Bogotá D.C., February 28, 2023. Ecopetrol S.A. (BVC: ECOPETROL; NYSE: EC) announced today the Ecopetrol Group’s financial results for the fourth quarter and full year 2022, prepared in accordance with the International Financial Reporting Standards applicable in Colombia.

The Ecopetrol Group ended 2022 generating the best financial results in its history by obtaining a net income of COP 33.4 trillion, doubling the one generated in 2021, and an EBITDA of COP 75.2 trillion with an EBITDA margin of 47%.

This solid financial performance was leveraged by: i) favorable price environment, ii) higher contribution to production from Permian and Ecopetrol S.A., iii) record results in the refineries, and iv) solid results from ISA. The above allowed us to offset: i) inflation and the exchange rate effect on operating costs and expenses, ii) higher interest on debt, iii) higher exploratory expenses and iv) an increase in the nominal income tax rate for 2022.

Table 1: Financial Summary Income Statement - Ecopetrol Group

The financial information included in this report has been audited and is expressed in billions of Colombian pesos (COP), or US dollars (USD), or thousands of barrels of oil equivalent per day (mboed) or tons, as noted. For presentation purposes, certain figures in this report were rounded to the nearest decimal place.

Forward-looking statements: This release contains statements that may be considered forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. All forward-looking statements, whether made in this release or in future filings or press releases or orally, address matters that involve risks and uncertainties, including in respect of Ecopetrol’s prospects for growth and its ongoing access to capital to fund Ecopetrol’s business plan, among others. Consequently, changes in the following factors, among others, could cause actual results to differ materially from those included in the forward-looking statements: market prices of oil & gas, our exploration and production activities, market conditions, applicable regulations, the exchange rate, Ecopetrol’s competitiveness, our ability to successfully integrate our recently acquired subsidiary, ISA, and the performance of Colombia’s economy and industry, to mention a few. We do not intend, and do not assume any obligation to update these forward-looking statements.

 

Financial and Operating Results

Sales Revenue

Cumulative sales revenues as of year-end 2022 increased 73.8% or COP +67.7 trillion as compared to 2021, totaling COP 159.5 trillion, primarily as a result of:

Sales revenue during 4Q22 increased by 24.9% or COP 7.9 trillion compared to 4Q21, with a total of COP 39.7 trillion, as a combined result of:

Table 2: Sales Volume –Ecopetrol Group 

* Natural gas exports correspond to local sales of Ecopetrol América LLC and Ecopetrol Permian LLC.

Total volume sold during 4Q22 amounted to 924.1 mboed, decreasing 8.9% compared to 4Q21. This decrease was primarily the result of of lower export sales, mainly of crude oil from in-transit shipments that will be reflected as revenues in the first month of 2023. In 2022 sales totaled 953.3 mboed, an increase of 6.7% compared to 2021, mainly due to higher crude oil production (+15 mbod) and a significant increase in domestic fuel demand (+48 mbod).

 

Sales in Colombia, which account for 51% of the total sales, increased by 1.5% or 6.9 mboed in 4Q22 versus 4Q21, mainly due to the combined effect of:

International sales, which account for 49% of total sales, decreased by 17.5% or -96.9 mboed in 4Q22 compared to 4Q21, mainly due to the combined effect of:

Table 3: Average Realization Prices - Ecopetrol Group

Crudes: Crude oil basket prices increased by 2.5 USD/Bl, from 73.8 USD/Bl to 76.3 USD/Bl in 4Q22 in comparison to 4Q21, primarily as a result of: i) a strong Brent price, and ii) the result of the continued implementation of the market diversification strategy focusing on new markets and destinations, which is supported by stable blend quality and supply reliability. Sales volumes continue to be negotiated under DAP (Delivered at Place) to various destinations such as South Korea, India, Brunei, and the Gulf Coast of the United States.

Refined products: The product sales basket increased by 18.2 USD/Bl, from 89.7 USD/Bl to 107.9 USD/Bl in 4Q22 compared to 4Q21, mainly due to the recovery of international price indicators, driven by: i) the reactivation of demand in light of the lifting of mobility restrictions and ii) the tightening of middle distillate (diesel and jet) spreads caused by the Ukraine-Russia conflict.

Natural Gas: Gas sales prices increased by 1.6 USD/Bl from 26.0 USD/Bl to 27.6 USD/Bl in 4Q22 versus 4Q21, primarily due to the indexation of domestic supply contracts to the United State PPI (Producer Price Index).

Hedging Program: During 4Q22, Ecopetrol executed six tactical hedges for 5.95 million barrels: i) 4.5 million barrels of crude oil exports, ii) 1.2 million barrels of crude oil imports, and iii) 0.25 million barrels of refined product exports. Ecopetrol Trading Asia (ECPTA) executed two hedges for 0.95 million barrels in 4Q22.

 

Cost of Sales

Cost of sales increased by 60.9% or COP +33.9 trillion in 2022 compared to 2021, and by 25.5% or COP +4.9 trillion in 4Q22 versus 4Q21.

Variable Costs:

Cumulative variable costs increased by 77.1% or COP +26.7 trillion in 2022 compared to 2021, explained by:

Variable costs increased 26.3% in 4Q22 versus 4Q21, equivalent to COP +3.3 billion, as a combined result of: i) increase in the average exchange rate on purchases (COP +2.9 trillion), ii) higher weighted average purchase price of +8.1 USD/Bl (COP +1.3 trillion), iii) higher volume purchased (COP +0.2 trillion, +11.6 mboed), mainly of crude oil for the commissioning of the IPCC project, iv) increase in other variable costs (COP +0.5 trillion), due to the aforementioned accumulated factors. The above was offset by an accumulation of inventories (COP -1.6 trillion), associated to the higher level of crude oil in transit inventory at the end of 4Q22.

Fixed Costs:

Fixed costs increased by 47.2% or COP +5.3 trillion in 2022 compared to 2021 and 22.3% equivalent to COP +0.9 trillion in 4Q22 compared to 4Q21, due to: i) higher costs of maintenance and field operation services, ii) an increase in contract fees, iii) exchange rate impact on contracts indexed to US the dollar, due to the devaluation of the Colombian peso and the inflationary effect. Cumulative fixed costs also increased given the consolidation of ISA's fixed costs during all 2022 compared to four months of 2021.

Depreciation and Amortization:

Depreciation and amortization increased by 18.9% or COP +1.8 trillion during 2022 compared to 2021 , primarily as a result of: i) the consolidation of ISA's depreciation, during all 2022 compared to four months of 2021, ii) increased level of capital expenditures, iii) the exchange rate effect in the depreciation of subsidiaries of the Group with US dollar as functional currency, given the devaluation of the Colombian peso, and iv) the increase in the production of Permian and Ecopetrol S.A. The above was partially offset by a higher incorporation of reserves in the previous year, resulting in a lower depreciation rate.

In 4Q22 compared to 4Q21 depreciation and amortization increased by 26.8% or COP +0.6 trillion, as a consequence of: i) higher capital expenditures, ii) exchange impact due to higher average COP/USD exchange rate, and iii) increase in Permian's production. This was partially offset by a higher level of reserves, which translates into a lower depreciation rate.

Operating Expenses, net of other income (before impairment of long-term assets)

Increase of 46.7% or COP +3.1 trillion compared to 2021, mainly due to:

 

In 4Q22 versus 4Q21 there was an increase of 65.7% or COP 1.4 trillion mainly due to: i) one-time income from the settlement agreement with Frontera recognized in 4Q21 (COP +0.7 trillion), ii) an increase in exploration expenses (COP +0.5 trillion), iii) higher customs operations (COP +0.2 trillion) and iv) higher commissions, fees and others (COP +0.1 trillion).

Financial Result (Non-Operating)

Financial expense (non-operating) increased 84.8%,or COP -3.1 trillion in 2022 versus 2021, as a result of:

In 4Q22 versus 4Q21 there was a 3.2% decrease in the financial expense equivalent to COP 49 billion, mainly due to: i) gain in the exchange difference (COP +0.3 trillion), as a result of the use of hedge accounting during 4Q22 on our US denominated debt in the amount of USD 950 million, which allowed us to partially mitigate a negative exchange effect and ii) higher yields and valuation of the financial assets portfolio (COP +0.2 trillion). The above was offset by an increase in the financial expenses (COP -0.5 trillion), mainly due to higher debt interest, given the negative exchange rate effect and the increase in inflation in debt instruments indexed to this indicator.

The Effective Tax Rate for 2022 was 31.4% versus 28.8% in 2021 and 25.8% for 4Q22 versus 22.8% in 4Q21. The increase for both periods is primarily the result of: i) a higher nominal rate for the companies in Colombia, which went from 31% to 35%, ii) better results in subsidiary companies with special taxation regime, as is the case of the Cartagena refinery, ISA Brazil and the companies in the United States, and iii) the effect of updating the deferred tax asset as a result of a tax reform in Colombia.

Impairment of Long-Term Assets

As a result of the annual exercise of comparing asset book values versus market values under IFRS standards, a long-term asset impairment of COP 288 billion before taxes was recorded for 2022, as follows:

 

Balance Sheet

The Ecopetrol Group's assets grew COP +62.1 trillion compared to the previous year, mainly due to:

The increase (COP +36.8 trillion) in total liabilities during 2022 was mainly due to:

The total equity of the Ecopetrol Group at the end of 2022 was COP 119.1 trillion. Equity attributable to Ecopetrol shareholders was COP 91 trillion, with an increase of COP +19.3 trillion compared to December 2021, mainly as a result of the effect of the net profit generated during the year.

Cash Flow and Debt

Table 4: Cash Position – Ecopetrol Group

 

Cash Flow:

As of 4Q22, the Ecopetrol Group closed with cash of approximately COP 18.1 trillion (38% COP and 62% USD). The effect of the consolidation of ISA contributed COP 6.5 trillion in cash as of December 2022.

During 2022, the main movements in the Ecopetrol Group's liquidity were: i) cash flows from operating activities for COP 36.2 trillion, ii) debt service for COP 5.5 trillion and, iii) dividend payments for COP 13.4 trillion.

In 2022 there was an increase in working capital due to the increase in the FEPC account receivable, associated to a higher international gasoline and diesel prices compared to regulated prices in Colombia (as of December, this account receivable amounted to COP 26.3 trillion). The above was partially offset by the increase in current tax assets and liabilities and the collection of COP 18.3 trillion of this FEPC account receivable, of which COP 6.8 trillion were more than offset by dividends to the Nation in the amount of COP 11.5 trillion in cash.

The main cash outflows for the year were: i) capital expenditures disbursements for COP 21.9 trillion, made mainly in Ecopetrol S.A, Permian and ISA and, ii) payment of dividends for COP 13.4 trillion, which include the payment from Ecopetrol to its shareholders (majority and minority) and from subsidiaries to non-controlling third parties.

In 4Q22, operating cash flow represented 31.5% of the operating cash flow generated in the whole year, given the outstanding performance of the quarter, resulting from the performance of reference prices and the collection of COP 4 trillion of the FEPC account receivable.

Debt:

At the end of December 2022, the balance sheet debt amounted COP 115.1 trillion, equivalent to USD 23,936 million (ISA’s consolidated debt accounts for USD 7,173 million), a COP +20 trillion increase compared to December 2021. This increase is mainly due to the negative effect of the devaluation of the Colombian peso against the US dollar (+COP 829) presented during the year on the debt in dollars. The counterpart to this increase is mainly recognized in equity in the other comprehensive Income (OCI) account, given the use of accounting hedges by Ecopetrol to mitigate the foreign exchange exposure.

The strengthening of the Ecopetrol Group’s EBITDA allowed for a Gross Debt/EBITDA ratio at year-end 2022 of 1.5 times, compared to 2.3 times at year-end 2021, which is within the guidance set in the Ecopetrol Group’s strategy. The Debt/Equity ratio at year-end 2022 is 0.97 times.

As part of its integral debt management strategy, in September 2022 Ecopetrol S.A. made a disbursement for USD 1,200 millions of the committed credit line entered into in August 2021. These resources were used entirely to the prepayment of the loan originally disbursed for the acquisition of ISA, with a remaining balance of USD 472 million, that was refinanced with an international bond issuance in January 2023.

Likewise, in December 2022 Ecopetrol S.A. signed a credit agreement for USD 1,000 million with The Bank of Nova Scotia (USD 700 million) and Sumitomo Mitsui Banking Corporation (USD 300 million), which has a term of five years commencing on the signing date. These resources were mainly destined for the substitution of the nominal amount of USD 665 million under the non-revolving committed line entered on September 20, 2018, with Mizuho Bank Ltd., The Bank of Nova Scotia and Banco Sabadell and to make principal payments on certain debt instruments of Cartagena refinery, which have been assumed by Ecopetrol S.A.

Efficiencies

In 2022, the Ecopetrol Group worked on a comprehensive strategy that focused on mitigating the effects that the international markets and the Russia-Ukraine conflict have brought on the cost structure of operations and investments, and on the complexity of its commercial strategies. Consequently, at the end of 2022, the Ecopetrol Group incorporated cumulative efficiencies totaling COP 3.6 trillion, the highest amount since 2015, with the main activities being summarized below:

 

Investments

Table 5: Investments by Segment – Ecopetrol Group and ISA

* Includes total amount of investments in each of the subsidiaries and affiliates of Ecopetrol Group (both controlling and non controlling interests).

** Includes investments in energy transition projects.

In 2022, Ecopetrol Group’s organic capital investments amounted to USD 5,488 million, which falls in the higher bracket of the target set for 2022 (between USD 4,800 million and USD 5,800 million). Of the total organic investments in the oil and gas business, 79% were in Colombia and the remaining 21% were in the United States and Brazil.

In 2022, investments focused on the expansion of the gas chain represented 10% of the total investments made during the year, with investments of around USD 540 million, increasing close to USD 250 million compared to 2021. These investments were mainly driven by the execution of projects in the Piedemonte, primarily in the Floreña, Cupiagua and Cusiana assets, offshore exploration, as well as projects developed by Hocol.

ISA's investments during 2022 amounted to USD 1,020 million, mainly concentrated in the energy transmission business with a participation of 84% (USD 858 million), while toll roads and telecommunications represented 14% (USD 141 million) and 2% (USD 21 million) of the allocated amount respectively. Brazil and Colombia accounted for 33% and 23% of total investments, respectively, and the remaining 44% was mostly related to investments made in Chile and Peru.

 

The allocation of the Ecopetrol Group’s main investments during 2022 is detailed below:

Upstream: This segment accounted for 65% of the Ecopetrol Group's organic investments in 2022, achieving a total of 536 development wells drilled and completed, and 555 workovers, activities that were primarily concentrated in Rubiales, Caño Sur, Castilla, Casabe and Permian. In terms of exploration, 24 wells were drilled, out of which 10 were gas wells. Of the total of wells drilled,12 were executed by Hocol and one by Ecopetrol America. During 2022, projects were also executed in the Permian basin and Brazil, for close to USD 850 million, which focused on increasing development activities in the Permian basin, located in the state of Texas in the United States, and in exploratory activities in Gato do Mato in Brazil.

Midstream: For year-end 2022, investments made by Cenit and its subsidiaries represented 6% of the Ecopetrol Group's investments, and were mainly focused on operational continuity projects and optimization of the operation of its oil and multipurpose pipelines.

Downstream: Investments in 2022 focused on operational continuity (83%), aiming to maintain the efficiency, reliability, and integrity of the refineries' operations. The segment's expansion investments were allocated to the execution of the IPCC project and to the expansion of Esenttia’s production capacity.

TESG: USD 295 million were allocated to decarbonization, efficient water management, energy efficiency, fuel quality and hydrogen projects during the year. With the investments in decarbonization projects, progress was made in the development of renewable energy projects, energy efficiency and fugitive emissions, which will allow the Ecopetrol’s Group target of being carbon neutral by 2050. In projects associated with efficient water management in operations, progress was made in the reuse of production water and captured water, which will enable the Company to meet the objectives set for 2045. In addition, investments in technology and innovation, with a focus on digital transformation, amounted to USD 62 million.

Energy Transmission and Toll Roads:

II. Results by Business Line

As we seek to execute toward our 2040 Strategy, since 2022 the Ecopetrol Group aligned its current segments to the new Ecopetrol Group’s business lines. In that regard, for operational purposes, the company realigned the corporate operational divisions from Exploration and Production, Transportation and Logistics, Refining, Petrochemicals and Biofuels, and Sales and Marketing, to the following: (i) Hydrocarbons, which includes the Exploration and Production, Transportation and Logistics, Refining and Petrochemicals, (i) Low Emissions Solutions, which includes exploration, production and commercialization of gas, biogas, LPG, power, renewables, hydrogen, and Carbon Capture, Use and Storage (CCUS), and (iii) Energy Transmission and Toll Roads. For purposes of this report, we continue to present our operational information under the prior business lines. It is expected that before the end of 2023, this report will reflect the new lines of business at an operational and financial level.

 

1.1 Upstream

Reserves

At year-end 2022, the net proven reserves of the Ecopetrol Group amounted to 2,011 MBOE. The Reserve-Replacement Ratio was 104% and the average reserve life was equivalent to 8.4 years. The Ecopetrol Group incorporated 249 MBOE of proven reserves, and the total accumulated production for the year was 240 MBOE. Of the total balance of reserves, 75% are liquid reserves and 25% are gas reserves.

The management of the development fields, reflected in an optimized and timely maturation of new projects, better execution capacity, and implementation of improved recovery enhancement projects in fields such as Chichimene, Castilla, and Akacias, among others, provided 215 MBOE of the reserves.

Additional reserves were incorporated through the acquisition and qualitative selection in areas of the Permian basin in the United States (48 MBOE).

Table 6: Reserves – Ecopetrol Group

Exploration

During 2022, Ecopetrol and its partners drilled 24 exploratory wells, in line with the proposed target of the Business Plan. Seven exploratory successes were obtained in basins of great interest to Ecopetrol in the country, that will contribute to Colombia’s energy safety, as follows: (i) Uchuva-1, Gorgon-2^[1] in the Colombian offshore, (ii) El Niño-2 and Ibamaca-2ST in the Upper Magdalena Valley, (iii) Morito-1 in the Mid Magdalena Valley, (iv) Tejón-1 in the Llanos Orientales, and, (v) Coralino-1 in Lower Magdalena Valley. Additionally, six of the wells are under evaluation, 10 were declared dry and one study well was plugged and abandoned.

Most of the activity took place during the last quarter of 2022, when 11 wells were drilled. The successful discovery in the Ibamaca-2 ST well, fully operated by Hocol, confirmed the presence of 17° API crude from the Ibamaca-1 well located in the Tolima Exploration and Production Agreement, drilled in 2021.

The successes in exploration, in areas close to existing production fields, were reflected in the incorporation of 9.2 MBOE of proven reserves in approximately two years, originated from the El Niño-2 and Ibamaca discoveries, located in the Upper Magdalena Valley and the Recetor West field (Liria YW12 well) located in the Piedemonte.

Average production from exploratory assets in 2022 reached 3.0 mboed, of which 53% corresponds to gas and 47% to oil. This production comes mainly from the extensive testing of the following wells: Liria YW12, Ibamaca-1, Arrecife-1 ST, Arrecife-3, Flamencos-2, Flamencos-3, Lorito-1, El Niño-2 and Tejón-1.

Additionally, the subsidiary Hocol acquired participation in the Exploration and Production Blocks (E&P) SSJN-3-1 and VIM-42 located in the Lower Magdalena Valley in the Sinú San Jacinto and in the Lower Magdalena Valley basins, respectively. Hocol has a 50% participation and Lewis Energy is the operator with the remaining 50%. The agreement has already been made official before the National Hydrocarbons Agency (ANH for its Spanish acronym).

In regards to seismic activity, in an effort to boost the potential of the exploratory areas already awarded, progress is being made in the acquisition of nationwide seismic information through the Flamencos 3D program operated by Ecopetrol, and the SSJN1 2D program operated by Hocol. Both programs are currently in their operational and pre-operational phase and are expected to complete the logging phase in 2023. Additionally, Ecopetrol S.A. purchased 2,639 km2 of 3D seismic data in the Llanos Orientales to improve the technical knowledge of this prolific basin, and the subsidiary Hocol purchased 923 Km² of 3D seismic and 472 Km of 2D seismic data in various areas of interest, located in the Llanos Basin and in northern Colombia. During 2022, Ecopetrol S.A and Hocol reprocessed and reinterpreted 13,107 km equivalent of seismic information in Colombia, contributing to reducing uncertainty, and thus generating an improved seismic image, which allows the Ecopetrol Group to move forward with the maturation of new opportunities.

^[1] The Gorgon-2 well is composed of Gorgon-2 ST1 (pilot well) and Gorgon-2 ST2.

 

Production

Table 7: Gross Production – Ecopetrol Group

Note 1: Gross production includes royalties and is prorated by the Ecopetrol participation in each entity. Natural gas production includes white products.

Note 2: At the request of the ANH, condensate production is considered as production of crude oil and not of white products in the Gibraltar field, which adjusts the distribution between crude oil and natural gas in 1Q22 and 2Q22.

During 2022, Ecopetrol Group production increased by 30.5 mboed compared to 2021, closing at 709.5 mboed, primarily due to: i) the entry into operation of the first fluid treatment train at Caño Sur during the second half of 2022, which resulted in a production of 18 mboed by December, ii) incremental production from the Permian subsidiary, iii) increase in gas sales due to renewed commercial strategies and the reestablishment of gas and white products sales volumes restricted in 2021 due to public order situation in Colombia, iv) the lifting of water management restrictions on the operations in Castilla, v) the reversal of the Asociación Nare agreement, and, vi) a greater share of production from the Caño Limón, Quifa and La Cira-Infantas fields given the high price scenario. The contribution of gas and white products to production in 2022 stands out with a 24% share, as well as the performance of fields with recovery technologies, which represent 40% of the Ecopetrol Group's production in 2022.

In 4Q22, production reached 720.1 mboed, with an increase of 25.5 mboed compared to 4Q21, and a decrease of 0.3 mboed compared to 3Q22, mainly explained by a major scheduled shutdown in Cusiana that took place from October 8 through 19, 2022. Some of the aspects that contributed to production 4Q22 include: i) outstanding incremental production in the Caño Sur, Rubiales, Castilla, and Permian fields, and ii) the recovery of production in Chichimene following the maintenance carried out between July 25 and November 2.

Meanwhile, regarding Ecopetrol S.A and OXY's joint operation in the Permian basin, drilling operations in the Delaware area began in December, with 88 wells being drilled, and 106 wells being enabled for production in 2022.

 

For 2023, it is expected: i) a continued increase in production from both the Permian and Caño Sur operations, ii) the execution of campaigns aimed to increase production in the Rubiales, Piedemonte, Quifa, Arauca and Akacías fields, and iii) the execution of scheduled maintenance activities in the Castilla and Chichimene fields throughout the year, as well as the scheduled shutdown of the Floreña plant in April.

In terms of drilling, by year-end 2022, 536 development wells were drilled and completed, which represents a 36% increase compared to 2021. On average, 28 rigs were active during the year.

Regarding recovery technologies, is worth noting: i) the Air Injection Plant (PIAR for its Spanish acronym) in the Chichimene field, which was primarily responsible for an increase in production of 1.8 mboed as of December 2022, along with the water injection operations in the same field that enabled 30 mboed in production, and ii) the successful implementation of the first stage of the water injection recovery cycle in the K2 arena and the optimization of the K1 arena in the Castilla field, which generated an increase in production of approximately 54 mboed.

Lifting and Dilution Cost

Table 8: Lifting and Dilution Cost – Ecopetrol Group

* Calculated based on produced barrels without royalties. ** Calculated based on sold barrels

Lifting Cost

The cumulative lifting cost for 2022 was 9.21 USD/Bl, 0.91 USD/Bl over that recorded in 2021, mainly explained by:

Cost Effect (+2.61 USD/Bl): Increased costs due to reactivation of activities versus 2021, explained by increases in: i) electricity rates due to inflationary pressures, ii) well interventions to reduce field declining rates, iii) services and number of equipment contracted, and iv) maintenance activities.

Exchange Rate Effect (-1.26 USD/Bl): Impact from the increase in the average COP/USD exchange rate of COP +512 per USD.

Volume Effect (-0.44 USD/Bl): Higher production levels.

Dilution Cost

The cumulative dilution cost for 2022 was 5.66 USD/Bl, +1.39 USD/Bl over that recorded in 2021, mainly explained by:

Price Effect (+1.94 USD/Bl): +22.3 USD/Bl increase in the purchase price of naphtha due to the positive change in the Brent benchmark indicator and recovery in market conditions.

Exchange Rate Effect (-0.78 USD/Bl): Impact from the increase in the average COP/USD exchange rate of COP +512 per USD.

Volume Effect (+0.23 USD/Bl): A lower purchase volume of naphtha barrels (1.47 mbed), due to a decrease in the dilution factor, associated to the substitution of naphtha for own LPG in the Castilla, Chichimene, Akacías and Cusiana fields.

 

Financial Results

Table 9: Income Statement – Upstream

Revenues for 2022 and 4Q22 increased compared to the same periods of 2021 mainly supported by higher Brent price and exchange rate. For year-end 2022, the increase in production led to higher crude oil exports.

Cost of sales in 2022 increased compared to the same period of 2021 due to:

However, cost of sales in 4Q22 compared to 4Q21 decreased mainly due to lower prices of crude oil purchases from third parties, which mitigated the increase in tariff rates and volume.

 

Operating expenses (net of other income) in 2022 and 4Q22 increased compared to the same periods of 2021 respectively, mainly due to: i) higher expenses associated with higher execution of investment projects, ii) increase in customs operations mainly due to the higher number of sales under the DAP modality, iii) higher maintenance of external roads and facilities and attention to operating contingencies, and iv) higher labor expenses due to the increase in the Consumer Price Index (CPI).

Net financial expense (non-operating) for 2022 and 4Q22 decreased as compared to the same periods of the previous year, mainly due to: i) higher income in exchange differences due to the accounting effect of hedging operations and ii) the segment's liability position.

Table 10: Volumes Transported – Ecopetrol Group 

Note: Reported volumes subject to adjustments in volumetric quality compensation (CVC), associated to official volumetric balances.

The total volume transported by year-end 2022 reached 1,070.7 mbd, with an increase of 63.5 mbd versus 2021, mainly attributed to a 5.8% increase in crude transported as a result of increased production, mainly in the Llanos area. There was a noteworthy 7.5% increase in the volume of refined products transported in 2022 versus the previous year. In 4Q22, the total volume transported increased by 40.7 mbd compared to 4Q21, mainly due to the aforementioned reasons.

Crudes: Crude volumes transported increased year over year by 5.8% and by 3.3% in 4Q22 compared to 4Q21, in each case primarily as a result of: i) increase in domestic production, mainly in the Llanos region, ii) crude contributions from Asociación Nare in the Vasconia - GRB system, and iii) approximately 9.3 mbd of additional third-party barrels captured that were previously outside the pipeline infrastructure network. Approximately 84.2% of the crude volume transported during 2022 is owned by the Ecopetrol Group.

During 4Q22, the Caño Limón-Coveñas pipeline was affected by third parties, which represents an 88% decrease in the number of incidents versus 4Q21. Similarly, the installation of illicit valves decreased by 26% in 4Q22 compared to 4Q21. Overall, during 2022, pipeline damages caused by third parties and the installation of illicit valves decreased by 32% and 8%, respectively, as compared to 2021.

The lower rate of incidents affecting activities in the Caño Limón-Coveñas pipeline led to a decrease in the number of reversal cycles of the Bicentenario pipeline, resulting in only one cycle in April, in contrast to 19 cycles in 2021, eight of these during 4Q21.

Refined Products: In 2022 and 4Q22, volumes transported increased by 7.5% and 5.5% respectively versus the same periods of the previous year, in each case mainly as a result of a recovery in economic activities and a stabilization in demand after the effects of the pandemic, as a result of greater production availability at the refineries, and operational optimizations in the transport systems.

In 4Q22 and for the second consecutive quarter, evacuation reached a record of 305.6 mbd, which improved product availability at the Barrancabermeja refinery. Approximately 26% of the volume transported by multipurpose pipelines during 2022 in Colombia corresponded to Ecopetrol products.

During 4Q22 and 2022, there was a 50% and 23.9% decrease in the installation of illicit valves compared to 4Q21 and 2021, respectively.

Vasconia Energy Recovery Project (RECVA for its Spanish acronym): At the end of September, OCENSA began operating the RECVA project, which will benefit from the energy dispelled when the crude descends as it passes through the eastern mountain range, capturing and converting it, by employing hydraulic principles, into electric power that will be used to operate the station using a hydraulic power recovery turbine (HPRT). For every year the turbine operates under current conditions, an estimated of 800 tons of CO₂e emissions reduction would be achieved.

 

Cost per Transported Barrel

Table 11: Cost per Transported Barrel –Ecopetrol Group

The cumulative cost per transported barrel in 2022 was 2.84 USD/BI, 0.16 USD/Bl less than thar recorded in 2021, mainly explained by:

Cost Effect (+0.38 USD/Bl): Increased costs, primarily as result of: i) an increase in depreciation given the change in the depreciation method of the Bicentenario pipeline that occurred at the end of 1Q22, ii) increased maintenance and contracted services costs, and iii) higher variable costs resulting from higher consumption of materials and energy, as a result of an increment in volumes transported, plus increases in tariffs attributable to existing market conditions.

Exchange Rate Effect (-0.36 USD/Bl): Impact from the increase in the average COP/USD exchange rate of COP +512 per USD.

Volume Effect (-0.18 USD/Bl): Lower cost per barrel for additional volume transported (+6.3%) in comparison to 2021 associated with: i) increased domestic production, mainly in the Llanos region, ii) crude contributions from the Asociación Nare in the Vasconia - GRB system, iii) additional third-party barrels captured that were previously outside the pipeline infrastructure network, and iv) gasoline and diesel demand recovery in the country, primarily as a result of the recovery in economic activity.

Financial Results

Table 12: Income Statement – Midstream

 

Revenues increased in 2022 as compared to 2021 and in 4Q22 as compared to 4Q21, in each case mainly due to the effect of: i) higher average COP/USD exchange rate, ii) annual update of tariffs, iii) higher volumes of crude transported, primarily as a result of an increase in the country's production, added to the capture of additional barrels from third parties, and iv) increase in volumes of refined products transported primarily due to the recovery of the economic activity. These effects were partially offset by: i) a decrease in the number of reversal cycles of the Bicentennial Pipeline, given that in 2022 only one cycle was performed in April, while during 2021 19 cycles were performed, eight of these during 4Q21, and ii) the one-time recognition of operating income in 2021, derived from the settlement agreement with Frontera for COP 133 billion.

Cost of sales for 4Q22 versus 4Q21, as well as for the full year 2022, increased mainly as a result of: i) higher depreciation derived mainly from the change in depreciation method of Oleoducto Bicentenario, and a higher level of capital investment and a negative exchange effect in the depreciation of subsidiaries of the segment with US dollar as their functional currency given the increase in the average COP/USD exchange rate; ii) higher operation and maintenance activities, and iii) the increase in variable costs related to materials and electricity, mainly associated with higher volumes transported and increases in tariffs, derived from market conditions.

Operating expenses (net of other income) for 4Q22 versus 4Q21, as well as for the full year 2022, increased mainly due to the effect of the extraordinary income generated in 2021 by the settlement agreement with Frontera of COP 672 billion, in which Frontera recognized to Oleoducto Bicentenario the value equivalent to a portion of such subsidiary´s syndicated debt, as well as the compensation to Cenit for the early termination of the contracts.

The net financial result (non-operating) for the full year 2022 decreased due to the exchange effect of a lower average net asset position in dollars of the segment.

1.3 Downstream

In 2022, the Downstream segment reached a combined throughput of 357.5 mbd, the highest of the past three years, and a record annual gross margin of 21 USD/Bl. In 4Q22, the combined throughput was 344.9 mbd and the combined gross margin closed at 19.9 USD/Bl.

The segment's results were leveraged by tactical operational strategies and commercial activities that had positive outcomes, such as: i) adjustments in the scheduled maintenance shutdown plan that allowed the Group to capture additional benefits from a positive market environment and operational stability in the refineries and petrochemical plants, and ii) comprehensive logistics chain planning that allowed to maximize the refineries’ consumption of domestic crude. There were also additional benefits derived from: i) high product basket spreads versus Brent; ii) further efficiencies in the commercial strategy to capture new business opportunities; iii) an increased volume of RGP (Refinery-Grade Propylene) from the refineries to Esenttia.

Since July 2022, the Ecopetrol Group has delivered fuels with a sulfur content below 50 ppm and, as of January 1, 2023, diesel with a sulfur content of 15 ppm (according to Resolution 40103 on fuel quality), as a result of operational and logistic adjustments made in 2021 and 2022.

 

Cartagena Refinery  

Table 13: Throughput, Utilization Factor, Production and Refining Margin

– Cartagena Refinery

* Corresponds to effective throughput volumes, not volumes received

In 2022, the Cartagena refinery reached a throughput of 139.8 mbd and achieved a historic yearly record gross margin, exceeding that of 2021 by 169.4% and by 50.4% that of 4Q22 compared to 4Q21, mainly due to: i) better fuel spreads versus the Brent price, and ii) higher gasoline production yield by maximizing the throughput in the cracking and alkylation units.

Highlights in 4Q22 include the successful execution of: i) the first scheduled major maintenance in the U-100 crude unit, after seven years of continued operation, and ii) test on the co-processing of vegetable oil feedstocks in the U-109 hydrotreater to determine the technical and economic feasibility of producing a better quality fuel, with lower GHG emissions and offering better performance in vehicles, in line with the segment's commitment to the energy transition.

Barrancabermeja Refinery 

Table 14: Throughput, Utilization Factor, Production and Refining Margin

– Barrancabermeja Refinery

* Corresponds to effective throughput volumes, not volumes received

In 2022, the Barrancabermeja refinery reached a throughput of 217.7 mbd, the highest over the past three years, mainly attributable to: i) cohesive supply chain planning to maximize the availability of domestic crudes, ii) improvement of crudes, including imported crudes, and iii) the high operational availability of the refinery (94.3%) even with intensive scheduled maintenance shutdowns during the year.

The refinery achieved a historic annual gross margin, exceeding the 2021 gross margin by 72.2% and the 4Q21 gross margin by 66.4%, mainly due to: i) wide spreads in fuel prices versus the Brent benchmark, ii) high domestic gasoline demand in 2S22, primarily due to the upsurge in economic activities, lower availability of ethanol for blending and heightened consumption in border areas, iii) throughput maximization, and iv) the Ecopetrol Group´s strategy of decreasing fuel oil production and increasing industrial products such as asphalt.

Also noteworthy, in 4Q22 the successful execution of a major scheduled maintenance in the catalytic cracking unit UOPI was carried out, which was in line with the segment's plans to ensure high operational availability of the assets that will allow the supply of clean fuels to the market.

Esenttia

Table 15. Sales and Margin – Esenttia

Essentia’s total sales decreased 2.1% in 4Q22 versus 4Q21, due to market factors such as: i) high inflation levels that reduced global demand, ii) increased price competition because of the entry of Asian products into the region, iii) high product supply in South American countries, and iv) continued logistical difficulties in the region.

 

Total margin decreased by 60.4% in 4Q22 versus 4Q21, as a result of market pressures including the strong incursion of Asian products driving prices down and negatively impacting margins, as well as a weakening in demand due to inflationary pressures that also contributed to a worldwide price decline.

Invercolsa 

The volume of natural gas sold by Invercolsa increased by 7.7% in 4Q22 versus 4Q21, mainly due to: i) headway of campaigns encouraging consumption in commercial segments and Natural Gas Vehicles (NGV), ii) connection of new residential units, and iii) installation strategies aiming to increase residential volumes.

Likewise, the number of new installations increased by 3.7% in 4Q22 versus 4Q21, due to the implementation of commercial strategies, including: i) changes in the structuring of contracts to increase the construction capacity of contractors, ii) growth in the number of average installations in Pasto as a result of greater competitiveness through the use of resources from the Fondo Especial Cuota de Fomento of Natural Gas, iii) improved construction projects’ dynamics of companies in Ibagué, iv) greater availability of construction materials as supply chains improved, and v) greater digital reach and diversification of communication strategies.

Refining Cash Cost 

Table 16: Refining Cash Cost

* Includes Barrancabermeja and Cartagena Refineries, and Esenttia  

The refining cash cost in 2022 remained stable versus 2021, mainly explained by:

Cost and Volume Effect (+0.61 USD/Bl): Mainly due to heightened operational activities and the inflationary effect, partially offset by a +4 mbd increase in crude throughput at the refineries.

Exchange Rate Effect (-0.61 USD/Bl): Impact from the increase in the average COP/USD exchange rate of COP +512 per USD.

Financial Results

Table 17: Income Statement – Downstream

 

Revenues increased in 2022 compared to 2021and in 4Q22 versus 2021 and 4Q21 respectively, due to: i) the strengthening of product spreads associated with market factors, mainly in gasoline and middle distillates, and ii) the growth in domestic demand for fuels. Additionally, Invercolsa observed an increase in its revenues for such periods primarily due to the higher commercialization of natural gas and installations, in line with the 2022 performance. Additionally, we would like to highlight Esenttia's strong performance for such periods, primarily due to higher product throughput from refineries and the positive effect of the increase in the average COP/USD exchange rate.

Cost of sales increased in 2022 compared to 2021 and in 4Q22 as compared to 4Q21, in each case mainly due to: i) higher prices of crude feedstock from refineries and product imports, ii) higher throughput volumes given the recovery in demand, iii) higher imports due to scheduled plant shutdowns, iv) commissioning of the IPCC project and v) the higher average COP/USD exchange rate.

Operating expenses (net of other income) increased in 2022 compared to 2021, due to: i) higher commercialization expenses due to the growth in sales and, ii) scheduled major maintenances at the Cartagena refinery.

The financial result (non-operating) had a higher expense in 2022 compared to 2021 and in 4Q22 compared to 4Q21 as a result of the negative impact of an increase in the period close COP/USD exchange rate had on the segment's net liability position in US dollars.

Gas Strategy and Commercialization

The Ecopetrol Group continues to make positive progress in the implementation of the Gas Strategy formulated in 2019. Gas production is key for the generation of synergies in the integrated business chain (exploration, production and refining), such as enhanced recovery programs (injection of miscible gas and thermal recovery), self-generation with gas and supply to refineries.

During 2022, gas demand averaged 1,032 GBTUD (including third parties and self-consumption), registering a 2% increase (15 GBTUD) compared to 2021, mainly due to the recovery of pre-pandemic levels. To date, the Ecopetrol Group supplies ~80% of the domestic natural gas market.

An effective management of the organic portfolio and its constant optimization are key for the future of gas. Ecopetrol has a relevant potential with projects underway, these projects are focused on accelerating time-to-market, securing the market to make the development of projects viable, environmental risks, improving competitiveness, and maintaining optionality in order to protect and increase the value of this portfolio and the country's energy security.

Hydrogen

In 2022 the Ecopetrol Group began the development of its Low Carbon Hydrogen Strategic Plan, launched in March, with the green hydrogen production pilot test under industrial conditions and the acquisition of knowledge for the development of the first industrial-scale projects (two megaprojects, each of 60 MW of electrolysis, to produce 9,000 Ton/year) that are expected to begin operating between 2025 and 2026.

To promote sustainable mobility with hydrogen, Ecopetrol S.A began the construction of two hydrogen generation and refueling stations: one of them for mass passenger transport in Bogotá in the Integrated Public Transportation System (SITP for its Spanish acronym) of 165 kW of electrolysis for the production of 22 tons/year of hydrogen, and the other for a mobility park for the promotion of innovation and entrepreneurship in Cartagena, of 50 kW of electrolysis for the production of 7 tons/year of hydrogen, for the refueling of buses and light vehicles.

Additionally, Ecopetrol S.A made progress in identifying potential white hydrogen resources in Colombia, completing surface and subsurface sampling in three basins where it operates, finding positive and world-class results.

As a result, in June 2022 Ecopetrol S.A became the first company in Latin America to join the Hydrogen Council^[2] and sealed alliances with six world-class companies for the joint development of hydrogen projects for industrial use in Colombia.

Likewise, and with the objective of both progressing in the decarbonization route and advancing in blue hydrogen projects, six subsoil studies were carried out that allowed sizing the CO2 storage capacity in depleted gas fields and deep aquifers, information that is expected to be used for the implementation of the first CCS (CO2 capture and storage) proof of concept.

 

Renewable Energies

By the end of 2022, the Ecopetrol Group incorporated into its matrix a total of 208 MW operative and generating, from non-conventional renewable energy sources: i) 26 MW from the Brisas solar eco-park, which began operations in December; ii) 65 MW from the long-term purchase agreement of solar photovoltaic energy from the Guayepo project, and iii) the acquisition of the Pequeña Central Hidroeléctrica (PCH for its Spanish acronym) Cantayús with a capacity of 4.3 MW destined to feed Cenit's Cisneros station in the department of Antioquia, which add to the facilities already in operation by the end of 2021.

In 4Q22, wind measurements began in San Francisco (Huila) and Araguaney (Casanare) which will continue over an 18 months period, at different heights up to a maximum height of 150 meters. Based on these results, the first inland eolic power initiatives are expected to be developed in Colombia.

Energy Efficiency

Between 2018 and 2022, through the energy efficiency program Ecopetrol S.A reached an aggregate energy demand optimization equivalent to 44.7 MW in electrical power (5.5% of 2022 year-end demand), with savings of COP 158 billion and the avoidance of 138 thousand tons of CO₂e. Power consumption optimization was achieved primarily due to the incorporation of good operational control practices in the Midstream and Downstream segments and the implementation of technological improvements with high impact on the optimization of energy demand in upstream segment, such as: i) reduced losses in power lines in the Orinoquia Regional Vice-Presidency, ii) technological update of the water disposal and injection process in the Campo Rubiales field, with initiatives such as the installation of new horizontal pumping systems, improvements in hydraulic networks and nanotechnology in water disposal and injection wells.

Moreover, analyses were carried out in the downstream segment to identify new initiatives to improve energy performance at the Barrancabermeja and Cartagena refineries using the ISO50001 methodology, and a technical and financial feasibility study was conducted on previously identified initiatives in both refineries.

For the year 2022, an optimization in electric energy demand equivalent to 16.8 MW was obtained, with savings of COP 52.1 billion and an avoidance of 36.6 thousand tons of CO2e.

1. Energy Transmission

During 2022, ISA won three projects, 39 reinforcements and extensions, and signed a bilateral agreement, which combined will total capital expenditure of USD 1,150 million (reference CAPEX), are expected to generate annual revenues of over USD 100 million (offered revenue) and are expected to add more than 1,370 km of electrical circuit to the transmission network as follows:

^[2] The World Hydrogen Council is a global initiative led by CEOs from 132 leading energy, transportation, industrial and investment companies with a united, long- term vision to develop the hydrogen economy.

 

In 4Q22, the following projects were powered up:

During 2022, projects aimed at promoting a cleaner energy matrix in the countries where ISA and its subsidiaries operate were developed, with the entry into operation of seven energy transmission projects, one battery storage project and 76 reinforcements and improvements to the CTEEP network. These projects are expected to generate annual revenues of USD 167 million (includes 100% of the income of the companies with shared control) and will add more than 2,200 km of power lines to the network.

ISA will continue with the construction of 32 power transmission projects and 259 reinforcements in Brazil, which represent the addition of over 4,600 km of new power lines to the network and that will generate revenues of approximately USD 460 million when they begin operations (the portfolio of projects under construction includes 100% of CAPEX and income from subsidiaries and subordinates that are not 100% of ISA).

2. Toll Roads

Construction phase continues on Rutas del Loa, which extends over 136 km, and is expected to start operating in 2024. Likewise, progress continues in additional works on the Ruta del Maipo, Ruta del Bosque, Ruta de los Ríos and Ruta de la Araucanía concessions, which will generate new revenues or extend the term of these concessions.

Financial Results

 

III. Technology, Environment, Social and Corporate Governance (TESG)

Integrated Water Management

During 4Q22, 35 million cubic meters of water (2.4 million barrels per day) were reused in operations, which means that the Ecopetrol Group avoided the capture and/or discharge of this volume, thus reducing pressure on water resources. This value represents a 25% increase compared to 4Q21 (+18% increase versus 2021) and is equal to 78% of the total water required to operate in this period. In 2022, the percentage of water reused was 77.5%, an increase compared to 2021 (73.4% reuse), primarily as a result of the implementation of water reuse and recirculation best practices in the Barrancabermeja and Cartagena refineries and in the production fields^[3].

During 4Q22, 9.5 million cubic meters of fresh water (0.65 million barrels per day) were captured, which represents a 3% decrease versus 4Q21 and a 6% decrease compared to 2021. This volume was 21% of the total water required to operate in Ecopetrol in 4Q22 and 22.5% for the year.

In 4Q22, 0.9 million cubic meters of treated production water from the Castilla field (61.5 thousand barrels per day on average) were reused in agroforestry activities in the ASA La Guarupaya ecological reserve in the municipality of Acacías (Department of Meta), which represents a 12% reduction compared to 4Q21. In 2022, 3.8 million cubic meters were reused, which represents a 63% increase versus 2021.

Thanks to the reuse of 100% of the production water that allowed closing the discharge on the Acacías River by the end of 2019, and the reuse that takes place in the basin where it is located (Metica River) for the irrigation of agroforestry crops in the ASA Guarupaya Ecoreserve, the Chichimene asset (from the Cubarral Block) was declared the first water-neutral asset of the company.

During 4Q22, Ecopetrol S.A. became the first company in the hydrocarbon sector to verify its water footprint in the country and in Latin America. This was carried out jointly with ICONTEC following the NTC-ISO 14046 standard for 100% of the assets operated, and a corroboration process of the water footprint computation was done for the La Cira - Infantas and Castilla fields, and the Cartagena and Barrancabermeja refineries.

Climate Change - Decarbonization

In 2022, the Ecopetrol Group reduced its greenhouse gas emissions by 416,672 tCO₂e through the implementation of new energy efficiency, fugitive emissions and routine flaring projects. The GHG reduction achieved exceeds the target set for the year (262,761 tCO₂e) by 59%. For the period 2020 – 2022, the cumulative reduction totaled 910,113 tCO₂e.

During 2022, Cenit and all its subsidiaries, together with Esenttia and 11 of ISA’s subsidiaries, received the carbon neutrality certification from the Colombian Institute of Technical Standards and Certification (ICONTEC). This certification was completed following the companies’ carbon neutrality plans, which include managing greenhouse gas emissions inventories, implementing mitigation practices and offsetting residual emissions through Natural Climate Solutions projects that contribute towards the preservation, conservation, and restoration of the country’s strategic ecosystems.

Included in the roadmap of the operations’ decarbonization strategy and consistent with the Ecopetrol Group’s net zero emissions strategy by 2050, through the purchase of carbon credits, we sold four shipments of 4.0 million barrels of carbon-neutral Castilla Blend® to India, United States and Spain, offsetting as well the emissions associated with the maritime transport of a two million barrel shipment to Vadinar, India, and the sale of approximately 97,000 barrels of carbon-neutral extra gasoline to wholesale distributors.

Biodiversity

Within the framework of the national reforestation initiative "Sembrar Nos Une" of the Ecopetrol Group, as of 4Q22, 6,509,818 trees had been planted, which equals 108% of the target set by the Group for year-end 2022 (6,000,000 trees).

Ecopetrol ended 2022 ranked as the second company nationwide that contributes the most biodiversity data to the Biological Information System, with 209,642 records and 168 citations in indexed journal publications.

^[3] In terms of best practices, the reuse/recirculation of water in refineries is highlighted, mainly in condensate recovery and firefighting systems. Likewise, in the production fields, reuse/recirculation is highlighted in: i) drilling activities that reuse domestic and industrial wastewater after tertiary treatments (reverse osmosis and demineralization); ii) preparation of drilling mud; iii) equipment washing; iv) use of cooling water for pumps and industrial uses; v) re-injection to maintain reservoir pressure or increase hydrocarbon production.

 

Social and Environmental Investment

The Ecopetrol Group allocated resources within its Sustainable Development Portfolio to social, environmental and relationship investments totaling COP 298,194 million^[4] during 4Q22 and COP 615,334 million by year-end 2022, which represents an increase of 31% compared to 2021. Investments include those of a strategic and mandatory nature that during the year diversified local economies and had direct effects on national production. The company also prioritized social investments in education, road and community infrastructure, entrepreneurship, inclusive rural development and access to public services such as water, sewage, gas and electricity. Some of the highlights of the year include the following:

Additionally, within the framework of the “Obras por Impuestos” (Works in Lieu of Taxes) mechanism, the Ecopetrol Group has been assigned 59 projects valued at COP 557,608 million between 2017 and 2021. As of 4Q22, 38 projects have been accomplished totaling COP 347,650 million, highlighting in 4Q22 the completion of a road paving project in the municipality of Paz de Ariporo, which benefits 11,172 inhabitants and required an investment of COP 9,870 million.

Regarding environmental investment projects, the following are currently underway: i) establishing eco reserves, developing Strengthening and Biodiversity Plans (F&B for its Spanish acronym), and related programs: ii) strengthening the enterprises of the Projecto Vida Silvestre wildlife project in prioritized environments to apply a methodology in the grasslands of the Orinoquia to quantify carbon capture in these ecosystems, iii) find a methodology to quantify carbon emissions in freshwater wetlands to reduce CO₂ emissions by more than 3 million tons, and iv) identify, design and implement financial instruments to facilitate compliance with the Ecopetrol Group's decarbonization goals.

Furthermore, investments were made to comply with environmental obligations, including: i) control and surveillance services for conservation and/or reforested areas; ii) management and oversight services to monitor conservation agreements: and iii) the implementation and maintenance of sustainable use systems (agroforestry and silvopastoral).

To comply with 1% requirements and environmental compensation, Ecopetrol has implemented conservation agreements with communities, who commit to preserve forest cover for 3 to 4 years, with incentives in agroforestry and silvopastoral systems. In 2022, 455 new agreements were signed and 164 agreements from previous years were monitored. In 2022, 3,705 hectares of conserved forest were added for a total of 5,039 hectares and 37.04 hectares of agroforestry and silvopastoral systems were added for a total of 109.53 hectares implemented. In addition, four 295-hectare conservation plots were purchased and titled from regional authorities under a conservation commitment.

^[4] Cumulative investment of the Ecopetrol Group to 4Q22 is divided into: i) strategic investment for COP 432,858 million; and ii) mandatory investment for COP 182,476 million. Includes within its strategic value, the execution in 2022 of the “Works In Lieu of Taxes” projects totaling COP 33,083 million by Ecopetrol S.A. Ecopetrol S.A.: cumulative social, environmental and relationship investment totals COP 384,337 million. Subordinates: cumulative socio-environmental investment totals COP 230,997 million.

 

Environmental Planning and Authorizations

During 2022, Ecopetrol S.A. was granted 75 environmental authorizations to carry out its projects and operations (7 by the ANLA^[5] and 68 by the CAR^[6]), of which 30 were obtained during 4Q22 (3 by the ANLA and 27 by the CAR). Additionally, 194 procedures were filed in 2022 of which 130 were national fillings with ANLA and 64 were with regional environmental authorities (CAR), Out of the 194 fillings 49 were filed during the fourth quarter.

Communities and Environment

Communities and Environment - Community Relations: During 2022, democratic and inclusive social dialogue processes were arranged in all areas of influence with communities, institutions, unions and associations in Magdalena Medio, the Caribbean, Casanare, Huila and Meta, on social issues, hiring of labor and local goods and services, transportation and social investment, among others. These scenarios of mutual recognition and trust-building are conducive to strengthening the relationship with stakeholders and contribute to sustainable development and the consolidation of governance in the different territories in which we operate.

Communities and Environment - Ethnic Relations: Intercultural dialogue and consensus with the Alto Unuma Resguardo (Meta) of the Sikuani ethnic group, adjacent to the Rubiales field continued, respecting cultural differences and indigenous self-government. In 2022, two major meetings were held between Ecopetrol executives and authorities of the Unuma Resguardo, one in their territory and the other in the Bogotá offices.

Human Rights

In 4Q22 the consultancy to review and update Ecopetrol’s human rights strategy was completed, providing a proposal to mainstream human rights issues into the 2040 Strategy, with a special focus on incorporating human rights guidelines in the path outlined for energy transition (fair energy transition).

Corporate Governance and Corporate Bodies

On January 26, 2023, Ecopetrol S.A. announced that Felipe Bayón Pardo will remain as President of Ecopetrol S.A. until March 31, 2023. The selection, recruitment and appointment process for the new President will be conducted following the succession policy established for the President of Ecopetrol S.A. which entails a rigorous selection process, to be carried out methodically and in such manner reduce any possible adverse financial and reputational impact from such change.

Science, Technology, and Innovation

During 4Q22, the implementation of the science, technology and innovation portfolio continued with year-end 2022 benefits captured totaling USD 595.67 million, an increase of 71% versus 2021 (USD 347.4 million). Among the achievements of 4Q22, the following stand out:

^[5] ANLA: national environmental licensing authority.

^[6] CARs: autonomous regional corporations.

 

Regarding intellectual property, in 4Q22, Ecopetrol was granted four new invention patents, three in Colombia and one in the United States, that corresponded to: i) the addition of hydrogen in a refining process to increase the production of distillates, ii) a system for the treatment of production water, iii) a system to determine with greater accuracy the real volume of extra-heavy crudes mixtures with light hydrocarbons, and iv) additives in a dilution reduction for the transport of heavy hydrocarbons. Including the aforementioned, Ecopetrol S.A obtained a total of 16 patents in 2022, twice as many patents as in 2021, totaling 124 patents in force to date. Two trade secrets were also declared, one related to improvements in the recovery process, and a methodology to improve water management associated with hydrocarbon production.

In cybersecurity, the Ecopetrol S.A continued working on standardizing cybersecurity practices at the Ecopetrol Group level, defining cyber maturity under the Cybersecurity Capability Maturity Model (C2M2) framework, military grade clearance for priority information assets, and completion of the first stage of the cybersecurity integration plan with ISA.

V. Risks

In compliance with "Appendix 1 - Periodic Information from Issuers" established by External Circular 012 of 2022 issued by the Superintendence of Finance of Colombia concerning the format and detailed content of the quarterly reports, and following the provisions of Art. 5.2.4.2.3. of Decree 2555 of 2010, during 4Q22 there were no material variations in the degree of risk exposure concerning the immediately preceding quarter. Furthermore, no new risks were identified during the aforementioned period.

VI. Results Presentation

Ecopetrol's management will host two conference calls to review the fourth-quarter and full year 2022 results:

Spanish English

March 1, 2023 March 1, 2023

08:00 a.m. Colombia 10:00 a.m. Colombia

08:00 a.m. New York 10:00 a.m. New York

The webcasts can be accessed through the following links:

Spanish: https://xegmenta.co/ecopetrol/conferencia-de-resultados-4t-2022/

English: https://xegmenta.co/ecopetrol/results-conference-call-4th-2022/

 

Please check if your browser allows the normal operation of the online presentation. We recommend using the latest versions of Internet Explorer, Google Chrome and Mozilla Firefox.

The results report, the presentation, the webcast and the replay of the conference will be available on the Ecopetrol website: www.ecopetrol.com.co

Contact information:

Head of Capital Markets (A)

María Catalina Escobar

Telephone: +57601-234-5190 - Email: investors@ecopetrol.com.co

Media Engagement (Colombia)

Juan Guillermo Londoño

Telephone: +57601-234-4329 - Email: juan.londono@ecopetrol.com.co

 

Ecopetrol Group Appendices

Table 1: Income Statement - Ecopetrol Group

 

Table 2: Statement of Financial Position - Ecopetrol Group

 

Table 3: Cash Flow Statement - Ecopetrol Group