Ecopetrol S.A. (NYSE:EC) Q3 2023 Earnings Call Transcript

Ecopetrol S.A. (NYSE:EC) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Good morning, my name is Natalia and I will be your operator today. Welcome to Ecopetrol’s earnings conference call in which we will discuss the main financial and operational results for the third quarter of 2023. There will be a questions-and-answers session at the end of the presentation. Before we begin, it is important to mention that the comments in this call by Ecopetrol’s senior management include projections of the Company’s future performance. These projections do not constitute any commitment as to future results, nor do they take into account risk or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared in this conference call.

The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol, Milena Lopez, CFO, Alberto Consuegra, COO, and David Riano, Vice President of Low-Emissions Solutions. Thank you for your attention. Mr. Roa, you may begin your conference.

Ricardo Roa: Good morning, everyone, and welcome to Ecopetrol’s third quarter 2023 results presentation. Before we begin today, please allow me to introduce you to some of the new members of Ecopetrol’s management team. First, in the Vice Presidency of Finance and Sustainable Value, we welcome Milena Lopez, who has been the CFO of Cenit, a transportation Company of the Ecopetrol Group for the past five years. Milena has held senior roles, including General Director of Public Credit and National Treasury at the Ministry of Finance and Public Credit, and various positions at J.P. Morgan. In the Vice President of Low-Emissions Solutions, we welcome David Riano. David has more than 28 years of experience in the energy sector and has held positions in various companies in the energy market, such as Transportadora de Gas Internacional TGI, Empresa de Energia de Cundinamarca, Gas Natural Penoza, Red de Energia del Peru, Filial ISA, and government entities, making him a key leader to drive our low emission solution business line and advance the energy transition in a responsible and profitable manner.

I thank David, Milena, and the other senior managers for their commitment to bring new knowledge and experience. I would like to take this opportunity to thank each of our employees because it is you who make these results possible. Let’s move on to the next slide, please. I want to start by highlighting the excellent operating performance achieved during the quarter. We achieved an average of 741,000 barrels of oil equivalent per day, a figure we had not seen since the last quarter of 2015, and volumes transported and cargoes higher than the same quarter of the previous year. This reaffirms our commitment to the Company’s core business. Besides, in recent months, we have achieved significant milestones that we wish to highlight. In early October, we confirmed the presence of natural gas in deep waters in the South Caribbean of Colombia in the Glaucus I, while emphasizing the importance of the gas province in the region and our active exploration portfolio.

This achievement joins a major exploration campaign with 10 wells declared successful so far in 2023. Our accounts receivable from the Fuel Price Stabilization Fund continue to decrease, COP 16.4 trillion offset by dividends to the nation so far this year, a cash payment of COP 1.9 trillion, and the smallest difference between the export parity gas line price and the local price, highlighting Ecopetrol’s active management and the nation’s commitment. This has resulted in a 34% lower accumulation than in the same period last year. Also, I want to emphasize the commemoration of our 15 years on the New York Stock Exchange with an Investor Day, reaffirming our strategy for 2040 energy that transforms. We highlight the launch of operations of our new trading subsidiary, Ecopetrol U.S. Trading, in Houston, Texas, in October.

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Q&A Session

The commercial and operating strategy seeks to strengthening and enhancing relationships with our clients through a local support team, through fluent communication with consumers and suppliers, and providing first-hand access to market information. Additionally, on the commercial front, we emphasize the performance of our subsidiary, Ecopetrol Trading Asia, which has managed to market more than 100 million barrels of crude oil in the Asian market today and strengthen the strategy of diversifying customers and countries, reaching new destinations such as Malaysia, Thailand, and Japan. Finally, up to the end of the quarter, we have made transfers to the nation of more than COP 45 trillion through taxes, royalties, and dividends, reaffirming our commitment to the country’s development.

Let’s move on to the next slide, please. Here to date, up to the third quarter, we have recorded revenues of COP 108 trillion, an EBITDA of COP 48.5 trillion, and a net profit of COP 15 trillion, all aligned with our 2023 financial plan and achieving efficiencies of COP 2.9 trillion. We look optimistically toward the coming months, although we will face challenges. In preparation for the Fenomeno del Nino and in response to potential additional requirements for liquid fuels to support the country’s electricity generation, the operational supply chain has prepared itself by building inventories in coordination with the Ministry of Mines and Energy, fuel cells, and generators. Priority is given to the available volume of excess diesel from the Cartagena refinery to match the potential needs of thermal power plants.

Additionally, logistical operations have been planned to ensure the supply of the additional required fuel and supply contracts for diesel to fuel cell distributors for thermal power plant operations have been structured. Similarly, all contingency operational scenarios in the areas of production, transportation, refining, and marketing quarantine the country’s normal supply, supported by our operational excellence and commitment to the energy transition. Thank you, everyone, for being part of this journey and for your continued support of Ecopetrol. Let me invite Milena López for the key financial and management figures.

Milena Lopez: Thank you, Ricardo. It is an honor to address you on my first earnings call as CFO of the Ecopetrol Group. I am deeply grateful for the opportunity to join the Ecopetrol team and want to take the opportunity to emphasize that our financial successes as a Company result from the collective effort, which I look forward to being a part of, as I am committed to further strengthening our market position and generating value for all our stakeholders. Ecopetrol Group’s organic investments amounted to COP 19.2 trillion year-to-date, the highest quarterly figure in the past seven years, representing 20% year-on-year growth versus September 2022, and in line with investment guidance for 2023. The hydrocarbon business line closed the third quarter with executed investments totalling COP 13.3 trillion, representing approximately 70% of the group’s total.

These resources were mainly allocated to drilling and to upstream completion activities in the Rubiales, Cano Sur, Castilla, Chichimene, and Florena fields, along with exploration activities in the Llanos, Piedemonte, and Lower Magdalena Valley. International investments for the quarter concentrated on development activities in the Permian Basin. In the low-emission solutions business line, the enabler of our energy transition investments, resources totaling COP 2.4 trillion were invested, including COP 2 trillion allocated to natural gas projects in assets primarily located in the Piedemonte region and exploratory blocks, mainly offshore. Additionally, investments in the transmission and toll roads businesses amounted to COP 3.5 trillion and corresponded to the projects executed by ESA in energy transmission, toll roads, and telecommunications.

These investments allowed for advances in the construction of the electric transmission lines and improvements aimed at increasing the reliability of the existing network, as well as in the toll road projects of Ruta del Loa, Ruta del Araucanía, and Ruta de los Rios in Chile. At the same time, EBITDA amounted to approximately COP 48 trillion up to September 2023, contributing to the second-best financial results in this period in the Company’s history. The hydrocarbons line of business continues to be the most significant EBITDA contributor as we progress with a gradual diversification of our business lines. The Ecopetrol Group continues to implement its comprehensive strategy for energy efficiency and competitiveness. As of September 2023, we have achieved approximately COP 2.9 trillion in efficiencies through initiatives that have reduced costs and expenses, increased revenues, and optimized investments.

Please continue to the next slide. As of September 2023, the Company’s consolidated cash balance was COP 14.1 trillion, with business operations as the primary source of cash generation. Main cash outflows that stand out were CAPEX disbursements and dividend payments to minority shareholders. Additionally, during the period, COP 16.4 trillion of the FEPEC accounts receivable have been offset against the payment of dividends due to the Republic of Colombia. As of September 2023, there is a notable decrease in the accumulation of the fuel price stabilization fund when compared to 2022. This is primarily due to ongoing increases in gasoline prices throughout the country. During the third quarter, COP 8 trillion of FEPEC receivables were offset against the payment of dividends payable to the Republic of Colombia, and a COP 1.9 trillion payment was received in cash, resulting in a FEPEC accounts receivable balance of COP 25.7 trillion at the end of the quarter.