Ecopetrol (EC) Q2 2025 Earnings Call Transcript

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DATE
Wednesday, August 13, 2025 at 10:00 a.m. ET
CALL PARTICIPANTS
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Chief Executive Officer — Ricardo Roa Barragan
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Executive Vice President, Transition Energies — Bayron Triana Arias
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Chief Financial Officer — Alfonso Camilo Barco Munoz
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Acting Vice President, Hydrocarbons — Juan Carlos Hurtado Parra
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Vice President, New Businesses — Julián Fernando Lemos Valero
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Vice President, Hydrocarbons (Acting), Upstream — Rafael Ernesto Guzmán Ayala
Full Conference Call Transcript
Ricardo Roa Barragan: Welcome to Ecopetrol Group's Second Quarter of 2025 Earnings Call. During the quarter, we maintained solid operations with improvements in upstream recovery in downstream and resilient results in the midstream segment, despite a challenging environment marked by high volatility and declining crude prices due to geopolitical tensions and third-party disruptions to the transportation system infrastructure. We reached a semester production of 751,000 barrels of oil equivalent per day. We reached a semester production of 751,000 barrels of oil equivalent per day, the highest level in a decade.
This was driven by field in Colombia such as Caño Sur and CPO-09, which contributed to the highest national crude production in 4 years as well as a strong performance in the Permian Basin in the United States. We declared the commercial viability of the Lorito discovery in Meta, the most significant in the past 10 years following the recent acquisition of 45% of the CPO-09 block. Additionally, we began drilling the Papayuela well in the Caribbean offshore aimed at expanding the country's gas potential. In the midstream, volumes exceed 1 million barrels per day, supported by operational solutions that mitigate the impact of external events.
We highlight the expansion of the Pozos Colorados terminal, including the completion of the country's largest tank with a capacity of 320,000 barrels and the unloading capacity increased to 550,000 barrels, enabling the reception of largest vessels. In downstream, we reached 405,000 barrels per day in throughput with full operational recovery after completing major maintenance activities. We expect to capitalize on this with improved margins in the second half of the year. In the gas segment, we completed the first long-term commercialization of important natural gas in Colombia, securing national supply through 5 years contracts. Finally, we signed the agreement to acquire Windpeshi, Ecopetrol's first wind project developed by our own located in La Guajira.
This is a key step toward advancing decarbonization and reducing energy cost in our operations. In summary, Ecopetrol's operations have adapted swiftly to the environment, maintaining the positive trend seen in recent quarters. Let's move on to the next slide, please. The solid operational progress during the quarter was partially offset by the decline of the crude price. Brent fell by 22% compared to the second quarter of 2024, impacting both revenue and profits. On the commercial front, we achieved the best quarterly crude differential in the past 4 years, thanks to a diversified basket and an active marketing strategy that allow us to capture value even in a low price environment.
We achieved efficiencies totaling COP 2.2 trillion, exceeding the semester's target by 27%, helping to mitigate the impact of lower prices. In terms of investments, we have committed our USD 2.5 billion so far this year, aligned with our long-term strategy. It is worth noting that we are maintaining our production target for 2025. During the quarter, we completed the full payment of dividends to our shareholders, delivering a 10% return, reaffirm our commitment to generating value and competitive returns. Regarding our optimization plan announced last quarter, we have made 80% progress in reducing costs and expenses, strengthening our financial and cash position for the year.
In conclusion, this was a quarter marked by strong operations underpinned by competitive commercial decisions and by efficiencies that support the group's financial performance. Let's move on to the next slide, please. We continue to make steady progress on our TESG agenda. We expect to exceed the goal of 900 megawatts in renewable energy for sale generation by 2025, thanks to acquisition made during the quarter, which will be detailed later in the presentation. In the decarbonization, we continue to surpass our greenhouse gas emission reduction target with a reduction of 242,000 tons of CO2 equivalent comparable to average annual energy consumption emission of 190,000 households.
On the social front, through the Liu of Taxes mechanisms, we completed 6 initiatives representing an investment of COP 43 billion, benefiting approximately [ 350,000 ] people across various regions of the country. Additionally, we allocated more than COP 180 billion to our sustainable territorial development portfolio, which includes social, environmental and community engagement investments. In water resource management, we use over 44 million cubic meters of it in our direct operations. This is equivalent to nearly twice the annual domestic consumption of approximately 500,000 residents of the entire Casanare department. In job creation, we facilitate over 66,000 labor engagements in the first semester through our contractor companies, reaffirming our commitment to economic development in the regions where we operate.
With these achievements, we continue to strengthen our contribution to regional well-being and the country's sustainable development. I now hand over to Rafael Guzmán, who will present the results of the Hydrocarbons business line.
Rafael Ernesto Guzmán Ayala: Thank you, Ricardo. During the first half of 2025, we achieved significant progress in the upstream segment, driving forward key discoveries towards their development phase to highlight the following milestones: the commerciality declaration of the Lorito discovery in June to be covered in more detail in the next slide; the recognition by the Brazilian National Agency of Petroleum and Biofuels of the commerciality declaration for the development areas of Gato do Mato, now named Orca and South Orca on May 20, 2025. This fulfill a key milestone, enabling the start of proven reserves incorporation in 2025. In parallel, detail engineering began for the floating production unit and processing facilities, along with safety analysis and the consolidation of project teams.
The serious project progress towards its development phase. Work is currently underway on the contract model for the design, construction and operation of the necessary service facilities for gas treatment. Moreover, ethnic, social and environmental feasibility activities are being carried out after obtaining the program certificate for the beach crossing granted by the National Authority for prior consultation regarding the Southern Caribbean offshore assets on June 9, 2025, we submitted a request to the ANH to assign Shell's 50% interest in the block in favor of Ecopetrol. We continue advancing on the evaluation of alternatives for executing the development.
By the end of this semester, 6 out of 10 planned exploratory wells had been drilled with $156 million of investment already executed. This include the exploratory success of the Currucutu-1 well operated by GeoPark in partnership with Hocol in block Llanos-123. This well is located in the same Eastern Llanos Basin as the Toritos discovery, which reduces technical uncertainty in the block and expands its production potential to the north. The exploration campaign in block GUAOFF-0 continued with the drilling of Buena Suerte-1 well, such well did not show commercial hydrocarbon accumulation. However, the well provided valuable geological insight into play different from the one of Sirius. With additional prospectivity to be matured based on the data obtained.
Drilling began in Papayuela-1 well targeting a play similar to that of Sirius. Let's move on to the next slide. The declaration of commerciality for the Lorito discovery located in the municipality of Guamal, Meta marks the combination of successful exploration process and reflects the strategic value of acquiring the 45% interest in block CPO-09 from Repsol. It represents the most significant discovery in terms of resource potential over the past decade with approximately 250 million barrels of oil in recoverable resources, including 109 million-barrel classified as certified contingent resources.
This commercial milestone enables the development of 13,584 acres of area a size comparable to the Chichimene field and incorporates into production 2 wells, Tejón-1 and Guamal Profundo-1 located near the Akacias field with a combined production potential of 1,450 barrels per day. As shown on the map, its proximity to existing production and transportation infrastructure as well as the potential continuity of the reservoir nearby fields such as Akacias and Chichimene facilitates commercial production technical deviation and enables capturing of operational synergies. The development plan will be submitted to the ANH in the fourth quarter of the year. This plan will include the proposed activities, licensing requirements and necessary investment for the future progression reserves.
Let's move on to the next slide. During the first half of 2025, we reached total production of 751,000 barrels of oil equivalent per day, the highest level recording since 2015, driven by the following factors, the contribution from domestic crude oil production that reached 57,000 barrels of oil per day, the highest level since 2021, driven primarily by which added 10,000 barrels per day compared to the same period last year and the acquisition of 45% interest in block CPO-09, which contributed an additional 11,000 barrels per day.
Second, the drilling campaign in the Permian Basin reached a production of 106,000 barrels of oil equivalent per day for the semester, an increase of 14,000 barrels copper to the same period last year. This result reflects the optimization of completion designs and efficiency in bringing new wells online and an accelerated schedule, enabled by operational efficiencies in drilling and completions. As shown in the top right graph, in June, we were able to recover natural crude oil production that had been affected by external events and related to the operations mainly concentrated in April. This recovery was possible thanks to our experience in effective [ incident ] management and minimization of operational disruptions.
During the semester, $1.4 billion were invested highlighting the expansion of water treatment capacity in Rubiales and Caño Sur, and the gradual commissioning of crude treatment capacity at the Orotoy Station, which by July had increased to 35,000 barrels. These facilities enable the operational continuity of the fields and supported production growth. Additionally, we executed 180 workovers, a 59% increase over the same period last year and 220 development wells reaching levels close to those of 2024. As part of the efficiency strategy and investment prioritization based on Brent price, total projected investment is $3.6 billion for production and $400 million for exploration for a total of $4 billion in the upstream segment.
This optimization do not impact reserve incorporation or production levels, we maintain our established target of 740,000 to 750,000 barrels of oil equivalent per day for 2025. Let's move on to the next slide, please. The midstream segment delivered solid financial results with a 9% increase in EBITDA in the first half of the year compared to the same period in 2024. This demonstrates the operation's resilience in a challenging environment. In volumetric terms, transported volumes decreased by 6% compared to the second quarter of 2024 and by 4% compared to the first half of the previous year. As shown in the top left graph.
This was mainly due to an increase in external events such as blockades, attacks on transportation infrastructure, hydrocarbons theft and lower crude oil production from third parties in the country. Additionally, the scheduled maintenance at the Barrancabermeja refinery impacted volumes of both crude and refined products. In response to the third-party impact on transportation infrastructure, we have implemented strategies such as the stronger operational control, leveraging technology for rapid detection repair and evacuation at affected points.
These efforts were coordinated with government agencies and included the implementation of alternative evacuation routes enabling transportation of more than 7 million barrels from the Llanos north fields, near the [indiscernible] old the pipeline and the segregation of this crude from the Barrancabermeja refinery preserve its quality and properties. At the same time, the segment made decisive progress that enhance the resilience of the midstream systems with some milestones as follow. In refined products, a highlight includes storage expansion at the Pozos Colorados terminal, reaching 1.5 million barrels of storage capacity and the capacity to receive refined per vessels of up to 550,000 barrels. In crude oil pipeline capacity was increased in several systems.
The Vasconia [indiscernible] was capacity was increased by 7%, enabling greater availability of domestic crude oil to the refinery. The Araguaney, Cusiana evacuation capacity was increased from 50,000 to 80,000 barrels per day, allowing faster inventory reduction from [indiscernible] fields and lowering risk of production deferrals. The sterilized operation of the Caño Sur pipeline with evacuation flows exceeding 50,000 barrels per day, which helped mitigate production deferrals and capture savings of COP 77 billion. This set of achievements demonstrate how in actual in context, the segment continues to execute a strategic project that reinforce the capacity and efficiency of Colombia's hydrocarbon transportation system. Let's move to the next slide.
In the second quarter of 2025, the downstream segment showed a recovery in its financial results with a 53% increase in EBITDA compared to the same period in 2024. This was supported by an improvement in operational availability, which reached 95.8%, up from 91.2% in the first quarter of 2025. These results reflect continuous improvement in performance and operational stability at the refineries, driven by progress in the major maintenance cycle with 8 out of 10 scheduled works completed, including those of Cracking UOPII, Polyethylene 1 and Prime G units.
As a result, consolidated throughput reached 413,000 barrels per day in the second quarter of the year, showing a 4% recovery compared to the first quarter of 2025, as shown in the top left graph. On a semester basis, the throughput reflected the impact of increased maintenance activity in the first quarter, showing a 5% decrease versus the same period of the previous year. In terms of