Ecopetrol’s operating and financial results for the first quarter of the year reflect our ability to react to the COVID-19 crisis and overcome it in an effective manner. We have shown resilience and competitiveness in an environment where, despite the signs of recovery, there are still potential risks that require ongoing monitoring.   We have achieved solid results during 1Q21. We even surpassed pre-Covid levels in several indicators. We continued to take important steps on our diversification, decarbonization and climate change mitigation agendas – the aforementioned without losing focus on our strategy as an integrated O&G company. These pillars are key to surpass the challenges that energy transition implies. We highlight the ongoing process for the potential acquisition of the Ministry of Finance’s controlling stake in ISA, which responds to Ecopetrol's strategic interest of entering into new businesses aligned with the opportunities for electrification and decarbonization, dictated by the energy transition, and which in turn leverage the Group's profitable growth. Also, we also remark the announcement of new decarbonization commitments which are aligned with a carbon-neutral future. The financial results for the quarter reflect an extraordinary recovery. Ecopetrol Group achieved a net income of COP 3.1 trillion and an EBITDA of COP 8.2 trillion in 1Q21 – equivalent to a 48% EBITDA margin. These results almost double those achieved throughout 2020, and were accomplished mainly due to: i) a strengthened realization price of the crude oil export basket at 43% vis-à-vis 1Q20, from 40.3 USD/Bl to 57.8 USD/Bl, supported in better Brent levels, which went from 50.8 USD/Bl on average for 1Q20 to 61.3 USD/Bl for 1Q21; ii) active commercial strategy with our clients in the markets of China, Gulf of Mexico (USA) and Europe; and iii) lower operation costs leveraged by a solid efficiency agenda. This first quarter closed with a solid cash position (COP 8.1 trillion) and a 2.5-times Gross Debt/EBITDA indicator for the last twelve months, in line with our business plan.

Ecopetrol continues to undertake efforts and deploy strategies to achieve a more efficient operation. At the end of 1Q21, the Group realized efficiencies amounting to COP 263.7 billion. This was reflected in a 9% decrease vs. 1Q20 in operating costs and expenses. In turn, the total unit cost was USD $32.6 per barrel, slightly lower when compared to the total unit cost in the same period of 2020. The above is explained by the reduction in costs and expenses and a higher currency exchange rate, partially offset by the increase in the variable factors associated with purchases and imports resulting from a better Brent.   In exploration, Ecopetrol and its partners finished drilling 5 wells during 1Q21. Production from exploration assets increased 39% as compared to 1Q20, mainly due to contributions from Esox-1, Arrecife-1, Andina Norte-1, Boranda-3 and Boranda-2ST. Noteworthy are Ecopetrol-operated Flamencos-2 wells, and El Niño-1 – operated by Perenco in association with Ecopetrol – which were drilled in 2020 and declared successful in 1Q21 upon completion of relevant testing. At the international level, we continue to make progress in the commercial feasibility studies and development plan of Gato do Mato discovery in the Brazilian pre-salt.   Average production in 1Q21 was 675.7 mboed. Our production had an impact when compared to 4Q20 mainly due to operating restrictions in the Castilla field, an increase in Basic Sediment and Water contents in fields such as Chichimene, Akacias, Yariguí, Rubiales, and, in a lesser extent, the withdrawal of volumes related to the divestment of Savia in Peru. Given the effects of the first quarter, we currently estimate a production range between 690 - 700 mboed for the year 2021 and we are implementing a plan that will seek to restore the growth path.   On natural gas and LPG, we had a remarkable 12% increase in the production level, mainly as a result of local demand recovery and the rise in production of Hocol due to the acquisition of Chevron’s stake in the Guajira asset. The contribution of gas and LPG was of 23% of the total production, with a 53% EBITDA margin and a 11% contribution to the upstream EBITDA.   Our operations in the Permian basin continue their consolidation process, contributing 6.2 mboed on average as of 1Q21. By the end of the quarter, the Association had 44 wells in production, 20 new wells drilled and 28 wells completed. Expectations for 2021 remain aligned with the 2021-2023 Business Plan.

¹ Power Purchase Agreements

Bogotá, May 4, 2021. Ecopetrol SA (BVC: ECOPETROL; NYSE: EC) announced today the Ecopetrol Group’s financial results for the first quarter of 2021, prepared in accordance with the International Financial Reporting Standards applicable to Colombia.

Ecopetrol Group generated a net income of COP 3.1 trillion in 1Q21, 83% higher than the result registered in 2020. The EBITDA for the first quarter totaled COP 8.2 trillion, with a 48% EBITDA margin; similar to pre-pandemic levels. These results were achieved mainly due to i) more favorable price environment boosted by with our ability to capture better crude oil and product spreads, ii) solid performance in all of the company’s segments, and iii) cost efficiencies measures achieved since 2020.

These factors offset our lower level of production.

Table 1: Financial Summary Income Statement - Ecopetrol Group

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The figures included in this report were extracted from the Company’s unaudited financial statements. The financial information 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 may contain forward-looking statements related to business prospects, estimates on operating and financial results, and Ecopetrol's growth. These are projections and, as such, are based solely on management's expectations regarding the future of the Company and its continued access to capital in order to finance the Company's business plan. These forward-looking statements basically depend on changes in market conditions, government regulations, competitive pressures, the performance of the Colombian economy and industry, among other factors; therefore, they are subject to change without notice.  

I. Financial and Operating Results

Sales revenue

The 14.2% increase in sales revenue for 1Q21 as compared to 1Q20, is a combined result of:

Table 2: Sales Volumes - Ecopetrol Group

* Natural gas exports correspond to local sales by Ecopetrol America LLC and Ecopetrol Permian LLC.

The total volume sold during 1Q21 amounted to 858.2 mboed, a 7.4% decrease as compared to the volumes sold in 1Q20, primarily as a result of a significant decrease in export volumes, partially offset by a slight increase in local volumes.

Sales in Colombia, which represent 47% of total sales, showed a 1.5% increase (5.9 mboed) as compared to 1Q20, primarily due to the combined effect of the following:

International sales, which represented 53% of total sales – showed a 14% decrease (74.2 mboed) as compared to 1Q20 due to the combined net effect of the following:

Table 3: Average Prices - Ecopetrol Group

Crudes: In 1Q21 as compared to 1Q20, the realization price increased from 40.3 USD/Bl to 57.8 USD/Bl, as a result of the increase in the average price of Brent. This increase was supported by a proactive commercial strategy focused on diversifying clients and destinations, maintaining the participation in the Chinese market, the Gulf of Mexico (USA) and Europe.

Refined Products: The price for the basket of refined products increased to 67.8 USD/Bl in 1Q21 from 59.4 USD/Bl in 1Q20 as a result of the improvement in price indicators, in addition to the recovery in demand for gasoline and diesel worldwide.

Natural Gas: The price of gas sales increased to 24.4 USD/Bl in 1Q21 from 23 USD/Bl in 1Q20 due to the recomposition of the basket with a greater volume source of Guajira.

Hedging Program: In 1Q21, tactical hedges were executed for more than 8 million barrels to mitigate the impact of the variability of prices of crude oil, refined products and intermediate refining margins. Additionally, hedges on sea transport cargo were executed for about 600,000 metric tons.

Cost of Sales

Depreciation and Amortization: The 3.9% increase in depreciation and amortization during 1Q21 as compared to 1Q20 was primarily due to a decrease in the amount of reserves that were incorporated in 2020 as compared to 2021 and an increase in capital expenditures. The aforementioned was partially offset by the decrease in production.

Variable Costs: The 6.8% decrease variable costs in 1Q21 as compared to 1Q20, is primarily due to:

Fixed Costs: The 16.4% decrease in fixed costs in 1Q21 as compared to 1Q20, is primarily due to i) lower labor costs mainly due to a decrease of 424 employees in personnel resulting from the implementation of the retirement plan in 2020, and ii) a decrease in the costs of professional services, maintenance and others of the operational activity, as a result of efficiencies captured through the reduction of rates in contracts and activities, commuting and lower production levels.

Operating expenses (net of other income and before impairment of long-term assets).

Operating expenses for the 1Q21 increased 9.7% as compared to 1Q20, mainly due to the recognition of results in the exploratory activity of Moyote-1 dry well (belonging to Ecopetrol’s México subsidiary), given the completion of technical evaluation studies and feasibility conclusions. 

Financial Income (Non-Operating)

The 2.1% reduction on financial loss in 1Q21 as compared to1Q20, primarily corresponds to the combined effect of the following:

The Effective Tax Rate for 1Q21 was 31.3% as compared to 42.3% in 1Q20. The decrease is mainly explained by the long-term assets impairment recognition   in 1Q20 from the Cartagena refinery, since this subsidiary is taxed under a special tax regime by being located in a free trade zone. The tax rate of 1Q20 before the impairment effect would have been 30.9%, which is in line with the result obtained in 1Q21. 

Impairment of Long-Term assets

During 1Q21 the impairment of long-term assets decreased 100.2% as compared to 1Q20. It should be noted that the Company recognized an extraordinary impairment expense in the amount of COP 1.2 trillion in 1Q20 in response to market conditions by that time as explained in the Company’s earnings for 1Q20.

Cash Flow and Debt

Table 4: Cash Position - Ecopetrol Group

Note: Cash corresponds to available resources denominated as cash and cash equivalents plus investments in financial securities, regardless of their maturity.

Cash Flow: At the end of 1Q21, Ecopetrol Group’s cash position was COP 8.1 trillion (53% COP and 47% USD). During this period, the main source was operational activity (COP 2.9 trillion) and sales from the investment portfolio (COP 1.7 trillion), which were primarily used for CAPEX (COP 2.4 trillion) and debt service.

Debt: At the end of 1Q21, debt on the balance sheet was COP 49.8 trillion, equivalent to USD 13.6 billion (6% COP and 94% USD). During this period, debt increased by 7.5% mainly due to the impact of the devaluation of the COP against the USD on foreign currency debt, which is recognized mainly in equity given the adoption of hedging accounting procedures.

As a result of the improvement in Ecopetrol Group’s results, the Gross Debt/EBITDA ratio went from 2.8 times in December 2020 to 2.5 times for the last twelve months ending March the 31^st, 2021, aligned with the business plan.

Efficiencies

Ecopetrol continues its efforts and strategies depletion to achieve a more efficient operation. At the end of 1Q21, the Business Group recognized accumulated efficiencies for COP 263.7 billion, due to:

Actions focused on strengthening EBITDA margin, which reached a value of COP 188.9 billion. Some of the more significant are:

Efficiencies in CAPEX of COP 74.9 billion, as a result of the following:

Investments

Investments made by Ecopetrol Group during 1Q21 decreased by 31%, to USD 650 million, as compared to 1Q20. After excluding the payment obligations effects related to the Gato do Mato project in Brazil made in 1Q20, and carry payments in Ecopetrol Permian, the result of the CAPEX invested in 1Q21 would have been 12% lower to that of the same period in 2020. For 2021, we maintain our investment target between USD 3.5 and 4.0 billion.   

In terms of geographic breakdown 65% of the investments were executed in Colombia and 35% abroad.

From the total investment in 1Q21, 80% was allocated to the exploration and production segment, out of which 72% was focused to growth opportunities focused on increasing production and reserves, 7% was allocated to the midstream segment, 11% to the downstream segment, and the remaining 2% to the corporate segment.

Investments in gas projects and other energy sources accounted for 12% for 1Q21, and the solar project maturity process is currently underway. 

The main investments during the quarter are detailed below: 

Exploration:  5 wells were drilled (4 exploratory wells + 1 study well), and progress is being made in the maturity of the Group’s exploratory program with a total of nine planned wells for 2021.

Production: Ecopetrol’s production and development activities were concentrated in the Rubiales, Llanito, Castilla, Chichimene and Casabe fields. With regards to our subsidiaries, the investment was focused on Ecopetrol Permian and Hocol. 91 development wells have been drilled and completed and 87 workovers have been executed.

Midstream: Investments mainly aimed to guarantee integrity and reliability of the infrastructure, while advancing in the flexibility and efficiency in logistics for the evacuation of heavy crude oil. Additionally, these investments will allow us to optimize future operating costs by updating equipment and improving its performance. 

Downstream: Investments were focused on operational continuity (76%) to maintain efficiency, reliability and integrity of the operation at Barrancabermeja and Cartagena refineries, while 21% of the segment’s investments being allocated to growth projects related to the Cartagena Refinery Crude Oil Plants Interconnection project.

Table 5: Investments by Segment – Ecopetrol Group

* Includes the total amount of investments of each of the Ecopetrol Group companies (Ecopetrol S.A.’s share and non-controlling interest)

** Includes investment in energy transition projects

 II. Results by Business Segment

Exploration

During 1Q21, Ecopetrol and its partners completed the drilling of four exploratory wells and one study well, for a total of five wells:

Continuing with the 2021 exploration campaign, Boranda Centro-1 well was being drilled at the end of the quarter, delimiting the recent Boranda discovery located in Magdalena Medio Valley. Likewise, the delimitation plans of the Flamencos discovery in the Middle Magdalena Valley, operated 100% by Ecopetrol, and Lorito in the Llanos Orientales, operated with Repsol, are advancing to accelerate the commercialization and incorporation of reserves.

It should be noted that two wells drilled in 2020 were declared successful in 1Q21: i) Flamencos-2 operated by Ecopetrol, which verified the lateral extension of the Flamencos-1 discovery in the Magdalena Medio Valley, and ii) El Niño-1, operated by Perenco in association with Ecopetrol, which confirmed the presence of medium-sized crude in the Boquerón block, in the department of Tolima.

Cumulative production of the exploratory assets reached 477,767 barrels of equivalent production (5,309 equivalent barrels per day), which represents a 39% increase as compared to 1Q20, mainly from Esox-1 (Ecopetrol America), Arrecife-1 (Hocol), Andina Norte-1, Boranda-3 and Boranda-2ST, with 67% of this production corresponding to crude oil and 33% to gas.

Regarding gas exploration strategy, Hocol is advancing with the delimitation of the Bullerengue Porquero discovery by connecting Chacha-3 well to the Bullerengue facility. Also, the Arrecife discovery is connecting Arrecife-3 well to the gas Early Production Facility (EPF) in order to initiate extensive testing of the well during 2Q21.

On the offshore gas front, we continue to make progress in maturing the projects that contribute to the Group’s gas strategy. In the Tayrona block (together with Petrobras as operator), the development plan of the Orca discovery and the remaining exploratory potential of the block are being evaluated, which includes the drilling of an additional well in 2022. In turn, the necessary activities are being carried out in Guaoff-10 block to start drilling a well in 2023. Additionally, the plan agreed with Shell in the COL-5 Block continues to begin drilling the Gorgon-2 well at the end of this year. We expect this plan should shed light on the capacity of the reservoir and the productivity of the Gorgon discovery.

As for the Gato do Mato discovery in the Brazil pre-salt, we continue to make progress in commercial feasibility studies and the definition of the development plan based on seismic information and the results of the delimiting wells.

Production

The Ecopetrol Group reached a production level of 675.7 mboed in 1Q21, of which 616.5 mboed came from Ecopetrol and 59.2 mboed from its subsidiaries. Production decreased by 8.1% (-59 mboed) as compared to 1Q20 and 2.7% (-19 mboed) as compared to 4Q20. Gas reached a production of 130 mboed, increasing 12% (+14 mboed) as compared to 1Q20, mainly due to the recovery of the country's demand in industrial markets and the increase in Hocol's production due to the acquisition of Chevron's stake in the asset Guajira. Gas maintains a 19% stake in total production, in line with the Company's strategy.

During 1Q21, the positive results in the Piedemonte and Middle Magdalena assets stand out. However, during the quarter, production was affected mainly due to: i) operating restrictions in the Castilla field, in response to additional requirements established by Cormacarena, within the framework of the licenses and current regulations, which seek to improve the environmental conditions of the Guayuriba River (-11.1 mboed); ii) increased in Basic Sediment and Water (BSW)^[2] in fields such as Chichimene, Akacias, Yariguí and Rubiales (-1.4 mboed) given the slowdown in activity during 2020; iii) the divestment of Savia in Peru (-4 mboed) and iv) operational and public order issues (-4 mboed).

² Water percentage per each barrel of fluid extracted from a well.

Given the above, we estimate a production range between 690 - 700 mboed for 2021. To restore the growth path we have a plan focused on: i) release of operating restrictions in Castilla, ii) anticipation of incremental activity initially planned for 2022 and iii) increase in the fluid disposal and well interventions capabilities.

As risks to production, the following were identified: i) lower demand for gas as a product of the third wave of the COVID-19 pandemic and others that may be present; ii) restriction of water injection in the Quifa field and iii) possible continuity of the restriction of fluid discharge to the Guayuriba River.

In terms of drilling, 91 development wells were drilled and completed by the Ecopetrol Group at the end of 1Q21 with an average occupancy of 16 drilling rigs.

Regarding Unconventional Reservoirs, studies are underway to file the application for the Environmental License for the PPII Kalé with the Environmental Authority.

Recovery Program

Progress was made during 1Q21 expanding secondary and tertiary recovery technologies, out of which the following stand out: i) injection of gas into the Cusiana, Cupiagua and Pauto - Floreña fields; and ii) injection of water in Chichimene, Castilla and Yariguí. The pilots, which are active, contributed 4 mboed of production during 1Q21, and the most relevant are the pilots for improved water injection and In-Situ combustion in the Chichimene field.

Permian

In 1Q21, Ecopetrol and our operating partner (OXY) continued executing operations in the Permian basin according to the 2021 plan. In January 2021, the JV increased the number of drilling rigs to 4 and added 2 completion crews. By the end of the first quarter, the JV had 44 wells in production, 20 new wells drilled, and 28 wells completed (including 22 wells drilled but not completed in 2020). The average production for Ecopetrol’s share was 6.2 mboed before royalties, with a quarterly exit rate of 13.6 mboed before royalties.

In addition, the partners managed to realize additional operational efficiencies, despite the weather-related challenges in January and February. Below are some highlights of operational efficiencies and records in 1Q2021:

Expectations for 2021 remain in accordance with the 2021-2023 Business Plan.

Table 6: Gross Production – Ecopetrol Group

*Equión’s Production goes up to February 29, 2020, which corresponds to the end date of the Piedemonte partnership agreement. As of March 1, 2020, Ecopetrol incorporates 100% of the production from the Pauto Sur and Floreña fields. ** The average 1Q21 production for Ecopetrol’s share was 5.1 mboed after royalties

Note: Gross production includes royalties and is prorated according to Ecopetrol's share in each company. Natural gas production includes NGL’s.

Lifting Cost

The lifting cost for 1Q21 was 7.51 USD/Bl, 0.71 USD/Bl less than the same period of the previous year. This is mainly explained by the following:

Cost effect (-1.23 USD/Bl):

• Lower energy consumption from optimization efficiencies in the energy matrix, increasing the use of self-generated energy. 
• Lower subsoil maintenance costs due to the optimization of the average execution time of well interventions and services.
• Lower operational activity and supplies used in the production process of fields operated with partners. 

Volume effect (+0.56 USD/Bl): Lower production as compared to the same period of the previous year.

Exchange Rate Effect (-0.04 USD/Bl): Increase in the COP/USD exchange rate by COP 17 when re-expressing costs from COP to USD.

Dilution Cost

The unit dilution cost in 1Q21 decreased by -0.18 USD/Bl as compared to 1Q20 to 3.50 in 1Q21 from 3.68 in 1Q20, mainly explained by a lower purchase of barrels of naphtha (-18.2 mbd), given a lower production of heavy crudes, and the effect of the exchange rate due to the devaluation of COP against USD by +17 COP per USD, offset by a higher purchase price of naphtha (13.3 USD/Bl) due to market conditions.

Table 7: Lifting and Dilution Cost - Ecopetrol Group

* Calculated based on barrels produced, excluding royalties.

** Calculated based on barrels sold.

Financial Result for the Segment

During 1Q21, the EBITDA of the Upstream Segment reached a margin of 40.4%, doubling the result of the year 2020. The gas and LPG business reached an EBITDA margin of 53%, increasing by 8% versus the same period of 2020, due to higher prices on domestic sales (+0.5 USD/Bl) and the execution of new sales contracts of Hocol’s Gas Guajira. 

Table 8: Income Statement - Upstream

Revenues for 1Q21 increased 26.1% when compared to 1Q20, mainly due to an increase in Brent prices (+10.5 USD/Bl) and an improvement in crude oil spreads (+6.4 USD/Bl); this was partially offset by lower sales volume associated with a decrease in production.

The cost of sales in 1Q21 decreased as compared 1Q20, mainly as a result of the following:

Operating expenses in 1Q21 increased as compared to 1Q20, due to the (i) recognition of Moyote in Mexico as an unsuccessful well, (ii) termination of studies that were in progress and iii) greater capitalization of projects as compared to the same period in 2020.

The net financial (non-operating) expense 1Q21 increased as compared to 1Q20 mainly due to: i) higher interest payments associated with the increase in indebtedness, ii) lower income from valuation and yields on the investment portfolio, and iii) effect of the exchange rate due to the devaluation of the COP against the USD. This result was partially offset by the recognition of the effect of the accumulated conversion in equity from the sale of the Savia investment denominated in USD. 

Table 9: Volumes Transported - Ecopetrol Group

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

Crude Oil: The volumes transported in 1Q21 decreased by 16% as compared to 1Q20 as a result of lower production in the country, mainly in the Llanos – Eastern Plains area. There was greater evacuation in the corridors leading to the Barrancabermeja refinery in 1Q21 (Vasconia-Galan and Ayacucho-Galan), with +24.4 mbd as compared to the amount evacuated in 1Q20. As a result of lower production and the greatest throughput to the Barrancabermeja refinery, evacuation to Coveñas decreased by 163.8 mbd as compared to 1Q20. Approximately 81.8% of the volume of crude oil transported is owned by Ecopetrol Group.

During the first months of 2021, third parties attacked the pipelines. However, the number of attacks was 33% lower than in 1Q20. Similarly, the intervention of illicit crude oil valves decreased by 23.3%. As for the refined products we suffered from 230 illicit valves in 1Q21, the same level as compared to 1Q20.

Refined Products: The volumes of refined products transported in 1Q21 increased by 4.3% as compared to the volumes transported in 1Q20. The above is mainly due to: i) the recovery of the country’s demand for fuels, ii) greater evacuation of refined products, primarily diesel and motor gasoline, and iii) maintenance of the HDT unit at the Barrancabermeja refinery carried out during 1Q20.  29.9% of the volume transported by multi-purpose pipelines corresponds to Ecopetrol products.

Update on transport contract disputes: On November 17, 2020, Cenit Transporte y Logística de Hidrocarburos and Oleoducto Bicentenario announced that they had reached an agreement with Frontera Energy to settle the disputes over the transport contracts in the Bicentenario and Caño Limón - Coveñas systems. On March 24, 2021, the Attorney General’s Office (Procuraduría General de la Nación) issued a favorable opinion on the agreement, this being the first of the two approval instances that the agreement must undergo.  Additionally, on April 23, 2021, the agreement between Oleoducto Bicentenario and Canacol was approved by the Arbitration Court, and on April 28, 2021, the conciliation between the Bicentenario and Vetra pipeline was also approved by the corresponding Arbitration Court.

Multi-purpose Pipeline Network Expansion Plan: On March 15, 2021, the Ministry of Mines and Energy (MME) issued the resolution on the Pipeline Network Expansion Plan for comment. This expansion plan develops three main pillars: i) it establishes capacity expansion projects in eight of our multi-purpose pipeline transportation systems, as well as the year in which these are expected to come into operation, ii) delegates upon the CREG (Regulation Commission) the authority to define the procedure for assigning and executing these projects, and iii) provides that the MME – or the agency delegated – will define the methodology to determine the fees and margins associated with these projects. This resolution was open for comment until March 30, and the final resolution is expected to be published in the coming months.

Cost per Barrel Transported

Table 10: Cost per Transported Barrel - Ecopetrol Group

The cost per barrel transported increased by 0.06 USD/Bl versus 1Q20 mainly due to:

Cost effect (-0.3 USD/Bl):

Volume effect (+0.37 USD/Bl): Lower volume of crude oil transported (-140 mbd), partially offset by a higher volume of products (+11 mbd) due to the recovery of demand for gasoline and diesel.

Exchange rate effect (-0.01 USD/Bl): Higher exchange rate of +17.03 pesos/dollar when re-expressing costs in pesos to dollars.

Financial Results for the Segment

Table 11: Income Statement – Midstream

Revenues for 1Q21 decreased as compared to 1Q20, mainly due to lower volumes transported as a result of the reduction in crude oil production from Ecopetrol and the country.

The cost of sales decreased in 1Q21 as compared to 1Q20. This decrease came as a result of the following: i) a lower pace of execution of maintenance activities; ii) a lower depreciation due to the extension of useful lives in Bicentenario and De Los Llanos pipelines; iii) a decrease in the variable costs of materials and energy associated with the lower volumes transported; and iv) the initiation of the new operating model.

The operating expenses in 1Q21 increased as compared to 1Q20 due to an update of litigation provisions in 1Q20 and additional purchases of software licenses.

The financial (non-operating) result for 1Q21 decreased due to a lower revenue, mainly due to exchange rate difference on the segment’s net active position in USD in 1Q21 as compared to 1Q20, given lower volatility of the market exchange rate in 1Q21 as compared to 1Q020.

In 1Q21, the path of operational improvement and financial results continued within the downstream and petrochemicals segment, in accordance with the gradual recovery of the throughput of the different units, associated with the stability of operations, and the increase in demand for the main products both domestically and internationally.

The refineries reached a consolidated throughput of 360 mbd and an integrated gross margin of 10.1 USD/Bl in 1Q21 as compared to a 345 mbd throughput and an integrated gross margin of 9.5 USD/Bl in 1Q20.

In addition, we report a noteworthy achievement of zero environmental and level 1 safety processes computable incidents, as well as progress on fuel quality, currently producing gasoline in Colombia with an average sulfur content 50 ppm, and diesel below 15 ppm, in compliance with current regulations (Resolution 40103 of April 7, 2021).

Cartagena Refinery

Operations at the refinery continued to adjust to the environment of national and international demand during the first months of the year. Thus, there was a recovery in the gross refining margin (from USD 6.6 USD/Bl in 4Q20 to 8.1 USD/Bl in 1Q21). The 1Q20 gross refining margin was 8.9 USD/Bl. The first cycle of major maintenance for the cracking and alkylation units was successfully initiated during this period, reaching a throughput of 143.3 mbd and performing on similar levels to those in 1Q20 (146.3 mbd); thereby impacting the gross refining margin result.

Table 12: Throughput, Utilization Factor, Production and Refining Margin - Cartagena Refinery

*Corresponds to effective throughput volumes, not volumes received

Barrancabermeja Refinery

During 1Q21, the refinery’s operating performance was stable, in line with the local demand environment. A 216.9 mbd throughput was reached during this period, a 9% increase as compared to 1Q20 as a result of a stable operation of the diesel hydrotreating unit and management within the supply chain, which in turn leveraged the production of fuels, petrochemicals and industrials. In this quarter particularly, the petrochemical business stands out.

The gross refining margin in 1Q21 was 11.5 USD/Bl, a 16% increase as compared to 1Q20. This was mainly due a strengthened Brent for gasoline and fuel oil, increased yields of middle distillates and petrochemicals which aided in offsetting an increase in the costs of the feedstock.

Table 13: Throughput, Utilization Factor, Production and Refining Margin - Barrancabermeja Refinery

*Corresponds to effective throughput volumes, not volumes received  

Esenttia

Esenttia ended 1Q21 with a positive balance in its results. Between January and February there was a historic increase in propylene (raw material) prices, which in turn was primarily due to low availability caused by certain environmental factors in the U.S.; however polypropylene prices did not increase at the same levels, consequently business margins were impacted during the first two months of the year.

Several actions were implemented in response to market situation including: i) early sales of polypropylene in high-value regions; ii) replacement of part of the contractual volume of polymer grade propylene (PGP) with PGP at below market prices; and iii) alignment of the logistics chain for product delivery. This allowed us to achieve a historic polyporopylene margin of 430 USD/Ton in the month of March, leveraging the EBITDA result significantly for the month and for the quarter.

Refining Cash Cost

Table 14: Refining Cash Cost*

*Includes Barrancabermeja, Cartagena refineries and Esenttia

The Refining cash cost decreased -0.22 USD/Bl or 4.9% in 1Q21 as compared to 1Q20, mainly explained by:

Cost and volume effect (-0.20 USD/Bl): Lower unit cost mainly due to: i) higher crude oil throughput (+15 mbd) at the Barrancabermeja Refinery; and ii) operational adjustments in Esenttia caused by increased demand.

Exchange Rate Effect (-0.02 USD/Bl): Higher exchange rate of COP +17 per USD when re-expressing costs from COP to USD.

Financial Results for the Segment

Table 15: Income Statement – Downstream

The EBITDA result for the downstream segment in 1Q21 is the highest of the last 5 quarters, primarily as an effect of the efficiencies achieved during 2020 that kept costs and expenses under control despite the increase in operations. This was also due to the good performance of margins and charges from our businesses.

Revenues for 1Q21 increased 16.8% as compared to 1Q20, due to the recovery in product differentials (mainly in gasoline, middle distillates and petrochemicals associated with market factors); and the stabilization of demand despite the ongoing COVID-19 pandemic. In addition, Invercolsa had revenue growth given the increased commercialization of natural gas and positive financial results from Esenttia, achieved despite a difficult start of the year due to reduced margins caused by the increase in the value of the raw materials in the international market, inter alia.

Cost of sales increased in 1Q21 as compared to 1Q20, mainly due to: i) higher volume of crude throughput at the Barrancabermeja refinery; and ii) higher prices of the crude feedstock at the refineries. This increase was partially offset by lower costs as a result of: i) the termination of the gas transportation contract in the Ballena-Barrancabermeja section, ii) the deferral of the operational activity derived from the pandemic in 1Q21 and iii) Bioenergy’s liquidation.

No further estimations were made during 1Q21 to those made as of December 31, 2020 and therefore the Company did not take an impairment charge during the first quarter of 2021. It should be noted that the Company recognized an impairment expense in the amount of COP 564 billion net of taxes for this segment in 1Q20 in an extraordinary manner and in response to market conditions of the time as explained in the Company’s earnings release related to its 1Q20 results.

The financial result (non-operating) for 1Q21 as compared to 1Q20 reflects a decrease in expenses as a consequence of the effect of the revaluation of the COP as compared to the USD at period end and the positive effect that revaluation had on the segment’s net liability position in USD.

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

Medium and Long-Term Decarbonization Plan

Ecopetrol Group announced its novel zero net carbon emissions target (scopes 1 and 2) by 2050 in March 2021. This announcement is aligned with the commitment to mitigate climate change and further the energy transition and the TESG agenda. As an intermediate ambition by 2030, Ecopetrol Group seeks to reduce CO2e emissions by 25% (scopes 1 and 2) compared to the baseline established in 2019, and to achieve a 50% reduction in total emissions (scopes 1, 2 and 3) by 2050. For more information, please click here.

As previously announced, we expect to invest more than USD 600 million in decarbonization initiatives as described in the 2021-2023 Business Plan.

Renewable energy

In line with the objective of incorporating around 400 MW of renewable energy generation by 2023, we continue to advance in the construction of the San Fernando solar farm, which is expected to come into operation in the second half of 2021. Currently, the project is 46% complete and 328 people are being employed on site, 120 of whom are women.

As for the 45 MW solar energy projects in Huila, Magdalena Medio and Meta, progress was made in preparing the allocation under PPAs.

Ecopetrol began pilot tests to measure the potential of wind energy in areas close to its operations in Cartagena, with the aim of evaluating feasibility of the construction of wind farms that will allow for self-supply of part of the energy demand of the company’s operations in this region of the country in the future. The measurement is carried out by means of a 150-meter-high meteorological tower installed in the Casablanca property, near the Cartagena refinery.

Additionally, the company estimates that measurement of the wind potential will begin in the second half of 2021 in the departments of Huila and Casanare on land adjacent to Ecopetrol Group’s operations. Currently, there are 90 MW wind generation prospects identified by 2022 on the Atlantic Coastline, Casanare and Huila.

We are moving forward with the design of our hydrogen strategy, based on 5 fronts: i) Pilots, ii) Regulations and Public Policy, iii) Suppliers and Allies, iv) Third Party Commercialization, and v) the Groups and country’s roadmaps. We are also in the process of defining potential partnerships for the development of this strategy that would lead us to a gradual replacement of gray hydrogen within the downstream industrial processes, thermic use via blending with natural gas, and mobility. Likewise, we continue with the development of an experimental scale hydrogen pilot with a capacity of 50 kilowatts which is expected to begin operations in 2022 at the Cartagena refinery. Finally, we highlight the progress made so far with the purchase of a 50 kW Electrolyzer for the development of hydrogen pilots, which is currently in the manufacturing phase and is expected to be operational by early 2022.

Water

During 1Q21, Ecopetrol reused 25.9 million cubic meters of water (1.8 million barrels per day), which means that the company stopped capturing and disposing this volume to water sources, thus reducing pressure on water resources. This volume represents a slight 1% increase in reuse for the same period of the previous year and is equivalent to 72% of the total water required to operate. These results have been achieved mainly due to water reuse and recirculation practices implemented in the Barrancabermeja and Cartagena Refineries, as well as in the production fields.

Similarly, 639 thousand cubic meters of treated production water (44.7 thousand barrels per day) were reused in agricultural and livestock activities in the Agroenergetic Sustainability Area (ASA) at the Castilla Field. This reflects a decrease of 20% as compared to 1Q20, due to hydraulic and hydrostatic tests carried out on the sprinkler irrigation system to ensure its correct operation and sustainability over time, as the system will go into direct operation by Ecopetrol during 2021.

Air quality

As part of the environmental commitment to the production of clean fuels, Ecopetrol signed the Pact for New Air for Bogotá, whereby we confirm our commitment to further progress on improving fuel quality, the supply of special diesel for Transmilenio and availability of natural gas for the city. As of the end of March, Ecopetrol distributed diesel in Bogotá with less than 15 ppm in sulfur content, special diesel with less than 10 ppm of sulfur content for the Transmilenio fleet, and gasoline with 51 ppm; these levels widely meet the required quality according to the national regulations and place these fuels within the highest international standards.

Comprehensive Research Pilot Projects (PPI)

As previously reported, Comprehensive Research Pilot Project for Unconventional Hydrocarbons (Kalé) will be carried out in Puerto Wilches (Santander). Rigorous environmental monitoring, seismicity and operational studies will be conducted including over 200 parameters. The foregoing is aligned with the regulatory framework issued for Comprehensive Research Pilot Projects in which Ecopetrol had an active participation during 2020.

This monitoring began on February 16, once the first territorial dialogue had been developed, with the surveying of the baseline for the Environmental Impact Assessment and will continue during the execution phase of the pilot and after its completion. This will be done with the purpose of conducting adequate follow-up and analysis of the project’s environmental performance. The information collected will be publicly known through the Transparency Center of the Ministry of Mines and Energy, which will facilitate knowledge and monitoring of the pilot activities by the communities and other interest groups.

Between 2020 and 2021, Ecopetrol has held more than 320 conversations and participation meetings with communities, authorities, businessmen, workers, unions and legislators, among other stakeholders, in order to explain the scope of the Kalé project. The meetings have been carried out through the use of different methodologies, in accordance with biosafety protocols, such as house-to-house and informative rounds, conversations with authorities and unions, forums, radio programs and other community communication actions.

The “Apoyo País” Countrywide Support Initiative against COVID-19

During 1Q21 aid contracted in 2020 was carried out, with the delivery of 245 medical equipment and more than 6,240 N95 masks, worth in COP 4 billion.

Ecopetrol Group has allocated resources as part of the permanent support to attend to the pandemic and economic reactivation, of at least COP 60 billion to be executed in 2021. This allocation includes projects such as: i) strengthening public health through the provision of medical equipment and personal protective equipment, ii) collaboration agreements with health foundations, iii) vaccination control tower and support services in digital tools, iv) reactivation of the Caribbean zone, impacted by the environmental emergency of hurricane Iota, between others.

Social and Environmental Investment

In addition to the investment related to “Apoyo País” initiative, Ecopetrol Group allocated resources for social investment and relationships in projects and initiatives of the sustainable development portfolio within the framework of the Ecopetrol Environment Strategy for a value of COP 71 billion³ in 1Q21. This investment is divided into: i) Strategic investment, COP 68 billion; and ii) Mandatory Investment, COP 2.7 billion. The main projects include: i) the delivery of equipment and technology to four Educational Institutions in the municipality of Villavicencio, ii) the signing of new partnerships to promote school retention and educational quality with Fundación Batuta and Corpoeducación in the Departments of Meta and Arauca, iii) the launch of the economic reactivation program Ecopetrol Emprende in partnership with Créame Incubadora to strengthen 468 MiPymes from the South, Orinoco, Eastern Plains Piedemonte, Central, Catatumbo, Arauca and Caribe regions, and iv) in infrastructure, with the delivery of 199 housing units to benefit 796 people from socioeconomic strata 1 and 2 in the municipality of Aipe, in the Department of Huila.

Communities and the Environment

Actions to support the Wayuu communities were carried out with the delivery of 3,403 school kits for students and 114 for teachers in the municipality of Uribia, in order to contribute to school retention in the midst of the pandemic. Difficulties in access to quality tools and pedagogical material for students, their families and teachers increases the risk factors associated with lack of schooling.

Furthermore, the Relationship Plan with the U’wa People continued with the meeting held between Ecopetrol and the 17 Councils and Delegates of the Board of Directors of Asouwa. We achieved the objective of getting closer to the Traditional Authorities of the 17 grassroots communities of the U’wa’s Reservation with whom we shared the advances of the Social Investment Plan, which has strengthened the community’s trust in matters of engagement.

On the other hand, Ecopetrol S.A., joined the Pact for Decent Work in the Oil and Gas sector in the Department of Casanare, which reiterates the continued commitment of the industry to ensure the development of working conditions of its workers in conditions of dignity and decency, and the prioritization of local labor and public employment service in areas with influence from the hydrocarbon sector.

³ This report does not include any figures of Ecopetrol Group’s affiliate companies in matters of environmental investment, as the information is currently being consolidated for the year 2021. Consequently, the aforesaid figures will be cumulatively reported in the 2Q21 report.

Corporate Responsibility

Ecopetrol published its 2020 Integrated Sustainable Management Report, through which the Company revealed its results in environmental, social and governance matters. This version of the report incorporates different information disclosure standards such as: the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), Stakeholder Capitalism Metrics (SCM) of the World Economic Forum (WEF) and the Task Force on Climate-related Financial Disclosures (TCFD).

The content of the Integrated Sustainable Management Report 2020 was verified by the firm BSD Consulting, in order to guarantee the correct use of the GRI standard and the involvement of stakeholders and was recognized in the Advanced COP category in the adoption of its 10 principles of the Global Pact Red Colombia.

Furthermore, we adopted and incorporated certain standards of the SASB, the SCM of the World Economic Forum, and the recommendations of the TCFD in the Integrated Sustainable Management Report and the annual report on Form 20-F, in accordance with our commitment to fully and transparently disclose information related to sustainability and climate.

Click here to access the Integrated Sustainable Management Report 2020; click here to access the SASB Report.

Corporate governance

Due to the continuity of the situation caused by the COVID-19 pandemic, for the second consecutive time, on March 26, 2021, the General Shareholders’ Meeting of Ecopetrol was held virtually, with streaming on the company’s website and the Institutional Channel. To guarantee the rights of shareholders, Ecopetrol implemented a power of attorney modality whereby all shareholders could participate and be represented by the appointment of a proxy, from independent and nationally recognized law firms. Similarly, Ecopetrol enabled virtual channels and emails for submitting proposals and interventions that were taken into account during the General Shareholders’ Meeting.

Also noteworthy is the election of Cecilia María Vélez White as a member of the Board of Directors of Ecopetrol. The General Assembly of Shareholders approved the amendment to Article 21 of the Company’s bylaws, such that from the year 2023 on, the Board of Directors will have at least one woman, considering diversity and gender criteria, under the principle of meritocracy.

Finally, at the end of 2020 and for the second consecutive year, Ecopetrol S.A. was ranked among the 10 most outstanding companies in Colombia in Corporate Governance and Responsibility in the Merco Corporate Governance and Responsibility ranking. The foregoing re-affirms that Ecopetrol’s efforts to strengthen its Corporate Governance have been fruitful and that currently it has a solid and consistent corporate governance model that establishes relationships of trust and generates value for its stakeholders.

Technology

Digital Transformation, the focus of Ecopetrol Group’s TESG strategy, continues with the deployment of strategic projects leveraged on principles of value creation, agility and open innovation. Benefits have been achieved at the end of 1Q21 in the amount of USD 12 million, mainly due to the execution of Wave 1 projects leveraged in: Digital Investments, Human Talent, Gross Refining Margin and Integrated Fields. Wave 2 progresses rapidly in 2 projects: Smart EPP and Gross Margin 2, with a robust management model that ensures early value creation. Moreover, Campo D, our agility and digital innovation vehicle, contributed with USD 1 million benefit out of the total achieved. Likewise, the Ecopetrol Group was able to specify challenges associated with the digital management of the use and exploitation of operating waters for the production of electricity within the framework of the open innovation program with Israel, and to conceptualize a digital platform for the management of emissions reduction.

With regard to our digital and safe operations, we supported the digital operation of telework and ensured the effective holding of the General Shareholders Meeting, with more than 5,000 digital interactions. In Cybersecurity and Cyberdefense, we began the design of the quantitative risk management model based on practices such as Zero Trust and Military Grade. We integrated the digital identity at the Group level and have made progress in the management of the protection of reserved information in Senior Management Committees.

V. Inorganic Growth

Non-binding offer to acquire participation of Colombia’s Ministry of Finance in ISA

On January 27, 2021, Ecopetrol submitted a non-binding offer expressing its interest in acquiring the 51.4% of the outstanding shares of ISA, currently owned by the Colombian Ministry of Finance and Public Credit. On February 12, 2021, Ecopetrol and the Ministry of Finance and Public Credit signed an exclusivity agreement through which the parties will carry out non-binding preliminary conversations on the terms and conditions of the potential transaction. Ecopetrol is carrying out a detailed due diligence of ISA, as well as the negotiation of the interadministrative contract.

On March 25, 2021, the Ecopetrol Group’s Board of Directors approved the establishment of a Special Committee that will act as a temporary mechanism to evaluate the valuation of ISA, the price range and/or the price of the potential transaction and make the necessary recommendations to the Board of Directors. The committee will be comprised of the following independent members of Ecopetrol’s Board of Directors: Carlos Gustavo Cano, Sergio Restrepo, Esteban Piedrahita, and Santiago Perdomo, who will chair the committee.

V. Presentation of Results

Ecopetrol’s management will hold two online presentations to review the first quarter of 2021 results 

Spanish  English

May the 5^th, 2021 May the 5^th, 2021

08:00 am Colombia Time 10:00 am Colombia Time

09:00 am New York Time 11:00 am New York Time

To access the webcast, the following links will be available:

Spanish:

https://onlinexperiences.com/scripts/Server.nxp?LASCmd=AI:4;F:QS!10100&ShowUUID=5D9E40E9-246F-48AA-ABBB-B3E25936794C&LangLocaleID=1034

English:

https://onlinexperiences.com/Launch/QReg/ShowUUID=A4741152-CD45-40C1-A673-832DFB1FFB25

To ask a question, you will have to access through the telephone lines specified at the top of this release.

Participants from different countries may look for different international numbers to the ones mentioned above by consulting the following link: http://web.meetme.net/r.aspx?p=12&a=UAruEfLpOQMmBM

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

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

Contact information:

Head of Capital Markets

Tatiana Uribe Benninghoff

Phone: + 571-234-5190 - Email: investors@ecopetrol.com.co

Media Engagement (Colombia)

Jorge Mauricio Téllez

Telephone: + 571-234-4329 - Email: mauricio.tellez@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

Table 4: EBITDA Reconciliation - Ecopetrol Group

Table 5: Reconciliation of EBITDA by Segment (1Q21)

Annexes, Ecopetrol S.A.

Following are the Income Statement and Statement of Financial Position of Ecopetrol S.A.

Table 6: Income Statement

Table 7: Statement of Financial Position / Balance Sheet

Table 8: Export Destinations - Ecopetrol Group

Note: The information is subject to change after the end of the quarter, as some destinations are reclassified according to the final result of exports.

Table 9: Local Purchases and Imports - Ecopetrol Group

Table 10: Exploratory Wells Detail - Ecopetrol Group

Table 11: HSE Performance (Health, Safety and Environment)

* The results of the indicators are subject to change after the end of the quarter due to the fact that some of the accidents and incidents are reclassified according to the final result of the investigations. ** Environmental incidents are those hydrocarbon spills greater than 1 barrel, with environmental impact.