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Ecopetrol reports increase in second quarter earnings

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Oilfield Technology,

Ecopetrol S.A. has announced Ecopetrol Corporate Group's financial results for the second quarter and the first half of 2015. Ecopetrol's CEO, Juan Carlos Echeverry G, released the following statement:

"Ecopetrol is disciplined with its costs adjustment programme, aimed to gain efficiencies in different areas. Thus, we have already obtained savings of COP$0.6 trillion. These savings are mainly the result of renegotiations with our contractors. We have solidified our long term relationship; our allies understand that the current circumstances call for extraordinary actions, and the mutual commitment to mitigate the effects of this scenario of low oil prices.

“The Barrancabermeja refinery is now more efficient, thanks to the operation of the new turbo gas unit, which will translate into efficiencies in the energy generation cycle and a lower emission of greenhouse effect gases of 200 000 t equivalent per year. We also improved the cost of drilling by lowering the average number of days required by well, in Castilla and Chichimene fields, from 34 days in 2014 to 28 in 2015.

“Facing a challenging oil price scenario, the company is adopting the adjustments required, based on its recently announced strategy, to continue searching for efficient and profitable barrels.

“In our transformation plan we identified 630 initiatives throughout the company, aiming at savings of COP$1.4 trillion in 2015. We are promoting ethic and transparency in our purchase and contracting processes, and investment projects.

“We continue to prioritise the lives of people and workers, the well being of the communities in which we operate and the environment. The accident frequency index in Ecopetrol was reduced by 38% between the second quarter of 2014 and the same period of 2015, from 0.77 to 0.49 accidents per million hours of labour, reflecting improved labour conditions.

“On another front, Ecopetrol was subject of an irrational wave of attacks against our transportation infrastructure in June, in some provinces located next to Venezuela and Ecuador´s borders. The company demonstrated, once again, its capacity to face the crisis by deploying 500 workers to stop the leakage in the Mira River and do all the cleaning tasks necessary to mitigate the damage caused.

“In the finance area, this quarter was better than the previous due to the growth trend shown by crude and product prices, while the exchange rate, which holds a negative correlation to these, reversed part of the trend toward devaluation shown in the first quarter. This was achieved despite the deterioration in environment conditions around June of this year, stemming from attacks on transport infrastructure, which as we have repeatedly said, not only affected operations but caused irreparable damages to the environment and surrounding communities.

“Production in the second quarter reached 768 000 boe/d, in line with the goal of 760 000 boe/d, announced for 2015, representing an increase of 5% compared to production in the second quarter of 2014. This was the result of the opening of new facilities and the new drilling campaigns in the fields Castilla and Chichimene, as well as the normal operation of Cano Limon field throughout most of the quarter.

“In exploration, drilling continued on the well Kronos, located offshore in the southern Caribbean (operated 50-50 by Anadarko in partnership with Ecopetrol), and drilling began on the well Sea Eagle in the US Gulf of Mexico (operated by Murphy, 35%; Petrovietnam, 15%; and Ecopetrol America Inc, 50%). In July, Kronos well confirmed the presence of gas in ultra deep waters. The discovery proves the geological model proposed for an unexplored area, with high hydrocarbon potential.

“The refining margin of the Barrancabermeja refinery was US$17.20/bbl in second quarter 2015, 58% more than in the same period of 2014 (US$10.9/bbl). This was the result of better prices of refined products compared to crude and the higher yield of medium distillates.

“The volume of crude transported in the second quarter of 2015 declined by 4% compared to the first quarter of this year, due to the increased number of attacks on transport infrastructure, with 2 in the first quarter and 44 in the second, 36 of these in the month of June. Compared to the second quarter of 2014, volume transported increased by 7.8%.

“In our commercial activity, in line with our strategy of diversifying the destination of our products, we exported to South Korea and the US East coast. Also, with the purpose of increasing our footprint in the Asian market, we announced our first shipment of crude to Japan, following the conclusion of negotiations with the company JX Nippon, which bought 2 million bbls of Castilla crude to supply its refining systems.

“The improved financial result in the second quarter of 2015 compared to the first quarter of 2015 is the outcome of better crude realisation prices, which increased from US$43/bbl in the first quarter to US$53/bbl in the second. Although cost of sales showed an increase of 10% compared to the first quarter, given the higher costs of maintenance, purchases and product imports, when compared to the same period of 2014 we had a reduction of 11%, reflecting the cost optimisation strategies that are gradually beginning to materialise. In line with this, we achieved a US$2.32/bbl reduction of our lifting cost, as a result of optimisations, between the second quarter of 2015 and the same period of 2014.

“Our operating expenditures continued under control. Although in the first quarter of 2015 we recorded the applicable wealth tax for year 2015, in the second quarter of 2015 financial expenses were also reduced due to a lower impact of the exchange rate difference.

“Thus, in the second quarter of 2015, the Corporate Group's net revenue, attributable to Ecopetrol shareholders, was COP$1.5 trillion pesos, compared to COP$0.16 trillion in the first quarter of 2015 and COP$2.6 trillion in the second quarter of 2014.

“On another note, this past 26 May, we announced to the market our new 2015 - 2020 strategy, aimed at profitable growth in exploration and production and maximisation of efficiencies in transport and refining. The strategy prioritises value over volume, with emphasis on financial discipline, streamlining investments and divestment of non-strategic assets. The plan also foresees profound transformations within the organisation, both in the business segments as well as in project management, technology, environment relations and investment portfolio management.

“One month after launching our strategy, we successfully placed bonds in the international market for US$1,5 billion, with an 11 year term and 3 times oversubscribed. The issue demonstrated, once again, the appetite and confidence of institutional investors in our company.

“Also during the quarter, the risk rating agencies Fitch Ratings, Standard & Poor's Ratings Services and Moody's Investors Service, confirmed Ecopetrol's ratings of BBB, BBB and Baa2, respectively, all with stable outlook, providing us the support needed to continue with our strategic plans as an investment grade issuer in the international capital market.

“We remain focused on generating value for our stakeholders and we work every day to generate clean, profitable barrels."

Adapted from press release by Rosalie Starling

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