Company Quick10K Filing
Ecopetrol
20-F 2019-12-31 Filed 2020-04-01
20-F 2018-12-31 Filed 2019-04-05
20-F 2017-12-31 Filed 2018-04-19
20-F 2016-12-31 Filed 2017-05-31
20-F 2015-12-31 Filed 2016-04-29
20-F 2014-12-31 Filed 2015-04-28
20-F 2013-12-31 Filed 2014-04-25
20-F 2012-12-31 Filed 2013-04-29
20-F 2011-12-31 Filed 2012-04-30
20-F 2010-12-31 Filed 2011-07-15
20-F 2009-12-31 Filed 2010-07-15

EC 20F Annual Report

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Ecopetrol Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F 1 tm206789d1_20f.htm FORM 20-F

 

 

 

As filed with the Securities and Exchange Commission on March 31, 2020

 

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, 2019

 

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
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.

 

x 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     x 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.

 

x 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).

 

x 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 x 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 which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

¨ U.S. GAAP x 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     x No

 

 

 

 

 

 

Annual Report on Form 20-F 2019

 

Table of Contents

 

    Page
1. Introduction 1
  1.1 About This Annual Report 1
  1.2 Forward-looking Statements 1
  1.3 Selected Financial and Operating Data 2
2. Strategy and Market Overview 4
  2.1 Our Corporate Strategy 5
    2.1.1 Business Plan 5
    2.1.2 2020 Investment Plan 7
3. Business Overview 8
  3.1 Our History 8
  3.2 Our Corporate Structure 9
  3.3 Our Business 10
  3.4 Exploration and Production 10
    3.4.1 Exploration Activities 11
      3.4.1.1 Exploration Activities in Colombia 12
      3.4.1.2 Exploration Activities Outside Colombia 13
    3.4.2 Production Activities 15
      3.4.2.1 Production Activities in Colombia 15
      3.4.2.2 Production Activities Outside Colombia 24
      3.4.2.3 Marketing of Crude Oil and Natural Gas 27
    3.4.3 Reserves 28
    3.4.4 Joint Venture and Other Contractual Arrangements 36
  3.5 Transportation and Logistics 40
    3.5.1 Transportation Activities 40
      3.5.1.1 Pipelines 42
      3.5.1.2 Export and Import Facilities 44
    3.5.2 Other Transportation Facilities 44
    3.5.3 Marketing of Transportation Services 45

 

i

 

 

  3.6 Refining and Petrochemicals 47
    3.6.1 Refining 47
      3.6.1.1 Barrancabermeja Refinery 47
      3.6.1.2 Cartagena Refinery 48
      3.6.1.3 Esenttia S.A. 50
      3.6.1.4 Biofuels 50
    3.6.2 Marketing and Supply of Refined Products 51
  3.7 Research and Development; Intellectual Property 51
  3.8 Applicable Laws and Regulations 52
    3.8.1 Regulation of Exploration and Production Activities 52
      3.8.1.1 Business Regulation 52
    3.8.2 Regulation of Transportation Activities 55
    3.8.3 Regulation of Refining and Petrochemical Activities 56
      3.8.3.1 Regulation of Liquefied Petroleum Gas (LPG) and Liquid Fuels 57
      3.8.3.2 Regulation Concerning Production and Prices 57
      3.8.3.3 Regulation of Biofuel and Related Activities 59
    3.8.4 Regulation of the Natural Gas Market 59
  3.9 Environmental, Social and Governance (ESG) Strategies and Initiatives 61
    3.9.1 HSE 61
      3.9.1.1 Ecopetrol S.A. 61
      3.9.1.2 Cenit 69
      3.9.1.3 Cartagena Refinery 69
    3.9.2 Corporate Responsibility 70
    3.9.3 Environmental Sustainability 71
      3.9.3.1 Environmental Practices 71
    3.9.4 Energy Initiatives 72
  3.10 Related Party and Intercompany Transactions 73
  3.11 Insurance 77
  3.12 Human Resources/Labor Relations 80
    3.12.1 Employees 80
    3.12.2 Collective Bargaining Arrangements 82

 

ii

 

 

4. Financial Review 83
  4.1 Factors Affecting Our Operating Results 83
  4.2 Effect of Taxes, Exchange Rate Variation, Inflation and the Price of Oil on our Results 85
    4.2.1 Taxes 85
    4.2.2 Exchange Rate Variation 88
    4.2.3 Effects of Inflation 90
    4.2.4 Effects of Crude Oil and Refined Products Prices 90
  4.3 Accounting Policies 90
  4.4 Critical Accounting Judgments and Estimates 91
  4.5 Operating Results 91
    4.5.1 Consolidated Results of Operations 91
      4.5.1.1 Total Revenues 92
      4.5.1.2 Cost of Sales 93
      4.5.1.3 Operating Expenses before Impairment of Non-Current Assets Effects 95
      4.5.1.4 Impairment of Non-Current Assets 96
      4.5.1.5 Finance Results, Net 97
      4.5.1.6 Income Tax 98
      4.5.1.7 Net Income (Loss) Attributable to Owners of Ecopetrol 98
      4.5.1.8 Segment Performance and Analysis 99
      4.5.1.9 Exploration and Production Segment Results 100
      4.5.1.10 Transportation and Logistics Segment Results 103
      4.5.1.11 Refining and Petrochemicals Segment Results 104
  4.6 Liquidity and Capital Resources 105
    4.6.1 Review of Cash Flows 105
    4.6.2 Capital Expenditures 106
    4.6.3 Dividends 106
  4.7 Summary of Differences between Internal Reporting (Colombian IFRS and IFRS) 107
  4.8 Financial Indebtedness and Other Contractual Obligations 108
  4.9 Off Balance Sheet Arrangements 109
  4.10 Trend Analysis and Sensitivity Analysis 110

 

iii

 

 

5. Risk Review 112
  5.1 Risk Factors 112
    5.1.1 Risks Related to Our Business 112
    5.1.2 Risks Related to Colombia’s Political and Regional Environment 123
    5.1.3 Legal and Regulatory Risks 126
    5.1.4 Risks Related to Our ADSs 128
    5.1.5 Risks Related to the Controlling Shareholder 130
  5.2 Risk Management 131
    5.2.1 Managing Risk through Our Internal Control System 131
    5.2.2 Managing Information Security and Cybersecurity 132
    5.2.3 Managing Financial Risk 132
  5.3 Legal Proceedings and Related Matters 135
6. Shareholder Information 142
  6.1 Shareholders’ General Assembly 142
  6.2 Dividend Policy 142
  6.3 Market and Market Prices 143
  6.4 Description of Ecopetrol Registered Debt Securities 144
  6.5 Description of Ecopetrol ADRs 144
  6.6 Taxation 146
    6.6.1 Colombian Tax Considerations 146
    6.6.2 U.S. Federal Income Tax Consequences 150
  6.7 Exchange Controls and Limitations 153
  6.8 Exchange Rates 154
  6.9 Major Shareholders 154
  6.10 Enforcement of Civil Liabilities 154

 

iv

 

 

 

v

 

 

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;

 

1

 

 

·competition;

 

·our ability to obtain financing;

 

·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 health events, 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  2019   2018   2017   2016   2015 
Oil and gas production (mboed)    725.1    720.4    715.1    717.9    760.7 
Proved oil and gas reserves (Mmboe)(1)    1,893    1,727    1,659    1,598    1,849 
Exploratory Wells(2)    20    17    20    6    5 
Refinery Through-put (bpd)(3)    375,754    375,666    347,483    332,751    234,861 
1P Reserves replacement ratio    169%   129%   126%   (7)%   6%

 

 

(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, Reficar, Apiay and Orito refineries. Reficar operations were shut down in March 2014 for the expansion and modernization plan. The new crude unit began start-up process in October 2015. During 2016, Reficar was undergoing the unit startup phase and commenced full operation in July 2016. The refinery’s global performance testing was successfully completed in the fourth quarter of 2017, resulting in the start of the refinery’s optimization and continuous operation stage. During 2018, Reficar continued its optimization phase.

 

2

 

 

Financial Information

 

International Financial Reporting Standards (IFRS)

 

(Expressed in millions of Colombian Pesos, except for the net income per share and net operating income per share, which are expressed in Colombian Pesos)

 

Table 2 – Selected Financial Data

 

Financial Information  2019   2018   2017   2016   2015 
Revenue    71,488,512    68,603,872    55,954,228    48,485,561    52,347,271 
Operating income    21,027,158    22,458,414    16,171,855    8,904,548    2,131,165 
Net income (loss) attributable to Ecopetrol’s shareholders    13,744,011    11,381,386    7,178,539    2,447,881    (7,193,859)
Net operating income per share    511    546    393    217    51.8 
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 
Earnings (loss) per share (basic and diluted)    334    277    175    59.5    (175.0)
Total assets    133,890,296    124,643,498    117,847,412    118,958,977    123,588,190 
                          
Total equity    58,231,628    57,107,780    48,215,699    43,560,501    43,100,963 
Subscribed and paid-in capital    25,040,067    25,040,067    25,040,067    25,040,067    25,040,068 
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    180    314    89    23    - 
Total liabilities   75,658,668    67,535,718    69,631,713    75,398,476    80,487,227 

 

Our consolidated financial statements for the years ended December 31, 2015, 2016, 2017, 2018 and 2019 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 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.

 

3

 

 

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$3,282 per US$1.00, which corresponds to the Tasa Representativa Promedio del Mercado (TRM), or Average Representative Market Exchange Rate, for 2019. 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 March 27, 2020, the Representative Market Exchange Rate was COP$3,996 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.

 

2.Strategy and Market Overview

 

The US-China trade war escalated in 2019 and increased average tariffs between the two nations (U.S. tariffs to China rose from 12.0% to 21.0%, and Chinese tariffs to the U.S. from 16.5% to 21.1% in each case from 2018 to 2019), affecting global confidence. Global industrial production entered a downturn, and world trade stagnated with most countries worldwide recording a slowdown in the growth of their economies. In 2019, these factors led to a 0.75 million barrels of oil equivalent per day (mmboepd) growth in oil demand, the lowest growth rate since 2012 when demand increased by 0.60 mmboepd.

 

World oil supply remained stable in 2019. While the supply of those outside the Organization of the Petroleum Exporting Countries (OPEC) increased by 1.94 mmboepd in 2019, mainly due to higher production in the U.S. (1.62 mmboepd) and Brazil (0.23 mmboepd), the supply from OPEC countries fell by 2.10 mmboepd. In addition to production declines in Saudi Arabia, the decrease in total OPEC output was largely driven by falling production in Venezuela and Iran due, in part, to U.S. sanctions. Crude oil production in Venezuela averaged 0.82 mmboepd in 2019, a decline of 0.57 mmboepd as compared to 2018. In 2019, Iranian crude oil production decreased by 1.21 mmboepd as compared to 2018.

 

In conclusion, global oil markets were roughly balanced in 2019, as global oil supply declined slightly, and global oil consumption grew at the smallest rate since 2009. However, market pessimism increased in 2019 largely due to trade war fears and a global slowdown, pushing down the price of oil. Brent averaged US$64/Bl in 2019, down from a 2018 average of US$72/Bl.

 

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

 

 

Source: EIA: Short term Energy Outlook

 

4

 

 

During 2020, international reference prices have been impacted due to the disagreement on production cuts between the Organization of the Petroleum Exporting Countries (OPEC) and Russia, global and regional economic and political developments in the OPEC, and its capacity and decision to increase production levels to gain market share.

 

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 could continue to influence 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. According to the National Administrative Department of Statistics (DANE for its Spanish acronym), during 2019 Colombia’s GDP grew by 3.3% in real terms, as compared to 2018. The sectors with the greatest growth rates were retail, financial services, and public administration, which had the largest contribution to national GDP. On the other hand, construction had the worst performance.

 

Local sales of liquid fuels (LPG, diesel, jet and gasoline) increased by 4% in 2019, boosted by increased demand for gasoline and diesel.

 

Natural gas demand in Colombia decreased by 1.7% in 2019 as compared to 2018 due to lower demand from natural gas fired power plants.

 

2.1Our Corporate Strategy

 

2.1.1Business Plan

 

The Ecopetrol Group’s 2020 - 2022 Business Plan (the Plan) is aligned with the strategic priorities of achieving profitable and sustainable growth, using strict capital discipline and cash flow protection, taking into consideration the challenges posed by energy transition, climate change, respect for the environment and biodiversity, the protection and responsible use of water, and the inclusion of an innovation and technology component, leveraging the integrated value generation for the Group.

 

The Plan includes investments between US$13 and US$17 billion, most of which will be invested in Colombia, aimed at continuing reserves and production growth, the search and development of investment opportunities to leverage portfolio diversification, and ensuring the continuity of the operations. Furthermore, the Plan provides for increased operational sustainability with specific goals of decarbonization, increased use of renewable energy and digital transformation. The Plan is based on a Brent price of US$57/Bl.

 

Investments in growth (58%) are focused on continuing the profitable development of existing assets and addressing the transition to gas. Investments in operational continuity (26%) are aimed at preserving the value of the assets and providing reliability and integrity to the operation, and the remaining (16%) of investments will boost innovation and technology and decarbonization goals.

 

Some of the most relevant operational goals of the Plan are expected to: (i) reach organic production levels of between 745 - 800 thousand barrels of oil equivalent per day, (ii) maintain the replacement rate of organic reserves above 100%, without price effect, (iii) realize throughput between 370 - 420 thousand barrels per day for the integrated refining system, (iv) achieve between 1.10 - 1.25 million barrels per day of volumes transported, in line with the expected country’s production and demand for liquid fuels, (v) reduce emissions between 1.8 and 2.0 million metric tons of carbon dioxide equivalent (MmtCO2e) in 2020 and (vi) install approximately 300 Megawatts of renewable energy sources.

 

Upstream

 

The Plan allocates 83% of total investments to the upstream segment, prioritizing the development of the Group’s position in strategic assets such as the Piedemonte and Rubiales fields as well as others in the Middle Magdalena Valley and key regions such as Brazil and the Permian Basin. Furthermore, the maturation and development of improved recovery activities will continue. The Plan allocates 72% of upstream investments on projects in Colombia while the remainder will be invested in further developing the Group's international operations.

 

In terms of exploration, the Plan provides for drilling more than 30 exploratory wells located in the most relevant basins, focused mostly in Colombia and implementing an important seismic survey program. Additionally, the Group expects to continue with the evaluation and development of the offshore gas discoveries made in the Colombian Caribbean through investments totaling US$200 million.

 

5

 

 

In relation to unconventional reservoirs, the maturation of the initiatives associated with the Comprehensive Research Pilot Project (Proyectos Piloto de Investigación Integral or PPII as per its Spanish acronym) in the Middle Magdalena Valley Basin will continue, and development activities in the Permian Basin in Texas increase.

 

Downstream

 

The Plan allocates 11% of investments to the downstream segment, focusing on the use and optimization of the current infrastructure. To this end, we plan to conduct major maintenance and technological updates at the Cartagena and Barrancabermeja refineries as well as implement the Cartagena Refinery’s Original Crude Unit interconnection project. We also plan to expand the Esenttia plant by 70 thousand tons of polypropylene per year. A gross refining margin of between US$10 - US$15 per barrel is expected, with periods of significant volatility.

 

In an effort to move forward with the production of cleaner fuels for the country, the investments made during the 2020 - 2022 period will consolidate the quality of domestic diesel to between 10 to 15 ppm of sulphur and reduce the sulphur in gasoline to a maximum of 50 ppm. Moreover, we anticipate initiating a project designed to reach levels below 10 ppm in both fuels in the medium term. We already report this quality level for domestic diesel, including the diesel used by mass transport systems such as Transmilenio in Bogotá.

 

Midstream

 

The Plan includes allocating 5% of investments to this segment, focused on improving efficiency and synergies in the transportation system as well as capturing investment opportunities in multi-purpose pipelines associated with the increase in domestic fuel demand. To this end, we foresee investments totaling US$300 million. This segment is expected to continue to be an important cash generator.

 

Technology and Innovation

 

In terms of technology, our efforts will focus on realizing the feasibility of enhanced oil recovery and unconventional hydrocarbons projects in an effective, environmentally and socially sustainable manner, increasing flexibility and logistical efficiency for the transportation of heavy crudes and increasing energy efficiency, among others. Additionally, we plan to complete the ten key projects on our digital agenda that seek to maximize production, improve the commercialization and refining margin, and digitize financial management.

 

Emission reduction and water management

 

In line with the 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, the Plan allocates between US$320 and US$430 million for investments in projects that help reduce carbon emissions between 200 and 400 kilotons of carbon dioxide equivalents (KtCO2e), in order to reach an annual reduction of between 1.8 and 2.0 million of tons of carbon dioxide equivalents (MtCO2e) in 2022. 

 

In order to enhance integrated water management, wastewater reuse, water security and water governance, the Plan allocates investments of between US$100 and US$150 million in wastewater treatment and final water disposal wells and to provide potable water and sanitation to 900,000 in 40 prioritized municipalities.

 

Social and Environmental Investment

 

The Plan expects to allocate between US$350 and US$400 million in funds to our socio-environmental program, designed to help close socioeconomic gaps in Colombia and boost sustainable community development and wellbeing. The priority areas for the socio-environmental investment program are public and community infrastructure, public services, education, sports and health, rural development and business entrepreneurship.

 

The Plan seeks to maintain leveraging metrics in line with the Company’s investment grade rating and competitive vis-à-vis industry peers.

 

The Plan emphasizes Ecopetrol's commitment to a safe and sustainable operation, while protecting the environment and the communities in the areas where it operates, and ensuring the satisfaction of its employees, conditions that will help create shared prosperity and constructive dialogue with all its stakeholders.

 

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2.1.22020 Investment Plan

 

In November 2019, the Board of Directors approved between US$4.5 and US$5.5 billion for the 2020 investment plan at US$57/Bl Brent. The Ecopetrol Group plans to produce between 745 and 760 thousand barrels of oil equivalent per day during 2020. Ecopetrol expects to allocate 78% percent of these investments to projects in Colombia and the remainder to positioning and developing the Ecopetrol Group’s operations in the United States, Mexico and Brazil.

 

On March 16, 2020, Ecopetrol announced a set of actions to address current challenging market conditions, which have resulted, among other matters, in a 60% decline in the Brent crude price as compared to the end of 2019, due to external shocks including the strong increase in the supply of oil and the spread of COVID-19. These measures are part of a phased intervention plan that aims for the Company to adapt in a timely and orderly manner to changing market conditions.

 

The first stage of this plan includes the following actions:

 

i.Effective immediately, a COP$2 trillion cutback in costs and expenses to strengthen Ecopetrol’s competitiveness, including austerity measures, prioritization of operational and administrative activities, and control over operational expenses, such as travel restrictions, sponsorships and involvement in events, among others.

 

ii.Implementation of new commercial strategies to maximize the value of the crudes and products sold by the Ecopetrol Group.

 

iii.A US$1.2 billion decrease in the 2020 investment plan so that the new range of the investment plan is now US$3.3 - 4.3 billion. The measures adopted aim to intervene in investment opportunities in the early stages, seeking to preserve production and cash flow and maintain the integrity and reliability of investments, including social investment commitments already made.

 

iv.Regarding the Earnings Distribution Proposal reported to the market on March 2, 2020, the Board of Directors proposed a new payment scheme consisting of the following: a first payment of 100% of the dividend to minority shareholders and 14% of the dividend to the majority shareholder, to be made on April 23, 2020, and the payment of the remaining 86% of the dividend to the majority shareholder to be disbursed during the second half of 2020.

 

The production target for 2020 set forth above remains unchanged as of phase one, between 745 - 760 mboed. See the section entitled Trend Analysis and Sensitivity AnalysisTrend Analysis for further information.

 

Ecopetrol will continue to monitor market developments to determine the need to launch subsequent stages of the intervention plan, seeking to optimize the balance between decisive responses under current market conditions and preservation the Company's long-term value.

 

The table below sets forth the details of the initial investment plan per business segment announced in November 2019 (which has now been modified as described above):

 

Table 3 – 2020 Investment Plan (1)

 

Business Segment 

% Percentage (2)

 
Exploration    14%
Production    66%
Midstream    7%
Downstream    11%
Other    2%
TOTAL    100%

 

 

(1)This 2020 Investment Plan was modified by the intervention measures announced by Ecopetrol on March 16, 2020 as described above.
(2)Percentage over the upper range.

 

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Exploration

 

In exploration, investment has been allocated mainly to the evaluation and appraisal of discoveries and ongoing exploration activity of Ecopetrol S.A. (approximately 35%), Hocol S.A. (Hocol) (approximately 9%), Ecopetrol America LLC (approximately 2%), ECP Hidrocarburos Mexico (approximately 7%) and Ecopetrol Brazil (approximately 47%).

 

Production

 

In the production segment, investment has been allocated mainly to the development of production projects of Ecopetrol S.A. (approximately 75%) primarily at Castilla, Rubiales, Chichimene, Llanito, Casabe, Piedemonte and Caño Sur fields. In addition, Ecopetrol plans to spend approximately 19% of the funds allocated in the production investment plan in the Permian project as described below. Ecopetrol also has allocated funds for its affiliates and subsidiaries as follows: approximately 2% for the development, operation and maintenance of fields of Ecopetrol America LLC in the U.S. Gulf of Mexico and approximately 4% to Hocol.

 

Midstream

 

In the midstream segment, resources have been allocated to improve system and operational integrity. The segment seeks to strengthen its profitability by means of higher transported volumes through oil and multi-purpose pipelines and better operating results. These investments are expected to optimize future operating costs due to equipment upgrades and performance improvement.

 

Downstream

 

In the downstream segment, investment has been primarily allocated to the Barrancabermeja and Cartagena refineries through initiatives aimed at optimizing maintenance costs, enhancing integrity management, and improving the quality of diesel and gasoline. The segment is seeking a higher efficiency in operations in order to maximize the value of the existing assets.

 

Environmental, Social and Governance (ESG) and Digital Transformation

 

Ecopetrol expects to invest US$150 million in energy transition and carbon emission reduction in 2020. The Plan includes funding for the medium-term socio-environmental investment program, with an expected investment of between US$350 and US$400 million for the upcoming three years, aimed at helping close socioeconomic gaps in Colombia and boosting sustainable community development and wellbeing.

 

To strengthen the digital transformation, Ecopetrol expects to allocate US$91 million in 2020 toward capturing benefits associated with artificial intelligence, blockchain and bot technologies, among others. Ecopetrol expects to invest an additional US$35 million in leveraging new innovation processes, including creating strategic alliances and innovation ecosystems.

 

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.

 

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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 public stock-holding corporation, one hundred percent state-owned, and continued the development of exploration and production activities in a competitive basis with autonomy over our 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. As of March 23, 2018, pursuant to our amended bylaws, the duration of the Company is 100 years.

 

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. Starting in August 2010, our ADSs began trading on the Toronto Stock Exchange (TSX) under the symbol “ECP.” On February 17, 2016, we announced our application for voluntary delisting from the TSX. On March 25, 2016, our ADR’s were officially delisted from the TSX. On December 7, 2017, we applied to the Alberta Securities Commission and the Ontario Securities Commission to cease our reporting requirements, due to our delisting process. On September 4, 2018, we announced that effective August 29, 2018, we had ceased to be a reporting issuer in each of the provinces of Alberta and Ontario and hence were no longer a reporting issuer in any jurisdiction in Canada. Accordingly, Ecopetrol no longer has any disclosure obligations in Canada.

 

3.2Our Corporate Structure

 

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

 

Our subsidiaries, Refinería de Cartagena S.A.S. (Reficar or Cartagena Refinery), Cenit Transporte y Logistica 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. Our subsidiaries are either directly owned by us or indirectly owned by us through one or more of our other subsidiaries. As of December 31, 2019, we have seven directly owned and 22 indirectly owned subsidiaries.

 

During 2019, the following changes were made to the Ecopetrol Group’s structure:

 

i.

We formed a joint venture (JV) with Occidental Petroleum Corp for the development of unconventional reservoirs in approximately 97,000 acres in the Midland Basin, within the Permian Basin, Texas, by which we acquired 49% of Rodeo Midland Basin LLC (Rodeo). We have joint control over Rodeo, and, for that reason, we recognize the proportionate share of the assets, liabilities, revenues and expenses associated with Rodeo. The information we present throughout this annual report with respect to Rodeo represents such proportionate share. To develop the JV, we incorporated two new companies: (i) Ecopetrol Permian LLC, dedicated to the exploration, development and production of unconventional resources, and (ii) Ecopetrol USA Inc., which purpose is the exploration and exploitation of hydrocarbons. It also converted Ecopetrol America Inc. into Ecopetrol America LLC, which will continue to focus on US GoM operations.

 

ii.We incorporated two service companies in México: Topili Servicios Administrativos - Sociedad de Responsabilidad Limitada de Capital Variable and Kalixpan Servicios Técnicos - Sociedad de Responsabilidad Limitada de Capital Variable.

 

iii.We became the controlling shareholder of Inversiones de Gases de Colombia S.A. (“Invercolsa”), due to the decision of the Colombian Supreme Court of Justice that returned 145 million ordinary shares of this company to Ecopetrol, thus increasing our equity interest from 43.35% to 51.88%.

 

iv.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, which will allow them to organize financial, administrative and operational aspects to preserve their sustainability. Those entities are not material subsidiaries and therefore these processes are not expected to have a material adverse effect on Ecopetrol’s results of operations or financial condition.

 

9

 

 

Graph 2 – Ecopetrol Corporate Structure

 

 

The stock ownership percentage listed refers to Ecopetrol S.A.’s direct and indirect participation. 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).

 

3.3Our Business

 

We are a vertically integrated oil and gas company with presence primarily in Colombia and with activities in Peru, Brazil, Mexico and the U.S. The Nation currently owns 88.49% of our voting capital stock. We are among the world’s largest public companies, ranking 300 on the Forbes Global 2000 Ranking - 2019. We play a key role in the local Colombian hydrocarbon market.

 

3.4Exploration 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, 2019, 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.

 

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

 

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3.4.1Exploration Activities

 

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

 

Graph 3- Sedimentary basins where Ecopetrol executes exploration activities

 

 

 

During 2019, the exploration strategy was directed at leveraging our goal on three working fronts: onshore Colombia, offshore Caribbean, and strengthening and diversifying our exploration overseas.

 

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3.4.1.1Exploration Activities in Colombia

 

The Ecopetrol Group was awarded ten exploration blocks by the National Hydrocarbons Agency (ANH) during the 2019 bidding round process. Three of these were awarded to Ecopetrol S.A, the Gua-Off 10 Block located in the Colombian Caribbean offshore and two blocks in the Llanos Basin. The remaining seven blocks were awarded to our subsidiary Hocol.

 

During 2019, Ecopetrol and its subsidiaries drilled nineteen (19) wells in Colombia, of which fifteen (15) were exploratory (A3/A2) and four (4) appraisal wells (A1) in Colombia. Seven (7) wells were successful, nine (9) were plugged and abandoned, and three (3) were under evaluation as of December 31, 2019. This activity was concentrated mainly in the following basins: Llanos, Lower Magdalena Valley, Middle Magdalena Valley, Upper Magdalena Valley and Piedemonte.

 

The following table sets forth, for the periods indicated, the number of gross and net productive and dry 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, 
   2019   2018   2017 
   (number of wells) 
COLOMBIA               
Ecopetrol S.A.               
Gross Exploratory Wells               
Owned and operated by Ecopetrol               
Productive    1.0         
Dry(1)    1.0        1.0 
Total    2.0        1.0 
Operated by Partner in Joint Venture               
Productive    4.0    5.0    3.0 
Dry    1.0    1.0    2.0 
Total    5.0    6.0    5.0 
Operated by Ecopetrol in Joint Venture               
Productive             
Dry            1.0 
Total            1.0 
Net Exploratory Wells(2)               
Productive    2.8    1.9    1.5 
Dry    1.4    0.3    2.3 
Total    4.2    2.2    3.8 
Sole Risk               
Productive    1.0         
Dry    5.0    2.0     
Total    6.0    2.0     
ECAS               
Gross Exploratory Wells               
Productive             
Dry            1.0 
Total            1.0 
Net Exploratory Wells               
Productive    2.8         
Dry    1.4        0.5 
Total    4.2        0.5 
Equion               
Gross Exploratory Wells               
Productive            
Dry             
Total             
Hocol               
Gross Exploratory Wells               
Productive    1.0    1.0     
Dry    2.0    4.0    1.0 
Total    3.0    5.0    1.0 
Net Exploratory Wells               
Productive    0.5    1.0     
Dry    2.0    3.2    1.0 
Total    2.5    4.2    1.0 

 

 

(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)Net exploratory wells were calculated according to our percentage of ownership in these wells.

 

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Ecopetrol drilled seven (7) successful wells in Colombia in 2019 (i) Jaspe-8, where Ecopetrol holds a 30% working interest, and Frontera as the operator holds the remaining 70% working interest at the Quifa Block, (ii) Andina Norte-1, where Ecopetrol holds a 50% working interest, and Parex Resources as the operator holds the remaining 50% working interest at the Capachos Block, (iii) Boranda-2 ST1, where Ecopetrol holds a 50% working interest, and Parex Resources as the operator holds the remaining 50% working interest at the Playon Block, (iv) Cosecha CW-01-ST, where Ecopetrol holds a 30% working interest, and Occidental Petroleum Corporation as the operator holds the remaining 70% working interest at the Cosecha Block, (v) Boranda-3 where Ecopetrol holds a 50% working interest, and Parex Resources as the operator holds the remaining 50% working interest at the Playon Block, (vi) Flamencos-1 operated by Ecopetrol who holds a 100% working interest in the VMM Block, and (vii) Bullerengue-3, where Ecopetrol holds a 50% working interest through its subsidiary Hocol, and Lewis as the operator holds the remaining 50% working interest at the Sinú San Jacinto Block.

 

Seismic

 

In Colombia, we acquired a total of 2,000 km2 of 3D seismic offshore in the Col-5 Block, and through our joint venture partner, Parex Resources, 174 km2 of 3D seismic onshore which were acquired in the Fortuna field.

 

Furthermore, Ecopetrol purchased four additional 3D seismic surveys for a total of 1,370 km2 in the Eastern Plains (Llanos Orientales) and Putumayo basin to improve technical understanding of these prolific basins.

 

3.4.1.2Exploration 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 operational expertise and technology.

 

Ecopetrol Óleo e Gás do Brasil Ltda. has secured an agreement with Shell Brasil Petróleo Ltda. to acquire 30% of the interests, rights and obligations in two areas of the Santos basin, offshore in Brazil, to pursue Pre-Salt play. One of these blocks includes the Gato do Mato discovery. Under this agreement, Shell will reduce its stake from 80% to 50% and continue as operator, while the French company Total will retain the remaining 20%.

 

Moreover, during the 252 Gulf of Mexico lease sale our subsidiary Ecopetrol America LLC acquired a 31.5% working interest in the MC 904 block located in the Gulf of Mexico of the United States, in consortium with Fieldwood Energy as the operator with a 58.94% working interest, and Talos Energy with a 9.56% working interest. Also, in 2019 Ecopetrol and its partners successfully drilled the Esox-1 well in the MC 627 block in the Gulf of Mexico, where Ecopetrol America LLC holds a 21.43% working interest, Hess Corporation as the operator holds a 57.14% working interest, and Chevron holds the remaining 21.43% working interest. The well is currently being tested, and results, so far, seem promising.

 

Additionally, Ecopetrol Hidrocarburos Mexico Inc. is executing the exploration plan for Block 6. The following table sets forth information on our exploratory drilling for the periods indicated.

 

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Table 5 – Exploratory Drilling Outside Colombia

 

   For the year ended December 31, 
   2019   2018   2017 
   (number of wells) 
INTERNATIONAL            
Ecopetrol America LLC               
Gross Exploratory Wells               
Productive    1.0         
Dry(1)            2.0 
Total    1.0        2.0 
Net Exploratory Wells(2)(3)               
Productive    0.2         
Dry    0.0        0.6 
Total    0.2        0.6 
Ecopetrol Óleo e Gás do Brasil Ltda.               
Gross Exploratory Wells            
Productive             
Dry             
Total             
Net Exploratory Wells               
Productive             
Dry             
Total             
Ecopetrol Germany               
Gross Exploratory Wells            
Productive             
Dry             
Total             
Net Exploratory Wells               
Productive             
Dry             
Total             
Savia Perú               
Gross Exploratory Wells            
Productive             
Dry             
Total             
Net Exploratory Wells               
Productive             
Dry             
Total             

 

 

(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)Net exploratory wells are calculated according to our percentage of ownership in these wells.
(3)None of our international wells were drilled pursuant to a sole risk contract.

 

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Seismic

 

Our subsidiary, Ecopetrol Brazil, invested in new 3D seismic data obtaining 12,314 Km2 to mainly evaluate the Pre-Salt bidding rounds in the Santos and Campos basins (Transfer of Rights, Round 16 and Round 6). In addition, it purchased 2,660 Km of 2D seismic to fill information gaps and 12,000 Km of 2D seismic to carry out the regional studies.

 

Ecopetrol Hidrocarburos Mexico Inc. acquired the license for 88,015 km2 of 3D seismic from the Campeche program for a period of 24 months.

 

3.4.2Production Activities

 

Our consolidated average production was 725 thousand barrels of oil equivalent per day (boepd) in 2019, an increase of approximately 4.7 thousand boepd as compared to 2018. This growth was primarily due to the positive results in the Akacias, Yarigui, Caño Sur, Rubiales, and Chichimene fields, the greater commercialization of gas, mostly from the Cupiagua and Floreña fields and the entry into operation of the Cupiagua LPG Plant.

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, 
   2019   2018   2017 
   Oil  

Gas(1)

   Total   Oil  

Gas(1)

   Total   Oil  

Gas(1)

   Total 
   (thousand boepd) 
Total production in Colombia(2)    576.6    130.5    707.1    578.4    125    703.4    577.3    121.6    698.9 
Total International production(3)    15    3.0    18    14.1    2.9    17.0    13.6    2.6    16.2 
Total production of Ecopetrol Group (Gross)    591.6    133.5    725.1    592.5    127.9    720.4    590.9    124.2    715.1 
                                              
Total production of Ecopetrol Group for presentation of reserves(4)    528.9    133.7    662.6    524.3    129.8    654.1    515.1    126.9    642.0 

 

 

(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. Includes royalties
(3)Total International production corresponds to Rodeo Midland Basin 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), Rodeo Midland Basin 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.

 

3.4.2.1Production Activities in Colombia

 

3.4.2.1.1Ecopetrol S.A.’s Production Activities in Colombia

 

For the year ended December 31, 2019, Ecopetrol S.A. was the largest participant in the Colombian hydrocarbons industry, accounting for approximately 62% of crude oil production and 62% of natural gas production (according to calculations made by Ecopetrol based on information from the Ministry of Mines and Energy). Also during 2019, Ecopetrol S.A. carried out development drilling mainly in the Eastern and Orinoquia regions, drilling 571 development wells (298 of those through direct operations and 273 through joint ventures).

 

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Ecopetrol S.A. manages its production operations through a regional organization. Our operating assets are distributed in the following vice-presidencies:

 

·Central Region: comprising 25 fields with active production in 2019.

 

·Orinoquía Region: comprising 19 fields with active production in 2019.

 

·Southern Region: comprising 33 fields with active production in 2019.

 

·Eastern Region: comprising 2 fields with active production in 2019.

 

·Piedemonte Region: comprising 6 fields with active production in 2019.

 

A sixth vice-Presidency, the Vice-Presidency of Associated Operations, is responsible for all of the production activities in which a partner is involved, regardless of the location of such activities in Colombia. This Vice- Presidency is comprised of 123 fields with active production in 2019. On February 10, 2020, a new Vice-Presidency of Gas was created in order to lead and execute the Ecopetrol Group’s integrated natural gas strategy.

 

The map below shows the locations of Ecopetrol S.A.’s operations with production information for each of our administrative regions described in the following paragraphs.

 

Graph 4 – Ecopetrol S.A. Operations in Colombia

 

 

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

 

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Crude Oil Production

 

The average daily production of crude oil in Colombia by Ecopetrol S.A. (excluding its subsidiaries), was 548.0 mbod in 2019, 0.7 mbod lower than in 2018, which represents a year-to-year decrease of 0.1%.

 

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.

 

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

 

   For the year ended December 31, 
   2019   2018   2017 
   (thousand bpd) 
Central Region               
1) La Cira – Infantas    25.9    28.1    22.6 
2) Casabe    13.2    13.9    15.9 
3) Yarigui    17.9    14.4    14.5 
4) Other    15.9    17.3    18.5 
Total Central Region    72.9    73.7    71.5 
Orinoquía Region               
1) Castilla    114.1    113.9    114.1 
2) Chichimene    69.1    67.7    70.5 
3) CPO-09(2)    10.9    4.5    3.1 
4) Cupiagua    7.2    8.3    9.6 
5) Apiay(2)    7.3    7.6    8.5 
6) Other    12.9    13.4    12.7 
Total Orinoquía Region    221.5    215.4    218.5 
Eastern Region               
1) Rubiales    119.3    119.5    118.7 
2) Caño Sur    4.5    3.2    1.4 
Total Eastern Region    123.8    122.7    120.1 
Southern Region               
1) San Francisco    6.2    6.0    6.2 
2) Huila Area(1)    3.8    3.5    3.1 
3) Tello    3.4    3.6    3.9 
4) Other    10.4    11.7    12.2 
Total Southern Region    23.8    24.8    25.4 
Associated Operations               
1) Piedemonte(2)    18.3    21.2    19.9 
2) Quifa    20.5    21.2    18.8 
3) Caño Limon    25.7    25.3    22.2 
4) Nare(2)    10.9    12.0    13.4 
5) Other    30.6    32.4    35.2 
Total Associated Operations    106.0    112.1    109.5 
Total average daily crude oil production Ecopetrol S.A. (Colombia)    548.0    548.7    545.0 

 

 

(1)Huila Area: some assets were reclassified and are reported under Other in the Southern Region.
(2)In respect of our annual reports on form 20-F for the years ended December 31, 2018 and 2017, the the CPO-09, Apiay, Pidemonte and Nare Fields were included in “other” in years 2018 and 2017, whereas for this annual report, these fields are reported separately, and the figures for 2017 and 2018 have been adjusted.

 

17

 

 

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

 

   2019 (mbod)   Year-on-Year ∆ (%)   2018 (mbod)   Year-on-
Year ∆ (%)
   2017 (mbod) 
Light    36.5    (10.3)%   40.7    (4.0)%   42.4 
Medium    150.3    (2.7)%   154.4    1.8%   151.6 
Heavy    361.2    2.1%   353.6    0.7%   351.0 
Total    548.0         548.7         545.0 

 

Ecopetrol S.A.’s crude oil production during 2019 was approximately 34% light and medium crudes and 66% heavy crudes. In 2018, approximately 36% of the crude oil production consisted of light and medium crudes, and 64% consisted of heavy crudes. In 2017, approximately 36% of the crude oil production consisted of light and medium crudes, and 64% consisted of heavy crudes.

 

Natural Gas Production

 

In 2019, the average daily production of natural gas by Ecopetrol S.A. (excluding its subsidiaries) reached 116.75 mboed, including natural gas liquids (NGLs), corresponding to a 3.8% increase in comparison to 2018 production.

 

We have three main natural gas production fields: Guajira, Cusiana and Cupiagua. On November 22, 2019, our subsidiary Hocol acquired Chevron’s interest in the Chuchupa and Ballena fields. The fields were operated by Chevron through the Guajira Association Contract (57% Ecopetrol and 43% Chevron). Under the terms of the agreement, Hocol will acquire Chevron's stake and will take the position of operator. The transaction is subject to approval by the Colombian Superintendence of Industry and Commerce.

 

Of our total natural gas production during the year ended December 31, 2019, approximately 15% was supplied from the Guajira field, 31% from the Cusiana field, 31% from the Cupiagua field and the remaining 23% from other fields.

 

On October 29, 2019 the new Liquefied Petroleum Gas (LPG) plant of the Cupiagua field began operations. This plant is expected to produce between 7,000 and 8,000 LPG barrels per day. The plant produces LPG and other products such as natural gas liquids (NGL) and penthane (C5), which are used as a diluent of the heavy crudes produced in fields such as Castilla, Rubiales, Chichimene, CPO-09, Quifa and Caño Sur.

 

The following table sets forth Ecopetrol S.A.’s average daily natural gas production in Colombia, including NGLs, prior to deducting royalties, for the years ended on December 31, 2019, 2018 and 2017.

 

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

 

   For the year ended December 31, 
   2019   2018   2017 
   (thousand boepd) 
COLOMBIA               
Central Region               
1) La Cira – Infantas    0.12    0.16    0.15 
2) Provincia    1.58    1.96    2.41 
3) Yarigui    0.43    0.42    0.48 
4) Gibraltar    6.25    6.87    7.16 
5) Other    1.68    1.86    2.02 
Total Central Region    10.06    11.27    12.22 
Orinoquía Region               
1) Cupiagua    36.45    26.97    25.29 
2) Cusiana    35.72    34.73    31.97 
3) Other    2.87    2.80    2.44 
Total Orinoquía Region    75.04    64.50    59.70 
Southern Region               
1) Huila Area(1)    0.09    0.13    0.10 
2) Tello    0.07    0.11    0.22 
3) Other    0.25    0.25    0.40 
Total Southern Region    0.41    0.49    0.72 
Associated Operations               
1) Guajira    17.92    23.02    27.09 
2) Piedemonte(2)    12.50    12.20    9.70 
3) Other    0.82    1.01    1.59 
Total Associated Operations    31.24    36.23    38.38 
Total Natural Gas Production (Colombia)    116.75    112.49    111.02 

 

 

Note: Conversion between mcfpd and boepd is performed at 5,700 mcfpd to 1 boepd.

(1)In the Southern Region, some assets that were previously part of the Huila area were reclassified as Other.
(2)In respect of our annual reports on form 20-F for the years ended December 31, 2018 and 2017, the Pidemonte and Nare Fields were included in “other” in years 2018 and 2017, whereas for this annual report, these fields are reported separately, and the figures for 2017 and 2018 have been adjusted.

 

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Projects to Increase Recovery Factor

 

Ecopetrol continues to invest in its recovery factor program in order to increase reserves and production. In 2019, the recovery factor program increased proven reserves by 94 million boe.

 

In 2019, secondary and tertiary recovery technologies contributed 219 mboed or 30% of the Ecopetrol Group’s total daily production, mainly from 30 fields, as compared to 29 fields in 2018. The fields that reported better results in injection efficiency and oil production correspond to both gas injection in Cupiagua, Cusiana and Pauto fields and water injection in La Cira, Yariguí, Chichimene and Casabe fields. Regarding both polymer injection and steamflood, there are currently projects under execution that are expected to have production results in the coming quarters.

 

US$62 million was invested in the execution of 46 studies and eight pilots to reduce uncertainties, and mature these opportunities into projects in the medium and long-term. These pilots under assessment had a daily production of approximately 15 mboed.

 

During 2019, 17 fields had projects in execution in respect of secondary and tertiary recovery, with an investment close to US$730 million. Additionally, final investment decisions were taken for 11 new recovery projects, and 16 recovery projects are being structured based on the results of their correspondent pilots.

 

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 joint ventures that reached total depth for the years ended December 31, 2019, 2018 and 2017.

 

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

 

   For the year ended December 31, 
   2019   2018   2017 
   (number of wells) 
COLOMBIA               
Central Region               
Gross wells owned and operated by Ecopetrol    85    12     
Orinoquía Region               
Gross wells owned and operated by Ecopetrol    89    77    56 
Southern Region               
Gross wells owned and operated by Ecopetrol    2    19     
Eastern Region               
Gross wells owned and operated by Ecopetrol    122    118    143 
Total gross wells owned and operated by Ecopetrol S.A. in Colombia    298    226    199 
Associated Operations               
Gross wells in joint ventures    273    302    276 
Net wells(1)    139.6    144.2    97 
Total gross wells in joint ventures Ecopetrol S.A. in Colombia    273    302    276 
Total net wells in joint ventures Ecopetrol S.A. in Colombia(1)    139.6    144.2    97 
Total gross wells Ecopetrol S.A. in Colombia    571    528    475 
Total net wells Ecopetrol S.A. in Colombia(1)    437.6    370.2    296 

 

 

(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.

 

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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, 2019.

 

Table 11 – Ecopetrol S.A.’s Developed and Undeveloped Gross
and Net Acreage of Crude Oil and Natural Gas Production in Colombia

 

   Production Acreage as of December 31, 2019 (acres) 
   Developed   Undeveloped 
   Gross   Net   Gross   Net 
Ecopetrol S.A.    463,396    358,798    4,642,257    3,412,923 

 

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, 2019.

 

Table 12 – Ecopetrol S.A.’s Gross and Net Productive Wells by Region

 

   As of December 31, 2019 (number of wells) 
  

Crude Oil(1)

  

Natural Gas(2)

 
   Gross  

Net(3)

   Gross  

Net(3)

 
COLOMBIA                    
Ecopetrol S.A.                    
Central region    2,089    1,585    6    6 
Orinoquía region    1,012    997    17    16 
Southern region    518    463    8    8 
Eastern Region    680    680    0    0 
Region of Associated Operations    2,794    1,402    38    18 
Total (Ecopetrol S.A.)    7,093    5,127    69    48 

  

 

Note: The above table reflects the productive wells that directly contribute to hydrocarbon production and therefore excludes wells used for injection, disposal, water abstraction, or other similar activities.

(1)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.
(2)Natural gas wells are those in which operations are directed only toward the production of commercial gas.
(3)Calculation of net productive wells is calculated by multiplying gross productive wells by our ownership percentage.

 

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3.4.2.1.2Ecopetrol S.A.’s Affiliates and Subsidiaries’ Production Activities in Colombia

 

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 13 – Ecopetrol S.A.’s Subsidiaries in Colombia Average Daily Crude Oil Production

 

   For the year ended December 31, 
   2019   2018   2017 
   (thousand bpd) 
Hocol               
Joint venture operation    2.0    2.3    2.3 
Direct operation    18.8    18.4    19.4 
Total Hocol    20.8    20.7    21.7 
Equion               
Joint venture operation    -        0.1 
Direct operation    7.9    9.0    10.5 
Total Equion    7.9    9.0    10.6 
Production Tests    -         
Total Average Daily Crude Oil Production (Subsidiaries in Colombia)    28.7    29.7    32.3 

 

The 12% decrease in Equion’s production in 2019, as compared to 2018, was mainly due to the natural production decline of our fields.

 

Natural Gas Production

 

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

 

Table 14 – Ecopetrol S.A.’s Subsidiaries in Colombia Average Daily Natural Gas Production

 

   For the year ended December 31, 
   2019   2018   2017 
   (thousand boepd)(1) 
Hocol               
Joint venture operation    2.0    1.6    0.6 
Direct operation    6.7    5.9    5.2 
Total Hocol    8.7    7.5    5.8 
Equion               
Joint venture operation    -    0.2    0.2 
Direct operation    5.0    4.8    4.6 
Total Equion    5.0    5.0    4.8 
Production Tests   -         
Total Natural Gas Production (Subsidiaries in Colombia)    13.7    12.5    10.6 

 

 

(1)Conversion between mcfpd and boepd is performed at 5,700 mcfpd to 1 boepd.

 

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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 15 – Ecopetrol S.A.’s Subsidiaries in Colombia Gross and Net Development Wells

 

   For the year ended December 31, 
   2019   2018   2017 
   (number of wells) 
Hocol               
Gross wells owned and operated by Hocol    23    12    17 
Gross wells in joint ventures    2    2     
Net wells(1)    24    13    17 
Equion               
Gross wells owned and operated by Equion(2)             
Gross wells in joint ventures            1 
Net wells(1)             
Total gross wells owned and operated in Colombia    23    12    17 
Total gross wells in joint ventures in Colombia    2    2    1 
Total net wells (Subsidiaries in Colombia)    24    13    17 

 

 

(1)Net wells correspond to the sum of wells owned and operated by our subsidiaries and their ownership percentage of wells owned in joint ventures with their partners.
(2)Even though for the last three years Equion has operated every well, Equion has not owned any well 100%; rather Equion has drilled wells in joint venture with Ecopetrol. Therefore, after a careful review of the categories, all Equion data was moved from gross wells owned and operated by Equion to gross wells in joint ventures. However, the number of wells remains the same.

 

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, 2019.

 

Table 16 – Ecopetrol S.A.’s Subsidiaries in Colombia Developed and Undeveloped Gross and
Net Acreage of Crude Oil and Natural Gas Production

 

   Production acreage as of December 31, 2019 
   Developed   Undeveloped 
   Gross   Net   Gross   Net 
   (in acres) 
Hocol    23,211    21,576    794    765 
Equion    16,300    4,104    54,666    12,162 
Total (Subsidiaries in Colombia)    39,511    25,680    55,460    12,927 

 

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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, 2019.

 

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

 

   For the year ended December 31, 2019 
   Crude Oil   Natural Gas 
   Gross   Net   Gross   Net 
   (number of wells) 
Hocol    316    274.8    25    23.5 
Equion    15    8    15    8 
Total (Subsidiaries in Colombia)    331    282.8    40    31.5 

 

 

(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.

 

3.4.2.2Production Activities Outside Colombia

 

The Ecopetrol Group’s production outside of Colombia comes from Ecopetrol America LLC (73.3%), Rodeo (0.7%) and of its share in the Peruvian company Savia (26%). In 2019, the production obtained from these three companies was 17.7 mboed, which represents 2.5% of the total production of the Ecopetrol Group.

 

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 18 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Average Daily Crude Oil Production

 

   For the year ended December 31, 
   2019   2018   2017 
   (thousand bpd) 
Savia Perú    3.5    3.9    3.9(1)
Ecopetrol America LLC    11.4    10.2    9.2 
Rodeo Midland Basin LLC(2)    0.1    

N.A.

    

N.A.

 
Total average daily crude oil production (International)    15    14.1    13.1 

 

 

(1)In 2017, Savia’s crude oil production included NGLs. In preparing our 2018 operational information, those NGLs were reclassified into our 2017 natural gas production.
(2)In 2019, Ecopetrol S.A., through its wholly-owned subsidiary Ecopetrol Permian LLC, acquired 49% of Rodeo Midland Basin LLC.

 

24

 

 

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

 

   For the year ended December 31, 
   2019   2018   2017 
   (thousand boepd) 
Savia Perú    0.9    1.1    1.1(1)
Ecopetrol America LLC    1.8    1.8    2.0 
Rodeo Midland Basin LLC(2)    0.0    

N.A.

    

N.A.

 
Total average daily natural gas production (International)    2.7    2.9    3.1 

 

 

(1)In 2017, Savia’s crude oil production included NGLs. In preparing our 2018 operational information, those NGLs were reclassified into our 2017 natural gas production.
(2)In 2019, Ecopetrol S.A. through its wholly owned subsidiary, Ecopetrol Permian LLC acquired 49% of Rodeo Midland Basin LLC.

 

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

 

   For the year ended December 31, 
   2019   2018   2017 
   (number of wells) 
Savia Perú               
Gross wells    -    -    - 
Net wells(2)    -    -    - 
Ecopetrol America LLC    -    -    - 
Gross wells    2    1    2 
Net wells(2)    0.5    0.3    0.4 
Rodeo Midland Basin LLC(3)               
Gross wells   6    

N.A.

    

N.A.

 
Net wells   2.0    

N.A.

    

N.A.

 
Total gross wells (International)    8    1    2 
Total net wells (International)    2.5    0.3    0.4 

 

 

(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.
(2)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.
(3)In 2019, Ecopetrol S.A. through its wholly-owned subsidiary Ecopetrol Permian LLC acquired 49% of Rodeo Midland Basin LLC.

 

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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, 2019.

 

Table 21 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Developed and Undeveloped Gross and
Net Acreage of Crude Oil and Natural Gas Production

 

   Production acreage as of December 31, 2019 
   Developed   Undeveloped 
   Gross   Net   Gross   Net 
   (in acres) 
Savia Perú    79,575    39,788    57,671    28,836 
Ecopetrol America LLC.(1)    49,680    13,243    23,040    6,566 
Rodeo Midland Basin LLC(2)   62,034    47,746    4,737    816 
Total (International)    191,289    100,777    85,448    36,218 

 

 

(1)Production and acreage from Ecopetrol America LLC is related to the K2, Dalmatian and Gunflint field blocks in the Gulf of Mexico. For K2, there are four blocks in the production stage. For Dalmatian, there are two blocks in the production stage. For Gunflint, there are five blocks in the production stage, of which one is producing.

(2)In 2019, Ecopetrol S.A. through its wholly-owned subsidiary Ecopetrol Permian LLC acquired 49% of Rodeo Midland Basin LLC. Acres spaced or assigned to productive wells. Large portions of the acreage that are considered developed under SEC guidelines are developed with vertical wells or horizontal wells that are in a single horizon. We believe much of this acreage has significant remaining development potential in one or more intervals with horizontal wells.

 

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, 2019.

 

Table 22 – Ecopetrol S.A.’s Subsidiaries Outside Colombia Gross and Net Productive Wells

 

   As of December 31, 2019 
   Crude Oil     
   Gross   Net 
   (number of wells) 
INTERNATIONAL          
Savia Perú    601    300 
Ecopetrol America LLC    13    3.3 
Rodeo Midland Basin LLC   6    2.0 
Total (International)    620    305.3 

 

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3.4.2.3Marketing of Crude Oil and Natural Gas

 

In 2019, Ecopetrol sold 928 mboed, out of which 412 mboed represented sales of crude oil (44%), 81 mboed of natural gas (9%) and 435 mboed of fuels and petrochemicals (47%).

 

Crude Oil Export Sales

 

Crude oil export sales in 2019 increased by 13 mboed compared to 2018, mainly due to higher production and an effective commercial strategy of domestic purchases of crude from third parties. 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 367 mboed sold during 2019 (a 91% share of our crude oil basket) followed by the domestic crudes sold by Ecopetrol America LLC with 10 mboed, (a 2.5% share in our crude oil basket), Mares blend with 9 mbopd (a 2.2% share of our crude oil basket), and Apiay Blend with 7 mboed (a 1.8% share of our crude oil basket).

 

Ecopetrol places its exports in markets that provide the best value for its crudes. In 2019, Asia was the main destination, representing 46.3% of crude oil exports, closely followed by the United States with 42%. The expansion of refining capacity in countries like China has supported the increase of crude oil flows from Colombia to Asia. Moreover, volatility in the production of regional competitors has given US refiners an incentive to diversify their supply sources, which in turn has opened opportunities for Colombian producers. Ecopetrol’s crude basket discount versus ICE Brent price was on average US$ 5.6/Bl. Our crude basket increased by US$ 2.9/Bl year over year due to market conditions and our commercial strategy focused on markets with higher value.

 

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 Hydrocarbon Agency (ANH). This oil is 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, 2019, 2018 and 2017.

 

Table 23 – Ecopetrol Consolidated Crude Oil Purchases

 

   For the year ended December 31, 
   2019   2018   2017 
   (million barrels) 
Ecopetrol Group               
Crude oil purchased from ANH royalties    35.4    37.6    40.3 
Crude oil purchased from third parties    30.0    20.7    16.7 
Crude oil imported from third parties    9.1    14.0    24.8 

 

During 2019, 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 should allow us to capture enhanced margins.

 

27

 

 

Import of Diluents

 

In 2019, Ecopetrol increased the imports of diluent by 1.2 % (0.6 mbpd) compared to 2018 due to higher production. Diluent is used to transport our 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 3.0% (2.7 mboepd) compared to 2018, due to higher production.

 

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 24 – Ecopetrol Consolidated Natural Gas Delivery Commitments

 

   For the year ended December 31, 
   2020   2021   2022   2023 
   (gbtud) 
Volume for sales third parties    586.9    554.8    377.9    325.1 
Volume for self-consumption    207.7    226.8    235.7    238.9 
Total Commitments    794.6    781.6    613.6    564.0 

 

Data was updated based on current contracts of Ecopetrol S.A. and the official report made to the Ministry of Mines and Energy in 2019.

 

3.4.3Reserves

 

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, 2019, 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 Equion and Hocol’s assets in Colombia.

 

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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, 2019, 2018 and 2017.

 

Table 25 – Net Proved Developed Reserves

 

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, 2017    747    10    6    763 
At December 31, 2018    814    13    5    832 
At December 31, 2019   832    12    3.8    848 
Net Proved Developed NGL reserves in million barrels oil equivalent                    
At December 31, 2017    54.6    -    0.8    55.4 
At December 31, 2018    50.5    -    0.6    51.1 
At December 31, 2019   49    0.12    0.5    50 
Net Proved Developed gas reserves in billion standard cubic feet                    
At December 31, 2017    3,143    10    5    3,158 
At December 31, 2018    2,865.5    10    7    2,882.5 
At December 31, 2019   2,645    11    7    2,662 
Net Proved Developed oil, NGL and gas reserves in million barrels oil equivalent                    
At December 31, 2017    1,353    11    8    1,372 
At December 31, 2018    1,368    14    7    1,389 
At December 31, 2019   1,345    14    6    1,365 

 

 

Gas Reserves included 381 bcf of Fuel Gas

Oil Reserves included 17 million barrels of Fuel Oil

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 Bonga.

 

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 2017, 2018 and 2019 annual reports, we have used our real transportation costs, rather than the regular tariffs set by the Ministry of Mines and Energy.

 

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.

 

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Table 26 – Proved Oil, NGL and Natural Gas Reserves for 2019

 

Reserves Category  Oil (million barrels)   NGL (million barrels)   Natural Gas (bcf)   Total Oil and Gas (Mmboe) 
PROVED DEVELOPED RESERVES                    
Total (Colombia)    832    49    2,645    1,345 
International:                    
North America    12    0.12    11    14 
South America    3.8    0.5    7.0    6.0 
TOTAL PROVED DEVELOPED RESERVES    848    50    2,662    1,365 
PROVED UNDEVELOPED RESERVES                    
Total (Colombia)    306    28    111    353 
International:                    
North America    123    29    133    175 
South America    -    -    -    - 
TOTAL PROVED UNDEVELOPED RESERVES    429    57    244    529 
TOTAL PROVED RESERVES    1,277    107    2,906    1,893 

 

 

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 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 27 – Proved Oil, NGL and Natural Gas Reserves for 2018

 

Reserves Category  Oil (million barrels)   NGL (million barrels)   Natural Gas (bcf)   Total Oil and Gas (Mmboe) 
PROVED DEVELOPED RESERVES                    
Total (Colombia)   814    50.5    2,866    1,368 
International:                    
North America   13    -    10    14 
South America   5    0.5    7    7 
TOTAL PROVED DEVELOPED RESERVES   832    51    2,883    1,389 
PROVED UNDEVELOPED RESERVES                    
Total (Colombia)   285    22    113    327 
International:                    
North America   10    -    6    11 
South America   -    -    -    - 
TOTAL PROVED UNDEVELOPED RESERVES   295    22    119    338 
TOTAL PROVED RESERVES   1,127    73    3,002    1,727 

 

 

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

 

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The following table summarizes our proved oil, NGL and natural gas reserves, which includes 304 billion standard cubic feet of fuel gas within our natural gas results and 562 billion cubic feet of royalties, as of December 31, 2017.

 

Table 28 – Proved Oil, NGL and Natural Gas Reserves for 2017

 

Reserves Category  Oil (million barrels)   NGL (million barrels)   Natural Gas (bcf)   Total Oil and Gas (Mmboe) 
PROVED DEVELOPED RESERVES                    
Total (Colombia)   747    54.6    3,143    1,353 
International:                    
North America   10    -    10    11 
South America   6    0.8    5    8 
TOTAL PROVED DEVELOPED RESERVES   763    55.4    3,158    1,372 
PROVED UNDEVELOPED RESERVES                    
Total (Colombia)   247    19    93    282 
International:                    
North America   4    -    3    5 
South America   -    -    -    - 
TOTAL PROVED UNDEVELOPED RESERVES   251    19    96    287 
TOTAL PROVED RESERVES   1,014    74    3,253    1,659 

 

 

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

 

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 2019, 2018 and 2017.

 

Changes in Proved Reserves

 

Table 29 – Changes in Proved Reserves

 

   As of December 31, 
   2019   2018   2017 
Consolidated Company (million barrels oil equivalent)               
Revisions of previous estimates   83    120.5    174 
Improved Recovery    94    129.1    73 
Extensions and discoveries    67    57.4    44 
Purchases    164    -    4 
Total reserves additions    408    307    295 
Production    (242)   (239)   (234)
Net change in proved reserves    166    68    61 

 

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The reserves replacement ratio for 2019 was 1.69 barrels compared to 1.29 barrels in 2018 and 1.26 barrels in 2017. The average replacement ratio for the last three years was 1.4 barrels.

 

Table