy and the real transportation costs (fixed and variable operating expenses) does not affect our consolidated income statement. Thus, in presenting our reserves information in the 2018, 2019 and 2020 annual reports, we have used our real transportation costs, rather than the regular tariffs set by the Ministry of Mines and Energy.

35

 

The following table summarizes our proved oil, NGL and natural gas reserves, which includes 14 million barrels of fuel oil, 411 billion standard cubic feet of fuel gas within our natural gas results and 429 billion cubic feet of royalties, as of December 31, 2020.

 

Table 30 – Proved Oil, NGL and Natural Gas Reserves for 2020

 

   Oil (mmb)   NGL (mmb)   Natural Gas
(bcf)
   Total Oil
and Gas
(mmboe)
 
PROVED DEVELOPED RESERVES                    
Colombia   757.4    56.8    2,617.0    1,273.3 
International                    
North America   16.3    1.1    15.0    20.0 
South America(1)   2.3    0.4    4.4    3.5 
TOTAL PROVED DEVELOPED RESERVES   776.0    58.2    2,636.4    1,296.8 
PROVED UNDEVELOPED RESERVES                    
Colombia   290.5    6.1    179.9    328.2 
International                    
North America   105.8    21.0    105.1    145.2 
South America(1)   -    -    -    - 
TOTAL PROVED UNDEVELOPED RESERVES   396.4    27.1    285.0    473.4 
TOTAL PROVED RESERVES   1,172.4    85.3    2,921.5    1,770.2 

 

 

(1)The reserves in South America include participation in Savia Peru, where we sold our interest on January 19, 2021.

Note: Totals may not exactly equal the sum of the individual entries due to rounding. The conversion rate used is 5,700 standard cubic feet = 1 barrel of oil equivalent.

 

The following table summarizes our proved oil, NGL and natural gas reserves, which includes 17 million barrels of fuel oil, 381 billion standard cubic feet of fuel gas within our natural gas results and 517 billion cubic feet of royalties, as of December 31, 2019.

 

Table 31 – Proved Oil, NGL and Natural Gas Reserves for 2019

 

   Oil (mmb)   NGL (mmb)   Natural Gas
(bcf)
   Total Oil
and Gas
(mmboe)
 
PROVED DEVELOPED RESERVES                    
Colombia   832.0    49.0    2,645.0    1,345.0 
International                    
North America   12.0    0.1    11.0    14.0 
South America   3.8    0.5    7.0    6.0 
TOTAL PROVED DEVELOPED RESERVES   847.8    50.0    2,662.0    1,365.0 
PROVED UNDEVELOPED RESERVES                    
Colombia   306.0    28.0    111.0    353.0 
International                    
North America   123.0    29.0    133.0    175.0 
South America   -    -    -    - 
TOTAL PROVED UNDEVELOPED RESERVES   429.0    57.0    244.0    529.0 
TOTAL PROVED RESERVES   1,277.0    107.0    2,906.0    1,893.0 

 

 

Note: Totals may not exactly equal the sum of the individual entries due to rounding. The conversion rate used is 5,700 standard cubic feet = 1 barrel of oil equivalent.

36

 

The following table summarizes our proved oil, NGL and natural gas reserves, which includes 16 million barrels of fuel oil, 327 billion standard cubic feet of fuel gas within our natural gas results and 534 billion cubic feet of royalties, as of December 31, 2018.

 

Table 32 – Proved Oil, NGL and Natural Gas Reserves for 2018

 

   Oil (mmb)   NGL (mmb)   Natural Gas
(bcf)
   Total Oil
and Gas
(mmboe)
 
PROVED DEVELOPED RESERVES                    
Colombia   814.0    50.5    2,866.0    1,368.0 
International                    
North America   13.0    -    10.0    14.0 
South America   5.0    0.5    7.0    7.0 
TOTAL PROVED DEVELOPED RESERVES   832.0    51.0    2,883.0    1,389.0 
PROVED UNDEVELOPED RESERVES                    
Colombia   285.0    22.0    113.0    327.0 
International                    
North America   10.0    -    6.0    11.0 
South America   -    -    -    - 
TOTAL PROVED UNDEVELOPED RESERVES   295.0    22.0    119.0    338.0 
TOTAL PROVED RESERVES   1,127.0    73.0    3,002.0    1,727.0 

 

 

Note: The conversion rate used is 5,700 standard cubic feet = 1 barrel of oil equivalent.

 

Changes in Proved Reserves

 

Table 33 – Changes in Proved Reserves

 

   For the year ended December 31, 
   2020   2019   2018 
   (Mmboe) 
Revisions of previous estimates   (71.5)   83.0    120.5 
Improved Recovery   113.1    94.0    129.1 
Extensions and discoveries   42.7    67.0    57.4 
Purchases   29.9    164.0    - 
Sales   (1.0)   -    - 
Total reserves additions   113.2    408.0    307.0 
Production   (236.3)   (242.0)   (239.0)
Net change in proved reserves   (123.0)   166.0    68.0 

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Reserves Replacement

 

The reserves replacement ratio is defined as the sum of additions and revisions of proved reserves divided by produced volumes in any given period. The following table presents the changes in reserves in each category relating to the reserve replacement ratio for the years 2020, 2019 and 2018.

 

The reserves replacement ratio for 2020 was 48% compared to 169% in 2019 and 129% in 2018.

 

The average replacement ratio for the last three years was 115%.

 

Table 34 – Reserves Replacement Ratio (Including Purchases and Sales)

 

    For the year ended December 31, 
    2020   2019   2018 
Annual    48%   169%   129%
Three-year average    115%   140%   83%

 

Revisions of Previous Estimates

 

In 2020, revisions decreased reserves by 71 million boe, mainly as a result of:

 

(i)A 215 million boe decrease attributed to economic factors and reevaluated projects. More specifically, we were negatively impacted by the substantial decrease in oil prices, with the ICE Brent crude price being 32% lower in 2020 as compared to 2019, which resulted in the lowering of economic limits in some of our fields and some projects becoming uneconomical under SEC standards.

 

(ii)An offsetting positive 114 million boe increase in reserves related to new projects in the Caño Sur, Quifa, Cusiana, Pauto and Rubiales fields as well as new areas included in the approved five-year development plan for our North American fields.

 

(iii)An offsetting positive 30 million boe increase related to field performance studies and development activities in existing fields.

 

In 2019, revisions increased reserves by 83 million boe, mainly as a result of:

 

(i)An increase of 33 million boe due to improved reservoir performance in the Rubiales field and continuous development with drilling activities.

 

(ii)An increase of 36 million boe in reserves due to the review of the curve type of new development activities according to updated new wells results in the Caño Sur field and additional gas processing plant capacity to extract NGL in the Cupiagua field.

 

(iii)An increase of 14 million boe in reserves, due to better production performance mainly in the Akacias, Caño Limón and Chichimene fields.

 

Nonetheless, due to the decrease in oil price compared to the Brent reference price used in the reserve estimation process at $63 per barrel in 2019 (as compared to $72 per barrel in 2018), the Company removed volumes of total proved reserves in the amount of 19 million boe, which have become uneconomical. This impact was partially offset by improved reservoir performance and new projects in several fields.

 

In 2018, revisions increased reserves by 121 million boe, mainly as a result of:

 

(i)An increase of 87 million boe due to the continuous development of the Rubiales, Chichimene and Quifa fields, of which a 68 million boe increase in reserves is due to improved reservoir performance in the Rubiales field.

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(ii)An increase 14 million boe increase in reserves due to development activities in the Bonanza and Ocelote fields.

 

(iii)An increase of 19.8 million boe, due to other development activities and good well performance in other fields.

 

Improved Recovery

 

In 2020, improved recovery activities increased reserves by 113 million boe. This increase was associated with new proved areas under water flooding in the Chichimene and Castilla fields, and optimization of the gas injection and blowdown strategy of the Cupiagua field.

 

In 2019, improved recovery increased reserves by 94 million boe. An increase of 25 million boe was associated with new proved areas under water flooding in the Chichimene and Akacias fields. Furthermore, the continued development of water flooding projects at existing wells in the Castilla, Chichimene, Yarigui, La Cira-Infantas fields accounted for a 45 million boe increase. The remaining 26%, or 24 million boe, increase was due primarily to water injection reservoir responses at various fields.

 

In 2018, improved recovery increased reserves by 129 million boe. The additions were associated with new proved areas under water flooding in the Chichimene, Castilla, La Cira-Infantas, Apiay, Suria, Yarigui, Casabe and Dina Cretaceo fields (86 million boe increase). In addition, the new steam injection project at the Teca-Cocorná field accounted for a 19 million boe increase in reserves. The remaining 19%, or 24 million boe, increase was due primarily to water injection reservoir responses at various fields.

 

On average, improved recovery has added 112 million boe each year over the last three years.

 

Extensions and Discoveries

 

The following table sets forth the change in the Company’s proved reserves attributed to extensions and discoveries in millions of boe for the periods indicated.

 

Table 35 – Changes in Proved Reserves Attributed to Extensions and Discoveries

 

   For the year ended December 31, 
   2020   2019   2018 
   (Mmboe) 
Extensions and discoveries               
Total change   42.7    67.0    57.4 
Proved Undeveloped Reserves Change   14.6    34.0    39.9 
Change from unproved to proved developed reserves   28.0    33.0    17.5 


The difference between the change of developed proved reserves and undeveloped proved reserves is related to the drilling of new wells in unproved acreage that led to new proved producing reserves.

 

The Company’s extensions and discoveries during 2020 amounted to 43 million boe primarily due to extensions of proved acreage, which in turn were mainly from activities in new proved areas in the Rubiales, Suria, Yarigui and Llanito fields (accounting for 38.5 million boe of the total change) and newly discovered fields Andina and Esox (accounting for 4 million boe of the total change). The Company’s extensions and discoveries during 2019 amounted to 67 million boe primarily due to extensions of proved acreage, which in turn were mainly from activities in new proved areas in the Rubiales, Quifa, Suria, Tisquirama, Cupiagua Sur, Castilla and Garzas fields (accounting for 55 million boe). The remaining 12 million boe corresponded to smaller changes in 26 fields with variations between 0.01 to 2.1 million boe.

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The Company’s extensions and discoveries during 2018 amounted to 57 million boe primarily due to extensions of proved acreage, which in turn were mainly from activities in new proved areas in the Rubiales, Castilla, Cupiagua, Pauto and Caño Sur fields (accounting for 45 million boe) and newly discovered fields and reservoirs (accounting for 12 million boe). The remaining 9 million boe corresponded to smaller changes in several other fields.

 

Purchases

 

Starting May 2020, Hocol S.A. took on the position of operator of the Guajira Contract, after the approval of the transaction in which Ecopetrol S.A. through its wholly owned subsidiary, Hocol S.A., acquired 100% of Chevron Petroleum Company’s participation in the contract (comprising the Ballena and Chuchupa fields in Colombia which corresponds to 43% of the total contract). This purchase increased proved reserves by 29.9 million boe.

 

In 2019, Ecopetrol S.A. through its wholly owned subsidiary, Ecopetrol Permian LLC acquired 49% of Rodeo Midland Basin LLC, a company whose economic activity is directed towards the execution of a joint development plan under the joint venture between Ecopetrol and Occidental Petroleum Corp, announced on July 31, 2019, which represented 164 million boe. Through this joint venture, the Company and Occidental Petroleum Corp are pursuing development of unconventional reservoirs in approximately 97,000 acres of the Permian Basin in Texas. For the acquisition and closing of the transaction, Ecopetrol S.A. made an initial payment of approximately US $876.5 million dollars. As of December 31, 2020, Ecopetrol had paid a total of US$ 121.8 million of the initial US$ 750 million carry obligation.

 

There were no purchases or acquisitions in 2018.

 

Sales

 

Pursuant to a public auction process carried out by Ecopetrol and Hocol in December 2020, an offer was received from Cordillera Resources SAS, Nikoil Energy Corp and Petroleum Blending International for 100% of our working interest in the La Punta and Santo-Domingo fields, which was declared the winning offer. We are now pending approval of such sale from the ANH, a process that typically takes 18 months. Based on that timing, we do not expect the formal approval to be received until July 2022.

 

Development of reserves

 

As of December 31, 2020, our total proved undeveloped oil and gas reserves amounted to 473 million boe, 69% of which is related to development activities at the Rubiales, Castilla and Chichimene fields in Colombia, among others, and 31% of which is related to development activities in North American fields.

 

Ecopetrol’s year-end development plans are consistent with SEC guidelines for the development of proved undeveloped reserves within five years. The development plan of Rubiales Field goes beyond the five years due to the water disposal restrictions in the facilities. The drilling of two wells in the United States Gulf of Mexico and one well onshore in Colombia also goes beyond five years due to drilling schedule. These wells are part of the ongoing development projects and all remaining development investments for the latter three wells will be completed within six years from their initial disclosure. These exemptions were reviewed and approved by the external certification agent.

 

As of December 31, 2019, our total proved undeveloped oil and gas reserves amounted to 529 million boe, 46% of which is related to development activities in the Rubiales, Castilla, Caño Sur Chichimene, Teca, Akacias and Pauto fields and 31% of which is related to development of unconventional reservoirs of the U.S. Permian Basin in Texas. The remaining 23% comes from activities at several other fields.

 

In 2019, Ecopetrol’s year-end development plans were consistent with SEC guidelines for the development of proved undeveloped reserves within five years. The development plan of Rubiales Field went beyond the five years due to the limitations in water handling in the facilities. These exemptions were reviewed and approved by the external certification agent.

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As of December 31, 2018, our total proved undeveloped oil and gas reserves amounted to 338 million boe, 21% of which is related to new drilling activities in the Rubiales field, 41% is related to development activities in the Castilla, Caño Sur, Chichimene, Quifa, Cupiagua and Yarigui fields and 22% of which is related to the new development activities in the Teca, Pauto, Bonanza and Ryberg fields. The remaining 16% comes from activities at several other fields.

 

In 2018, the development plan of Rubiales and Caño Sur Field went beyond 5 years due to the limitations in water handling in the facilities and Ryberg offshore field. These exemptions were reviewed by the external certification agent.

 

Our proved undeveloped reserves represent 27% of our total proved reserves as of December 31, 2020, 28% as of December 31, 2019, and 20% as of December 31, 2018.

 

The following table reflects the developed and undeveloped proved reserves estimates through the past three fiscal years.

 

Table 36 – Developed and Undeveloped Proved Reserves

 

   Oil (mmb)   NGL (mmb)   Natural Gas
(bcf)
   Total Oil
and Gas
(mmboe)
 
2020 Proved Reserves                    
Developed   776    58    2,636    1,297 
Undeveloped   396    27    285    473 
2019 Proved Reserves                    
Developed   848    50    2,662    1,365 
Undeveloped   429    57    244    529 
2018 Proved Reserves                    
Developed   832    51    2,882    1,389 
Undeveloped   295    23    119    338 

 

Of the total amount of proved undeveloped reserves that Ecopetrol had at the end of 2019 (529 million boe), we converted approximately 69 million boe, or 13%, to proven developed reserves during 2020. Approximately 86% of the total conversion is mainly associated with the development of crude oil and gas projects in the Castilla, Rubiales, and Cupiagua fields, among others, and 14% is associated with development execution in fields, such as the Ocelote field, among others. The amount of investments made during 2020 to convert proved undeveloped reserves to proved developed reserves was US$353 million.

 

Of the total amount of proved undeveloped reserves that Ecopetrol had at the end of 2018 (338 million boe), we converted approximately 89 million boe, or 26%, to proven developed reserves during 2019. Approximately 75% of the total conversion is primarily associated with the development of crude oil and gas projects in the Castilla, Rubiales, Chichimene and Yarigui fields (67 million boe), while the remaining 25% is associated with development execution in other fields such as the Suria, Casabe, Quifa, Caño Sur and Ocelote fields, among others. The amount of investments made during 2019 to convert proved undeveloped reserves to proved developed reserves was US$791 million.

 

Of the total amount of proved undeveloped reserves that Ecopetrol had at the end of 2017 (287 million boe), we converted approximately 84 million boe, or 29%, to proven developed reserves during 2018. Approximately 69% of the total conversion is primarily associated with the development of crude oil and gas projects in the Castilla, Rubiales and Chichimene fields (58 million boe), while the remaining 31% is associated with development execution in other fields such as the Ocelote, La Cira-Infantas, Caño Sur and K2 fields, among others. The amount of investments made during 2018 to convert proved undeveloped reserves to proved developed reserves was US$841 million.

41

 

Changes in Undeveloped Proved Reserves

 

The following table reflects the main changes in undeveloped proved reserves as of December 31, 2020, 2019 and 2018.

 

Table 37 – Changes in Undeveloped Proved Reserves

 

   For the year ended December 31, 
   2020   2019   2018 
   (Mmboe) 
Consolidated companies               
Revisions of previous estimates   (46.3)   43.0    28.4 
Improved Recovery   45.9    40.0    67.1 
Extensions and discoveries   14.6    34.0    39.9 
Purchases   -    163.0    - 
Proved undeveloped converted to proved developed   (69.4)   (89.0)   (83.7)
Net change in unproved reserves   (55.2)   190.0    51.7 

 

 

Note: The conversion rate used is 5,700 standard cubic feet = 1 barrel of oil equivalent. Totals may not exactly equal the sum of the individual entries due to rounding.

 

Undeveloped Proved converted to Developed Proved: Of the total amount of undeveloped proved reserves that Ecopetrol had at the end of 2019 (529 million boe), we converted approximately 69 million boe, or 13%, to developed proved reserves during 2020. Approximately 86% of the total conversion was primarily associated with the development of crude oil and gas projects in Ecopetrol S.A Fields as Castilla, Rubiales and Cupiagua fields, among others and 14% was associated with development execution in fields where our subsidiaries are operating.

 

All the explanations that were included in Changes in Proved Reserves apply for this section.

 

Reserves Process

 

Ecopetrol’s reserves process is coordinated by Fidel Antonio Delgado Loría the Corporate Resources and Reserves Manager. Mr. Delgado Loría is a Petroleum Engineer with over 19 years of experience in the upstream sector of production business in Ecopetrol and other companies in the industry in Colombia and Venezuela. He received his engineering degree from Universidad Central de Venezuela. He reports to the Upstream Chief Financial Officer. In addition, the Ecopetrol reserves team is comprised of reserves coordinators who are geologists and petroleum engineers, each of them with more than fifteen years of experience in reservoir characterization, field development, estimation and reporting of reserves by SEC Guidelines. This team supports and interacts with the specialists involved in the estimation and reporting process, following an established procedure with its corresponding internal controls. As in previous years, reserves are estimated and certified by recognized external independent engineers, this year consisting of DeGolyer and MacNaughton, Gaffney Cline & Associates, Netherland, Sewell & Associates, Inc., Ryder Scott Company, and Sproule International Limited, in compliance with the definitions of the Society of Petroleum Engineers and the applicable SEC rules. According to our corporate policy, we report the reserves values obtained from the external engineers, even if they are lower than our expected reserves.

 

The reserves estimation process ends when the Corporate Reserves Manager consolidates the results and together, with the Development Vice-President and the Upstream Chief Financial Officer, presents the outcome to the Reserves Committee, which comprises the Ecopetrol Group’s CEO, CFO and the Vice-President of Development and Production, among others. Results are later presented to the Audit and Risk Committee of the Board of Directors and finally reviewed and approved by the Board of Directors.

 

The aforementioned external independent engineering consultants have estimated and certified Ecopetrol’s proved reserves as of December 31, 2020. These external engineers estimated 99% of our estimated net proved reserves for the year ended December 31, 2020, 2019 and 2018. The reserves reports of the external engineers are included as exhibits to this annual report.

42

 

Ecopetrol’s reserves process uses deterministic methods which are commonly used internationally to estimate reserves. These methods whilst reliable, have some inherent uncertainty, and thus, estimates should not be interpreted as exact amounts. The majority of the producing proved reserves were estimated by applying appropriate decline curves or other performance relationships. In analyzing decline curves, reserves were estimated by calculating economic limits that are based on current economic conditions. In certain cases, where the methods previously employed could not be used, reserves were estimated by analogy with similar reserves for which more complete data was available.

 

Estimates of reserves were prepared by geological and engineering standard methods commonly used in the oil and gas industry. The method or combination of methods used in the analysis of each reserve was adopted from experience analogy reserves, including information on the stage of development, quality and completeness of basic data and production history.

 

The following table reflects the estimated proved reserves of oil and gas as of December 31, 2018 through 2020, and the changes therein.

 

Table 38 – Estimated Proved Reserves of Oil and Gas

 

   Colombia   North
America
   South
America
excluding
Colombia
   Total 
Consolidated Companies