(*) Eel:
each and every loss. Agg: Aggregate
(**) USD250M
but USD400M Maximum Loss limit and in the aggregate in respect of earthquakes.
(****)
0.25, except for Drilling/Workover wells for which the deductible is 0.5.
(*) Eel:
each and every loss. Agg: Aggregate
Our third-party liability insurance policies
cover Ecopetrol S.A., our subsidiaries and affiliates in excess of local underlying policy limits for claims made against them
by third parties. Our commercial general liability coverage will pay on behalf of or indemnify amounts for which an insured becomes
legally obligated to pay, including damages in respect of bodily injury, property, pollution and product liability. Coverage of
bodily injury and property damage is subject to coverage territory during the policy period.
Until last year, this Group included coverages
for midstream (assets and operations). However, since second semester 2017 Ecopetrol’s midstream subsidiaries (Cenit, Ocensa,
ODL, Bicentenario and ODC) started an independent program looking for the optimization of coverages for the Oil Transportation.
*Each
company has its own limit of 200M and an aggregated excess shared limit of 500m
With respect to offshore operations in
the U.S. Gulf Coast, Ecopetrol America Inc. is party to Operating Agreements, or OAS, that include customary conditions and which
contain similar terms and provisions to those in the Model Form of Offshore Deepwater Operating Agreement of the American Association
of Professional Landmen. In general, pursuant to these OAs, the obligations, duties, and liabilities of the contract parties are
several, and not joint or collective, for all operations covered by the OAs.
Ecopetrol S.A. has a contract with two
local insurance companies for domestic operations. The local policies relate to transit, accidents, mandatory policies, liability
mandatory policies, and personal accidents policies, among others. Additional policies are requested from the insurers as they
are needed.
As of December 31, 2017, the Ecopetrol
Corporate Group had 11,682 employees, an increase of 7.0% from 2016. Most of our employees are located in Colombia. The table below
presents the breakdown of Ecopetrol employees according to the business segments where they work, and the personnel of our subsidiaries
for the years ended December 31, 2017, 2016 and 2015.
To improve the quality of life of our employees,
Ecopetrol S.A. extends various types of loans to its employees, including housing loans and general-purpose loans. The principal
amount of the loan depends on the applicant’s tenure. Ecopetrol S.A. does not guarantee any loans made by third parties.
In 2017, Ecopetrol S.A. extended 1,201 housing loans for a total of COP$219.44 billion and 1,794 general-purpose loans for a total
of COP$14.86 billion. Ecopetrol S.A. also provided on-site and external training and development, which total to COP$21.1 billion,
and it extended a total of COP$182.6 billion in subsidies for education.
We have not provided loans (including housing
loans), extended or maintained credit lines, arranged for the extension of credit by third parties, materially modified or renewed
an extension of credit lines, in the form of a personal loan to or for any of our executive officers since our ADSs were registered
under the Exchange Act.
In accordance with article 123 of the Colombian
Constitution and the article 7th of the Law 1118 of 2006, our employees are considered “public servants”; even though
they are subject to the common labor law. As such, their behavior is subject to the rules to those who handle public interests
and goods and could be held liable for their illegal actions and omissions pursuant to the following regimes: (i) disciplinary
(Law 734 of 2002), (ii) criminal or (iii) civil.
A collective bargaining agreement between
us and our main labor unions governs labor relations with our unionized employees, which amounted to 4,609 employees as of January
1, 2018. The agreement also governs our labor relations with the 2,593 non-unionized employees who, according to current labor
legislation, have been beneficiaries of the collective bargaining agreement.
We currently have seven industry-wide labor
unions and seven company labor unions:
Any employee working for any company in
the oil and gas industry may join the USO, ADECO SINDISPETROL, UTEN, ASTIP, SINATRINHI or SINTRAMANPETROL. Only our employees may
join the company labor unions.
Ecopetrol S.A. relations with unions are
based on a permanent dialogue and communication sessions where different matters are discussed in order to solve and prevent any
labor conflict.
Our current collective bargaining agreement
has been in effect since 2014 and has a term of four years, expiring on June 30, 2018. In 2016, the agreement was reviewed on application
matters, except for monetary expenses (including wages and benefits). This review ended with a mutual arrangement document, signed
on December 10, 2016.
There will be no changes to these terms
until June 2018 or till the end of the eventual negotiation process. This agreement currently covers all workers benefiting from
the Collective Labor Convention, regardless of whether they are part of any labor union.
Our consolidated financial statements for
the years ended December 31, 2015, 2016 and 2017 were prepared in accordance with IFRS.
IFRS differs in certain significant aspects
from the current Colombian IFRS (which is the accounting standard we use for local statutory reporting purposes). As a result,
our financial information presented under IFRS is not directly comparable to certain of our financial information presented under
Colombian IFRS. A description of the differences between Colombian IFRS and IFRS is presented under
Summary of Differences between
Internal Reporting (Colombian IFRS and IFRS)
below.
Our consolidated financial statements were
consolidated line by line and all transactions and significant balances between affiliates have been eliminated. These financial
statements include the financial results of all subsidiaries companies controlled, directly or indirectly, by Ecopetrol S.A. See
Exhibit 1—Consolidated companies, associates and joint ventures, to our consolidated financial statements included in this
annual report.
Our operating results were affected mainly
by international prices of crude oil and, to a somewhat lesser extent, international prices for refined products and local prices
for natural gas, as well as sales volumes, product mix, exchange rate and our operational performance. Crude oil prices and volumes
are particularly important to the results of our exploration and production segment. This is because as export volumes or export
prices of crude oil and products decrease or increase, our revenues do also. Results from our refining activities are also affected
by the price of crude oil used as raw material, changes in product prices in the international market, change in environmental
regulations, conversion ratios and utilization rates and refining capacity, all of which affect our refining margins. Changes in
the value of foreign currencies, particularly the U.S. dollar against the Colombian Peso, can also have a significant effect on
our financial statements. Finally, terrorist attacks by guerillas against our pipelines and other facilities or social unrest can
lead to loss of revenues by restricting the availability of transport systems for exports or sales of crude oil and products and/or
production activities, in addition to the direct costs of repairing and cleaning.
Our results from the exploration and production
segment depend mainly on our sales volumes and average local and international prices for crude oil, petrochemicals and natural
gas. Additionally, sales volumes also reflect the purchase of crude oil and natural gas that we make from third parties and the
ANH.
We sell crude oil and natural gas in the
local and the international market. We also process crude oil at the Barrancabermeja and Cartagena refineries and sell refined
and other petrochemical products in the local and international markets.
We have a number of crude oil short-term
commercial agreements with local customers, and natural gas short and long-term supply contracts with gas-fired power plants and
local natural gas distribution companies. Local sale prices are determined in accordance with existing regulations, contractual
arrangements and the spot market linked to international benchmarks. Local sales represent 50.4% of our total revenues, on average,
for the past three years.
Our foreign sales represented 49.6% of
our total revenues, on average, for the past three years.
International sale prices are determined
in accordance with contractual arrangements and the spot market linked to international benchmarks primarily ICE Brent benchmark.
A market diversification strategy has allowed
us to capture markets where we have been able to obtain higher prices for our crudes and refined products. We sell our crudes and
refined products in various regions, such as the U.S., Central America and the Caribbean, Asia and Europe. In our negotiations
with potential customers, we seek to use the most liquid benchmark reference prices in each region.
We account for exploratory drilling costs
using the successful efforts method, whereby all costs associated with the exploration and drilling of productive wells are initially
capitalized. Costs incurred in exploring and drilling dry or unsuccessful wells are expensed in the period in which the well is
determined to be a dry or unsuccessful well and are accounted for under “Exploration and Project expenses.” Consequently,
an increase in the number of exploratory wells we declare as dry or unsuccessful will negatively affect our results and may cause
volatility in our operating expenses.
Each of our production contracts has its
own royalty arrangement in accordance with applicable law. Law 141 of 1994 established a royalty fixed rate equivalent to 20% of
total production. In 1999, a modification to the royalty system established a sliding scale for royalty percentage linked to the
production level of crude oil and natural gas to fields discovered after July 29, 1999, depending on whether the production
is crude oil or natural gas, and on the quality of the crude oil produced. Since 2002, as a result of the enactment of Law 756
of 2002, the royalty percentage has ranged from 8% for fields producing up to five thousand bpd to 25% for fields producing an
excess of 600 thousand bpd. Producing fields pay royalties in accordance with the applicable royalty rate at the time of the
discovery. Also, Law 756 of 2002 establishes that in the fields of the association contracts that finalize or revert back, an additional
royalty rate of 12% of the basic production applies.
Since January 2014, the ANH has collected
natural gas production royalties from producers settled in cash based on a formula, regardless of whether a producer has sold the
gas. As a result, we no longer commercialize this gas on behalf of the ANH. In addition, because the royalties are now payable
to the ANH in cash, all the gas we produce is considered part of our reserves and production, without any deduction for royalties.
The cost of natural gas royalties totaled COP$449,959 million in 2017.
We purchase all crude oil delivered to
the ANH as royalties by us and by third parties. The purchase price is calculated according to a formula set forth in a contract
between Ecopetrol and the ANH that reflects our export sales prices (crudes and products), a quality adjustment for API gravity
and sulfur content, transportation rates from the wellhead to the Coveñas or Tumaco ports and a marketing fee. We sell the
physical product purchased from the ANH as part of our ordinary business. In June 2016, the contract between the ANH and us was
extended until June 30, 2018.
Since 2016, we have imported crude oil
for Reficar feedstock when such imports result in better operational or economic performance of the Ecopetrol Group.
In December 2016, the Colombian Congress
adopted Law 1819, which introduced changes to the Colombian tax system as follows:
The 2016 Tax Reform included two tax benefits
that are expected to improve the operations of the oil and gas industry:
The functional currency of each of the
companies of Ecopetrol Group is determined in relation to the main economic environment where each company operates; however our
consolidated financial results are reported in Colombian Pesos, which is the Ecopetrol Group’s functional and presentation
currency. A substantial part of our consolidated revenues coming from Ecopetrol Group companies whose functional currency is the
Colombian Peso, the U.S. dollar-Colombian Peso is derived from local sales and exports of crude oil, natural gas and refined products
sold at prices referenced to benchmarks quoted in U.S. dollars. Therefore, they are exposed to foreign currency exchange risk on
revenues, capital expenditures and financial instruments that are denominated in a currency other than its functional currency.
Fluctuations in the U.S. dollar-Colombian
Peso exchange rate have effects on our consolidated financial statements. As crude oil is priced in U.S. dollars, fluctuations
in the exchange rate of the Colombian Peso against the U.S. dollar may have a significant impact on revenues, cost, assets and
liabilities held in foreign currency.
An appreciation of the Colombian Peso has
a negative impact on our results of operations because our revenues from exports of crude oil, natural gas and refined products
are primarily expressed in U.S. Dollars. Costs of imported goods and contracted services expressed in U.S. dollars will also be
lower when expressed in Colombian Pesos, but on balance, our operating income in Colombian Pesos tends to decline when the Colombian
Peso appreciates, other factors being equal. The appreciation of the Colombian peso against the U.S. dollar also decreases the
debt service requirements of our Companies with the Colombian peso as their functional currency, as the amount of the Colombian
pesos necessary to pay principal and interest on foreign currency debt decreases with the appreciation of the Colombian peso.
Conversely, when the Colombian Peso depreciates
against the U.S. dollar, our reported revenues, costs related to imported goods and services, interest costs, and operating income,
all tend to increase.
During 2017, the Colombian peso appreciated
on average 3.35% against the U.S. dollar. In 2016 and 2015, the Colombian Peso depreciated on average 11.18%, and 37.28%, respectively,
against the U.S. dollar. Additionally, as of December 31, 2017 and December 31, 2016 the Colombian Peso/U.S. dollar exchange rate
appreciated 0.56% and 4.72%, respectively from the rate a year earlier. As of December 31, 2015, in contrast, the Colombian Peso
depreciated 31.64%, from the rate a year earlier.
In 2017, our consolidated debt in foreign
currency decreased by a total of US$2,582 million mainly as a result of prepayments of foreign currency denominated loans of US$2,400
million and amortization of foreign currency capital expenditures. In 2016, our consolidated debt in foreign currency increased
by a total of US$975 million as Ecopetrol S.A. raised US$475 million through international loans and US$500 million through an
international bond issuance. In 2015, our consolidated debt in foreign currency increased by a total of US$3,425 million as Ecopetrol
S.A. raised US$1,925 million through an international loan and US$1,500 million through an international bond issuance.
As of December 31, 2017 our U.S. dollar
denominated total debt was US$12,590 million, which we recognize in our financial statements at its amortized cost, which corresponds
to the present value of cash flows, discounted at the effective interest rate. Out of this total, US$11,985 million relates to
Ecopetrol S.A., whose functional currency is the Colombian Peso. Therefore, when the Colombian Peso depreciates against the U.S.
dollar, Ecopetrol S.A. is exposed to an exchange rate loss. In contrast, when the Colombian Peso appreciates against the U.S. dollar,
Ecopetrol S.A. has an exchange rate gain. Some of the Ecopetrol Group companies have the U.S. dollar as their functional currency
and are not exposed to a material exchange rate risk resulting from fluctuations in the Colombian Peso against the U.S. dollar.
On the asset side, when the financial statements of the Group are consolidated, the exchange rate differential of the subsidiaries’
assets and liabilities whose functional currency is the U.S. dollar is recognized directly in equity, as part of Other comprehensive
income.
In 2015, Ecopetrol S.A. adopted hedge accounting,
using two types of natural hedges with its U.S. dollar debt as a financial instrument: i) a cash flow hedge for exports of crude
oil and ii) a hedge of the net investment in foreign operations. As a result of the implementation of both hedges 71.2% ($8,532
million) of Ecopetrol S.A.’s debt in U.S. dollars, as of December 31, 2017, was designated as a hedge. With the adoption
of hedge accounting, the effect of the volatility of the foreign exchange rate on the hedged portion of the debt is recognized
directly in equity, as part of Other comprehensive income.
The remaining portion of Ecopetrol S.A.’s
U.S. dollar-denominated debt, as well as the financial assets and liabilities denominated in foreign currency, continues to be
exposed to the fluctuation in the exchange rate, which means that an appreciation of the Colombian peso against the U.S. dollar
could generate a loss for companies whose functional currency is the Colombian peso that have a net position in U.S. dollars or
a gain if they have a net liability position in U.S. dollars. Conversely, a depreciation of the Colombian peso against the U.S.
dollar could generate a gain for companies whose functional currency is the Colombian peso that have a net position in U.S. dollars
or a loss if they have a net liability position in U.S. dollars.
As of December 31, 2017, Ecopetrol Group
companies with the Colombian peso as their functional currency have a net U.S. dollar position close to zero after the implementation
of the natural hedging previously mentioned above, neutralizing the effect of exchange rate fluctuations in their results for the
year. The companies with the U.S. dollar as their functional currency have a net U.S. dollar position of US$1,699 million and are
not exposed to a material exchange rate risk resulting from fluctuations in the Colombian peso against the U.S. dollar, as discussed
above.
The average annual rate of inflation in
Colombia for the past ten years is 4.3%. It decreased in 2017 as compared to 2016. As measured by the general consumer price index,
average annual inflation in Colombia for the years ended December 31, 2017, 2016 and 2015 was 4.09%, 5.75%, and 6.77%, respectively.
The decrease in inflation in 2017 is mainly explained by the recovery of the agricultural sector given the end of the “El
Niño” weather phenomenon and the nonoccurrence of agricultural and freight transport stoppages that occurred in 2016.
The decrease in inflation is also related to the weakness of consumer demand and the monetary policy applied by the central bank.
Cost inflation in the prices of goods, raw materials, interest cost of debt in local currency indexed to inflation and services
for operation of oil and gas producing assets can vary over time and between each market segment.
The average price of ICE Brent crude was
US$54.7 per barrel in 2017 as compared to US$45.10 per barrel in 2016 and US$53.60 per barrel in 2015. (
See section Strategy
and Market Overview
). In addition, Ecopetrol’s average crude oil basket price relative to ICE Brent reported a discount
of US$6.90 in 2017, a lower discount than the US$9.40 and US$9.70 observed in 2016 and 2015, respectively, due to an active commercial
strategy, including seeking more valuable markets for our crude oil, and strengthening the demand for our heavy crude oil in the
international market. Therefore, our average price crude oil basket was US$47.80 per barrel in 2017 as compared to US$35.70 per
barrel in 2016 and US$43.90 per barrel in 2015, which represents an increase of US$12.10 per barrel in 2017 compared to 2016.
Additionally, fluctuations in the price
of oil had an impact on the value of our oil and gas reserves. Reserves valuation is made in accordance with SEC price regulations.
Volatility in hydrocarbon prices, refining margins and reserves, as well as changes in environmental regulations may lead to the
recognition of impairment or recovery of assets.
In 2015, the adverse economic context faced
by the hydrocarbons sector resulted in a reduction in forecasted oil prices and an increase in market and country risk reflected
in the discount rate, as well as a reduction in the recoverable reserves amount and refining margin, among other factors, Ecopetrol
recognized an impairment of non-current assets of COP$7,864,875 million before taxes.
In 2016, in connection with our evaluation
of the recoverable amount of the assets value, which includes the variation in estimations of future prices under the current scenarios
of OPEC’s oil quota agreements and the impact resulting from changes on specifications issued by the International Marine
Organization agreement regarding marine pollution -Marpol- on crude and fuels with high sulfur content, Ecopetrol recognized an
impairment of non-current assets of COP$928,747 million before taxes.
In 2017, Ecopetrol had a COP$1,311,138
million net reversal of prior year impairments primarily as a result an improved hydrocarbon prices outlook, incorporation of new
reserves. Ecopetrol’s crude an improved oil basket price discount as compared to the ICE Brent crude oil price, favorable
refining margins outlook and technical operational capacity, among other factors.
For additional information about impairment
charges and reversals, see section
Operating Results—Consolidated Results of Operations—Impairment of non-current
assets
and Note 18 to our consolidated financial statements.
Our consolidated financial statements for
the years ended December 31, 2015, 2016 and 2017 were prepared in accordance with IFRS. The detail of the accounting policies
is described in Note 4 to our consolidated financial statements.
Critical accounting policies are those
policies that require us to exercise judgment or involve a higher degree of complexity in the application of the accounting policies
that currently affect our financial condition and results of operations. The accounting judgments and estimates we make in these
contexts require us to calculate variables and make assumptions about matters that are highly uncertain. In each case, if we had
made other estimates, or if changes in the estimates occur from period to period, our financial condition and results of operations
could be materially affected.
See Note 3 to our consolidated financial
statements for a summary of the critical accounting judgments and estimates applicable to us. There are many other areas in which
we use estimates about uncertain matters, but we believe the reasonably likely effect of changed or different estimates would not
be material to our financial presentation.
The following discussion is based on information
contained in our audited consolidated financial statements and should be read in conjunction therewith.
The following table sets forth components
of our income statement for the years ended December 31, 2017, 2016 and 2015.
The following table sets forth our principal
sources of third-party revenues by business segment for the years ended December 31, 2017, 2016 and 2015. An explanation of
how we classify our operations into business segments is included in Section 4.5.2 below.
In 2017, total revenues increased by 15.4%
as compared to 2016, primarily as a result of a COP$$10,971,709 million increase in revenues mainly due to the 33.9%, or US$12.1
per barrel increase of our average crude oil basket price and a smaller discount of Ecopetrol’s average crude oil basket
price from international prices. This increase was partially offset by: (i) a COP$$1,894,819 million decrease in revenues attributable
to the decrease in our sales volume and a COP$261,200 decrease in services provided by our transportations and logistics segment
and (ii) the 3.35% appreciation of the Colombian Peso against the U.S. dollar, from an average exchange rate of COP$3,053.42/US$1.00
in 2016 to an average exchange rate of COP$$2,951.15 /US$1.00 in 2017, resulting in a decrease in sales revenue from exports, which
represented a decrease of COP$1,347,023 million.
The decrease of our sales volume in 2017
as compared to 2016 was the result of (i) the 3.7%, or 6 mbe, decrease in our crude sales volume caused mainly by lower crude exports
due to a greater allocation of domestic crudes to supply Reficar in order to replace imports, (ii) the 6.7%, or 10.7 mbe, decrease
in refined products volumes due to lower exports of diesel, primarily due to: (a) our commercial strategy of focusing on allocating
higher volumes to the domestic market to supply local demand and replace imports which resulted in lower cost of sales and better
gross margin, (b) lower exports of fuel oil, and (c) a decrease in production at the Barrancabermeja refinery as a result of reliance
on more efficient alternative sources, and (iii) the 3%, or 0.86 mbe, decrease in natural gas sales volume due to continued lower
thermal demand as a result of no effect of the “El Niño” weather phenomenon that ended in the middle of 2016.
In 2016, total revenues decreased by 7.4%
as compared to 2015, primarily as a result of: (i) a COP$6,456,917 million decrease in revenues mainly due to the 18.6%, or US$8.2
per barrel reduction of our average crude oil basket price, (ii) a COP$1,572,854 million decrease in revenues attributable to the
decrease in our sales volume and lower services provided by our transportations and logistics segment. This decrease
was partially offset by the 11.2% devaluation of the Colombian Peso against the U.S. dollar, from an average exchange rate of COP$2,746.47/US$1.00
in 2015 to an average exchange rate of COP$3,053.42/US$1.00 in 2016, resulting in an increase in sales revenue from exports,
which represented an increase of COP$4,168,061 million.
The decrease of our sales volume
in 2016 as compared to 2015 was the result of (i) the 18.1%, or 36.4 mbe, decrease in our crude sales volume caused mainly
by lower crude exports due to production decline, reduced purchases by third parties and lower availability of crude due to its
use for feedstock at Reficar, and (ii) the 15.6%, or 5.3 mbe, decrease in natural gas sales volume due to lower thermal
demand as a result of the end of the “El Niño” weather phenomenon and the termination of our sales contract
to Venezuela on June 30, 2015. This decrease in sales volume was partially offset by the 20.2%, or 26.8 mbe, increase
in sales of refined products given the increase of operations at Reficar and higher demand due to the growth in the number
of motor vehicles in Colombia.
Our cost of sales was principally affected
by the factors described below. See Note 26 to our consolidated financial statements for more detail.
Cost of sales in 2017 was COP$36,908,325
million, representing a COP$2,656,902 million or 7.8% increase as compared to 2016, primarily as a result of the following factors:
The factors mentioned
above were partially offset by a COP$231,222 million increase in inventories and an increase in unit costs associated with the
increase of the Brent price of crude oils and products.
Cost of sales in 2016 was COP$34,251,423
million, representing a COP$2,743,093 million or 7.4% decrease as compared to 2015, primarily as a result of the following factors:
The factors mentioned above were partially
offset by a (i) COP$784,266 million increase in the amortization, depletion and depreciation of property, plant and equipment in
connection with the start-up of the Reficar units and capitalization of major maintenance costs at the Barrancabermeja refinery
and (ii) a COP$70,515 million decrease in other minor items.
Operating expenses and selling, general and
administrative expenses before taking into account the impairment of non-current assets, amounted to COP$4,185,186 million in 2017,
a COP$215,657 million or 4.9% decrease as compared to 2016, mainly as a result of the following factors (see Notes 27 and 28 to
our consolidated financial statements for more detail).
Operating expenses and selling, general and
administrative expenses before taking into account the impairment of non-current assets, amounted to COP$4,400,843 million in 2016,
a COP$ 955,872 million (17.8%) decrease as compared to 2015, mainly as a result of the following factors (see Notes 27 and 28 to
our consolidated financial statements for more detail).
Each of our operating segments bears the
costs and expenses incurred for product use and marketing and each segment assumes administrative expenses and all non-operational
transactions related to its activity. Discussion of operating expenses by business segment is included in the section
Financial
Review—Operating Results—Consolidated Results of Operations—Segment Performance and Analysis
.
The impairment of our non-current assets includes
expenses (or recovery) of impairment of property, plant and equipment and natural resources, investments in companies, goodwill
and other non-current assets. The Company is exposed to future risks derived mainly from variations in: (i) oil prices outlook,
(ii) refining margins and profitability, (iii) cost profile, (iv) investment and maintenance expenses, (v) amount of recoverable
reserves, (vi) market and country risk assessments reflected in the discount rate, and (vii) changes in domestic and international
regulations, among others.
Any change in the foregoing variables used
to calculate the recoverable amount of a non-current asset can have a material effect on the recognition of either losses or recovery
of impairment charges in the profit or loss statement. In our business segments highly sensitive variables can include among others:
(i) in the exploration and production segment, variations of the hydrocarbon prices outlook; (ii) in the refining segment, changes
in product and crude oil prices, discount rate, refining margins, changes in environmental regulations, cost structure and the
level of capital expenditures; (iii) in the transportation and logistics segment, changes in tariffs regulation and volumes transported.
(See Notes 3.2, 4.12 and 18 to our consolidated financial statements for more detail).
In 2017, we had a COP$1,311,138 million net
reversal of impairment of non-current assets, as compared to impairment losses of COP$928,747 million in 2016 and COP$7,864,875
million in 2015. These impairments are a non-cash accounting effect and consequently they do not involve any disbursement or income.
Further, any cumulative impairment amount of non-current assets is susceptible to reversion when the fair value of the asset exceeds
its book value. On the contrary, in the event that the book value exceeds the fair value of the asset, an additional impairment
expense could be recognized.
The partial reversal of the impairment recorded
in previous years is primarily the result of an improved hydrocarbon prices outlook, incorporation of new reserves, Ecopetrol’s
crude oil basket price discounts as compared to the ICE Brent crude price, favorable refining margins outlook, market conditions
affecting the discount rate and technical operational capacity, among other factors.
The impairment losses recognized in 2016 and
2015 were mainly due to lower estimates of the outlook for oil prices given the oil price environment during those years, operational
variables in the exploration and production and refining segments, market and country risk assessments reflected in the discount
rate, and a reduction in the amount of recoverable reserves, among others.
Finance results, net, mainly includes exchange
rate gains or losses, interest expense, yields and interest from our investments and non-current liabilities financial costs (asset
retirement obligation and post-benefits plan).
Finance results, net, amounted to a loss of
COP$2,495,731 million in 2017 as compared to a loss of COP$1,175,367 million in 2016. This increase in loss was mainly due to:
This increase in our
financial loss was partially offset by: (i) the use of cash flow and net investment hedge accounting, which has allowed us to neutralize,
overall, the effect of the exchange rate fluctuation on 71.2% of the U.S. dollar debt of Ecopetrol S.A., since exchange rate changes
are recognized under other comprehensive income within equity, (ii) the efficient allocation of debt within the companies that
make up the Ecopetrol Group, thereby achieving an approximately zero net position in U.S. dollars as of December 31, 2017, and
(iii) a COP$379,030 million decrease in interest expenses as a result of: (i) the use of cash surpluses to pre-pay foreign currency-denominated
loans totaling US$1,925 million in June 2017 and US$475 million in December 2017 and (ii) a decrease in interest on local currency-denominated
loans with a lower interest rate indexed to the Consumer Price Index (CPI) and a decrease in interest on capital payments.
Finance results, net, amounted to a loss
of COP$1,175,367 million in 2016 as compared to a loss of COP$7,663,104 million in 2015. This decrease in loss was mainly due to:
This decrease in our financial loss was partially
offset by a COP$996,406 million increase in interest expenses as a result of (i) the recognition of Reficar’s interest expenses
which, up to 2015, had been capitalized (ii) the aggregate US$475 million international loans we entered into in February and May
2016 and the US$500 million international bond we issued in June 2016, and (iii) the negative effect the Colombian Peso had on
our exchange rate on interest due on our foreign debt.
For more details on our financial income and
expenses see Note 29 to our consolidated financial statements for more details.
Income taxes amounted to COP$5,800,268
million in 2017, COP$4,543,046 million in 2016 and COP$710,353 million in 2015. The above is equivalent to an effective tax rate
of 42.1%, 58.3% and -12.7% in 2017, 2016 and 2015, respectively.
The decrease in the effective tax rate
from 2016 to 2017 was mainly due to: (i) the better financial performance of the exploration and production segment, (ii) the reduction
of losses at Reficar and Ecopetrol America Inc, which also resulted in lower tax rates and (iii) the reduction of the wealth tax
rate from 1% in 2016 to 0.4% in 2017.
The increase in the effective tax rate
from 2015 to 2016 was mainly due to: (i) lower recovery of deferred tax asset, (ii) the effect of the adjustment in deferred tax
resulting from the application of the Colombian tax reform described above, and (iii) the recognition of the presumptive tax on
subsidiaries reporting tax losses.
As a result of the foregoing, in 2017,
net income attributable to owners of Ecopetrol was COP$7,178,539 million whereas, in 2016, net income attributable to owners of
Ecopetrol was COP$2,447,881 million and, in 2015, net loss attributable to owners of Ecopetrol was COP$7,193,859 million.
In this section, including the tables below,
we present our financial information by segment: Exploration and Production, Refining and Petrochemicals and Transportation and
Logistics. See the section
Business Overview
for a description of each segment.
The following tables present our revenues
and net income by business segment for the years ended December 31, 2017, 2016 and 2015:
Total revenues by segment include exports
and local sales to third-parties and inter-segment sales. See the section
Financial Review—Operating Results—Consolidated
Results of Operations—Total Revenues
for prices and volumes to third parties.
In 2017, exploration and production segment
sales were COP$36,494,934 million, compared to COP$28,221,210 million in 2016. In 2017, our segment sales increased by 29.3% as
compared with 2016 mainly as a result of:
In 2016, exploration
and production segment sales were COP$28,221,210 million, compared to COP$31,732,611 million in 2015. In 2016, our segment sales
decreased by 11.1% as compared with 2015 mainly as a result of:
Cost of sales affecting our exploration
and production segment is mainly related to: (i) the amortization and depletion of our production assets, (ii) contracted services
and (iii) costs related to maintenance, operational services, electric power, projects and labor in the exploration and production
segment. In addition, this segment’s costs are impacted by the purchases of crude oil from ANH and third parties, naphtha
for dilution and transportation services.
In 2017, the cost of sales for this segment
increased by 14.5% as compared with 2016, due to the net effect of:
In 2016, the cost of sales for this segment
decreased by 10.6% as compared with 2015, due to the net effect of:
In 2017, operating expenses before impairment
of non-current assets increased by 7.8% in 2017 as compared to 2016, primarily as a result of (i) higher expenses related to our
exploratory activity as we engaged in more seismic activity and recorded expenses related to exploratory activity at the Kronos-1,
Parmer-1, Warrior 2, Lunera-1, Brama-1, Molusco-1, Godric, Dumbo and Pollera wells, (ii) the termination in 2016 of the deferred
income amortization we had been recognizing since 2007 for the advance payment by the Ministry of Finance and Public Credit of
the obligations under Ecogas, in relation to the Built, Operate and Transfer contracts (BOMT's) for the construction, operation,
maintenance and transfer of gas pipelines. This increase was partially offset by (i) increased income due to the acquisition of
an additional 11.6% interest at the K2 field in the Gulf of Mexico which generated a gain due to the increase in the book value
of the asset above the value paid for the additional interest and (ii) the reduction of the wealth tax rate from 1% in 2016 to
0.4% in 2017.
In 2016, operating expenses before impairment
of non-current assets decreased by 70.1% in 2016 as compared to 2015, primarily as a result of (i) lower expenses related to our
exploratory activity as we engaged in less seismic activity and exploratory drilling, (ii) minor commissions, fees, freight and
services as a result of the savings obtained in the implementation of our transformation plan, and (iii) a lower wealth tax. This
decrease was partially offset by an increase in labor expenses due to the implementation of the voluntary retirement plan.
The net reversal of impairment of non-current
assets recognized in the exploration and production segment in 2017 totaled COP$183,718 million as compared to an impairment loss
of COP$196,448 million in 2016. The net reversal of the impairment was primarily due to the increased value of offshore oil fields,
partially offset by an impairment of onshore fields, both as a result of calculating their valuation taking into account market
variables, reserves, price spreads as compared to the ICE Brent price, and available technical and operational information.
The segment recorded net income attributable
to owners of Ecopetrol of COP$3,820,501 million in 2017 as compared to net income attributable to owners of Ecopetrol of COP$1,322,370
million in 2016 and net loss attributable to owners of Ecopetrol of COP$5,851,619 million in 2015.
The aggregate average production cost,
on a Colombian Peso basis, has increased to COP$23,684 per boe during 2017 from COP$20,993 per boe during 2016. On a dollar basis,
our aggregate average production cost increased to US$8.02 per boe in 2017 from US$6.88 per boe in 2016, due partially to a 3.27%
appreciation of the average exchange rate of the Colombian Peso against the U.S. dollar in 2017.
The aggregate average lifting cost, on
a Colombian Peso basis, increased to COP$22,585 per boe during 2017 from COP$19,799 per boe during 2016. On a dollar basis, it
increased to US$7.65 per boe in 2017 from US$6.49 per boe in 2016 also due partially to the 3.27% appreciation of the average exchange
rate of the Colombian Peso against the U.S. dollar in 2017.
The difference between the aggregate average
lifting cost and aggregate average production cost is that lifting cost does not include the costs related to hydrocarbon self-consumption
required in the production process or the deliveries we make to our refineries and natural gas liquid plants.
The following table sets forth crude oil
and natural gas average sales prices, the aggregate average lifting costs and aggregate average unit production cost for the years
ended December 31, 2017, 2016 and 2015.
In 2017, our transportation and logistics
segment sales were COP$10,598,064 million compared to COP$10,648,776 million in 2016. The 0.5% decrease in 2017 as compared with
2016 was mainly due to (i) a 5% decrease in the volume of crude oil transported by our pipelines, which was primarily due to the
production decrease at the national level and (ii) the negative effect on our U.S. dollar-indexed transportation fees resulting
from the appreciation of the Colombian Peso against the U.S. dollar. This decrease was almost offset by a 1.9% increase in the
volume of refined products transported primarily due to the increase in demand for refined products in Colombia and the elimination
of restrictions in the Pozos Colorados - Galán system. Sales to third parties decreased in 2017 as compared to 2016 primarily
due to the fact that the segment received income from the transportation services to Frontera Energy for its participation in the
Rubiales field, and once the field returned to us in July 2016, these services were recognized as inter-segment sales.
In 2016, our transportation and logistics
segment sales were COP$10,648,776 million compared to COP$10,844,550 million in 2015. The 1.8% decrease in 2016 as compared with
2015 was mainly due to an 11.3% decrease in the volume of crude oil transported by our pipelines, which was primarily due to the
production decrease at the national level, in spite of (i) the positive effect on our U.S. dollar-indexed transportation fees resulting
from the devaluation of the Colombian Peso against the U.S. dollar and (ii) a 3.7% increase in the volume of refined products transported
in the Galán-Sebastopol system to meet the demand for fuel in Colombia and the start-up of Reficar. Sales to third parties
decreased in 2016 as compared to 2015 primarily due to the fact that the segment received income from the transportation services
to Pacific Rubiales for its participation in the Rubiales field, and once the field returned to us in July 2016, these services
were recognized as inter-segment sales.
The cost of sales for our transportation and
logistics segment is mainly related to: (i) project costs associated with the maintenance of transportation networks and (ii) operating
costs related to these systems, including the costs of labor, energy, fuels and lubricants and others.
The cost of sales amounted to COP$3,271,835
million in 2017 as compared to COP$3,349,791 million in 2016. The cost of sales for this segment decreased by 2.3% in 2017 as compared
with 2016 mainly due to a decrease in costs associated with maintenance, operating supplies and materials due to the
continuity of our efficiency program to optimize our operating costs. This decrease was partially offset by (i) an increase
in material processing costs needed for power generation in three new pumping stations to operate Ocensa’s P135 project and
(ii) an increase in depreciation resulting from the start of P135.
The cost of sales amounted to COP$3,349,791
million in 2016 as compared to COP$3,744,422 million in 2015. The cost of sales for this segment decreased by 10.5% in 2016 as
compared with 2015 mainly due to a decrease in costs associated with maintenance, operating supplies and materials due to the continuity
of our efficiency program to optimize our operating costs. This decrease was partially offset by an increase in material processing
costs needed for power generation in pumping stations and an increase in depreciation due to a higher level of investments in the
segment.
In 2017, operating expenses before the
impairment of non-current assets decreased by 15.1% as compared to 2016 due to lower administrative expenses mainly as a result
of the consolidation of administration areas within the segment and a decrease in taxes because of the reduction of the wealth
tax rate discussed previously.
In 2016, operating expenses before the impairment
of non-current assets increased by 30.7% as compared to 2015 due to a recovery of environmental provisions in 2015, no similar
recoveries in 2016 and an increase in labor costs as a result of the implementation of the voluntary retirement plan. This increase
was partially offset by lower wealth and industry taxes.
The net reversal of impairment of non-current
assets recognized in the segment in 2017, totaled COP$59,455 million in 2017 as compared to an impairment recovery of COP$41,062
million in 2016. The net reversal of the impairment was due to the inclusion, in the assessment of the recovery amount of this
segment’s assets, of flows associated with the Port of Tumaco that positively affects the recoverable amount of the southern
transportation unit (See Note 18.3 to our consolidated financial statements for more detail).
The impairment recovery of non-current assets
recognized in the segment in 2016 totaled COP$41,062 million in 2016 as compared to COP$81,388 million loss in 2015, a decrease
of 150.5% as compared to 2015 mainly due to the incorporation, in the assessment of the recovery amount of this segment’s
assets, of flows associated to the San Fernando - Apiay system project that affects the recoverable amount of the Llanos transportation
line, partially offset by an increase in impairment of assets related to the southern transportation line.
The segment recorded net income attributable
to owners of Ecopetrol of COP$2,999,978 million in 2017 as compared to net income of COP$2,960,449 million in 2016 and COP$2,819,759
million in 2015.
In 2017, the refining and petrochemical
segment sales were COP$28,644,016 million compared to COP$24,823,714 million in 2016. In 2017, sales of refined products and petrochemicals
increased by 15.4% as compared with 2016, mainly due to an increase of our average products basket price due to the increase in
the international prices. This increase was partially offset by (i) a decrease in exports of fuel oil primarily due to reduced
production at the Barrancabermeja refinery as a result of reliance on more efficient alternative sources and stabilization of the
coker unit at Reficar and (ii) a decrease in exports of diesel due to our commercial strategy of focusing on selling to the domestic
market due to better commercial conditions, replacing lace imports of such products.
In 2016, the refining and petrochemical segment
sales were COP$24,823,714 million compared to COP$23,245,676 million in 2015. In 2016, sales of refined products and petrochemicals
increased by 6.8% as compared with 2015, mainly due to an increase in the volume of domestic and export sales mainly in mid-distillates
due to the startup of operations at Reficar. This increase was partially offset by a decrease of our average products basket price
due to the decrease in the international price of crude oil.
The cost of sales for our refined products
and petrochemicals segment is mainly related to the purchase of crude oil and natural gas for our refineries, imported products
to supply local demand, feedstock transportation services, services contracted for maintenance of the refineries and the amortization
and depreciation of refining assets. Cost of sales amounted COP$26,855,395 million in 2017, compared to COP$22,843,987 million
in 2016 and COP$20,758,808 million in 2015.
In 2017, the cost of sales for this segment
increased 18% as compared with 2016, principally due to (i) an increase in purchases of crude oil at increased international benchmark
prices and (ii) higher volumes of imports of crude oil and inter-segment purchases of crude oil for Reficar. This increase was
partially offset by lower imports of other fuels, especially diesel and gasoline, due to the use of products produced by Reficar
rather than imported products.
In 2016, the cost of sales for this segment
increased 10% as compared with 2015, principally due to the operation of Reficar’s units in 2016 which led to (i) an increase
in crude oil purchases through import and inter-segment transactions as Reficar required a special feedstock during the stabilization
and performance testing period which increased production cost, (ii) an increase in the depreciation of Reficar’s units (iii)
inventory consumption that had been in stock in December 2015, and (iv) higher costs for services contracted, materials of process,
maintenance and electrical power. This increase was partially offset by lower imports of products and the excellent operational
performance of the Barrancabermeja refinery.
In 2017, operating expenses before the impairment
of non-current assets decreased by 17.2% as compared to 2016, due a decrease of stabilization expenses of Reficar and a decrease
in taxes because of the reduction of the wealth tax rate.
In 2016, operating expenses before the impairment
of non-current assets increased by 27.3% as compared to 2015, due to an increase in labor expenses related to our voluntary retirement
plan in 2016 and other expenses related to the start-up of operations at Reficar.
The net reversal of impairment of
non-current assets recognized in the segment in 2017, which totaled COP$1,067,965 million in 2017 as compared to an
impairment loss of COP$773,361 million in 2016, decreased as compared to 2016 as a result of (i) a net reversal of the
impairment of Reficar as a result of an improved outlook in refining margins due to the anticipated effects of the
ratification of the International Convention for the Prevention of Pollution from Ships (Marpol), which goes into effect in
2020, (ii) a lower discount rate resulting from the application of WACC methodology and (iii) operational and financial
optimization due to the stabilization of the refinery. This reversal was partially offset by Bioenergy’s impairment
related to the change of the project start date, the process of stabilization of the industrial plant, the updating of
operational variables and the financial expenses of the Barracabermeja refinery’s modernization project, which is
currently postponed.
The impairment losses of non-current assets
recognized in the segment in 2016, which totaled COP$773,361 million as compared to COP$3,278,993 million in 2015, decreased by
76.4% as compared to 2015. The 2016 scenario incorporated refining margins including the effect of Marpol in 2016 compared to 2015,
partially offset by the effect of adjustment of operational variables based on that observed during Reficar’s stabilization
period and new ethanol prices on Bioenergy’s impairment (See Note 18.2 to our consolidated financial statements for more
details).
As mentioned earlier, the refining segment
is highly sensitive to changes in product prices and feedstock in the international market, the discount rate, the refining margins,
changes in environmental regulations and cost structure and the level of capital expenditures.
The refining and petrochemicals segment
recorded net income attributable to owners of Ecopetrol of COP$358,859 million in 2017, as compared to a net loss attributable
to owners of Ecopetrol of COP$1,823,020 million in 2016 and COP$4,016,050 million in 2015.
Our principal source of liquidity in 2017
was cash flows from our operations amounting to COP$16,973,626 million.
Our principal uses of cash in 2017 were
(i) COP$11,259,492 million in debt payments through the pre-payment of foreign currency-denominated loans totaling US$1,925 million
in June 2017 and US$475 million in December 2017, (ii) COP$$5,965,556 million in capital expenditures, which included investments
in property, plant and equipment and natural and environmental resources, (iii) dividend payments for the fiscal year 2016 amounting
to COP$1,504,647 million, which includes dividends relating to fiscal year 2016 for COP$945,661 million and the payment of dividends
to non-controlling interest in 2017 for COP$558,986 million.
Net cash provided by operating activities
increased by 19.3% in 2017 as compared to 2016, mainly as a result of (i) a 32.7% increase in our operational income before depreciation,
depletion and amortization (DD&A) and impairment of non-current assets and efficiency gains and cost-savings generated by our
corporate strategy. This increase was partially offset by (i) higher working capital needs mainly due to increase in accounts receivable
from the FEPC and commercial receivables accounts and (ii) an increase in our costs due to the effect of recovery in international
crude oil prices on our purchases and an increase in maintenance activities, contracted services and operating supply needs associated
with an increase in our operational activities.
Net cash provided by operating activities
increased by 21.9% in 2016 as compared to 2015, mainly as a result of (i) lower working capital needs mainly due to the higher
oil prices observed at the end of 2016 versus the end of 2015, (ii) a 4% increase in our operational income before depreciation,
depletion and amortization (DD&A) and impairment of non-current assets resulting from a decrease in our costs and operational
expenses (before DD&A and impairment) due to our savings generated by the transformation plan. This increase was partially
offset by (i) the decrease in international prices of crude oil during 2016, and (ii) an increase in income tax paid by the transportation
and logistics segment due to the better results in 2015.
In 2017, net cash used in investing activities
decreased by 53.3% as compared to 2016, mainly as a result of a 110.4% decrease in our investment portfolios as a result of pre-payments
of foreign currency-denominated loans totaling US$2,400 million in 2017. This decrease was partially offset by (i) cash proceeds
from the sale of our shares in Empresa de Energía de Bogotá, which totaled COP$56,930 million in the aggregate and
(ii) a 4.6% increase in investments in capital expenditures, which was driven mainly by the reactivation of activity in our Castilla
and Rubiales fields, the development of improved recovery projects in fields such as La Cira and Chichimene, and an increase in
exploration activities.
In 2016, net cash used in investing activities
decreased by 26.8% as compared to 2015, mainly as a result of: (i) a 62.4% decreased investment in capital expenditures due to
the effect of decreasing oil prices and the conclusion of the Reficar modernization project, and (ii) additional cash proceeds
from the sale of our investments in Empresa de Energía de Bogotá and Interconexión Electrica S.A., which totaled
COP$966,715 million in the aggregate. This decrease was partially offset by increased investments of our excess liquidity in our
investment portfolios, which in turn resulted from the savings we achieved and the recovery of the price of oil during the second
half of 2016.
Net cash used in financing activities increased
by 362% in 2017, as compared to 2016, due to (i) prepayments of foreign currency-denominated loans totaling US$2,400 million and
(ii) an increase in dividends payments to the shareholders of Ecopetrol of COP$255,484 million in 2017 as compared to 2016, which
was partially offset by a COP$463,135 million decrease in dividend payments made by certain of our subsidiaries to their non-controlling
shareholders.
Net cash used in financing activities increased
by 98.5% in 2016, as compared to 2015, due to a decrease in cash from borrowings of COP$5,151,937 million which was partially offset
by a decrease in dividends payments of COP$3,781,099 million in 2016 as compared to 2015.
Our consolidated capital expenditures in
2017, 2016 and 2015 were COP$6,107,506 million, COP$5,837,477 million and COP$15,517,949 million, respectively. These investments
were distributed by business segment on average, for the past three years as follows: 64.9% for the exploration and production
segment, 17.4% for refining and petrochemicals and 17.7% for the transportation and logistics segment. See Note 33.3 to our consolidated
financial statements for more detail about capital expenditures by segment.
Our investment plan approved for 2018 is
a range of between US$3,500 million and US$4,000 million. The investments will be distributed approximately as follows: 85% for
exploration and production, 14% for refining, petrochemicals, and transportation and logistics, and 1% for other investments.
The resources required for the investment
plan will be funded through internal cash generation with no need to raise additional net financing.
In 2017, we paid dividends of COP$945,661
million to Ecopetrol’s shareholders, including the Nation, and dividends paid to non-controlling shareholders of our subsidiaries
totaling COP$558,986 million.
In 2016, we paid the last installment of
dividends relating to 2014 net income to the Nation for COP$690,177 million and our transportation and logistics subsidiaries paid
dividends to their non-controlling shareholders for COP$1,022,121 million. Given the net loss we reported in 2015, our shareholders
at the ordinary general shareholder’s meeting did not approve distribution of dividends for 2015.
On March 23, 2018, our shareholders at
the ordinary General Shareholders Assembly approved a distribution of dividends for the fiscal year ended December 31, 2017 amounting
to COP$3,659,386 million, or COP$89 per share, based on the number of outstanding shares as of December 31, 2017. The dividend
payment was approved to be made in one installment for the minority shareholders of Ecopetrol on April 19, 2018 and two installments
for the Nation, the first paid on April, 19 2018 and the second installment to be paid on September, 17 2018.
We prepare our interim and annual statutory
financial information in accordance with our internal reporting policies, which follow Colombian IFRS and differ in certain significant
aspects from IFRS. The following table sets forth our consolidated net income and equity for years ended December 31, 2017, 2016
and 2015, in accordance with Colombian IFRS and IFRS:
As noted above, certain differences exist
between our net income and equity as determined in accordance with our internal reporting policies, which follow Colombian IFRS,
which are used for management reporting purposes, as presented in the business segment information, and our net income and equity
as determined under IFRS, as presented in our consolidated financial statements.
The primary differences between Colombian
IFRS and IFRS as they apply to our results of operations are summarized below:
Under Colombian IFRS, the General
Accounting Office of the Nation (CGN for its acronym in Spanish) issued Resolution 509, which allows companies to apply hedge
accounting for non-derivative financial instruments from any date within the transition period or the first period of
application of International Accounting Standards in Colombia, even if such company has not yet formally documented the
hedging relationship, the objective or the risk management strategy. Under these rules, Ecopetrol applied cash flow hedge
accounting from January 1, 2015 in its financial statements under Colombian IFRS.
As a result of this accounting policy difference,
for the year ended December 31, 2017, our net income as reported under IFRS was COP$366,048 million higher than our net income
as reported under Colombian IFRS.
Ecopetrol’s functional currency is
the Colombian Peso and it consolidates some subsidiaries whose functional currency is the U.S. dollar but who settled their taxes
in Colombian Pesos. As a result of the application of paragraph 41 – IAS 12, such subsidiaries are required to calculate
deferred taxes under IFRS.
As a result of this accounting policy difference,
for the year ended December 31, 2017, our net income attributable to owners of Ecopetrol as reported under IFRS was COP$192,079
million higher than our net income attributable to owners of Ecopetrol as reported under Colombian IFRS.
The application of IAS12.41 also generated
adjustments to our goodwill and investments in companies impairments of COP$61,893 million in 2017, COP$86,781 million in 2016
and COP$418,872 million in 2015 in connection with our purchase of subsidiaries whose functional currency is the U.S. dollar as
well as adjustments to our revenue from the equity method of COP$60,748 million in 2017, COP$71,056 million in 2016 and COP$81,808
million in 2015 in connection with our associates and joint ventures whose functional currency is the U.S. dollar.
As a result of these accounting policy
differences described above, for the year ended December 31, 2017, we reported net income attributable to the owners of Ecopetrol
under IFRS of COP$7,148,539 million as opposed to a net income attributable to the owners of Ecopetrol of COP$6,620,412 million
reported under Colombian IFRS for the same period. For the year ended December 31, 2016, these same accounting differences led
us to report net income attributable to the owners of Ecopetrol under IFRS of COP$2,447,881 million as opposed to a net income
attributable to the owners of Ecopetrol of COP$1,564,709 million reported under Colombian IFRS for the same period. For the year
ended December 31, 2015, these same accounting differences led us to report a net loss under IFRS of COP$7,193,859 million as opposed
to a net loss of a COP$3,987,726 million reported under Colombian IFRS for the same period.
As of December 31, 2017, we had outstanding
consolidated indebtedness of COP$43.5 trillion, which corresponded primarily to the following long-term transactions:
*** Debt
obtained by Reficar for the Refinery modernization voluntarily assumed by Ecopetrol.
On April 13, 2018, Ecopetrol
redeemed all of its outstanding 4.250% notes due September 18, 2018 in an aggregate principal amount of US$350 million. The notes
were issued in September 2013.
We enter into various commitments and contractual
obligations that may require future cash payments. The following table summarizes our contractual obligations as of December 31,
2017.
The table does not include the contractual
obligations of Equion, Savia and Ecodiesel, which do not consolidate within the Ecopetrol’s Group.
As of December 31, 2017, we did not have
off-balance sheet arrangements of the type that is required to be disclosed under Item 5.E of Form 20-F.
Ecopetrol updated its 2020 Business Plan
on September 29, 2016. This Plan is based on three fundamental pillars: i) protection of cash and cost efficiency; ii) strict capital
discipline; and iii) growth in reserves and production; these pillars will strengthen the Company’s financial sustainability
and afford it opportunities for both organic and inorganic growth, generating value and profitability for its shareholders.
According to this business plan, during
2018 the Company will continue to pursue its transformation to ensure operational and financial sustainability. It will focus on
multi-year fields development plans; improved return on assets; committing ourselves to integrity, safe operations, environment
consciousness and joint prosperity with communities in which we operate and execute projects.
We believe that our strategy of diversifying
our export destinations and sales under term contracts with fixed discounts to reference prices will help to mitigate the impact
of crude oversupply over the spread of our export basket.
Furthermore, with the full operation of
all of the units of Reficar since 2016 and shifting from stabilization to optimization, Ecopetrol’s trade balance is expected
to continue improving due to the reduction of gasoline imports and incremental exports of fuels. Reficar’s fuels production
is expected to continue being allocated primarily in the domestic market, with a surplus to be exported.
Adding profitable reserves and maintaining
the pace of production are the Company’s priorities. The exploration campaign will be focused in regions with strong prospects.
Investment in exploration will be approximately US$400-US$450 million, allocated mainly to the evaluation and appraisal of discoveries
and ongoing exploration efforts of Ecopetrol S.A., Hocol, Ecopetrol America Inc., Ecopetrol Mexico, Ecopetrol Costa Afuera and
Ecopetrol Brazil.
We stress that a strong cash position allows
us to assess opportunities for inorganic growth of Ecopetrol’s reserves.
The following table provides information
about the sensitivity analysis conducted on our oil and gas reserves as of December 31, 2017, taking into account ICE Brent
crude oil prices that reasonably reflect management’s view of crude oil prices given prevailing market conditions.
The following table provides information
about the sensitivity of our results as of December 31, 2017, due to variations of US$1 in the price of ICE Brent crude and
of 1% in the COP$/US$ exchange rate.
The table below sets forth the line items
that are being affected by the variation on the reference prices or the average exchange rate.
Table 55
|
VARIATION ON ICE BRENT REFERENCE PRICE
|
VARIATION ON AVERAGE EXCHANGE RATE
|
|
|
REVENUE
|
|
|
|
|
Sales of crude oil
|
Sales of crude oil
|
|
Sales of refined products
|
Sales of refined products
|
|
Sales of natural gas
|
Sales of natural gas
|
|
|
COST OF SALES
|
|
Local purchases from business partners
|
Local purchases from business partners
|
|
Local purchases of hydrocarbons from the ANH
|
Local purchases of hydrocarbons from the ANH
|
|
Local purchases of natural gas
|
Local purchases of natural gas
|
|
Imports of products
|
Imports of products
|
5.1
Risk
Factors
The risks discussed below could have a
material adverse effect, separately or in combination, on our business’s operating results, cash flows, liquidity and financial
condition. Investors should carefully consider these risks.
5.1.1
Risks
Related to Our Business
This section describes the most significant
potential risks to our business.
Our crude oil and natural gas
reserve estimates involve some degree of uncertainty and may prove to be incorrect over time, which could adversely affect our
ability to generate revenue.
Reserves estimates are prepared using generally
accepted geological and engineering evaluation methods and procedures. Estimates are based on geological, topographical and engineering
facts. Actual reserves and production may vary materially from estimates shown in this annual report, and downward revisions in
our reserve estimates could lead to lower future production which could affect our results of operations and financial condition.
Hydrocarbon reserves presented in this
annual report were calculated in accordance with SEC regulations. As required by those regulations, reserves were valued based
on the unweighted average of closing prices for the first day of each month in the 12-month periods ended December 31, 2017, 2016
and 2015, as well as other conditions in existence at those dates. The average of closing prices of ICE Brent crude oil for the
first day of each month in the 12-month period was US$55.57 per barrel in 2015, US$44.49 per barrel in 2016 and US$54.93 per
barrel in 2017. In 2016, the Company recognized a reduction in oil and gas proven reserves of 14% in 2016 as compared to 2015,
to 1,598 mmboe in 2016 from 1,849 mmboe in 2015. In 2017, the Company recognized an increase in oil and gas proven reserves of
4% as compared to 2016, to 1,659 mmboe in 2017 from 1,598 mmboe in 2016. For more information, see the section
Business Overview—Exploration
and Production—Reserves
.
Furthermore, at least once a year, or more
frequently if the circumstances require, the Company ascertains whether there are signs of impairment to its assets or cash-generating
units (CGUs) due to the difference between the carrying amount of such assets or CGUs as opposed to their recoverable amounts,
using reasonable assumptions, based on internal and external factors, which reflect market conditions. The recoverable amount is
considered to be the higher of the fair value minus costs of disposal and value in use, based on the free cash flow method, discounted
at the weighted average capital cost (WACC). Whenever the recoverable amount of an asset or CGU is lower than its net carrying
amount, such amount is reduced to its recovery amount, recognizing a loss for impairment as an expense in the consolidated statement
of profit or loss. External and internal sources of information may indicate that an impairment loss recognized for an asset, other
than goodwill, may no longer exist or may have decreased, in this case, the reversal is recognized a gain for impairment in the
consolidated statement of profit or loss.
In 2017, Ecopetrol had a COP$1,311,138
million net reversal of impairments recorded in previous years primarily as a result of improved hydrocarbon prices outlook, incorporation
of new reserves, Ecopetrol’s crude oil basket price discount as compared to the ICE Brent crude oil price, improved refining
margins outlook and technical operational capacity, among other factors. For additional information about this impairment charges,
see Note 18 to our consolidated financial statements.
Any significant change in estimates and
judgments could have a material effect on the quantity and present value of our proved reserves and subsequently on the recognition
or recovery of impairment charges. Changes to estimations of reserves are applied prospectively to the amounts of depreciation,
depletion and amortization charged and, consequently, the carrying amounts of exploration and production assets.
In order to assess the possible impact
of current expected oil price scenarios and market conditions, as well as of further developments driven by the economic environment
for the oil and gas industry, the Company has performed a sensitivity analysis over its proved reserve balance as of December 31,
2017. Based on these calculations, assuming an average price per barrel of ICE Brent crude oil of US$55 per barrel in 2018, US$60
per barrel in 2019, US$65 in 2020, US$70 in 2021 and US$75 per barrel for later years, Ecopetrol could recognize an increase in
oil and gas proved reserves of approximately 3.3%. This analysis takes into account Ecopetrol’s estimates and expectations
regarding the main assumptions used in its proven reserve calculation, which final actual result may fluctuate and differ substantially
from those provided herein due to several factors outside of the control of the Company. For additional information see the section
Financial Review—Trend Analysis and Sensitivity Analysis
.
On the contrary, any downward revision
in our estimated quantities of proved reserves would indicate lower future production volumes, which could result in higher expenses
for depreciation, depletion and amortization for properties to which we apply the units of production method for calculating these
expenses. These higher expenses, and any lower revenues as a result of actual production volumes and realized prices, could adversely
impact our results of operations and financial condition.
Achieving our long-term growth depends
on our ability to execute our strategic plan — specifically, the discovery and successful development of additional reserves.
Our long-term growth objectives depend
largely on our ability to discover and/or acquire new reserves, and in turn developing them successfully and improving the recovery
factor in our mature oil fields. Our exploration activities expose us to the inherent geological and drilling risks including the
risk of not discovering commercially viable crude oil or natural gas reserves; and the risk that some exploratory wells initially
budgeted for may be drilled at a later stage or not be drilled at all. Despite the effort we make to control costs associated with
drilling, these are often uncertain, and numerous factors beyond our control may cause drilling operations to be curtailed, delayed
or cancelled.
Our ability to add and develop reserves
also depends on our capacity to structurally reduce costs to maintain the profitability of oil fields already being exploited.
If we are unable to successfully discover
and develop additional reserves, or if we do not acquire properties having proved reserves, our reserves portfolio will decline.
Failure to secure additional reserves may impede us from achieving or maintaining production targets, and may have a negative impact
on our results of operations and financial condition.
See the section
Strategy and Market
Overview—Our Corporate Strategy
for a discussion of our strategic plan.
Our business depends substantially
on international prices for crude oil and refined products. The prices for these products are volatile; a sharp decrease could
adversely affect our business prospects and results of operations.
In 2017, in Ecopetrol, approximately 92.4%
of the revenues came from sales of crude oil, natural gas and refined products and 87% of the total volume sold of these products
is indexed to international reference prices or benchmarks such as ICE Brent. Consequently, fluctuations in those international
indexes have a direct effect on our financial condition and results of operations.
Prices of crude oil, natural gas and refined
products have traditionally fluctuated as a result of a variety of factors including, among others, competition within the international
oil and natural gas industry; long-term changes in the demand for crude oil (as further explained below), natural gas and refined
products; the economic policies in the United States, China and the European Union; regulatory changes; changes in global supply,
such as the current market conditions shifting from oversupply to a balanced crude oil market; inventory levels; changes in the
cost of capital; adverse or favorable economic conditions; global financial crises; development of substitute sources of energy,
development of new technologies; global and regional economic and political developments in the Organization of the Petroleum Exporting
Countries, (OPEC); the willingness and ability of the OPEC and its members to set production levels; local and global demand and
supply for crude oil, refined products and natural gas; trading activity in oil and natural gas, which thereby affects their respective
margins; derivative financial instruments related to oil and gas; development or availability of alternative fuels; weather conditions;
natural events or disasters; and terrorism and global conflict. In 2017, demand grew faster than supply, reducing crude oil inventories
to almost a five year average, leveraged in stronger than expected economic growth in OECD countries and the extension of OPEC
and Russia’s production cut agreement.
When crude oil, refined products and natural
gas prices are low, we earn less revenue and we generate lower cash flow and less income. Conversely, when crude oil, refined product
and natural gas prices are high, we earn more and generate a larger amount of cash and net income. During 2017, our crude oil basket
price was US$47.8 per barrel versus US$35.7 in 2016; the refined product basket price was US$62.7 per barrel versus US$50.1 per
barrel in 2016; and the natural gas price was US$22.7 per barrel equivalent in 2017 versus US$23.5 per barrel equivalent in 2016.
However, it is important to consider that the margin on refined products can result either in higher or lower margins due to a
change in price of crude the same way gas prices can be impacted by local conditions, such as local demand and weather conditions.
In 2017, we had a COP$1,311,138 net reversal
of the impairment of non-current assets, as compared to the impairment of non-current assets of COP$928,747 million in 2016 and
COP$7,864,875 in 2015. These impairments are an accounting effect that does not involve any disbursement of resources and they
are susceptible to reversion when the fair value of the asset exceeds its book value. For additional information about this impairment
charges, see the section
Financial Review—Operating Results—Consolidated Results of Operations—Impairment
of non-current assets
and Note 18 to our consolidated financial statements.
A reduction of international crude oil
prices could also result in a delay or a change in our capital expenditure plan, in particular delaying exploration and development
activities, thereby delaying the development of reserves and affecting future cash flows. In order to maintain a profitable operation
and preserve the cash flow of the Company at certain oil price levels, some of our producing fields may have to be closed or their
operations temporarily suspended which would affect our production levels and expected revenues.
Changes in the Colombian Peso/U.S.
dollar exchange rate could have an adverse effect on our financial condition and results of operations given the amount of U.S.
dollar denominated debt held by the company and the fact that most of our revenues are derived from sales of products quoted in
or with reference to U.S. dollars.
Most of our revenues are derived from sales
of products quoted in or with reference to U.S. dollars. Therefore when the Colombian Peso depreciates against the U.S. dollar,
our revenues converted into Colombian Pesos, increase. Conversely, when the Colombian Peso appreciates against the U.S. dollar,
our revenues decrease.
On the other hand, imported goods, oil
services and the debt, which is mainly denominated in U.S. dollars, become less expensive when the Colombian Peso appreciates against
the U.S. dollar and more expensive when the Colombian Peso depreciates against the U.S. dollar.
As of December 31, 2017 our U.S. dollar-denominated
total debt was US$12.6 billion, which we recognize in our consolidated financial statements at its amortized cost, which corresponds
to the present value of cash flows, discounted at the effective interest rate. Out of this total, US$12.0 billion relate to Ecopetrol
S.A., whose functional currency is the Colombian Peso. Therefore, when the Colombian Peso depreciates against the U.S. dollar,
Ecopetrol S.A. is exposed to an exchange rate loss. In contrast, when the Colombian Peso appreciates against the U.S. dollar, Ecopetrol
S.A.is exposed to an exchange rate gain. Some of the Group’s affiliates have the U.S. dollar as functional currency and are
not exposed to a material exchange rate risk resulting from fluctuations in the Colombian Peso against the U.S. dollar. On the
asset side, when the financial statements of the Group are consolidated, the exchange rate differential of the affiliates’
assets and liabilities whose functional currency is the U.S. dollar is recognized directly in the equity, as part of the other
comprehensive income.
The Company adopted hedge accounting as
part of its risk management strategy, using two types of natural hedges with its U.S. dollar debt as a financial instrument: i)
cash flow hedge for exports of crude oil and ii) hedge of a net investment in a foreign operation. As a result of the implementation
of both hedges, $8,532 million of Ecopetrol S.A.’s debt in U.S. dollars as of December 31, 2017, was designated as a hedge.
With the adoption of hedge accounting, the effect of the volatility of the foreign exchange rate on the hedged portion of the debt
is recognized directly in equity, as part of other comprehensive income. The remaining portion of Ecopetrol S.A.’s U.S. dollar-denominated
debt as well as the financial assets and liabilities denominated in foreign currency continues to be exposed to the fluctuation
in the exchange rate.
The U.S. dollar/Colombian Peso exchange
rate has fluctuated during the last several years. On average, the Colombian Peso depreciated 37.28% against the U.S. dollar
in 2015, 11.18% in 2016 and appreciated 3.35% in 2017. Additionally, as of December 31, 2017, the Colombian Peso appreciated 0.56%,
as of December 31, 2016, the Colombian Peso appreciated 4.72%, and as of December 31, 2015 it depreciated 31.64%, in each case
from year-end exchange in the previous year. In addition, given the performance of interest rates in the U.S., crude oil prices
in the next few years and political uncertainty in Colombia, there is no clear view of how the U.S. dollar and the Colombian peso
will behave in the medium to long-term. Given that markets are dealing with a great deal of uncertainty, it is expected that U.S.
dollar movements will remain difficult to forecast.
A future depreciation in the exchange rate
of the Colombian Peso against the U.S. dollar may affect our financial results when converted into Colombian Pesos, given the portion
of our U.S. dollar debt that is not designated as hedge instrument and the future debt we may acquire. Please see our sensitivity
analysis on our results of operation to exchange rate fluctuations in the section
Financial Review—Effect of Taxes,
Exchange Rate Variation, Inflation and the Price of Oil on our Results—Exchange Rate Variation
and in Note 30.2 to
our consolidated financial statements.
Increased competition from local
and foreign oil companies may have a negative impact on our ability to gain access to additional crude oil and natural gas reserves
in Colombia and abroad.
We must bid for exploration blocks offered
by the ANH in Colombia and similar authorities in other countries, which means we compete under the same conditions as other domestic
and foreign oil and gas companies, and receive no special treatment. Our ability to obtain access to potential fields also depends
on our ability for evaluating and selecting potential opportunities and to adequately bid for such opportunities.
We are also exposed to international competition
as a result of our international exploratory activities. Currently, we are exploring in Brazil, Mexico and the US Gulf of Mexico,
where we both partner and compete with other oil and gas companies operating in those locations.
If we are unable to adequately compete
with local and foreign oil companies, or if we cannot enter into joint ventures with market players having high potential exploration
projects, our exploration activities may be limited. This could reduce our market share and, in turn, adversely affect our financial
condition.
If operational risks to which we
are exposed in Colombia or overseas materialize, the health and safety of our workforce, the local community and the environment
may be affected. In addition, we may suffer a disruption or shutdown of our operational activities.
Our exploration, production, refining and
transportation activities in Colombia and in the foreign countries in which we operate are subject to industry-specific operating
risks, some of which, despite our internal procedures and adherence to industry best practices, are beyond our control. Our operations
may be curtailed, delayed or cancelled due to adverse or abnormal weather conditions, natural disasters, blockages in the communities
in which we operate, equipment failures or accidents, oil or natural gas spills or leaks, shortages or delays in the availability
or in the delivery of equipment, delays or cancellation of environmental licenses or other government authorizations or judicial
decisions, fires, explosions, blow-outs, surface cratering, pipeline failures, theft and damage to our transportation infrastructure,
sabotage, terrorist attacks and criminal activities.
Some of our operations in Colombia and
abroad could be conducted in remote and uninhabited locations which involve health and safety risks that could affect our workforce.
By our own Company policy and practices, as well as under Colombian law and international industrial safety regulations, we are
required to have health and safety practices that minimize risks and health issues faced by our workforce. Failure to comply with
health and safety regulations in the jurisdictions where we operate may lead to investigations by health officials that could result
in lawsuits or fines.
We may be required to incur in additional
costs and expenses to allocate funds to industrial safety and health compliance under Colombian law and international industrial
safety regulations. Additionally, if any operational incident occurs that affects local communities and ethnic communities in nearby
areas, we will need to incur in additional costs and expenses in order to return affected areas to normality and to compensate
for any damages we may cause. These additional costs may have a negative impact on the profitability of the projects we may decide
to undertake.
The occurrence of any of these operating
risks could result in substantial losses or slowdowns to our operations, including injury to our employees, malfunction or destruction
of property, equipment and infrastructure, clean-up responsibilities, third-party liability claims, government investigations and
imposition of fines, withdrawal of environmental licenses and other government permits, suspension or shutdown of our activities
and loss of revenue. The occurrence of any of these events may have a material adverse effect on our financial condition and results
of operations.
Our involvement in deep-water drilling
either as direct operator or in conjunction with our business partners involves risks and costs, which may be out of our control.
Our deep-water drilling activities present
severe risks, such as the risk of spills, explosions on platforms and drilling operations, and natural disasters. The occurrence
of any of these events or other incidents could result in personal injuries, loss of life, severe environmental damage with the
resulting containment, clean-up and repair expenses, equipment damage and liability in civil and administrative proceedings. Heightened
risks and costs associated with deep-water drilling may have a negative effect on our results of operations and financial condition
and in our reputation.
See the section
Business Overview—Exploration
and Production—Exploration Activities—Exploration Activities Outside of Colombia
for a summary of our current
deep-water drilling activities.
As a result of the oil spill in the Macondo
field operated by British Petroleum in the U.S. Gulf Coast in April 2010, significant concerns regarding the safety of deep-water
drilling have been raised and, as a result, applicable regulations in various countries have changed. More stringent government
regulation may result in increased costs and longer exploration and development timeframes for our deep-water drilling operations
and consequently could adversely affect our results of operations and financial condition.
We are exposed to the credit, political
and regulatory risks of our customers and any material nonpayment or nonperformance by our key customers could adversely affect
our cash flow and results of operations.
Some of our customers may experience financial
problems that could have a significant negative effect on their creditworthiness. Severe financial problems encountered by our
customers could limit our ability to collect amounts owed to us, or to enforce the performance of obligations owed to us under
contractual arrangements. In addition, many of our customers finance their activities through their cash flows from operations,
short and long term debt or equity.
The combination of decreasing cash flows
as a result of declines in commodity prices, a reduction in borrowing bases under reserve-based credit facilities and the lack
of availability of debt or equity may result in a significant reduction of our customers’ liquidity and limit their ability
to make payments or perform their obligations to us according to their contractual terms.
Furthermore, some of our customers may
be highly leveraged and subject to their own operating expenses. Therefore, the risk we face in doing business with these customers
may increase. Other customers may also be subject to regulatory changes, which could increase the risk of defaulting on their obligations
to us. Financial problems experienced by our customers could result in the impairment of our assets, a decrease in our operating
cash flows and may also reduce or restrict our customers’ future use of our products and services, which may have an adverse
effect on our revenues.
Our ability to access the credit
and capital markets on favorable terms to obtain funding to refinance our debt maturities may be limited due to the deterioration
of these markets, any change to our credit ratings and the authorizations we need before incurring any financial indebtedness.
A new financial crisis, volatility in prices
in the oil and gas sector, the spread in protectionist policies in the United States and Europe, the lack of consensus among OPEC
members, the discovery of corruption by governments and private companies in emerging markets and further geopolitical disruptions
in the Middle East, which could involve developed countries, which in turn could worsen risk perception with respect to the emerging
markets, or the occurrence of any of the risks described in the section
Risk Review—Risk Factors—Risks Related
to Colombia’s Political and Regional Environment
could make it more difficult for us and our subsidiaries to access
international and local capital markets and finance our operations and potentially refinance our debt maturities on terms acceptable
to us. These conditions, along with significant write-offs in the financial services sector and the re-pricing of credit risk,
can make it difficult for us to obtain funding for our capital needs on favorable terms. Access to credit and capital markets is
also dependent on our credit ratings, which are mainly determined by our financial and operational strength, oil and gas market
conditions and the support that could be provided by the Colombian government. We cannot assure that our credit ratings will continue
for any given period of time or that the ratings will not be further lowered or withdrawn. An assigned rating may be raised or
lowered depending, among other things, on the respective rating agency’s assessment of our financial strength. In addition,
a downgrade in the rating of the Republic of Colombia could also trigger a downgrade on our ratings as our rating is capped by
the rating of the Republic of Colombia and the implicit support that can potentially be provided to the Company. On March 14, 2017,
Fitch Ratings maintained our long term international credit rating at BBB but upgraded our outlook from negative to stable following
the upgrade from the Republic of Colombia from negative to stable also in March 2017. On June 27, 2017, S&P increased our stand-alone
credit rating from BB to BB+ and maintained our long-term international credit rating at BBB and our outlook as negative, in line
with those of the Republic of Colombia. On December 11, 2017, in line with a downgrade of the Republic of Colombia, S&P lowered
our long-term international credit rating from BBB to BBB- and changed our outlook from negative to stable. S&P maintained,
however, our stand-alone credit rating at BB+. On September 21, 2017, Moody’s maintained our long term international credit
rating at Baa3 and revised our outlook from negative to stable. On February 22, 2018, despite the downgrade of Republic of Colombia,
Moody’s maintained our long term international credit rating and outlook. We cannot offer any assurance that our credit rating
will continue.
As a result of these factors, we may be
forced to revise the timing and scope of our capital projects as necessary to adapt to existing market and economic conditions,
downgrades to our credit ratings or to access the financial markets on terms less favorable, therefore negatively affecting our
results of operations and financial condition.
In addition, under applicable regulation,
the Government, through the Ministry of Finance and Public Credit and the favorable opinion of the National Planning Department,
must authorize all indebtedness of state-owned entities and government-controlled companies through a majority equity stake. Consequently,
excluding our foreign subsidiaries or those subsidiaries in which we hold minority interest, most of our indebtedness must be previously
authorized by the Colombian Ministry of Finance and Public Credit and the National Planning Department. As such, our indebtedness
is subject to the Government’s time frames and policies, and we cannot guarantee that such authorizations would be granted
in a timely fashion or granted at all.
We may be exposed to increases in
interest rates, thereby increasing our financial costs.
We may incur debt locally and in the international
capital markets and, consequently, may be affected by changes in prevailing interest rates. If market interest rates increase,
our financing expenses may increase, which could have an adverse effect on our results of operations and financial condition.
As of December 31, 2017, approximately
19%, or US$2.8 billion (COP$8.3 trillion), of our total indebtedness consisted of floating rate debt. If market interest rates
rise, our financing expenses will increase, which could have an adverse effect on our results of operations and financial condition.
In addition, as we refinance our existing debt in the coming years, the mix of our indebtedness may change, specifically as it
relates to the ratio of fixed to floating interest rates, the ratio of short-term to long-term debt, and the currencies in which
our debt is denominated in or indexed to. We cannot assure you that such changes will not result in increased financing expenses
borne by us. Finally, as we incur new debt in the future to fund our capital projects or inorganic acquisitions, the prevailing
interest rates and spreads at any specific time could be less favorable in terms of cost when compared to our previous financing
transactions, which could adversely affect our financial condition and results of operations.
Our current and planned investments
and exploration activities outside Colombia are exposed to political and economic risks.
As part of our strategic plan, we operate
through business partners, subsidiaries or affiliates outside of Colombia. We currently have investments, joint ventures and subsidiaries
incorporated in Peru, Brazil, Mexico, Bermuda, Panama, the Cayman Islands, Switzerland, Germany, Spain, the United Kingdom and
the United States, and we are analyzing investments in other countries. In connection with making investments, we are and will
be subject to risks related to economic and political conditions and governmental economic actions. We cannot predict the positions
of foreign governments relating to the oil and gas industry, land tenure, protection of private property, environmental standards,
regulation or taxation; nor can we assure you that future governments will maintain policies favorable to foreign investment or
repatriation of capital.
We began exploration activities outside
Colombia in 2006 through our Brazilian subsidiary, Ecopetrol Óleo e Gás do Brasil Ltda. Our foreign subsidiaries
have subsequently entered into a number of joint venture exploration agreements with regional and international oil companies to
explore acreage in Brazil and the U.S. Gulf Coast. We have limited experience exploring outside Colombia. We may face new and unexpected
risks involving environmental and other legal requirements beyond those we currently experience.
The results of operations and financial
condition of our subsidiaries in these countries also may be adversely affected not only by risks associated with hydrocarbon exploration
and production, but also by fluctuations in their local economies, political instability and government actions, including: the
imposition of price controls, the imposition of restrictions on hydrocarbon exports, fluctuation of local currencies against the
Colombian Peso, the nationalization of oil and gas reserves, increases in export and income tax rates for crude oil and oil products,
and unilateral (governmental) institutional and contractual changes, including controls on investments and limitations on new projects.
Any of these conditions occurring could
disrupt or terminate our operations, causing our development activities to be curtailed or terminated in these areas, or our production
to decline; limit our ability to pursue new opportunities; affect the recoverability of our assets; or cause us to incur additional
costs or delay the timeline of our projects.
Our future performance depends on
the successful development and deployment of new technologies and the knowledge to apply and improve them.
Technology, knowledge and innovation are
essential to our business, especially for reductions to our operating costs and improvements in processes related to the production
and transportation of heavy crude oil and the exploitation of mature fields. If we do not develop the right technology, do not
secure access to required third-party technology, fail to deploy the right technology, do not obtain the expertise to operate our
deployed technology or to improve our processes, or do not deploy the knowledge necessary to improve such technology effectively,
the execution of our corporate goals, our profitability and our earnings may be adversely affected. In the case of our recovery
program, we not only depend on the successful selection, adaptation, demonstration and deployment of appropriate technologies but
also in the response of the reservoir to the application of these recovery technologies.
Our performance could be negatively
affected by a deficiency in leadership capacity and lack of key skilled employees.
As the oil and gas industry faces an increasing
number of challenges, the ability to react quickly to these challenges has become a key factor in achieving efficiency, profitability,
growth and sustainability. Our ability to achieve these goals can be negatively affected by a deficiency in leadership capacity
and a lack of key skilled employees that can execute our business strategy with creativity and determination.
Our operations may not be able to
keep pace with the increasing domestic demand for natural gas.
According to the Colombian Energy and Gas
Regulatory Commission (CREG) Resolution 114 of 2017, former Resolution 089 of 2013, the natural gas market is a physical market,
which means that suppliers must comply with the quantities agreed in their contracts. Hence, Ecopetrol will not be able to keep
or increase its market participation unless the Company increases its natural gas reserves as local demand grows.
Additionally, we are currently party to
a number of national gas supply contracts that have firm gas commitments. If we are unable to deliver natural gas to these clients
as a result of cuts in operations, delays in the completion of projects relating to our production facilities or the acceleration
of the decline in our gas production, among other reasons, we may be required to compensate our customers for our failure to supply
natural gas.
Delays in the start of new projects could
result in penalties imposed on us by our clients. Although we did not pay penalties due to delays in the start of new projects
in 2017, we cannot assure you that in the future we will not be subject to additional monetary fines which can in turn affect our
financial condition and results of operations.
We depend on others for the construction
and availability of natural gas transportation infrastructure for the transport of our gas, which may limit our ability to develop
new or existing fields or lead to the deterioration of related assets and may not allow us to recover the cost of capital invested
in natural gas discoveries.
Ecopetrol S.A. can only hold up to 25%
of the equity of any natural gas transportation company. Therefore, there can be no assurance that the transportation infrastructure
necessary to transport natural gas from the fields to distribution points and our customers will be built by third parties or that
if built there will be sufficient capacity available to us for the exploitation of new natural gas discoveries or the development
of existing fields. The failure to commercially exploit new or existing discoveries may result in impairment of the related assets
and our inability to recover the capital expenditures invested to make these natural gas discoveries. As a result, we may be required
to enter into agreements with natural gas transportation companies on terms that are not favorable to us.
For example, we have developed natural
gas reserves in the Cusiana and Cupiagua fields, but transportation capacity to deliver gas from these fields is currently limited.
Although there are projects under development that will eliminate this limitation in 2018, we can offer no assurance that they
prove successful.
Our operations could be affected
by reactions of labor unions, social organizations and contractors to Colombia’s political and social environment, organizational
changes and the collective bargaining agreement negotiation process.
Due to Colombia’s political and social
environment and organizational changes, social organizations in the communities where we have operations, contractors and unions,
may have reactions and present their demands through social movements, which could have an adverse effect on our operations and
financial condition.
In addition, our current collective bargaining
agreement has been in effect since 2014 and has a term of four years, expiring June 30, 2018. There will be no changes to these
terms until June 2018 or until the end of the negotiation process. If the unions do not present any request of negotiation, the
terms will be maintained for another six months. During this period of time, the collective bargaining agreement negotiation will
take place and unions may try to impact our normal operations. Further, we cannot assure you will not experience strikes or labor
unrest in the future.
Our activities may be interrupted
or affected by external factors, such as abnormal weather conditions and natural disasters.
We are exposed to several risks that may
partially interrupt our activities. They include fires or explosions, natural disasters, criminal acts and acts of terror, malfunction
of pipelines and emission of toxic substances.
Also, the effects of climate change could
create impacts and losses in any part of our business operations, for instance, as the result of increase in the intensity of the
“La Niña” and “El Niño” climate phenomena, causing floods and drought periods, increased
temperature and rising sea levels.
The “El Niño” climate
phenomenon is characterized by (i) a lack of rainfall, which limits the amount of water necessary for the development of various
activities of the company, and (ii) increased temperatures, which could have a direct impact on our worker’s health given
an increased occurrence of heat waves and the increased occurrence of epidemics and diseases. The “La Niña”
climate phenomenon is characterized by increased rainfall, which can generate (i) landslides that threaten pipeline infrastructure
and limit road transportation and (ii) flooding, which could limit operations in our production fields and facilities.
As a result, our activities could be significantly
affected or even paralyzed. These risks could result in property damage, loss of revenue, loss of life, pollution and harm to the
environment, among others. If any of these occur, we may be exposed to economic sanctions, damages, fines or penalties in addition
to the costs required to repair or remediate the related damage. These costs, fines and penalties may adversely affect our financial
condition and results of operations.
Our operations, including our activities
in areas classified as indigenous reserves and Afro-Colombian lands, are subject to opposition from members of various communities.
We currently carry out and plan to continue
carrying out activities in areas classified by the Government as indigenous reserves and Afro-Colombian lands. In order to undertake
these activities, we must first comply with the previous consultation process, set forth by Colombian law. These consultation
processes are part of the administrative procedures for obtaining environmental licenses to start our projects, works or activities
in areas belonging to ethnic communities. In addition, consultations can be seen as a potential instrument to involve communities
in the decision of developing extracting industry and infrastructure projects in their territories. Generally, these consultation
processes last between six months to one year depending on the community expectations, but may be significantly delayed if
we cannot reach an agreement with the communities. We strive to be respectful of the Constitution and laws and the autonomy of
indigenous and Afro-descendant communities, and we therefore do not enter their territories until we have reached an agreement
with them.
Our activities are subject to opposition,
including protests by various communities, and even in areas in which the previous consultation process does not apply. Recently,
through popular consultation, some communities have voted against the development of extractive industry projects. Any such similar
situation may affect our future projects.
In recent years, indigenous communities
have been claiming their ancestral territories and requesting recognition on previously closed consultation processes. We may be
exposed to operational restrictions as a result of the opposition of these communities.
No certainty can be given that we will
be able to reach an agreement with the different communities opposed to our operations or that such communities will participate
in consultation processes if available. We may be exposed to similar delays due to opposition from local communities in other countries
where we carry out our activities.
We have made significant investments
in acquisitions and we may not realize the expected value.
We have acquired interests in several companies
in Colombia and abroad. See the section
Business Overview—Our Corporate Structure
. Obtaining the expected benefits
of the acquisitions will depend, in part, on our ability to (i) obtain the expected results of operations and financial condition
from these acquisitions, (ii) manage disparate operations and integrate distinct corporate cultures, (iii) manage our objectives
as a corporate group, and (iv) institute our corporate governance rules as well as other factors beyond our control such as the economic and regulatory environment in countries in which we have made acquisitions and crude oil prices. These efforts
may not succeed. Our failure to successfully obtain the expected results from our acquisitions could adversely affect our financial
condition and results of operations.
We might be required to provide additional
financial support to Bioenergy despite its recent completion.
Bioenergy’s ethanol plant, which
began operations in April 2017 was financed with COP$132 billion through bilateral loans for its agricultural component and COP$382
billion through an infrastructure leasing for its industrial component. Although Ecopetrol is not the sponsor and has not provided
financing guarantees to Bioenergy, some additional financial support might be needed to assure the stabilization phase of the plant.
Additionally, Bioenergy may also face situations such as social unrest, strikes or other operational difficulties that could negatively
impact its operation and financial results.
Any situation that could affect the operations
of this subsidiary may have a negative impact on its profitability as well as on its ability to pay its debt, which in turn could
adversely affect our financial condition and results of operations.
Ongoing Colombian State control
entities investigations regarding our subsidiaries Reficar and Bioenergy could adversely affect us.
Ecopetrol, Bioenergy and Reficar’s
employees are generally subject to the control and supervision of the Colombian State control entities. See section
Risk
Review—Legal Proceedings and Related Matters
for additional information.
The investigations concerning Reficar
and Bioenergy that are described in section
Risk Review—Legal Proceedings and Related Matters
remain ongoing.
While we are cooperating fully with both cases, adverse developments in connection with these investigations, including any expansion
of the scope of the investigations, could negatively impact us and could divert the efforts and attention of our management team
from our ordinary business operations.
In connection with this investigation
or any other investigation carried out by any other authority, there can be no assurance that we will not incur in additional
costs and expenses or expose us or our employees to sanctions and lawsuits, any of which could adversely impact our reputation
and, in turn, could have adverse effects on our financial condition and results of operations. See section
Risk Review—Legal and Regulatory Risk—We may incur losses and spend time and money defending pending lawsuits and arbitrations and
responding to administrative investigations
.
Our results may be affected by the
performance of our business partners or their third-party service providers, as many of our operations are executed under joint
venture agreements.
Many of our operations are performed through
joint ventures with our business partners. Consequently, we depend on the performance of our business partners. The poor performance
of any of them, especially in those projects in which we do not act as operator, could negatively impact oil and natural gas production,
which in turn could have a negative impact on our results of operations and financial condition. We are exposed to the risk of
not finding business partners with the appropriate skills and performance we require for our projects. We are also indirectly exposed
to supply agreements and other third-party services contracted by our business partners acting as operators under joint venture
agreements.
Our insurance policies do not cover
all liabilities and may not be available for all risks.
Our insurance policies do not cover all
liabilities, and insurance may not be available for all risks. There can be no assurance that incidents will not occur in the future,
that insurance will adequately cover the entire scope or extent of our losses or that we will not be found liable in connection
with claims arising from these and other events, which could adversely affect our financial condition and results of operations.
A failure in our information technology
systems or cyber security attacks may adversely affect our financial results.
We depend on the reliability and security
of our information technology systems to conduct certain exploration, development and production activities, process financial
records and operating data, communication with our employees and business partners, and for many other activities related to our
business. Our information technology systems may fail or have other significant shortcomings due to operational system flaws or
employee misuse, tampering or manipulation. In addition, we may become the target of cyber-attacks or information security breaches
that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of proprietary and other information.
Any of these occurrences could disrupt our business, result in potential liability or reputational damage or otherwise have an
adverse effect on our financial results.
During 2017, our internal cyber security
systems identified several cyber security attacks such as brute force login attacks designed to identify valid credentials in IT
infrastructure and one ransomware attack with data loss (low level confidentiality) at Ecopetrol S.A. Our platforms also identified
and controlled certain malware events and SQL injection attacks.
Although we have not experienced any material
losses relating to failure of our information technology systems or cyber incidents, there can be no assurance that we will not
suffer such losses in the future.
We are exposed to behaviors incompatible
with our ethics and compliance standards.
Given the large number of contracts that
we are a party to in Colombia and abroad with local and foreign suppliers, the geographic distribution of our operations and the
great variety of actors that we interact within the course of business, we are subject to the risk that our employees, contractors,
or any person having relations with us may misappropriate our assets, manipulate our assets or information or engage in money laundering
or the financing of terrorism, for such person’s personal or business advantage. Our systems for identifying and monitoring
these risks may not be effective to fully mitigate them in all situations. Such acts may result in material financial losses or
reputational harm to the Company.
The reliability and capacity of national
power supply systems may affect or limit the continuity of our operations or limit growth.
Our average energy consumption in 2017
was 6,392 GWh/year, of which 72% was supplied through self-generation, and the remaining 28% through power grid. Our demand is
9% of the total energy demand in Colombia.
Several producing fields are connected
to the national transmission system and depend on its expansion and reliability to keep steady production levels and to accommodate
future growth. The national electricity market is volatile due to changes in hydrology and availability of fuels (natural gas,
diesel etc.), bringing uncertainty to prices. Ecopetrol centralizes the management of power sources and uses, quality and cost
in the short, medium and long term with the objective of optimizing energy consumption, but we cannot offer any assurance that
the program will prove successful.
Rising water production levels
may affect or constrain our crude oil production.
During 2017, Ecopetrol S.A. produced approximately
9.3 million barrels of water per day. Taking into account the nature of our reservoirs, the water production levels to be managed
by the Company may increase in the future. In order to achieve our oil and gas production goals and to avoid any production restrictions
going forward, we will need to secure the required capacity to manage water levels. Factors that may trigger a possible constraint
in our crude oil production due to the rising water production levels are: (i) ineffective project management of the required facilities,
(ii) the Company’s and its partners’ ability to timely obtain the environmental permits related to water management,
(iii) social and community interactions that could affect the development and operation of these projects, and (iv) the availability
of capital to execute the required projects.
5.1.2
Risks
Related to Colombia’s Political and Regional Environment
This section discusses potential risks
related to our extensive operations in Colombia.
The Colombian government could seize
or expropriate Ecopetrol’s assets under certain circumstances for fair compensation.
Pursuant to Articles 58 and 59 of the
Colombian constitution, the Government can exercise its eminent domain powers in respect of private property assets in the event
such action is deemed by the Government to be required in order to protect public interests. According to Law 388 of 1997, eminent
domain powers may be exercised through: (i) an ordinary expropriation proceeding, or (ii) an administrative expropriation. In
all cases we would be entitled to a fair compensation for the expropriated assets. Also, as a general rule, compensation must
be paid before the asset is effectively expropriated. However, the compensation may be lower than the price for which the expropriated
asset could be sold in a free-market sale or the value of the asset as part of an ongoing business. The aforementioned Article
59 of the Colombian constitution establishes an expropriation for war reasons, which require that compensation be paid before
expropriation but can only be executed on a temporary basis.
Colombia has experienced internal
security issues that have had or could have a negative effect on the Colombian economy and on us.
Colombia has experienced internal security
issues, primarily due to the activities of guerrillas, paramilitary groups, drug cartels and criminal bands known as
Bacrim
.
From time to time, guerrillas target crude oil and multi-purpose pipelines, including the Oleoducto Transandino, Caño Limón-Coveñas
and Oleoducto Bicentenario pipelines, and other related infrastructure disrupting our activities and those of our business partners.
During 2017, the attacks against our
pipeline infrastructure increased by 28% in relation to 2016 (49 attacks in 2016 compared with 63 attacks in 2017). This
situation especially affected the infrastructure located in the following departments: Norte de Santander, Arauca and
Nariño and the following pipelines: Caño Limón Coveñas and Transandino. One of the consequences
of the 2017 attacks is a deferred production of 1.6 million barrels. On several occasions, guerilla attacks have resulted in
unscheduled shutdowns of our transportation systems in order to repair or replace sections of pipelines or production
facilities that have been damaged with deferral of production in certain fields, as well as caused us to undertake
environmental remediation. For the pipeline infrastructure managed by Ecopetrol S.A, the direct cost of repairs due to
terrorist attacks in 2017 was approximately COP$20,313 million (US$6.8 million, with a COP$2,984/1.00 US exchange rate as of
December 31, 2017). During the first four months of 2018, there have been 33 attacks against the infrastructure of the
Caño Limón Coveñas and Transandino pipelines. So far, however, these attacks have not resulted in
deferred production due to the transportation of the crude from the Caño Limón field through the Bicentenario
pipeline from Banadia in Arauca to Araguany in Casanare. We cannot offer any assurance that we will continue to ensure such
transportation through alternate routes.
Likewise, the theft of refined products
and crude oil, resulting from security issues, may impact our operating and financial results in the future. Theft of refined products,
increased from approximately 28.5 boed in 2016 to approximately 34.9 boed in 2017. Theft of crude oil increased from approximately
1,796 bod in 2016 to approximately 1,883 bod in 2017.
These activities and their possible escalation
and the effects associated with them have had, and may have in the future, a negative impact on the Colombian economy or on us,
which may affect our customers, employees, assets or the environment, with resulting containment, clean-up and repair expenses.
Despite the peace agreement
between the Colombian government and the FARC and the ongoing peace negotiation process with the National Liberation Army (the
ELN), some illegal and terrorist activities of guerrilla groups or their members may continue
On November 30, 2016, the Colombian Congress
approved a peace agreement between the Colombian government and the Revolutionary Armed Forces of Colombia, or FARC. Currently,
the Colombian government is in the process of gradually integrating FARC members into civilian life.
On the other hand, the National
Liberation Army, or ELN, an insurgency guerrilla group, has increased its actions against the Colombian security forces and
the critical infrastructure of the Nation in recent months, which we believe is an attempt to show its presence and influence
in some regions and put pressure on the ongoing peace negotiations which formally began in February 2016. In February 2017,
the public dialogue phase began in Quito, Ecuador. These dialogues were interrupted as a result of the terrorist attacks
carried out by the ELN since January 9, 2018, when the bilateral ceasefire ended. The Colombian Government decided to resume
the dialogue in April 2018, due to the suspension of ELN terrorist actions during the electoral period in March 2018. It is
expected that attacks against critical infrastructure will continue until a new bilateral ceasefire can be agreed upon.
Despite the progress made with the FARC
and the now stalled negotiations with the ELN, some guerrilla groups may continue their illegal and terrorist activities, resulting
in a deterioration of Colombia’s national security and consequently may negatively impact our operating results.
There have been certain events
in Colombia and abroad, which have resulted in political tensions between Colombia and some of its neighboring countries.
There have been certain events in Colombia
and abroad, which have resulted in political tensions between Colombia and some of its neighboring countries.
Economic differences between Colombia and
Venezuela, mainly due to Venezuela’s current public order situation and internal political tension, could affect our diplomatic
relations, impact border towns and cities and therefore have a negative impact on Colombia’s economy and general security
situation.
Companies operating in Colombia,
including us, are subject to the prevailing economic conditions and the investment climate in Colombia, which may be less stable
than the prevailing economic conditions and investment climate in developed countries.
Market prices of securities issued by Colombian
companies, including us, are subject to the prevailing economic conditions in Colombia. A large portion of our assets and operations
are located in Colombia and most of our sales are currently derived from our crude oil and natural gas production and the production
of our refineries located in Colombia. Accordingly, our financial condition and results of operations depend to a significant extent
on macroeconomic and political conditions prevailing from time to time in Colombia and on the exchange rates between the Colombian
Peso and the U.S. dollar.
If the perception of improved overall security
in Colombia deteriorates or if the investment climate worsens, the Colombian economy may face lower growth rates than the ones
posted recently, which could negatively affect our financial condition and results of operations. Furthermore, the market price
of our shares and American Depositary Shares, or ADSs, may be adversely affected by changes in governmental policies, particularly
those affecting economic growth, exchange rates, interest rates, inflation and taxes. The Government has changed monetary, fiscal,
taxation, labor and other policies over time and has thus influenced the performance of the Colombian economy. We have no control
over the extent and timing of government intervention and policies.
Colombian political and economic
conditions have a direct impact on our business and may have a material adverse effect on us.
Colombia’s economic policies may
have direct impact on our Company as well as market conditions, the prices of securities and our ability to access national and
international capital markets. Our financial condition and results of operations may be adversely affected by the following factors,
among others, and the Government’s response to such factors: exchange rate movements; inflation; exchange control policies;
price instability; interest rates; liquidity of domestic capital and lending markets; tax policy; regulatory policy for the oil
and gas industry, including pricing policy; and other political, diplomatic, social and economic developments in or affecting Colombia.
Uncertainty over whether the Government
will implement changes in policy or regulations that may affect any of the factors mentioned above or other factors in the future
may lead to economic uncertainty in Colombia and increase the volatility of the Colombian securities market and securities issued
abroad by Colombian companies. The upcoming 2018 Colombian presidential election could also result in changes to policies that
may have an adverse effect on the local market and consumer confidence that may impact our business and have a material adverse
effect on us.
Developments and the perception of risk
in other countries, especially emerging market countries, may adversely affect the market price of Colombian securities, including
our ADSs.
Securities issued by Colombian companies
may be affected by economic and market conditions in other countries, including other Latin American and emerging market countries.
Although economic conditions in Latin American countries and in other emerging market countries may differ significantly from economic
conditions in Colombia, investors’ reactions to developments in these other countries may have an adverse effect on the market
value of securities of Colombian issuers and our ability to access capital markets.
Due to past financial crises in several
emerging market countries (such as the Asian financial crisis of 1997, the Russian financial crisis of 1998 and the Argentine financial
crisis of 2001), the world financial crisis of 2008 and the recent sovereign debt crises in certain European countries, investors
may view investments in emerging markets with heightened caution. In the past, as a result of crises in other countries, flows
of investments into Colombia have been reduced. Crises in other countries, especially in emerging market countries, may hamper
investor enthusiasm for securities of Colombian issuers. If Latin America experiences a new slow-down or if the price for securities
of Latin American issuers falls, the price for our ADSs could follow this trend and could be adversely affected as could our ability
to access domestic or international capital markets.
New or higher taxes resulting from
changes in tax regulations or the interpretation thereof in Colombia could adversely affect our results of operations and financial
condition.
New tax laws and regulations, and
uncertainties in the interpretation with respect to existing and future tax policies pose risks to us. In recent years, the
Colombian Congress and tax authorities have imposed and subsequently eliminated additional taxes such as the Income Tax for
Equality (“CREE”) and the wealth tax, and enacted modifications to taxes related to financial transactions,
income, value added tax (“VAT”), and taxes on net worth. In addition, in December 2016, pursuant to Law 1819, the
Colombian Congress enacted a tax reform, which became effective in 2017. For a description of taxes affecting our results of
operations and financial condition in 2017, see section
Financial Review
—
Effect of Taxes,
Exchange Rate Variation, Inflation and the Price of Oil on Our Results
—
Taxes
. Changes in tax-related
laws and regulations, and interpretations thereof, can affect tax burdens by increasing tax rates and fees, creating new
taxes, limiting tax deductions, and eliminating tax-based incentives and non-taxed income. In addition, tax authorities and
tax courts may interpret tax regulations differently than we do, which could result in tax litigation and associated costs
and penalties.
Until recently, for Colombian income tax
purposes, dividends that were distributed from profits taxed at the corporate level were not taxed or subject to withholding tax
at the shareholder level. However, beginning in 2017, dividends paid to non-resident shareholders are subject to a withholding
tax. The withholding tax rates applicable to dividends paid to non-resident shareholders are: (i) a 5% dividend tax on dividends
distributed from profits taxed at the corporate level; and (ii) a 35% withholding tax rate on dividends distributed from profits
not taxed at the corporate level plus an additional 5% dividend tax after applying the initial 35% withholding tax rate. Tax treaty
rules might also apply on dividend distributions when a shareholder is a resident in a country that has executed a tax treaty with
Colombia.
5.1.3
Legal
and Regulatory Risks
This section discusses potential legal
and regulatory risks to Ecopetrol, including the risk of having to comply with new laws and regulations.
Our operations are subject to extensive
regulation.
The Colombian hydrocarbons industry is
subject to extensive regulation and supervision by the Government and regulatory agencies in matters including the award of exploration
and production blocks by the ANH, the imposition of specific drilling and exploration obligations, restrictions on production,
price controls, capital expenditures, liquidation of the Net Position of each refiner or importer with respect to the FEPC and
required divestments. Existing regulation applies to virtually all aspects of our operations in Colombia and abroad. The commercialization
activities of some of our products also face extensive regulation. Such regulation is subject to change by the applicable regulator
affecting our ability to commercialize our products. See section
Business Overview—Applicable Laws and Regulations
.
The terms and conditions of the agreements
with the ANH under which we explore and produce crude oil and natural gas generally reflect negotiations with the ANH and other
governmental authorities and may vary by fields, basins and hydrocarbons discovered.
We are required, as are all oil companies
undertaking exploratory and production activities in Colombia, to pay a percentage of our production to the Government as royalties.
The Colombian Congress has modified the royalty program for crude oil and natural gas production several times in the last 20 years,
as it has modified the regime regulating new contracts entered into with the Government. In the future, the Colombian Congress
may once again amend royalty payment levels for new contracts and such changes could have an adverse effect on our future exploration
and production in Colombia. See section
Business Overview—Applicable Laws and Regulations—Regulation of Exploration
and Production Activities—Business Regulation—Royalties
for a description of the current royalty scheme.
Our operations in Colombia are subject
to extensive national, state and local environmental regulations. Environmental rules and regulations are applicable to our exploration,
production, refining, transportation, supply and marketing activities, as well as the biofuels we produce. These regulations establish,
among other things, quality standards for hydrocarbon products, air emissions and greenhouse gases, water discharges and waste
disposal, soil remediation, water pollution and the general storage, handling, transportation and treatment of hydrocarbons in
Colombia. Currently, all exploratory projects drilling in areas that do not yet have a license must undergo an environmental impact
assessment and must receive an environmental license from the governmental agency responsible for awarding environmental licenses,
the Environmental License National Agency or ANLA. Environmental authorities with jurisdiction over our activities routinely inspect
our crude oil fields, refineries and other production sites, and they may decide to open investigations or sanction proceedings,
which may result in the imposition of fines, restrictions on operations or other sanctions in connection with potential non-compliance
with environmental laws.
We are also subject to control and monitoring
by the regional autonomous corporations (CAR), which are regional environmental authorities that grant permits for the use and
exploitation of natural resources, establish compensation measures for the use of these resources, and perform monitoring, control
and sanctions function.
If we fail to comply with any of these
national or regional environmental regulations or authorities, we could be subject to administrative and criminal penalties, including
warnings, fines or closure orders of our facilities. Any such criminal penalty would be imposed on the legal representatives of
the Company, including any legal representative, director or worker who participated or failed to take action related to the activities
that lead to environmental damage. See section
Business Overview—Applicable Laws and Regulations—Regulation
of Exploration and Production Activities—Business Regulation—Environmental Licensing and Prior Consultation
.
Environmental regulation has become more
stringent in Colombia in recent years. As a result, our operating costs have increased in order to comply with these new technical
environmental requirements as well as the need to strengthen our specialized team in charge of environmental compliance in project
and operations. If environmental laws continue to impose additional costs on us, we may need to reduce our investments on strategic
projects in order to allocate funds to environmental compliance. We are also exposed to delays in obtaining environmental licenses
from ANLA, which can lead to cost overruns or to changes in our investment plans. These additional costs may have a negative impact
on the profitability of the projects we intend to undertake or may make them economically unattractive, in turn having a negative
impact on our results of operations and financial condition.
Some of the companies in the business group
perform exploratory activities outside of Colombian territory. As such, such companies are subject to foreign environmental regulations
for the exploratory activities conducted by the business group outside of Colombia. Failure to comply with foreign environmental
regulations may result in investigations by foreign regulators, which could lead to fines, warnings or temporary suspensions of
our operations, which could have a negative impact in the consolidated financial statements and results of operations of the group.
In addition, the companies of the business
group conducting upstream activities outside Colombia may be subject to foreign health, safety and environmental regulations. Foreign
health and safety regulations may be more severe than those established under Colombian law and, therefore, we may be required
to make additional investments to comply with those regulations.
Under certain of our credit agreements,
we are under an obligation to comply with international environmental standards established by our lenders or by multilateral institutions.
Failure to comply with such environmental standards could result in an event of default under the relevant credit agreements that
we, or our subsidiaries, have entered into, which would affect our financial condition.
We may incur losses and spend time
and money defending pending lawsuits and arbitrations and responding to administrative investigations.
We are currently a party to several legal
proceedings filed against us. We are also subject to labor-related lawsuits filed by current and former employees in connection
with pension plans and retirement benefits. For example, as of December 31, 2017, Ecopetrol S.A. was a party to 3,169 legal
proceedings relating to civil, administrative, environmental, tax, and labor claims filed against us in courts and arbitration
tribunals, of which 396 met the accounting threshold for an accrual provision. Additionally, Ecopetrol S.A.’s subsidiaries
were a party to 1,190 legal proceedings relating to civil, administrative, environmental, tax, and labor claims filed against them
of which 18 met the accounting threshold for an accrual provision. We allocate substantial amounts of money and time to defend
against these claims, in which the claimants often seek substantial sums of money as well as other remedies. See Note 23 to our
consolidated financial statements and see section
Risk Review—Legal Proceedings and Related Matters
. In
addition, in accordance with Colombian law, we and our employees are subject to surveillance and investigations by certain administrative
control entities in Colombia, which are intended to determine whether public funds have been misused, mismanaged or misappropriated
or whether they have been used in compliance with applicable law. Such investigations may divert the attention of management and
subject the Company to reputational risk and increase difficulties in retaining talent. See section
Risk Review—Legal
Proceedings and Related Matters
.
5.1.4
Risks
Related to Our ADSs
This section discusses potential risks
associated with an investment in our American Depository Shares (as opposed to our common shares) by investors outside Colombia.
Holders of our ADSs may encounter
difficulties in protecting their interests.
Holders of our ADSs do not have the same
voting rights as holders of our common shares. As set forth in the amended and restated deposit agreement, dated December 29, 2017,
among Ecopetrol S.A., JP Morgan Chase Bank, N.A., as depositary (the “Depositary”), and all holders from time to time
of our American Depositary Receipts (as amended and restated, the “Deposit Agreement”), holders of our ADSs may instruct
the Depositary, to vote on shareholder matters prior to a shareholders’ meeting.
Colombian law is not clear about the need
to request proxies from existing shareholders. Thus, holders of our ADSs may not become aware of some matters in time to instruct
the Depositary to vote their shares.
The Deposit Agreement provides holders
of our ADSs with the right to instruct the Depositary to vote common shares separately. However, holders of our ADRs should be
aware that in Colombia, it is uncertain whether a depositary must vote all common shares of a Colombian corporation in an American
Depositary Receipt, or ADR, program in the same manner as a single block or may vote them separately. Accordingly, if either the
custodian or the Depositary are not able to vote the common shares (including the right to receive common shares in the form of
ADRs) deposited under the Deposit Agreement and any other securities, cash or property from time to time held by the Depositary
in respect or in lieu of deposited common shares (the “Deposited Securities”) separately, all such Deposited Securities
shall be voted based on the majority vote of the voting instructions timely received from holders of ADRs. In the case of such
single block voting, all holders of ADRs, including holders of ADRs for which no voting instructions are timely received and holders
of ADRs with voting instructions contrary to the voting instructions of a majority of the Deposited Securities timely received,
should be aware that the Deposited Securities shall all be voted as a single block and that the voting instructions of such holders
of ADRs will be deemed given in the manner stated above.
The Depositary will not itself exercise
any voting discretion in respect of any Deposited Securities. The holders of our ADRs will be solely responsible for any exercise
of the voting rights of the Deposited Securities represented by the ADRs if such vote is made pursuant to the procedures described
in the Deposit Agreement. Holders of ADRs are strongly encouraged to forward their voting instructions as soon as possible as voting
instructions will not be deemed received until such time as the ADR department responsible for proxies and voting has received
such instructions notwithstanding that such instructions may have been physically received by the Depositary, prior to such time.
In the future, the Colombian regulatory
authorities may clarify their interpretation as to how the voting rights should be exercised by holders of our ADSs, and such possible
interpretation could adversely affect the value of the common shares and ADSs.
Our ADSs holders may be subject to
restrictions on foreign investment in Colombia.
Colombia’s International Investment
Statute (the set of rules and regulations which govern the foreign exchange market and the transactions thereto, which include
Resolution 8 of 2000 and External Circular No. DCIN 83 issued by the Colombian Central Bank among others) regulates the manner
in which non-Colombian residents can invest in Colombia and participate in the Colombian securities market. Among other requirements,
Colombian law requires foreign investors to register certain foreign exchange transactions with the Colombian Central Bank and
outlines the necessary procedures to authorize certain types of foreign investments. Colombian law requires that certain foreign
exchange transactions, including international investment in foreign currency between Colombian residents and non-Colombian residents,
must be made through authorized foreign exchange market intermediaries. Any income or expenses under our ADR program must be made
through the foreign exchange market.
Investors acquiring our ADRs are not required
to register with the Colombian Central Bank directly, as they will benefit from the registration to be obtained by the custodian
for our common shares underlying the ADRs in Colombia. If investors in ADRs choose to surrender their ADRs and withdraw common
shares, they must register their investment in the common shares as a portfolio investment through their local representative,
which may be a brokerage firm, trust company or investment management companies supervised by the Superintendence of Finance.
Investors will only be allowed to transfer dividends abroad after their foreign investment registration procedure with the Colombian
Central Bank has been completed. Investors withdrawing common shares could incur expenses and/or suffer delays in the application
process. The failure of a non-resident investor to report or register foreign exchange transactions with the Colombian Central
Bank relating to investments in Colombia on a timely basis may prevent the investor from remitting dividends abroad, or result
in the initiation of an investigation and in the imposition of fines. In the future, the Government, the Colombian Congress or
the Colombian Central Bank may amend Colombia’s International Investment Statute or the foreign investment rules, which
could result in more restrictive rules and could negatively affect trading of our ADSs.
Colombia currently has a free
convertibility system. If a more restrictive convertibility system is implemented, the Depositary may experience difficulties
when converting Colombian Peso amounts into U.S. dollars to remit dividend payments. Also, currently Colombia has a floating
exchange rate system that might be subject to change in the future. See section
Shareholder Information—Exchange
Controls and Limitations
.
Holders of our ADSs may not be able
to effect service of process on us, our directors or executive officers within the United States, which may limit your recovery
in any foreign judgment you obtain against us.
We are a mixed economy company organized
under the laws of Colombia. In addition, most of the members of our Board of Directors (“Directors”) and executive
officers reside outside the United States. All or a substantial portion of our assets and the assets of these persons are located
outside of the United States. As a result, it may not be possible for you to effect service of process within the United States
upon us or these persons or to enforce judgments against us or them in U.S. courts obtained in such courts predicated upon the
civil liability provisions of the U.S. federal securities laws. Colombian courts determine whether to enforce a U.S. judgment predicated
on the U.S. securities laws through a procedural system known as
exequatur
. For a description of these limitations, see section
Shareholder Information—Enforcement of Civil Liabilities
.
The protections afforded to minority
shareholders in Colombia are different from those in the United States, and may be difficult to enforce.
Under Colombian law, the protections afforded
to minority shareholders are different from those in the United States. In particular, the legal framework with respect to shareholder
disputes is substantially different under Colombian law than U.S. law and there are different procedural requirements for commencing
shareholder lawsuits, such as shareholder derivative suits. As a result, it may be more difficult for our minority shareholders
to enforce their rights against us or our Directors or controlling shareholder than it would be for shareholders of a U.S. company.
ADRs do not have the same tax treatment
as other equity investments in Colombia.
Although ADRs represent Ecopetrol’s
common shares, for Colombian tax purposes, ADRs are securities different from their underlying assets. Therefore, ADR holders are
not entitled to the tax treatment granted to holders of the common shares. Such tax treatment includes, among others, those benefits
relating to dividends and profits derived from sale of Colombian common shares. For further information see section
Shareholder
Information—Taxation—Colombian Tax Considerations
.
Judgments of Colombian courts with
respect to our ADSs will be payable only in Colombian Pesos.
If proceedings are brought in the courts
of Colombia seeking to enforce the rights of ADS holders of common shares, we will be required to discharge our obligation amounts
in Colombian Pesos. Colombian law provides that an obligation in Colombia to pay amounts denominated in foreign currency may only
be satisfied in Colombian currency at the Representative Market Exchange Rate of the date the judgment is obtained, and such amounts
are then adjusted to reflect exchange rate variations through the effective payment date.
The relative volatility and illiquidity
of the Colombian securities markets may substantially limit our investors’ ability to sell our ADSs at the price and time
they desire.
Investing in securities that are traded
in emerging markets, such as Colombia, often involves greater risk when compared with other world markets, and these investments
are generally considered to be more speculative in nature.
The Colombian securities market is substantially
smaller, less liquid, more concentrated and can be more volatile than other securities markets in the United States. As of December
31, 2017, the Colombian Stock Exchange (“BVC”) had a market capitalization of approximately COP$363,843 billion (US$121.93
billion using the closing rate for 2017), a 17% increase when compared with the amount at the end of 2016, a daily average trading
volume of approximately COP$138,631 million (US$46.99 million, using the average exchange rate for 2017), a 29% decrease when
compared with the volume in 2016. By comparison, the New York Stock Exchange (the “NYSE”) had a market capitalization
of US$22.1 trillion as of December 31, 2017, and a daily trading volume of approximately US$32.8 billion in 2017.
As of December 31, 2017, our shares
represented the highest market capitalization of the BVC accounting for as of 8.9% of the total COLCAP index, which reflects the
price volatility of the 20 most-liquid stocks.
Given the current ownership structure of
our shares, it may be difficult for you to purchase large quantities of shares from a single shareholder. We cannot assure you
that a liquid trading market for our ADSs will develop or, if developed, that it will be maintained. Without a liquid trading market,
the ability of investors in our ADSs to sell them at the desired price and time could be substantially limited.
We are not required to disclose as
much information to investors as a U.S. issuer is required to disclose.
We are subject to the reporting requirements
of the Superintendence of Finance and the BVC - (Colombian Stock Exchange). The corporate disclosure requirements that apply to
us may not be equivalent to the disclosure requirements that apply to a U.S. issuer and, as a result, you may receive less interim
information about us than you would receive from a U.S. issuer.
5.1.5
Risks
Related to the Controlling Shareholder
Our controlling shareholder’s
interests may be different from those of certain minority shareholders.
Law 1118 of 2006 requires the Nation to
maintain at least 80% of our outstanding capital stock. The Nation currently holds 88.49 % of our outstanding capital stock, making
it our controlling shareholder. The Nation as our controlling shareholder has majority voting rights at the General Shareholders
Assembly to elect the members of our Board of Directors. The Nation, as controlling shareholder, may propose and approve decisions
that are in its own interest and in furtherance of its own economic and political interests that may not necessarily benefit minority
shareholders.
Our controlling shareholder may approve
dividends at the ordinary General Shareholders Assembly, notwithstanding the interest of certain minority shareholders, in an amount
that results in us having to reduce our capital expenditures or increase our debt levels, thereby negatively affecting our prospects,
results of operations and financial condition. See the section
Shareholder Information—Dividend Policy
.
Additionally, our controlling shareholder
may undertake projects, approve decisions or make announcements about its intentions related to its holding of the Company’s
stock, which may not be in our best interest or in the best interest of our minority shareholders, including holders of our ADSs,
and could affect the price of our shares or ADSs.
5.2
Risk
Management
5.2.1
Managing
Risk through Our Internal Control System
Under the leadership of the Vice-Presidency
of Compliance, Ecopetrol S.A. consolidated its internal control systems into an unified system that integrates the best practices
called for by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013), Sarbanes–Oxley Act (SOX),
governance and management of enterprise IT (COBIT), Enterprise Risk Management (ERM) and our ethics and compliance rules, with
the aim of establishing an integrated management system for all control components; thereby allowing us to strengthen all of our
control system.
The main purpose of the Ecopetrol S.A.’s
Internal Control System is to provide reasonable assurance regarding the achievement of all of the Company’s objective relating
to operations, strategy, reporting and compliance, through the appropriate risks management and ensuring the effectiveness of its
controls. The system performance is systematically monitored by the Board of Directors semiannually and by the Audit and Risk Committee
monthly.
Ecopetrol S.A.’s Internal Control
System is aligned to the Company’s strategy and business processes and gives responsibility to all employees to manage risk,
to maintain the effectiveness of controls, to report incidents in order to preventively correct possible deficiencies and to provide
reasonable assurance of achieving corporate objectives and goals.
The risk management component of our Internal
Control System is in charge of identifying events or situations that may affect our defined objectives, assessing and prioritizing
them to implement the most appropriate response. This component has been designed and implemented across the organization, with
a two-level focus: Enterprise Risk and Processes Risks.
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(i)
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Enterprise Risks: Are those risks that are directly associated with the business strategy plan
of the Company and are systematically monitored by the Management Committee on a monthly basis. The management of those risks is
led by a member of the Management Committee; and each risk has a defined treatment plan and monitoring indicators.
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(ii)
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Processes Risks: Are those risks that tend to identify potential failures in the activities related
to our core and support business processes that drive us to achieve our objectives. At this level, our processes have identified
risks with their respective mitigation methods, including financial and non-financial controls, treatment plans and/or monitoring
indicators.
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Our risk management approach is based on
the risk management cycle, consisting in five main stages: planning, identifying, evaluating, treatment and monitoring risks, as
well as communication across all stages. This cycle is supported in three pillars of risk management: culture, organizational structure
and normative and management tools.
Three of our most important tools within
the risk management component are:
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(i)
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Risk Assessment Methodology: In order to properly prioritize mitigation, treatment and monitoring
efforts of risk management at the process level, a standardized methodology was established to assess inherent and residual risk
levels. The risk level (Very High, High, Medium, Low or None) is obtained from the combination of the consequences (impacts) and
the probability of occurrence of those consequences. According with the level of risk, action plans for management and mitigation
are defined.
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(ii)
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Mitigation Plans: Each year, by performing the stages of the risk management cycle, we define and
implement mitigation plans in order to reduce the levels of exposure to risk through mitigation or elimination of some of its causes.
Metrics and goals must be defined during the development of each plan to ensure its effectiveness and to prioritize our efforts
on those with the greatest impacts.
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(iii)
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Monitoring Indicators: As part of the monitoring stage of the risk management cycle, Ecopetrol
has implemented Key Risk Indicators (KRIs) which are metrics used to provide early signals of increasing risk exposures. These
signals constitute information for preventative decision making in order to avoid risk materialization.
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Ecopetrol has also defined guidelines to
implement an Internal Control System framework for its subsidiaries. Under those guidelines, each subsidiary must report the performance
of its Internal Control System to Ecopetrol S.A. to ensure compliance with the above measures, and the subsidiaries have methodological
support from Ecopetrol S.A. when requested. Ecopetrol S.A. also performs preventive monitoring in selected subsidiaries to assure
all the components and principles of their Internal Control Systems are present and operating.
5.2.2
Managing
Information Security and Cybersecurity
Ecopetrol S.A. has a dedicated management
team focused on information security issues such as risk analysis, treatment of information, safe information management practices,
classification of critical business information, control systems compliance and effectiveness of available information security
technologies, all of which are articulated with the ERM system at the enterprise level.
Ecopetrol S.A. has included cybersecurity
risk as one of the key enterprise risks. Based on that, a working group formed in 2014, coordinated by the information security
area with the participation of industrial control systems specialists, has been understanding the new challenges of cybersecurity
risk; developing activities to identify and protect critical digital assets.
During 2017, Ecopetrol S.A., as a NOC
(National Oil Company), provided updates to the Cyber Defense Command Unit (an entity under the control of the Colombian Ministry
of Defense) an inventory of its critical cybernetic infrastructure that was included in the classified catalogue of national critical
cybernetic infrastructure.
Ecopetrol’s cybersecurity team established
a plan to continue the incorporation of cybersecurity practices to enhance the awareness about these risks at an operational level
and adjust current information security practices considering the new cyberthreat context. Likewise, as a result of this process,
we are currently continuing the incorporation of elements relative to management of the cyber security threat, including, policies,
specialized monitoring and control mechanisms, vulnerability management, and cybersecurity insurance coverage, among others.
Ecopetrol S.A. incorporated a Security
Operations Center service, in order to enhance the ability to foresee and identify trends in attacks in Ecopetrol S.A.’s
information technology infrastructure and to monitor Ecopetrol’s reputation on the internet.
While there were some cyberattacks during
2017, there were no material effects on processes, equipment, products, services, relationships with customers or suppliers, competitive
conditions or critical information. Ecopetrol S.A. does not have any current proceedings that relate to cybersecurity issues.
Furthermore, during 2017, our internal
audit department conducted an audit on cybersecurity processes with an emphasis on the production area. As a result of such audit,
an action plan was established to be implemented in 2018. The primary goal of the plan is to reinforce our cybersecurity strategy
and refine certain technical components of our cybersecurity program.
5.2.3
Managing
Financial Risk
We are exposed to certain risks associated
with the nature of our operations and the financial instruments we use. Among the risks that affect our financial assets, liabilities
and expected future cash flows are changes in commodity prices, currency exchange rates, interest rates and the credit quality
of our counterparties.
Commodity price risk is associated with
our day-to-day operations as we export and import crude oil, natural gas and refined products. We occasionally use hedges to partially
protect our financial results from price fluctuations taking into account that part of our financial exposure under purchase contracts
for crude oil and refined products depends on international oil prices. We believe that the risk of such exposure is partially
naturally hedged since we are an integrated group (with operations in the upstream, midstream and downstream segments) and either
export crude oil at international market prices or sell refined products at prices that are correlated to international market
prices. We do not use derivative financial instruments for speculative or profit-generating purposes.
Currency risk arises in our operations
given the fact that most of our revenues are derived from sales of products quoted in or with reference to U.S. dollars. Therefore
when the Colombian Peso depreciates against the U.S. dollar, our revenues converted into Colombian Pesos, increase. Conversely,
when the Colombian Peso appreciates against the U.S. dollar, our revenues decrease. On the other hand, imported goods, oil services
and the debt, which is mainly denominated in U.S. dollars, become less expensive when the Colombian Peso appreciates against the
U.S. dollar and more expensive when the Colombian Peso depreciates against the U.S. dollar.
As of December 31, 2017 our U.S. dollar-denominated
total debt was US$12.6 billion, which we recognize in our consolidated financial statements at its amortized cost, which corresponds
to the present value of cash flows, discounted at the effective interest rate. Out of this total, US$12.0 billion relate to Ecopetrol
S.A., whose functional currency is the Colombian Peso. Therefore, when the Colombian Peso depreciates against the U.S. dollar,
Ecopetrol S.A. is exposed to an exchange rate loss. In contrast, when the Colombian Peso appreciates against the U.S. dollar, Ecopetrol
S.A. is exposed to an exchange rate gain. Some of the Ecopetrol Group’s subsidiaries have the U.S. dollar as functional currency
and are not exposed to a material exchange rate risk resulting from fluctuations in the Colombian Peso against the U.S. dollar.
On the asset side, when the financial statements of the Group are consolidated, the exchange rate differential of the subsidiaries’
assets and liabilities whose functional currency is the U.S. dollar is recognized directly in equity, as part of other comprehensive
income.
Taking previous considerations into account,
Ecopetrol seeks to identify and manage currency risk in a comprehensive manner, using an integrated analysis of natural hedges
in order to benefit from the correlation between income or investments in a foreign operations and debt denominated in foreign
currency. In addition, the risk management strategy of the Company may involve the use of financial derivative instruments, and
non-derivative financial instruments. As a part of its risk management strategy, using the natural hedge between exports and dollar-denominated
debt, on October 1, 2015, US$5.4 billion of Ecopetrol S.A.’s debt in U.S. dollars was designated as hedge instrument of its
future export sales for the period 2015 – 2023. On June 8, 2016, Ecopetrol continued its hedge accounting strategy, using
the natural hedge between some of its foreign investments and its dollar-denominated debt in an amount of US$5.2 billion. As of
December 31, 2017, the outstanding value of the natural accounting hedges was US$8.5 billion.
The remaining portion of our dollar-denominated debt, as well as the financial assets and liabilities denominated in foreign currency
continue to be exposed to the fluctuation of the exchange rate, which means that an appreciation of the Colombian peso against
the U.S. dollar could generate a loss if companies whose functional currency is the Colombian peso have an active net position
in U.S. dollars or a gain if they have a net liability position in U.S. dollars. Conversely, a depreciation of the Colombian peso
against the U.S. dollar could generate a gain if companies whose functional currency is the Colombian peso have a net active position
in U.S. dollars or a loss if they have a net liability position in U.S. dollars. Finally, the Company maintains enough cash in
Colombian pesos and U.S. dollars to meet its expenses in each currency (see Note 4.1.5 to our financial statements for further
explanation of our accounting policy and Note 30.2 for details of the hedge accounting adopted). With the adoption of hedge accounting,
the effect of volatility of foreign exchange rate on the hedged portion of the debt is recognized directly in equity, as part of
other comprehensive income. Our hedge management strategy is completely focused on our accounting, reason why the ultimate effect
will only be determined when the hedge operations come to an end. Nevertheless, it is important to bear in mind that for Ecopetrol
S.A’s cash flow, the effect of the Colombian peso appreciation against the U.S. dollar is positive given the fact that we
habitually convert our income in foreign currency to Colombian pesos.
Interest rate risk arises from our exposure
to changes in interest rates mainly as a result of the issuances of floating rate debt linked to LIBOR, DTF and CPI (with a participation
of 5.2%, 8.7% and 3.9%, respectively, of the nominal debt balance as of December 31, 2017). Thus, volatility in interest rates
may affect the fair value of and cash flows related to our investments and floating rate debt. In 2017, our analysis of credit
risk events and global financial markets drove us to decide not to hedge interest rate risk. Nevertheless, our capital markets
office continuously monitors the performance of interest rates and the effect of interest rates on our financial statements.
The trust funds linked to Ecopetrol S.A.’s
pension obligations (PAP) are also exposed to changes in interest rates, as they include fixed- and floating-rate instruments that
are mark to market. This exposure is continuously monitored by our treasury office given the potential impact volatility may have
on our financial results. The treasury office’s information is gathered from reports provided by the asset managers. These
reports refer to regulatory limits as well as market, credit and liquidity risks. The investment guidelines with respect to the
PAPs are issued by the Colombian regulation for pension funds, as stipulated in the Decree 941 of 2002 and Decree 1861 of 2012,
where it is indicated that they have to follow the same regime as the regular obligatory pension funds in their moderate (i.e.,
neither conservative nor aggressive) portfolio. For further information regarding the trust funds linked to the pension obligations
of the company, see Note 22.2 Plan assets to our consolidated financial statements.
Finally, counterparty risk is the potential
probability that a borrower or counterparty defaults on any obligation. In our case, we are exposed to this risk as we invest in
different financial instruments and receive letters of credit in order to mitigate our exposure with our commercial counterparties.
We manage this risk through an analysis of an issuer’s creditworthiness, stock price behavior, spreads on credit default
swaps and the probability of default.
Investment Guidelines
Ecopetrol S.A.
Following the promulgation of Decree 1525
of 2008, which provides general rules on investments for public entities, Ecopetrol S.A.’s management established guidelines
for our investment portfolios. These guidelines determine that investments in Ecopetrol S.A.’s U.S. dollar portfolio are
generally limited to investments of our excess cash in fixed-income securities issued by entities rated A or higher in the long
term and A1/P1/F1 or higher in the short term (international scale) by Standard & Poor’s Ratings Services, Moody’s
Investors Service or Fitch Ratings. In addition, Ecopetrol S.A. may also invest in securities issued or guaranteed by the U.S.
government or Colombian government, without regard to the ratings assigned to such securities. In Ecopetrol S.A.’s Colombian
Peso portfolio, it must invest our excess cash in fixed-income securities of issuers rated AAA in the long term, and F1+/BRC1+
in the short term (local scale) by Fitch Ratings Colombia or BRC Standard & Poor’s. In addition, Ecopetrol S.A. may also
invest in securities issued or guaranteed by the Colombian government without rating restrictions.
In order to diversify risk in our Colombian
Peso portfolio, Ecopetrol S.A. does not invest more than 10% of the excess of cash in one specific issuer. In the case of our U.S.
dollar portfolio, it does not invest more than 5% of the excess of cash in one specific issuer in the short term (up to one year),
or 1% in the long term.
Ecopetrol S.A.’s investment portfolio
in U.S. dollars is segmented into four tranches, each one matching our liquidity needs. The working capital tranche is calculated
taking into account our cash flow needs for the next 60 days. The liquidity tranche is calculated as the contingent cash flow
needs over the working capital, taking into account the development of capital expenditures related to projects. The asset liability
tranche is built to match our long-term debt. The investment tranche includes the remaining amount of the total portfolio after
deducting the amounts pertaining to the above mentioned tranches and after subtracting the Colombian Peso portfolio.
Ecopetrol S.A.’s investment portfolio
in Colombian Pesos is segmented in two tranches, each one matching our liquidity needs. The first tranche is calculated taking
into account our cash flow needs for the next 30 days, and the second tranche is built for investment purposes.
5.3
Legal
Proceedings and Related Matters
We are a party to various legal proceedings
in the ordinary course of business. Other than the proceedings disclosed in this annual report, we are not involved in any pending
(or, to our knowledge, threatened) litigation or arbitration proceeding that we believe will have a material adverse effect on
our Company. Other legal proceedings that are pending against or involve us and our subsidiaries are incidental to the conduct
of our and their business. We believe that the ultimate disposition of such other proceedings individually or in an aggregate basis
will not have a material adverse effect on our consolidated financial condition or results of operations.
As of December 31, 2017, Ecopetrol
S.A. was a party to 3,169 legal proceedings relating to civil, administrative, environmental, tax and labor claims filed
against us in the Colombian courts and arbitration tribunals, of which 396 had an accrual provision. We allocate sufficient
amounts of money and time to defend these claims. Historically, we have been successful in defending lawsuits filed against
us. Other than the environmental administrative proceedings described in the last paragraph of this section, based on the
advice of our legal advisors, it is reasonable to assume that the litigation procedures brought against us will not
materially affect our financial position or solvency regardless of the outcome. See Note 23 to our consolidated financial
statements included in this annual report for a discussion of our legal proceedings.
Caño Limón – Coveñas
Crude Oil Pipeline Spill
On December 11, 2011, the Caño Limón-Coveñas
oil pipeline ruptured and caused the spill of approximately 3,267 barrels of crude oil into the Iscala creek, which connects with
the Pamplonita River that provides water to the city of Cúcuta. The incident did not cause any fatalities or injuries.
A class action lawsuit has been filed against
Ecopetrol S.A. and against employees of the company, and the First Administrative Court has jurisdiction to conduct the case, which
is in the probatory stage.
The Regional Environmental authority of
Norte de Santander, or Corporación Autónoma Regional de la Frontera Nororiental (CORPONOR) has filed a lawsuit against
Ecopetrol at the Administrative Court of Norte de Santander claiming for (i) the environmental loss caused by the incident and
(ii) for compensation costs relating to the environment damage for approximately COP$33 billion. Ecopetrol’s legal counsel
filed to dismiss the lawsuit on June 2, 2014, based on three grounds: (i) there is no proof of environmental loss, (ii) CORPONOR
does not have the authority to file this lawsuit and (iii) CORPONOR’s petition for direct compensation is not the proper
legal action according to the applicable procedural rules. Currently this lawsuit is in probatory stage.
Ecopetrol and national and local authorities
convened to develop a project consisting of an alternative to the water supply in the intake of the aqueduct in Cúcuta,
The Company’s Board of Directors in December 2011 approved the participation of Ecopetrol in the project as part of the strengthening
of its contingency plans and its relationship with its stakeholders. On November 10, 2017, the relevant parties entered into an
agreement with the purpose of building the alternative water supply at a cost of approximately COP$385 billion. According to the
agreement Ecopetrol will be in charge of the construction of the above mentioned infrastructure.
BT Energy Challenger
On October 22, 2014, we were served with
a class action suit against us seeking monetary damages of approximately COP$7.4 trillion related to an incident that occurred
on August 21, 2014, during the loading operations of the BT Energy Challenger vessel. The claimants alleged possible damage
to the port area of Ecopetrol’s terminal in Coveñas, as well as of marine and submarine areas and beaches that form
the geographical area of the Morrosquillo Gulf. This allegation is currently under investigation by the Harbor Master of Coveñas.
Ecopetrol filed a motion requesting the judge to require the claimants to amend their claim to more precisely set forth the facts
and evidence it believes establishes Ecopetrol’s liability.
On March 3, 2015, Ecopetrol filed its statement
of defense arguing the exclusive fault of a third party. On October 20, 2015, the Court denied a class action of more than 100
informal traders in the region because there is no common identity with the initial class (hotel employees). However, during 2016
the Sucre Administrative Tribunal accepted another 1208 informal traders and fishermen as claimants.
On March 10, 2017, a mandatory conciliatory
hearing was held in order to seek an agreement but it failed.
In January 2018, a judicial order was issued
to commence the evidence gathering process, a decision which was objected by the parties.
PetroTiger
As highlighted in previous 20-F and 6-K
filings, on January 6, 2014, the United States Department of Justice (DOJ) announced the unsealing of charges against two former
co-chief executive officers (CEOs) and the former general counsel of PetroTiger Ltd. (PetroTiger), alleging, among other things,
violations of the U.S. Foreign Corrupt Practices Act (FCPA) and conspiracy to commit violations of the FCPA and money laundering
in connection with payments made to an Ecopetrol employee. By the time of the DOJ announcement, that employee no longer worked
at the Company. The DOJ alleged the payments were made to secure Ecopetrol’s approval for PetroTiger’s entry into an
oil services contract with Mansarovar Energy Colombia Ltd. Ecopetrol participated in the Mansarovar project as non-operating partner
in a joint operating agreement. Also on January 6, 2014, the DOJ announced that the general counsel of PetroTiger had pled guilty
on November 8, 2013, to one count of conspiracy to violate the FCPA and to commit wire fraud. One of the charged former co-CEOs
pleaded guilty on February 18, 2014, to the same charge. On May 9, 2014, the DOJ charged the other former co-CEO with conspiracy
to violate the anti-bribery provisions of the FCPA, conspiracy to commit wire fraud, conspiracy to launder money, and substantive
FCPA anti-bribery and money laundering violations. On June 15, 2015, that co-CEO pleaded guilty to conspiracy to violate the FCPA.
After the DOJ unsealed its charges on January
6, 2014, Ecopetrol filed a complaint the same month, jointly with the Transparency Secretariat of the Presidency of the Republic,
to Colombia’s Attorney General’s office requesting the investigation of individuals who may have been involved in the
wrongdoing related to the Mansarovar contract. Colombian authorities initiated a proceeding related to PetroTiger, and on March
11, 2015, arrested four current Ecopetrol employees and two former Ecopetrol employees related to their investigation of the Mansarovar
project and five other contracts involving PetroTiger and Ecopetrol. To date, four investigations of the control entities continue
in course. During 2017 and 2018 to date, Colombian authorities have resolved an appeal confirming the conviction of a former Ecopetrol
employee and another person involved in the case but not linked with Ecopetrol. Likewise, another appeal submitted by Ecopetrol
and the Prosecutor’s Office is in progress in a case in which a former Ecopetrol employee was acquitted.
Ecopetrol has responded to information
requests from the DOJ and Colombian authorities in connection with their investigations of PetroTiger. Ecopetrol has been designated
with the formal status of victim in the local Colombian proceedings. It has terminated the employment of the four charged individuals
who were Ecopetrol employees at the time of the arrests. Ecopetrol has concluded an internal investigation and has not identified
any new issues relating to PetroTiger.
Salgar-Cartago Multipurpose Pipeline
Spill
On December 23, 2011 our Salgar-Cartago
pipeline ruptured. Internal and external experts believe this incident occurred as a result of creep movement of soil caused by
severe weather conditions, causing the soil surrounding the pipeline to exert strong pressure on the pipeline and rupture it. As
of the date of this annual report, 10 lawsuits related to this incident are active for an approximately worth of COP$7.8 billion.
Environmental Administrative Proceedings
As of December 2017, Ecopetrol S.A. was
party to 215 environmental administrative proceedings, of which 197 were initiated before 2017, and 18 during 2017. During 2017,
5 proceedings were concluded, in 3 of them we were subject to monetary fines through Resolutions issued in 2017; DTP 1330 October
5, DGL 796, September and DGL 411 May 10. However, these last two proceedings were suspended due to the replenishment of resources.
It is not possible for us to determine whether the pending proceedings could have a material effect on Ecopetrol.
Reficar Investigations
Reficar is a wholly owned subsidiary of
Ecopetrol. According to Colombian regulations, Ecopetrol’s and Reficar’s employees are considered public servants,
and as such can be held liable for negligent use or management of public resources. In this context, given that Ecopetrol is majority
owned by the Colombian Government and Reficar is a wholly owned subsidiary of Ecopetrol, Ecopetrol and Reficar administer public
resources.
As a result, Ecopetrol and Reficar employees
are generally subject to the control and supervision of the following control entities, among others:
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The Office of the Comptroller General (
Contraloría General de la República
)
oversees the adequate use of public resources and has the authority to investigate public employees or private sector employees
that use or manage public resources.
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The Attorney General’s Office (
Procuraduría General de la Nación
) supervises
compliance with applicable law by public employees and private sector employees that carry out public functions. The Attorney General’s
Office investigates and disciplines individuals for compliance failures.
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The Prosecutor’s Office (
Fiscalía General de la Nación
) investigates
potential crimes and prosecutes alleged crimes before the court in judicial proceedings.
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The following are the most significant
investigations and proceedings carried out by the aforementioned state entities:
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1.
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The Office of the Comptroller General’s investigations and proceedings:
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Because of the modifications of the schedule
and budget related to Reficar’s expansion and modernization project (the “Project”), the Office of the Comptroller
General initiated a special audit investigation of the Project in 2016 and delivered a final report to Reficar on December 5, 2016.
The report made 36 findings most of which were related to increased costs compared to budget for services, labor and materials.
As required, on January 18, 2017, Reficar submitted an action plan exposing and addressing the 36 findings in the following areas:
(i) contract management, (ii) supervision of engineering standards contracted with third parties, and (iii) documentation of the
control, reporting and monitoring mechanisms of subcontracts.
As a result of the findings described above
the Office of the Comptroller General opened actions for financial responsibility (
proceso de responsabilidad fiscal
) against
36 individuals and the six companies involved in the Project, including current and former members of Ecopetrol’s Board of
Directors; former members of Reficar’s Board of Directors; current and former employees of Ecopetrol; and former employees
of Reficar, as well as Chicago Bridge & Iron Company N.V., CBI - Chicago Bridge & Iron company (CB&I) Americas Ltd.,
Chicago Bridge & Iron Company CB&I UK Limited, CBI Colombiana S.A., Foster Wheeler USA Corporation and Process Consultants
Inc.
One current member of Ecopetrol’s
Board of Directors, Joaquín Moreno Uribe, is being investigated in these proceedings.
These actions were initiated based on the
Office of the Comptroller General’s theory that lower than expected profitability at Reficar could have been caused by modifications
to the schedule, and for the increase of the budget of the Project. As of the date of this annual report, Reficar has no liability
under this proceeding.
While the content and status of the investigations
remains confidential, we can report that Reficar and several of its employees have cooperated with and provided the information
required by the department of the Office of the Comptroller General in charge of leading the investigation.
In January 2017, the Office of the Comptroller
General initiated another special audit in Reficar and delivered a final report to Reficar on July 12, 2017. In this report the
Office of the Comptroller General concluded that, in their opinion, Reficar’s 2016 Financial Statements do not reasonably
represent, in all material aspects, the entity’s financial position as of December 31, 2016.
On February 2, 2018, the Legal Accounts
Commission of the National House of Representatives of the Republic of Colombia informed Reficar that the House of Representatives
decided, through Resolution No. 2713, that it would not close the General Budget, Treasury Account or the National Balance Sheet
for the 2016 fiscal year, since the 2016 Financial Statements of several state entities, among them Reficar, had received a negative
opinion from the Office of the Comptroller General. Pursuant to Resolution No. 2713, Colombian control entities have been ordered
to initiate disciplinary, fiscal and/or penal investigations.
Reficar’s external auditors issued
an unqualified opinion on Reficar’s financial position as of December 31, 2016 and 2017. As of the date of this annual report,
such auditors have not informed Reficar that there has been any change to their opinion.
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2.
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The Attorney General’s Office investigations:
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Reficar has been officially informed that
the Attorney General’s Office currently has one ongoing investigation relating to the Project. The investigation initiated
in 2012 against members of Reficar’s Board of Directors at the time, as well as certain current and former officers of Reficar.
On September 12, 2017 the Attorney General’s
Office issued a list of charges related to the failure to fulfill some of their duties as administrators and/or for acting “ultra
vires” in the exercise of their functions against: (i) Javier Genaro Gutiérrez (Ecopetrol CEO, 2007-2015); (ii) Felipe
Laverde (Reficar General Counsel, 2009-March 2017); (iii) Pedro Rosales (Ecopetrol Downstream Executive Vice President, 2008-2015);
(iv) Diana Constanza Calixto (Ecopetrol Head of the Corporate Finance Unit, 2009-2014) and (vi) Reyes Reinoso Yañez (Reficar
CEO, 2012-2016). The Attorney General’s Office closed the case against the rest of the members of Reficar’s Board of
Directors and the rest of the current and former officers of Reficar.
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3.
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The Prosecutor’s Office investigations:
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The Prosecutor’s Office is conducting
an investigation. In connection therewith, between July 25 and August 2, 2017 the Prosecutor’s Office indicted the following
individuals with charges, the majority of which are related to offenses against the public administration and illegal interest
in the execution of agreements:
(i) Orlando José Cabrales Martínez
(Reficar CEO, 2009-2012); (ii) Reyes Reinoso Yañez (Reficar CEO, 2012-2016); (iii) Felipe Laverde Concha (Reficar General
Counsel, 2009-March 2017); (iv) Pedro Alfonso Rosales Navarro (Ecopetrol Downstream Executive Vice President, 2008-2015); (v) Masoud
Deidehban (CBI Executive Project Director); (vi) Phillip Asherman (CBI CEO) and (vii) Carlos Lloreda (Reficar’s statutory
auditor from 2013-2015.)
The arraignment hearing is scheduled to
take place on May 30, 2018.
Prosecutor’s Office has not yet made
public the factual basis for such charges, and accordingly we are not in a position to predict the outcome of investigation or
the disposition of any of the charges.
As of the date of this annual report, to
the best of Ecopetrol’s knowledge, the financial statements continue to fairly represent the financial and operational condition
of the Company in all material aspects and its internal controls remain effective.
Ecopetrol and Reficar have cooperated closely
and extensively with the control entities in furthering their investigations and will continue to monitor the status and development
of these investigations.
Additionally, on May 9, 2017, Ecopetrol’s
Audit and Risk Committee retained a U.S.-based outside law firm to commence a third-party investigation into the matters set forth
in the Prosecutor’s Office announcement. The results were presented in December 2017 to Ecopetrol’s Audit and Risk
Committee. This investigation concluded that to date there has been no evidence of possible unlawful acts that affect Ecopetrol’s
internal control over the financial reporting of the Company, on the allegations made by the Prosecutor’s Office.
In March 2016, Reficar filed a
Request for Arbitration before the International Chamber of Commerce (the “ICC”), against Chicago Bridge &
Iron Company N.V., CB&I (UK) Limited, and CBI Colombiana S.A. (jointly, “CB&I”) concerning a dispute
related to the Engineering, Procurement, and Construction Agreements entered into by and between Reficar and CB&I for the
expansion of the Cartagena Refinery in Cartagena, Colombia. Reficar is the Claimant in the ICC arbitration and seeks no
less than US$2 billion in damages plus lost profits. On May 25, 2016, CB&I filed its Answer to the Request for
Arbitration and Counterclaim for approximately US$106 million and COP$324,052 million. On June 27, 2016, Reficar filed
its reply to CB&I’s counterclaim denying and disputing the declarations and relief requested by CB&I. On
April 28, 2017, CB&I submitted its Statement of Counterclaim increasing its claims to approximately US$116 million and
COP$387,558 million. On March 16, 2018, CB&I submitted its Exhaustive Statement of Counterclaim further increasing its claims
to approximately US$129 million and COP$432,303 million (including interests).
The hearing before the tribunal is currently
scheduled for 2019. At the conclusion of which the tribunal would render its final decision on Reficar’s and CB&I’s
claims. Until then, the outcome of this arbitration is unknown.
Bioenergy Special Audit
The Office of the Comptroller General,
in exercise of its fiscal monitoring duties and authority as set forth in Article 267 of the Political Constitution, has undertaken
audits of the performance of the Bioenergy S.A.S. and Bioenergy Zona Franca S.A.S. investments.
On February 6, 2017 the Office of the Comptroller
General initiated a Special Intervention (Special Audit) in order to evaluate the use of public funds in the project carried out
by Bioenergy Zona Franca S.A.S. and Bioenergy S.A. On July 10, 2017 the Office of the Comptroller General issued its final report
with 15 findings related to: (i) acquisition, lease payments and the use of agricultural lands, (ii) loss of profits due to the
project´s delay; and (iii) execution of contracts related with the building, commissioning and start-up of the industrial
plant and the agricultural component of the project. As required, Bioenergy has commenced a remediation plan to address the findings.
|
|
6.
|
Shareholder Information
|
6.1
Shareholders’
General Assembly
Our Shareholders’ General Assembly
was held on March 23, 2018 and the following matters were approved:
|
|
·
|
The plan for distribution of the Company’s profits, which establishes the distribution of
an ordinary dividend per share of eighty nine pesos (COP$89) to be paid to minority shareholders in one installment on April 19,
2018 and in two installments to the majority shareholder, 50% on April 19, 2018 and 50% on September 17, 2018.
|
|
|
·
|
Amendment of our bylaws. For further information please see the section
Corporate Governance—Bylaws
.
|
|
|
·
|
Appointed Ernst & Young as external auditor of Ecopetrol for fiscal year 2018.
|
|
|
·
|
The bylaws were amended in the General Shareholders Assembly held on March 23, 2018.
|
|
|
·
|
The new composition of the Board of Directors for the year 2018 as follows:
|
Non Independent Directors
:
|
|
Ø
|
Director General of State Owned Enterprises of the Ministry of Finance
and Public
Credit.
|
|
|
Ø
|
Claudia Isabel González Sánchez
|
Independent Directors
:
|
|
Ø
|
Mauricio Cabrera Galvis
|
|
|
Ø
|
Jorge Londoño Saldarriaga
|
|
|
Ø
|
Hernando Ramírez Plazas (nominated by the hydrocarbon producing provinces)
|
|
|
Ø
|
Carlos Gustavo Cano Sanz (nominated by the minority shareholders with the greatest share participation)
|
6.2
Dividend
Policy
In 2018, as a result of the solid financial
position of the Company, the Board of Directors approved as a dividend policy consisting of the distribution of between 40% and
60% of the adjusted net income of the Company of each fiscal year. For this purpose, the Board of Directors shall asses the macroeconomic
environment, the cash projection for achieving strategy goals and growth plans, while maintaining an appropriate financial flexibility.
This policy cannot exceed the maximum amount to be distributed and should keep the Company’s debt metrics in line with an
investment grade rating. The maximum amount to be distributed is the profits available to shareholders (net income after release
and appropriation for legal, fiscal and occasional reserves).
Pursuant to Colombian law, dividend distribution
to our shareholders must be approved by a 78% majority of the shares represented in the corresponding General Shareholders Assembly.
In the absence of this special majority, at least 50% of the net profits must be distributed.
On March 23, 2018, our shareholders at
the ordinary General Shareholders Assembly approved an ordinary dividend of 55% of our net income for the fiscal year ended December
31, 2017. On March 31, 2017, our shareholders at the ordinary General Shareholders Assembly approved an ordinary dividend
of 40% of our net income before the impairment of non-current assets (net of taxes) for the fiscal year ended December 31, 2016.
Given that the fiscal year ended December 31, 2015 resulted in a net loss for Ecopetrol S.A., our shareholders at the General Shareholders
Assembly held on March 31, 2016, approved that there was no distribution of profits for the fiscal year ended December 31,
2015. Pursuant to Article 456 of the Code of Commerce the Company absorbed the net loss for the fiscal year ended December 31,
2015 through its legal reserve. In 2015 there was no dividend distribution and in 2016 the shareholders approved the distribution
of 40% of our net income before the impairment of non-current assets (net of taxes). See section
Financial Review—Liquidity
and Capital Resources—Dividends
.
Ecopetrol S.A. is required to have legal
reserves equal to 50% of its subscribed capital. If the legal reserves are less than 50% of subscribed capital, we will contribute
10% of net income to our legal reserves every year until our legal reserves meet the required level.
6.3
Market
and Market Prices
Starting on August 2010, our ADSs began
trading on the Toronto Stock Exchange (“TSX”) under the symbol “ECP.” On February 17, 2016, we announced
the application for voluntary delisting from the Toronto Stock Exchange after in an ordinary meeting held on January 27, 2016,
during which the Board of Directors made the decision to delist from the TSX. This decision was based on the Board of Director’s
assessment of, among other factors, the limited trading activity of our ADRs in Canada, a liquid market for our ADRs on the NYSE
and for our ordinary shares on the local Colombian Stock Exchange (Bolsa de Valores de Colombia), both of which enable interested
investors to acquire a participation in Ecopetrol S.A. The time and administrative efforts associated with maintaining the listing
of the ADRs on the TSX were also taken into account. On March 2, 2016, Ecopetrol’s ADRs were delisted from the TSX. After
delisting from the TSX, the ADRs have continued to trade on the NYSE and the ordinary shares have continued to trade in the Colombian
stock market. Therefore, the Company continues to be subject to United States, Canadian as well as Colombian reporting and corporate
governance obligations. Ecopetrol has applied to the Alberta Securities Commission and Ontario Securities Commission to cease being
a reporting issuer in Canada. As of the date of this annual report, these applications are under review by such entities and we
are awaiting for final resolution on the matter, until a decision is reached, Ecopetrol continues to comply with its reporting
responsibilities under its reporting issuer status in Canada.
The following table sets forth reported
high and low closing prices in Colombian Pesos for our shares and the reported average daily trading volume of our shares on the
BVC for the periods indicated. The table also sets forth information on the trading price of our shares in Colombian Pesos and
U.S. dollars, as well as the average trading volume.
Table 56 – Shares Traded on the
Bolsa de Valores de Colombia
|
|
|
Shares Traded on the BVC
|
|
|
|
|
Colombian Pesos per share
|
|
|
U.S. dollars per share
(1)
|
|
|
Average
number of
shares traded
|
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
Per day
|
|
|
2013
|
|
|
5,710
|
|
|
|
3,695
|
|
|
|
3.2091
|
|
|
|
1.8992
|
|
|
|
7,018,859
|
|
|
2014
|
|
|
4,030
|
|
|
|
1,815
|
|
|
|
2.0556
|
|
|
|
0.7546
|
|
|
|
8,222,596
|
|
|
2015
|
|
|
2,305
|
|
|
|
1,090
|
|
|
|
0.8402
|
|
|
|
0.3973
|
|
|
|
10,109,301
|
|
|
2016
|
|
|
1,465
|
|
|
|
881
|
|
|
|
0.4802
|
|
|
|
0.2888
|
|
|
|
13,077,105
|
|
|
2017
|
|
|
1,480
|
|
|
|
1,290
|
|
|
|
0.7492
|
|
|
|
0.4373
|
|
|
|
11,420,810
|
|
|
Most recent quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2016
|
|
|
1,425
|
|
|
|
881
|
|
|
|
0.4386
|
|
|
|
0.2712
|
|
|
|
17,971,092
|
|
|
Second quarter 2016
|
|
|
1,465
|
|
|
|
1,220
|
|
|
|
0.4892
|
|
|
|
0.4074
|
|
|
|
14,267,136
|
|
|
Third quarter 2016
|
|
|
1,410
|
|
|
|
1,170
|
|
|
|
0.4786
|
|
|
|
0.3971
|
|
|
|
10,403,945
|
|
|
Fourth quarter 2016
|
|
|
1,385
|
|
|
|
1,240
|
|
|
|
0.4593
|
|
|
|
0.4112
|
|
|
|
9,760,236
|
|
|
First quarter 2017
|
|
|
1,415
|
|
|
|
1,290
|
|
|
|
0.4842
|
|
|
|
0.4414
|
|
|
|
10,004,466
|
|
|
Second quarter 2017
|
|
|
1,480
|
|
|
|
1,325
|
|
|
|
0.5067
|
|
|
|
0.4537
|
|
|
|
14,076,659
|
|
|
Third quarter 2017
|
|
|
1,405
|
|
|
|
1,350
|
|
|
|
0.4727
|
|
|
|
0.4542
|
|
|
|
8,247,688
|
|
|
Fourth quarter 2017
|
|
|
2,210
|
|
|
|
1,395
|
|
|
|
0.7406
|
|
|
|
0.4675
|
|
|
|
13,447,615
|
|
|
First quarter 2018
|
|
|
2,800
|
|
|
|
2,210
|
|
|
|
0.9800
|
|
|
|
0.7735
|
|
|
|
19,795,943
|
|
|
Most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2017
|
|
|
1,820
|
|
|
|
1,700
|
|
|
|
0.6045
|
|
|
|
0.5646
|
|
|
|
14,409,722
|
|
|
December 2017
|
|
|
2,210
|
|
|
|
1,775
|
|
|
|
0.7391
|
|
|
|
0.5936
|
|
|
|
9,771,858
|
|
|
January 2018
|
|
|
2,800
|
|
|
|
2,210
|
|
|
|
0.9777
|
|
|
|
0.7717
|
|
|
|
21,066,624
|
|
|
February 2018
|
|
|
2,770
|
|
|
|
2,335
|
|
|
|
0.9680
|
|
|
|
0.8160
|
|
|
|
21,606,463
|
|
|
March 2018
|
|
|
2,775
|
|
|
|
2,450
|
|
|
|
0.9749
|
|
|
|
0.8607
|
|
|
|
17,676,641
|
|
|
April 2018 (through April 16, 2018)
|
|
|
2,980
|
|
|
|
2,615
|
|
|
|
1.0801
|
|
|
|
0.9478
|
|
|
|
14,416,613
|
|
|
|
(1)
|
U.S. dollars per common share translated at the Representative Market Exchange Rate as of each
period.
|
The following table sets forth reported
high and low closing prices in U.S. dollars for our ADSs and the average daily trading volume of our ADSs on the NYSE for the periods
indicated. The table also sets forth information on the trading price of our ADSs in U.S. dollars, as well as the average trading
volume.
Table 57 – Shares Traded on the
New York Stock Exchange
|
|
|
ADSs Traded on NYSE
|
|
|
|
|
U.S. dollars per ADS
(1)
|
|
|
Average number
of ADSs Traded
|
|
|
|
|
High
|
|
|
Low
|
|
|
per day
|
|
|
2013
|
|
|
63.80
|
|
|
|
37.93
|
|
|
|
464,193
|
|
|
2014
|
|
|
41.16
|
|
|
|
14.77
|
|
|
|
603,083
|
|
|
2015
|
|
|
19.80
|
|
|
|
6.50
|
|
|
|
960,193
|
|
|
2016
|
|
|
10.04
|
|
|
|
5.40
|
|
|
|
1,160,901
|
|
|
2017
|
|
|
14.63
|
|
|
|
8.60
|
|
|
|
1,008,056
|
|
|
Most recent quarters
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter 2016
|
|
|
9.22
|
|
|
|
5.40
|
|
|
|
1,559,605
|
|
|
Second quarter 2016
|
|
|
10.04
|
|
|
|
7.89
|
|
|
|
1,257,883
|
|
|
Third quarter 2016
|
|
|
9.80
|
|
|
|
7.83
|
|
|
|
914,424
|
|
|
Fourth quarter 2016
|
|
|
9.37
|
|
|
|
7.85
|
|
|
|
926,722
|
|
|
First quarter 2017
|
|
|
9.67
|
|
|
|
8.60
|
|
|
|
986,373
|
|
|
Second quarter 2017
|
|
|
10.24
|
|
|
|
8.70
|
|
|
|
1,182,807
|
|
|
Third quarter 2017
|
|
|
9.59
|
|
|
|
8.78
|
|
|
|
756,630
|
|
|
Fourth quarter 2017
|
|
|
14.63
|
|
|
|
9.44
|
|
|
|
1,139,727
|
|
|
First quarter 2018
|
|
|
20.05
|
|
|
|
14.63
|
|
|
|
1,695,397
|
|
|
Most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2017
|
|
|
12.04
|
|
|
|
11.22
|
|
|
|
1,458,409
|
|
|
December 2017
|
|
|
14.63
|
|
|
|
11.74
|
|
|
|
893,424
|
|
|
January 2018
|
|
|
20.05
|
|
|
|
14.63
|
|
|
|
1,943,724
|
|
|
February 2018
|
|
|
19.78
|
|
|
|
16.26
|
|
|
|
1,800,215
|
|
|
March 2018
|
|
|
19.82
|
|
|
|
17.11
|
|
|
|
1,352,395
|
|
|
April 2018 (through April 16, 2018)
|
|
|
21.98
|
|
|
|
19.30
|
|
|
|
1,599,547
|
|
|
|
(1)
|
Represents the right to receive 20 of our common shares.
|
Registration and Transfer of Shares
Under Colombian law, transfers of shares
must be registered on the issuer’s stock ledger. Only those holders registered on the stock ledger are considered by law
as shareholders. Ecopetrol’s shares are in electronic form, other than those shares held by the Nation, which are in physical
form.
Transfers of shares evidenced in electronic
form required to be negotiated through the Colombia Stock Exchange. In Colombia, only the relevant stockbrokers called
sociedades
comisionistas de bolsa
are authorized to make the transfers of shares through the Colombia Stock Exchange. The transfers of
shares are registered in the Centralized Security Deposit (
Depósito Centralizado de Valores
) or DECEVAL, through
the relevant stockbrokers. DECEVAL records the share transfer on its systems, in order to make the corresponding registration in
the issuer stock ledger.
Under Colombian legislation, if a transfer
of shares for a value equivalent to or higher than 66,000 UVR (the UVR was COP$252.3767 as of December 31, 2017) must be made
through the BVC if the shares are registered with the BVC. Otherwise, shareholders can freely negotiate a transfer of shares.
Nevertheless, pursuant to Decree 2555 of
2010 article 6.15.1.1.2 the following transfers are not required to be executed through the BVC:
|
|
·
|
Transfers between shareholders who are considered to be the same beneficial owner;
|
|
|
·
|
Transfers of shares owned by financial institutions, under supervision of Superintendence of Finance,
that are in a liquidation process;
|
|
|
·
|
Repurchases of shares by the issuer;
|
|
|
·
|
Property delivered in lieu of payment, or payment of money or other valuable property, different
than the amount owed or demanded, in exchange for the extinguishment of the debt;
|
|
|
·
|
Transfers of shares made by the Nation or the Financial Institutions Warranty Fund (
Fondo de
Garantías de Instituciones Financieras
) or FOGAFIN;
|
|
|
·
|
Transfers of shares issued abroad by Colombian companies, provided they take place outside Colombia;
|
|
|
·
|
Transfers of shares issued by foreign companies, offered through a public offer in Colombia, provided
that they take place outside Colombia; and
|
|
|
·
|
Any other transaction specifically authorized by the Superintendence of Finance to take place outside
the BVC.
|
For the purposes described above, multiple
transfer transactions made within one hundred twenty (120) calendar days, between the same parties on shares of the same issuer
and under similar conditions, are treated as a single transfer.
6.4
Ecopetrol
ADR Program Fees
Fees and Charges That a Holder of
Our ADSs May Have to Pay, Either Directly or Indirectly
JPMorgan Chase Bank, N.A., our Depositary,
may charge each person to whom ADSs are issued, including, without limitation, issuances against deposits of shares, issuances
in respect of share distributions, rights and other distributions, issuances pursuant to a stock dividend or stock split declared
by us or issuances pursuant to a merger, exchange of securities or any other transaction or event affecting the ADSs or Deposited
Securities, and each person surrendering ADSs for withdrawal of Deposited Securities in any manner permitted by the Deposit Agreement
or whose ADSs are cancelled or reduced for any other reason, US$5.00 for each 100 ADS (or any portion thereof) issued, delivered,
reduced, cancelled or surrendered, as the case may be. The Depositary may sell (by public or private sale) sufficient securities
and property received in respect of a share distribution, rights and/or other distribution prior to such deposit to pay such charge.
The Depositary collects its fees for issuance
and cancellation of ADSs directly from investors depositing common shares or surrendering ADSs for the purpose of withdrawal or
from intermediaries acting for them. The Depositary collects fees for making distributions to investors by deducting those fees
from the amounts distributed or by selling a portion of distributable property to pay the fees. The Depositary may collect its
annual fee for Depositary services by deduction from cash distributions, or by directly billing investors, or by charging the book-entry
system accounts of participants acting for them. The Depositary may generally refuse to provide services to any holder until the
fees and expenses owing by such holder for those services or otherwise are paid.
The following additional charges may be
incurred by holders of ADRs, by any party depositing or withdrawing common shares or by any party surrendering ADSs and/or to whom
ADSs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by us or an exchange
of stock regarding the ADRs or the Deposited Securities or a distribution of ADSs), whichever is applicable:
|
|
·
|
A fee of U.S.$0.05 or less per ADS for any cash distribution made pursuant to the Deposit Agreement;
|
|
|
·
|
A fee for the distribution of securities (or the sale of securities in connection with a distribution),
such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of
the deposit of such securities (treating all such securities as if they were common shares) but which securities or the net cash
proceeds from the sale thereof are instead distributed by the Depositary to those holders of ADRs entitled thereto;
|
|
|
·
|
An aggregate fee of up to US$0.05 per ADS per calendar year (or portion thereof) for services performed
by the Depositary in administering the ADRs (which fee may be charged on a periodic basis during each calendar year and shall be
assessed against holders of ADRs as of the record date or record dates set by the Depositary during each calendar year and shall
be payable in the manner described in the next succeeding provision);
|
|
|
·
|
A fee for the reimbursement of such fees, charges and expenses as are incurred by the Depositary
and/or any of the Depositary’s agents (including, without limitation, the custodian and expenses incurred on behalf of holders
of ADRs in connection with compliance with foreign exchange control regulations or any law or regulation relating to foreign investment)
in connection with the servicing of our common shares or other Deposited Securities, the sale of securities (including, without
limitation, Deposited Securities) and the delivery of Deposited Securities or otherwise in connection with the Depositary’s
or its custodian’s compliance with applicable law, rule or regulation (which fees and charges shall be assessed on a proportionate
basis against registered holders of ADRs as of the record date or dates set by the Depositary and shall be payable at the sole
discretion of the Depositary by billing such holders of ADRs or by deducting such charge from one or more cash dividends or other
cash distributions);
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Stock transfer or other taxes and other governmental charges;
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SWIFT, cable, telex and facsimile transmission and delivery charges incurred at the request of
a holder of ADRs;
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Transfer or registration fees for the registration of transfer of Deposited Securities on any applicable
register in connection with the deposit or withdrawal of Deposited Securities; and
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In connection with the conversion of foreign currency into U.S. dollars, the Depositary shall deduct
out of such foreign currency the fees, expenses and other charges charged by it or the Depositary’s agent (which may be a
division, branch or affiliate) so appointed in connection with such conversion. The Depositary and/or the Depositary’s agent
may act as principal for such conversion of foreign currency. Such charges may at any time and from time to time be changed by
agreement between us and the Depositary.
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We will pay all other charges and expenses
of the Depositary and any agent of the Depositary (except the custodian) pursuant to agreements from time to time between us and
the Depositary. The fees described above may be amended from time to time.
Fees and Other Direct and Indirect Payments
Made by the Depositary to Us
Our Depositary has agreed to reimburse
us for certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations
expenses and exchange application and listing fees. In 2015, reimbursements were made in the amount of approximately US$2,069,202
for expenses related to investor relations activities. In 2016, reimbursements were made in the amount of approximately US$2,366,395
for expenses related to investor relations activities. In 2017, reimbursements were made in the amount of approximately US$2,220,290
for expenses related to investor relations activities.
6.5
Taxation
6.5.1
Colombian
Tax Considerations
The following is a general description
of the Colombian tax considerations for investments in common shares in Colombia or for the purchase of ADSs, in a foreign securities
market. This description is based on applicable law in effect as of the date of this annual report is issued, which may be subject
to changes.
Prospective purchasers of common shares
or ADSs should consult their own tax advisors for a detailed analysis of the tax consequences in Colombia, resulting from the acquisition,
ownership and disposition of common shares or ADSs.
General Rules
Colombian entities and individuals who
are deemed to be residents within the Colombian national territory for Colombian tax purposes are subject to Colombian income tax
on their worldwide income. Foreign entities and individuals who are not deemed to be residents in Colombia, as well as their permanent
establishment in Colombia for tax purposes are subject to income tax in Colombia only with respect to their national-source income,
which is generally defined as income obtained from (i) the rendering of services inside Colombian territory, (ii) the exploitation
of tangible and intangible assets in Colombia, and (iii) the sale of tangible or intangible assets that are located inside Colombian
territory at the time of the sale Double taxation treaties signed by Colombia, if applicable, may provide for special regulations
regarding income tax.
Dividends paid by Colombian companies,
as well as profits distributed by branches/permanent establishments are deemed Colombian income. However, whether they are taxed
or not depends on an imputation system set forth in articles 48 and 49 of the Colombian Tax Code (hereinafter “CTC”).
According to this system, dividends are taxable when paid out of non-taxed profits, in which case a 35% withholding applies when
paid to non-resident shareholders. Conversely, they are non-taxable when paid out of taxed profits, provided that the shareholder
qualifies as a Colombian company.
Notwithstanding the above, one of the novelties
introduced by Law 1819 of December 29 of 2016 (the “Tax Reform”) was the creation of a new dividends tax that applies
on all dividend distributions to Colombian individuals or to any type of non-resident shareholder, absent any specific treaty or
exception, regardless that dividends are paid from taxed or non-taxed profits. According to the Tax Reform, dividend payments made
to foreign shareholders will be subject to a 5% withholding. This new tax will only apply to dividends paid from profits accrued
as from fiscal year 2017.
Note that the dividend tax will apply simultaneously
with the aforementioned imputation system. Accordingly, dividends paid from non-taxed profits will be subject to a 35% withholding
for income tax, and an additional 5% dividend tax on the balance. This means that the overall burden in this scenario is 38.25%
(e.g. $100 *35% = $35, plus $65 * 5% = $3.25).
Relief or reduced tax rates may apply under
an applicable treaty to avoid double taxation, but the application of any such rules must be analyzed on a case-by-case basis.
For Colombian tax purposes, an individual
is considered to be a Colombian resident when he/she meets any of the following criteria:
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(i)
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He/she remains in Colombia continuously or discontinuously for more than 183 calendar days within
any given 365-consecutive-day term;
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(ii)
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He/she is related to the Colombian government’s foreign service or to individuals who are
in the Colombian government’s foreign service and who, by virtue of the Vienna Conventions on diplomatic and consular relations,
are exempted from taxes during the time of their service; or
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(iii)
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He/she is a Colombian national and:
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Has a spouse or permanent companion, or dependent children,
who are tax residents in Colombia, or
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50% or more of his or her total income is Colombian source
income, or
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50% or more of his or her assets are managed in Colombia,
or
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50% or more of his or her assets are deemed to be located
or possessed in Colombia, or
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Has failed to provide proof of residency in another country
(different from Colombia) upon previous official request by the Colombian tax office, or
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He/she has a tax residency in a country considered by the
Colombian government to be a low tax jurisdiction or a tax haven.
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Law 1739 of 2014 clarifies that Colombian
nationals who meet any of the following requirements, will not be deemed as tax residents:
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(i)
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If more than 50% of his or her annual income, has its source in the jurisdiction where he or she
is domiciled and whose country of domicile is not Colombia.
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(ii)
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If more than 50% of his/her assets are located in the jurisdiction where he or she is domiciled
and whose country of domicile is not Colombia.
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For purposes of Colombian taxation, an
entity is deemed to be a “national” or a “Colombian entity” and, therefore, subject to taxation in Colombia
on its worldwide income, if it meets any of the following criteria:
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(i)
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It has its place of effective management, in Colombia during the corresponding year or taxable
period;
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(ii)
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It has its main domicile in the Colombian territory; or
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(iii)
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It has been incorporated in Colombia, in accordance with Colombian laws.
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Pursuant to the Colombian Tax Code, a foreign
company or non-resident individual has a permanent establishment in Colombia when said company or individual performs activities
in Colombia through: (1) a fixed place of business (i.e., branches, factories or offices), or (2) an individual who is not an independent
agent empowered to execute agreements on behalf of the foreign company. As noted above, permanent establishments are considered
Colombian taxpayers in connection with the Colombian-source income and Colombian-source taxable gains attributed to said permanent
establishment. A foreign company or entity will not be deemed to have a permanent establishment by the sole fact that it acts through
a broker or any other independent agent. In addition, passive-income generating activities, such as dividends, royalties and interests,
typically do not qualify as entrepreneurial and are not deemed to create permanent establishments.
Tax Treatment of a Non-Colombian
Entity and a Non-Resident Individual of Colombia Who Purchases an ADS in a Foreign Securities Market
Dividends
As a general rule, dividends paid to foreign
companies, foreign entities or non-resident individuals who are investing in ADSs which underlying assets are Colombian shares
are treated as Colombian-source income and are thus subject to Colombian income tax.
To avoid double taxation, dividends paid
by Colombian entities are not subject to income tax at the shareholder level when they are paid out of corporate profits that have
been previously taxed at the corporate level. As of taxable year 2017, a withholding tax on dividends is triggered for dividends
paid to non-resident shareholders. Withholding tax rates on dividends varies as follows: (i) a new 5% dividend tax for dividends
distributed out of profits already taxed at the company’s level; (ii) 35% withholding tax rate for dividends distributed
out of profits not taxed at the company’s level, plus the new 5% dividend tax rate after having applied and deducted the
initial 35% withholding. As of fiscal year 2017, for Colombian individuals, the new dividends tax will apply 5% or 10% depending
on the dividend amount. Dividends tax will be applicable to profits generated from fiscal year 2017 onwards. Finally, dividends
paid to local corporations are not subject to this new dividend tax.
Further to the above, the applicable withholding
tax rate for an entity or a non-resident individual investing through a Foreign Funds Administration Account (FFAA) is 25%, since
its investment qualifies as portfolio investments and the dividends that are distributed by the Colombian entity are not taxed
at the corporate level (assuming that the dividends cannot be attributed to a permanent establishment in Colombia belonging to
the shareholder). These foreign shareholders subject to this withholding tax are not required to file an income tax return in Colombia.
In addition to the above, the new dividend
tax will apply at a 5% rate.
Taxation of Capital Gains from the Sale
of ADSs
Capital gains obtained from the sale of
ADSs by non-Colombian entities, Colombian individuals who are non-residents in Colombia and foreign non-resident individuals, are
not subject to income tax in Colombia as such sale does not generate Colombian-source income to the extent that the ADSs are not
deemed to be sourced in Colombia.
If the holder of the ADSs who is a non-resident
entity, a Colombian individual who is not a resident in Colombia or a foreign non-resident individual, decides to surrender the
ADSs and withdraw the underlying common shares, it is arguable that such transaction does not generate a capital gain subject to
income tax in Colombia. However, different interpretations may be adopted by the Colombian Tax Authorities on this matter.
Tax Treatment in Colombia of a Non-Colombian
Entity and a Non-Resident Individual of Colombia Who Purchases Ecopetrol’s Shares in Colombia’s Securities Market
Dividends
As a general rule, dividends paid to foreign
companies, foreign entities, or to non-resident individuals in Colombia, who are investing in Colombian shares directly or through
a FFAA, are treated as national-source income; thus, they are subject to Colombian income tax.
To avoid double taxation, dividends are
not subject to income tax at the shareholder level when they are paid out of corporate profits that have been previously taxed
at the corporate level. However, as of taxable year 2017, a withholding tax on dividends is triggered for dividends paid to non-resident
shareholders. Withholding tax rates on dividends varies as follows: (i) 5% dividend tax for dividends distributed out of profits
already taxed at the company´s level; and (ii) 35% withholding tax for dividends distributed out of profits not taxed at
the company´s level, plus an additional 5% dividend tax after having applied and deducted the initial 35% withholding. As
of fiscal year 2017, for Colombian individuals, dividends will be taxed between 5% and 10% depending on the dividend amount. Dividends
tax will be applicable to profits generated from fiscal year 2017 onwards. Finally, dividends paid to local corporations are not
subject to the new dividend tax.
For fiscal year 2017 if the shareholder
is a non-resident entity or a non-resident individual investing directly, it will be taxed upon distribution, by means of the withholding
tax mechanism, provided that its investment does not qualify as portfolio investments and dividends that are distributed are not
taxed at the corporate level. In this case, dividends will be subject to a 35% withholding tax.
Non-resident entities or non-resident individuals
will be taxed upon distribution by means of the withholding tax mechanism, provided that their investments qualify as portfolio
investments (i.e., investing through a FFAA) and dividends that are distributed by the Colombian entity are not taxed at the corporate
level. In this case, pursuant to Article 18-1 of the Colombian Tax Code, the applicable withholding tax rate is 25%, assuming that
the dividends cannot be attributed to a permanent establishment in Colombia belonging to the shareholder. These foreign shareholders
subject to this withholding tax are not required to file an income tax return in Colombia.
In addition to the above, the new dividend
tax will apply at a 5% rate.
Taxation of Capital Gains for the
Sale of Shares
Pursuant to Article 36-1 of the Colombian
Tax Code, capital gains derived from the sale of shares listed on the BVC and owned by the same beneficial owner, are deemed as
non-taxable income in Colombia, provided that the shares sold during the same taxable year do not represent more than 10% of the
outstanding shares of the listed company. Pursuant to Article 18 of Decree 2634 of 2012, sellers of shares are not required to
file an income tax return for the transfer of securities that are listed in the National Registry of Securities and Issuers (
Registro
Nacional de Valores y Emisores
) as long as the foreign investment is treated as a portfolio investment according to article
3 of Decree 2080 of 2000.
If the above-mentioned requirements are
not met, the capital gain obtained in the sale of shares is subject to income tax or capital gains tax, under the following rules:
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The gain or loss arising therefrom will be the difference between the sale price and the tax basis
of the shares. As a general rule, the tax basis of shares is equal to the price paid for such shares (
i.e.
, cost of acquisition).
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The applicable tax rate and the withholding tax rate have to be determined on a case-by-case basis.
Generally, if the shares have been owned for at least two years, the profits from the sale will qualify as capital gains taxable
at 10%, otherwise, profits will qualify as ordinary income taxable, approximately 37% for fiscal year 2018, and 33% as from fiscal
year 2019.
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Tax Treatment of Non-Residents Who
Purchase Ecopetrol’s Shares in the BVC Market and Exchange Them for ADSs
Dividends
Payment of dividends by Colombian entities
to foreign companies, foreign entities or to non-resident individuals who are investing in ADSs which underlying assets are Colombian
shares or in Colombian shares directly are subject to the tax treatment described above.
Taxation on Capital Gains for the Sale
of Shares
If the holder of the Colombian shares is
a non-resident entity, a Colombian individual who is not a resident in Colombia or a foreign non-resident individual, and such
holder decides to exchange such common shares for ADSs, it is arguable that such transaction should not generate a capital gain
subject to income tax in Colombia. However, different interpretations may be adopted by the Colombian tax authorities on this matter.
For instance, assuming that the exchange of securities is treated as a sale of Ecopetrol’s shares, the seller would be subject
to the tax treatment described above in connection with the taxation of capital gains for the sale of shares. Absent any specific
rules or regulations addressing this specific situation, a case-by-case analysis would be necessary.
6.5.2
U.S.
Federal Income Tax Consequences
This summary describes the principal U.S.
federal income tax consequences of the ownership and disposition of common shares or ADSs, but it does not purport to be a comprehensive
description of all of the U.S. tax consequences that may be relevant to a decision to hold or dispose of common shares or ADSs.
This summary applies only to purchasers of common shares or ADSs who will hold the common shares or ADSs as capital assets for
U.S. federal income tax purposes and does not apply to special classes of holders such as dealers in securities or currencies,
holders whose functional currency is not the U.S. dollar, holders of ten percent or more of our shares (taking into account shares
held directly or through depositary arrangements by vote or by value), tax-exempt organizations, financial institutions, holders
liable for the alternative minimum tax, securities traders who elect to account for their investment in common shares or ADSs on
a mark-to-market basis, partnerships or other pass-through entities or arrangements and investors therein, insurance companies,
U.S. expatriates, persons that purchase or sell common shares or ADSs as part of a wash sale for tax purposes, and persons holding
common shares or ADSs in a hedging transaction or as part of a straddle, conversion or other integrated transaction for U.S. federal
income tax purposes. The statements regarding U.S. tax law set forth in this summary are based on the Internal Revenue Code of
1986, as amended, which we call the “Code,” its legislative history, existing and proposed U.S. Treasury regulations,
published rulings and court decisions all as in force on the date of this annual report, and changes to such law subsequent to
the date of this annual report may affect the tax consequences described herein (possibly with retroactive effect). This summary
is also based in part on the representations of the Depositary and the assumption that each obligation in the Deposit Agreement
and any related agreement will be performed in accordance with its terms.
Each holder is encouraged to consult such
holder’s tax advisor concerning the overall tax consequences to it, including the consequences under laws other than U.S.
federal income tax laws, of an investment in common shares or ADSs.
In this discussion, references to a “U.S.
Holder” are to a beneficial owner of a common share or an ADS that is for U.S. federal income tax purposes (1) an individual
citizen or resident of the United States, (2) a corporation, or any other entity taxable as a corporation, organized under the
laws of the United States, any state thereof or the District of Columbia, (3) an estate whose income is subject to U.S. federal
income tax regardless of its source, or (4) a trust if (i) a United States court can exercise primary supervision over the trust’s
administration and one or more United States persons are authorized to control all substantial decisions of the trust or (ii) it
has in effect a valid election under applicable U.S. Treasury regulations to be treated as a U.S. person.
For U.S. federal income tax purposes, holders
of ADSs generally will be treated as owners of the common shares represented by such ADSs.
This discussion does not address any aspect
of U.S. federal taxation other than U.S. federal income taxation (such as the estate and gift tax or the Medicare tax on net investment
income). Holders of common shares or ADSs should consult their own tax advisor regarding the U.S. federal, state and local and
other tax consequences of owning and disposing of common shares and ADSs in their particular circumstances.
Distributions on Common Shares or ADSs
A distribution to U.S. Holders made by
us of cash or property with respect to common shares or ADSs generally will be treated as a dividend for U.S. federal income tax
purposes to the extent paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax
principles). Distributions in excess of our current or accumulated earnings and profits, as determined for U.S. federal income
tax purposes, will be treated first as a tax-free return of capital reducing such U.S. Holder’s adjusted tax basis in the
common shares or ADSs. Any distribution in excess of such adjusted tax basis will be treated as capital gain and will be either
long-term or short-term capital gain depending upon whether the U.S. Holder held the common shares or ADSs for more than one year.
Distributions of additional common shares or ADSs to U.S. Holders that are part of a pro rata distribution to all of our shareholders
generally will not be subject to U.S. federal income tax. We do not maintain calculations of our earnings and profits under U.S.
federal income tax principles, and, therefore, except as described in the previous sentence, U.S. Holders should expect that any
distributions generally will be reported as dividends for U.S. federal income tax purposes. As used below, the term “dividend”
means a distribution that constitutes a dividend for U.S. federal income tax purposes.
The amount of any distribution will include
the amount of any Colombian tax withheld on the amount distributed, and the amount of a distribution paid in Colombian Pesos will
be measured by reference to the exchange rate for converting Colombian Pesos into U.S. dollars in effect on the date the distribution
is received by the Depositary (or by a U.S. Holder in the case of a holder of common shares) regardless of whether the payment
is in fact converted into U.S. dollars. If the Depositary (or U.S. Holder in the case of a holder of common shares) does not convert
such Colombian Pesos into U.S. dollars on the date it receives them, generally, any gain or loss resulting from currency exchange
fluctuations during the period from the date the dividend payment is included in income to the date the payment is converted into
U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified
dividend income (as discussed below). The gain or loss generally will be income or loss from sources within the United States for
foreign tax credit limitation purposes. Dividends paid by us will not be eligible for the dividends received deduction allowed
to corporations under the Code.
If you are a non-corporate U.S. Holder,
dividends that constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital
gains provided that you meet certain holding requirements. Dividends paid on the ADSs will be treated as qualified dividend income
if (1) the ADSs are readily tradable on an established securities market in the United States and (2) we were not, in the year
prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, a passive foreign investment
company (PFIC). The ADSs are listed on the New York Stock Exchange, and will qualify as readily tradable on an established securities
market in the United States so long as they are so listed. Based on our audited financial statements and relevant market and shareholder
data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2017 taxable year.
In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets,
the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for the 2018
taxable year. However, this conclusion is a factual determination that is made annually and thus may be subject to change. Based
on existing guidance, it is not clear whether dividends received with respect to the common shares will be treated as qualified
dividends. In addition, the U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or
common shares and intermediaries through whom such securities are held will be permitted to rely on certifications from issuers
to treat dividends as qualified for tax reporting purposes. Because such procedures have not yet been issued, it is not clear whether
we will be able to comply with them. Holders of ADSs and common shares should consult their own tax advisers regarding the availability
of the reduced dividend tax rate in the light of the considerations discussed above and their own particular circumstances.
A U.S. Holder will be entitled, subject
to a number of complex limitations and conditions, to claim a U.S. foreign tax credit in respect of any Colombian income taxes
withheld on dividends received on common shares or ADSs. U.S. Holders who do not elect to claim a credit for any foreign income
taxes paid during the taxable year may instead claim a deduction in respect of such Colombian income taxes provided the U.S. Holder
elects to deduct (rather than credit) all foreign income taxes for that year. Dividends received with respect to the common shares
or ADSs will be treated as foreign source income, subject to various classifications and other limitations. For the purposes of
the U.S. foreign tax credit limitations, the dividends paid with respect to our common shares or ADSs generally will constitute
“passive category income” for most U.S. Holders. The rules relating to computing foreign tax credits or deducting foreign
income taxes are extremely complex, and U.S. Holders are urged to consult their own independent tax advisers regarding the availability
of foreign tax credits with respect to any Colombian income taxes withheld.
Sale, Exchange or Other Taxable Dispositions
of Common Shares or ADSs
A U.S. Holder generally will recognize
capital gain or loss upon the sale, exchange or other taxable disposition of common shares or ADSs in an amount equal to the difference
between the U.S. dollar value of the amount realized on the sale, exchange or other taxable disposition of the common shares or
ADSs and the U.S. Holder’s adjusted tax basis, determined in U.S. dollars, in the common shares or ADSs. Any gain or loss
will be long-term capital gain or loss if the common shares or ADSs have been held for more than one year. Certain non-corporate
U.S. Holders (including individuals) may be eligible for preferential rates of U.S. federal income tax in respect of long-term
capital gains. The deductibility of capital losses is subject to limitations under the Code.
If you are a U.S. Holder of common shares
or ADSs, the initial tax basis of your common shares or ADSs will be the U.S. dollar value of the Colombian Peso-denominated purchase
price determined on the date of purchase. If the common shares or ADSs are treated as traded on an “established securities
market,” a cash basis U.S. Holder, or, if it elects, an accrual basis U.S. Holder, will determine the dollar value of the
cost of such common shares or ADSs by translating the amount paid at the spot rate of exchange on the settlement date of the purchase.
Such an election by an accrual basis U.S. Holder must be applied consistently from year to year and cannot be revoked without the
consent of the Internal Revenue Service (“IRS”). If you convert U.S. dollars to Colombian Pesos and immediately use
that currency to purchase common shares or ADSs, such conversion generally will not result in taxable gain or loss to you.
With respect to the sale or exchange of
common shares or ADSs, the amount realized generally will be the U.S. dollar value of the payment received determined on (1) the
date of receipt of payment in the case of a cash basis U.S. Holder and (2) the date of disposition in the case of an accrual basis
U.S. Holder. If the common shares or ADSs are treated as traded on an “established securities market,” a cash basis
taxpayer, or, if it elects, an accrual basis taxpayer, will determine the U.S. dollar value of the amount realized by translating
the amount received at the spot rate of exchange on the settlement date of the sale.
Deposits and withdrawals of common shares
in exchange for ADSs, and ADSs for common shares generally will not result in the realization of gain or loss for U.S. federal
income tax purposes.
Backup Withholding and Information Reporting
In general, dividends on common shares
or ADSs, and payments of the proceeds of a sale, exchange or other taxable disposition of common shares or ADSs, paid within the
United States, by a U.S. payor through certain U.S.-related financial intermediaries to a U.S. Holder are subject to information
reporting and may be subject to backup withholding at a current rate of 24% unless the holder (1) establishes that it is a corporation
or other exempt recipient or (2) with respect to backup withholding, provides an accurate taxpayer identification number and certifies
that it is a U.S. person and that no loss of exemption from backup withholding has occurred.
Backup withholding is not an additional
tax. The amount of any backup withholding tax from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s
U.S. federal income tax liability, provided that the required information is timely furnished to the IRS. A U.S. Holder generally
may obtain a refund of any amounts withheld under the backup withholding rules that exceed its U.S. federal income tax liability
by timely filing a refund claim with the IRS.
U.S. Tax Considerations for Non-U.S.
Holders
A holder or beneficial owner of common
shares or ADSs that is not a U.S. Holder for U.S. federal income tax purposes (a “non-U.S. Holder”) generally will
not be subject to U.S. federal income or withholding tax on dividends received on common shares or ADSs, unless the dividends are
“effectively connected” with the non-U.S. Holder’s conduct of a trade or business within the United States. In
such a case a non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder. In the case of “effectively connected”
dividends received by a corporate non-U.S. Holder, the corporate non-U.S. Holder may, under certain circumstances, be subject to
an additional “branch profits tax” at a 30% rate.
A non-U.S. Holder of common shares or ADSs
will not be subject to U.S. federal income or withholding tax on gain realized on the sale of common shares or ADSs, unless (i)
the gain is “effectively connected” with the non-U.S. Holder’s conduct of a trade or business in the United States,
or (ii) in the case of gain realized by an individual non-U.S. Holder, the non-U.S. Holder is present in the United States for
183 days or more in the taxable year of the sale and certain other conditions are met. In the case of “effectively connected”
gains realized by a corporate non-U.S. Holder, the corporate non-U.S. Holder may, under certain circumstances, be subject to an
additional “branch profits tax” at a 30% rate.
Although non-U.S. Holders generally are
exempt from backup withholding and information reporting requirements, a non-U.S. Holder may be required to comply with certification
and identification procedures in order to establish its exemption from information reporting and backup withholding.
6.6
Exchange
Controls and Limitations
Payments in foreign currency with respect
to certain foreign exchange transactions including international investments between Colombian residents and non-Colombian residents
must be conducted through the foreign exchange market. Therefore, any foreign currency income or expense under the ADRs must be
completed through the appropriate channels of the foreign exchange market. Transactions conducted through the foreign exchange
market are made at market rates freely negotiated with authorized foreign exchange intermediaries (local banks, financial corporations,
administrators and others). As of September 25, 1999 the Colombian foreign exchange regime is structured under the system of free
flotation of the exchange rate whereby market forces determine the level of exchange rate from time to time.
Foreign portfolio investments must be made
through authorized foreign exchange investment management companies. Only brokerage firms, trust companies and investment management
companies, subject to the inspection and supervision of the Superintendence of Finance, are allowed to make investments in the
local Colombian market on behalf of foreign investors. Such brokerage firms, trust companies and investment management companies
also act as the foreign investors’ local representatives for tax and foreign exchange purposes.
Colombian law provides that the Colombian
Central Bank may intervene in the foreign exchange market at its own discretion at any time (i.e. it may limit the remittance of
dividends whenever the international reserves fall below an amount equal to three months of imports). Additionally, from time to
time, the Colombian government introduces amendments to the International Investment Statute. Hence, we cannot assure you that
the Colombian Central Bank will not intervene in the future imposing restrictions to the free convertibility system currently applicable
in Colombia. See section
Risk Review—Risk Factors—Risks Related to Colombia’s Political and Regional
Environment
.
Registration of Foreign Investment Represented
in Underlying Shares
Colombia’s International Investment
Statute and the regulations issued by the Colombian Central Bank, which have been amended from time to time through related decrees
and regulations, govern the manner in which non-Colombian resident entities and individuals can invest in Colombia and participate
in the Colombian securities markets. Among other requirements, the International Investment Statute and Colombian Central Bank
regulations mandate registration of foreign investment transactions with the Colombian Central Bank and specify procedures to authorize
and administer such foreign investment transactions. Additionally, pertinent information related to foreign investment transactions
must be updated on a regular basis (yearly or monthly, depending on the type of information).
Under the International Investment Statute
and Colombian Central Bank regulations, the failure of a foreign investor to report or register with the Colombian Central Bank
foreign exchange transactions relating to investments in Colombia on a timely basis may (i) prevent the investor from obtaining
remittance rights, (ii) constitute an exchange control infraction, and (iii) result in financial sanctions.
Notwithstanding the regulations described
above, foreign investors who acquire ADRs are not required to directly register this investment with Colombian authorities. Holders
of ADRs will benefit from the registration to be obtained by the local custodian for our common shares underlying the ADRs in Colombia.
Such registration allows the custodian to convert dividends and other distributions with respect to the common shares into foreign
currency and remit the proceeds abroad. If investors in ADRs choose to surrender their ADRs and withdraw common shares, they must
retain an administrator, who will act as a local representative for the investments, and register their investments in common shares
as a portfolio investment through said local representative. The local representative is the brokerage firm, trust company or investment
management company that acts on behalf of the holders of the ADRs in Colombia, and the request for registration is made by them.
Colombian residents who acquire ADRs and
either receive profits from this investment, surrender their ADRs or liquidate their investment in ADRs must register these operations
with the Colombian authorities and comply with applicable regulations through its Colombian brokerage firm.
In obtaining its own foreign investment
registration, an investor who surrenders its ADRs and sells common shares may incur expenses and/or suffer delays in the application
process. Investors would only be allowed to transfer dividends abroad or transfer funds received as distributions relating to our
common shares after their foreign investment registration procedure with the Colombian Central Bank has been completed. In addition,
the Depositary’s foreign investment registration may also be adversely affected by future legislative changes, but its rights
to transfer dividends abroad or profits arising from distributions relating to our common shares must be maintained according to
Colombian law and foreign investment treaties entered into by Colombia in force at the time of the registration of the investment,
except when Colombia’s international reserves fall below an amount equivalent to three months’ worth of imports. Prospective
purchasers of common shares or ADSs should consult their own foreign exchange advisors.
6.7
Exchange
Rates
On April 16, 2018, the Representative
Market Exchange Rate was COP$2,705.34 per US$1.00. The Federal Reserve Bank of New York does not report a noon-buying rate for Colombian
Pesos. The
Superintendencia Financiera
, or Superintendence of Finance, calculates the Representative Market Exchange Rate
based on the weighted averages of the buy and sell foreign exchange rates quoted daily by foreign exchange rate market intermediaries
including financial institutions for the purchase and sale of U.S. dollars. The Superintendence of Finance also calculates the
Representative Market Exchange Rate for each month for purposes of preparing financial statements and converting amounts in foreign
currency to Colombian Pesos.
The following table sets forth the high,
low, average and period-end exchange rate for Colombian Peso/U.S. dollar Representative Market Exchange Rate for each of the last
five years and for the last six months.
Table 58 – Colombian Peso/U.S.
dollar Representative Market Exchange Rate
|
|
|
Exchange Rates
|
|
|
|
|
High
|
|
|
Low
|
|
|
Average
|
|
|
Period-End
|
|
|
2013
|
|
|
1,952.11
|
|
|
|
1,758.45
|
|
|
|
1,868.90
|
|
|
|
1,926.83
|
|
|
2014
|
|
|
2,446.35
|
|
|
|
1,846.12
|
|
|
|
2,000.68
|
|
|
|
2,392.46
|
|
|
2015
|
|
|
3,356.00
|
|
|
|
2,360.58
|
|
|
|
2,746.47
|
|
|
|
3,149.47
|
|
|
2016
|
|
|
3,434.89
|
|
|
|
2,833.78
|
|
|
|
3,053.42
|
|
|
|
3,000.71
|
|
|
2017
|
|
|
3,092.81
|
|
|
|
2,839.02
|
|
|
|
2,951.15
|
|
|
|
2,984.00
|
|
|
Most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2017
|
|
|
3,056.70
|
|
|
|
2,977.18
|
|
|
|
3,010.87
|
|
|
|
3,043.11
|
|
|
December 2017
|
|
|
3,028.82
|
|
|
|
2,957.75
|
|
|
|
2,990.14
|
|
|
|
2,938.87
|
|
|
January 2018
|
|
|
2,986.84
|
|
|
|
2,790.50
|
|
|
|
2,863.74
|
|
|
|
2,986.84
|
|
|
February 2018
|
|
|
2,941.77
|
|
|
|
2,790.77
|
|
|
|
2,861.60
|
|
|
|
2,863.78
|
|
|
March 2018
|
|
|
2,879.77
|
|
|
|
2,781.93
|
|
|
|
2,846.38
|
|
|
|
2,795.02
|
|
|
April 2018 (through April 16, 2018)
|
|
|
2,795.02
|
|
|
|
2,704.78
|
|
|
|
2,759.10
|
|
|
|
2,725.20
|
|
|
|
Source:
|
Superintendence of Finance for historical data.
Banco de la República
, or the Colombian
Central Bank, for averages.
|
6.8
Major
Shareholders
Major Shareholders
The following table sets forth the names
of our major shareholders, and the number of shares and the percentage of outstanding shares owned by them at March 31, 2018:
Table 59 – Major Shareholders
|
|
|
At March 31, 2018
|
|
|
Shareholders
|
|
Number of shares
|
|
|
% Ownership
|
|
|
Nation
(1)
– Ministry of Finance and Public Credit
|
|
|
36,384,788,417
|
|
|
|
88.49
|
|
|
Public float
|
|
|
4,731,906,273
|
|
|
|
11.51
|
|
|
Total
|
|
|
41,116,694,690
|
|
|
|
100.00
|
|
|
|
(1)
|
Includes 1,600,000 shares owned by other state entities.
|
All our common shares have identical voting
rights.
As of February 20, 2018, 2.1% of our common
shares were held of record in the form of American Depository Shares. As of February 20, 2018, we had 39 registered holders and
as of March 31, 2018 we had 15,907 beneficiaries of common shares, or ADSs representing common shares, in the United States.
Changes in the Capital of the Company
There are no conditions in our bylaws governing
changes in our capital stock that are more stringent than those required under Colombian law, with the exception that the Nation
must hold a minimum of 80% of our capital stock at all times.
6.9
Enforcement
of Civil Liabilities
We are a Colombian company. Most of our
Directors and executive officers and some of the experts named in this annual report reside outside the United States. All or a
substantial portion of our assets and the assets of these persons are located outside of the United States. As a result, it may
not be possible for you to affect service of process within the United States upon us or these persons who are residents in Colombia
or to enforce against us or these persons who are residents in Colombia judgments in U.S. courts obtained in such courts predicated
upon the civil liability provisions of the U.S. federal securities laws. Colombian courts will enforce a U.S. judgment predicated
on the U.S. securities laws through a procedural system known under Colombian Law as “exequatur.” The Colombian Supreme
Court will enforce a foreign judgment, without reconsideration of the merits only if the judgment satisfies the requirements set
forth in Articles 605 through 607 of Law 1564 of 2012 (
Código General del Proceso
) which entered into force on January
1, 2016, pursuant to
Acuerdo
No. PSAA15-10392, of October 1, 2015, issued by the Colombian Superior Council of the Judiciary
(
Consejo Superior de la Judicatura
), as follows:
|
|
·
|
A treaty exists between Colombia and the country where the judgment was granted relating to the
recognition and enforcement of foreign judgments or, in the absence of such treaty, there is reciprocity in the recognition of
foreign judgments between the courts of the relevant jurisdiction and the courts of Colombia;
|
|
|
·
|
The foreign judgment does not relate to “in rem rights” vested in assets that were
located in Colombia at the time the suit was filed;
|
|
|
·
|
The foreign judgment does not contravene or conflict with Colombian laws relating to public order
other than those governing judicial procedures;
|
|
|
·
|
The foreign judgment, in accordance with the laws of the country where it was rendered, is final
and is not subject to appeal;
|
|
|
·
|
A duly legalized copy of the judgment (together with an official translation into Spanish if the
judgment is issued in a foreign language) has been presented to the Supreme Court of Colombia;
|
|
|
·
|
The foreign judgment does not refer to any matter upon which Colombian courts have exclusive jurisdiction;
|
|
|
·
|
No proceeding is pending in Colombia with respect to the same cause of action, and no final judgment
has been awarded in any proceeding in Colombia on the same subject matter and between the same parties;
|
|
|
·
|
In the proceeding commenced in the foreign court that issued the judgment, the defendant is served
in accordance with the laws of such jurisdiction and in a manner reasonably designated to give the defendant an opportunity to
defend against the action; and
|
|
|
·
|
The legal requirements pertaining to the exequatur proceedings have been observed;
|
The United States and Colombia do not have
a bilateral treaty providing for automatic reciprocal recognition and enforcement of judgments in civil and commercial matters.
The Colombian Supreme Court has in the past accepted that reciprocity exists when it has been proven that either a U.S. court has
enforced a Colombian judgment or that a U.S. court would enforce a foreign judgment, including a judgment issued by a Colombian
court. However, such enforceability decisions are considered by Colombian courts on a case-by-case basis.
Proceedings for enforcement of a money
judgment by attachment or execution against any assets or property located in Colombia are within the exclusive jurisdiction of
Colombian courts and such proceedings are conducted in Spanish. All parties affected by a foreign judgment in exequatur proceedings
must be summoned to the exequatur proceedings in accordance with the rules that apply to the Colombian courts. In the course of
such proceedings, both the plaintiff and the defendant are afforded the opportunity to request that evidence be collected in connection
with the requirements listed above. In addition, before the judgment is rendered, each party may file final allegations in support
of such party’s position regarding the above-mentioned requirements.
Assuming that a foreign judgment complies
with the standards set forth in the preceding paragraphs and the absence of any condition referred to above that would render a
foreign judgment not subject to recognition under Colombian law, such foreign judgment would be enforceable in Colombia in an enforcement
proceeding under the laws of Colombia, provided that the Colombian Supreme Court has previously granted exequatur upon the foreign
judgment.
Since 2004, Ecopetrol S.A. has voluntarily
adopted transparency, governance and control practices to facilitate corporate governance in order to generate confidence among
stakeholders and ensure the sustainability of its business.
The corporate governance practices at Ecopetrol
S.A.:
|
|
·
|
Promote and guarantee all stakeholders transparency, objectivity and competitiveness.
|
|
|
·
|
Add value to the company and attract investors.
|
|
|
·
|
Protect shareholders, investors and stakeholders rights.
|
|
|
·
|
Encourage financial markets confidence.
|
|
|
·
|
Accomplish the highest corporate governance standards.
|
Statement of the Nation as Majority
Shareholder
Ecopetrol’s majority shareholder
(the Nation, represented by the Ministry of Finance and Public Credit), is unilaterally committed to protect the interests of the
minority shareholders in the following topics:
|
|
·
|
Composition of Board of Directors
: including in its list of candidates a Representative
for hydrocarbon producing departments operated by Ecopetrol and a Representative for the minority shareholders, who will be chosen
by the 10 shareholders with the largest stock participations.
|
According to corporate governance
practices recommended by the OECD, organization to which Colombia is in the process of access, the National Government begun to
implement the practice of reducing the participation of Directors with a ministerial level in Ecopetrol’s Board of Directors.
Thus, in 2018 in the General Shareholders’ Assembly, the National Government nominated two (2) non-independent Directors
none of which has a ministerial rank.
|
|
·
|
Dividend policy
: guaranteeing the right of each shareholder to receive his pro rata dividends
in accordance with Colombian law.
|
|
|
·
|
Issues not included in the agenda of extraordinary meetings of the General Shareholders Assembly
:
permitting a vote on those initiatives submitted by one or more shareholders representing at least 2% of the subscribed shares
of the company.
|
|
|
·
|
Asset disposal
: ensuring that any asset disposal of an amount equal or higher than 15% of
the stock exchange capitalization of Ecopetrol is discussed and decided by the General Shareholders’ Assembly and that the
Nation will only vote affirmatively if the vote of minority shareholders is equal to or exceeds 2% of the shares subscribed by
shareholders other than the Nation.
|
7.1
Bylaws
The Bylaws of Ecopetrol S.A. are contained in Public Deed No.
5314 of December 14, 2007, issued by the Second Notary of Bogotá; amended by Public Deed No. 560 of May 23, 2011, issued
by the Notary Forty- Six of Bogotá, Deed No. 666 of May 7, 2013, issued by the Notary Sixty-Five of Bogotá, and Deed
No. 1049 of May 19, 2015, issued by the Notary Second of Bogotá. In addition, the bylaws were recently amended in the ordinary
meeting of the General Shareholders Assembly held on March 23, 2018. The text of the amended bylaws is yet to be recorded in public
deed and registered before the mercantile registry, which in Colombia is the Chamber of Commerce. An English translation of the
amended bylaws is included as Exhibit 1.1 to this annual report.
This summary does not purport to be complete
and is qualified by reference to our bylaws, which are filed as an exhibit to this annual report. For a description of the provisions
of our bylaws relating to our Board of Directors and its committees, see the sections
Corporate Governance—Board of
Directors—Board Practices
and
Corporate Governance—Board of Directors—Board Committees
.
General Shareholder’s Meeting
Shareholders’ meetings may be ordinary
or extraordinary. Ordinary meetings will take place in our legal domicile located in Bogota, Colombia, within the first three months
following the end of each fiscal year, on the day and at the time set forth in the notice for the General Shareholders Assembly.
The call for the General Shareholders Assembly is published on the Ecopetrol S.A. website and in a newspaper of wide circulation
30 calendar days prior to the date on which the meeting will take place and on the Sunday previous to the meeting, must be published
at Ecopetrol S.A.’s website www.ecopetrol.com.co.
In the General Shareholders Assembly, our
Board of Directors and the external auditor are appointed and our annual financial statements, profit distribution, audit and management
reports, including our corporate governance report and sustainability report, and any other matter provided under applicable law
or our corporate bylaws are approved.
Extraordinary meetings of shareholders
may be called by our Board of Directors, by our president or chief executive officer, by our external auditor, or by shareholders
holding at least 5% of the shares outstanding, or when unforeseen or urgent needs of the Company require it. Calls to extraordinary
meetings should be made at least 15 calendar days prior to the date of the meeting, with the exception of the case where the Law
requires a greater time between the summons and the meeting. Such a call is published on the Ecopetrol S.A. website and in a newspaper
of wide circulation. The meeting notice must specify the agenda for the meeting.
The required quorum for both ordinary and
extraordinary meetings is a plural number of shareholders representing 50% plus one of the subscribed shares entitled to vote and
decisions are approved with a majority of the members present. This quorum is exempted in the case of “second-call meetings,”
which may take place when a meeting fails to obtain the required quorum and is called within a period between 10 business days
and 30 business days from the first date, in which case decisions may be adopted by a majority of the shares present regardless
of the number represented.
Decisions made at ordinary and extraordinary
shareholders’ meeting must be approved by a plural number of shareholders representing the majority of the shares present.
Colombian law requires supermajorities in the following cases:
|
|
·
|
The vote of at least 70% of the shares present and entitled to vote at the ordinary shareholders’
meeting is required to approve the issuance of stock not subject to preemptive rights;
|
|
|
·
|
The vote of at least 78% of the shares represented entitled to vote is required to approve the
distribution of the annual net profits. In the absence of this special majority, at least 50% of the net profits must be distributed.
If the sum of all legal reserves (statutory, legal and optional) exceeds the amount of the outstanding capital, the Company must
distribute at least 70% of the annual net profits;
|
|
|
·
|
The vote of at least 80% of the shares represented is required to approve the payment of dividends
in shares; and
|
|
|
·
|
The vote of 100% of the outstanding and issued shares is required to replace a vacancy on the Board
of Directors without applying the electoral quotient system.
|
Shareholders may be represented by proxies
provided that the proxy: (1) is in writing (faxes and electronic documents are valid), (2) specifies the name of the representative,
(3) specifies the date or time of the meeting for which the proxy is given and (4) includes other information specified by the
applicable law. Proxies granted abroad do not require legalization or an apostille.
During our ordinary annual shareholders’
meeting, our employees and Directors are only allowed to represent their own shares, unless they act as legal representatives.
Preference Rights and Restrictions Attaching
to Our Shares
We have only one class of stock without
special rights or restrictions (ordinary shares). Our shareholders do not have any type of preemptive rights.
Under Commercial Colombian law, our shareholders
have the following economic privileges and voting rights:
|
|
·
|
To participate and vote on the decisions of the General Shareholders Assembly;
|
|
|
·
|
To receive dividends based on the financial performance of the Company in proportion to their share
ownership;
|
|
|
·
|
To transfer and sell shares according to our bylaws and Colombian law;
|
|
|
·
|
To inspect corporate books and records with 15 business days prior to the ordinary shareholders’
meeting where the year-end financial statements are to be approved;
|
|
|
·
|
Upon liquidation, to receive a proportional amount of the corporate assets after the payment of
external liabilities; and
|
|
|
·
|
To sell the shares, known as right of withdrawal (
derecho de retiro
), if a corporate restructuring
affects the economic or voting rights of the shareholders in the terms and conditions established under Colombian law.
|
Our bylaws and corporate governance code
provide additional rights to our minority shareholders. These rights include:
|
|
·
|
Sale of Assets
. For a ten-year period counted from the date of subscription of the declaration
of the Nation dated February 16, 2018 or until the Nation loses its status as majority shareholder, the Nation guarantees that
any sale of 15% or more of our assets requires the approval of the General Shareholders Assembly and that the Nation would only
be allowed to vote its shares in favor of the proposal if 2% or more of our minority shareholders accept the proposal.
|
|
|
·
|
Candidate List
. Pursuant to our bylaws and Law 1118 of 2006, the Nation will include in
its candidate list for election of members of the Board of Directors one member selected by the departments that produce hydrocarbons.
In addition, pursuant to the declaration of the Nation dated February 16, 2018, the Nation will include in its candidate list for
election of members of the Board of Directors one member selected by the ten largest minority shareholders. The minority shareholders’
right to select a candidate loses its effect when minority shareholders, according to their share participation, name a member
to our Board of Directors.
|
|
|
·
|
Extraordinary Meetings
. Our bylaws and corporate governance code provide that the entity
exercising permanent control over Ecopetrol must instruct the Company’s CEO or External Auditor to call an extraordinary
meeting of the Company’s shareholders when so requested by a plurality of shareholders holding at least 5% of the total number
of outstanding shares. Such requests shall be made in writing and must clearly indicate the purpose of the meeting.
|
|
|
·
|
Investor Attention Office
. Ecopetrol has an investor attention office, a specialized unit
responsible for receiving complaints from our shareholders. Pursuant to our bylaws, shareholders holding at least 5% of the total
number of shares outstanding may request that the investor attention office conduct a special audit, provided that such audit does
not hinder the day-to-day operations of the Company, of the following documents: the income statement; the proposal for the distribution
of profits; the report of the Board of Directors as to the economic and financial status of our Company; the report from our general
counsel as to the legal status of our Company; and the report from the independent auditors. Special audits cannot be made of documents
that contain scientific, technological or statistical information of our Company, or agreement that gives us competitive and economic
advantages over our competitors, or in respect of any document related to intellectual property. Shareholders also have the right
to propose good corporate governance recommendations to the office for the protection of investors.
|
|
|
·
|
Others
. Pursuant to our bylaws, shareholders holding at least 5% of the total number of
shares outstanding may propose recommendations to our Board of Directors pertaining to the management of our Company. Any shareholder
may file a written petition to our Board of Directors to investigate corporate governance violations that the shareholder believes
to have been committed.
|
Amendments to Rights and Restrictions
to Shares
We have only one class of stock and it
has no special rights or restrictions (ordinary shares). Our shareholders do not have any type of preemptive rights. The rights
given to our shareholders by law are described in our bylaws and may only be modified through an amendment to the law.
The additional rights given to our minority
shareholders in our bylaws and corporate governance code may only be modified through an amendment of those internal documents.
Limitations on the Rights to Hold Securities
There are no limitations in our bylaws
or Colombian law on the rights of Colombian residents or foreign investors to own the shares of our Company, or on the right to
hold or exercise voting rights with respect to those shares, except in cases of legal representation and except that the Nation
must hold a minimum of 80% of our capital stock at all times.
Restrictions on Change of Control Mergers,
Spin-offs or Transformations of the Company
Under Colombian law and our bylaws, the
General Shareholders Assembly has full authority to approve any mergers, spin-offs or transformations. Corporate restructurings
are subject to the requirement that the Nation must hold a minimum of 80% of our common stock at all times. So long as Law 1118
of 2006 is in effect, there cannot be any restructuring that result in a change of control of our Company.
Ownership Threshold Requiring Public
Disclosure
The Corporate Governance Code, Title III,
Chapter 1, Section 5, states: Identification of Major Shareholders. The shareholding composition of the Company, indicating at
least the twenty (20) people with the greatest number of shares, is disclosed on Ecopetrol’s website at
www.ecopetrol.com.co
.
Colombian securities regulations set forth the obligation to disclose any material event or
hecho relevante
. Any transfer
of shares equal or greater than 5% of our capital stock, or any legal entity or individual acquiring a percentage of shares that
would make him the beneficial owner of 5% or more of our capital stock, is a material event, and therefore, must be disclosed to
the Superintendence of Finance. The regulation includes other criteria in order to identify when to report a material event other
than the situations described in the previous sentence.
External Auditor
Pursuant to our bylaws, the external auditor
will be appointed for periods of two (2) years and may be reelected consecutively for two (2) periods, and it may once again be
hired after one (1) period away from the position. At the General Shareholders Assembly on March 23, 2018, the shareholders
appointed Ernst & Young as external auditor of Ecopetrol for the fiscal year 2018.
7.2
Code
of Ethics
We have recently updated our code of ethics, which considers,
as ethical principles of the organization, the integrity, responsibility, respect and commitment to life. Our code of ethics also
states that we must comply with the provisions contained in the applicable national and international laws in the countries where
we have operations, including the U.S. and Colombia.
In our code, we define the guidelines for the following aspects:
conflict of interest; ethical conflict; prohibition of bribery and violations of the FCPA; Integrity in accounting; prevention
of money laundering and financing of terrorism; gifts, amenities and hospitalities; protection and use of resources; information
management and security; social responsibility and respect for human rights; whistleblowing channel; and examples of ethical behaviors.
Our code of ethics applies to our Board of Directors, our Chief
Executive Officer, our Chief Financial Officer, principal accounting officer, persons performing similar functions and in general
to all of the other employees of the company and its affiliates.
All of our agreements with suppliers or third parties include
a provision relating to compliance with applicable anti-bribery and anti-corruption regulations. These agreements also require
our suppliers and third parties to accept our Code of Ethics and our compliance manuals.
Our code of ethics is available on our website at:
https://www.ecopetrol.com.co/wps/portal/es/ecopetrol-web/responsabilidad-corporativa/etica-y-cumplimiento/codigo-etica-conducta
7.3
Board
of Directors
The information below sets forth the names
and business experience of each of our current Directors elected at the General Shareholders Ordinary Meeting held on March 23,
2018 for one year term beginning on that date, as of the date hereof:
Alfonso Camilo Barco Muñoz (51)
Director General of State Owned Enterprises of the Ministry of Finance and Public Credit, has experience in corporate finance,
project management and corporate governance. He has served as advisor of Special Projects in the Ministry of Finance and Public
Credit, General Director of Investment Banking of BBVA Colombia and CFO of Interconexión Eléctrica S.A. Dr. Barco
is a lawyer from Universidad del Rosario, with a specialization in financial law from Universidad de los Andes. He also has a certification
in finance from the London School of Economics and in Business from the University Of Chicago School of Business. To date, he is
a member of the board of directors at Generadora y Comercializadora de Energía del Caribe S.A. E.S.P. (GECELCA) and Bancoldex,
representing the Ministry of Finance and Public Credit. Currently Dr. Barco is a non-independent member of Ecopetrol’s Board
of Directors.
Mauricio Cabrera Galvis (66)
currently
serves as Director of the firm Cabrera & Bedoya Investment Bankers. He has been President of the FES Foundation and Banco de
Occidente. He has served as Director and Financial Consultant of INCORBANK S.A. and as Public Credit Director in the Ministry of
Finance and Public Credit of Colombia. He has been Technical Vice President of the Banking Association of Colombia and Head of
the Global Programming Unit of the National Planning Department. He was Dean of the Faculty of Economics at the Universidad Externado
de Colombia and an appointed economist in the Western Hemisphere Department of the International Monetary Fund. His studies include
an undergraduate degree in Philosophy from Universidad Javeriana, a Master’s Degree in Economics from Universidad de los
Andes, and he took Ph.D. classes from the London School of Economics. Mr. Cabrera is currently part of the Board of Directors of
Industria de Licores del Valle, Clínica DIME, ASTORGA and Fabricato. Mr. Cabrera has served as an independent Director of
Ecopetrol’s Board of Directors since March 31, 2016. Currently Mr. Cabrera is an independent Director of Ecopetrol’s
Board of Directors.
Jorge Londoño
Saldarriaga (70)
is currently an Operating Partner of Advent International and serves as a consultant in strategic and financial
areas with a broad group of companies in the industrial, finance, and infrastructure and technology sectors. In 1993 he joined
the Board of Directors of the BIC (now BANCOLOMBIA, NYSE CIB), and in 1996 he assumed the Presidency of the BIC, which he held
for 15 years. Mr. Londoño has a business degree from Universidad EAFIT and later, he received a master’s degree in
Economic Development (M.Phil.) from the University of Glasgow, Scotland. He is a member of the Board Directors of Organización
Corona and Corona Industrial, Banco Falabella Colombia, LifeMiles and member of the Superior Council of the Universidad EAFIT.
Currently Mr. Londoño is an independent member of Ecopetrol’s Board of Directors.
Claudia Isabel Gonzalez (48)
has
more than twenty years of experience in the public sector and is currently the Legal Secretary of the Presidency of the Republic.
She served as General Secretary of the Ministry of Finance and Public Credit from 2012 until the beginning of 2017 and from the
Ministry of Mines and Energy from the end of 2011 until mid-2012. She also worked in the Ministry of National Defense, in the Financial
Fund for Projects and Development (FONADE), she was the National Administrative and Financial Director of the Office of the General
Prosecutor of the Nation and Technical Deputy Director of the National Planning Department. Additionally, she worked as a Ferrovías
employee and as head of the Human Resources Division of the Territorial Development Financier (FINDETER). Ms. González is
a lawyer from Universidad del Rosario and specialized in Financial Legislation at the Universidad de los Andes. She is currently
a member of the Board of Directors of Central de Inversiones S.A (CISA) and Fiduprevisora S.A. Currently, Ms. González is
a non-independent member of Ecopetrol’s Board of Directors.
Jaime Ardila Gomez (62)
served as
CEO of General Motors for South America from the year 2010 until February 2016. Within General Motors he held different positions
such as President for Brazil and Mercosur; CFO for Latin America, Africa and the Middle East; CEO and Managing Director in Argentina;
CEO and Managing Director in COLMOTORES, CEO and Managing Director in Ecuador; Omnibus BB, CFO in Chile; and Treasurer in Mexico,
among others. He also served as Managing Director in Colombian Operations for N.M. Rothschild and Sons and Secretary General of
the Ministry of Industry and Trade in Colombia. Mr. Ardila holds a B.A. in economics from the University of Bogota Jorge Tadeo
Lozano and a master degree in economics from the London School of Economics. He is Chairman of the Board of Goldman Sachs BDC,
member of the Board of Directors of Accenture and founder of the consulting firm The Hawksbill Group. Mr. Ardila has served as
a Director of Ecopetrol’s Board of Directors since March 31, 2016. Currently Mr. Ardila is an independent Director of Ecopetrol’s
Board of Directors.
Carlos Alfredo Cure Cure (74)
served
as Ambassador of Colombia in Venezuela from August 5, 2011 until June 22, 2013. Before serving as ambassador, Mr. Cure was appointed
CEO of Bavaria S.A., the largest brewery in Colombia. Additionally, he was an advisor to the Board of Directors of Grupo Olimpica
S.A. and member of the Board of Avianca S.A. (Colombia’s national airline). He acted as deputy financial manager of Cementos
del Caribe, CEO of Cementos Toluviejo and CEO of Astilleros Unión Industrial. Mr. Cure holds a degree in Civil Engineering
from the National University of Medellin. Mr. Cure has served as an independent Director of Ecopetrol’s Board of Directors
since September 5, 2015, in which he currently is the chairman of Ecopetrol’s Board of Directors. Currently Mr. Cure is an
independent Director of Ecopetrol’s Board of Directors.
Joaquín Moreno Uribe (69)
started
his career as Director for Constructions and Engineering of Urbanas, in Bucaramanga, Colombia. He joined then the Royal Dutch/Shell
Group (RDS) of companies for more than 33 years. His career in Shell was comprised by different roles at technical, management
and leadership levels, in different sectors of the Oil & Gas Industries (Upstream and Downstream), Chemicals, Metals and Coal.
He has worked across America and Europe, including several appointments at regional, global and corporate levels at the Headquarters
of the RDS Group in London and The Hague. Mr. Moreno has also served as Country Chairman and President for Shell in Mexico, Colombia
and Venezuela, as well as Regional CEO for the Northern Latin American Region (Peru, Ecuador, Venezuela, Colombia and Mexico).
On his return to Colombia, he was appointed by the President of the Republic, as High Presidential Commissioner – Ad Honorem-
in charge of coordinating the reconstruction of the areas affected by the heavy rain season and floods of early 2005, in the Region
of Santander and Northern Santander. Joaquin Moreno earned a degree in civil engineering from Universidad Industrial de Santander
and completed an Advanced Management Program (AMP) at Harvard University Business School. .Mr. Moreno has been a member of the
boards of directors of various local and international companies, as well as academic Institutions and Think Tanks of Management
and Leadership initiatives. Mr. Moreno has served as an independent Director at Ecopetrol’s Board of Directors since March
27, 2008. During this period, he has acted as president of the Audit and Risk Committee, of the Compensation and Nomination Committee,
as well as of the Business Committee
.
Hernando Ramirez Plazas (64)
has held positions
at Universidad Surcolombiana, as Dean of the Faculty of Engineering, Academic Vice-Principal, Principal, and Professor. He has
worked at the National Institute of Health and at the Ministry of Health. He had a role as an external evaluator for Colciencias
in technology development and innovation projects in the area of natural gas. Additionally, he has acted as a trainer in gas issues
for production personnel at Canacol Energy Inc., and he currently provides professional services to Comfamiliar Huila. Mr. Ramirez
is a Chemical Engineer graduated from Universidad Nacional de Colombia, with a Master's Degree in Public Health from the same University,
and a Specialization in Gas Engineering from Universidad de Zulia (Venezuela). Currently, Dr. Ramírez is an independent
member of Ecopetrol’s Board of Directors.
Carlos Gustavo Cano Sanz (71)
has
been President of the Colombian Agriculture Association (SAC); founder and director of Corporación Colombia Internacional
(CCI); President of the Agrarian Fund; President of the newspaper El Espectador; and he currently teaches in the Master of Corporate
Finance at CESA University and in Universidad de los Andes in the Business School. He was Minister of Agriculture between August
7, 2002 and February 3, 2005 and Co-Director of Banco de la República between February 4, 2005 and January 31, 2017. He
is an Economist from Universidad de los Andes in Bogotá; with a master’s degree in Economics from the University of
Lancaster in England; postgraduate in Government, Business and International Economics at Harvard University in Boston and postgraduate
studies at the Instituto de Alta Dirección Empresarial (INALDE) of Bogotá. He is a member of the Superior Council
of the EAFIT University of Medellín, of the Consultative Committee for Agriculture of Bancolombia, and of the Group on Earth
Observations Global Water Sustainability (GEOGLOWS) in the United States. Mr. Cano has served as an independent Director in Ecopetrol’s
Board of Directors, since March 31, 2017. Currently Mr. Cano is an independent member of Ecopetrol’s Board of Directors.
7.3.1
Board
Practices
Our Board of Directors is composed of
nine members and is responsible for, among other things, establishing our general business policies. The majority of
the Board of Directors must be independent, and must be elected pursuant to the criteria set out in paragraph two, Article
44, Law 964, 2005, and in accordance with the procedure determined in Decree 3923, 2006, or any other provisions that
regulate, amend, replace or add such regulations. In addition, pursuant to our bylaws and in accordance with the procedures
described therein, our majority shareholder must include, in its list of candidates for the last two seats in the Board of
Directors, the name of one individual jointly proposed by departments that produce hydrocarbons and one individual jointly
proposed by the ten minority shareholders with the highest equity participation. According to Colombian law, the members of
the Board of Directors must be elected by the General Shareholders Assembly in accordance with a proportional representation
system similar to cumulative voting (through an electoral quota voting system). The number of votes required to fill each
position is calculated by dividing the number of possible votes by the number of open board positions. The members of the
Board of Directors may be elected without an electoral quota voting system when there is unanimity. Pursuant to our bylaws,
positions on our Board of Directors are filled either by person or by position and, beginning in 2019, Directors will be
elected for a two-year term. Currently, we have one Director appointed by his position: The General Director of State
Participations of the Ministry of Finance and Public Credit. Our current Directors were elected at the General Shareholders
Assembly held on March 23, 2018. Members of the Board may be reelected indefinitely.
Our CEO is appointed by the Board of Directors
and has two alternates. The CEO is elected for a two-year term, may be reelected indefinitely and freely removed prior to the expiration
of his term. In accordance with our bylaws, the Board of Directors must evaluate the annual performance of the CEO and such results
must be published in Ecopetrol’s web page or in an alternative media vehicle.
The compensation of our Directors is set
exclusively by the shareholders at the General Shareholders Assembly. Directors are compensated for attending board meetings and
committee meetings. A Board meeting requires a quorum of at least five members and decisions are approved with a majority of the
Directors present. In the practice a consensus decision making operates in the Board.
Under Colombian law, a director or executive
officer must abstain from participating in any transaction that may result in a conflict of interest or that involves competing
with the company, unless authorized at a General Shareholders Assembly. The general shareholders may approve or reject the transaction
giving rise to the conflict of interest with the vote of the majority of the shares present at the General Shareholders Assembly.
If the director or executive officer who has the conflict is a shareholder, his or her vote must be excluded. We disclose conflicts
of interest of our employees, executive officers and Directors in our annual reports.
Neither our bylaws nor our corporate governance
code provide a retirement age for our Directors. Under our bylaws, there is no requirement for a person to have a minimum number
of shares to be elected as a Director. Colombian law provides that Directors willing to sell or purchase shares in our Company
need prior authorization from the entire Board of Directors. Colombian law does not impose any limitation as to the number of shares
that may be acquired by a Director.
7.3.2
Board
Committees
Pursuant to our bylaws, our Board of Directors
has the ability to constitute the committees it considers necessary. The Board of Directors currently has four committees (audit
and risk committee, corporate governance and sustainability committee, compensation and nomination committee and business committee.
These committees establish guidelines, set specific actions and evaluate and submit proposals designed to improve performance in
the areas under their supervision and control. The committees are comprised of members of the Board of Directors who are also appointed
by the same members. The chairman of each of the committees must be an independent Director. In addition to applicable regulations,
the committees also have their own specific regulations that establish their purposes, duties and responsibilities.
Table 60 – Composition of committees
of the Board of Directors as of March 22, 2018
|
Audit and Risk Committee
|
|
Compensation and Nomination
Committee
|
|
Horacio Ferreira Rueda*
|
|
Minister of Finance and Public Credit
|
|
Jaime Ardila Gomez
|
|
Carlos Cure Cure
|
|
Joaquin Moreno Uribe
|
|
Joaquín Moreno Uribe
|
|
Yesid Reyes Alvarado*
|
|
Mauricio Cabrera Galvis
|
|
Carlos Gustavo Cano Sanz
|
|
|
|
Corporate Governance and Sustainability Committee
|
|
Business Committee
|
|
Minister of Finance and Public Credit
|
|
Minister of Finance and Public Credit
|
|
Horacio Ferreira Rueda**
|
|
Horacio Ferreira Rueda***
|
|
Carlos Cure Cure
|
|
Joaquín Moreno Uribe
|
|
Yesid Reyes Alvarado**
|
|
Carlos Cure Cure
|
|
Jaime Ardila Gómez
|
|
Jaime Ardila Gómez
|
|
Carlos Gustavo Cano Sanz
|
|
Carlos Gustavo Cano Sanz
|
|
Mauricio Cabrera Galvis
|
|
Mauricio Cabrera Galvis
|
* Not elected to the Board of Directors
at the General Shareholders Ordinary Meeting on March 23, 2018. Replacement will be elected to the Audit and Risk Committee after
this annual report.
** Not elected to the Board of Directors
at the General Shareholders Ordinary Meeting on March 23, 2018. Replacement will be elected to the Corporate Governance and Sustainability
Committee after this annual report.
*** Not elected to the Board of Directors at the General Shareholders Ordinary Meeting on March 23, 2018. Replacement will
be elected to the Business Committee after this annual report.
Audit
and Risk Committee
Our audit and risk committee, which must
be comprised of at least three members, all of them independent Directors, is our highest internal control body and provides support
to our Board of Directors on risk, accounting and financial matters. It is in charge of guaranteeing the design, implementation
and supervision of our internal control over financial reporting. It also ratifies the annual hydrocarbons reserves report and
provides support for our Board on analyzing topics related to financial matters, risks, control environment and the assessment
of the Company’s internal and external auditors.
All committee members are required to be
knowledgeable in accounting matters and at least one of them is required to be an expert in financial and accounting matters.
Our Board of Directors has determined that
Jaime Ardila Gómez qualifies as an “audit committee financial expert” and he is independent under the definition
of “independent” applicable to us under the rules of the NYSE.
The audit and risk committee approves on
a case-by-case basis any engagement of our external independent auditors to provide services different than those related to auditing
our financial statements. Occasionally, the audit and risk committee will have no doubt that these additional services do not compromise
the external auditor’s independence. When in doubt, the committee will request the opinion of the internal auditor.
Compensation and Nomination Committee
Our compensation and nomination committee,
which must be comprised of at least three members, including at least one independent director, provides general guidelines for
the selection and compensation of our executive officers and employees.
Corporate Governance and Sustainability
Committee
Our corporate governance and sustainability
committee, which must be comprised of at least three members, including at least one independent director, makes proposals to our
Board of Directors to ensure and supervise the fulfillment of our good corporate governance and sustainability practices in accordance
with our corporate governance code.
Business Committee
Our business committee, which must be comprised
of at least five members, including at least one independent Director, assists our Board in analyzing potential business ventures.
Based on its delegation of power, the committee studies and analyzes capital expenditure policies, major investment projects, strategy,
new business and other matters that would help us move forward in our efforts toward the consolidation of our strategy. The primary
criteria used in the committee’s decision-making process are the optimization of our portfolio and the proper allocation
of our resources.
7.4
Compliance
with NYSE Listing Rules
The following is a summary of the significant
differences between our corporate governance practices and those required for U.S. companies under the NYSE listing standards.
|
NYSE Standards
|
|
Our Corporate Governance Practices
|
|
Director Independence
|
|
|
|
The majority of the board of directors must be independent. §303A.01. ”Controlled companies,” which would include Ecopetrol if we were a U.S. issuer, are exempt from this requirement. A controlled company is one in which more than 50% of the voting power is held by an individual, group or another company, rather than the public. §303A.00.
|
|
Pursuant to our bylaws, the majority of the Board of Directors must be independent. As of the date of this annual report, we have seven independent Directors and two non-independent Directors.
|
|
NYSE Standards
|
|
Our Corporate Governance Practices
|
|
Executive Sessions
|
|
|
|
The non-management directors of each listed company must meet at regularly scheduled executive sessions without management. §303A.03.
|
|
A comparable rule does not exist under Colombian law. Except for our audit and risk committee, our Board of Directors does not meet without management.
|
|
|
|
|
|
Nominating/Corporate Governance and Sustainability Committee
|
|
|
|
A nominating/corporate governance and sustainability committee composed entirely of independent directors is required. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.04. “Controlled companies” are exempt from these requirements. §303A.00.
|
|
Colombian law does not require the establishment of a nominating and a corporate governance and sustainability committee composed entirely of independent directors. Pursuant to our board charter, these committees shall be composed of a majority of independent Directors.
|
|
|
|
|
|
Compensation Committee
|
|
|
|
A compensation committee composed entirely of independent directors is required, which must evaluate and approve executive officer compensation. The committee must have a charter specifying the purpose, duties and evaluation procedures of the committee. §303A.05. “Controlled companies” are exempt from this requirement. §303A.00.
|
|
Colombian law does not require the establishment of a compensation committee composed entirely of independent directors. Pursuant to our board charter, this committee shall be composed of a majority of independent Directors.
|
|
|
|
|
|
Audit and Risk Committee
|
|
|
|
An audit committee with a minimum of three independent directors satisfying the independence and other requirements of Rule 10A-3 under the Exchange Act and the more stringent requirements under the NYSE standards is required. §§303A.06 and 303A.07.
|
|
According to Law 964 of 2005, Colombian companies that are authorized to issue securities by the Superintendence of Finance must have an audit committee that satisfies the requirements of Law 964 of 2005, including its minimum number of members, independence criteria and audit related duties. Our audit and risk committee is composed entirely of independent Directors, and the committee meets the requirements of Law 964 of 2005 and Rule 10A-3 under the Exchange Act.
|
|
|
|
|
|
Equity Compensation Plans
|
|
|
|
Equity compensation plans and all material revisions thereto require shareholder approval, subject to limited exemptions. §§303A.08 and 312.03.
|
|
Under Colombian law, no similar right to vote on equity compensation plans and material revisions thereto is given to shareholders. We do not give our shareholders the right to vote on equity compensation plans and material revisions thereto.
|
|
|
|
|
|
Corporate Governance Guidelines
|
|
|
|
Listed companies must adopt and disclose corporate governance guidelines. §303A.09.
|
|
The Superintendence of Finance recommends the adoption of corporate governance guidelines to all Colombian issuers. According to Superintendence of Finance Circular No. 028, 2014, the adoption of corporate governance guidelines is voluntary. Listed companies must annually publish a corporate governance survey comparing their corporate governance standards with those recommended by the Superintendence of Finance. Our corporate governance code and our survey of the adoption of Colombian practices are available on our website at
http://www.ecopetrol.com.co
.
|
|
NYSE Standards
|
|
Our Corporate Governance Practices
|
|
Code of Ethics for Directors, Officers and Employees
|
|
|
|
Corporate governance guidelines and a code of business conduct and ethics is required, with disclosure of any waiver for directors or executive officers. The code must contain compliance standards and procedures that will facilitate the effective operation of the code. §303A.10.
|
|
We have adopted a code of ethics which complies with applicable U.S. and Colombian law. Our code of ethics applies to our chief executive officer, chief financial officer, principal accounting officer, persons performing similar functions and to all of the employees, members of the Board of Directors, suppliers, and contractors of Ecopetrol S.A. and its corporate group. Our code of ethics is available on our website at
http://www.ecopetrol.com.co
|
7.5
Management
The following presents information concerning
our executive officers and senior management. Unless otherwise noted, the majority of these individuals are Colombian citizens.
Felipe Bayon Pardo (52)
has served
as the Chief Executive Officer of Ecopetrol since September 2017. Prior to being appointed Chief Executive Officer, Mr. Bayón
served as Chief Operating Officer of Ecopetrol from February 2016 to September 2017. Mr. Bayon holds a degree in Mechanical Engineering
from the Universidad de Los Andes (Bogotá). He has over 26 years of experience in the oil and gas industry. For more than
20 years, he worked at BP plc, most recently as Senior Vice-President of BP America and Head of Global Deepwater Response. From
2005 to 2010, he was the Regional President of BP Southern Cone (South America), and prior to 2005 he worked in BP’s headquarters
as Chief of Staff to the Upstream CEO and Head of the Executive Office for Exploration and Production. He began his career in 1995
in BP Colombia, as a Project Engineer, where he held various positions until becoming Vice-President of Operations in Colombia.
Prior to this, he worked for Shell.
María Fernanda Suarez (43)
has served as the Chief Financial Officer of Ecopetrol since August 2015. Ms. Suárez holds a degree in Business Administration
from CESA and a master’s degree in Policy Management from Georgetown University. Ms. Suárez has 22 years of experience
in the public and private sectors. She has held various positions in these sectors, including Director of Public Credit and National
Treasury at Ministry of Finance and Public Credit, Chief Investment Officer at Porvenir (largest asset manager in Colombia with
AUM~US$40 billion) and other high-level positions at Citibank, ABN AMRO and Bank of America. She has served on the board of directors
for ISA, Isagen, XM, FEN, Cenit and Ocensa.
Hector Manosalva (56)
joined Ecopetrol
in 1986 and has served as Vice-President for Development and Production since July, 2014. Mr. Manosalva holds a degree
in Petroleum Engineering from the Universidad de America (Bogotá), completed post-graduate studies in finance at the Universidad
EAFIT and Executive Management at the Universidad de los Andes. Over the course of his career at Ecopetrol, Mr. Manosalva
has held various positions, including Executive Vice-President for Production and Exploration, Vice-President of Production, Production
Manager of the Central Region, President of Colombia’s Advisor for Safety and Security of National Energy Infrastructure,
Director of HSE and Corporate Social Responsibility, Production Manager of the Southern Region and Head of the Production Planning
Division.
Max Torres (60)
has served as Exploration
Vice-President since September 2014. Mr. Torres holds a B.S. degree in Geology from Universidad Nacional of Tucumán in
Argentina and an M.S. in Stratigraphy from Georgia State University. He has more than 28 years of experience in oil and gas exploration
and production and is a proven world class oil and gas finder and a champion of Latin American oil and gas exploration. Among
his many professional accomplishments, Mr. Torres was directly responsible for the 16 Tcfg Perla gas field discovery in Venezuela,
the 275 Tcfg super giant Galkynysh gas field discovery in Turkmenistan, as well as other oil and gas discoveries. Prior to joining
Ecopetrol, Mr. Torres worked at Repsol from 1997 to 2013 as Exploration Director for Europe and the Middle East, Exploration Director
for Europe and Africa and Exploration Director for Latin America. *
Voluntary resignation effective May 7, 2018.
Rafael Espinosa (50)
has served
as Vice-President of Transportation since September 2016. Mr. Espinosa holds a bachelor’s degree in Civil Engineering
from Universidad Santo Tomas in Colombia and a MBA from Universidad de los Andes (Bogotá). He has worked for Ecopetrol
for the last 23 years and has held various positions within the company, including Operations and Maintenance General Manager,
Pipelines Manager, Central Operation Superintendent, Chief of Operations Department, Plant Coordinator, Pipeline Maintenance Engineer
and Community Relationships Engineer.
Rafael Guzman (51)
joined Ecopetrol
in 2010 and has served as Technical Vice-President since May 2013. Mr. Guzman holds a B.S. degree in Petroleum Engineering from
Universidad America in Colombia (1995), a M.S. in Petroleum Engineering and a PhD in Petroleum Engineering with minor in Mathematics
both from Stanford University. Mr. Guzman has been with Ecopetrol since October 2010, where he has held several positions as regional
production manager. Prior to that, Mr. Guzman worked with ENI in managerial positions in Europe and Latin America.
Alberto Consuegra Granger (58)
has
served as Vice-President of Supply and Services since August 2016. He is currently deputizing as President for Cenit Transportes,
Ecopetrol’s brand in the Midstream segment. Mr. Consuegra holds a degree in Civil Engineering from Universidad de Cartagena and
has a master’s degree in Pavements and Construction Management from Texas A&M University. Before joining Ecopetrol,
he was Vice-President of Exploration and Production at Equion Energia Limited, where he also served as the Vice-President for Projects
and Production during the period 2011-2016. Alberto began his professional career in 1984 by working for Morrison Knudsen
International as a contract coordinator during the construction of the Cerrejon project. In 1993 he joined Ecopetrol, working
in the projects Group, afterwards, he went on to BP Exploration, where he worked for 16 years starting as a contract coordinator,
then as procurement and contract manager, then human resource manager for the Andean area, and finally as leader of the Colombian
Performance Unit until end of 2010.
Tomas Hernandez (63)
has served
as Vice-President of Refining and Industrial Processes in Ecopetrol since February 2016. He has over 39 years of multinational
experience in the field of oil and gas sector. He has worked as Business Manager at Chevron’s Pascagoula refinery in the
United States, General Manager for Marketing Operations for Chevron Texaco in Latin America and Africa-Europe-Pakistan Regions
and has spent over 20 years in managerial positions in various refineries at Chevron. Prior to joining Ecopetrol, he was Deputy
Upgrader Manager at Petropiar, a non-operated joint venture in which Chevron holds a 30% interest. Mr. Hernandez graduated from
the University of Missouri – Rolla (University of Science and Technology Missouri) in 1978 with a Bachelor of Science Degree
in chemical engineering.
Jürgen Loeber (60)
has served
as the Projects & Engineering Vice-President of Ecopetrol since May 2016. Mr. Loeber holds a degree in Business Administration
from Universidad del Norte and specialization in Project Management. He joined the Army Corps of Engineers as reserve officer and
reached a captain rank. He has over 30 years of experience in the Oil & Gas industry. For the last 10 years, he worked
at Equion Limited (formerly BP Exploration Colombia) as Project Director. From 2001 to 2006, he was Project Director for Wood Group
Colombia. From 1992 to 2001 he worked for BP in various countries as project manager, construction manager and project control
engineer. He began his career in 1985 in Exxon as financial analyst.
Pedro Manrique (53)
was named Commercial
and Marketing Vice President as of April 2017. Mr. Manrique holds a bachelor’s degree in Electrical Engineering from the
Universidad Industrial de Santander, Colombia. He has a Master’s degree in Industrial and Systems Engineering from the University
of Florida and an MBA from the IE Business School in Madrid, Spain. Mr. Manrique has 27 years of experience in the oil and gas
industry. His previous position was as the Commercial and Business Planning Manager for Chevron Latin America, in Caracas, Venezuela.
At Chevron he also served as Commercial and Business Development Manager in Chevron Colombia based in Bogotá, Colombia.
During his career he also worked Enron Energy Services as Risk Manager, out of their headquarter offices in Houston, Texas. He
has also served as member of the Leadership Team of Chevron Latin America and as member of the national operations council of natural
gas in Colombia, among many other responsibilities.
Carlos Alberto Vargas Medina (48)
has served as Vice-President of Transformation since December 2015. Mr. Vargas holds a degree in Petroleum Engineering from America
University. He has 25 years of experience across the integrated oil and gas value chain with a focus in drilling and well interventions
and an expertise in exploration, appraisal, development and production onshore and offshore wells. He has held management positions
in the United Kingdom, Argentina, Bolivia and Colombia, where he has developed key skills in strategy, performance management systems,
risks management, HSE and integration of multicultural and multidisciplinary teams. Prior to taking his current position, he was
the Vice-President of Drilling and Completions at Equion.
Fernán Ignacio Bejarano Arias
(61)
has served as Vice-President of Legal Affairs and General Counsel at Ecopetrol since March 2016. Mr. Bejarano Arias
holds a bachelor’s degree in Law from Universidad Javeriana in Bogotá and an LLM from the American University (Washington
D.C.). In his more than thirty years of professional experience, he has been a partner at the law firms of Estudios Palacios Lleras
S.A, Bejarano Cárdenas y Ospina y Asociados Ltda and OPEBSA Compañía de Abogados S.A.S. and has worked
for several years at important positions in the public sector, such as the Vice-Minister of Foreign Affairs, Secretary of the Monetary
Board, Secretary of the Board of Directors of the Banco de la República (Colombian Central Bank), Office of Legal
Affairs Counselor at the Presidency of the Republic of Colombia, Vice-President of Legal Affairs and General Counsel at Corporación
Finaciera Colombiana. Mr. Bejarano Arias has been a professor at the Faculty of Law of the Universidad Javeriana, and has been
arbitrator before the Center for Arbitration and Conciliation of the Bogotá Chamber of Commerce.
María Juliana Alban (41)
has served as Compliance Vice-President and Compliance Officer since July 2015. Ms. Alban holds a law degree from Universidad
Sergio Arboleda with a specialization in Commercial and Financial Law from the same institution. Since 2007, Ms. Alban has
worked in the Attorney General’s Office (Procuraduría General de la Nación) as Attorney General for State Contracts,
General Secretary and Chief of Legal Office, among other positions within the institution.
Alejandro Arango (58)
has served
as Vice-President of Human Resources at Ecopetrol S.A. since October 2014. He has more than 20 years of professional experience
around the world and has worked as a Vice-President of Human Resources at Banco Santander in Colombia and as Human Resources Director
of the Consumer Finance Division, Strategy Division and Cards Division at Banco Santander in Spain. Mr. Arango has also served
as Human Resources Director for the Asia Pacific region at Banco Santander in Hong Kong and as a Global Human Resources Division
T&O, among others. Mr. Arango holds a degree in Strategic Marketing from CESA School of Business and a bachelor’s
degree in Theology from the Universidad Hochschule Sankt Georgen (Frankfurt) and a bachelor’s degree in Philosophy from Javeriana
University.
Andres Mantilla (47)
has served
as the Director of the Colombian Petroleum Institute of Ecopetrol, the technology development center of the company, since September
2013. He holds a degree in Petroleum Engineering from Universidad Industrial de Santander, Colombia, Master of Science degree in
Petroleum Engineering from Stanford University, and a Ph.D. in Geophysics from Stanford University. His professional work includes
the leadership and management of oil and gas technology development, demonstration and implementation teams. He worked for Ecopetrol
holding various positions between 1994 and 2006. Before rejoining Ecopetrol in 2013, he worked for BP Colombia, Marathon Oil Company
and Maersk Oil. During his professional career he has had exposure to exploration and production projects and the evaluation of
new ventures in Colombia, the Gulf of Mexico, the North Sea, West Africa, South America and the Middle East.
Eduardo Uribe Botero (58)
has served
as Vice-President of Sustainable Development and Environmental since August 2015. Mr. Uribe holds a degree in Agricultural Engineering
from Caldas University, a master’s of science in Soil Chemistry and a Ph.D. in Fertility and Management of Tropical Soils.
He has over 25 years of experience in the private and public sectors. In 1994, he was appointed the first Vice-Minister of the
Environment in Colombia. In recent years he has served as a strategic, environmental and social advisor to companies and organizations
in the fields of hydrocarbons, mining, energy, forestry, environmental and agribusiness through the consulting firm Optim Consulting.
Carlos Andrés Santos Nieto (40)
has been temporarily appointed as Vice-President of Supply and Services since February 2018. Mr. Santos is an Economist from
Universidad Externado de Colombia and holds a post-graduate degree in International Economics from the same institution and a college
diploma course in Advanced Negotiations from Universidad CESA several and other negotiations training provided by BP in Colombia,
Alaska and London. His latest position was Procurement and Supply Chain Manager at the Company. Prior to joining the Company, he
served as Offshore Business Unit General Manager in Coremar Group and Procurement & Supply Chain Manager Drilling, Wells, Subsurface
and Offshore in Equion Energia Limited (Former BP Exploration Colombia). He also served as Latin America Procurement Sourcing Manager
for Merck Sharp & Dhome and Procurement & Supply Chain Manager Specialist for Quala Colombia S.A. He has held various positions
within BP as PSCM Drilling & Wells Category Lead – Iraq SPU in London, PSCM Market Intelligence Lead & Deflation
Project Lead in Alaska, PSCM Specialist D&W in Alaska, PSCM Specialist O&M in Colombia, PSCM Commercial Analyst in Colombia
and PSCM Specialist Business Support in Colombia.
Mónica Jiménez González
(42)
has served as Secretary General of Ecopetrol SA since July 2016. Ms. Jiménez holds a law degree from University
of the Andes (Bogotá) and has been allowed to practice as a foreign lawyer in Canada. She holds a post-graduate degree in
Civil and State Responsibility from the Universidad Externado de Colombia and a Master of Science in Development Studies from the
London School of Economics and Political Science (LSE). Before studying abroad, Ms. Jimenez worked as a lawyer at a Colombian law
firm and then as lawyer advising the Minister and the Deputy Minister of Defense of Colombia in matters related to international
law. Prior to returning to Colombia, she lived in Canada for 13 years, time during which she worked as a lawyer in a boutique law
firm specialized in international law and then, in a major Canadian law firm in Vancouver, BC.
None of our Directors or executive officers
has any familial relationship with any Director or executive officer.
7.6
Compensation
of Directors and Management
Based on a resolution adopted at our annual
shareholders’ meeting in 2012, compensation for Directors’ attendance in person at meetings of the Board of Directors
and/or committee meetings increased from the equivalent of four to six minimum monthly wage salaries, which totals approximately
COP$4.4 million for 2017 and COP$4.1 million for 2016. See Note 3.1 to our consolidated financial statements for more details.
The total compensation paid to our Directors,
executive officers and senior management active as of December 31, 2017 during 2017 amounted to COP$20.12 billion.
Only one of our executive officers is eligible
to receive pension and retirement benefits from us. The total amount set aside to provide pension and retirement benefits to our
eligible executive officers totals COP$5,401 million.
7.7
Share
Ownership of Directors and Executive Officers
No individual Director or executive officer
beneficially owns more than 1% of our outstanding shares.
The following executive officers own shares
of Ecopetrol:
Table 61 – Officers owning Ecopetrol’s
shares
|
Executive Officer
|
|
Shares
|
|
|
%
|
|
|
Felipe Bayón Pardo
|
|
|
8,418
|
|
|
|
0.00002047
|
%
|
|
Héctor Manosalva
|
|
|
49,380
|
|
|
|
0.00012010
|
%
|
|
Rafael Espinosa Rozo
|
|
|
7,200
|
|
|
|
0.00001751
|
%
|
Under Colombian law, all of our shareholders
have the same economic privileges and voting rights.
7.8
Controls
and Procedures
Disclosure Controls and Procedures
As required by Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as of December 31, 2017, we evaluated the design and effectiveness of our financial
disclosure controls and procedures under the supervision and participation of our management, including our Chief Executive Officer
and Chief Financial Officer. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures,
including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even
if effective, disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives.
Based upon this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that as of the end of the period covered by this annual report, our disclosure controls
and procedures were effective to provide reasonable assurance that the information required to be disclosed in the reports that
we file and submit under the Securities Exchange Act of 1934 is recorded, summarized and reported as and when required and is accumulated
and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required disclosure.
Management’s Annual Report on
Internal Control over Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15(d)-15(f) under the Securities
Exchange Act of 1934. Our internal control over financial reporting is a process designed under the supervision of our Chief Executive
Officer and Chief Financial Officer, and affected by our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting
purposes in accordance with generally accepted accounting principles, and it includes those policies and procedures that:
|
|
·
|
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
transactions and dispositions of our assets;
|
|
|
·
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being
made only in accordance with authorization of our management and directors; and
|
|
|
·
|
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on our financial statements.
|
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Therefore, effective control over financial reporting
cannot, and does not, provide absolute assurance of achieving our control objectives. Also, projection of any evaluation of the
effectiveness of the internal controls to future periods is subject to the risk that controls may become inadequate because of
changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
As of the year ended December 31,
2017, our management conducted an assessment of the effectiveness of our internal control over financial reporting in accordance
with the criteria established in the publication “Internal Control – Integrated Framework (2013)”, issued by
the Committee of the Sponsoring Organizations of the Treadway Commission, as well as the rules set by the SEC in its Final Rule
“Management’s Report on Internal Control Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic
Reports.”
Based on the assessment performed, management
concluded that our internal control over financial reporting was effective as of the end of the period covered by this annual report.
The effectiveness of our internal control
over financial reporting has been audited by Ernst & Young Audit S.A.S., an independent registered public accounting firm,
as stated in their audit report accompanying our consolidated financial statements.
Audit and Non-Audit Fees
Our consolidated financial statements for
the fiscal years ended December 31, 2017 and December 31, 2016 were audited by Ernst & Young Audit S.A.S. Our consolidated
financial statements for the fiscal year ended December 31, 2015 were audited by PricewaterhouseCoopers Ltda.
The following table sets forth the fees
billed to us by Ernst & Young Audit S.A.S. during the fiscal years ended December 31, 2017 and December 31, 2016.
Table 62 – Fees Billed to us by
Ernst & Young Audit S.A.S.
|
|
|
As of December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(in millions of Colombian Pesos,
excluding 16% value added tax)
|
|
|
Audit fees
|
|
|
10,946
|
|
|
|
7,800
|
|
|
Audit-related fees
|
|
|
167
|
|
|
|
538
|
|
|
Tax fees
|
|
|
135
|
|
|
|
916
|
|
|
All other fees
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
11,248
|
|
|
|
9,254
|
|
Audit Fees
. The audit fees listed
in the table above are the aggregated fees billed by Ernst & Young Audit S.A.S. in connection with their audits of our annual
consolidated financial statements (IFRS), interim consolidated financial statements (under IFRS), statutory audits of Ecopetrol
S.A. and its consolidated subsidiaries and some of its associate entities (under local GAAP) and review of periodic documents filed
with the SEC. In addition, these audit fees include fees related to our independent auditors’ audits of our internal controls
over financial reporting.
Audit-related Fees
. The audit-related
fees listed in the table above are the fees billed by Ernst & Young Audit S.A.S. in connection with their agreed-upon procedures
of our variable compensation bonus system and its review procedures in connection with the offering document related to the SEC-registered
bonds we reopened in 2016.
Tax Fees
. The tax fees listed in
the table above correspond to (i) advising some subsidiaries about the tax consequences associated with new or proposed legislation,
and (ii) rendering advice to some subsidiaries on the likely tax consequences of proposed transactions and the appropriate methods
of structuring and reporting.
Changes in Internal Control over Financial
Reporting
There were no changes made in our internal
control over financial reporting during the year ended December 31, 2017 that have materially affected or are reasonably likely
to materially affect the Company’s internal controls over financial reporting.
Attestation Report of the Registered
Public Accounting Firm
Ernst & Young Audit S.A.S.’s
attestation report on our internal control over financial reporting is included in their audit report accompanying our consolidated
financial statements. See
Report of Independent Registered Public Accounting Firm
to the consolidated financial statements.
Significant Changes
For a description of significant events
since December 31, 2017, please see Note 35 to our consolidated financial statements.
Ecopetrol S. A.
Consolidated Financial Statements
At December 31, 2017 and 2016 and for three
years ended December 31, 2017, 2016 and 2015
Report
of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Ecopetrol
S.A. and subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of
financial position of Ecopetrol S.A. and subsidiaries (the Company) as of December 31, 2017 and 2016, the related consolidated
statements of profit or loss, comprehensive income, changes in equity, and cash flows, for the years ended December 31, 2017 and
2016, and the related notes and financial statement schedules in exhibits 1 and 2 (collectively referred to as the consolidated
financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Company at December 31, 2017 and 2016, and the results of its operations and its cash flows
for the years ended December 31, 2017 and 2016, in conformity with International Financial Reporting Standards as issued by the
International Accounting Standards Board.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) and our report dated April 19, 2018 expressed an unqualified opinion
thereon.
Basis for Opinion
These financial statements are the responsibility of the Company‘s
management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We
are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess
the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as
well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis
for our opinion.
|
/s/ Ernst & Young Audit S.A.S.
|
|
|
We have served as the Company‘s auditor since 2016.
|
|
|
Bogota, Colombia
|
|
|
April 19, 2018
|
|
Report
of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Ecopetrol
S.A. and subsidiaries
Opinion on Internal Control over Financial Reporting
We have audited Ecopetrol S.A. and subsidiaries’
internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).
In our opinion, Ecopetrol, S.A. and subsidiaries (the Company) maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2017, based on the COSO criteria
.
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial
position of the Company as of December 31, 2017 and 2016, the related consolidated statements of profit or loss, comprehensive
income, changes in equity and cash flows for the years ended December 31, 2017 and 2016, and the related notes and financial statement
schedules on exhibits 1 and 2, and our report dated April 19, 2018 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting.
Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audit in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding
of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal
Control Over Financial Reporting
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
|
/s/ Ernst & Young Audit S.A.S.
|
|
|
Bogota, Colombia
|
|
|
April 19, 2018
|
|
Report of Independent
Registered Public Accounting Firm
To the Board of Directors
And Shareholders of Ecopetrol S. A.
In our opinion, the accompanying consolidated statements of
profit and loss, other comprehensive income, changes in equity and cash flows for the year ended December 31, 2015 present fairly,
in all material respects, the results of operations and cash flows of Ecopetrol S.A. and its subsidiaries (the “Company”)
for the year ended December 31, 2015, in conformity with International Financial Reporting Standards as issued by the International
Accounting Standards Board. These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
|
/s/ PricewaterhouseCoopers Ltda.
|
|
Bogotá, Colombia
April 28, 2016, except for the change in the manner in which
the company presents dry wells in the consolidated statements of cash flows as to which the date is May 30, 2017.
Ecopetrol S.A.
Consolidated statement
of financial position
(Figures expressed in millions of Colombian
pesos)
|
|
|
|
|
As of December 31,
|
|
|
|
|
Note
|
|
2017
|
|
|
2016
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
6
|
|
|
7,945,885
|
|
|
|
8,410,467
|
|
|
Trade and other receivables, net
|
|
7
|
|
|
6,098,918
|
|
|
|
4,212,701
|
|
|
Inventories, net
|
|
8
|
|
|
4,601,396
|
|
|
|
3,841,901
|
|
|
Other financial assets
|
|
9
|
|
|
2,967,878
|
|
|
|
5,315,537
|
|
|
Current tax assets
|
|
10
|
|
|
625,374
|
|
|
|
1,129,098
|
|
|
Equity instruments measured at fair value
|
|
11
|
|
|
-
|
|
|
|
51,610
|
|
|
Other assets
|
|
12
|
|
|
880,425
|
|
|
|
1,035,632
|
|
|
|
|
|
|
|
23,119,876
|
|
|
|
23,996,946
|
|
|
Assets held for sale
|
|
13
|
|
|
104,140
|
|
|
|
132,216
|
|
|
Total current assets
|
|
|
|
|
23,224,016
|
|
|
|
24,129,162
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
Investment in associates and joint ventures
|
|
14
|
|
|
1,330,460
|
|
|
|
1,552,694
|
|
|
Trade and other receivables, net
|
|
7
|
|
|
777,132
|
|
|
|
729,410
|
|
|
Property, plant and equipment
|
|
15
|
|
|
61,404,374
|
|
|
|
62,328,502
|
|
|
Natural and environmental resources
|
|
16
|
|
|
21,308,265
|
|
|
|
22,341,047
|
|
|
Intangible assets
|
|
17
|
|
|
380,226
|
|
|
|
272,132
|
|
|
Deferred tax assets
|
|
10
|
|
|
4,016,161
|
|
|
|
4,248,014
|
|
|
Other financial assets
|
|
9
|
|
|
3,565,847
|
|
|
|
1,371,358
|
|
|
Goodwill
|
|
19
|
|
|
1,159,922
|
|
|
|
1,159,922
|
|
|
Other assets
|
|
12
|
|
|
681,009
|
|
|
|
826,736
|
|
|
Total non-current assets
|
|
|
|
|
94,623,396
|
|
|
|
94,829,815
|
|
|
Total assets
|
|
|
|
|
117,847,412
|
|
|
|
118,958,977
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Loans and borrowings
|
|
20
|
|
|
5,144,504
|
|
|
|
4,126,203
|
|
|
Trade and other payables
|
|
21
|
|
|
6,968,207
|
|
|
|
6,854,363
|
|
|
Provisions for employee benefits
|
|
22
|
|
|
1,829,819
|
|
|
|
1,974,496
|
|
|
Current tax liabilities
|
|
10
|
|
|
2,005,688
|
|
|
|
2,130,940
|
|
|
Accrued liabilities and provisions
|
|
23
|
|
|
558,828
|
|
|
|
821,954
|
|
|
Other liabilities
|
|
|
|
|
339,565
|
|
|
|
439,274
|
|
|
|
|
|
|
|
16,846,611
|
|
|
|
16,347,230
|
|
|
Liabilities related to assets held for sale
|
|
13
|
|
|
-
|
|
|
|
40,128
|
|
|
Total current liabilities
|
|
|
|
|
16,846,611
|
|
|
|
16,387,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Loans and borrowings
|
|
20
|
|
|
38,403,331
|
|
|
|
48,095,824
|
|
|
Trade and other payables
|
|
21
|
|
|
29,469
|
|
|
|
23,893
|
|
|
Provisions for employee benefits
|
|
22
|
|
|
6,502,475
|
|
|
|
3,901,082
|
|
|
Deferred tax liabilities
|
|
10
|
|
|
1,333,280
|
|
|
|
1,639,703
|
|
|
Accrued liabilities and provisions
|
|
23
|
|
|
5,978,621
|
|
|
|
5,095,916
|
|
|
Other liabilities
|
|
|
|
|
537,926
|
|
|
|
254,700
|
|
|
Total non-current liabilities
|
|
|
|
|
52,785,102
|
|
|
|
59,011,118
|
|
|
Total liabilities
|
|
|
|
|
69,631,713
|
|
|
|
75,398,476
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
24
|
|
|
|
|
|
|
|
|
|
Subscribed and paid in capital
|
|
|
|
|
25,040,067
|
|
|
|
25,040,067
|
|
|
Reserves
|
|
|
|
|
2,177,869
|
|
|
|
1,558,844
|
|
|
Retained earnings
|
|
|
|
|
5,210,302
|
|
|
|
(402,462
|
)
|
|
Other equity items
|
|
|
|
|
14,006,715
|
|
|
|
15,830,409
|
|
|
Equity attributable to owners of parent
|
|
|
|
|
46,434,953
|
|
|
|
42,026,858
|
|
|
Non-controlling interest
|
|
|
|
|
1,780,746
|
|
|
|
1,533,643
|
|
|
Total equity
|
|
|
|
|
48,215,699
|
|
|
|
43,560,501
|
|
|
Total liabilities and equity
|
|
|
|
|
117,847,412
|
|
|
|
118,958,977
|
|
Ecopetrol S.A.
Consolidated statement
of profit or loss
(Expressed in millions of Colombian pesos,
except for the earnings (loss) per share expressed in full pesos)
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
Note
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
25
|
|
|
55,954,228
|
|
|
|
48,485,561
|
|
|
|
52,347,271
|
|
|
Cost of sales
|
|
26
|
|
|
(36,908,325
|
)
|
|
|
(34,251,423
|
)
|
|
|
(36,994,516
|
)
|
|
Gross profit
|
|
|
|
|
19,045,903
|
|
|
|
14,234,138
|
|
|
|
15,352,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Administrative expenses
|
|
27
|
|
|
(1,764,524
|
)
|
|
|
(1,923,268
|
)
|
|
|
(1,700,985
|
)
|
|
Operations and project expenses
|
|
27
|
|
|
(2,926,065
|
)
|
|
|
(2,751,687
|
)
|
|
|
(4,034,268
|
)
|
|
Recovery of (expense for) impairment of long-term assets, net
|
|
18
|
|
|
1,311,138
|
|
|
|
(928,747
|
)
|
|
|
(7,864,875
|
)
|
|
Other operating income, net
|
|
28
|
|
|
505,403
|
|
|
|
274,112
|
|
|
|
378,538
|
|
|
Operating income
|
|
|
|
|
16,171,855
|
|
|
|
8,904,548
|
|
|
|
2,131,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial results, net
|
|
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
|
|
1,159,356
|
|
|
|
1,311,743
|
|
|
|
621,924
|
|
|
Finance expenses
|
|
|
|
|
(3,660,601
|
)
|
|
|
(3,463,540
|
)
|
|
|
(2,718,414
|
)
|
|
Foreign exchange gain (loss)
|
|
|
|
|
5,514
|
|
|
|
976,430
|
|
|
|
(5,566,614
|
)
|
|
|
|
|
|
|
(2,495,731
|
)
|
|
|
(1,175,367
|
)
|
|
|
(7,663,104
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of profits (losses) of associates and joint ventures
|
|
14
|
|
|
93,538
|
|
|
|
61,345
|
|
|
|
(46,687
|
)
|
|
Profit (loss) before income tax expense
|
|
|
|
|
13,769,662
|
|
|
|
7,790,526
|
|
|
|
(5,578,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
10
|
|
|
(5,800,268
|
)
|
|
|
(4,543,046
|
)
|
|
|
(710,353
|
)
|
|
Net profit (loss) for the period
|
|
|
|
|
7,969,394
|
|
|
|
3,247,480
|
|
|
|
(6,288,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of parent
|
|
|
|
|
7,178,539
|
|
|
|
2,447,881
|
|
|
|
(7,193,859
|
)
|
|
Non-controlling interest
|
|
|
|
|
790,855
|
|
|
|
799,599
|
|
|
|
904,880
|
|
|
|
|
|
|
|
7,969,394
|
|
|
|
3,247,480
|
|
|
|
(6,288,979
|
)
|
|
Basic and diluted earnings (loss) per share
|
|
|
|
|
174.6
|
|
|
|
59.5
|
|
|
|
(175.0
|
)
|
Ecopetrol S.A.
Consolidated statement
of other comprehensive income
(Figures expressed in millions of Colombian
pesos)
|
|
|
For the years ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) for the period
|
|
|
7,969,394
|
|
|
|
3,247,480
|
|
|
|
(6,288,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge for future exports
|
|
|
(84,837
|
)
|
|
|
461,424
|
|
|
|
(217,291
|
)
|
|
Hedge of a net investment in a foreign operation
|
|
|
57,997
|
|
|
|
(155,359
|
)
|
|
|
-
|
|
|
Cash flow hedge with derivative instruments
|
|
|
35,768
|
|
|
|
33,869
|
|
|
|
(60,083
|
)
|
|
Equity instruments measured at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (loss) gain
|
|
|
(7,828
|
)
|
|
|
126,205
|
|
|
|
(106,911
|
)
|
|
Realized (loss) gain
|
|
|
-
|
|
|
|
(68,497
|
)
|
|
|
(19,405
|
)
|
|
Foreign currency translation
|
|
|
(257,147
|
)
|
|
|
(925,981
|
)
|
|
|
5,979,644
|
|
|
|
|
|
(256,047
|
)
|
|
|
(528,339
|
)
|
|
|
5,575,954
|
|
|
Other comprehensive income not to be reclassified to profit or loss in subsequent periods (net of taxes):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remeasurement (loss) gain on defined benefit plans
|
|
|
(1,548,043
|
)
|
|
|
(1,153,442
|
)
|
|
|
1,404,602
|
|
|
Others (losses) gains
|
|
|
(11,817
|
)
|
|
|
(46,826
|
)
|
|
|
58,643
|
|
|
|
|
|
(1,559,860
|
)
|
|
|
(1,200,268
|
)
|
|
|
1,463,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income for the year, net of tax
|
|
|
(1,815,907
|
)
|
|
|
(1,728,607
|
)
|
|
|
7,039,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income for the year, net of tax
|
|
|
6,153,487
|
|
|
|
1,518,873
|
|
|
|
750,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive results attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of parent
|
|
|
5,353,778
|
|
|
|
784,658
|
|
|
|
(328,604
|
)
|
|
Non-controlling interest
|
|
|
799,709
|
|
|
|
734,215
|
|
|
|
1,078,824
|
|
|
|
|
|
6,153,487
|
|
|
|
1,518,873
|
|
|
|
750,220
|
|
Ecopetrol S.A.
Consolidated statement
of changes in equity
(Figures expressed in millions of Colombian
pesos)
|
|
|
|
|
Attributable
to owners of parent
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
Subscribed
and
paid-in capital
|
|
|
Additional
paid-in capital
|
|
|
Reserves
|
|
|
Other
comprehensive
income
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Non-controlling
interest
|
|
|
Total
equity
|
|
|
Balance as of December 31, 2016
|
|
|
|
|
25,040,067
|
|
|
|
6,607,699
|
|
|
|
1,558,844
|
|
|
|
9,222,710
|
|
|
|
(402,462
|
)
|
|
|
42,026,858
|
|
|
|
1,533,643
|
|
|
|
43,560,501
|
|
|
Net income
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,178,539
|
|
|
|
7,178,539
|
|
|
|
790,855
|
|
|
|
7,969,394
|
|
|
Dividends declared
|
|
24.4
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(945,684
|
)
|
|
|
(945,684
|
)
|
|
|
(551,494
|
)
|
|
|
(1,497,178
|
)
|
|
Release of reserves, net
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
619,025
|
|
|
|
-
|
|
|
|
(619,025
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other movements
|
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
2
|
|
|
|
(1,066
|
)
|
|
|
(1,063
|
)
|
|
|
(48
|
)
|
|
|
(1,111
|
)
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge for future exports
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(84,837
|
)
|
|
|
-
|
|
|
|
(84,837
|
)
|
|
|
-
|
|
|
|
(84,837
|
)
|
|
Hedge of a net investment in a foreign operation
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,997
|
|
|
|
-
|
|
|
|
57,997
|
|
|
|
-
|
|
|
|
57,997
|
|
|
Cash flow hedge with derivative instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,984
|
|
|
|
-
|
|
|
|
25,984
|
|
|
|
9,784
|
|
|
|
35,768
|
|
|
Loss on equity instruments measured at fair value
|
|
11
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,828
|
)
|
|
|
-
|
|
|
|
(7,828
|
)
|
|
|
-
|
|
|
|
(7,828
|
)
|
|
Foreign currency translation
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(255,153
|
)
|
|
|
-
|
|
|
|
(255,153
|
)
|
|
|
(1,994
|
)
|
|
|
(257,147
|
)
|
|
Actuarial valuation losses
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,548,043
|
)
|
|
|
-
|
|
|
|
(1,548,043
|
)
|
|
|
-
|
|
|
|
(1,548,043
|
)
|
|
Other movements
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(11,817
|
)
|
|
|
-
|
|
|
|
(11,817
|
)
|
|
|
-
|
|
|
|
(11,817
|
)
|
|
Balance as of December 31,
2017
|
|
|
|
|
25,040,067
|
|
|
|
6,607,700
|
|
|
|
2,177,869
|
|
|
|
7,399,015
|
|
|
|
5,210,302
|
|
|
|
46,434,953
|
|
|
|
1,780,746
|
|
|
|
48,215,699
|
|
|
|
|
|
|
Attributable
to owners of parent
|
|
|
|
|
|
|
|
|
|
|
Note
|
|
Subscribed
and
paid-in capital
|
|
|
Additional
paid-in
capital
|
|
|
Reserves
|
|
|
Other
comprehensive
income
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Non-controlling
interest
|
|
|
Total
equity
|
|
|
Balance
as of December 31, 2015
|
|
|
|
|
25,040,067
|
|
|
|
6,607,699
|
|
|
|
5,546,570
|
|
|
|
10,846,004
|
|
|
|
(6,814,432
|
)
|
|
|
41,225,908
|
|
|
|
1,875,055
|
|
|
|
43,100,963
|
|
|
Net income
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,447,881
|
|
|
|
2,447,881
|
|
|
|
799,599
|
|
|
|
3,247,480
|
|
|
Dividends declared
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,029,612
|
)
|
|
|
(1,029,612
|
)
|
|
Legal reserve used to
offset previous year loss
|
|
24
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,869,907
|
)
|
|
|
-
|
|
|
|
3,869,907
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Appropriation of reserves,
net
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(117,819
|
)
|
|
|
-
|
|
|
|
117,819
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other movements
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(23,637
|
)
|
|
|
(23,637
|
)
|
|
|
(6,086
|
)
|
|
|
(29,723
|
)
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
(loss) on hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flow hedge for future exports
|
|
31
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
461,424
|
|
|
|
-
|
|
|
|
461,424
|
|
|
|
-
|
|
|
|
461,424
|
|
|
Hedge
of a net investment in a foreign operation
|
|
31
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(155,359
|
)
|
|
|
-
|
|
|
|
(155,359
|
)
|
|
|
-
|
|
|
|
(155,359
|
)
|
|
Cash
flow hedge with derivative instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,546
|
|
|
|
-
|
|
|
|
24,546
|
|
|
|
9,323
|
|
|
|
33,869
|
|
|
Net
fair value gain on equity instruments measured at fair value
|
|
11
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
57,708
|
|
|
|
-
|
|
|
|
57,708
|
|
|
|
-
|
|
|
|
57,708
|
|
|
Foreign
currency translation
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(811,345
|
)
|
|
|
-
|
|
|
|
(811,345
|
)
|
|
|
(114,636
|
)
|
|
|
(925,981
|
)
|
|
Actuarial
valuation losses
|
|
22
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,153,442
|
)
|
|
|
-
|
|
|
|
(1,153,442
|
)
|
|
|
-
|
|
|
|
(1,153,442
|
)
|
|
Other
movements
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(46,826
|
)
|
|
|
-
|
|
|
|
(46,826
|
)
|
|
|
-
|
|
|
|
(46,826
|
)
|
|
Balance
as of December 31, 2016
|
|
|
|
|
25,040,067
|
|
|
|
6,607,699
|
|
|
|
1,558,844
|
|
|
|
9,222,710
|
|
|
|
(402,462
|
)
|
|
|
42,026,858
|
|
|
|
1,533,643
|
|
|
|
43,560,501
|
|
Ecopetrol S.A.
Consolidated statement of changes in equity
(Figures expressed in millions of Colombian
pesos)
|
|
|
|
|
Attributable
to owners of parent
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
Subscribed
and
paid-in capital
|
|
|
Additional
paid-in
capital
|
|
|
Reserves
|
|
|
Other
comprehensive
income
|
|
|
Retained
earnings
|
|
|
Total
|
|
|
Non-
controlling
interest
|
|
|
Total
equity
|
|
|
Balance as of December 31, 2014
|
|
|
|
|
10,279,175
|
|
|
|
6,607,612
|
|
|
|
17,963,370
|
|
|
|
3,980,749
|
|
|
|
8,192,040
|
|
|
|
47,022,946
|
|
|
|
1,511,282
|
|
|
|
48,534,228
|
|
|
Net income
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(7,193,859
|
)
|
|
|
(7,193,859
|
)
|
|
|
904,880
|
|
|
|
(6,288,979
|
)
|
|
Dividends declared
|
|
24
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,468,521
|
)
|
|
|
(5,468,521
|
)
|
|
|
(715,051
|
)
|
|
|
(6,183,572
|
)
|
|
Appropriation of reserves, net
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,344,095
|
|
|
|
|
|
|
|
(2,344,095
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Capitalization of reserves
|
|
|
|
|
14,760,895
|
|
|
|
-
|
|
|
|
(14,760,895
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Other movements
|
|
|
|
|
(3
|
)
|
|
|
87
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
87
|
|
|
|
-
|
|
|
|
87
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedge for future
exports
|
|
31
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(217,291
|
)
|
|
|
-
|
|
|
|
(217,291
|
)
|
|
|
-
|
|
|
|
(217,291
|
)
|
|
Cash flow hedge with
derivative instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(43,590
|
)
|
|
|
-
|
|
|
|
(43,590
|
)
|
|
|
(16,493
|
)
|
|
|
(60,083
|
)
|
|
Net fair value (loss)
on equity instruments measured at fair value
|
|
11
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(126,316
|
)
|
|
|
-
|
|
|
|
(126,316
|
)
|
|
|
-
|
|
|
|
(126,316
|
)
|
|
Foreign currency translation
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,789,207
|
|
|
|
-
|
|
|
|
5,789,207
|
|
|
|
190,437
|
|
|
|
5,979,644
|
|
|
Actuarial valuation gains
|
|
22
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,404,602
|
|
|
|
-
|
|
|
|
1,404,602
|
|
|
|
-
|
|
|
|
1,404,602
|
|
|
Other
movements
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,643
|
|
|
|
-
|
|
|
|
58,643
|
|
|
|
-
|
|
|
|
58,643
|
|
|
Balance as of December 31,
2015
|
|
|
|
|
25,040,067
|
|
|
|
6,607,699
|
|
|
|
5,546,570
|
|
|
|
10,846,004
|
|
|
|
(6,814,432
|
)
|
|
|
41,225,908
|
|
|
|
1,875,055
|
|
|
|
43,100,963
|
|
Ecopetrol S.A.
Consolidated statement
of cash flows
(Figures expressed in millions of Colombian
pesos)
|
|
|
|
|
For the years ended December 31,
|
|
|
|
|
Note
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Cash flow provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss) for the period
|
|
|
|
|
7,969,394
|
|
|
|
3,247,480
|
|
|
|
(6,288,979
|
)
|
|
Adjustments to reconcile the net profit (loss) to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
10
|
|
|
5,800,268
|
|
|
|
4,543,046
|
|
|
|
710,353
|
|
|
Depreciation, depletion and amortization
|
|
15,16,17
|
|
|
8,281,347
|
|
|
|
7,607,000
|
|
|
|
6,770,358
|
|
|
Foreign exchange loss
|
|
29
|
|
|
(5,514
|
)
|
|
|
(976,430
|
)
|
|
|
5,566,614
|
|
|
Finance cost of loans and borrowings
|
|
29
|
|
|
2,385,994
|
|
|
|
2,765,024
|
|
|
|
1,768,618
|
|
|
Finance cost of post-employment benefits and abandonment costs
|
|
29
|
|
|
753,047
|
|
|
|
580,491
|
|
|
|
627,827
|
|
|
Dry wells
|
|
16
|
|
|
898,264
|
|
|
|
342,691
|
|
|
|
1,266,440
|
|
|
Loss on disposal of non-current assets
|
|
|
|
|
26,686
|
|
|
|
78,990
|
|
|
|
59,932
|
|
|
Gain in acquisition of interests in joint operations
|
|
32.3
|
|
|
(451,095
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Loss on (recovery of) impairment of short term
assets
|
|
|
|
|
30,600
|
|
|
|
74,393
|
|
|
|
(8,698
|
)
|
|
(Recovery of) loss on impairment of long term assets
|
|
18
|
|
|
(1,311,138
|
)
|
|
|
928,747
|
|
|
|
7,864,875
|
|
|
Gain on fair value adjustment of financial assets
|
|
|
|
|
(104,706
|
)
|
|
|
(59,593
|
)
|
|
|
(109,673
|
)
|
|
Share of profit (loss) of associates and joint ventures
|
|
14
|
|
|
(93,538
|
)
|
|
|
(61,345
|
)
|
|
|
46,687
|
|
|
Net gain on the sale of assets held for sale
|
|
|
|
|
(166,389
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Gain on sale of equity instruments measured at fair value
|
|
|
|
|
(13,236
|
)
|
|
|
(47,129
|
)
|
|
|
(72,339
|
)
|
|
Hedge ineffectiveness
|
|
|
|
|
8,918
|
|
|
|
-
|
|
|
|
-
|
|
|
Realized foreign exchange cash flow hedges
|
|
25
|
|
|
(160,772
|
)
|
|
|
(33,074
|
)
|
|
|
(7,646
|
)
|
|
Income tax paid
|
|
|
|
|
(4,217,303
|
)
|
|
|
(4,347,364
|
)
|
|
|
(3,148,028
|
)
|
|
Net change in operational assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
|
|
(2,189,473
|
)
|
|
|
(1,400,583
|
)
|
|
|
751,031
|
|
|
Inventories
|
|
|
|
|
(323,626
|
)
|
|
|
(217,198
|
)
|
|
|
(183,231
|
)
|
|
Trade and other payables
|
|
|
|
|
21,417
|
|
|
|
(619,131
|
)
|
|
|
(2,202,808
|
)
|
|
Tax assets and liabilities
|
|
|
|
|
(493,533
|
)
|
|
|
2,547,232
|
|
|
|
(1,964,995
|
)
|
|
Provisions for employee benefits
|
|
|
|
|
(227,384
|
)
|
|
|
(11,677
|
)
|
|
|
(206,444
|
)
|
|
Provisions and contingencies
|
|
|
|
|
104,135
|
|
|
|
(827,153
|
)
|
|
|
(216,939
|
)
|
|
Other assets and liabilities
|
|
|
|
|
451,263
|
|
|
|
118,523
|
|
|
|
654,960
|
|
|
Net cash generated by operating activities
|
|
|
|
|
16,973,626
|
|
|
|
14,232,940
|
|
|
|
11,677,915
|
|
|
Cash flow from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in property, plant and equipment
|
|
15
|
|
|
(2,363,283
|
)
|
|
|
(3,646,929
|
)
|
|
|
(8,548,933
|
)
|
|
Investment in natural and environmental resources
|
|
16
|
|
|
(3,426,405
|
)
|
|
|
(2,121,295
|
)
|
|
|
(6,856,761
|
)
|
|
Acquisition of interests in joint operations
|
|
32.3
|
|
|
(141,950
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Acquisitions of intangibles
|
|
17
|
|
|
(175,868
|
)
|
|
|
(69,253
|
)
|
|
|
(112,255
|
)
|
|
Sales (purchases) of other financial asset
|
|
|
|
|
564,754
|
|
|
|
(5,446,507
|
)
|
|
|
1,208,898
|
|
|
Interests received
|
|
|
|
|
405,562
|
|
|
|
386,001
|
|
|
|
293,507
|
|
|
Dividends received
|
|
|
|
|
270,136
|
|
|
|
437,803
|
|
|
|
423,856
|
|
|
Proceeds from sales of assets held for sale
|
|
|
|
|
159,041
|
|
|
|
-
|
|
|
|
-
|
|
|
Proceeds from sales of equity instruments measured at fair value
|
|
11
|
|
|
56,930
|
|
|
|
966,715
|
|
|
|
613,998
|
|
|
Proceeds from sales of property, plant and equipment
|
|
|
|
|
267,324
|
|
|
|
109,896
|
|
|
|
166,211
|
|
|
Net cash used in investment activities
|
|
|
|
|
(4,383,759
|
)
|
|
|
(9,383,569
|
)
|
|
|
(12,811,479
|
)
|
|
Cash flow used in financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings
|
|
|
|
|
444,827
|
|
|
|
4,594,640
|
|
|
|
10,985,933
|
|
|
Repayment of borrowings
|
|
|
|
|
(9,007,340
|
)
|
|
|
(3,149,917
|
)
|
|
|
(4,903,592
|
)
|
|
Interest payments
|
|
|
|
|
(2,696,979
|
)
|
|
|
(2,495,446
|
)
|
|
|
(1,981,127
|
)
|
|
Capitalizations
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
Dividends paid
|
|
|
|
|
(1,504,647
|
)
|
|
|
(1,712,298
|
)
|
|
|
(5,493,400
|
)
|
|
Net cash used in financing activities
|
|
|
|
|
(12,764,139
|
)
|
|
|
(2,763,021
|
)
|
|
|
(1,392,183
|
)
|
|
Exchange difference in cash and cash equivalents
|
|
|
|
|
(290,310
|
)
|
|
|
(226,333
|
)
|
|
|
1,458,019
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
|
|
(464,582
|
)
|
|
|
1,860,017
|
|
|
|
(1,067,728
|
)
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
|
|
8,410,467
|
|
|
|
6,550,450
|
|
|
|
7,618,178
|
|
|
Cash and cash equivalent at the end of the year
|
|
6
|
|
|
7,945,885
|
|
|
|
8,410,467
|
|
|
|
6,550,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of reserves
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,760,895
|
|
|
Payment of income tax through the offset of balances in favor
|
|
|
|
|
-
|
|
|
|
656,121
|
|
|
|
894,451
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Ecopetrol S.A. (“Ecopetrol”)
is a mixed economy company, of a commercial nature, incorporated in 1948 in Bogotá - Colombia, parent company of the Ecopetrol
Business Group. Its corporate purpose is to conduct commercial or industrial activities related to the exploration, exploitation,
production, refining, transportation, storage, distribution and commercialization of hydrocarbons and their derivatives and products,
directly or through its subsidiaries (collectively referred to as "Ecopetrol Business Group").
11.51% of Ecopetrol shares are publicly
traded on the Stock Exchanges of Colombia and New York. The remaining shares (88.49% of the total outstanding shares) are owned
by the Colombian Ministry of Finance and Public Credit.
The address of the main office of Ecopetrol
is Bogotá - Colombia, Carrera 13 No. 36 - 24.
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2.
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Basis for presentation
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2.1
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Statement of compliance and authorization of financial
statements
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These consolidated financial statements
of Ecopetrol and its subsidiaries as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016 and 2015 have
been prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards
Board (IASB).
Accounting policies described in Note 4
have been applied consistently in all periods.
These consolidated financial statements
were approved and authorized for issuance by the Board of Directors of Ecopetrol on April 19, 2018.
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2.2
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Basis for consolidation
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The consolidated financial statements were
prepared by consolidating all companies set out in Exhibit 1, which are those over which Ecopetrol exercises direct or indirect
control. Control is achieved when the Group:
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§
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Has power over the investee (including
rights to manage relevant activities);
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§
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Is exposed, or has the rights, to variable
returns from its involvement with the investee; and
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Has the ability to use its power to affect
its operational returns. This instance occurs when the Group has less than a majority of the voting rights of an investee, and
it still has the power over the investee to provide it with the practical ability to direct the relevant activities of the investee
unilaterally. The Group considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights
in an investee are sufficient or not to give it power, including:
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a)
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The percentage of the Group's voting rights relative to the size and apportionment of the shares
of other vote holders;
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b)
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Potential voting rights held by the Group, other vote holders or other parties;
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c)
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Rights arising from other contractual arrangements; and
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d)
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Any additional facts and circumstances that indicate that the Group has, or does not have, the
current ability to direct the relevant activities, at the time that decisions need to be made, including voting patterns at previous
shareholders´ meetings.
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Subsidiaries are consolidated from the
date on which control is obtained until the date that such control ceases.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
All inter-company assets and liabilities,
equity, income, expenses and cash flows relating to transactions between entities of the Ecopetrol Business Group were eliminated
on consolidation. Unrealized losses are also eliminated. Non-controlling interest represents the proportion of profit, other comprehensive
income and net assets in subsidiaries that are not attributable to Ecopetrol shareholders.
The following subsidiaries were incorporated
in 2017:
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a)
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Esenttia Resinas del Perú SAC:
wholly-owned subsidiary in Refining whose corporate
purpose is the commercialization of polypropylene resins and master batches in Peru.
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b)
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ECP Hidrocarburos México S.A. de CV
: wholly-owned subsidiary in Exploration and Production,
engaged in operating oil contracts in Mexico, starting with blocks 6 and 8 of Round 2.1 in shallow waters.
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The consolidated financial statements have
been prepared on a historical cost basis, except for financial assets and liabilities that are measured at fair value through profit
or loss and/or changes in other comprehensive income at the end of each reporting period, as explained in the accounting policies
included below.
Historical cost is generally based on fair
value of the consideration given in exchange for goods and services.
The fair value is the price that would
be received from selling an asset or that would be paid for transferring a liability among market participants, in an orderly transaction,
on the date of measurement. When estimating the fair value, the Ecopetrol Business Group uses assumptions that market participants
would use for pricing an asset or liability at current market conditions, including risk assumptions.
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2.4
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Functional and presentation currency
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The consolidated financial statements are
presented in Colombian Pesos, which is the Ecopetrol’s functional currency. For each Group entity its functional currency
is determined based of the main economic environment where it operates.
The statements of profit or loss and cash
flows of subsidiaries with functional currencies different from Ecopetrol S.A.’s functional currency are translated at the
exchange rates on the dates of the transaction or based on the monthly average exchange rate. Assets and liabilities are translated
at the closing rate and other equity items are translated at exchange rates at the time of the transaction. All resulting exchange
differences are recognized in other comprehensive income. On disposal of all or significant part of a foreign operation, the cumulative
translation adjustment related to the particular foreign operation is reclassified to profit or loss.
The financial statements are presented
in Colombian pesos rounded up to the closest million unit (COP 000,000) except when otherwise indicated.
Transactions in foreign currencies are
initially recorded by the Group’s entities at their respective functional currency spot rates at the transactions date. Monetary
items denominated in foreign currencies are translated at the functional currency spot rates prevailing at the reporting date.
Differences arising on settlement or translation or monetary items are recognized in profit or loss, in financial results, net,
except those resulting from the conversion of loans and borrowings designated as cash flow hedges or net investment in a foreign
operation hedge, which are recognized in other comprehensive income within equity. When the hedged item affects the financial results,
exchange differences accumulated in equity are reclassified to profit or loss as part of operating results.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Non-monetary items measured at fair value
that are denominated in a foreign currency are translated using the exchange rates prevailing on the date when the fair value
is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the
recognition of the gain or loss on the change in fair value of the item.
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2.6
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Classification of assets and liabilities as current and
non-current
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The Ecopetrol Business Group presents assets
and liabilities in the consolidated statement of financial position based on whether assets are classified as current or
non-current.
An asset or liability is classified as
current when:
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It is expected to be sold or consumed in the ordinary course of business;
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Held mainly for the purpose of trading;
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§
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Expected to mature in twelve months or less; and,
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§
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Cash or a cash equivalent, unless the exchange of such asset or liability is restricted or to be
used to settle a liability more than twelve months after the reporting period; or
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§
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In the case of a liability, there is no unconditional right to defer settlement of the liability
until at least twelve months after the reporting period.
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Other assets and liabilities are classified
as non-current.
Deferred tax assets and liabilities are
classified as non-current assets and liabilities.
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2.7
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Earnings (loss) per share (basic and diluted)
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Basic earnings (loss) per share is calculated
by dividing the profit for the year attributable to equity holders of Ecopetrol S.A., the parent company, by the weighted average
number of ordinary shares outstanding during the year. There is no potential dilution of shares.
As of December 31, 2017, the Group
changed the presentation of deferred tax assets and liabilities balances by offsetting deferred tax balances levied by the
same taxation authority. As a result, the Group reclassified the corresponding amounts as of December 31, 2016 to
conform them to the current year's presentation, which had an immaterial impact in the deferred tax assets and deferred
tax liabilities line items as of December 31, 2016. In addition, such reclassifications did not have an impact in the
statements of cash flows, profit or loss and changes in equity for the year ended December 31, 2016. See additional details
in Note 10 - Taxes.
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3.
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Significant estimates and accounting judgments
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The preparation of the
consolidated financial statements requires management to make judgements, estimates and assumptions that affect the reported
amounts of assets, liabilities, sales revenues, costs and commitments recognized in the financial statements and the
accompanying disclosures. The Group based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. Uncertainty about these assumptions and estimates could result in outcomes that required
a material adjustment to the carrying amount of assets or liabilities affected in future periods. Changes in estimates are
adjusted prospectively in the period in which the estimate is revised.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
In the process of applying the Group’s
accounting policies, management has made the following judgments and estimates which have the most significant impact on the amounts
recognized in the consolidated financial statements:
Hydrocarbon reserves are estimates of the
amount of hydrocarbons that can be economically and legally extracted from the Group’s oil and gas properties.
The reserves estimation is conducted annually
as of December 31 in accordance with the United States Securities and Exchange Commission (SEC) definitions and rules set forth
in Rule 4-10(a) of SEC Regulation S-X and the disclosure guidelines contained in the SEC final rule - Modernization of Oil and
Gas Reporting.
As required by current regulations, the
future estimated date on which a field will no longer produce for economic reasons, is based on actual costs and average of crude
prices (calculated as the arithmetical average of prices on the first day of the past 12 months). The estimated date for end of
production will affect the amount of reserves, unless the prices have been defined by contractual agreements; therefore, if the
prices and costs change from one year to the other, the proved reserves estimate also changes. Generally, our proved reserves decrease
as prices go down and increase when prices go up.
Reserves estimation is an inherently
complex process and it involves professional judgments. Reserves estimations are prepared using geological, technical and
economic factors, including projections of future production rates, oil prices, engineering data and duration and amount of
future investments, and they imply a certain degree of uncertainty. These estimations reflect the regulatory and market
conditions existing on the date of reporting, which could significantly differ from other conditions during the year or in
future periods. Any changes in regulatory and/or market conditions and assumptions could materially affect the reserves
estimation.
Impact of oil reserves and natural gas
in depreciation and depletion
Changes to estimations for proven
developed reserves may affect the carrying amounts of exploration and production assets, natural resources and environment,
goodwill, liabilities for dismantling and depreciation, depletion and amortization. With all other variables remaining
unchanged, a decrease in estimated proven reserves would increase, prospectively, depreciation, depletion and amortization
costs, while an increase in reserves would reduce depreciation and amortization expenses, as depreciation, depletion and
amortization charges are calculated using the units of production method.
Information about the carrying amounts
of exploration and production assets and the amounts charged to income, including depreciation, depletion and amortization, is
presented in Notes 15 and 16.
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3.2
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Asset impairment (recovery)
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Management uses its professional judgment
in assessing the existence of evidence of an expense for (recovery of) impairment, based on internal and external factors.
When an indicator of impairment
or reversal of a prior periods impairment exists, the Group estimates the recoverable amount of the cash generating units
(CGU), which is considered the greater of fair value less costs of disposal and the value in use.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The assessments require the use
of estimates and assumptions, such as, among other factors: (1) estimation of the volumes and market value of oil and
natural gas reserves; (2) production profiles for oilfields and the future production of refined and chemical products;
(3) investments, taxes and future costs; (4) useful life of assets; (5) long-term prices; (6) the discount rate, which is
revised annually and determined as the weighted average cost of capital (WACC); and (7) changes in environmental regulation.
The recoverable amount is compared to the carrying amount of the asset, thus determining whether the asset is impaired or
if the impairment recognized in prior periods should be reversed.
A previously recognized impairment
loss is reversed only if there has been a change in the assumptions used to determine the assets or in the CGU’s
recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of an
asset or CGU, other than goodwill, does not exceed either its recoverable amount, or the carrying amount that would have been
determined (net of amortization or depreciation) had no impairment loss been recognized for the asset or CGU in prior
periods.
Future oil price assumptions are
estimated at current market conditions. Expected production volumes, which comprise proven and unproved reserves, are used
for impairment testing because management believes this to be the most appropriate indicator of expected future cash flows,
which would also be considered by market participants. Reserves estimates are inherently imprecise and subject to risk and
uncertainty. Furthermore, projections about unproved volumes are based on information that is necessarily less robust than
what is available for mature reservoirs.
These estimates and assumptions are
subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these
projections, which may also impact the recoverable amount of assets and/or CGUs, hence, may also affect the recognition of an
impairment loss or the reversal of prior period impairment amounts.
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3.3
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Exploration and evaluation costs
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The application of the Group’s
accounting policy for exploration and evaluation costs requires judgment in order to determine whether future economic
benefits are likely, either from future exploitation or sale, or whether activities have not reached a stage
which permits a reasonable assessment of the existence of reserves. Certain exploration and evaluation costs are
initially capitalized when it is expected that commercially viable reserves will result. The Group uses its professional
judgment of future events and circumstances and makes estimates in order to annually assess the generation of future
economic benefits for extracting oil resources, as well as technical and commercial analyses to confirm its intention of
continuing their development. Changes regarding available information such as drilling success level or changes in the
project's economics, production costs, and investment levels, as well as other factors, may result in capitalized exploration
drilling costs being recognized in profit or loss for the period. The expenses for dry wells is included in operating
activities in the consolidated statement of cash flows.
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3.4
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Determination of cash generating units (CGU)
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The allocation of assets in cash
generating units requires significant judgment, as well as assessments regarding integration among assets, the existence of
active markets, and similar exposure to market risk, shared infrastructure, and the way in which management monitors the
operations. See Note 4.12 - Impairment of non-financial assets for more information.
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3.5
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Abandonment and dismantling costs of fields and other facilities
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According to environmental and oil regulations,
the Group is required to bear the costs for the abandonment of oil extraction and transportation facilities, which include the
cost of plugging and abandoning wells, dismantling facilities, and environmental remediation in the affected areas.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Estimated abandonment and dismantling costs
are recorded at the time of the installation of the assets and are reviewed annually.
The calculations for these
estimations are complex and involve significant judgments by Management. The ultimate decommissioning costs are uncertain and
cost estimates can vary in response to many factors, including changes to relevant legal requirements, the emergence of new
restoration techniques or experience at other production sites. The expected timing, extent and amount of expenditure may
also change, for example, in response to changes in internal cost projections, changes in reserve estimates, future
inflation rates and discount rates. The Group considers that the abandonment and dismantling costs are reasonable, based on
the experience of the Group and market conditions; nevertheless, significant variations in external factors used for the
calculation of the estimation could significantly impact the amounts recorded in the financial statements.
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3.6
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Pension plan and other benefits
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The determination of expenses,
liabilities and adjustments relating to pension plans and other defined retirement benefits makes it necessary for management
to use its judgment in the application of actuarial assumptions made in the actuarial calculation. The actuarial assumptions
include estimates regarding future mortality, retirement, changes in compensation and discount rate in order to reflect the
time value of money, in addition to the rate of return on the plan's assets. Due to the complexity in the valuation of these
variables, as well as their long term nature, the estimated amounts are quite sensitive to any change in these
assumptions.
These assumptions are reviewed on an annual
basis and may differ materially from actual results due to changes in economic and market conditions, regulatory changes, judicial
rulings, higher or lower retirement rates, or longer or shorter life expectancies among employees.
In December of each year, the Group performs
an annual impairment test on goodwill to assess if its carrying amount may be impaired.
The determination of the recoverable amount
is described in note 4.12 and its calculation requires assumptions and estimates. The Group considers that the assumptions and
estimations used are reasonable and supportable based on the current market conditions and are aligned to the risk profile of the
related assets. However, if different assumptions and estimations are used, they could lead to different results. Valuation models
used to determine fair value are sensitive to changes in the underlying assumptions. For example, sales volumes and prices that
will be paid for the purchase of raw materials are assumptions that may vary in the future. Adverse changes in any of these assumptions
could lead to the recognition of goodwill impairment.
The Group is subject to
claims relating to regulatory and arbitration proceedings, tax assessments and other claims arising in the normal course of
business. Management evaluates these claims based on their nature, the likelihood that they materialize and the amounts
involved, to decide on the amounts recognized and/or disclosed in the financial statements.
This analysis, which may require considerable
judgment, includes the assessment of current legal proceedings brought against the Group and claims not yet initiated. A provision
is recognized when the Group has a present obligation derived from a past event, it is likely that an outflow of resources of economic
benefits will be required to settle the obligation, and a reliable estimate of the amount of such obligation can be made.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Calculation of the income tax provision
requires interpretation of tax law in the jurisdictions where the Ecopetrol Business Group operates. Significant judgment is required
to determine estimates for income tax on taxable profits and to evaluate the recoverability of deferred tax assets, which are based
on the ability to generate sufficient taxable income during the periods in which such deferred taxes could be used or deduct.
To the extent that future cash flows and
taxable income differ significantly from the estimates, the Group's ability to realize the deferred tax assets recorded could be
affected.
Furthermore, changes in tax rules could
limit the capacity of the Group to obtain tax deductions in future years, as well as the recognition of new tax liabilities resulting
from auditing conducted by the tax authorities.
Tax positions taken involve
a thorough assessment by Management, and are reviewed and adjusted in response to situations such as expiration in
the applicability of laws, closing of tax audits, additional disclosures caused by any legal issue or a court decision
relevant to a particular tax issue. The Group records provisions based on estimated potential liabilities that could be
derived from a tax audit. The amount of these provisions depends on factors such as previous experience in tax audits and
different interpretations of tax legislation. The actual results may differ from the estimates recorded.
The process of identifying hedging relationships
between hedged items and the underlying instruments (derivative and non-derivative such as long-term foreign currency-denominated
debt), and their corresponding effectiveness, requires the use of judgment by management. The Group periodically monitors the alignment
between its hedge instruments and its risk management policy.
The accounting policies indicated below
have been applied consistently for all the periods presented.
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4.1
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Financial instruments
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The classification of financial instruments
depends on the nature and purpose for which the financial assets or liabilities were acquired and is determined at the time of
initial recognition. Financial assets and financial liabilities are initially measured at their fair value.
Transaction costs that are directly attributable
to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities
at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities,
as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial
liabilities at fair value through profit or loss are recognized immediately in profit or loss.
All financial assets are initially recorded
at fair value. Loans and trade receivables, other receivables and financial assets held-to-maturity are measured subsequently measured
at amortized cost using the effective interest method.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Equity investments available for sale that
do not have a market quotation price and for which fair value cannot be reliably measured are measured at cost less any impairment
identified at the end of each reporting period.
Measurements at fair value
Fair value is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place
in the principal market of the asset or liability or in the absence of a principal market in the most advantageous market for the
asset or liability.
All assets and liabilities for which fair
value is measured or disclosed in the financial statements are classified within the following scale based on the lowest level
input that is significant to the fair value measurement as a whole, as follows:
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§
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Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
The fair value of the Group’s marketable securities that a quoted market price is based on Level 1 inputs.
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§
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Level 2: Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observed. Level 2 inputs include prices of similar assets, prices obtained through
quotations made by stockbrokers, and prices that can be substantially corroborated with other observable data with the same contractual
terms.
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For derivative
contracts for which a quoted market price is not available, fair value estimations are generally determined using models and other
valuation methods, the key inputs for which include future prices, volatility estimates, price correlation, counterparty credit
risk and market liquidity, as appropriate. For other assets and liabilities, fair value estimations are generally based on the
net present value of expected future cash.
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§
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Level 3: Valuation techniques for which the lowest level input that is significant to the
fair value measurement is unobservable. The Group does not use Level-3 inputs for the measurement of financial assets and
liabilities. The Group may use Level-3 inputs for the calculation the recoverable amount of certain non-financial assets for
the purpose of impairment testing.
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Effective interest rate method
The effective interest rate method is a
method of calculating the amortized cost of a financial instrument and accounting of income or financial cost over the relevant
period. The effective interest rate is the discount rate that exactly discounts estimated future cash receipts or payments (including
all fees, transaction costs and other premiums or discounts) through the expected life of the financial instrument (or, when appropriate,
at a shorter period), to the net carrying amount on initial recognition.
Impairment
The Group evaluates, on each reporting
date, if there is objective evidence that a financial asset or group of financial assets are impaired. Financial assets are evaluated
for the impairment indicators at the end of each reporting period. Financial assets are considered to be impaired when there is
objective evidence that, as a result of one or more events that occurred after initial recognition, the estimated future cash flows
of the asset have been affected. For financial assets measured at amortized cost, the amount of the impairment loss recognized
is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at
the financial asset’s original effective interest rate.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
De-recognition of financial assets
Ecopetrol derecognizes a financial asset
only upon the expiration of the contractual rights to the cash flows of the asset or, when it has transferred its rights to receive
such cash flows or has assumed the obligation to pay the cash flows received in full without material delay to a third party and
(a) it has transferred substantially all the risks and benefits inherent in the ownership of the financial asset or (b) it has
neither transferred nor retained substantially all the risks and benefits of the asset, but has transferred control of the asset.
When the Group does neither transfer nor
retain substantially all the risks and benefits of the asset or transfer control of the asset, the Group continues to recognize
the transferred asset, to the extent of its continuing participation, and it also recognizes the associated liability.
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4.1.1
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Cash and cash equivalents
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Cash and cash equivalents include cash
on hand, financial investments that are highly liquid, bank deposits and special funds with original maturity dates of ninety days
or less which are subject to an insignificant risk of changes in value.
The Group classifies its financial assets
in the following categories:
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a)
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Financial assets measured at fair value through profit or loss
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Financial assets at fair value through
profit or loss are financial assets held for trading and financial assets designated at the time of the initial recognition at
fair value through profit or loss. Financial assets are classified as held for trading if they are acquired to be sold or repurchased
in the short term. They are recognized at their fair value and losses or profits arising at the time of re-measurement are recognized
in the statement of profit or loss.
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b)
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Financial assets measured at fair value with changes in other comprehensive income
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These are equity instruments of other
non-controlled and non-strategic companies not allowing for any type of control or significant influence thereon and where
the Group’s management does not intend to negotiate with them in the short-term. These investments are recorded at
their fair value and unrealized gains or losses are recognized in other comprehensive income and credited to the available
for sale reserve until the investment is derecognized, at which time, the cumulative gain or loss is recognized in other
operating income, or the investment is determined to be impaired, when the cumulative loss is reclassified from the available
to sale reserve to the statement of profit or loss.
Loans and receivables are non-derivative
financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables, including
trade and other receivables, are measured initially at fair value and then at amortized cost using the effective interest rate
method, less impairment.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Loans to employees are initially recorded
using the present value of the future cash flows, discounted at the current market rate for similar loans. If the interest rate
is less than the current market rate, fair value will be less than the amount of the loan. This difference is recorded as a benefit
to employees.
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4.1.3
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Financial liabilities
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Financial liabilities correspond to the
financing obtained by the Group through bank credit facilities and bonds, accounts payable to suppliers and creditors.
Bank credit facilities and bonds are initially
recognized at their fair value, net of transactions cost. After initial recognition, interest-bearing credit facilities and bonds
are subsequently measured at amortized cost, using the effective interest rate method. The effective interest method amortization
is included as a financial expense in the statement of profit or loss.
Accounts payable to suppliers and creditors
are short-term financial liabilities recorded at nominal value, since it does not significantly differ from fair value.
A financial liability is derecognized when
the obligation specified in the corresponding contract is paid or expired. When an existing financial liability has been replaced
by another from the same lender, under substantially different terms, or the terms of an existing liability are substantially modified,
such modification is treated as the de-recognition of the original liability and recognized as a new liability. The difference
between the respective carrying amounts is recognized in the statement of profit or loss.
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4.1.4
|
Derivative financial instruments and hedging activities
|
Financial derivative instruments are initially
recognized in the statement of financial position as assets or liabilities and are measured at fair value on the date on which
the derivative is recorded and subsequently measured at fair value. Changes in the fair value of derivatives are recognized as
gains or losses in the statement of profit or loss, except for the effective portion of cash flow hedges, which is recognized in
other comprehensive income and later reclassified to profit or loss when the hedge item affects profit or loss.
Changes in fair value of derivative contracts,
which do not qualify or are not designated as hedges, including forward contracts for the purchase and sale of commodities under
negotiation for physical delivery or receipt of the commodity are recorded in profit or loss.
Derivatives embedded in the host contract
are accounted for as separate derivatives at fair value if their economic characteristics and risks are not closely related to
those of the host contracts and the and the host contracts are not held for trading or designated at fair value through profit
or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss.
For purposes of hedge accounting, hedges
are classified as:
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§
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Fair value hedges, when hedging the exposure to changes in fair value of a recognized asset or
liability, or unrecognized firm commitment, or an identifiable portion of such asset, liability or firm commitment.
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§
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Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable
to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction.
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§
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Hedges of a net investment in a foreign operation.
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Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
At the inception of the hedging relationship,
the Group formally designates and documents the hedge relationship between the hedging instrument and the hedged item, together
with its risk management objectives and strategy to perform hedging transactions. Such hedges are expected to be highly effective
in achieving offsetting changes in fair value or cash flows and are; assessed on an ongoing basis to determine that they have been
highly effective throughout the financial reporting periods for which they were designated.
4.1.5.1
Cash flow hedge
The effective portion of the gain or loss
of the hedging instrument is recognized in other comprehensive income, while any ineffective portion is recognized in the consolidated
statement of profit or loss, in the net financial results line item.
The amounts previously recognized in other
comprehensive income are transferred to profit or loss, when the hedged transaction affects profit or loss. When the hedged item
is the cost of a non-financial asset or liability, the amounts previously recognized in other comprehensive income are transferred
to the initial carrying amount of the non-financial asset or liability.
If the hedging instrument expires or is
sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked or when the hedge no
longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognized in other comprehensive income
remains separately in equity until the forecast transaction occurs is recognized in the consolidated statement of profit or loss.
When it is no longer expected that the initially hedged transaction will occur.
Ecopetrol designates long-term loans as
hedging instruments for its exposure to the exchange risk in future oil exports. See Note 30 for further information.
4.1.5.2
Hedge of net investment in a foreign operation
Hedges of net investment in a foreign operation
are accounted in a way similar to the cash flow hedges.
Gains or losses on of the hedging instrument
related to the effective portion of the hedge are recognized in other comprehensive income, while any gains or losses relating
to the ineffective portion are recognized in the statement profit or loss. Cumulative gains or losses recorded in equity is transferred
to the consolidated statement of profit or loss when the foreign operation is partially or totally disposed of.
Ecopetrol allocates long-term loans as
hedging instruments for its exposure to foreign exchange risk on its investment in subsidiaries whose functional currency is the
U.S. dollar. See Note 30 for further information.
Inventories are stated at the lower of
cost and net realizable value.
Inventories mainly comprise crude oil,
fuels and petrochemicals and consumable inventories (spares and supplies).
The cost of crude oil is the production
costs, including transportation costs.
The cost required to bring the pipeline
into working order, is treated as part of the related pipeline.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The cost of other inventories is determined
based on the weighted average cost method, which includes acquisition costs (deducting commercial discounts, rebates and other
similar items), transformation, and other costs incurred to bring inventory to their current location and condition, such as transportation
costs.
Consumable inventories (spares and supplies)
are recognized as inventory and then charged to expense, maintenance or project to the extent that such items are consumed.
Ecopetrol estimates the net realizable
value of inventories at the end of the period. When the circumstances that previously caused inventories to be written down below
cost no longer exist, or when there is clear evidence of an increase in the net realizable value because of a change in economic
circumstances, the amount of the write-down is reversed. The reversal cannot be greater than the amount of the original write-down,
so that the new carrying amount will always be the lower of the cost and the revised net realizable value.
Related
parties are considered those in which one party has the ability to control, or has joint control of the other, or exercises significant
influence over the other party in making financial or operational decisions, or is a member of key management personnel (or close
relative of a member). The Group considers related parties to be associates, joint ventures, key management executives, entities
managing resources for payment of employee post-employment benefit plans and Colombian government entities for the purposes of
certain relevant transactions, such as the purchase of hydrocarbons and the fuel price stabilization fund (see Note 4.16)
.
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|
4.3.1
|
Investments in associates
|
An associate is an entity over which the
Ecopetrol Business Group has significant influence but not control. Significant influence is the power to participate in the financial
and operational policy decisions of the investee, but it is not control or joint control over those policies. Generally, these
entities are those in which the Group holds an equity interest with voting rights of 20% to 50%. See Exhibit I - Consolidated companies,
associates and joint ventures for further details.
Investments in associates are accounted
for using the equity method. Under this method, the investment in an associate is initially recognized at cost. The carrying amount
of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate since the acquisition
date. Goodwill related to the associate is included in the carrying amount of the investment and is not tested for impairment separately.
The Group's share of the results of operations
of the associate is recognized in the consolidated statement of profit or loss. Any change in other comprehensive income is recognized
in other comprehensive income of the Group.
After application of the equity method,
the Group determines if it is necessary to recognize an impairment on its investment in its associate. At each reporting date,
the Group determines whether there is objective evidence that the investment is impaired. If there is such evidence, the amount
of the impairment is calculated as the difference between the recoverable amount and its carrying value, and then the impairment
is recognized in the consolidated statement of profit or loss.
When necessary, the Group makes adjustments
to the accounting policies of associates to ensure consistency with the policies adopted by the Group. Additionally, the equity
method of these companies is measured on their most recent financial statements.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
A joint venture is a type of joint arrangement
whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control
exists only when decisions about the relevant activities require unanimous consent of the parties sharing such control. The accounting
treatment for the recognition of joint ventures is the same as investments in associates.
A joint operation is a type of joint arrangement
whereby the parties that have joint control of the arrangement have rights to the assets and obligations for the liabilities, relating
to the arrangement.
Joint operation contracts are entered into
between Ecopetrol and third parties to share risk, secure capital, maximize operating efficiency and optimize the recovery of reserves.
In these joint operations, one party is designated as the operator to execute the operations and report to partners according to
their participating interests. Likewise, each party takes its share of the produced hydrocarbons (crude oil or gas) according to
their share in production.
When Ecopetrol participates as a non-operator
partner, it records the assets, liabilities, sales revenues, cost of sales and expenses based on the operator’s report. When Ecopetrol
is the direct operator of joint venture contracts, it records its percentage of assets, liabilities, sales revenues, costs and
expenses, based on the participation of each partner in the items corresponding to assets, liabilities, sales revenues, costs and
expenses.
When the Group acquires or increases its
participation in a joint operation in which the activity constitutes a business combination, such transaction is recorded applying
the acquisition method in accordance with IFRS 3 - Business combination. The acquisition cost is the sum of the consideration transferred,
which corresponds to the fair value, on the date of acquisition of the assets transferred and the liabilities incurred. Any transaction
cost related to the acquisition or increased share in the joint operation that constitutes a business combination is recognized
in the consolidated statement of profit or loss.
The excess of the sum of the consideration
transferred and the amount paid in the operation is recognized as goodwill. If the result is in an excess value of the net assets
acquired over the amount paid in the operation, the difference is recognized as income in the consolidated statement of profit
or loss on the date of recognition of the transaction.
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|
4.5
|
Non-current assets held for sale
|
Non-current assets are classified as held
for sale if their carrying values will be recovered principally through a sale transaction rather than through continued use. Non-current
assets are classified as held for sale only when the sale is highly probable within one year from the classification date and the
asset (or group of assets) is available for immediate sale in its present condition. These assets are measured at the lower of
their carrying amount and fair value less related costs of disposal. See Note 13 for further information.
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|
4.6
|
Property, plant and equipment
|
Recognition and measurement
Property, plant and equipment are stated
at cost less accumulated depreciation and accumulated impairment losses. Tangible components related to natural and environmental
resources are part of property, plant and equipment.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The initial cost of an assets comprises
its purchase price or construction cost, including import duties and non-refundable purchase taxes, any costs directly attributable
to bringing the asset into operation, costs of employee benefits arising directly from the construction or acquisition, borrowing
costs incurred that are attributable to the acquisition and construction of qualifying assets and the initial estimate of the costs
of dismantling and abandonment of the item.
Spare parts and servicing equipment are
recorded as inventories and recognized as an expense as they are used. Major spare parts and stand-by equipment that the entity
expects to use during more than one period are recognized as property, plant and equipment.
Any gain or loss arising from the disposal
of a property, plant and equipment is recognized in profit or loss of the period.
Subsequent disbursements
Subsequent disbursements correspond to
all payments to be made on existing assets in order to increase or extend the initial expected useful life, increase productivity
or productive efficiency, allow for significant reduction of operating costs, increase the level of reserves in exploration or
production areas or replace a part or component of an asset that is considered critical for the operation.
The costs of repair, conservation and maintenance
of a day to day nature are expensed as incurred. However, disbursements related to major maintenance are capitalized.
Depreciation
Property, plant and equipment is depreciated
using the straight-line method, except for those associated with exploration and production activities which are depreciated using
the units-of-production method. Technical useful lives are updated annually considering factors such as: additions or improvements
(due to parts replacement or critical components for the asset’s operation), technological advances, obsolescence and other
factors; the effect of this change is recognized from the period in which it was executed. Depreciation of an asset starts when
it is ready to be used.
Useful lives are determined based on the
period over which an asset is expected to be available for use, physical exhaustion, technical or commercial obsolescence and legal
limits or restrictions over the use of the asset.
The estimated useful life of assets fluctuates
in the following ranges:
|
Plant and equipment
|
15 - 65 years
|
|
Pipelines, networks and lines
|
10 - 59 years
|
|
Buildings
|
12 - 80 years
|
|
Other
|
5 - 33 years
|
Land is recorded separately from buildings
and facilities and is not subject to depreciation.
Depreciation methods and useful lives are
reviewed annually and adjusted if appropriate.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
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|
4.7
|
Natural and environmental resources
|
Recognition and measurement
Ecopetrol uses the successful efforts method
to account for exploration and production of crude oil and gas activities, following the provisions of IFRS 6 – Exploration
for the evaluation of mineral resources.
Exploration costs
Acquisition and exploration costs are recorded
as exploration and evaluation assets until the determination of whether the exploration drilling is successful or not; if determined
to be unsuccessful, all costs incurred are recognized as expenses in the consolidated statement of profit or loss.
Exploration costs are those incurred with
the objective of identifying areas that are considered to have prospects of containing oil and gas reserves, including geological
and geophysical, seismic costs, viability, and others, which are recognized as expenses when incurred. Furthermore, disbursements
associated with the drilling of exploratory wells and those related to stratigraphic wells of an exploratory nature are charged
as assets until it is determined if they are commercially viable; otherwise, they are expensed in the consolidated statement of
profit or loss as dry wells expense. Other expenditures are recognized as expenses when incurred.
An exploration and evaluation asset is
no longer classified as such when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable.
Exploration and evaluation assets are reclassified to the natural and environmental resources account after being assessed for
impairment.
All capitalized costs are subjected to
technical and commercial revisions at least once a year to confirm the evaluation and exploration efforts continue on the fields;
otherwise, these costs are written off through to profit or loss.
Exploration costs are net of the revenues
obtained from the sale of crude oil during the extensive testing period, net of cost of sales, since they are considered necessary
to complete the asset.
Development costs
Development costs correspond to those costs
incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing. When a
project is approved for development, the corresponding capitalized acquisition and exploration costs are classified as natural
and environmental resources and costs subsequent to the exploration phase are capitalized as development costs of the properties
that contain such natural resources. All development costs are capitalized, including drilling costs of unsuccessful development
wells.
Production costs
Production costs are those incurred to
operate and maintain productive wells, and are part of the corresponding equipment and facilities. Production activity includes
extraction of oil and gas to the surface, its gathering, treatment and processing as well as storage in the field. Production costs
are expenses recorded in the consolidated statement of profit or loss as incurred unless they add oil and gas reserves, in which
case they are capitalized.
Production and support equipment is recognized
at cost and is part of property, plant and equipment subject to depreciation.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Capitalized costs also include decommissioning,
dismantling, retiring and restoration costs, as well as the estimated cost of future environmental obligations. The estimation
includes plugging and abandonment costs, facility dismantling and environmental recovery of areas and wells. Changes arising in
new abandonment liability estimations and environmental remediation are capitalized in the carrying amount of the related asset.
Depletion
Depletion of natural and environmental
resources is determined using the unit-of-production method per field, using proved developed reserves as a base, except in limited
exceptional cases that require greater judgment by Management to determine a better amortization factor of future economic benefits
over the useful life of the asset. Depreciation rates are reviewed annually, based on reserves reports and the impact of any changes
is recognized prospectively in the financial statements.
Reserves are audited by internationally
recognized external consultants and approved by the Company’s Board of Directors. Proved reserves consist of the estimated
quantities of crude oil and natural gas demonstrated with reasonable certainty by geological and engineering data to be recoverable
in future years from known reserves under existing economic and operating conditions, that is, at the prices and costs that apply
at the date of the estimation.
Impairment
Assets associated to exploration, evaluation
and production are subject to review for possible impairment in their carrying amount. See notes 3.2 – Asset impairment (recovery)
and 4.12 - Impairment of non-financial assets.
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|
4.8
|
Capitalization of borrowing costs
|
Borrowing costs related to the acquisition,
construction or production of a qualifying asset that requires a substantial period of time to get ready for its intended use are
capitalized as part of the cost of such asset when it is probable that future economic benefits associated with the item will flow
to the Group and costs can be measured reliably. Other borrowing costs are recognized as finance costs. Projects that have been
suspended but that the Group intends to continue to pursue their development in the future, are not considered qualifying assets
for the purpose of capitalization of borrowing costs.
Intangible assets with a defined useful
life, are stated at cost less accumulated amortization and any impairment loss. Intangible assets are amortized under the straight-line
method, over their estimated useful lives. The estimated useful lives and amortization method are revised at the end of each reporting
period; any change in estimates is recognized on a prospective basis.
The disbursements in relation to research
activities are expensed as incurred.
Goodwill is initially measured at cost
(being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interest and
any previous interest held over the net identifiable assets acquired and liabilities assumed). After initial recognition goodwill
is measured at cost less any accumulated impairment loss. Goodwill is not amortized but tested for impairment annually.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Leases are classified as finance leases
whenever the terms of the lease transfer substantially all the risks and rewards of ownership. All other leases are classified
as operating leases.
Assets held under finance leases, when
Ecopetrol is the lessee, are recognized in the consolidated statement of financial position at an amount equal to the fair value
of the leased asset or, if lower, the present value of the minimum lease payment. These assets are depreciated over the asset's
useful life. When there is no reasonable certainty that the company will obtain ownership of the asset at the end of the contract,
the leased assets are depreciated in the shortest period between the asset estimated useful life and the lease term.
The corresponding liability to the lessor
is included in the consolidated statement of financial position as a finance lease obligation, in the loans and financing line
item.
Lease payments are apportioned between
financial charges and reduction of lease liabilities in order to achieve a constant rate of interest on the liability remaining
balance. Interest expense is recognized in profit or loss.
Operating lease payments are recognized
as an expense on a straight-line basis over the lease term, except where another systematic prorating basis is more representative
of the time pattern of economic benefits from the lease. Contingent rentals arising under operating leases are recognized as an
expense in the period in which they are incurred.
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|
4.12
|
Impairment of non-financial assets
|
In order to evaluate if any tangible or
intangible assets are impaired, Ecopetrol compares its carrying amount with its recoverable amount at the end of each reporting
period or earlier, if there is any indicator that an asset may be impaired.
For purposes of impairment testing,
the assets are grouped into cash generating units (CGU), provided that those assets individually considered do not generate
cash inflows that, to a greater extent, are independent from those generated by other assets or CGUs. The group of assets in
different CGUs requires the exercise of professional judgment and the consideration, among other parameters, of the business
segments. In this sense, in the Exploration and Production segment, each CGU corresponds to each one of the different
contractual areas commonly called “fields”; by exception, in those cases where the cash inflows generated by
several fields are interdependent from each other, those fields are grouped into a single CGU. In the case of the Refining
and Petrochemicals segment, each CGUs corresponds to each one of the refineries of the Ecopetrol Business Group and for the
Transportation segment; each pipeline is taken as an independent CGU.
The recoverable amount of the asset
is the higher amount of the fair value less costs of disposal or its value in use. If the recoverable amount of an asset (or
of a CGU) is lower than its net carrying amount, such amount (or that of the CGU) is reduced to its recoverable amount,
recognizing an impairment loss in the statement of profit or loss.
Fair value less costs of disposal is usually
higher than the value in use for the asset’s in the production segment due to some significant restrictions in the estimation
of future cash flows, such as: a) future capital expenses that improve the CGU performance, which could result in expected increase
of net cash flows, and b) items before taxes that reflect specific business risks, resulting in a higher discount rate.
Fair value less costs of disposal is
determined as the sum of the future discounted cash flows adjusted to the estimated risk. The estimations of expected future
cash flows used in the assessment of impairment of the assets include estimates of futures commodity prices, supply and
demand estimations, and the margins of the products.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Fair value less costs of disposal,
as described above, is compared to valuation multiples and quoted prices of shares in companies comparable to Ecopetrol, in
order to determine if it is reasonable.
When an impairment loss is recorded, future
amortization expenses are calculated on the basis of the adjusted recoverable amount. Impairment losses may be recovered only if
the recovery is related to a change in estimations used after impairment loss was recognized. These recoveries do not exceed the
carrying amount of the assets net of depreciation or amortization that would have been determined if such impairment had not been
recognized.
The carrying amount of non-current assets
reclassified as assets held-for-sale is compared to its fair value less costs of disposal. No other provision for depreciation,
depletion or amortization is recorded if the fair value less costs of sale is lower than the carrying amount.
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|
4.13
|
Provisions and contingent liabilities
|
Provisions are recognized when Ecopetrol
has a current obligation (legal or implied) as a result of a past event, it is probable that Ecopetrol will be required to settle
the obligation, and a reliable estimation can be made of the amount of the obligation. Where applicable, they are recorded at present
value, using a rate reflecting the liability specific risk.
Future environmental decommissioning costs
related to current or future operations, are accounted for as expenses or assets, as the case may be. Expenditures related to past
operations that do not contribute to the obtaining of current or future benefits, are expensed as incurred.
The recognition of these provisions coincides
with the identification of an obligation related to environmental remediation and Ecopetrol uses available information to determine
a reasonable estimation of the related cost.
Provisions for which a negative outcome
is assessed as possible are not recognized but are disclosed in the explanatory notes; including those for which the amount cannot
be estimated.
If there is an expectation that the provision
will be reimbursed, either in whole or in part, for example by virtue of an insurance contract, the amounts expected to be reimbursed
are recognized as a separate asset only when such reimbursement is almost certain.
If the effect of the time value of money
is significant, the provisions are discounted using the current market rate before taxes reflecting, as applicable, the liability
specific risks. When recognizing the discount, the increase of the provision resulting from time elapsed is recognized as financial
cost in the profit or loss statement.
Asset retirement obligation
Liabilities associated with the retirement
of assets are recognized when there are current obligations, either legal or implied, related to the abandonment and dismantling
of wells, facilities, pipelines, buildings and equipment.
The obligation is usually recorded when
the assets are installed or the surface or the environment are altered at the operating sites. These liabilities are calculated
using the discounted cash flow method, using a pre-tax rate reflecting current market conditions similar liabilities and considering
the economic limits of the field or the useful life of the respective asset. When it is not possible to determine a reliable estimation
in the period in which the obligation originates, a provision is recognized when there is sufficient information available to make
the best estimation.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The carrying amount of the provision is
reviewed and adjusted annually considering changes in the assumptions used for its estimation, using a rate that reflects the liability
specific risk. Any change in the present value of the estimated expenditure is reflected as an adjustment to the provision and
the corresponding property, plant and equipment and natural and environmental resources. When a decrease in the asset retirement
obligation related to a producing asset exceeds the carrying amount of the asset, the excess is recognized the consolidated statement
of profit or loss. The financial cost of updating these liabilities is recognized in results for the period as financial expense.
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|
4.14
|
Income tax and other taxes
|
Income tax expense is comprised of income
tax payable for the period (including, income tax and income tax for equality - CREE, as appropriate) and the effect of deferred
taxes in each period.
Current income taxes are recognized in
income except when they relate to items recognized in other comprehensive income, in which case the corresponding tax effect is
also recognized in other comprehensive income. Income tax assets and liabilities are presented separately in the consolidated statement
of financial position except where there is a right of set-off within fiscal jurisdictions and an intention to settle such balances
on a net basis.
|
|
4.14.1
|
Current income tax
|
The Group determines the provision for
income tax based on the highest amount between taxable income and presumptive income (the minimum estimated amount of taxable profit
on which the law expects to quantify and collect income taxes). Taxable income differs from profit before tax as reported in the
consolidated statement of profit or loss, because of: items of income or expense that are taxable or deductible in other periods,
special taxable deductions, tax losses and income and line items measured that, according to applicable tax laws in each jurisdiction,
are considered nontaxable or nondeductible.
|
|
4.14.2
|
Deferred income tax
|
Deferred tax is provided using the liability
method for temporary differences between the carrying amounts of existing assets and liabilities in the consolidated financial
statements and their respective tax bases. A deferred tax liability is recognized for all taxable temporary differences. A deferred
tax asset is recognized for all deductible temporary differences and for all accumulated tax losses, if there is a reasonable expectation
that the Group will generate future tax profits against which they will be used.
Deferred taxes on assets and liabilities
are calculated based on the tax rates that are expected to apply during the years in which temporary differences between the carrying
amounts and tax bases are expected to be reversed.
The carrying amount of a deferred tax asset
is subject to review at the end of each reporting period and it is reduced to the extent it is no longer probable that there Group
will generate enough future taxable profit to realize such deferred tax asset.
In the statement of financial position,
deferred tax assets are reflected net and as an offset against deferred tax liabilities, depending on the overall tax position
in a particular jurisdiction and on the same taxable entity.
Deferred taxes are not recognized when
they arise in the initial recognition of an asset or liability in a transaction (except in a business combination) and at the time
of the transaction, does not affect the accounting or tax profit, or in respect of the taxes on the possible future distribution
of accumulated profits of subsidiaries or investments accounted for by the equity method, if at the time of the distribution it
may be controlled by Ecopetrol and it is probable that the retained earnings will be reinvested by the Group companies and, therefore,
will not be distributed to Ecopetrol.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
4.14.3
Other taxes
The Group recognizes in profit or loss
the costs and expenses related to other taxes than the income tax, such as the wealth tax, which is determined based on the tax
equity, the industry and commerce tax on income obtained in the municipalities for performance of commercial, industrial and service
activities, and the transport tax on volumes loaded in the transport systems. Taxes are calculated in accordance with current tax
regulations. For more details, see Note 10.
Salaries and benefits for Ecopetrol staff
are governed by the Colombian Collective Labor (Agreement 01 of 1977), and, by the Colombian Substantive Labor Code. In addition
to the legally mandated benefits, employees are entitled to fringe benefits which are subject to the place of work, type of work,
length of service, and basic salary. An annual interest of 12% is recognized on accumulated severance amounts for each employee,
and the payment of compensation is provided for when special circumstances arise resulting in the non-voluntary termination of
the contract, without justified cause, and in periods other than the probationary period.
Ecopetrol belonged to the special
pension regime under which pension liabilities are Ecopetrol’s responsibility and not pension fund’s
responsibility. However, Law 797 of January 29, 2003 and Legislative Act 001 of 2005 determined that Ecopetrol will no longer
belong to the said regime and that from that point on employees would be part of the General Pension Regime. Consequently,
pension obligations related to employees pensioned until July 31, 2010 are still Ecopetrol’s responsibility. Employees
are entitled to such pension bonus if they worked with Ecopetrol prior to January 29, 2003, but whose labor agreement expired
without renewal before that date.
All labor benefits of employees who joined Ecopetrol before 1990 are Ecopetrol’s responsibility, without the involvement of any social security entity or institution.
Service cost for the employee and his/her relatives registered with the Group is determined by means of a mortality table, prepared
based on facts occurring during the year.
For employees who joined Ecopetrol
after the Act 50 of 1990 went in effect, Ecopetrol makes periodic contributions for severance payments, pensions and labor risks
to the respective funds.
In 2008, Ecopetrol partially commuted the
value corresponding to monthly pension payments from its pension liabilities, transferring such liabilities and their underlying
amounts to autonomous pension funds (PAP, for its acronym in Spanish). The funds transferred, and returns on those funds, cannot
be redirected nor they can be returned to the Group until all of the pension obligations have been fulfilled. The commuted obligation
covers allowances and pension bonds payments; while health and education remains under the labor liability in charge of Ecopetrol.
Employee-benefits are divided into four
groups comprised as follows:
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|
a)
|
Short-term employee benefits and post-employment defined benefits:
|
Benefits to employees in the short term
mainly correspond to those which payment will be made in the term of twelve months following the closing of the period in which
the employees have rendered their services. These mainly include salaries, severance payments, vacation, bonuses and other benefits.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Post-employment benefits of defined contributions
correspond to the periodic payments for severance, pensions and labor risk payments that the Group makes to the respective funds
that assume these obligations in their entirety.
The above benefits are recognized as an
expense with an associated liability after deducting any already paid amounts.
|
|
b)
|
Post-employment defined benefit plans:
|
In the defined benefits plan, the Group
provides the benefits agreed to current and former employees and assumes the actuarial and investment risks.
The following benefits are classified as
long-term defined benefit plans recognized in the financial statements according to the calculations of an independent actuary:
Liabilities recognized in the statement
of financial position in respect of these benefit plans are the present value of the defined benefit obligation at the date of
the statement of financial position, less the fair value of plan assets.
The defined benefit obligation is calculated
annually by independent actuaries using the projected credit unit method, which takes into account employees’ years of service
and, for pensions, average or final pensionable remuneration. This obligation is discounted at its present value using interest
rates of high-quality government bonds denominated in the currency in which the benefits will be paid and of a duration consistent
with the plan obligations.
These actuarial calculations involve several
assumptions that could differ from the events that will effectively take place in the future. Said assumptions include the determination
of the discount rate, future salary increases, mortality rates and future pension increase. Because of the complexity of the calculation,
the underlying assumptions and long-term nature of these plans, the obligations for defined benefits are extremely sensitive to
changes in assumptions. All key assumptions are revised at the end of the reported period.
In determining the appropriate discount
rate, in absence of a broad high quality bond market, Management considers interest rates corresponding to the class B TES bonds
issued by the Colombian Government as its best reference, at an appropriate discount rate with maturities extrapolated in line
with the term expected for each benefit plan. The mortality rate is based on the particular country’s rate, which latest
version is the RV08 mortality table published in resolution 1555 of October 2010. The future salary and pension increases are linked
to the country's future inflation rates. Note 22 - Provisions for employee benefits provides further details on key assumptions
used.
The amounts recognized in the consolidated
statement of profit or loss related to employees defined benefit plans are comprised mainly by service cost and the net financial
expense. Service cost includes mainly the increase in present value of the benefit obligation during the period (current service
cost) and the amount resulting from a new benefit plan. Plan amendments corresponds to changes in benefits and are usually recognized
when all legal and regulatory approvals have been obtained and the effects have been conveyed to the employees involved. The net
financial expense is calculated using the net liability for defined benefits as compared with the yield curve of the discount rate
at the beginning of each year for each plan. The net defined benefit liability or asset resulting from actuarial profits and losses,
the asset ceiling effect and the asset profitability, excluding the value of recognized in the consolidated statement of profit
or loss, are recognized in other comprehensive income.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
When the plan assets exceed the gross obligation,
the recognized asset is limited to the lower of the surplus in the defined benefits plan and the ceiling of assets determined using
a discount rate based on Colombian Government bonds.
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|
(a)
|
Other long term benefits
|
Other long-term benefit is the five-year
term bonus which also considered in the actuarial calculation. This benefit is a cash bond that accumulates annually and is paid
every five years to employees. The Group recognizes in the consolidated statement of profit or loss the service cost, the net financial
cost and the adjustment to the obligation of the defined benefit plan.
Termination benefits are recognized only
when a detailed plan exists for such process and there is no possibility to withdraw the offer. The Group recognizes a liability
and an expense for termination benefits at the earliest date between the date when the offer of such benefits cannot be withdrawn
and the date when the restructuring costs are recognized.
|
|
4.16
|
Sales revenue recognition
|
Sales revenue from crude oil and natural
gas sales is recognized at the time of transfer of title to the buyer, including risks and rewards of ownership. In the case of
refined and petrochemical products, sales revenue is recognized when products are shipped by the refinery and subsequently adjusted
in accordance with price changes when dealing with regulated price products, as explained bellow. Sales revenue from transportation
services is recognized when products are transported and delivered to the buyer in accordance with contractual terms. In all other
cases, sales revenue is recognized at the time it is earned and a true, probable and quantifiable right to demand its payment arises.
Under current regulations, Ecopetrol and
Refinería de Cartagena S.A. sell regular gasoline and mid-distillates at a regulated price.
In accordance with Decree 1068 of
2015, the Ministry of Mines and Energy calculates semiannually and settles Ecopetrol’s net position to be stabilized
for each fuel by the Fuel Price Stabilization Fund (FEPC, for its acronym in Spanish). The amount to be settled is calculated
as the volume sold during the corresponding period multiplied by the difference between the international parity price and
the reference price actually charged. The net position is calculated by adding all differentials throughout the six month
period in Colombian pesos in favor of the Group and chargeable to the FEPC. The international parity price is the daily price
of gasoline and diesel oil of the respective month in Colombian pesos, indexed to the United States of America Gulf market
price, calculated in accordance with Resolution 18 0522 of 2010. The reference price is the price per gallon fixed by the
Ministry of Energy and Mines, at which refiners or importers sell gasoline or diesel to the national market. Therefore, this
difference represents a higher or lower value of sales revenues for Ecopetrol S.A. and Refinería de Cartagena S.A.
Costs and expenses are presented according
to their nature; they are detailed in the related disclosures in cost of sales, and administrative, operating, projects and other
associated expenses.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
4.18
|
Finance income (expenses)
|
Finance income and expenses include mainly:
a) borrowings costs on loans and financing, except for those that are capitalized on qualifying asset, b) gains and losses on changes
in fair value of financial instruments measured at fair value through profit or loss, c) currency exchange differences of financial
assets and liabilities, except for debt instruments designated as hedging instruments, d) interest expenses as a result of discounting
long-term liabilities (abandonment costs and pension liabilities), e) dividends derived from equity instruments measured at fair
value with changes in other comprehensive income.
|
|
4.19
|
Information by business segment
|
Ecopetrol presents the respective disclosures
relative to its business segments in its consolidated financial statements in accordance with paragraph 4 of IFRS 8 - Operation
segments.
The operation of the Ecopetrol Business
Group is performed through three business segments: 1) Exploration and Production, 2) Transport and Logistics, and 3) Refining,
Petrochemical and Biofuels. This segmentation is based on management of objectives and corporate strategic plan, considering that
these businesses: (a) are engaged in differential commercial activities, which generate sales revenue and incur costs and expenses;
(b) the operational results are revised regularly by the Group's Governance that makes operational decisions to allocate resources
to the various segments and assess their performance; and (c) there is differentiated financial information available. Internal
transfers represent sales to inter-company segments and are registered and presented at market prices.
|
|
a)
|
Exploration and production
: This segment includes activities related to the exploration
and production of oil and gas. Sales revenues are derived from sales of oil and natural gas at market prices to other segments
and to third parties (domestic and foreign distributors). Costs include costs incurred in production. Expenses include all exploration
costs that are not capitalized.
|
|
|
b)
|
Transport and Logistics:
This segment includes sales revenue and costs associated with the
transport and distribution of hydrocarbons, derivatives and products operation.
|
|
|
c)
|
Refining and Petrochemicals:
This segment mainly includes activities performed at the Barrancabermeja
and Cartagena refineries, where crude from production fields is transformed. The sales revenue from products are realized to other
segments and domestic and foreign customers and include refined and petrochemical products at market prices and some fuels at regulated
price. This segment also includes industrial service sales to customers.
|
See figures of the information
by segments in Note 33.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
5.
|
New accounting standards and regulatory changes
|
Ecopetrol adopted for the first time the
following amendments to the IFRS issued by the IASB, applicable for the period covered by this report:
|
|
§
|
Amendments to IAS 7 statement of cash
flows - Disclosure initiative: requires entities to disclose changes in their liabilities arising from financing activities, including
those arising from cash and non-cash flows (including, among others, the effect of fluctuations in the Colombian peso-U.S. dollar
exchange rate). The adoption of the amendments to IAS 7 had no impact on the amounts recognized in the financial statements. The
Group provides the information for the current period and the comparative period, required by this standard in Note 20 - Loans
and borrowings.
|
The following accounting standards will
become effective in future periods and are being implemented and /or assessed:
|
|
§
|
IFRS 9 "Financial instruments"
replaced IAS 39 "Financial Instruments: Recognition and Measurement" and entered into force for annual periods beginning
on January 1, 2018. IFRS 9 includes standards on: 1) the classification and measurement of financial assets and liabilities, 2)
impairment of financial assets, and 3) hedge accounting. Ecopetrol will apply these standards on their effective date.
|
In relation to classification
and measurement, the Group made and assessment on its financial assets and liabilities and concluded that: a) the valuation of
financial assets and liabilities measured at amortized cost is consistent with the Group’s business model, which seeks to
pay or receive cash flows at a certain moment; b) the amortized cost valuation method does not apply to short-term accounts payable
and receivables, as they do not have an associated interest rate and their settlement is less than one year; and c) investment
portfolios and financial derivatives continue to be measured at fair value with changes in fair value through profit or loss, in
compliance with their function within the Group’s business model.
Based on the aforementioned
evaluations, the current classification of the Group's financial instruments is consistent with its business model and no significant
change to the current accounting is expected.
With respect to the impairment
assessment model applied to financial assets valued at amortized cost, Management believes that the adoption of IFRS 9 will not
result in any impact, taking into account processes executed to monitor credit risk, knowledge prior to the financial situation
of the counterparties with which transactions are made, and the quality of the portfolio.
Finally, with respect to the
hedging accounting model, as an accounting policy, the Group decided to continue applying the guidance of IAS 39 for existing operations.
Should Ecopetrol decide to establish new hedges, the requirements of IFRS 9 will be assessed to establish the relationship of those
hedges to and their alignment with risk management objectives, as well as the qualitative and quantitative components to be considered
for effectiveness of the assessment.
|
|
§
|
IFRS 15 "Revenue from ordinary activities
in contracts with customers" provides a five-step model to account revenue arising from contracts with customers, focusing
on the identification and fulfillment of performance obligations. IFRS 15 replaces IAS 18 "Revenue" and is effective
for annual periods beginning on or after January 1, 2018. According to the new standard, revenues are recognized when performance
obligations are satisfied and there is no indication that the price or variable consideration are not measurable or realizable.
Likewise, the recognition of revenue is observed when the client obtains control of the goods or services offered in an amount
that reflects the consideration that the entity expects to receive in exchange for those goods or services. The standard also contains
presentation and disclosure requirements that are more detailed than those defined by IAS 18, which represents an increase in the
volume of disclosures required in the financial statements.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The Ecopetrol Business
Group will apply this standard on January 1, 2018, using the modified retrospective method, which allows adjusting the
calculated impacts within equity, at the date of initial application, without adjusting the comparative years. Management
estimates that the adoption of the new standard will not have a material effect; nevertheless, the adoption will required the
implementation of new internal controls, changes in accounting procedures and policies to allow documentation on the adoption
of the standard and its future application.
During the process of implementing
IFRS 15, sources of ordinary income were assessed, considering the identification of contracts with customers, performance obligations,
the determination of transaction prices, the association of prices with performance obligations, and the recognition of income
when such obligations are fulfilled. The analysis included the following aspects by segment:
Exploration
and production
: Revenues in this segment correspond to the sale of oil and natural gas. The Group assessed the
following: agreements with partners in joint operations, long-term contracts, over and underlifting, production, royalties, role of
principal and agent, purchase and sale agreements, take-or-pay agreements and variable price components. No significant
impacts were identified for the recognition, measurement or presentation of revenue in this segment.
The Group assessed whether the
operating partner in a joint operation can have a contract with another non-operator partner to market and sell the non-operator
product to a third party. The analysis included whether one of the parties acts as principal or agent in the agreement. The operator
evaluates whether it records gross income based on total production or net income based on its net operating interest. The non-operator
evaluates the moment of revenue recognition. The Ecopetrol Business Group does not maintain significant agreements with non-operating
partners whereby it assumes the role of agent.
Transport and Logistics
:
Revenues in this segment correspond to the income from transport, storage and wholesale commercialization of crude or refined products
derived from petroleum either by pipeline, rail, barge or truck. Pipelines and other transportation systems can be used to move
crude oil from production sites to refineries and deliver the various refined products to fuel distributors. The main aspects evaluated
are ship or pay and ship and pay contracts, variable price components and deposit agreements. The Ecopetrol Business Group has
evaluated the performance obligations established in the provision of service, noting that there are no conditions with effects
on the variable price related to volumetric adjustments or other contractual conditions that prevent recognition of income.
Take-or-pay contracts
:
Commodity sales contracts and some firm storage and transportation contracts can be structured as more complex purchase or minimum
payment contracts, which specify minimum quantities of product that a customer will pay, even if they choose not to receive or
use them. The quantities of products that a customer chooses not to take or use in the specified delivery period are called "deficient
quantities."
No significant impacts were
identified for recognition, measurement or reporting of revenue for this segment.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Refining, Petrochemicals
and Biofuels
: Revenues in these segments correspond to the refining of oil, the processing and purification of natural gas,
and the production of petrochemicals and biofuels. The main aspects assessed are long-term contracts, variable price components,
non-monetary agreements, discounts, financing components and refinery network deliveries. No significant impacts were identified
for the recognition, measurement or reporting of revenue for this segment.
For each of these segments,
income is recognized when the goods or services have been delivered to customers at the established delivery points (when the performance
obligation is fulfilled), whereby the transfer of the goods takes place and the risks associated with the products have been accepted
by customers.
Regarding the agent and principal
structure, as part of the process of selling products or services, the Ecopetrol Business Group enters into contracts to acquire,
on behalf of the customer, other products or provide services. Under these contracts, the Ecopetrol Business Group is considered
as the entity responsible for fulfilling the specific performance obligation. In some cases an inventory risk is not maintained
before or after having sold the good or rendered the service. The Ecopetrol Business Group has assessed the impact on recognition
in both cases and does not expect significant effects in the adoption of the new standard.
As a result of the analysis
of these segments, it was concluded that: a) for contracts with several performance obligations, the Group concluded that such
contracts are interdependent; therefore, the prices assigned are not independent and the application of a pricing methodology was
not required; b) the Ecopetrol Business Group acts as principal in its transactions where it controls assets before transferring
them to a client; c) the Group recognizes variable considerations in transaction prices unless they cannot be reliably measured,
in which case the recognition is deferred until the uncertainty is resolved; d) the product's method is used by the Group to recognize
income from long-term contracts with partial deliveries of goods; e) no effects associated with contract costs were identified
when they were recognized in the accounting period and capitalization of the costs is not required; and, f) non-monetary agreements
are recognized at fair value.
|
|
§
|
IFRS 16 "Leases" provides a
new model for a lessee's accounting, according to which all leases, other than those of short-term and with small amounts, will
be recognized in the balance sheet, as an asset (right of use) and a liability (financial lease) and in the statement of profit
or loss, the respective amortization of the right of use during the term of the lease. IFRS 16 will be effective for annual periods
beginning on or after January 1, 2019, with limited possibilities for early implementation. IFRS 16 replaces the current IAS 17
"Leases" and IFRIC 4 "Determination of whether an agreement contains a lease".
|
IFRS 16 "Leases" contains
a new model for the identification of leases and their treatment in the financial statements for lessees. As a result of its implementation,
oil and gas companies could recognize more assets and liabilities, mainly derived from the rental of drilling equipment and offices.
Ecopetrol has completed its
initial assessment and started an action plan for its implementation. The Group will continue to perform a more detailed analysis
of the potential impact on the financial statements from the adoption of IFRS 16 and does not expect to adopt it in advance.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
§
|
Amendments to IFRS 10 and IAS 28: Asset
sale or contribution between an investor and its associate or joint venture.
|
The amendments address the conflict
between IFRS 10 and IAS 28 as to the treatment of control loss of a subsidiary that is sold or contributed to an associate or joint
venture. The amendments clarify that the gain or loss resulting from the asset sale or contribution that constitutes a business,
as defined in IFRS 3, between the investor and its associate or joint venture, is recognized in its entirety. However, any gain
or loss resulting from an asset sale or contribution that is not a business, is recognized only up to the interests of investors
who are not related to the associate or joint venture. The IASB has deferred the effective date of these amendments indefinitely,
but an entity that early adopts it must apply them prospectively.
|
|
§
|
Annual Improvements to IFRS Standards
2014-2016 cycle: Modifications to the following standards:
|
|
|
-
|
IFRS 12: The interpretation clarifies the scope of the
standard by specifying that disclosure requirements in the standard, except those listed in paragraphs B10 to B16, apply to the
interests of an entity listed in paragraph 5 (subsidiaries, joint arrangements, associates and non-consolidated structured entities),
which are classified as held for sale or discontinued operations in accordance with IFRS 5.
|
|
|
-
|
IFRIC 22 Transactions in foreign currency and early consideration:
The interpretation deals with transactions in foreign currency where:
|
|
|
§
|
There is a consideration that is denominated
in foreign currency;
|
|
|
§
|
The entity recognizes an asset for early
payment or a deferred tax liability with respect to such consideration, before the recognition of the related asset, expense or
income; and
|
|
|
§
|
The asset for said advance or deferred
tax liability is not monetary.
|
The Interpretations
Committee reached the following conclusions:
|
|
§
|
The date of the transaction, in order
to determine the exchange rate, is the date of the initial recognition of the non-monetary advance or deferred tax liability.
|
|
|
§
|
If there are several payments received
in advance, a transaction date is established for each payment.
|
These new accounting policies are subject
to change until the Group presents its first financial statements on the initial application date.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
6.
|
Cash and cash equivalents
|
Cash and cash equivalents details as of
December 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Banks
|
|
|
5,484,981
|
|
|
|
3,319,465
|
|
|
Short-term investments
|
|
|
2,459,438
|
|
|
|
5,090,048
|
|
|
Cash
|
|
|
1,466
|
|
|
|
954
|
|
|
|
|
|
7,945,885
|
|
|
|
8,410,467
|
|
As of December 31, 2017, cash and cash
equivalents balance included COP $ 96,758 and COP $ 114,206 as of December 31, 2016, of restricted cash to be used exclusively
for the payment of loans principal and interest obtained by Oleoducto Bicentenario and Oleoducto de los Llanos. The use of short-term
financial investments depends on the liquidity needs of the Group.
The fair value of cash and cash equivalents
approximates their book value due to their short-term nature.
The return on cash and cash equivalents
for the year ended December 31, 2017 was approximately 4.2% (2016 - 3.5%).
The following table reflects the credit
quality of issuers of investments included in cash and cash equivalents:
|
Rating
|
|
2017
|
|
|
2016
|
|
|
AAA
|
|
|
2,807,170
|
|
|
|
3,198,394
|
|
|
A1
|
|
|
2,922,714
|
|
|
|
1,466,015
|
|
|
BRC1 +
|
|
|
1,152,593
|
|
|
|
312,290
|
|
|
F1
|
|
|
896,231
|
|
|
|
545,872
|
|
|
Aa3
|
|
|
99,029
|
|
|
|
-
|
|
|
Aa2
|
|
|
27,868
|
|
|
|
-
|
|
|
A-2
|
|
|
27,350
|
|
|
|
-
|
|
|
No rating available
|
|
|
12,750
|
|
|
|
67,185
|
|
|
F2
|
|
|
180
|
|
|
|
409,717
|
|
|
A1+
|
|
|
-
|
|
|
|
73,470
|
|
|
F1+
|
|
|
-
|
|
|
|
2,188,471
|
|
|
Prime-2
|
|
|
-
|
|
|
|
78,989
|
|
|
F3
|
|
|
-
|
|
|
|
37,172
|
|
|
Prime-3
|
|
|
-
|
|
|
|
32,748
|
|
|
B
|
|
|
-
|
|
|
|
144
|
|
|
|
|
|
7,945,885
|
|
|
|
8,410,467
|
|
See credit risk policy in Note 30.3.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
7.
|
Trade and other receivables, net
|
The balance of trade and other receivables,
net of allowance for doubtful accounts, is comprised as follows as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Customers
|
|
|
|
|
|
|
|
|
|
Foreign
|
|
|
2,052,829
|
|
|
|
1,366,322
|
|
|
Domestic
|
|
|
1,533,058
|
|
|
|
1,180,577
|
|
|
Fuel price stabilization fund (1)
|
|
|
2,256,312
|
|
|
|
1,203,811
|
|
|
Related parties (Note 31)
|
|
|
23,013
|
|
|
|
97,730
|
|
|
Industrial services
|
|
|
26,223
|
|
|
|
60,025
|
|
|
Accounts receivable from employees (2)
|
|
|
34,461
|
|
|
|
42,407
|
|
|
Other
|
|
|
173,022
|
|
|
|
261,829
|
|
|
|
|
|
6,098,918
|
|
|
|
4,212,701
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Accounts receivable from employees (2)
|
|
|
484,504
|
|
|
|
425,468
|
|
|
Related parties (Note 31)
|
|
|
154,810
|
|
|
|
170,121
|
|
|
Fuel price stabilization fund (1)
|
|
|
77,510
|
|
|
|
77,510
|
|
|
Other
|
|
|
60,308
|
|
|
|
56,311
|
|
|
|
|
|
777,132
|
|
|
|
729,410
|
|
|
|
(1)
|
Accounts receivable from the Ministry of Finance and Public Credit, arising from the differences
between the international parity price of regular motor gasoline and diesel and the prices charged by the Group, in accordance
with Resolution 180522 issued on March 29, 2010, as amended. The Ministry of Finance and Public Credit actually settles the payments.
|
|
|
(2)
|
Ecopetrol transferred the administration, management and control of loans granted to employees
to Cavipetrol (“Corporación de los trabajadores de la Empresa Colombiana de Petróleos Ecopetrol S.A.").
|
The following shows the changes in the
allowance for doubtful accounts for the year ended December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
144,329
|
|
|
|
160,406
|
|
|
Additions of allowances, net
|
|
|
35,229
|
|
|
|
19,438
|
|
|
Accounts receivable write-off and uses
|
|
|
(9,542
|
)
|
|
|
(35,515
|
)
|
|
Closing balance
|
|
|
170,016
|
|
|
|
144,329
|
|
The balance of inventories, net of allowance
for losses, as of December 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Crude oil
|
|
|
1,836,363
|
|
|
|
1,557,267
|
|
|
Fuels and petrochemicals
|
|
|
1,481,777
|
|
|
|
1,270,870
|
|
|
Materials for the production of goods
|
|
|
1,283,256
|
|
|
|
1,013,764
|
|
|
|
|
|
4,601,396
|
|
|
|
3,841,901
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following is the changes of the allowance
for losses, for the years ended December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
265,435
|
|
|
|
198,539
|
|
|
Additions
|
|
|
9,134
|
|
|
|
41,957
|
|
|
Foreign currency translation
|
|
|
(4,266
|
)
|
|
|
50,053
|
|
|
Uses
|
|
|
(75,796
|
)
|
|
|
(25,114
|
)
|
|
Closing balance
|
|
|
194,507
|
|
|
|
265,435
|
|
|
|
9.
|
Other financial assets
|
The balance of other financial assets as
of December 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Assets measured at fair value through profit or loss
|
|
|
|
|
|
|
|
|
|
Investment Portfolio - Local currency
|
|
|
3,310,338
|
|
|
|
2,519,311
|
|
|
Investment Portfolio - Foreign currency
|
|
|
3,194,287
|
|
|
|
4,116,987
|
|
|
|
|
|
6,504,625
|
|
|
|
6,636,298
|
|
|
Assets measured at amortized cost
|
|
|
3,636
|
|
|
|
4,152
|
|
|
Hedging instruments
|
|
|
25,464
|
|
|
|
46,445
|
|
|
Total
|
|
|
6,533,725
|
|
|
|
6,686,895
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
2,967,878
|
|
|
|
5,315,537
|
|
|
Non-current
|
|
|
3,565,847
|
|
|
|
1,371,358
|
|
|
|
|
|
6,533,725
|
|
|
|
6,686,895
|
|
The average return of the investment portfolio
in Colombian pesos and U.S. dollars was 7.4% (2016- 8.1%) and 1.1% (2016 - 0.8%), respectively.
Changes in fair value are recognized in financial
result (Note 29).
As of December 31, 2017 and 2016, there
were no investment with a restricted use.
On November 6, 2016, through the Ministries
of Mines and Energy and Finance and Public Credit, the termination of Ecopetrol's sequester status in the process of nullity and
re-establishment of rights filed against the Comuneros de Santiago de las Atalayas was confirmed. In view of the foregoing, the
restricted assets related to this case were released Ecopetrol (see Note 23.3 – Comuneros – Santiago de las Atalayas
provisions, for further information).
The following are the maturities of other
financial assets as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Up to 1 year
|
|
|
2,967,878
|
|
|
|
5,315,537
|
|
|
1-2 years
|
|
|
1,588,145
|
|
|
|
838,786
|
|
|
2-5 years
|
|
|
1,817,558
|
|
|
|
497,204
|
|
|
> 5 years
|
|
|
160,144
|
|
|
|
35,368
|
|
|
|
|
|
6,533,725
|
|
|
|
6,686,895
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following is the balance of other financial
assets by fair value hierarchy level as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Level 1
|
|
|
317,912
|
|
|
|
25,066
|
|
|
Level 2
|
|
|
6,186,713
|
|
|
|
6,611,232
|
|
|
|
|
|
6,504,625
|
|
|
|
6,636,298
|
|
There were no transfers between hierarchy
levels for the years ended December 31, 2017 and 2016.
The securities comprising Ecopetrol's portfolio
are valued on a daily basis according to the instructions issued by the Financial Superintendence of Colombia. To this end, the
information provided by authorized entities is used, which includes data from active markets. For cases in which market data is
not available, other directly or indirectly observable data is used.
For U.S. dollar-denominated investments,
fair value is based on information released by Bloomberg while for investments denominated in Colombian pesos, fair value is provided
by Infovalmer, an entity authorized by the Financial Superintendence of Colombia to provide this service.
Within the investment hierarchy process,
in addition to the information used for the valuation, other relevant aspects are taken into account, such as the issuer’s
rating, investment rating, and the risk analysis of the issuer performed by Ecopetrol, which makes it possible to establish the
appropriate hierarchy level for investments.
The following table reflects the credit
quality of the issuers of other financial assets measured at fair value through profit or loss:
|
Rating
|
|
2017
|
|
|
2016
|
|
|
AAA
|
|
|
3,175,727
|
|
|
|
1,858,665
|
|
|
A1
|
|
|
1,149,606
|
|
|
|
3,060,660
|
|
|
AA+
|
|
|
1,067,989
|
|
|
|
50,192
|
|
|
BBB-
|
|
|
378,939
|
|
|
|
-
|
|
|
A
|
|
|
300,179
|
|
|
|
-
|
|
|
AA-
|
|
|
233,668
|
|
|
|
3,730
|
|
|
A+
|
|
|
175,767
|
|
|
|
-
|
|
|
BBB
|
|
|
21,835
|
|
|
|
-
|
|
|
AA
|
|
|
-
|
|
|
|
5,289
|
|
|
F1+
|
|
|
-
|
|
|
|
1,636,039
|
|
|
No rating available
|
|
|
915
|
|
|
|
21,723
|
|
|
|
|
|
6,504,625
|
|
|
|
6,636,298
|
|
See credit risk policy in Note 30.3.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
10.1
|
Current tax assets and liabilities
|
The balance of current tax assets and tax
liabilities as of December 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Current tax assets
|
|
|
|
|
|
|
|
|
|
Income tax (1)
|
|
|
165,437
|
|
|
|
308,868
|
|
|
Credit tax balance (2)
|
|
|
234,410
|
|
|
|
598,140
|
|
|
Other taxes
|
|
|
225,527
|
|
|
|
222,090
|
|
|
Total
|
|
|
625,374
|
|
|
|
1,129,098
|
|
|
|
|
|
|
|
|
|
|
|
|
Current tax liabilities
|
|
|
|
|
|
|
|
|
|
Income tax (1)
|
|
|
1,305,011
|
|
|
|
1,478,294
|
|
|
National tax and surcharge on gasoline
|
|
|
136,706
|
|
|
|
324,402
|
|
|
Carbon tax
|
|
|
51,383
|
|
|
|
-
|
|
|
Other taxes (3)
|
|
|
512,588
|
|
|
|
328,244
|
|
|
Total
|
|
|
2,005,688
|
|
|
|
2,130,940
|
|
|
|
(1)
|
Corresponds to the resulting value after subtracting advanced tax payments, favorable
balances and advance payments settled in the previous
year's statement. The main variation compared to the
previous period corresponds to
the decrease in non-deductible expenses, and the effects of the tax reform on issues such as depreciation and exchange
difference.
|
|
|
(2)
|
Includes mainly the value added tax (VAT) receivable balance.
|
|
|
(3)
|
Mainly includes VAT payable balances and industry and commerce tax.
|
In accordance with Law 1819/2016 (Tax Reform),
the tax regulation applicable in Colombia for the 2017 taxable year and subsequent years is as follows:
|
|
a)
|
The income tax rate will be 34% for the taxable year 2017 and 33% for the taxable year 2018 and
subsequently.
|
|
|
b)
|
A surtax was established on income tax for 2017 and 2018, of 6% and 4%, respectively, which is
applicable when taxable income exceeds COP$800 million.
|
|
|
c)
|
Companies located in a free trade zone are taxed at a rate of 20%. If the Group located in a free
trade zone has a Legal Stability Contract (hereinafter CEJ, for its acronym in Spanish), the income tax rate will continue to be
15% during the term of the said contract. This applies to Reficar, Bioenergy Zona Franca and Comai.
|
|
|
d)
|
Presumptive income will be calculated by applying a 3.5% rate to the liquid equity balance of
the immediately preceding year. For entities that have a CEJ, the stabilized rate for the calculation of
presumptive income will continue to 3%, during the term of the contract.
|
|
|
e)
|
For fiscal year 2017, the Ecopetrol Business Group has companies that are subject to a 40%
income tax rate, companies in Free Trade Zones that are subject to a 15% income tax rate (which have CEJ) and 20% income tax
rate, and other entities that are subject to statutory income tax rates in the country where they are incorporated.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
f)
|
Aligns the tax depreciation systems to accounting depreciation and establishes a limit to the
annual depreciation deductible amount based on the table established in the tax reform. Tax amortization of oil and gas
investments is calculated based on the technical production unit method which is aligned with accounting amortization.
|
|
|
g)
|
The cost of acquisition of exploration rights, G & G, exploratory drilling, etc., is capitalized
for tax purposes until the technical and commercial feasibility of extracting the resource is achieved.
|
|
|
h)
|
Accumulated tax loss balance generated starting January 1, 2017 can be offset with the liquid
income generated over the following 12 years (unlimited for those with CEJ).
|
|
|
i)
|
For the period January 1, 2013 through December 31, 2016, taxable income in Colombia was subject
to a 25% income tax rate with an additional 9% related to the income tax for equality "CREE", excluding tax payers who,
based on an express provision manage special rates, and 10% rate on income from occasional profits; 15% income tax rate for companies
in the free trade zone pay, and those not generating net income or whose net taxable income or with net taxable income lower than
the presumptive income at 3% rate on equity.
|
On December 23, 2014, through
Law 1739, a surtax on income for equality - CREE was established for the years 2015, 2016, 2017 and 2018, which is applicable entities
with taxable income above COP$800 million, at rates of 5%, 6%, 8% and 9% per year, respectively.
For taxable year 2016, the
Ecopetrol Business Group had companies subject to a 40% income tax rate, companies in free trade zones subject to a 15%
and 20% income tax rate, and other entities that were subject to statutory income tax rates in the country where they are
incorporated, and some other entities that pay taxes under presumptive taxable income in Colombia.
|
|
j)
|
As
of December 31, 2017 and 2016, Refinería de Cartagena, Bioenergy, and Ecopetrol
Costa Afuera S.A.S., subsidiaries, have accrued accumulated tax losses that can be offset
with future taxable income of COP$4,288,957 and COP$ 3,352,216, respectively, originated
between 2009 and 2017. As per current tax legislation, accumulated tax losses accrued
starting fiscal year 2007 can be offset, or tax adjusted, at any time, against taxable
income without prejudice of the periods in which the entity was subject to the presumptive
income regime. Accumulated tax losses cannot be transferred to its shareholders. However,
in accordance with
Article
290 of Law
1819 of 2016, the unused accumulated tax losses through December 31, 2016, can be offset
based on a formula contained in that article.
|
As of December 31,
2017, deferred tax assets related to unused accumulated tax losses, which do not expire, amounted to COP$611,766 attributable
to the Refinería de Cartagena. Such deferred tax assets were calculated based on COP$4,078,439 of accumulated income
tax losses. The recognition of this deferred tax is based on the refinery's operational stability of the refinery presented
in 2017, the projection of margins and the optimization of costs.
The assessment of the accumulated
tax losses related to companies Ecopetrol Costa Afuera S.A.S., Bioenergy and Bioenergy Zona Franca with respect to deferred tax
is mentioned in this note under the chapter titled "Deferred Income Tax".
In accordance with Article 290
of Law 1819 of 2016, the unused presumptive income surplus and minimal base surplus generated before 2017 on income tax and
CREE can be used based on a formula contained in said Article and subject to the terms established in Article
189 of the Tax Code.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Statute of limitations of review for
tax returns
Tax returns may be reviewed by the tax
authorities within 5 years following the filing date and/or amendment, if the returns reflected tax losses.
As of the year 2017, the statute of limitations
covering tax returns will be 3 years as of the date of expiration or as of the filing date, when these have been filed extemporaneously.
With respect to transfer pricing, the statute of limitations will be 6 years.
With respect to tax returns with favorable
balances, the statute of limitations will be 3 years as of the filing date of the request for devolution or offsetting.
With regard to
tax returns in which tax losses are offset, these will be considered determined after 6 years counted as of their filing
date. With respect to tax returns where tax losses are calculated, the statute
of limitations will be 12 years and if the losses are offset within the last 2 years of the 12-year period, the statute
of limitations will be extended up to 3 additional years from the year of offsetting.
Income tax expense
The following is a detail
of the income tax recognized in profit or loss for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Current income tax
|
|
|
5,144,962
|
|
|
|
4,517,336
|
|
|
|
3,510,546
|
|
|
Adjustments to prior years’ tax
|
|
|
(68,270
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Deferred income tax
|
|
|
723,576
|
|
|
|
25,710
|
|
|
|
(2,800,193
|
)
|
|
Income tax expenses
|
|
|
5,800,268
|
|
|
|
4,543,046
|
|
|
|
710,353
|
|
Reconciliation
of the income tax expenses
The reconciliation between the income tax
expenses and the tax determined based on the official rate applicable to the Group in Colombia is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Net income (loss) before income tax
|
|
|
13,769,662
|
|
|
|
7,790,526
|
|
|
|
(5,578,626
|
)
|
|
Statutory rate
|
|
|
40
|
%
|
|
|
40
|
%
|
|
|
39
|
%
|
|
Income tax at statutory rate
|
|
|
5,507,865
|
|
|
|
3,116,210
|
|
|
|
(2,175,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ETR reconciliation items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect in changes in tax rates and tax base (CREE tax)
|
|
|
910
|
|
|
|
807,989
|
|
|
|
2,063,782
|
|
|
Non-deductible wealth tax
|
|
|
85,872
|
|
|
|
229,375
|
|
|
|
253,422
|
|
|
Foreign currency translation and exchange difference
|
|
|
(186,787
|
)
|
|
|
(234,316
|
)
|
-
|
|
310,657
|
|
|
Prior year taxes
|
|
|
274,777
|
|
|
|
140,630
|
|
|
|
(21,233
|
)
|
|
Non-deductible expenses
|
|
|
129,531
|
|
|
|
486,300
|
|
|
|
251,246
|
|
|
Valuation of investments
|
|
|
-
|
|
|
|
-
|
|
|
|
48,129
|
|
|
Non-taxable income
|
|
|
(11,900
|
)
|
|
|
(3,142
|
)
|
|
|
(19,986
|
)
|
|
Income tax calculated
|
|
|
5,800,268
|
|
|
|
4,543,046
|
|
|
|
710,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
5,076,692
|
|
|
|
4,517,336
|
|
|
|
3,510,546
|
|
|
Deferred
|
|
|
723,576
|
|
|
|
25,710
|
|
|
|
(2,800,193
|
)
|
|
|
|
|
5,800,268
|
|
|
|
4,543,046
|
|
|
|
710,353
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The effective tax rate (ETR) as of December
31, 2017 was 42.1% (2016 - 58.3%). The decrease compared to the previous year is mainly due to the following: a) Decrease in non-deductible
expenses due to the effects of the transportation tax; b) Adjustment for differential of taxable bases; c) The adjustment for differential
tax rates of the Group other than the nominal 40%, where the most significant item is the deferred tax asset to be amortized in
the long term, with a rate lower than the nominal rate; and d) The adjustment of the wealth tax due to the effect of the rate,
which is 0.4% for 2017, compared to 1% in 2016.
Income and supplementary tax returns
for taxable years 2011, 2012, 2014, 2015 and 2016, and CREE returns for taxable years 2014, 2015 and 2016 of the Ecopetrol
Business Group are subject to acceptance and review by the tax authorities. Management of the Ecopetrol Business Group
companies considers that the amounts accounted as liability for payable taxes are sufficient and are supported by current
regulations, doctrine and case law applicable to any claim that could be eventually filed with respect to such years.
The Group's strategy is not making tax decisions based on aggressive or less-assured positions that could put into question
its tax returns.
Deferred income
tax
The following is the
detail of the deferred tax balance on gains as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
4,016,161
|
|
|
|
4,248,014
|
|
|
Deferred tax liabilities
|
|
|
(1,333,280
|
)
|
|
|
(1,639,703
|
)
|
|
Net deferred income tax
|
|
|
2,682,881
|
|
|
|
2,608,311
|
|
The deferred income tax
assets and liabilities are reported net in compliance with the requirements of international financial reporting standards (IAS
12). As of December 31, 2017 and 2016, the deferred tax detail is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Deferred tax assets (liabilities)
|
|
|
|
|
|
|
|
|
|
Provisions (3)
|
|
|
1,840,988
|
|
|
|
1,875,965
|
|
|
Employee benefits (2)
|
|
|
1,373,561
|
|
|
|
656,997
|
|
|
Loss carry forwards
|
|
|
611,766
|
|
|
|
477,808
|
|
|
Accounts payable
|
|
|
208,618
|
|
|
|
311,607
|
|
|
Accounts receivable
|
|
|
94,864
|
|
|
|
133,840
|
|
|
Property plant and equipment and Natural and environmental resources (1)
|
|
|
(1,006,299
|
)
|
|
|
(220,315
|
)
|
|
Goodwill
|
|
|
(408,932
|
)
|
|
|
(345,288
|
)
|
|
Borrowings and other financial liabilities
|
|
|
-
|
|
|
|
(113,497
|
)
|
|
Others
|
|
|
(31,685
|
)
|
|
|
(168,806
|
)
|
|
|
|
|
2,682,881
|
|
|
|
2,608,311
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets
|
|
|
4,016,161
|
|
|
|
4,248,014
|
|
|
Deferred tax liabilities
|
|
|
(1,333,280
|
)
|
|
|
(1,639,703
|
)
|
|
|
|
|
2,682,881
|
|
|
|
2,608,311
|
|
|
|
(1)
|
For tax purposes, natural and environmental resources and property, plant and equipment have a
useful life and a depreciation and amortization calculation methodology different from those determined as per international accounting
standards.
|
|
|
(2)
|
Actuarial calculations for health, retirement pensions, education, pension bonds and other benefits
to long-term employees.
|
|
|
(3)
|
The most representative item corresponds to the provision for well abandonment.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The table above takes
into consideration the offsetting of deferred tax assets and deferred tax liabilities within the same tax jurisdiction. The overall
deferred tax position in a particular tax jurisdiction determines if a deferred tax balance is presented within deferred tax assets
or deferred tax liabilities. Accordingly, certain deferred tax assets are presented within deferred tax liabilities, and certain
deferred tax liabilities within deferred tax assets.
The following is the detail of the deferred
tax assets (liabilities) for the years ended December 31, 2017 and 2016:
|
|
|
Property
plant and
equipment
and Natural
resources
|
|
|
Provisions
|
|
|
Employee
benefits
|
|
|
Loss
carry
forwards
|
|
|
Accounts
payable
|
|
|
As of December 31, 2015
|
|
|
205,499
|
|
|
|
1,824,844
|
|
|
|
-
|
|
|
|
238,193
|
|
|
|
726,256
|
|
|
Recognized in profit or loss
|
|
|
(425,814
|
)
|
|
|
51,121
|
|
|
|
40,300
|
|
|
|
239,615
|
|
|
|
(414,649
|
)
|
|
Recognized in OCI
|
|
|
-
|
|
|
|
0
|
|
|
|
616,697
|
|
|
|
-
|
|
|
|
-
|
|
|
As of December 31, 2016
|
|
|
(220,315
|
)
|
|
|
1,875,965
|
|
|
|
656,997
|
|
|
|
477,808
|
|
|
|
311,607
|
|
|
Recognized in profit or loss
|
|
|
(785,984
|
)
|
|
|
(34,977
|
)
|
|
|
(22,818
|
)
|
|
|
133,958
|
|
|
|
(102,989
|
)
|
|
Recognized in OCI
|
|
|
-
|
|
|
|
-
|
|
|
|
739,382
|
|
|
|
-
|
|
|
|
-
|
|
|
As of December 31, 2017
|
|
|
(1,006,299
|
)
|
|
|
1,840,988
|
|
|
|
1,373,561
|
|
|
|
611,766
|
|
|
|
208,618
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
Borrowings
and other
financial
liabilities
|
|
|
Accounts
receivable
|
|
|
Others
|
|
|
Total
|
|
|
As of December 31, 2015
|
|
|
(262,290
|
)
|
|
|
(540,811
|
)
|
|
|
17,927
|
|
|
|
3,804
|
|
|
|
2,213,422
|
|
|
Recognized in profit or loss
|
|
|
(82,998
|
)
|
|
|
427,314
|
|
|
|
115,913
|
|
|
|
23,488
|
|
|
|
(25,710
|
)
|
|
Recognized in OCI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(196,098
|
)
|
|
|
420,599
|
|
|
As of December 31, 2016
|
|
|
(345,288
|
)
|
|
|
(113,497
|
)
|
|
|
133,840
|
|
|
|
(168,806
|
)
|
|
|
2,608,311
|
|
|
Recognized in profit or loss
|
|
|
(63,644
|
)
|
|
|
113,497
|
|
|
|
(38,976
|
)
|
|
|
78,357
|
|
|
|
(723,576
|
)
|
|
Recognized in OCI
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
58,764
|
|
|
|
798,146
|
|
|
As of December 31, 2017
|
|
|
(408,932
|
)
|
|
|
-
|
|
|
|
94,864
|
|
|
|
(31,685
|
)
|
|
|
2,682,881
|
|
The Ecopetrol Business Group offsets assets
and liabilities for deferred taxes only if it has a legally enforceable right to offset current tax liabilities and assets; and
in the case of deferred tax on assets and liabilities, to the extent that they also correspond to income taxes required by the
same tax jurisdiction and the same tax authority.
Pursuant to current tax law,
losses generated in income and supplementary taxes and/or income tax for equality - CREE before 2017, must be offset with the
net income obtained in 2017 and subsequent periods, taking into account the formula set forth in Section 5, Article 290 of
Law 1819 of 2016. Tax losses determined must not be tax readjusted.
As of the tax year 2017, companies can
offset tax losses obtained in the current period defined, with taxable income generated through the next 12 taxable periods, following
the attainment of said tax losses, without prejudice of the period's presumptive income.
Deferred tax assets related to tax losses
generated by Bioenergy S.A. and Bioenergy Zona Franca in the amount of COP$(53,328), and excess presumptive income of Refinería
de Cartagena in the amount of COP$(44,475) were written off in 2016 because, even though they can be offset in the long term, Management
concluded that having a conservative position, it is not likely that the deferred tax assets related to such tax losses and excess
of presumptive income would be recoverable in the short term.
If the Group would have recognized the
deferred tax assets that were not recognized, the income for the period ended on December 31, 2017, would have increased by COP$
97,803.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
In accordance with tax provisions
applicable until December 31, 2016, the surplus of presumptive income and the minimum base generated before 2017 in income
and supplementary taxes and in the income tax for equality - CREE, respectively, can be offset with ordinary net income
obtained by the Group in the next five years, using for such purpose the formula set forth in Section 6, Article 290 of Law
1819 of 2016.
The movements of deferred income tax for
the years ended December 31, 2017 and 2016 are as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
2,608,311
|
|
|
|
2,213,422
|
|
|
Deferred tax recognized in profit or loss
|
|
|
(723,576
|
)
|
|
|
(25,710
|
)
|
|
Deferred tax recognized in other comprehensive income (a)
|
|
|
798,146
|
|
|
|
420,599
|
|
|
Closing balance
|
|
|
2,682,881
|
|
|
|
2,608,311
|
|
|
|
(a)
|
The following is the composition of the income tax recorded against other comprehensive income:
|
|
December 31, 2017
|
|
Pre-tax
|
|
|
Deferred
Tax
|
|
|
After tax
|
|
|
Actuarial valuation gains (losses)
|
|
|
2,251,656
|
|
|
|
(739,382
|
)
|
|
|
1,512,274
|
|
|
Cash flow coverage for crude exports
|
|
|
80,896
|
|
|
|
(54,056
|
)
|
|
|
26,840
|
|
|
Other
|
|
|
12,119
|
|
|
|
(4,708
|
)
|
|
|
7,411
|
|
|
|
|
|
2,344,671
|
|
|
|
(798,146
|
)
|
|
|
1,546,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
Pre-tax
|
|
|
Deferred
tax
|
|
|
After tax
|
|
|
Actuarial valuation gains (losses)
|
|
|
1,770,139
|
|
|
|
(616,697
|
)
|
|
|
1,153,442
|
|
|
Cash flow hedging for future crude oil exports
|
|
|
(537,353
|
)
|
|
|
220,596
|
|
|
|
(316,757
|
)
|
|
Derivative financial instruments
|
|
|
(56,804
|
)
|
|
|
22,722
|
|
|
|
(34,082
|
)
|
|
Other
|
|
|
-
|
|
|
|
(47,220
|
)
|
|
|
(47,220
|
)
|
|
|
|
|
1,175,982
|
|
|
|
(420,599
|
)
|
|
|
755,383
|
|
Deferred tax assets
(liabilities) not recognized
As of December 31, 2017,
deferred tax assets (liabilities) are not recognized in the difference between the accounting and tax bases related to investments
in companies of the Ecopetrol Business Group, as there is no intention to sell any of these investments in the foreseeable future.
The new tax on dividends will be applicable
to foreign companies and entities on profits generated starting 2017.
The rate of this tax will be 5%.
Furthermore, the tax rate for dividends will be 35%. In this scenario, the 5% tax on dividends will apply to the amount
of the tax distribution, once it has been reduced with the 35% income tax.
For taxed individuals residing in Colombia,
the tax on dividends will have a maximum 10% rate that will be applied on non-taxed dividends, and 35% with respect to taxed dividends
distributed.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
There are no effects on income tax related
to dividend payments made by the Group to its shareholders during 2017 and 2016.
Income tax payers carrying out operations
with related parties abroad or located in free trade zones or companies located in countries considered tax havens, must determine
their ordinary and extraordinary revenues, costs and deductions, considering the arm's length principle for such transactions.
Such companies submitted their
transfer-pricing information statement for the 2016 tax year and their respective supporting documents.
For the 2017 tax year, the
transactions performed with related parties abroad, as well as the business conditions for such operations and their general
structure, did not vary significantly as compared with the previous year. Therefore, it can be inferred that said
transactions were performed in accordance with the arm's length principle. It is estimated that no adjustments will be
required from the analysis of transfer prices in 2017, which entail amendments of the income provision of taxable year
2017.
|
|
10.3.3
|
Value added tax (VAT)
|
As of tax year 2017, the general
sales tax rate is 19%, with a differential 5% rate for some goods and services is maintained in accordance with Articles 184
and 185 of Law 1819 of 2016.
As of tax year 2017, the VAT was extended
to the sale of goods at large, the sale or concession of intangibles related to industrial property and to the provision of services
in Colombia, or from services abroad, except for express exclusions of the norm, pursuant to Article 173 of Law 1819 of 2016.
Likewise, Article 194 of this
Law stipulated that the term for filing requests for VAT deductions will be 3 bimonthly periods immediately following the
period of causation.
Law 1739 of 2014 established the wealth
tax for natural and juridical persons whose possession of wealth at January 1, 2015 exceeds COP$1,000 million. The taxable
base for companies is the gross equity value held as of January 1, 2015, 2016 and 2017, less the debts valid on the same dates.
The applicable rate will depend on the
taxable base of each taxpayer and the paid value will not be deductible or discountable on income and supplementary taxes or
income tax for equality - CREE, nor can they be offset by these, or any other taxes.
In 2017, the wealth tax paid by the Group
amounted to COP$226,778, which was recognized as an expense in the period (2016 - COP$569,756).
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
11.
|
Equity instruments measured at fair value
|
As of December 31, 2016, Equity instruments
measured at fair value mainly included the shares that Ecopetrol owned in Empresa de Energía de Bogotá S.A.E.S.P,
which were sold as part of the shareholding sales plan, authorized by the National Government through Decree 2305 of November 13,
2014. During the 2017, Ecopetrol completed the sales of shares under the sales plan with the following:
|
|
-
|
On July 29, 2017, the sale of 10,999,163 shares took place,
at a selling price of COP$2,000 pesos per share. This sale amounted to COP$21,998.
|
|
|
-
|
On October 19, 2017, the shareholding sales plan was completed,
with the sale of the remaining 17,465,872 shares at a price of COP$2,000 pesos per share. This sale amounted to COP$34,932.
|
The movement of equity instruments measured
at fair value as of December 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
51,610
|
|
|
|
913,488
|
|
|
Fair value adjustments
|
|
|
(7,828
|
)
|
|
|
126,205
|
|
|
Proceeds from sale of shares
|
|
|
(56,930
|
)
|
|
|
(966,715
|
)
|
|
Profit (loss) on sale of shares
|
|
|
13,236
|
|
|
|
(21,368
|
)
|
|
Transfers
|
|
|
(88
|
)
|
|
|
-
|
|
|
Closing balance
|
|
|
-
|
|
|
|
51,610
|
|
The balance as of December 31, 2017 and
2016 of other assets is comprised as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Partners in joint operations (1)
|
|
|
583,656
|
|
|
|
735,032
|
|
|
Prepaid expenses
|
|
|
115,866
|
|
|
|
140,606
|
|
|
Advanced payments to contractors and suppliers
|
|
|
103,762
|
|
|
|
151,871
|
|
|
Related parties (Note 31)
|
|
|
7,716
|
|
|
|
7,135
|
|
|
Other assets
|
|
|
69,425
|
|
|
|
988
|
|
|
|
|
|
880,425
|
|
|
|
1,035,632
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Abandonment and pension funds (2)
|
|
|
323,621
|
|
|
|
312,423
|
|
|
Employee benefits
|
|
|
202,012
|
|
|
|
187,969
|
|
|
Advanced payments and deposits
|
|
|
74,225
|
|
|
|
63,402
|
|
|
Judicial deposits and attachments
|
|
|
43,248
|
|
|
|
140,338
|
|
|
Trust funds
|
|
|
32,748
|
|
|
|
87,602
|
|
|
Other assets
|
|
|
5,155
|
|
|
|
35,002
|
|
|
|
|
|
681,009
|
|
|
|
826,736
|
|
|
|
(1)
|
Corresponds to the net value of cash calls and cutbacks generated in relation to the
operations carried out with partners through Exploration and Production (E&P) contracts, Technical Evaluations (TEA)
contracts and agreements entered in to with the National Hydrocarbons Agency (ANH), as well as through association contracts
and other types of contracts.
|
|
|
(2)
|
Corresponds to Ecopetrol’s share in trusts established to support costs of abandonment of
wells and dismantling of facilities as well as the payment of future retirement pensions in some association contracts.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
13.
|
Assets held for sale and their related liabilities
|
The balance as of December 31, 2017 and
2016 of assets held for sale and their related liabilities, which do not correspond to discontinued operations, included:
|
|
|
2017
|
|
|
2016
|
|
|
Assets held for sale
|
|
|
|
|
|
|
|
|
|
Surplus project materials (1)
|
|
|
56,049
|
|
|
|
65,703
|
|
|
Property, plant and equipment (2)
|
|
|
48,091
|
|
|
|
36,902
|
|
|
Oil fields (3)
|
|
|
-
|
|
|
|
29,611
|
|
|
|
|
|
104,140
|
|
|
|
132,216
|
|
|
Liabilities related to assets held for sale
|
|
|
|
|
|
|
|
|
|
Oil fields (3)
|
|
|
-
|
|
|
|
40,128
|
|
|
|
|
|
-
|
|
|
|
40,128
|
|
|
|
(1)
|
Mainly includes assets remaining from the expansion project of the oil pipeline for transport of
extra heavy crude conducted by Oleoducto Central SA - Ocensa. In 2017, the Group sold part of these assets, generating a loss of
COP$2,337 and expects to continue selling the remainder of these assets during 2018 depending on market conditions.
|
|
|
(2)
|
Includes buildings and land belonging to Ecopetrol and Andean Chemicals Ltd., the latter related
to Louisiana Green Fuels (ethanol plant, water plant and harvesters). The Group recorded an impairment loss on these assets of
COP$11,292 and continues with its plan to sell these assets depending on market conditions.
|
|
|
(3)
|
Corresponds mainly to the Sogamoso, Rio Zulia, Rio de Oro and Puerto Barco, Santana, Nancy Maxine
Burdine and Valdivia Almagro oil fields, awarded through an auction in November 2016. During the second and third quarter of 2017,
Ecopetrol obtained the approval of the assignment of rights of these areas by the ANH, with the transfer of the assets and the
corresponding sale being formalized. These operations generated a net profit of COP $ 168,726. The liabilities associated with
these assets corresponded to the dismantling and abandonment of the Group’s obligations.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
14.
|
Investments in associates and joint ventures
|
The details on the participations, economic
activity, address, area of operations and financial information of the investments in joint ventures and associates can be found
in Exhibit 1.
|
|
14.1
|
Composition and movements
|
The balance as of December 31, 2017 and
2016 of investments in associates and joint ventures, is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Investment in joint ventures
|
|
|
|
|
|
|
|
|
|
Equion Energy Limited
|
|
|
1,057,466
|
|
|
|
1,156,430
|
|
|
Offshore International Group
|
|
|
845,325
|
|
|
|
937,938
|
|
|
Ecodiesel Colombia SA
|
|
|
38,383
|
|
|
|
39,525
|
|
|
|
|
|
1,941,174
|
|
|
|
2,133,893
|
|
|
Less impairment:
|
|
|
|
|
|
|
|
|
|
Equion Energy Limited
|
|
|
(296,427
|
)
|
|
|
(253,683
|
)
|
|
Offshore International Group
|
|
|
(539,465
|
)
|
|
|
(577,053
|
)
|
|
|
|
|
1,105,282
|
|
|
|
1,303,157
|
|
|
Investments in associates
|
|
|
|
|
|
|
|
|
|
Invercolsa SA
|
|
|
223,963
|
|
|
|
243,156
|
|
|
Serviport SA
|
|
|
9,905
|
|
|
|
5,255
|
|
|
Olefinas Port Society
|
|
|
1,214
|
|
|
|
1,126
|
|
|
|
|
|
235,082
|
|
|
|
249,537
|
|
|
Less impairment: Serviport SA
|
|
|
(9,904
|
)
|
|
|
-
|
|
|
|
|
|
225,178
|
|
|
|
249,537
|
|
|
|
|
|
1,330,460
|
|
|
|
1,552,694
|
|
The following is the
movement of investments in companies:
For the year ended December
31, 2017:
|
|
|
Associates
|
|
|
Joint
ventures
|
|
|
Total
|
|
|
Opening balance
|
|
|
249,537
|
|
|
|
1,303,157
|
|
|
|
1,552,694
|
|
|
Effects of equity method through:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit or loss
|
|
|
46,669
|
|
|
|
46,869
|
|
|
|
93,538
|
|
|
Other comprehensive income
|
|
|
-
|
|
|
|
(14,752
|
)
|
|
|
(14,752
|
)
|
|
Dividends declared
|
|
|
(61,124
|
)
|
|
|
(224,837
|
)
|
|
|
(285,961
|
)
|
|
Impairment (Note 18.1.2)
|
|
|
(9,904
|
)
|
|
|
(5,155
|
)
|
|
|
(15,059
|
)
|
|
Closing balance
|
|
|
225,178
|
|
|
|
1,105,282
|
|
|
|
1,330,460
|
|
For the year ended December
31, 2016:
|
|
|
Associates
|
|
|
Joint
ventures
|
|
|
Total
|
|
|
Opening balance
|
|
|
69,516
|
|
|
|
1,862,418
|
|
|
|
1,931,934
|
|
|
Effects of equity method through:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit or loss
|
|
|
48,299
|
|
|
|
13,046
|
|
|
|
61,345
|
|
|
Other comprehensive income
|
|
|
173,772
|
|
|
|
(49,127
|
)
|
|
|
124,645
|
|
|
Dividends declared
|
|
|
(42,050
|
)
|
|
|
(384,787
|
)
|
|
|
(426,837
|
)
|
|
Impairment (Note 18.1.2)
|
|
|
-
|
|
|
|
(127,858
|
)
|
|
|
(127,858
|
)
|
|
Reclassifications
|
|
|
-
|
|
|
|
(10,535
|
)
|
|
|
(10,535
|
)
|
|
Closing balance
|
|
|
249,537
|
|
|
|
1,303,157
|
|
|
|
1,552,694
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
14.2
|
Restrictions on investments
|
The number of shares held by Ecopetrol
in Invercolsa S.A. has been subject to a legal dispute with another shareholder of this company. The courts decided in favor of
Ecopetrol through a ruling IN 2011, whereby it was determined that 324 million shares, equivalent to 11.58% of Invercolsa S.A.’s
share capital should be returned to Ecopetrol. Ecopetrol’s equity share in said company is 43.35%. The dividends paid in
relation to the shares returned to Ecopetrol are also subject to controversy. As of December 31, 2017, the settlement of these
claims is still pending.
|
|
14.3
|
Additional information about associates and joint ventures
|
The breakdown of assets, liabilities and
results of the two main investments in associates and joint ventures, Equion Energy Limited and the Offshore International Group,
as of December 31, 2017 and 2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Statement of financial position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
909,927
|
|
|
|
289,618
|
|
|
|
712,078
|
|
|
|
317,700
|
|
|
Non-current assets
|
|
|
955,849
|
|
|
|
1,568,395
|
|
|
|
1,406,510
|
|
|
|
1,693,947
|
|
|
Total assets
|
|
|
1,865,776
|
|
|
|
1,858,013
|
|
|
|
2,118,588
|
|
|
|
2,011,647
|
|
|
Current liabilities
|
|
|
430,130
|
|
|
|
192,513
|
|
|
|
417,203
|
|
|
|
147,090
|
|
|
Non-current liabilities
|
|
|
98,835
|
|
|
|
657,746
|
|
|
|
170,527
|
|
|
|
671,577
|
|
|
Total liabilities
|
|
|
528,965
|
|
|
|
850,259
|
|
|
|
587,730
|
|
|
|
818,667
|
|
|
Equity
|
|
|
1,336,811
|
|
|
|
1,007,754
|
|
|
|
1,530,858
|
|
|
|
1,192,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other complementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
170,618
|
|
|
|
32,490
|
|
|
|
300,689
|
|
|
|
22,224
|
|
|
Current financial liabilities
|
|
|
336,352
|
|
|
|
97,960
|
|
|
|
328,497
|
|
|
|
21,408
|
|
|
Non-current financial liabilities
|
|
|
2,921
|
|
|
|
214,259
|
|
|
|
309
|
|
|
|
356,353
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Statement of profit or loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
|
1,213,692
|
|
|
|
393,210
|
|
|
|
1,204,301
|
|
|
|
379,811
|
|
|
|
1,218,796
|
|
|
|
463,660
|
|
|
Costs
|
|
|
(793,999
|
)
|
|
|
(508,461
|
)
|
|
|
(969,318
|
)
|
|
|
(502,107
|
)
|
|
|
(958,467
|
)
|
|
|
(654,095
|
)
|
|
Administrative expenses and others
|
|
|
12,188
|
|
|
|
(103,340
|
)
|
|
|
(44,810
|
)
|
|
|
(221,238
|
)
|
|
|
(74,258
|
)
|
|
|
(128,895
|
)
|
|
Financial income (expenses)
|
|
|
2,373
|
|
|
|
(20,264
|
)
|
|
|
59,143
|
|
|
|
(12,010
|
)
|
|
|
37,970
|
|
|
|
(8,528
|
)
|
|
Income tax
|
|
|
(180,546
|
)
|
|
|
60,575
|
|
|
|
30,199
|
|
|
|
107,507
|
|
|
|
(209,221
|
)
|
|
|
90,294
|
|
|
Financial year results
|
|
|
253,708
|
|
|
|
(178,280
|
)
|
|
|
279,515
|
|
|
|
(248,037
|
)
|
|
|
14,820
|
|
|
|
(237,564
|
)
|
|
Other comprehensive results
|
|
|
913,728
|
|
|
|
-
|
|
|
|
935,847
|
|
|
|
-
|
|
|
|
1,024,423
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other complementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid to the Ecopetrol
Business Group
|
|
|
217,075
|
|
|
|
-
|
|
|
|
375,035
|
|
|
|
-
|
|
|
|
284,984
|
|
|
|
-
|
|
|
Depreciation and amortization
|
|
|
557,970
|
|
|
|
232,953
|
|
|
|
678,488
|
|
|
|
228,250
|
|
|
|
642,369
|
|
|
|
229,317
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Included below, there
is a reconciliation of equity between the most significant participations and the carrying amount of investments as of December
31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Equion
Energy
Limited
|
|
|
Offshore
International
Group
|
|
|
Equity of the associate
|
|
|
1,336,811
|
|
|
|
1,007,754
|
|
|
|
1,530,858
|
|
|
|
1,192,980
|
|
|
% of Ecopetrol’s ownership
|
|
|
51
|
%
|
|
|
50
|
%
|
|
|
51
|
%
|
|
|
50
|
%
|
|
Ecopetrol’s ownership
|
|
|
681,773
|
|
|
|
503,877
|
|
|
|
780,738
|
|
|
|
596,490
|
|
|
Additional value of the investment
|
|
|
375,693
|
|
|
|
341,448
|
|
|
|
375,693
|
|
|
|
341,448
|
|
|
Impairment
|
|
|
(296,427
|
)
|
|
|
(539,465
|
)
|
|
|
(253,684
|
)
|
|
|
(577,053
|
)
|
|
Carrying amount of the investment
|
|
|
761,039
|
|
|
|
305,860
|
|
|
|
902,747
|
|
|
|
360,885
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
15.
|
Property, plant and equipment
|
The following shows a breakdown of the
changes in property, plant and equipment and depreciation and impairment for the years ended December 31, 2017 and 2016:
|
|
|
Plant and
equipment
|
|
|
Pipelines,
networks
and lines
|
|
|
Work in
progress (1)
|
|
|
Buildings
|
|
|
Lands
|
|
|
Other
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
42,608,276
|
|
|
|
29,087,782
|
|
|
|
4,874,406
|
|
|
|
6,911,757
|
|
|
|
3,894,220
|
|
|
|
3,482,439
|
|
|
|
90,858,880
|
|
|
Additions/capitalizations
|
|
|
904,854
|
|
|
|
876,940
|
|
|
|
(102
|
)
|
|
|
363,836
|
|
|
|
14,631
|
|
|
|
203,124
|
|
|
|
2,363,283
|
|
|
Increase in abandonment costs
|
|
|
51,619
|
|
|
|
105,097
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
156,716
|
|
|
Capitalized financial interests
|
|
|
38,847
|
|
|
|
33,875
|
|
|
|
8,501
|
|
|
|
6,941
|
|
|
|
1,027
|
|
|
|
20,113
|
|
|
|
109,304
|
|
|
Exchange differences capitalized
|
|
|
2,636
|
|
|
|
2,299
|
|
|
|
577
|
|
|
|
471
|
|
|
|
70
|
|
|
|
672
|
|
|
|
6,725
|
|
|
Disposals
|
|
|
(67,326
|
)
|
|
|
(56,147
|
)
|
|
|
(26,991
|
)
|
|
|
(6,539
|
)
|
|
|
(23
|
)
|
|
|
(2,727
|
)
|
|
|
(159,753
|
)
|
|
Foreign currency translation
|
|
|
(136,501
|
)
|
|
|
(49,800
|
)
|
|
|
(13,302
|
)
|
|
|
(4,904
|
)
|
|
|
(7,850
|
)
|
|
|
(3,394
|
)
|
|
|
(215,751
|
)
|
|
Transfers (2)
|
|
|
(840,511
|
)
|
|
|
2,000,003
|
|
|
|
(976,771
|
)
|
|
|
347,024
|
|
|
|
(62,720
|
)
|
|
|
(893,531
|
)
|
|
|
(426,506
|
)
|
|
Balance as of December 31, 2017
|
|
|
42,561,894
|
|
|
|
32,000,049
|
|
|
|
3,866,318
|
|
|
|
7,618,586
|
|
|
|
3,839,355
|
|
|
|
2,806,696
|
|
|
|
92,692,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
(15,511,995
|
)
|
|
|
(9,965,554
|
)
|
|
|
(262,597
|
)
|
|
|
(2,088,478
|
)
|
|
|
(26,852
|
)
|
|
|
(674,902
|
)
|
|
|
(28,530,378
|
)
|
|
Depreciation expense
|
|
|
(1,996,614
|
)
|
|
|
(1,479,792
|
)
|
|
|
-
|
|
|
|
(416,698
|
)
|
|
|
-
|
|
|
|
(106,878
|
)
|
|
|
(3,999,982
|
)
|
|
Recovery (losses) for impairment (Note 18)
|
|
|
1,014,613
|
|
|
|
316,360
|
|
|
|
(372,804
|
)
|
|
|
11,538
|
|
|
|
(7,794
|
)
|
|
|
16,006
|
|
|
|
977,919
|
|
|
Disposals
|
|
|
54,244
|
|
|
|
13,464
|
|
|
|
-
|
|
|
|
807
|
|
|
|
-
|
|
|
|
2,583
|
|
|
|
71,098
|
|
|
Foreign currency translation
|
|
|
15,166
|
|
|
|
32,729
|
|
|
|
-
|
|
|
|
3,929
|
|
|
|
-
|
|
|
|
3,802
|
|
|
|
55,626
|
|
|
Transfers (2)
|
|
|
1,644,613
|
|
|
|
(1,378,833
|
)
|
|
|
81,981
|
|
|
|
(179,660
|
)
|
|
|
(4,876
|
)
|
|
|
(26,032
|
)
|
|
|
137,193
|
|
|
Balance as of December 31, 2017
|
|
|
(14,779,973
|
)
|
|
|
(12,461,626
|
)
|
|
|
(553,420
|
)
|
|
|
(2,668,562
|
)
|
|
|
(39,522
|
)
|
|
|
(785,421
|
)
|
|
|
(31,288,524
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as of December 31, 2016
|
|
|
27,096,281
|
|
|
|
19,122,228
|
|
|
|
4,611,809
|
|
|
|
4,823,279
|
|
|
|
3,867,368
|
|
|
|
2,807,537
|
|
|
|
62,328,502
|
|
|
Net balance as of December 31, 2017
|
|
|
27,781,921
|
|
|
|
19,538,423
|
|
|
|
3,312,898
|
|
|
|
4,950,024
|
|
|
|
3,799,833
|
|
|
|
2,021,275
|
|
|
|
61,404,374
|
|
|
|
(1)
|
The balance of work in progress as of December 31, 2017, mainly includes investments in production
at the Castilla field, the integral plan of electrical energy and secondary recovery of Yarigui and the modernization project of
the Barrancabermeja refinery.
|
|
|
(2)
|
Transfers correspond mainly to transfers to: a) inventory of project materials for use in the operation
for COP$ 250,239, b) classification of the intangible part of projects to natural resources for COP$ 7,222 and c) others for COP$
31,852.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
|
Plant and
equipment
|
|
|
Pipelines,
networks
and lines
|
|
|
Work in
progress (1)
|
|
|
Buildings
|
|
|
Lands
|
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
37,360,222
|
|
|
|
26,856,085
|
|
|
|
11,015,010
|
|
|
|
6,479,356
|
|
|
|
4,068,951
|
|
|
|
3,653,798
|
|
|
|
89,433,422
|
|
|
Additions/capitalizations
|
|
|
1,457,547
|
|
|
|
1,383,352
|
|
|
|
(107,181
|
)
|
|
|
360,596
|
|
|
|
41,202
|
|
|
|
511,413
|
|
|
|
3,646,929
|
|
|
(Decrease) increase in abandonment costs
|
|
|
(84,780
|
)
|
|
|
(78,712
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,137
|
|
|
|
(157,355
|
)
|
|
Capitalized interest
|
|
|
-
|
|
|
|
-
|
|
|
|
205,662
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,116
|
|
|
|
242,778
|
|
|
Exchange differences capitalized
|
|
|
-
|
|
|
|
-
|
|
|
|
8,639
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,639
|
|
|
Disposals
|
|
|
(158,193
|
)
|
|
|
(21,814
|
)
|
|
|
(16,031
|
)
|
|
|
(12,540
|
)
|
|
|
713
|
|
|
|
(15,455
|
)
|
|
|
(223,320
|
)
|
|
Foreign currency translation
|
|
|
(42,870
|
)
|
|
|
(298,750
|
)
|
|
|
(1,629,613
|
)
|
|
|
(9,832
|
)
|
|
|
(69,878
|
)
|
|
|
12,416
|
|
|
|
(2,038,527
|
)
|
|
Other (reclassifications) (2)
|
|
|
4,076,350
|
|
|
|
1,247,621
|
|
|
|
(4,602,080
|
)
|
|
|
94,177
|
|
|
|
(146,768
|
)
|
|
|
(722,986
|
)
|
|
|
(53,686
|
)
|
|
Balance as of December 31, 2016
|
|
|
42,608,276
|
|
|
|
29,087,782
|
|
|
|
4,874,406
|
|
|
|
6,911,757
|
|
|
|
3,894,220
|
|
|
|
3,482,439
|
|
|
|
90,858,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
(13,469,749
|
)
|
|
|
(8,572,373
|
)
|
|
|
(19,566
|
)
|
|
|
(1,698,791
|
)
|
|
|
(13,689
|
)
|
|
|
(554,181
|
)
|
|
|
(24,328,349
|
)
|
|
Depreciation expense
|
|
|
(1,869,604
|
)
|
|
|
(1,426,659
|
)
|
|
|
-
|
|
|
|
(392,294
|
)
|
|
|
-
|
|
|
|
(102,621
|
)
|
|
|
(3,791,178
|
)
|
|
Impairment (Note 17)
|
|
|
(659,223
|
)
|
|
|
33,048
|
|
|
|
(3,270
|
)
|
|
|
57,157
|
|
|
|
24,067
|
|
|
|
(13,517
|
)
|
|
|
(561,738
|
)
|
|
Disposals
|
|
|
121,382
|
|
|
|
14,022
|
|
|
|
-
|
|
|
|
7,021
|
|
|
|
15
|
|
|
|
11,524
|
|
|
|
153,964
|
|
|
Foreign currency translation
|
|
|
272,582
|
|
|
|
138,611
|
|
|
|
38,904
|
|
|
|
12,658
|
|
|
|
-
|
|
|
|
8,007
|
|
|
|
470,762
|
|
|
Other (reclassifications) (2)
|
|
|
92,617
|
|
|
|
(152,203
|
)
|
|
|
(278,665
|
)
|
|
|
(74,229
|
)
|
|
|
(37,245
|
)
|
|
|
(24,114
|
)
|
|
|
(473,839
|
)
|
|
Balance as of December 31, 2016
|
|
|
(15,511,995
|
)
|
|
|
(9,965,554
|
)
|
|
|
(262,597
|
)
|
|
|
(2,088,478
|
)
|
|
|
(26,852
|
)
|
|
|
(674,902
|
)
|
|
|
(28,530,378
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as of December 31, 2016
|
|
|
27,096,281
|
|
|
|
19,122,228
|
|
|
|
4,611,809
|
|
|
|
4,823,279
|
|
|
|
3,867,368
|
|
|
|
2,807,537
|
|
|
|
62,328,502
|
|
|
|
(1)
|
The balance of work in progress as of December 31, 2016, mainly includes investments made in the
development projects of the Castilla y Chichimene fields, integral energy plan (PIEEL for its acronym in Spanish), primary and
secondary development of the Tibú-Socuabo project and modernization of the Refinería de Barrancabermeja.
|
|
|
(2)
|
Corresponds mainly to transfers to: a) inventory of project materials for use in the operation
for COP$(712,967) mainly Ecopetrol and Reficar, b) opening of the intangible part of projects to natural resources for COP$68,750
and c) other COP$116,692.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
16.
|
Natural and environmental resources
|
The following is the movement of natural
resources and amortization and impairment for the years ended December 31, 2017 and 2016:
|
|
|
Oil
investments
|
|
|
Asset
retirement
cost
|
|
|
Exploration and
evaluation (1)
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
47,079,096
|
|
|
|
2,304,915
|
|
|
|
4,818,124
|
|
|
|
54,202,135
|
|
|
Additions/capitalizations
|
|
|
2,422,203
|
|
|
|
59,345
|
|
|
|
944,857
|
|
|
|
3,426,405
|
|
|
Acquisition of interests in joint operations (Note 32.3)
|
|
|
141,950
|
|
|
|
-
|
|
|
|
-
|
|
|
|
141,950
|
|
|
Adjustment to fair value of participation in joint operations (Note 32.3)
|
|
|
451,095
|
|
|
|
-
|
|
|
|
-
|
|
|
|
451,095
|
|
|
Increase (decrease) in abandonment costs
|
|
|
224
|
|
|
|
(143,241
|
)
|
|
|
25,935
|
|
|
|
(117,082
|
)
|
|
Disposals
|
|
|
(38,072
|
)
|
|
|
(629
|
)
|
|
|
(214,850
|
)
|
|
|
(253,551
|
)
|
|
Dry wells (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
(898,264
|
)
|
|
|
(898,264
|
)
|
|
Capitalized financial interests
|
|
|
72,395
|
|
|
|
-
|
|
|
|
9,952
|
|
|
|
82,347
|
|
|
Exchange differences capitalized
|
|
|
4,913
|
|
|
|
-
|
|
|
|
675
|
|
|
|
5,588
|
|
|
Foreign currency translation
|
|
|
(62,446
|
)
|
|
|
(573
|
)
|
|
|
(14,504
|
)
|
|
|
(77,523
|
)
|
|
Transfers (3)
|
|
|
112,500
|
|
|
|
(4,554
|
)
|
|
|
(163,117
|
)
|
|
|
(55,171
|
)
|
|
Balance as of December 31, 2017
|
|
|
50,183,858
|
|
|
|
2,215,263
|
|
|
|
4,508,808
|
|
|
|
56,907,929
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated amortization and impairment losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
(30,470,415
|
)
|
|
|
(1,390,673
|
)
|
|
|
-
|
|
|
|
(31,861,088
|
)
|
|
Depletion expense
|
|
|
(3,979,179
|
)
|
|
|
(194,140
|
)
|
|
|
-
|
|
|
|
(4,173,319
|
)
|
|
Recovery (losses) for impairment (Note 18)
|
|
|
376,934
|
|
|
|
-
|
|
|
|
-
|
|
|
|
376,934
|
|
|
Disposals
|
|
|
37,808
|
|
|
|
290
|
|
|
|
-
|
|
|
|
38,098
|
|
|
Foreign currency translation
|
|
|
42,114
|
|
|
|
245
|
|
|
|
-
|
|
|
|
42,359
|
|
|
Transfers (3)
|
|
|
(22,225
|
)
|
|
|
(423
|
)
|
|
|
-
|
|
|
|
(22,648
|
)
|
|
Balance as of December 31, 2017
|
|
|
(34,014,963
|
)
|
|
|
(1,584,701
|
)
|
|
|
-
|
|
|
|
(35,599,664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as of December 31, 2016
|
|
|
16,608,681
|
|
|
|
914,242
|
|
|
|
4,818,124
|
|
|
|
22,341,047
|
|
|
Net balance as of December 31, 2017
|
|
|
16,168,895
|
|
|
|
630,562
|
|
|
|
4,508,808
|
|
|
|
21,308,265
|
|
|
|
(1)
|
The balance of exploration and evaluation includes mainly investments made in the Purple Angel,
Tayrona and unconventional hydrocarbons projects and in the developing fields, Piedemonte, Castilla y Tibú.
|
|
|
(2)
|
Includes mainly dry wells in operation of: 1) Ecopetrol S.A. for (COP$450,524): Kronos, Brama,
Catfish and Venus, among others, 2) Ecopetrol America Inc for (COP$312,684): Warrior # 2 and Parmer and 3) Ecopetrol Costa Afuera
for (COP$57,877): Molusco.
|
|
|
(3)
|
Corresponds mainly to transfers to property, plant and equipment.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
|
Oil investments
|
|
|
Asset retirement
cost
|
|
|
Exploration and
evaluation (1)
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
44,148,353
|
|
|
|
1,762,374
|
|
|
|
6,189,142
|
|
|
|
52,099,869
|
|
|
Additions/capitalizations
|
|
|
3,045,474
|
|
|
|
10,391
|
|
|
|
(934,570
|
)
|
|
|
2,121,295
|
|
|
Increase (decrease) in abandonment costs
|
|
|
-
|
|
|
|
566,213
|
|
|
|
(4,062
|
)
|
|
|
562,151
|
|
|
Disposals
|
|
|
(26,548
|
)
|
|
|
(37,942
|
)
|
|
|
(121,032
|
)
|
|
|
(185,522
|
)
|
|
Dry wells (2)
|
|
|
-
|
|
|
|
-
|
|
|
|
(342,691
|
)
|
|
|
(342,691
|
)
|
|
Capitalized financial interests
|
|
|
-
|
|
|
|
-
|
|
|
|
98,431
|
|
|
|
98,431
|
|
|
Exchange differences capitalized
|
|
|
-
|
|
|
|
-
|
|
|
|
7,259
|
|
|
|
7,259
|
|
|
Foreign currency translation
|
|
|
(352,766
|
)
|
|
|
(8,049
|
)
|
|
|
(103,728
|
)
|
|
|
(464,543
|
)
|
|
Other
|
|
|
264,583
|
|
|
|
11,928
|
|
|
|
29,375
|
|
|
|
305,886
|
|
|
Balance as of December 31, 2016
|
|
|
47,079,096
|
|
|
|
2,304,915
|
|
|
|
4,818,124
|
|
|
|
54,202,135
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation and impairment loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
(26,874,774
|
)
|
|
|
(1,181,798
|
)
|
|
|
-
|
|
|
|
(28,056,572
|
)
|
|
Depletion expense
|
|
|
(3,496,998
|
)
|
|
|
(208,769
|
)
|
|
|
-
|
|
|
|
(3,705,767
|
)
|
|
Impairment (Note 18)
|
|
|
(239,151
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(239,151
|
)
|
|
Disposals
|
|
|
26,320
|
|
|
|
37,942
|
|
|
|
-
|
|
|
|
64,262
|
|
|
Foreign currency translation
|
|
|
218,898
|
|
|
|
5,171
|
|
|
|
-
|
|
|
|
224,069
|
|
|
Other
|
|
|
(104,710
|
)
|
|
|
(43,219
|
)
|
|
|
-
|
|
|
|
(147,929
|
)
|
|
Balance as of December 31, 2016
|
|
|
(30,470,415
|
)
|
|
|
(1,390,673
|
)
|
|
|
-
|
|
|
|
(31,861,088
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as of December 31, 2015
|
|
|
17,273,579
|
|
|
|
580,576
|
|
|
|
6,189,142
|
|
|
|
24,043,297
|
|
|
Net balance as of December 31, 2016
|
|
|
16,608,681
|
|
|
|
914,242
|
|
|
|
4,818,124
|
|
|
|
22,341,047
|
|
|
|
(1)
|
The balance of exploration and evaluation mainly includes investments in production projects of
direct operation in Castilla, Chichimene and Piedemonte. Additionally, it includes offshore exploration projects: Fuerte Sur, Kronos
and Tayrona and Onshore: Caño Sur block, CPO 10 and non-conventional hydrocarbons program.
|
|
|
(2)
|
Includes dry wells in operation of: 1) Ecopetrol for COP$302,965; 2) ECP Oil and Gas Germany GmbH
for COP$26,273; 3) Ecopetrol America Inc. for COP$5,032; 4) Hocol S.A. for COP$5,049 and 5) Ecopetrol Brasil for COP$3,372.
|
|
|
(3)
|
Corresponds mainly of transfers to: a) non-current assets held for sale for COP$244,387 and b)
property, plant and equipment for COP$(68,898) and c) other COP$(17,532).
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Accounting
for suspended exploratory wells
The following table shows the classification
by ages, from the completion date, of the exploratory wells that are suspended as of December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Between 1 and 3 years (a)
|
|
|
600,767
|
|
|
|
1,300,874
|
|
|
|
490,184
|
|
|
Between 3 and 5 years (b)
|
|
|
791,261
|
|
|
|
197,997
|
|
|
|
100,316
|
|
|
More than 5 years (c)
|
|
|
250,219
|
|
|
|
153,552
|
|
|
|
161,392
|
|
|
Total suspended exploratory wells
|
|
|
1,642,247
|
|
|
|
1,652,423
|
|
|
|
751,892
|
|
|
No. of projects exceeding 1 year
|
|
|
24
|
|
|
|
24
|
|
|
|
59
|
|
|
Wells under 1 year of suspended
|
|
|
2,480
|
|
|
|
528,313
|
|
|
|
280,801
|
|
|
|
(a)
|
Corresponds mainly to discovery wells of Ecopetrol America Inc: Leon 2 and Warrior # 1, which are
under evaluation.
|
|
|
(b)
|
The balance corresponds mainly to discovery wells of Ecopetrol America Inc: Leon 1, which are under
evaluation and Rydberg which is currently working on the development plan and feasibility studies.
|
|
|
(c)
|
Corresponds mainly to wells of Offshore International Group, which are temporarily abandoned.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following is the movement of intangibles
and their amortization and impairment for the years ended December 31, 2017 and 2016:
|
|
|
Licenses and
software
|
|
|
Other
intangibles (1)
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
784,320
|
|
|
|
138,982
|
|
|
|
923,302
|
|
|
Acquisitions
|
|
|
169,545
|
|
|
|
6,323
|
|
|
|
175,868
|
|
|
Disposals
|
|
|
(9,469
|
)
|
|
|
-
|
|
|
|
(9,469
|
)
|
|
Foreign currency translation
|
|
|
(1,414
|
)
|
|
|
(92
|
)
|
|
|
(1,506
|
)
|
|
Transfers
|
|
|
17,574
|
|
|
|
23,339
|
|
|
|
40,913
|
|
|
Balance as of December 31, 2017
|
|
|
960,556
|
|
|
|
168,552
|
|
|
|
1,129,108
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016
|
|
|
(583,680
|
)
|
|
|
(67,490
|
)
|
|
|
(651,170
|
)
|
|
Amortization of the period
|
|
|
(89,216
|
)
|
|
|
(18,830
|
)
|
|
|
(108,046
|
)
|
|
Disposals
|
|
|
8,744
|
|
|
|
-
|
|
|
|
8,744
|
|
|
Foreign currency translation
|
|
|
979
|
|
|
|
-
|
|
|
|
979
|
|
|
Transfers
|
|
|
(2,242
|
)
|
|
|
2,853
|
|
|
|
611
|
|
|
Balance as of December 31, 2017
|
|
|
(665,415
|
)
|
|
|
(83,467
|
)
|
|
|
(748,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net balance as of December 31, 2016
|
|
|
200,640
|
|
|
|
71,492
|
|
|
|
272,132
|
|
|
Net balance as of December 31, 2017
|
|
|
295,141
|
|
|
|
85,085
|
|
|
|
380,226
|
|
|
Useful life
|
|
|
< 5 years
|
|
|
|
< 7 years
|
|
|
|
|
|
|
|
|
Licenses
and software
|
|
|
Other
intangibles (1)
|
|
|
Total
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
733,115
|
|
|
|
244,063
|
|
|
|
977,178
|
|
|
Additions
|
|
|
63,560
|
|
|
|
5,693
|
|
|
|
69,253
|
|
|
Disposals
|
|
|
(29,099
|
)
|
|
|
-
|
|
|
|
(29,099
|
)
|
|
Foreign currency translation
|
|
|
(9,359
|
)
|
|
|
(149
|
)
|
|
|
(9,508
|
)
|
|
Reclassifications
|
|
|
26,103
|
|
|
|
(110,625
|
)
|
|
|
(84,522
|
)
|
|
Balance as of December 31, 2016
|
|
|
784,320
|
|
|
|
138,982
|
|
|
|
923,302
|
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
(533,784
|
)
|
|
|
(55,343
|
)
|
|
|
(589,127
|
)
|
|
Amortization expense
|
|
|
(81,913
|
)
|
|
|
(28,142
|
)
|
|
|
(110,055
|
)
|
|
Disposals
|
|
|
29,097
|
|
|
|
-
|
|
|
|
29,097
|
|
|
Foreign currency translation
|
|
|
8,527
|
|
|
|
1
|
|
|
|
8,528
|
|
|
Reclassifications
|
|
|
(5,607
|
)
|
|
|
15,994
|
|
|
|
10,387
|
|
|
Balance as of December 31, 2016
|
|
|
(583,680
|
)
|
|
|
(67,490
|
)
|
|
|
(651,170
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015
|
|
|
199,331
|
|
|
|
188,720
|
|
|
|
388,051
|
|
|
Balance as of December 31, 2016
|
|
|
200,640
|
|
|
|
71,492
|
|
|
|
272,132
|
|
|
Useful life
|
|
|
< 5 years
|
|
|
|
< 7 years
|
|
|
|
|
|
|
|
(1)
|
Corresponds mainly to easements.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
18.
|
Impairment of long-term assets
|
As mentioned in Note 4.12, each
year the Group assesses whether there are indications of impairment of its assets or cash-generating units or whether an
impairment loss recognized in previous periods may be reversed.
The impairment of our
non-current assets includes expenses (or recovery) of impairment of property, plant and equipment and natural resources,
investments in companies, goodwill and other non-current assets. The Group is exposed to future risks derived mainly from
variations in: (i) the oil prices outlook, (ii) refining margins and profitability, (iii) cost profile, (iv) investments and
maintenance expenses, (v) amounts of recoverable reserves, (vi) market and country risk assessments reflected in the
discount rate, and (vii) changes in domestic and international regulations, among others.
Any change in the foregoing
variables used to calculate the recoverable amount of a non-current asset can have a material effect on the recognition or
either losses or recovery of impairment charges in the profit or loss statement. In our business segments highly sensitive
variables can include, among others: (i) in the exploration and production segment, variations of the hydrocarbon prices
outlook; (ii) in the refining segment, changes in product and crude oil prices, discount rate, refining margins, changes in
environmental regulations, cost structure and the level of capital expenditures; and (iii) in the transport and logistics
segment, changes in tariffs regulation and volumes transported.
Expense (recovery) for impairment
Based on impairment tests conducted by
the Group, the following (recoveries) losses for impairment of long term assets for the years ended December 31, 2017, 2016 and
2015 are presented:
|
Expense (recovery of) impairment by segment
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Production and exploration
|
|
|
(183,718
|
)
|
|
|
196,448
|
|
|
|
4,504,495
|
|
|
Refining and Petrochemicals
|
|
|
(1,067,965
|
)
|
|
|
773,361
|
|
|
|
3,278,993
|
|
|
Transport and Logistics
|
|
|
(59,455
|
)
|
|
|
(41,062
|
)
|
|
|
81,387
|
|
|
|
|
|
(1,311,138
|
)
|
|
|
928,747
|
|
|
|
7,864,875
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment (Note 15)
|
|
|
(977,919
|
)
|
|
|
561,738
|
|
|
|
4,144,754
|
|
|
Natural resources (Note 16)
|
|
|
(376,934
|
)
|
|
|
239,151
|
|
|
|
2,865,076
|
|
|
Investment in joint ventures and associates (Note 14)
|
|
|
15,059
|
|
|
|
127,858
|
|
|
|
588,144
|
|
|
Other non-current assets
|
|
|
28,656
|
|
|
|
-
|
|
|
|
-
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
266,901
|
|
|
|
|
|
(1,311,138
|
)
|
|
|
928,747
|
|
|
|
7,864,875
|
|
|
|
18.1
|
Exploration and production segment
|
The expenses for (recovery of) asset impairment
of the Exploration and Production segment
for the years ended December 31 of 2017, 2016 and 2015
is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Oilfields
|
|
|
(188,873
|
)
|
|
|
68,590
|
|
|
|
3,649,451
|
|
|
Investment in joint ventures and associates (Note 14)
|
|
|
5,155
|
|
|
|
127,858
|
|
|
|
588,144
|
|
|
Goodwill
|
|
|
-
|
|
|
|
-
|
|
|
|
266,900
|
|
|
|
|
|
(183,718
|
)
|
|
|
196,448
|
|
|
|
4,504,495
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
In 2017,
based on new market variables, incorporation of new reserves, Ecopetrol’s crude oil basket price discounts as compared
to the ICE Brent crude price, available technical and operational information, there was a partial reversal of an
impairment recognized
in previous years for the oil fields that operate in Colombia
CPO09, Casabe and Oripaya and in
fields operated abroad Gunflint Dalmatian and K2, and an impairment in the Tibú, Underriver, Provincia and Orito fields.
In 2016, as a result of the revision
of prospective oil prices in the long term, it was identified that some impairments recognized in previous years for oil
fields could be recovered due to an improved future price scenarios. The main fields on which there was a recovery of impairment were Chichimene, Caño Sur, Apiay and Llanito. Similarly, the new technical information and
operational aspects that gave rise to changes in investment levels caused an impairment in the Casabe, Tibú, Gunflint
and Niscota fields.
The breakdown of the expenses for (recovery
of) impairment of fields for the years ended December 31, 2017, 2016 and 2015 includes:
2017
|
Cash
generating units
|
|
Carrying amount
|
|
|
Recoverable
amount
|
|
|
Expense for
(recovery of)
impairment
|
|
|
Oil fields in Colombia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
2,172,747
|
|
|
|
1,588,207
|
|
|
|
584,540
|
|
|
Recovery
|
|
|
13,229,212
|
|
|
|
23,906,828
|
|
|
|
(298,210
|
)
|
|
Fields operated abroad
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery
|
|
|
748,510
|
|
|
|
1,324,010
|
|
|
|
(475,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(188,873
|
)
|
2016
|
Cash
generating units
|
|
Carrying amount
|
|
|
Recoverable
amount
|
|
|
Expense for
(recovery of)
impairment
|
|
|
Oil fields in Colombia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
5,258,265
|
|
|
|
4,902,943
|
|
|
|
1,117,020
|
|
|
Recovery
|
|
|
17,502,391
|
|
|
|
36,704,807
|
|
|
|
(1,090,434
|
)
|
|
Fields operated abroad
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense
|
|
|
688,895
|
|
|
|
647,272
|
|
|
|
42,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,590
|
|
2015
|
Cash generating units
|
|
Carrying amount
|
|
|
Recoverable
amount
|
|
|
Expense for
(recovery of)
impairment
|
|
|
Oil fields in Colombia
|
|
|
10,323,500
|
|
|
|
7,645,665
|
|
|
|
2,430,923
|
|
|
Fields operated abroad
|
|
|
1,242,979
|
|
|
|
24,451
|
|
|
|
1,218,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,649,451
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The assumptions used in the model to determine
the recoverable amount include:
|
|
-
|
The fair value less costs of
disposal of the Exploration and
Production segment assets was determined based on cash flows after tax derived from the business
plans approved by Group's management, which are developed based on long-term macroeconomic policies and
fundamental assumptions of supply and demand. The fair value category is level 3.
|
|
|
-
|
Balance
of oil and gas reserves, in addition to proven reserves included in Note 34; probable and possible reserves were also considered,
adjusted by different risk factors.
|
|
|
-
|
The real discount rate determined as the average weighted cost of capital of market participants (WACC) established for each company in the segment
with rates ranging between 7.9% and 8.9% (2016 – 7.9% and 8.9%).
|
|
|
-
|
Oil price - Brent: The forecasts
include US$52.9/barrel for 2018, US$72.5/barrel average for the next six years and US$81.9/barrel as of 2030. In 2016, the
assumptions made used a price of US$56.8/ barrel in 2017, US $67.9/barrel average for the medium term and US$80/ barrel in
the long term. International oil price projections were carried
out by an
independent agency
specializing in oil and gas, which takes
into account the current scenarios of oil quota agreements of the OPEC
(Organization of Petroleum Exporting Countries) and the impact of the changes in specifications issued by the international
agreement to prevent pollution by ships (Marpol) as of the year 2020 on crude and fuels with high sulfur content.
|
The aggregation of assets to identify the
CGUs is consistent as compared to the previous period.
|
|
18.1.2
|
Investment in associates and joint ventures from Exploration and Production segment
|
Investments in associated companies and
joint ventures in the segment are recorded through the equity method. Ecopetrol evaluates if there is any objective evidence to
determine if the value of such investments has deteriorated in the period, especially those Companies that were acquired with goodwill.
As a result, Ecopetrol recognized an expense
for (recovery of) impairment in the value of its investments in companies as of December 31, as follows:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Equion Energy Limited
|
|
|
42,744
|
|
|
|
81,155
|
|
|
|
172,528
|
|
|
Offshore International Group
|
|
|
(37,589
|
)
|
|
|
46,703
|
|
|
|
415,616
|
|
|
Total
|
|
|
5,155
|
|
|
|
127,858
|
|
|
|
588,144
|
|
The assumptions used to determine
the recoverable amount of the companies assessed are those described in Note 18.1.1, except for the use of a discount
rate in real terms in 2017 for Equion Energía Limited of 8.2% (2016 - 8.9%) and for Offshore International Group of
8.6% (2016 - 8.0%).
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
In 2017,
because of new market variables, new reserves, price differentials against reference indicators, and available technical and operational
information, there was a recovery of an
impairment recognized in previous years for Offshore International Group and Equion
Energy
.
For 2016, in spite of better forecasts
of oil prices in the long term, there was an additional impairment in the investment in the Offshore International Group for the
reversion to local authorities of some low-prospective success exploration blocks, high geological risk, and low economic viability
with respect to a new price scenario.
|
|
18.2
|
Refining and Petrochemical segment
|
The Cash Generating Units with an expense
for (recovery of) impairment in the Refining and Petrochemical segment for the years ended December 31 of 2017, 2016 and 2015 include:
2017
|
Cash generating units
|
|
Carrying amount
|
|
|
Recoverable
amount
|
|
|
(Recovery)
expense for
impairment
|
|
|
Refinería de Cartagena
|
|
|
20,578,412
|
|
|
|
22,012,710
|
|
|
|
(1,434,298
|
)
|
|
Refinería de Barrancabermeja (projects)
|
|
|
1,172,773
|
|
|
|
898,786
|
|
|
|
273,987
|
|
|
Bioenergy
|
|
|
757,741
|
|
|
|
665,395
|
|
|
|
92,346
|
|
|
|
|
|
22,508,926
|
|
|
|
23,576,891
|
|
|
|
(1,067,965
|
)
|
2016
|
Cash generating units
|
|
Carrying amount
|
|
|
Recoverable
amount
|
|
|
Expenses for
impairment
|
|
|
Refinería de Cartagena
|
|
|
21,672,367
|
|
|
|
21,206,515
|
|
|
|
465,852
|
|
|
Bioenergy
|
|
|
925,955
|
|
|
|
618,446
|
|
|
|
307,509
|
|
|
|
|
|
22,598,322
|
|
|
|
21,824,961
|
|
|
|
773,361
|
|
2015
|
Cash generating units
|
|
Carrying amount
|
|
|
Recoverable
amount
|
|
|
Expenses for
impairment
|
|
|
Refinería de Cartagena
|
|
|
26,561,335
|
|
|
|
23,335,096
|
|
|
|
3,226,240
|
|
|
Bioenergy
|
|
|
642,139
|
|
|
|
589,386
|
|
|
|
52,753
|
|
|
|
|
|
27,203,474
|
|
|
|
23,924,482
|
|
|
|
3,278,993
|
|
The aggregation of assets for identifying the
CGUs is consistent across these periods.
|
|
18.2.1
|
Refinería de Cartagena
|
The recoverable amount of the
Refinería de Cartagena was calculated based on the fair value less costs of disposal, which is higher than its value in
continued use. The fair value less costs of disposal of the Refinería de Cartagena was determined based on cash
flows after taxes that are derived from business plans approved by the Group's management, which are developed based on
market prices provided by a third party expert, which considers long-term macroeconomic variables and fundamental supply and
demand assumptions for crude and refined products. The fair value category is level 3.
The assumptions to determine
the recoverable amount included: a) a gross refining margin determined by crude oil feedstock and products price outlook
provided by an independent third party expert; b) an actual discount rate of 6.0% (2016 - 6.3%) determined
under WACC methodology; c) current conditions or benefits, or similar, as an industrial user of goods and services of the
free trade zone and during the validity of the license; d) level of costs and long-term operating expenses in line with
international refinery standards of similar configuration and conversion capacity, e) refinery throughput and production, and
f) level of continued investment.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
In 2017, we recorded a
partial reversal of the impairment recorded in previous periods primarily as a result of: a) an improved outlook in refining
margins due to the ratification of the implementation of the International Convention for the Prevention of Pollution from
Ships (Marpol) starting in 2020; b) a lower discount rate resulting from the application of WACC methodology;
and c) operational and financial optimizations identified as part of the stabilization of the refinery.
In 2016, we recorded an
impairment caused mostly by adjustment of operational variables based on what was that observed during the stabilization
period, offset by a lower discount rate and better refining margins.
|
|
18.2.2
|
Refinería de Barrancabermeja
|
In compliance with the provisions
of IAS 36 - Impairment of the value of assets, during 2017 the Refinería de Barrancabermeja recognized COP$273,987
for impairment, mainly related to the write off of certain management and financial capitalized balances associated with the
suspended the modernization project of the Refinery. This suspension is in response to capital discipline criteria
implemented to ensure the growth and financial sustainability of Ecopetrol S.A. and the Ecopetrol Business Group in the
adverse context that the hydrocarbons sector experienced in previous years. This project is being assessed within the
Group’s strategic plan; and when the project is reactivated, any impairment loss recognized in previous years may be
subject to recovery.
The recoverable amount of Bioenergy
was calculated based on the fair value less the costs of disposal level with value hierarchy 3, which is greater than the
value in continued use and corresponds to the future cash flows discounted after taxes on profit.
The assumptions used in the model
to determine the recoverable amount included: a) forecast of ethanol prices based on projections made by Ecopetrol
specialists based on independent third party sources; and b) a 6.2% discount rate in real terms (2016 – 6.7% in real terms)
determined under the WACC methodology.
In 2017 and 2016, we recorded an impairment
mainly due to updating of the dates of entry into operation of the project, the stabilization process of the industrial plant,
and the updating of operational variables.
|
|
18.3
|
Transport and Logistics segment
|
In 2017, there was a recovery of an
impairment for the Transportation and Logistics segment for COP$59,455, mainly in Oleoducto del Sur, which includes, among
others, the Trans Andino Pipeline. The recovery was due to the inclusion of the Port of Tumaco in
that generating unit.
The recovery of COP$41,062 in 2016
was caused mainly by the incorporation of flows associated with the San Fernando - Apiay system project, which affects the
recoverable amount of Los Llanos transport line, but was offset by the impairment of the Sur transport line.
The recoverable amount of
these assets was determined based on its fair value with costs of disposal with value hierarchy 3, which corresponds to
discounted cash flows based on the hydrocarbon production curves and tariffs regulated by the Ministry of Mines and Energy
and the Energy and Gas Regulating Commission - CREG. The real discount rate used in the valuation was 5.0% (2016 -4.98%).
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The balance as of December 31, 2017 and
2016 of goodwill in acquisitions of subsidiaries is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Transport and Logistics
|
|
|
|
|
|
|
|
|
|
Oleoducto Central S.A.
|
|
|
683,496
|
|
|
|
683,496
|
|
|
Exploration and Production
|
|
|
|
|
|
|
|
|
|
Hocol Petroleum Ltd.
|
|
|
537,598
|
|
|
|
537,598
|
|
|
Refining and Petrochemicals
|
|
|
|
|
|
|
|
|
|
Andean Chemical Ltd
|
|
|
127,812
|
|
|
|
127,812
|
|
|
Propilco S.A
|
|
|
108,137
|
|
|
|
108,137
|
|
|
|
|
|
1,457,043
|
|
|
|
1,457,043
|
|
|
Less impairment Hocol Petroleum Ltd.
|
|
|
(297,121
|
)
|
|
|
(297,121
|
)
|
|
|
|
|
1,159,922
|
|
|
|
1,159,922
|
|
As of December 31, 2017 and 2016,
the Group assessed the recoverability of the carrying value of goodwill generated in the acquisition of subsidiaries.
The recoverable amount was determined based on the realization value less costs of disposal using the present value of
future cash flows for each of the companies acquired with goodwill. The source of information used the financial projections
of each company derived from the business plans approved by management, which were developed based on long term
macro-economic factors such as price curves and margins and fundamental assumptions of supply and demand. As a result of the
analysis, the Group did not recognize any goodwill impairment.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Exhibit 2 details the main conditions of
the most significant loans of the Business Group.
|
|
20.1
|
Composition of loans and borrowings
|
The balances of the loans and financing,
which are recorded at amortized cost, as of December 31, 2017 and 2016 are:
|
|
|
Weighted average
effective interest rate as
of December 31
|
|
|
2017
|
|
|
2016
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Local currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
8.9
|
%
|
|
|
8.6
|
%
|
|
|
1,692,471
|
|
|
|
2,008,203
|
|
|
Syndicated loan
|
|
|
8.7
|
%
|
|
|
9.5
|
%
|
|
|
3,307,950
|
|
|
|
3,828,329
|
|
|
Other (1)
|
|
|
7.7
|
%
|
|
|
9.1
|
%
|
|
|
978,795
|
|
|
|
905,266
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,979,216
|
|
|
|
6,741,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
6.1
|
%
|
|
|
6.1
|
%
|
|
|
29,166,594
|
|
|
|
29,310,165
|
|
|
Commercial loans – Refinería de Cartagena
|
|
|
4.3
|
%
|
|
|
4.1
|
%
|
|
|
7,401,781
|
|
|
|
7,988,678
|
|
|
Commercial loans
|
|
|
4.3
|
%
|
|
|
2.9
|
%
|
|
|
528,815
|
|
|
|
7,945,693
|
|
|
Other (1)
|
|
|
|
|
|
|
|
|
|
|
471,429
|
|
|
|
235,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,568,619
|
|
|
|
45,480,229
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,547,835
|
|
|
|
52,222,027
|
|
|
Current (2)
|
|
|
|
|
|
|
|
|
|
|
5,144,504
|
|
|
|
4,126,203
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
|
38,403,331
|
|
|
|
48,095,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
43,547,835
|
|
|
|
52,222,027
|
|
|
|
(1)
|
Includes financial leasing and debt in connection with build, operate, maintenance and transfer
(BOMT) contracts.
|
|
|
(2)
|
The increase in the current portion is mainly due to the expiration of: i) the first tranche of
local bonds issued by Ecopetrol S.A. in 2013, and ii) the 5-year series of international bonds issued in 2013 by Ecopetrol S.A..
These bonds mature in August and September 2018, respectively.
|
|
|
20.2
|
Main movements of loans and borrowings
|
Bonds - foreign currency
|
|
§
|
On June 8, 2016, Ecopetrol reopened its bonds due in September 2023 for US$ 500 million, with payment
of principal at maturity and interest payable semiannually at a coupon fixed rate of 5.875%. The current total amount of the bond
in force is US$ 1,800 million.
|
Foreign currency commercial loans
|
|
§
|
On June 30, 2017, Ecopetrol prepaid all of its international syndicated loan, whose nominal value
was US$ 1,925 million and original maturity in February 2020. This loan was a hedging instrument for future oil exports.
|
|
|
§
|
On December 15, 2017, Ecopetrol prepaid the loan entered into in January 2016 with The Bank
of Tokyo-Mitsubushi UFJ, Ltd. (BTMU), for a nominal value of US$ 175 million, which had an original term of 5
years, amortizable with 2.5 years of grace on principal repayments and interest payable semiannually at the Libor 6M rate (6
months) + 145 basis points.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
§
|
On December 15, 2017, Ecopetrol prepaid the loan acquired in May 2016 with Export Development Canada
(EDC), for a nominal value of US$ 300 million, which had an original term of 5 years, with principal payable at maturity and interest
payable semiannually at the Libor 6M rate (6 months) + 140 basis points.
|
Local currency commercial loans
|
|
§
|
On February 23, 2016, Ecopetrol entered into a bilateral commercial credit agreement with Bancolombia
SA for COP$990,000, which was prepaid in October 2016. This loan had a term of 8 years, amortizable with 2 years of grace on principal
repayments, with interest payable semiannually at a DTF TA + 560 basis points.
|
|
|
§
|
On August 14, 2017, Ecopetrol entered into an agreement for a committed credit line with Bancolombia
S.A. for COP$990,000 as a contingent financing mechanism, has available for 2 years, with the following conditions: 10-year term
from the date of the first disbursement, 2 years of grace on principal repayments, interest rate of IBR, at six months + 300 basis
points and a commission of availability of 7.2 basis points per year on the amount not disbursed during the availability period.
Under this facility, Bancolombia SA undertakes to disburse the resources when required by Ecopetrol as per the terms and conditions
previously agreed between the parties. As of December 31, 2017, the use of resources from this credit line has not been required.
|
|
|
20.3
|
Maturity of loans and borrowings
|
The following are the maturities of loans
and borrowing as of December 31, 2017:
|
|
|
Up to 1
year (1)
|
|
|
1-5 years
|
|
|
5-10 years
|
|
|
> 10 years
|
|
|
Total
|
|
|
Local Currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
253,172
|
|
|
|
742,512
|
|
|
|
322,956
|
|
|
|
373,831
|
|
|
|
1,692,471
|
|
|
Syndicated loan
|
|
|
739,348
|
|
|
|
2,009,420
|
|
|
|
559,182
|
|
|
|
-
|
|
|
|
3,307,950
|
|
|
Other
|
|
|
98,729
|
|
|
|
415,599
|
|
|
|
308,121
|
|
|
|
156,346
|
|
|
|
978,795
|
|
|
|
|
|
1,091,249
|
|
|
|
3,167,531
|
|
|
|
1,190,259
|
|
|
|
530,177
|
|
|
|
5,979,216
|
|
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
2,651,174
|
|
|
|
9,948,238
|
|
|
|
12,018,813
|
|
|
|
4,548,369
|
|
|
|
29,166,594
|
|
|
Commercial loans – Refinería de Cartagena
|
|
|
958,918
|
|
|
|
3,635,848
|
|
|
|
2,807,015
|
|
|
|
-
|
|
|
|
7,401,781
|
|
|
Commercial loans
|
|
|
153,873
|
|
|
|
315,849
|
|
|
|
59,093
|
|
|
|
-
|
|
|
|
528,815
|
|
|
Other
|
|
|
289,290
|
|
|
|
119,014
|
|
|
|
63,125
|
|
|
|
-
|
|
|
|
471,429
|
|
|
|
|
|
4,053,255
|
|
|
|
14,018,949
|
|
|
|
14,948,046
|
|
|
|
4,548,369
|
|
|
|
37,568,619
|
|
|
|
|
|
5,144,504
|
|
|
|
17,186,480
|
|
|
|
16,138,305
|
|
|
|
5,078,546
|
|
|
|
43,547,835
|
|
|
|
(1)
|
Includes short-term credit and the current portion of long-term debt, as applicable.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following are the maturities of loans
and borrowing as of December 31, 2016:
|
|
|
Up to 1
year (1)
|
|
|
1 - 5 years
|
|
|
5-10 years
|
|
|
> 10 years
|
|
|
Total
|
|
|
Local currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
312,207
|
|
|
|
955,204
|
|
|
|
357,015
|
|
|
|
383,777
|
|
|
|
2,008,203
|
|
|
Commercial loans
|
|
|
793,743
|
|
|
|
2,375,023
|
|
|
|
659,563
|
|
|
|
-
|
|
|
|
3,828,329
|
|
|
Others
|
|
|
58,952
|
|
|
|
333,372
|
|
|
|
339,009
|
|
|
|
173,933
|
|
|
|
905,266
|
|
|
Total local currency
|
|
|
1,164,902
|
|
|
|
3,663,599
|
|
|
|
1,355,587
|
|
|
|
557,710
|
|
|
|
6,741,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
1,648,707
|
|
|
|
10,956,507
|
|
|
|
12,133,576
|
|
|
|
4,571,375
|
|
|
|
29,310,165
|
|
|
Commercial loan Refinería de Cartagena
|
|
|
875,734
|
|
|
|
3,549,216
|
|
|
|
3,472,379
|
|
|
|
91,349
|
|
|
|
7,988,678
|
|
|
Other commercial loans
|
|
|
371,804
|
|
|
|
7,450,587
|
|
|
|
123,302
|
|
|
|
-
|
|
|
|
7,945,693
|
|
|
Other
|
|
|
65,056
|
|
|
|
114,226
|
|
|
|
56,411
|
|
|
|
-
|
|
|
|
235,693
|
|
|
Total foreign currency
|
|
|
2,961,301
|
|
|
|
22,070,536
|
|
|
|
15,785,668
|
|
|
|
4,662,724
|
|
|
|
45,480,229
|
|
|
|
|
|
4,126,203
|
|
|
|
25,734,135
|
|
|
|
17,141,255
|
|
|
|
5,220,434
|
|
|
|
52,222,027
|
|
(1) Includes short-term credit and the current
portion of long-term debt, as applicable.
|
|
20.4
|
Breakdown by type of interest rate and currency
|
The following is the breakdown of loans
and borrowing by type of interest rate as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Local currency
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
143,156
|
|
|
|
299,472
|
|
|
Floating rate
|
|
|
5,836,060
|
|
|
|
6,442,326
|
|
|
|
|
|
5,979,216
|
|
|
|
6,741,798
|
|
|
Foreign currency
|
|
|
|
|
|
|
|
|
|
Fixed rate
|
|
|
35,062,742
|
|
|
|
35,719,486
|
|
|
Floating rate
|
|
|
2,505,877
|
|
|
|
9,760,743
|
|
|
|
|
|
37,568,619
|
|
|
|
45,480,229
|
|
|
|
|
|
43,547,835
|
|
|
|
52,222,027
|
|
The floating rate loans in local currency
are indexed mainly to the CPI (Consumer Price Index) and the DTF (Fixed Term Deposits); and those in foreign currency loans at
LIBOR plus a spread.
|
|
20.5
|
Loans designated as hedging instrument
|
As of December 31, 2017, the Group designated
US$8,532 million (2016 - US$10,512 million) of foreign currency debt as a hedging instrument of which, US$5,200 million is used
to hedge the net investment in foreign operations with the US dollar as their functional currency and US$3,332 million is used
to hedge the cash flows of future crude oil exports. See Note 30 - Risk management, for further information.
|
|
20.6
|
Guarantees and covenants
|
Financing obtained directly by Ecopetrol
S.A. in capital markets has no guarantees granted or financial covenant restrictions, due to the support of the Colombian Government
through the Ministry of Finance and Public Credit.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Until December 13, 2017, when Ecopetrol
voluntarily assumed the international loan held by Reficar, in its capacity as sponsor, the following restrictions applied to Reficar:
maintain a minimum debt service coverage ratio of 1.35:1; obligation to maintain a commercial trust and a depositary agreement
for receiving resources of the new refinery to fulfill specific purposes such as operating expenses, interest and others.
The following is a summary of certain restrictions
contained in certain loan instruments of Ecopetrol’s subsidiaries:
|
|
-
|
The loan entered into by Oleoducto de los Llanos is guaranteed
with the economic rights of the ship-or-pay transportation agreements with Meta Petroleum Corp and also includes certain restrictions
regarding capital contributions and asset disposal.
|
|
|
-
|
The syndicated loan entered into by Oleoducto Bicentenario
requires that this subsidiary maintain an established relationship of leverage and solvency and cash flow / service to the debt.
|
|
|
-
|
The loan entered into by Bioenergy with Bancolombia is
guaranteed with the La Esperanza 1 and 2 fields in the amount of COP$6,343 and there are certain restrictions on the variation
of direct or indirect ownership by Ecopetrol S.A. in this subsidiary.
|
Ecopetrol and its subsidiaries were in
compliance with these restrictions as of December 31, 2017 and 2016.
The fair value of loans and borrowings
is COP$45,781,317 and COP$52,109,438 as of December 31, 2017 and 2016, respectively.
For fair value measurement, local currency
bonds were valued using Infovalmer reference prices, while bonds in U.S. dollars, were valued using Bloomberg. With regard to the
other financial obligations for which there is no market benchmark, a discount to present value technique was used. These rates
incorporate market risk through some benchmarks (Libor, DTF) and the Group’s credit risk (spread).
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
20.8
|
Movement of net financial debt
|
The following is the movement of net financial
debt as of December 31, 2017, 2016 and 2015:
|
|
|
Cash and
equivalents
|
|
|
Other financial
assets (1)
|
|
|
Loans and
borrowings
|
|
|
Net financial
debt
|
|
|
Balance as of December 31, 2015
|
|
|
6,550,450
|
|
|
|
1,585,379
|
|
|
|
(53,223,338
|
)
|
|
|
(45,087,509
|
)
|
|
Cash flow
|
|
|
2,086,350
|
|
|
|
5,446,507
|
|
|
|
1,050,723
|
|
|
|
8,583,580
|
|
|
Exchange difference:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in profit or loss
|
|
|
(226,333
|
)
|
|
|
(12,837
|
)
|
|
|
1,252,420
|
|
|
|
1,013,250
|
|
|
Recognized in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
612,983
|
|
|
|
612,983
|
|
|
Financial cost registered to projects
|
|
|
-
|
|
|
|
-
|
|
|
|
(357,107
|
)
|
|
|
(357,107
|
)
|
|
Financial income (expense) recognized in profit or loss
|
|
|
-
|
|
|
|
59,593
|
|
|
|
(2,765,024
|
)
|
|
|
(2,705,431
|
)
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
(6,462
|
)
|
|
|
593,384
|
|
|
|
586,922
|
|
|
Other movements not generating cash flow (2)
|
|
|
-
|
|
|
|
(385,285
|
)
|
|
|
613,932
|
|
|
|
228,647
|
|
|
Balance as of December 31, 2016
|
|
|
8,410,467
|
|
|
|
6,686,895
|
|
|
|
(52,222,027
|
)
|
|
|
(37,124,665
|
)
|
|
Cash flow
|
|
|
(174,272
|
)
|
|
|
(564,755
|
)
|
|
|
11,259,492
|
|
|
|
10,520,465
|
|
|
Exchange difference:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized in profit or loss
|
|
|
(290,310
|
)
|
|
|
208,394
|
|
|
|
147,993
|
|
|
|
66,077
|
|
|
Recognized in other comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
70,958
|
|
|
|
70,958
|
|
|
Financial cost registered to projects
|
|
|
-
|
|
|
|
-
|
|
|
|
(203,964
|
)
|
|
|
(203,964
|
)
|
|
Financial income (expense) recognized in profit or loss
|
|
|
-
|
|
|
|
104,706
|
|
|
|
(2,385,994
|
)
|
|
|
(2,281,288
|
)
|
|
Foreign currency translation
|
|
|
-
|
|
|
|
39,628
|
|
|
|
(76,171
|
)
|
|
|
(36,543
|
)
|
|
Other movements that do not generate cash flow
|
|
|
-
|
|
|
|
58,857
|
|
|
|
(138,122
|
)
|
|
|
(79,265
|
)
|
|
Balance as of December 31, 2017
|
|
|
7,945,885
|
|
|
|
6,533,725
|
|
|
|
(43,547,835
|
)
|
|
|
(29,068,225
|
)
|
|
|
(1)
|
The balance of other financial assets as of December 31, 2015 includes the value of the securities
related to Santiago de las Atalayas for COP$699,832, which at that date were restricted.
|
|
|
(2)
|
Corresponds to operations with remittances financed in dollars with domestic banks for the payment
of imports.
|
|
|
21.
|
Trade and other payables
|
The balance of trade and other payables,
as of December 31, 2017 and 2016, is comprised as follows:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Suppliers
|
|
|
5,088,957
|
|
|
|
4,687,353
|
|
|
Partners’ advances
|
|
|
880,420
|
|
|
|
864,971
|
|
|
Withholding tax
|
|
|
376,169
|
|
|
|
379,194
|
|
|
Related parties
|
|
|
129,520
|
|
|
|
114,420
|
|
|
Insurance and reinsurance
|
|
|
121,555
|
|
|
|
110,530
|
|
|
Agreements in transport contracts (1)
|
|
|
91,324
|
|
|
|
111,899
|
|
|
Deposits received from third parties
|
|
|
25,523
|
|
|
|
209,570
|
|
|
Dividends payable (2)
|
|
|
3,723
|
|
|
|
11,193
|
|
|
Various creditors
|
|
|
280,485
|
|
|
|
389,126
|
|
|
|
|
|
6,997,676
|
|
|
|
6,878,256
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
6,968,207
|
|
|
|
6,854,363
|
|
|
Non-current
|
|
|
29,469
|
|
|
|
23,893
|
|
|
|
|
|
6,997,676
|
|
|
|
6,878,256
|
|
|
|
(1)
|
Corresponds to the value of debt from agreements in transport contracts of oil pipelines and poliducts,
impacted by volumetric adjustments, compensation for quality and other inventory management agreements.
|
|
|
(2)
|
Dividends declared at the General Shareholders' Meeting on 2016 profits, amounting to COP$945,684,
were paid in April 2017.
|
The carrying amount of trade accounts and
other accounts payable approximates their fair value due to their short-term nature.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
22.
|
Provisions for employees benefits
|
The following are the balances of provisions
for employee benefits as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Post-employment benefits
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
5,367,005
|
|
|
|
4,475,540
|
|
|
Pension
|
|
|
1,327,859
|
|
|
|
76,695
|
|
|
Education
|
|
|
502,260
|
|
|
|
333,379
|
|
|
Bonds
|
|
|
348,442
|
|
|
|
263,563
|
|
|
Other plans
|
|
|
77,636
|
|
|
|
67,945
|
|
|
Termination benefits - Voluntary retirement plan
|
|
|
155,286
|
|
|
|
161,796
|
|
|
|
|
|
7,778,488
|
|
|
|
5,378,918
|
|
|
Social benefits and salaries
|
|
|
485,939
|
|
|
|
423,360
|
|
|
Other employee benefits
|
|
|
67,867
|
|
|
|
73,300
|
|
|
|
|
|
8,332,294
|
|
|
|
5,875,578
|
|
|
Current
|
|
|
1,829,819
|
|
|
|
1,974,496
|
|
|
Non-current
|
|
|
6,502,475
|
|
|
|
3,901,082
|
|
|
|
|
|
8,332,294
|
|
|
|
5,875,578
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
22.1
|
Post-employment benefits liability (asset)
|
The following table shows the movement
in liabilities and assets, net of post-employment benefits and termination benefits, as of December 31, 2017 and 2016:
|
|
|
Pension and bonds (1)
|
|
|
Other
|
|
|
Total
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Liabilities for employee benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
12,463,433
|
|
|
|
10,435,546
|
|
|
|
5,041,133
|
|
|
|
4,170,047
|
|
|
|
17,504,566
|
|
|
|
14,605,593
|
|
|
Current service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
52,164
|
|
|
|
53,771
|
|
|
|
52,164
|
|
|
|
53,771
|
|
|
Past service cost
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
164,271
|
|
|
|
-
|
|
|
|
164,271
|
|
|
Interest expense
|
|
|
872,524
|
|
|
|
876,076
|
|
|
|
350,060
|
|
|
|
333,894
|
|
|
|
1,222,584
|
|
|
|
1,209,970
|
|
|
Actuarial losses (gains)
|
|
|
1,621,184
|
|
|
|
1,915,767
|
|
|
|
1,012,205
|
|
|
|
616,834
|
|
|
|
2,633,389
|
|
|
|
2,532,601
|
|
|
Benefits paid
|
|
|
(809,677
|
)
|
|
|
(763,956
|
)
|
|
|
(350,130
|
)
|
|
|
(297,684
|
)
|
|
|
(1,159,807
|
)
|
|
|
(1,061,640
|
)
|
|
Closing balance
|
|
|
14,147,464
|
|
|
|
12,463,433
|
|
|
|
6,105,432
|
|
|
|
5,041,133
|
|
|
|
20,252,896
|
|
|
|
17,504,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
12,123,175
|
|
|
|
11,181,604
|
|
|
|
2,473
|
|
|
|
-
|
|
|
|
12,125,648
|
|
|
|
11,181,604
|
|
|
Return on assets
|
|
|
848,677
|
|
|
|
950,704
|
|
|
|
385
|
|
|
|
-
|
|
|
|
849,062
|
|
|
|
950,704
|
|
|
Contributions to funds
|
|
|
-
|
|
|
|
-
|
|
|
|
22,465
|
|
|
|
-
|
|
|
|
22,465
|
|
|
|
-
|
|
|
Variation in the ceiling of assets
|
|
|
-
|
|
|
|
379,884
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
379,884
|
|
|
Benefits paid
|
|
|
(809,677
|
)
|
|
|
(771,528
|
)
|
|
|
(22,078
|
)
|
|
|
2,406
|
|
|
|
(831,755
|
)
|
|
|
(769,122
|
)
|
|
Actuarial gains (losses)
|
|
|
308,988
|
|
|
|
382,511
|
|
|
|
-
|
|
|
|
67
|
|
|
|
308,988
|
|
|
|
382,578
|
|
|
Closing balance
|
|
|
12,471,163
|
|
|
|
12,123,175
|
|
|
|
3,245
|
|
|
|
2,473
|
|
|
|
12,474,408
|
|
|
|
12,125,648
|
|
|
Net post-employment benefits liability
|
|
|
1,676,301
|
|
|
|
340,258
|
|
|
|
6,102,187
|
|
|
|
5,038,660
|
|
|
|
7,778,488
|
|
|
|
5,378,918
|
|
|
|
(1)
|
There is no cost for the pension and pension plans service, due to the fact that the beneficiaries
were retired as of July 31, 2010.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following table shows the movement
in profit and loss and in other comprehensive income as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Recognized in profit or loss
|
|
|
|
|
|
|
|
|
|
Current service cost
|
|
|
52,164
|
|
|
|
53,771
|
|
|
Past service cost
|
|
|
-
|
|
|
|
164,271
|
|
|
Interest expense, net
|
|
|
373,522
|
|
|
|
259,266
|
|
|
Remedies
|
|
|
13,889
|
|
|
|
-
|
|
|
|
|
|
439,575
|
|
|
|
477,308
|
|
|
Recognized in other comprehensive income
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
(794,535
|
)
|
|
|
(792,093
|
)
|
|
Pension and pension bonds
|
|
|
(1,312,195
|
)
|
|
|
(1,533,256
|
)
|
|
Education and severance
|
|
|
(203,779
|
)
|
|
|
175,259
|
|
|
Termination benefits - Voluntary retirement plan
|
|
|
(3
|
)
|
|
|
67
|
|
|
Change in the effect of the asset ceiling
|
|
|
-
|
|
|
|
379,884
|
|
|
|
|
|
(2,310,512
|
)
|
|
|
(1,770,139
|
)
|
|
Deferred tax
|
|
|
762,469
|
|
|
|
616,697
|
|
|
Other comprehensive income, net of taxes
|
|
|
(1,548,043
|
)
|
|
|
(1,153,442
|
)
|
Plan assets are resources held by pension
trusts, for payment of pension obligations. Payments for health and education post-employment benefits is Ecopetrol’s responsibility.
The destination of trust resources and its yields cannot be changed or returned to the Group until all pension obligations have
been fulfilled.
The following is the composition of the
plan assets of pension and pension bonds by type of investment as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Bonds issued by the national government
|
|
|
4,349,400
|
|
|
|
4,410,326
|
|
|
Bonds of private entities
|
|
|
2,967,030
|
|
|
|
2,880,958
|
|
|
Other local currency
|
|
|
2,337,580
|
|
|
|
2,910,083
|
|
|
Other public bonds
|
|
|
1,149,200
|
|
|
|
693,061
|
|
|
Variable yield
|
|
|
605,380
|
|
|
|
305,052
|
|
|
Bonds of foreign entities
|
|
|
558,920
|
|
|
|
622,817
|
|
|
Other foreign currency
|
|
|
503,653
|
|
|
|
300,878
|
|
|
|
|
|
12,471,163
|
|
|
|
12,123,175
|
|
46.0% of plan assets are classified as
level 1 in the fair value hierarchy, where prices for the assets are directly observable on actively traded markets, and 54.0%
are classified as level 2.
The fair value of level 2 plan assets is
calculated using prices quoted in the assets’ market. The Group obtains these prices through reliable financial data providers
recognized in Colombia or abroad depending on the investment.
For the securities issued in local currency,
the fair value of plan assets is calculated using information published by Infovalmer, a price supplier authorized by the Financial
Superintendence of Colombia. According to its methodology, prices are calculated based on market information on the valuation date
or estimated from historical inputs according to the criteria established for the calculation of each of the prices.
The average price is calculated based on
the most representative market of the transactions carried out through electronic platforms approved and supervised by the regulator.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
On the other hand, the estimated price
is calculated for investments that do not reflect enough information to estimate an average market price, replicating the quoted
prices for similar assets or prices obtained through quotes from brokers. This estimated price is also given by Infovalmer as a
result of the application of robust methodologies approved by the financial regulator and widely used by the financial sector.
The following table reflects the credit
quality of the issuers and counterparties in assets held by the autonomous pension funds:
|
Rating
|
|
2017
|
|
|
2016
|
|
|
AAA
|
|
|
4,870,932
|
|
|
|
4,467,642
|
|
|
Nation
|
|
|
4,471,274
|
|
|
|
4,610,251
|
|
|
AA+
|
|
|
690,391
|
|
|
|
470,944
|
|
|
BAA2
|
|
|
371,972
|
|
|
|
141,940
|
|
|
BBB
|
|
|
246,795
|
|
|
|
150,808
|
|
|
F1+
|
|
|
230,321
|
|
|
|
416,439
|
|
|
BBB-
|
|
|
192,636
|
|
|
|
23,237
|
|
|
BBB+
|
|
|
159,103
|
|
|
|
193,835
|
|
|
BRC 1+
|
|
|
118,008
|
|
|
|
309,282
|
|
|
AA
|
|
|
58,234
|
|
|
|
79,750
|
|
|
BAA3
|
|
|
45,699
|
|
|
|
131,993
|
|
|
A
|
|
|
39,048
|
|
|
|
4,175
|
|
|
A3
|
|
|
29,098
|
|
|
|
61,325
|
|
|
AA3
|
|
|
27,051
|
|
|
|
14,385
|
|
|
AA-
|
|
|
18,770
|
|
|
|
34,197
|
|
|
VRR1 +
|
|
|
14,112
|
|
|
|
55,821
|
|
|
BAA1
|
|
|
5,296
|
|
|
|
5,274
|
|
|
Other qualifications
|
|
|
9,621
|
|
|
|
66,470
|
|
|
No rating available
|
|
|
872,802
|
|
|
|
885,407
|
|
|
|
|
|
12,471,163
|
|
|
|
12,123,175
|
|
See credit risk policy in Note 30.3.
|
|
22.3
|
Actuarial assumptions
|
The following are the actuarial assumptions
used in determining the present value of defined employee benefit obligations used for the actuarial calculations as of December
31, 2017 and 2016:
|
2017
|
|
Pension
|
|
|
Bonds
|
|
|
Health
|
|
|
Education
|
|
|
Other benefits
(1)
|
|
Discount rate
|
|
|
6.50%
|
|
|
|
6.25%
|
|
|
|
6.50%
|
|
|
|
5.50%
|
|
|
5.51%
|
|
Salary growth rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
4.75% / 4.25%
|
|
Expected inflation rate
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
3.00%
|
|
Pension growth rate
|
|
|
3.00%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
Cost trend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
6.00%
|
|
|
|
4.00%
|
|
|
N/A
|
|
Long-term rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
N/A
|
|
2016
|
|
Pension
|
|
|
Bonds
|
|
|
Health
|
|
|
Education
|
|
|
Other benefits
(1)
|
|
Discount rate
|
|
|
7.25%
|
|
|
|
7.00%
|
|
|
|
7.25%
|
|
|
|
6.50%
|
|
|
6.67%
|
|
Salary growth rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
4.25%
|
|
Expected inflation rate
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
|
3.00%
|
|
|
3.00%
|
|
Pension growth rate
|
|
|
3.00%
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
N/A
|
|
Cost trend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
3.00%
|
|
|
|
4.00%
|
|
|
N/A
|
|
Long term rate
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4.00%
|
|
|
|
4.00%
|
|
|
N/A
|
N/A: Not applicable for this benefit.
|
|
(1)
|
Weighted average discount rate.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The cost trend is the projected increase
for the initial year, which includes the expected inflation rate.
The mortality table used for the calculations
was that of ‘Valid Annuitant’ for men and women based on the experience gained for the period 2005-2008 of the Colombian
Social Security Institute.
|
|
22.4
|
Maturity of benefit obligation
|
The cash flows required for payment of
post-employment obligations are the following:
|
Period
|
|
Pension
and bonds
|
|
|
Other
benefits
|
|
|
Total
|
|
|
2018
|
|
|
880,298
|
|
|
|
374,315
|
|
|
|
1,254,613
|
|
|
2019
|
|
|
877,165
|
|
|
|
355,241
|
|
|
|
1,232,406
|
|
|
2020
|
|
|
899,128
|
|
|
|
358,292
|
|
|
|
1,257,420
|
|
|
2021
|
|
|
921,333
|
|
|
|
361,655
|
|
|
|
1,282,988
|
|
|
2022
|
|
|
952,531
|
|
|
|
362,998
|
|
|
|
1,315,529
|
|
|
2023-2026
|
|
|
5,201,619
|
|
|
|
1,824,756
|
|
|
|
7,026,375
|
|
|
|
22.5
|
Sensitivity analysis
|
The following sensitivity analysis shows
the effect of such possible changes on the obligation for defined benefits, while keeping the other assumptions constant, as of
December 31, 2017:
|
|
|
Pension
|
|
|
Bonds
|
|
|
Health
|
|
|
Education
|
|
|
Other
benefits
|
|
|
Discount rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-50 basis points
|
|
|
13,948,863
|
|
|
|
1,032,967
|
|
|
|
5,775,492
|
|
|
|
527,839
|
|
|
|
242,117
|
|
|
+50 basis points
|
|
|
12,440,607
|
|
|
|
948,129
|
|
|
|
4,962,688
|
|
|
|
480,224
|
|
|
|
230,501
|
|
|
Inflation rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-50 basis points
|
|
|
12,386,975
|
|
|
|
946,675
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
156,021
|
|
|
+50 basis points
|
|
|
14,003,214
|
|
|
|
1,033,715
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
161,094
|
|
|
Salary growth rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-50 basis points
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
76,336
|
|
|
+50 basis points
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
79,150
|
|
|
Cost trend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-50 basis points
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
4,982,874
|
|
|
|
479,829
|
|
|
|
N/A
|
|
|
+50 basis points
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
5,797,753
|
|
|
|
528,104
|
|
|
|
N/A
|
|
|
|
22.6
|
Voluntary retirement plan
|
In August 2016, the Group offered a voluntary
retirement plan to 200 employees who met certain criteria. As of December 31, 2017 and 2016, 137 employees were part of plan, with
a corresponding cost of COP$155,286 (2016 - COP$161,796). This plan includes benefits such as monthly income, education and health
benefits until the date on which the employee is granted their retirement pension.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
23.
|
Accrued liabilities and provisions
|
Below is the breakdown of the changes in
the different categories of provisions and contingencies as of December 31, 2017 and 2016:
|
|
|
Asset
retirement
obligation
|
|
|
Litigation
|
|
|
Environmental
contingencies
and others
|
|
|
Total
|
|
|
Balance as of December 31, 2016
|
|
|
5,064,660
|
|
|
|
209,932
|
|
|
|
643,278
|
|
|
|
5,917,870
|
|
|
Increase in abandonment costs
|
|
|
39,634
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,634
|
|
|
Additions (recoveries)
|
|
|
110,587
|
|
|
|
(19,185
|
)
|
|
|
106,532
|
|
|
|
197,934
|
|
|
Uses
|
|
|
(66,469
|
)
|
|
|
(7,742
|
)
|
|
|
(19,613
|
)
|
|
|
(93,824
|
)
|
|
Financial costs
|
|
|
379,891
|
|
|
|
-
|
|
|
|
(367
|
)
|
|
|
379,524
|
|
|
Foreign currency translation
|
|
|
(979
|
)
|
|
|
(39
|
)
|
|
|
718
|
|
|
|
(300
|
)
|
|
Transfers (1)
|
|
|
-
|
|
|
|
-
|
|
|
|
96,611
|
|
|
|
96,611
|
|
|
Balance as of December 31, 2017
|
|
|
5,527,324
|
|
|
|
182,966
|
|
|
|
827,159
|
|
|
|
6,537,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
199,824
|
|
|
|
159,881
|
|
|
|
199,123
|
|
|
|
558,828
|
|
|
Non-current
|
|
|
5,327,500
|
|
|
|
23,085
|
|
|
|
628,036
|
|
|
|
5,978,621
|
|
|
|
|
|
5,527,324
|
|
|
|
182,966
|
|
|
|
827,159
|
|
|
|
6,537,449
|
|
|
|
|
Asset
retirement
obligation
|
|
|
Litigation
|
|
|
Comuneros
provision
|
|
|
Environmental
contingencies
and others
|
|
|
Total
|
|
|
Balance as of December 31, 2015
|
|
|
4,452,369
|
|
|
|
99,798
|
|
|
|
702,486
|
|
|
|
822,694
|
|
|
|
6,077,347
|
|
|
Increase in abandonment costs
|
|
|
404,797
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
404,797
|
|
|
Additions (recoveries)
|
|
|
18,285
|
|
|
|
44,120
|
|
|
|
(702,486
|
)
|
|
|
(74,312
|
)
|
|
|
(714,393
|
)
|
|
Uses
|
|
|
(68,460
|
)
|
|
|
(4,585
|
)
|
|
|
-
|
|
|
|
(31,218
|
)
|
|
|
(104,263
|
)
|
|
Financial costs
|
|
|
317,448
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(173
|
)
|
|
|
317,275
|
|
|
Foreign currency translation
|
|
|
(14,703
|
)
|
|
|
(355
|
)
|
|
|
-
|
|
|
|
(2,759
|
)
|
|
|
(17,817
|
)
|
|
Transfers (1)
|
|
|
(45,076
|
)
|
|
|
70,954
|
|
|
|
-
|
|
|
|
(70,954
|
)
|
|
|
(45,076
|
)
|
|
Balance as of December 31, 2016
|
|
|
5,064,660
|
|
|
|
209,932
|
|
|
|
-
|
|
|
|
643,278
|
|
|
|
5,917,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
330,057
|
|
|
|
146,767
|
|
|
|
-
|
|
|
|
345,130
|
|
|
|
821,954
|
|
|
Non-current
|
|
|
4,734,603
|
|
|
|
63,165
|
|
|
|
-
|
|
|
|
298,148
|
|
|
|
5,095,916
|
|
|
|
|
|
5,064,660
|
|
|
|
209,932
|
|
|
|
-
|
|
|
|
643,278
|
|
|
|
5,917,870
|
|
|
|
(1)
|
Mainly includes transfers to liabilities associated with assets held for sale.
|
|
|
23.1
|
Asset retirement obligation
|
The estimated liability for asset
retirement obligation costs corresponds to the future obligation to restore environmental conditions to a level similar to
that existing before the start of projects or activities, as described in Note 3.5 - Abandonment and dismantling costs of
fields and other facilities. As these relate to long-term obligations, this liability is estimated by projecting the expected
future payments and discounting at present value with a rate indexed to the Group's financial obligations, taking into
account the temporality and risks of this obligation. The discount rates used in the estimate of the obligation as of
December 31, 2017 were: Exploration and Production 6.93% (2016 - 7.93%), Transportation and Logistics 7.02% (2016 - 8.20%)
and Refining and Petrochemicals 7.37% (2016 - 8.99%).
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following is a summary of the main
legal proceedings recognized in the statement of financial position whose amount exceeds COP$13,000 million, where the expectation
of loss is probable and could imply an outflow of resources as of December 31, 2017 and 2016:
|
Proceeding
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Provision for the payment of the 2016 legal stability contract premium with the Ministry of Finance and Public Credit regarding investment in Reficar
|
|
|
64,104
|
|
|
|
59,528
|
|
|
Litigation with Schrader Camargo, supplier of Reficar
|
|
|
17,003
|
|
|
|
17,003
|
|
|
Settlement before the Procuraduría General de la Nación with the firms Acciona Infraestructura S.A. and Mantenimiento y Montajes S.A., August 18, 2016. In 2017, it was ruled in favor of the Group and the provision was reversed.
|
|
|
-
|
|
|
|
44,986
|
|
|
|
23.3
|
Comuneros - Santiago de las Atalayas provisions
|
On November 8, 2016, the Ministry of Mines
and Energy concluded that the resources that were restricted in relation to this process were not royalties and, therefore, were
not due to the Comuneros.
In accordance with the foregoing, the resources
held by Ecopetrol are its property, without any claim or discussion to date regarding ownership title thereof. On November 8, 2016,
the amount claimed reached COP$688,664, originated mostly from the valuation and financial yield of the fund where the resources
were deposited. The recovery of this provision was recognized in the net financial results of the period ending December 31, 2016.
|
|
23.4
|
Environmental contingencies and others
|
These corresponds to contingencies for
environmental incidents and obligations related to environmental compensation and mandatory investment of 1% for the use of, exploitation
of or effect on natural resources imposed by national, regional and local environmental authorities. Mandatory investment of 1%
is based on the use of water taken directly from natural sources in accordance with the provisions of Law 99 of 1993, Article 43,
Decree 1900 of 2006, Decree 2099 of 2017 and 075 and 1120 of 2018 in relation to the projects that Ecopetrol develops in Colombia.
The Colombian Government through the Ministry
of Environment and Sustainable Development, issued in December 2016 and in January 2017 the Decrees 2099 and 075, which modify
the Single Regulatory Decree of the environment and sustainable development sector, Decree 1076 of 2015, related to the mandatory
investment for the use of water taken directly from natural sources.
The main changes established by these decrees
were related to the areas and lines of investment and the basis for settlement of the obligations. Similarly, June 30, 2018 was
declared the maximum date to modify investment plans that were underway.
On June 30, 2017, Ecopetrol filed with
the National Environmental Licensing Authority (ANLA) certain investment plans to meet the 1% mandatory investment based on the
new decrees, relative to investment lines, maintaining the settlement base of Decree 1900.
As of December 31, 2017, the provision
for the 1% mandatory investment for the use of water was estimated based on the parameters established in Decree 1076 of 2015.
The Group is in the process of analyzing the impact of the applicability of the changes set out in the aforementioned decrees.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Ocensa
Some requests for arbitration
were filed by some of Ocensa’s shippers in connection with the tariff and monetary conditions established in the
transportation contracts for the use of the increased capacity of the pipeline resulting from the P-135 project. Similar
claims could be brought by other shippers of the aforementioned project.
Frontera Energy Colombia Corp.
Sucursal Colombia entered into a memorandum of understanding for a comprehensive settlement agreement that is pending the
approval by Frontera’s arbitration panel. If the arbitration panel approves the settlement agreement, it will resolve
any pending proceedings and controversies among the parties, and both parties will execute the amendments to the Agreements.
The recognized provision is based
on the risk assessment carried out by Ocensa and its advisors, without implying the recognition of the validity of the claims
of the shippers.
|
|
23.5
|
Legal proceedings not provided for
|
The following is a summary of the main
contingent liabilities that have not been recognized in the statement of financial position as, according to the evaluations made
by internal and external advisors of the Group, the expectation of loss is not probable as at December 31, 2017 and 2016:
|
Proceedings
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Environmental damage caused by a terrorist attack in 2015 against the Transandino pipeline.
|
|
|
209,220
|
|
|
|
-
|
|
|
Breaking of the economic and financial balance with contractor for the construction of the transport system.
|
|
|
110,266
|
|
|
|
-
|
|
|
On March 14, 2016, a lawsuit was filed for default settling the contract between Konidol and Ecopetrol, which caused Ecopetrol incurred excess costs in the maintenance contract in 2016.
|
|
|
62,131
|
|
|
|
62,131
|
|
|
Salary readjustments to the amounts established by Ecopetrol for personnel, related to a contract with a third party for the commissioning and construction of surface facilities for production and exploration projects.
|
|
|
60,313
|
|
|
|
-
|
|
|
Compensation to third parties for damage caused by hydrocarbon spills during a tanker truck accident on the Villeta - Guaduas road oil spills.
|
|
|
43,333
|
|
|
|
43,333
|
|
|
Contractual imbalance with a third party in relation to road connection works.
|
|
|
31,679
|
|
|
|
-
|
|
|
Settlement of differences with a supplier under a contract whose purpose was the engineering, procurement and construction management of project P135. Although the parties reached a preliminary settlement agreement, the Comptroller General's Office did not approve it and the process continues in the evidentiary stage. The result of these processes is subject to the decision of the arbitrator.
|
|
|
30,027
|
|
|
|
-
|
|
|
Contractual controversy with a third party in relation with seismic acquisition services and seismic program processing.
|
|
|
30,000
|
|
|
|
-
|
|
|
Recalculation of legal and non-legal social benefits on sums paid for the benefit of saving incentives.
|
|
|
16,562
|
|
|
|
16,562
|
|
|
Controversy regarding income tax returns for taxable years 2010 and 2011 of Hocol, related to deductions in exploration fixed assets. In September 2017, Hocol paid taxes on the tax revenue processes of taxable years 2010 and 2011 of $ 89,271
|
|
|
-
|
|
|
|
344,915
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
23.6
|
Details of contingent assets
|
The following is a breakdown of the Group’s
principal contingent assets, where the associated contingent gain is likely, but not certain as of December 31, 2017 and 2016:
|
Proceedings
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Ocensa claim that seeks the payment of the negative balance by Equion Energia Limited and Santiago Oil Group, which are reflected in Ocensa's volumetric balances.
|
|
|
112,735
|
|
|
|
-
|
|
|
Claim for reimbursement based on a disagreement with Ecopetrol corresponding to investment in facilities in the Guaduas field of the "Rio Seco" association contract.
|
|
|
40,711
|
|
|
|
40,746
|
|
|
Environmental incident in 2011, in the Caño Limón Coveñas Pipeline.
|
|
|
35,000
|
|
|
|
-
|
|
|
Criminal claim filed by Ecopetrol against the administrator of agreements with a corporation for alleged document falsification.
|
|
|
32,000
|
|
|
|
-
|
|
|
Breach of a pipe purchase order because the physical characteristics of the coating do not match what was contracted.
|
|
|
21,232
|
|
|
|
21,232
|
|
|
Nullity of administrative act issued by the DIAN, which ordered a special contribution for public works contracts.
|
|
|
13,214
|
|
|
|
13,214
|
|
|
Claim against Metapetroleum for damage suffered due to the late delivery of crude volumes under the Quifa association contract.
|
|
|
-
|
|
|
|
25,421
|
|
Refinería de Cartagena
On March 8, 2016, Reficar presented a request
for Arbitration before the International Chamber of Commerce against Chicago Bridge & Iron Group NV, CB&I (UK) Limited
and CBI Colombiana S.A. (collectively, "CB&I") related to the contract for the construction, procurement and engineering
entered into by Reficar and CB&I for the expansion of Refinería de Cartagena, in Cartagena, Colombia. Reficar is the
claimant in the arbitration process of the CCIO and requests at least US$2 billion from CB&I. On May 25, 2016, CB&I filed
a counterclaim of approximately US$213 million. On June 27, 2016, Reficar filed its reply to CB&I’s counterclaim denying
and disputing the declarations and the relief requested by CB&I. On April 28, 2017, Reficar submitted its Non-Exhaustive Statement
of Claim and CB&I submitted its Statement of Counterclaim. According to the latest modification of the procedural calendar,
the arbitral tribunal will hold the hearing in 2019 and will likely issue the final award in the second half of 2019.
In relation to this matter, as of December
31, 2017, there is an amount of approximately US$122 million, in invoices paid by Reficar to CB&I, under the PIP and MOA agreements,
of the EPC contract. The proof of the sources for these invoices, delivered by CB&I, have not been accepted by of AMEC Foster
Wheeler - PCIB.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
23.7
|
Investigations of control entities
|
As part of the investigations carried out
by various control entities of the modernization and expansion project (the “Project”) of Refinería de Cartagena,
Reficar has been officially informed of the following investigations and proceedings:
|
|
a)
|
Office of the Comptroller General (Contraloría General de la República)
|
Because of the modifications of the schedule
and budget related to the Project, the Office of the Comptroller General initiated a special audit investigation of the Project
in 2016 and delivered a final report to Reficar on December 5, 2016. The report made 36 findings most of which were related to
increased costs compared to budget for services, labor and materials.
As a result of the findings described above,
the Office of the Comptroller General opened actions for financial responsibility (proceso de responsabilidad fiscal) against 36
individuals and the six companies involved in the Project, including current and former members of Ecopetrol’s Board of Directors;
former members of Reficar’s Board of Directors; current and former employees of Ecopetrol; and former employees of Reficar,
as well as Chicago Bridge & Iron Group N.V., CBI - Chicago Bridge & Iron company (CB&I) Americas Ltd., Chicago Bridge
& Iron Group CB&I UK Limited, CBI Colombiana S.A., Foster Wheeler USA Corporation and Process Consultants Inc.
One current member of Ecopetrol’s
Board of Directors being investigated in these proceedings.
In January 2017, the Office of the Comptroller
General initiated another special audit in Reficar and delivered a final report to Reficar on July 12, 2017. In this report the
Office of the Comptroller General concluded that, in their opinion, Reficar’s 2016 Financial Statements do not reasonably
represent, in all material aspects, the entity’s financial position as of December 31, 2016.
|
|
b)
|
Attorney General’s Office (Procuraduría General de la Nación)
|
Reficar has been officially informed that
the Attorney General’s Office currently has one ongoing investigation relating to the Project. The investigation initiated
in 2012 against members of Reficar’s Board of Directors at the time, as well as certain current and former officers of Reficar.
On September 12, 2017 the Attorney
General’s Office issued a list of charges related to the failure to fulfill some of their duties as administrators
and/or for acting “ultra vires” in the exercise of their functions against: (i) Javier Genaro Gutiérrez
(Ecopetrol CEO, 2007-2015), (ii) Felipe Laverde (Reficar General Counsel, 2009-March 2017), (iii) Pedro Rosales (Ecopetrol
Downstream Executive Vice President, 2008-2015), (iv) Diana Constanza Calixto (Ecopetrol Head of the Corporate Finance Unit,
2009-2014) and (vi) Reyes Reinoso Yañez (Reficar CEO, 2012-2016)
The Attorney General’s Office closed
the case against the rest of the members of Reficar’s Board of Directors and the rest of the current and former officers
of Reficar.
|
|
c)
|
Prosecutor’s Office (Fiscalía General de la Nación)
|
The Prosecutor’s Office is conducting
an investigation. In connection therewith, between July 25 and August 2, 2017 the Prosecutor’s Office indicted the following
individuals with charges, the majority of which are related to offenses against the public administration and illegal interest
in the execution of agreements:
(i) Orlando José Cabrales Martínez
(Reficar CEO, 2009-2012); (ii) Reyes Reinoso Yañez (Reficar CEO, 2012-2016); (iii) Felipe Laverde Concha (Reficar General
Counsel, 2009-March 2017); (iv) Pedro Alfonso Rosales Navarro (Ecopetrol Downstream Executive Vice President, 2008-2015); (v) Masoud
Deidehban (CBI Executive Project Director); (vi) Phillip Asherman (CBI CEO) and (vii) Carlos Lloreda (Reficar’s statutory
auditor from 2013-2015).
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The arraignment hearing is scheduled to
take place on May 30, 2018.
Ecopetrol is not in a position to forecast
the results of these investigations; nor is it possible to evaluate the probability of any consequence that may impact the financial
statements, such as additional provisions, fines or ignorance of tax deductions that affect the amounts of deferred tax assets.
As of the date of this report, the financial
statements continue to adequately disclose the financial and operational situation of Ecopetrol in all material aspects and its
internal controls remain in force.
The main components of equity are detailed
below:
|
|
24.1
|
Subscribed and paid-in capital
|
Ecopetrol’s authorized capital amounts
to $36,540,000, and is comprised of 60,000,000,000 ordinary shares, of which 41,116,694,690 have been subscribed, and 11.51% (4,731,905,873
shares) are held privately and 88.49% (36,384,788,817 shares) are held by the Colombian Government. The value of the reserve shares
amounts to $11,499,933 comprised of 18,883,305,310 shares. As of December 31, 2017 and 2016, subscribed and paid-in capital amounts
to $25,040,067. There are no potentially dilutive shares.
|
|
24.2
|
Additional paid-in capital
|
Additional paid-in capital mainly corresponds
to: (i) share premium from the Group’s capitalization in 2007, for COP$4,457,997, (ii) COP$31,377 share premium from the
placement of shares on the secondary market, arising from the calling of guarantees from debtors in arrears, according to the provisions
of Article 397 of the Code of Commerce, (iii) share premium from the sale of shares awarded in the second capitalization, which
took place in September 2011, of COP$2,118,468, and (iv) additional paid-in capital receivables for COP$(142).
The following is the composition of the
Group’s reserves as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Legal reserve
|
|
|
1,426,151
|
|
|
|
1,269,680
|
|
|
Fiscal and statutory reserves
|
|
|
512,632
|
|
|
|
289,164
|
|
|
Occasional reserves
|
|
|
239,086
|
|
|
|
-
|
|
|
Total
|
|
|
2,177,869
|
|
|
|
1,558,844
|
|
The movement of equity reserves is the
following for the years ended December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
1,558,844
|
|
|
|
5,546,570
|
|
|
Release of reserves
|
|
|
(289,164
|
)
|
|
|
(406,983
|
)
|
|
Allocation to reserves
|
|
|
908,189
|
|
|
|
289,164
|
|
|
Legal reserve used to offset previous year loss (Note 24.4)
|
|
|
-
|
|
|
|
(3,869,907
|
)
|
|
Closing balance
|
|
|
2,177,869
|
|
|
|
1,558,844
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Legal reserve
The Colombian Code of Commerce establishes
that 10% of net income is allocated to legal reserves until their balance reaches 50% of subscribed capital. The legal reserve
can be used to offset losses or distributed in the event of the Company’s liquidation.
Occasional reserves
Occasional reserves correspond to allocation
of net income as approved at the shareholders at the Stockholders’ meeting to carry out new explorations. On March 31, 2017,
the Stockholders’ Meeting approved the appropriation of occasional reserves for the establishment of a reserve for new explorations
for the amount of COP $ 239,086.
Tax and mandatory reserves
The Colombian tax regime allows for the
allocation of up to 70% of the period’s net income to a reserve when the value of the depreciation expense recorded in the
financial statements. This reserve may be released in future periods to the extent that depreciation expenses exceeds the amount
deducted for income tax purposes or the assets that generated the higher value deducted are sold.
In addition, Decree 2336 of 1995 set out
the obligation to establish a reserve for the changes in valuation of investments. Unrealized fair value gains are allocated to
a reserve.
|
|
24.4
|
Retained earnings and dividends
|
The following is the balance and movement
of retained earnings as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
(402,462
|
)
|
|
|
(6,814,432
|
)
|
|
Profit attributable to owners of Ecopetrol’s shareholders
|
|
|
7,178,539
|
|
|
|
2,447,881
|
|
|
Release of reserves
|
|
|
289,164
|
|
|
|
406,983
|
|
|
Allocation to reserves
|
|
|
(908,189
|
)
|
|
|
(289,164
|
)
|
|
Dividends declared (1)
|
|
|
(945,684
|
)
|
|
|
-
|
|
|
Legal reserve used to offset previous year loss (2)
|
|
|
-
|
|
|
|
3,869,907
|
|
|
Other movements
|
|
|
(1,066
|
)
|
|
|
(23,637
|
)
|
|
Closing balance
|
|
|
5,210,302
|
|
|
|
(402,462
|
)
|
|
|
(1)
|
The Company distributes dividends based on its separate annual financial statements, prepared under
International Financial Reporting Standards accepted in Colombia (NCIF, by its acronym in Spanish). The Ordinary General Shareholders'
Meeting, held on March 31, 2017, approved the proposal for profit distribution proposal for 2016 and set the distribution of dividends
of COP$945,684.
|
Dividends
paid in 2017 attributable to the shareholders of Ecopetrol S.A. amounted to COP$945,661 (2016 - COP$690,177) and those of the non-controlling
interest of subsidiary companies to COP $ 558,986 (2016 - COP$1,022,121).
|
|
(2)
|
The Ordinary General Meeting of Shareholders, held on March 31, 2016, approved the proposal for
profit distribution, which established that there would be no distribution for the year 2015, given the net loss occurred in that
year; in addition, the shareholders voted to use the legal reserve to offset this loss, as permitted by the Article 456 of the
Colombian Code of Commerce. The amount of losses offset by releases from the legal reserve after tax and mandatory allocations
amounted to COP$3,869,907.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
24.5
|
Other comprehensive income attributable to owners of parent
|
The
following is the composition of the other comprehensive income attributable to the shareholders of the parent company, Ecopetrol
S.A., net tax as of December 31, 2017 and 2016
:
|
|
|
2017
|
|
|
2016
|
|
|
Actuarial gain on defined benefit plans
|
|
|
(553,091
|
)
|
|
|
994,953
|
|
|
Gain (loss) on equity instruments measured at fair value (1)
|
|
|
-
|
|
|
|
7,828
|
|
|
Cash flow hedges for future exports (Note 30.2.2)
|
|
|
159,295
|
|
|
|
244,131
|
|
|
Hedge of a net investment in a foreign operation (Note 30.2.3)
|
|
|
(97,362
|
)
|
|
|
(155,359
|
)
|
|
Cash flow hedge with derivative instruments
|
|
|
6,942
|
|
|
|
(19,042
|
)
|
|
Others
|
|
|
-
|
|
|
|
11,817
|
|
|
Foreign currency translation
|
|
|
7,883,231
|
|
|
|
8,138,382
|
|
|
|
|
|
7,399,015
|
|
|
|
9,222,710
|
|
|
|
(1)
|
During 2016 the Group reclassified to the statement of profit or loss COP$68,497 (2015 - COP$19,405)
arising from the realization of accumulated fair value gains on equity of assets available for sale - Empresa de Energía
de Bogotá and Interconexión Eléctrica S.A.
|
|
|
24.6
|
Earnings (loss) per share
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Profit (loss) attributable to Ecopetrol’s shareholders
|
|
|
7,178,539
|
|
|
|
2,447,881
|
|
|
|
(7,193,859
|
)
|
|
Weighted average number of outstanding shares
|
|
|
41,116,694,690
|
|
|
|
41,116,694,690
|
|
|
|
41,116,694,690
|
|
|
Net basic earnings (loss) per share (Colombian pesos)
|
|
|
174.6
|
|
|
|
59.5
|
|
|
|
(175.0
|
)
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following is the breakdown of sales
revenue for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
National sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-distillates
|
|
|
9,590,326
|
|
|
|
8,553,503
|
|
|
|
10,215,224
|
|
|
Gasoline
|
|
|
6,990,187
|
|
|
|
6,092,739
|
|
|
|
6,128,208
|
|
|
Services
|
|
|
3,873,352
|
|
|
|
4,043,284
|
|
|
|
4,435,274
|
|
|
Natural gas
|
|
|
1,815,754
|
|
|
|
1,988,336
|
|
|
|
1,845,345
|
|
|
Crude oil
|
|
|
909,871
|
|
|
|
553,666
|
|
|
|
491,279
|
|
|
Plastic and rubber
|
|
|
833,982
|
|
|
|
724,708
|
|
|
|
724,392
|
|
|
LPG and propane
|
|
|
509,619
|
|
|
|
405,869
|
|
|
|
335,494
|
|
|
Asphalts
|
|
|
275,803
|
|
|
|
340,400
|
|
|
|
461,188
|
|
|
Other products
|
|
|
1,207,245
|
|
|
|
994,645
|
|
|
|
988,346
|
|
|
|
|
|
26,006,139
|
|
|
|
23,697,150
|
|
|
|
25,624,750
|
|
|
Recognition of price differential (1)
|
|
|
2,229,953
|
|
|
|
1,048,022
|
|
|
|
441,871
|
|
|
|
|
|
28,236,092
|
|
|
|
24,745,172
|
|
|
|
26,066,621
|
|
|
Foreign sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil
|
|
|
21,479,063
|
|
|
|
17,278,579
|
|
|
|
21,181,265
|
|
|
Fuel oil
|
|
|
1,982,408
|
|
|
|
2,158,539
|
|
|
|
2,166,469
|
|
|
Gasoline and turbo fuels
|
|
|
1,223,994
|
|
|
|
1,046,758
|
|
|
|
93,125
|
|
|
Diesel
|
|
|
1,213,740
|
|
|
|
1,604,498
|
|
|
|
81,982
|
|
|
Plastic and rubber
|
|
|
1,169,101
|
|
|
|
1,171,342
|
|
|
|
1,096,730
|
|
|
Natural gas
|
|
|
32,303
|
|
|
|
58,809
|
|
|
|
182,950
|
|
|
LPG and propane
|
|
|
15,631
|
|
|
|
8,568
|
|
|
|
-
|
|
|
Trading of crude
|
|
|
-
|
|
|
|
-
|
|
|
|
1,309,196
|
|
|
Cash flow hedge for future exports – Reclassification to profit or loss (Note 30.2.2)
|
|
|
160,772
|
|
|
|
33,074
|
|
|
|
7,646
|
|
|
Other
|
|
|
441,124
|
|
|
|
380,222
|
|
|
|
161,287
|
|
|
|
|
|
27,718,136
|
|
|
|
23,740,389
|
|
|
|
26,280,650
|
|
|
|
|
|
55,954,228
|
|
|
|
48,485,561
|
|
|
|
52,347,271
|
|
|
|
(1)
|
Corresponds to the application of Decree 1880 of September 2014 and Resolution 180522 of 2010,
which defined the procedure for price differentials (value generated by the difference between the parity price and the regulated
price, which can be positive or negative). See Note 4.16 – Sales revenue recognition, for more details.
|
Sales by geographic areas
The following are the sales revenue by
geographic area for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
%
|
|
|
2016
|
|
|
%
|
|
|
2015
|
|
|
%
|
|
|
Colombia
|
|
|
28,236,092
|
|
|
|
50.5
|
%
|
|
|
24,745,172
|
|
|
|
51.0
|
%
|
|
|
26,066,621
|
|
|
|
49.8
|
%
|
|
United States
|
|
|
12,532,932
|
|
|
|
22.4
|
%
|
|
|
11,956,967
|
|
|
|
24.7
|
%
|
|
|
11,921,720
|
|
|
|
22.8
|
%
|
|
Asia
|
|
|
6,136,796
|
|
|
|
11.0
|
%
|
|
|
2,717,414
|
|
|
|
5.6
|
%
|
|
|
6,123,593
|
|
|
|
11.7
|
%
|
|
Central America and the Caribbean
|
|
|
6,070,565
|
|
|
|
10.8
|
%
|
|
|
3,551,894
|
|
|
|
7.3
|
%
|
|
|
3,366,978
|
|
|
|
6.4
|
%
|
|
South America and others
|
|
|
1,947,226
|
|
|
|
3.5
|
%
|
|
|
2,568,163
|
|
|
|
5.3
|
%
|
|
|
886,433
|
|
|
|
1.7
|
%
|
|
Europe
|
|
|
1,030,617
|
|
|
|
1.8
|
%
|
|
|
2,945,951
|
|
|
|
6.1
|
%
|
|
|
3,981,926
|
|
|
|
7.6
|
%
|
|
|
|
|
55,954,228
|
|
|
|
100
|
%
|
|
|
48,485,561
|
|
|
|
100
|
%
|
|
|
52,347,271
|
|
|
|
100
|
%
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Concentration of customers
During 2017, Organización Terpel
S.A. represented 14.3% of sales revenue for the period (2016 - 14.4% and 2015 - 14.4%); no other customer represented more than 10%
of our sales. The commercial relationship with this customer is for the sale of refined products and transportation services. Sales
to this customer are recognized in the Refining and Petrochemical and Transport and Logistics segments. Organización Terpel
is the leader in these areas thanks to its network of gas stations and its strategy of sales to the industrial and the aviation
segments.
The following is the cost of sales breakdown
by function for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Variable costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imported products (1)
|
|
|
11,637,419
|
|
|
|
12,049,477
|
|
|
|
12,935,878
|
|
|
Depreciation, amortization and depletion
|
|
|
5,765,186
|
|
|
|
5,333,245
|
|
|
|
5,166,455
|
|
|
Purchases of hydrocarbons - ANH (2)
|
|
|
4,338,576
|
|
|
|
3,178,199
|
|
|
|
3,741,010
|
|
|
Purchases of crude in association and concession
|
|
|
2,240,704
|
|
|
|
1,517,829
|
|
|
|
1,928,938
|
|
|
Process materials
|
|
|
889,122
|
|
|
|
608,535
|
|
|
|
366,454
|
|
|
Hydrocarbon transport services
|
|
|
665,714
|
|
|
|
783,307
|
|
|
|
1,380,733
|
|
|
Electric energy
|
|
|
561,424
|
|
|
|
618,675
|
|
|
|
424,920
|
|
|
Purchases of other products and gas
|
|
|
488,056
|
|
|
|
519,884
|
|
|
|
703,163
|
|
|
Taxes and contributions (3)
|
|
|
449,959
|
|
|
|
478,332
|
|
|
|
481,029
|
|
|
Services contracted in associations
|
|
|
195,689
|
|
|
|
305,326
|
|
|
|
563,032
|
|
|
Others (4)
|
|
|
(663,916
|
)
|
|
|
(432,694
|
)
|
|
|
(322,547
|
)
|
|
|
|
|
26,567,933
|
|
|
|
24,960,115
|
|
|
|
27,369,065
|
|
|
Fixed costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
2,366,849
|
|
|
|
2,050,739
|
|
|
|
1,433,263
|
|
|
Maintenance
|
|
|
2,038,970
|
|
|
|
1,998,128
|
|
|
|
2,334,130
|
|
|
Labor costs
|
|
|
1,815,213
|
|
|
|
1,571,511
|
|
|
|
1,542,701
|
|
|
Services contracted
|
|
|
1,414,056
|
|
|
|
1,083,176
|
|
|
|
1,301,094
|
|
|
Services contracted in associations
|
|
|
1,008,336
|
|
|
|
1,260,470
|
|
|
|
1,415,422
|
|
|
General costs
|
|
|
510,128
|
|
|
|
383,842
|
|
|
|
461,994
|
|
|
Materials and operating supplies
|
|
|
468,205
|
|
|
|
333,258
|
|
|
|
435,238
|
|
|
Taxes and contributions
|
|
|
343,505
|
|
|
|
391,032
|
|
|
|
461,624
|
|
|
Hydrocarbon transport services
|
|
|
333,671
|
|
|
|
157,463
|
|
|
|
147,733
|
|
|
Non-capitalized costs of projects
|
|
|
41,459
|
|
|
|
61,689
|
|
|
|
92,252
|
|
|
|
|
|
10,340,392
|
|
|
|
9,291,308
|
|
|
|
9,625,451
|
|
|
|
|
|
36,908,325
|
|
|
|
34,251,423
|
|
|
|
36,994,516
|
|
|
|
(1)
|
Imported products correspond mainly to diesel fuel and diluent to facilitate the transport of heavy
crude oil.
|
|
|
(2)
|
Corresponds to purchases of crude oil by Ecopetrol from the National Hydrocarbons Agency (ANH)
derived from national production, both of the Group in direct operation and of third parties.
|
|
|
(3)
|
Includes gas royalties paid and carbon tax.
|
|
|
(4)
|
Corresponds to the capitalization of production costs to inventory.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
27.
|
Administrative, operations and project expenses
|
The following is the detail of administration,
operation and project expenses, according to their function, for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General expenses
|
|
|
723,341
|
|
|
|
556,563
|
|
|
|
393,971
|
|
|
Labor expenses
|
|
|
624,424
|
|
|
|
657,051
|
|
|
|
491,748
|
|
|
Taxes (1)
|
|
|
362,963
|
|
|
|
663,889
|
|
|
|
730,841
|
|
|
Depreciation and amortization
|
|
|
53,796
|
|
|
|
45,765
|
|
|
|
84,425
|
|
|
|
|
|
1,764,524
|
|
|
|
1,923,268
|
|
|
|
1,700,985
|
|
|
Operations and project expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exploration costs
|
|
|
1,341,940
|
|
|
|
728,590
|
|
|
|
1,584,249
|
|
|
Commissions, fees, freights and services
|
|
|
471,657
|
|
|
|
568,513
|
|
|
|
878,259
|
|
|
Taxes
|
|
|
324,223
|
|
|
|
286,331
|
|
|
|
348,871
|
|
|
Labor expenses
|
|
|
310,947
|
|
|
|
278,383
|
|
|
|
309,021
|
|
|
Maintenance
|
|
|
122,273
|
|
|
|
147,197
|
|
|
|
181,630
|
|
|
Depreciation and amortization
|
|
|
95,516
|
|
|
|
177,252
|
|
|
|
86,215
|
|
|
Fee for regulatory entities
|
|
|
63,470
|
|
|
|
87,325
|
|
|
|
77,909
|
|
|
Corporate projects
|
|
|
29,702
|
|
|
|
301,854
|
|
|
|
456,159
|
|
|
Others
|
|
|
166,337
|
|
|
|
176,242
|
|
|
|
111,955
|
|
|
|
|
|
2,926,065
|
|
|
|
2,751,687
|
|
|
|
4,034,268
|
|
|
|
(1)
|
Mainly corresponds to the recognition of the wealth tax. See Note 10 - Taxes.
|
|
|
28.
|
Other operating income net
|
The following is the detail of other operating
income or expenses for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
(Expense) recovery of provisions for litigations
|
|
|
(72,408
|
)
|
|
|
112,999
|
|
|
|
205,879
|
|
|
Expense for gas pipeline availability BOMT contracts (1)
|
|
|
(72,318
|
)
|
|
|
(125,077
|
)
|
|
|
(124,957
|
)
|
|
Impairment expense of short-term assets
|
|
|
(68,800
|
)
|
|
|
(98,739
|
)
|
|
|
(2,858
|
)
|
|
Profit (loss) on sale of assets
|
|
|
40,227
|
|
|
|
(82,200
|
)
|
|
|
6,744
|
|
|
Gain on acquisition of interests in joint operation (Note 32.3)
|
|
|
451,095
|
|
|
|
-
|
|
|
|
-
|
|
|
Compensation received
|
|
|
-
|
|
|
|
17,790
|
|
|
|
29,848
|
|
|
Deferred income BOMT contract’s (2)
|
|
|
-
|
|
|
|
211,768
|
|
|
|
193,197
|
|
|
Other income
|
|
|
227,607
|
|
|
|
237,571
|
|
|
|
70,685
|
|
|
|
|
|
505,403
|
|
|
|
274,112
|
|
|
|
378,538
|
|
|
|
(1)
|
Corresponds to the services rendered in connection with the BOMT contracts for the construction,
operation, maintenance and transfer of gas pipelines with Transgas. This contract terminated in August 2017.
|
|
|
(2)
|
Corresponds to the amortization of the deferred income recognized by Ecopetrol in 2007 for the
advance payment made by the Ministry of Finance and Public Credit of the obligations by Ecogas, in relation to the BOMT contracts
for the construction, operation, maintenance and transfer of gas pipelines, signed between Ecopetrol and Transgas de Occidente,
Centragas and Gases de Boyacá and Santander S.A. in 1997. The amortization of this deferred income ended in December 2016.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
29.
|
Financial result, net
|
The following is the detail of financial
results for the years ended December 31, 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Finance income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Results from financial assets and others
|
|
|
739,148
|
|
|
|
136,715
|
|
|
|
164,615
|
|
|
Yields and interests
|
|
|
405,562
|
|
|
|
386,001
|
|
|
|
293,506
|
|
|
Gain on sale of equity instruments
|
|
|
13,236
|
|
|
|
47,129
|
|
|
|
72,339
|
|
|
Resources from Santiago de las Atalayas (1)
|
|
|
-
|
|
|
|
688,664
|
|
|
|
-
|
|
|
Other financial income
|
|
|
1,410
|
|
|
|
53,234
|
|
|
|
91,464
|
|
|
|
|
|
1,159,356
|
|
|
|
1,311,743
|
|
|
|
621,924
|
|
|
Finance expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest (2)
|
|
|
(2,385,994
|
)
|
|
|
(2,765,024
|
)
|
|
|
(1,768,618
|
)
|
|
Financial cost of other liabilities (3)
|
|
|
(753,047
|
)
|
|
|
(580,491
|
)
|
|
|
(627,827
|
)
|
|
Results from financial assets
|
|
|
(481,308
|
)
|
|
|
(48,997
|
)
|
|
|
(167,869
|
)
|
|
Other financial expenses
|
|
|
(40,252
|
)
|
|
|
(69,028
|
)
|
|
|
(154,100
|
)
|
|
|
|
|
(3,660,601
|
)
|
|
|
(3,463,540
|
)
|
|
|
(2,718,414
|
)
|
|
Foreign exchange gain (loss), net
|
|
|
5,514
|
|
|
|
976,430
|
|
|
|
(5,566,614
|
)
|
|
Financial result, net
|
|
|
(2,495,731
|
)
|
|
|
(1,175,367
|
)
|
|
|
(7,663,104
|
)
|
|
|
(1)
|
Corresponds to the recovery of the provision “Comuneros – Santiago de las Atalayas”. Its balance consisted mainly from the valuation and financial gains generated while the cash that was subject to the reserve
(see Note 23.3 for more information).
|
|
|
(2)
|
As of December 31, 2017, borrowing costs for the financing of developing natural resources and
property, plant and equipment of COP$191,651 (2016 - COP$341,209 and 2015 - COP$744,426) were capitalized.
|
|
|
(3)
|
Includes the financial expense of the asset retirement obligation and the liabilities for post-employment
benefits.
|
|
|
30.1
|
Commodity price risk
|
Ecopetrol’s business is significantly
impacted by international prices for crude oil and refined products. The prices for these products are volatile and drastic changes
could adversely affect the Group business prospects and results of operations.
A large proportion of Ecopetrol’s
sales revenues come from sales of crude oil, natural gas and refined products. These products are indexed to international reference
prices such as the Brent index. Consequently, fluctuations in those international indexes have a direct effect on the financial
condition and Group’s results of operations.
Prices of crude oil, natural gas and refined
products have historically fluctuated as a result of a variety of factors including, among others, competition within the oil and
natural gas industry; changes in international prices of natural gas and refined products; long-term changes in the demand for
crude oil, natural gas and refined products; regulatory changes; changes in the cost of capital; adverse economic conditions; transactions
in derivative financial instruments related to oil and gas and development or availability of alternative fuels.
The Ecopetrol Business Group has a policy
approved by the Board of Directors that allows it to use derivative financial instruments in the organized over the counter (OTC)
market to cover itself from the risk of price fluctuations of crude oil and refined products associated with physical transactions.
The Group has established appropriate processes to handle risk which include constant monitoring of physical and financial markets
to identify risks in order to subsequently prepare and execute hedging strategies.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Ecopetrol does not regularly use derivative
instruments to hedge exposures to sales or purchase price risks. The impact of the settlement of the price hedges made in 2016
and 2015 was not material and was made as hedging instruments to mitigate risk at different price indices to the benchmark of the
Group's international trade strategy on exports of crude and imports of products.
In 2017, hedging transactions were not
carried out with derivative instruments. In 2016 and 2015, then outstanding price hedges were settled in full, with an impact on
the result of the period of COP$3,181 and COP$4,141, respectively.
The Ecopetrol Business Group operates mainly
in Colombia makes sales in the local and international markets. It is exposed to exchange rate risk, which arises from various
foreign currency exposures due to commercial transactions and assets and liabilities denominated in foreign currency. The impact
of exchange rate fluctuations, especially the Colombian peso/U.S. dollar exchange rate, has been material in previous years. To
mitigate this risk, the Group's risk management strategy involves the use of non-derivative financial instruments related to cash
flow hedges for future exports and net investment of foreign operations to minimize exchange rate risk exposure.
The U.S. dollar/Colombian peso exchange
rate has fluctuated over the last few years. The Colombian peso appreciated on average by 3.3% in 2017. During 2016 and 2015, the
Colombian peso depreciated by 11.2% and 37.3%, respectively. The closing exchange rates were COP$2,984.00 COP $3,000.71 and COP
$3,149.47 to US$1.00 for 2017, 2016 and 2015, respectively.
When the Colombian peso appreciates in
relation to the U.S. dollar, export sales revenue decreases when converted to Colombian pesos; however, imported goods, oil services
and interest on foreign debt denominated in U.S. dollars become less expensive. Conversely, when the Colombian peso depreciates,
export revenues, when translated to Colombian pesos, increases, and imports and servicing of the external debt become more expensive.
The following table sets out the carrying
amount for financial assets and liabilities denominated in foreign currency as of December 31, 2017 and 2016:
|
(in US$ Million)
|
|
2017
|
|
|
2016
|
|
|
Cash and cash equivalents
|
|
|
1,203
|
|
|
|
1,916
|
|
|
Other financial assets
|
|
|
1,072
|
|
|
|
1,367
|
|
|
Trade receivables and payables, net
|
|
|
(7
|
)
|
|
|
(282
|
)
|
|
Loans and borrowings
|
|
|
(12,590
|
)
|
|
|
(15,172
|
)
|
|
Net liability position
|
|
|
(10,322
|
)
|
|
|
(12,171
|
)
|
Of the total net liability position, US$8,532
million relates to financial liabilities designated as non-derivative hedging instruments of Ecopetrol, on which unrealized foreign
exchange gains and losses are recognized in other comprehensive income, within equity. Likewise, US$ 1,699 million corresponds
to the net liability position in U.S. dollars of Ecopetrol Business Group companies whose functional currency is the U.S. dollar,
without affecting profit or loss and US$91 million correspond to the net liability position in U.S dollars of Ecopetrol Business
Group companies whose functional currency is Colombian pesos with foreign exchange affects the profit or loss.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
30.2.1
|
Sensitivity analysis for exchange rate risk
|
The Group’s risk management strategy
involves the use of non-derivative financial instruments related to cash flow hedges for future exports and hedges of a net investment
in a foreign operation in order to minimize exposure to currency rate risk, which is detailed below. The following is the effect
of a change of 1% and 5% in the exchange rate of the Colombian peso as compared with the U.S. dollar, on the balance of financial
assets and liabilities denominated in foreign currency as of December 31, 2017:
Scenario / Variation in
the exchange rate
|
|
|
Effect on income
before taxes (+/-)
|
|
|
Effect on other
comprehensive income (+/-)
|
|
|
|
1
|
%
|
|
|
2,715
|
|
|
|
305,293
|
|
|
|
5
|
%
|
|
|
13,577
|
|
|
|
1,526,465
|
|
The sensitivity analysis only includes
financial assets and liabilities in foreign currency at the closing date.
|
|
30.2.2
|
Cash flow hedge for future exports
|
Ecopetrol is exposed to foreign exchange
risk given that a significant percentage of its income from crude oil exports is denominated in U.S. dollars. In recent years,
the Group has acquired long-term debt for investment activities in the same currency in which it expects to receive the cash flow
of its export sales revenues. This situation creates a natural hedge relationship due to the fact that the risks generated by the
foreign exchange difference of export sales revenues when booked in Ecopetrol’s functional currency (Colombian pesos) are
naturally hedged with the foreign exchange variances of the long-term debt, in line with the Group's risk management strategy.
With the objective of presenting in the
financial statements the effect of the existing natural hedge between exports and debt, understanding that the exchange rate risk
materializes when the exports are made, on October 1, 2015, the Board of Directors designated the sum of US$5,440 million of Ecopetrol's
foreign currency debt as a hedge instrument of future revenue from crude oil exports, for the period 2015-2023, in accordance with
IAS 39 - Financial instruments: Recognition and Measurement.
Hedge accounting records the impact on
the statement of profit or loss at the time of realization of the hedged risk. For this to happen, every month when foreign currency
debt is converted to Colombian pesos based on the closing rate for the period, the effects for exchange difference are recognized
in other comprehensive income, within equity and, as crude oil exports take place and the hedge occurs and sales revenue is recognized,
cumulative exchange differences held within other comprehensive income are reclassified to profit or loss statement, impacting
operating income.
The following is the movement of foreign
currency debt designated as a non-derivative hedging instrument for the years ended December 31, 2017 and 2016:
|
(US$ Million)
|
|
2017
|
|
|
2016
|
|
|
Hedging instrument at the beginning of the period
|
|
|
5,312
|
|
|
|
5,376
|
|
|
Reassignment of hedging instruments
|
|
|
1,803
|
|
|
|
870
|
|
|
Realization of exports
|
|
|
(1,803
|
)
|
|
|
(870
|
)
|
|
Capital payments (1)
|
|
|
(1,980
|
)
|
|
|
(64
|
)
|
|
Hedging instrument at the end of the period
|
|
|
3,332
|
|
|
|
5,312
|
|
|
|
(1)
|
On June 30, 2017, Ecopetrol prepaid the entire outstanding balance of the international syndicated
loan whose nominal value was US$ 1,925 million and original maturity date was in February 2020.
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following is the movement of accumulated
foreign currency gains and losses in respect of the cash flow hedge recognized in other comprehensive income for the years ended
December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
(244,131
|
)
|
|
|
217,291
|
|
|
Exchange difference
|
|
|
15,934
|
|
|
|
(724,395
|
)
|
|
Reclassification to profit or loss
|
|
|
160,772
|
|
|
|
(33,074
|
)
|
|
Ineffectiveness
|
|
|
(9,247
|
)
|
|
|
-
|
|
|
Deferred income tax
|
|
|
(82,622
|
)
|
|
|
296,047
|
|
|
Closing balance
|
|
|
(159,294
|
)
|
|
|
(244,131
|
)
|
The expected reclassification of the cumulative
exchange rate difference in other comprehensive income to the profit or loss statement, taking an exchange rate of COP$2,984 per
US$1.00 is as follows:
|
Year
|
|
Before
taxes
|
|
|
Taxes
|
|
|
After taxes
|
|
|
2018
|
|
|
95,462
|
|
|
|
(33,439
|
)
|
|
|
62,023
|
|
|
2019
|
|
|
66,039
|
|
|
|
(23,132
|
)
|
|
|
42,907
|
|
|
2020
|
|
|
23,804
|
|
|
|
(8,338
|
)
|
|
|
15,466
|
|
|
2021
|
|
|
21,541
|
|
|
|
(7,545
|
)
|
|
|
13,996
|
|
|
2022
|
|
|
21,541
|
|
|
|
(7,545
|
)
|
|
|
13,996
|
|
|
2023
|
|
|
16,786
|
|
|
|
(5,880
|
)
|
|
|
10,906
|
|
|
|
|
|
245,173
|
|
|
|
(85,879
|
)
|
|
|
159,294
|
|
|
|
30.2.3
|
Hedge of a net investment in a foreign operation
|
The Board of Directors approved the application
of net investment hedge accounting from June 8, 2016. The measure is intended to reduce the volatility of non-operating income
due to exchange rate variations. The net investment hedge will be applied on a portion of Group’s investments in foreign
operations, in this case on investments in subsidiaries which have the US dollar as their functional currency, using a portion
of the Group’s US dollar denominated debt as the hedging instrument.
Ecopetrol designated the net investments
in Ocensa, Ecopetrol America Inc., Hocol Petroleum Ltd. (HPL) and Reficar and as hedged items and as a hedging instrument and US$5,200
million of the Group’s US dollar debt as the hedging instrument.
The following is the movement of accumulated
foreign currency gains and losses in respect of the net investment hedge recognized in other comprehensive income for the years
ended December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Opening balance
|
|
|
155,359
|
|
|
|
-
|
|
|
Exchange difference
|
|
|
(86,892
|
)
|
|
|
231,879
|
|
|
Ineffectiveness
|
|
|
329
|
|
|
|
-
|
|
|
Deferred income tax
|
|
|
28,566
|
|
|
|
(76,520
|
)
|
|
Closing balance
|
|
|
97,362
|
|
|
|
155,359
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
30.2.4
|
Hedging
with derivatives to minimize currency risk
|
The Group carries out forwards hedging
operations using the Non-Delivery modality, for mitigating the volatility of the exchange rate in the cash flow required for operations
of its subsidiary, Ocensa, whose functional currency is the US dollar. The forward hedging instruments used enable setting sales
prices in US dollars, mitigating the foreign exchange variation given Ocensa’s obligations relative to operational cost and
tax payments are payable in Colombian pesos. The accounting policy applicable to this operation is described in the Note 4.1.5.1.
As of December 31, 2017, there are forward
contracts with a net short position for US$325 million (2016 - US$323 million) with maturities between January and December 2018.
The impact on the statement of profit or
loss for the settlement of these hedges amounted to COP$99,971 (2016- COP$42,865 of profit) and the amount recognized in the other
comprehensive income was a gain of COP$35,769 (2016 gain of COP$33,869).
Credit risk is the risk that the Group
may suffer financial losses as a consequence of default of: a) payments by its clients for the sale of crude oil, gas, products
or services; b) financial institutions in which it keeps investments, or c) by counterparties with which it has contracted financial
instruments.
|
|
30.3.1
|
Credit risk for customers
|
In the selling process of crude oil, gas,
refined products and petrochemicals, and transport services, the Group may be exposed to credit risk in the event that customers
fail to fulfill their payment obligations. The Group’s risk management strategy has designed mechanisms and procedures that
aim to minimize such events, thus safeguarding the Group's cash flow.
The Group performs a continuous analysis
of the financial strength of its counterparties, by classifying them according to their risk level and financial guarantees in
the event of a default of payments. Similarly, the Group continuously monitors national and international market conditions for
early alerts of major changes that may have an impact on the timely payment of obligations from customers of the Group.
Allowances for loan losses are set by individual
analysis of each customer’s situation. The Group performs administrative and legal actions required to recover amounts past
due and charges interest from customers that fail to comply with payment policies.
Ecopetrol does not have a significant concentration
of credit risk. An aging analysis of the accounts receivable portfolio in arrears, but not impaired, as of December 31, 2017 and
2016 is as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Less than 3-month overdue
|
|
|
65,354
|
|
|
|
179,008
|
|
|
Between 3- and 6-month overdue
|
|
|
1,131
|
|
|
|
14,275
|
|
|
More than 6-month overdue
|
|
|
79,688
|
|
|
|
103,574
|
|
|
|
|
|
146,173
|
|
|
|
296,857
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
30.3.2
|
Credit quality of resources in financial assets
|
Following the promulgation of Decree 1525
of 2008, which provides general rules on investments for public entities, Ecopetrol’s management established guidelines for
our investment portfolios. These guidelines determine that investments in Ecopetrol’s U.S. dollar portfolio are generally
limited to investments of our excess cash in fixed-income securities issued by entities rated A or higher in the long term and
A1/P1/F1 or higher in the short term (international scale) by Standard & Poor’s Ratings Services, Moody’s Investors
Service or Fitch Ratings. In addition, Ecopetrol S.A. may also invest in securities issued or guaranteed by the U.S. government
or Colombian government, without regard to the ratings assigned to such securities. In Ecopetrol’s Colombian Peso portfolio,
it must invest our excess cash in fixed-income securities of issuers rated AAA in the long term, and F1+/BRC1+ in the short term
(local scale) by Fitch Ratings Colombia or BRC Standard & Poor’s. In addition, Ecopetrol may also invest in securities
issued or guaranteed by the Colombian government without rating restrictions.
In order to diversify risk in our Colombian
Peso portfolio, Ecopetrol does not invest more than 10% of the excess of cash in one specific issuer. In the case of our U.S. dollar
portfolio, it does not invest more than 5% of the excess of cash in one specific issuer in the short term (up to one year), or
1% in the long term.
Ecopetrol’s investment portfolio
in U.S. dollars is segmented into four tranches, each one matching our liquidity needs. The working capital tranche is calculated
taking into account our cash flow needs for the next 60 days. The liquidity tranche is calculated as the contingent cash flow
needs over the working capital, taking into account the development of capital expenditures related to projects. The asset liability
tranche is built to match our long-term debt. The investment tranche includes the remaining amount of the total portfolio after
deducting the amounts pertaining to the above mentioned tranches and after subtracting the Colombian Peso portfolio.
Ecopetrol’s investment portfolio
in Colombian Pesos is segmented in two tranches, each one matching our liquidity needs. The first tranche is calculated taking
into account our cash flow needs for the next 30 days, and the second tranche is built for investment purposes.
The credit rating of issuers and counterparties
in transactions involving financial instruments is disclosed in Note 6 - Cash and cash equivalents, Note 7 - Other financial assets
and Note 21 - Provisions for employee benefits.
Interest rate risk arises from Ecopetrol’s
exposure to changes in interest rates because the Ecopetrol Business Group has investments in fixed and floating-rate instruments
and has issued floating rate debt linked to LIBOR, DTF and IPC interest rates. Thus, interest rate volatility may affect the fair
value and cash flows of the Group's investments and the financial expense of floating rate loans and financing.
As of December 31, 2017, 19% (2016, 31%)
of the Group’s indebtedness is linked to floating interest rates. As a result, if market interest rates rise, financing expenses
will increase, which could have an adverse effect on the results of operations.
Ecopetrol controls the exposure to interest
rate risk by establishing limits to exposure duration, Value at Risk - VAR and
tracking error.
Autonomous equities linked to Ecopetrol’s
pension obligations are also exposed to changes in interest rates, as they include fixed and floating rate instruments that are
marked to market. Colombian regulation for pension funds, as stipulated in the Decree 941 of 2002 and Decree 1861 of 2012, indicates
that they have to follow the same regime as the regular obligatory pension funds in their moderate portfolio.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The following table provides information
about the sensitivity of Group’s results and other comprehensive income for the next 12 months to variations in interest
rate of 100 basis points:
|
|
|
Effect on profit or loss (+/-)
|
|
|
Effect on Other
Comprehensive Income (+/-)
|
|
|
|
|
Financial
assets
|
|
|
Financial
Liabilities
|
|
|
Plan assets
|
|
|
+100 basis points
|
|
|
(66,120
|
)
|
|
|
112,383
|
|
|
|
(171,031
|
)
|
|
-100 basis points
|
|
|
66,120
|
|
|
|
(112,282
|
)
|
|
|
183,988
|
|
A sensitivity analysis of discount rates
on pension plan assets and liabilities is disclosed in Note 22 – Provisions for employee benefits.
The
ability to access capital necessary to finance the Group’s investment plans on acceptable terms can be limited due to deterioration
in market conditions. A new financial crisis could worsen risk perception in emerging markets.
Events impacting the political and regional
environment of Colombia, could make it difficult for our subsidiaries to access capital markets. These conditions, together with
potential significant losses in the financial services sector and changes in credit risk assessments, may make it difficult to
obtain financing on favorable terms. As a result, the Group may be forced to review the opportunity and scope of its investment
plans as necessary, or access financial markets under less favorable terms, thereby negatively affecting the Group’s results
of operations and financial position.
Liquidity risk is managed in accordance
with the Group’s policies aimed at ensuring that there are sufficient net funds to meet the Group's financial commitments
within its maturity schedules with no additional costs. The main method for the measurement and monitoring of liquidity is cash
flow forecasting.
During 2017, the Group used US$2,400 million
as part of its liquidity surpluses to prepay part of its foreign currency debts that had original maturities between 2020 and 2021.
The details of these movements are described in Note 20 - Loans and borrowings.
The following is a summary of the maturity
of financial liabilities as of December 31, 2017. The amounts disclosed in the table are the contractual undiscounted cash flows.
The payments in foreign currency were restated taking a constant exchange rate of COP$2,984.00 per US dollar. Consequently, these
amounts may not reconcile with the amounts disclosed on the consolidated statement of financial position:
|
|
|
Up to 1 year
|
|
|
1-5 years
|
|
|
5-10 years
|
|
|
> 10 years
|
|
|
Total
|
|
|
Loans (payment of principal and interest)
|
|
|
5,040,130
|
|
|
|
28,151,892
|
|
|
|
18,873,280
|
|
|
|
15,484,650
|
|
|
|
67,549,952
|
|
|
Trade and other payables
|
|
|
6,968,207
|
|
|
|
134,815
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,103,022
|
|
|
Total
|
|
|
12,008,337
|
|
|
|
28,286,707
|
|
|
|
18,873,280
|
|
|
|
15,484,650
|
|
|
|
74,652,974
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The main objective of the capital management
of the Ecopetrol Business Group is to ensure a financial structure that optimizes the cost of capital, maximizes the rate of return
to its shareholders and allows access to financial markets at a competitive cost to cover financing needs that support an investment
grade credit rating profile.
Net financial debt is
calculated by taking short-term and long-term loans and borrowings less cash and cash equivalents and investments in securities
as of December 31 of each year. The level of leverage is calculated as the ratio between net financial debt and the sum of equity
and net financial debt. The following is the information of these indicators as of December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Loans and borrowings (Note 20)
|
|
|
43,547,835
|
|
|
|
52,222,027
|
|
|
Cash and cash equivalents (Note 6)
|
|
|
(7,945,885
|
)
|
|
|
(8,410,467
|
)
|
|
Other financial assets (Note 9)
|
|
|
(6,533,725
|
)
|
|
|
(6,686,895
|
)
|
|
Net financial debt
|
|
|
29,068,225
|
|
|
|
37,124,665
|
|
|
Equity (Note 24)
|
|
|
48,215,699
|
|
|
|
43,560,501
|
|
|
Leverage
|
|
|
37.61
|
%
|
|
|
46.01
|
%
|
The movement of the net financial debt
is detailed in Note 20.8.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Balances with associates and joint ventures
as of December 31, 2017 and 2016 are as follows:
|
|
|
Accounts
receivable
|
|
|
Accounts
receivable
- Loans
|
|
|
Other
assets
|
|
|
Accounts
payable
|
|
|
Loans
|
|
|
Other
liabilities
|
|
|
Joint Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equion Energy Limited (1)
|
|
|
4,010
|
|
|
|
-
|
|
|
|
7,716
|
|
|
|
101,472
|
|
|
|
259,760
|
|
|
|
7
|
|
|
Ecodiesel Colombia S.A.
|
|
|
362
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,228
|
|
|
|
-
|
|
|
|
-
|
|
|
Associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invercolsa S.A.
|
|
|
18,641
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Offshore International Group Inc. (2)
|
|
|
-
|
|
|
|
154,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Serviport S.A.
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,820
|
|
|
|
-
|
|
|
|
-
|
|
|
Balance as of December 31, 2017
|
|
|
23,013
|
|
|
|
154,810
|
|
|
|
7,716
|
|
|
|
129,520
|
|
|
|
259,760
|
|
|
|
7
|
|
|
Current
|
|
|
23,013
|
|
|
|
-
|
|
|
|
7,716
|
|
|
|
129,520
|
|
|
|
259,760
|
|
|
|
7
|
|
|
Non-current
|
|
|
-
|
|
|
|
154,810
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
23,013
|
|
|
|
154,810
|
|
|
|
7,716
|
|
|
|
129,520
|
|
|
|
259,760
|
|
|
|
7
|
|
|
|
|
Accounts
receivable
|
|
|
Accounts
receivable -
Loans
|
|
|
Other assets
|
|
|
Accounts
payable
|
|
|
Loans
|
|
|
Joint Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equion Energy Limited
|
|
|
97,601
|
|
|
|
-
|
|
|
|
7,135
|
|
|
|
89,666
|
|
|
|
30,644
|
|
|
Ecodiesel Colombia SA
|
|
|
129
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,765
|
|
|
|
-
|
|
|
Offshore International Group (2)
|
|
|
-
|
|
|
|
170,121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serviport SA
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,989
|
|
|
|
-
|
|
|
Balance as of December 31, 2016
|
|
|
97,730
|
|
|
|
170,121
|
|
|
|
7,135
|
|
|
|
114,420
|
|
|
|
30,644
|
|
|
Current
|
|
|
97,730
|
|
|
|
-
|
|
|
|
7,135
|
|
|
|
114,420
|
|
|
|
30,644
|
|
|
Non-current
|
|
|
-
|
|
|
|
170,121
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
97,730
|
|
|
|
170,121
|
|
|
|
7,135
|
|
|
|
114,420
|
|
|
|
30,644
|
|
Loans with related parties:
|
|
(1)
|
Deposits held by Equion in Capital AG for a nominal value of US$ 77 million with maturity in January
2018 and a weighted average rate of 1.44%.
|
|
|
(2)
|
Loan granted by Ecopetrol SA to Savia Perú SA (subsidiary of Offshore International Group)
for US$57 million in 2016, with an interest rate of 4.99% payable semiannually from 2017 and maturating in 2021. The balance in
nominal value of this loan as of December 31, 2017 is US$49 million.
|
The amounts outstanding are not guaranteed
and will be settled in cash. No expense has been recognized in the current period or in previous periods with respect to uncollectible
or doubtful accounts related to the amounts owed by related parties.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The main transactions with related parties
for years ended December 31, 2017, 2016 and 2015 are detailed as follows:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Sales and
services
|
|
|
Purchases
and others
|
|
|
Sales and
services
|
|
|
Purchases
and others
|
|
|
Sales and
services
|
|
|
Purchases
and others
|
|
|
Joint Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equion Energy Limited
|
|
|
425,881
|
|
|
|
598,636
|
|
|
|
491,698
|
|
|
|
418,618
|
|
|
|
515,968
|
|
|
|
190,158
|
|
|
Ecodiesel Colombia SA
|
|
|
6,583
|
|
|
|
259,269
|
|
|
|
5,744
|
|
|
|
265,584
|
|
|
|
7,245
|
|
|
|
267,647
|
|
|
Offshore International Group
|
|
|
15,188
|
|
|
|
-
|
|
|
|
6,285
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Serviport SA
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,572
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
447,652
|
|
|
|
857,905
|
|
|
|
503,727
|
|
|
|
708,774
|
|
|
|
523,213
|
|
|
|
457,805
|
|
The dividends received from these Companies
are related in note 14 - Investments in associates and joint ventures.
|
|
31.1
|
Key executives management
|
In accordance with the approval given by
the shareholders’ meeting in 2012, compensation paid to directors for attending the meetings of the Board of Directors and
/ or committees increased from four to six minimum legal monthly salaries in force, or approximately to COP$4,426,000 for 2017,
from COP$4,140,000 for 2016 and COP$3,870,000 for 2015. For non-face-to-face sessions, 50% of the quota for face-to-face meetings
is set. The members of the Board of Directors do not have any kind of variable remuneration. The amount paid in 2017 for compensation
to members of the Board of Directors amounted to COP$1,877 (2016 - COP$1,253).
The total compensation paid to Directors
as of December 31, 2017 amounted to COP$20,669 (2016 - COP$13,901). Directors are not eligible to receive pension and retirement
benefits. The total amount reserved as of December 31, 2017 to provide pension and retirement benefits to our eligible executive
officers amounted to COP$5,401 (2016 - COP$4,674).
As of December 31, 2017, the following
key management officers owned less than 1% of the outstanding shares of Ecopetrol S.A. as follows:
|
Key management personnel
|
|
% Shares
|
|
Felipe Bayón
|
|
<1% outstanding shares
|
|
Mauricio Cárdenas Santamaría
|
|
<1% outstanding shares
|
|
Héctor Manosalva Rojas
|
|
<1% outstanding shares
|
|
Rafael Espinosa Rozo
|
|
<1% outstanding shares
|
|
|
31.2
|
Post-employment benefit plans
|
The administration and management of resources
for payment of Ecopetrol's pension obligations are managed by autonomous pension funds (PAPs, by its acronym in Spanish) which
serve as guarantee and payment sources. These funds were established in compliance with the provisions of Decree 2153 of 1999 which
authorized, as of December 31, 2008 partial commutation of the value corresponding to monthly payments, bonuses and contributions,
transferring said obligations and money supporting them to autonomous patrimonies for pensions.
As of December 31, 2017 and 2016, the entities
managing these resources were: Fiduciaria Bancolombia, Fiduciaria de Occidente and Consorcio Ecopetrol PAAC (comprised of Fiduciaria
La Previsora, Fiduciaria Bancoldex, Fiduciaria Agraria and Fiduciaria Central). These entities will manage pension resources for
a five-year term (2016 - 2021) and as consideration they receive a remuneration with fixed and variable components which is calculated
on the gross yield of the portfolios and are charged to manage resources.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
31.3
|
Government related parties
|
The Colombian Government controls Ecopetrol
with a stock ownership of 88.49%. The most significant transactions with governmental entities are comprised as follows:
|
|
a)
|
Purchase of oil from the National Hydrocarbons Agency - ANH
|
The Group has a direct relationship with
ANH, an entity which operates under the rules of the Ministry of Mines and Energy, whose objective is to manage the oil and gas
reserves and resources owned by the Colombian Nation.
Ecopetrol purchases the crude oil that
the ANH receives from all producers in Colombia at the prices set in accordance with a jointly established formula, which reflects
the export sale prices (crude oils and products), adjusted for API gravity quality, sulfur content, transportation rates from the
wellhead to the ports of Coveñas and Tumaco, refining process cost and a commercialization rate. This contract was extended
to June 30, 2018.
From December 2013 the Group commercialized,
on behalf of the ANH, the natural gas received by the latter in kind from producers. Since January 2014, ANH has received royalties
in cash for the production of natural gas.
The purchase value of oil and gas from
ANH is detailed in Note 26 - Cost of sales.
Additionally Ecopetrol, like other oil
companies, takes part in "rounds" for the allocation of exploration blocks in Colombia without implying special treatment
for Ecopetrol on account of it being an entity whose majority shareholder is the Colombian Government.
Regular gasoline and diesel sale prices
are regulated by the National Government. In this case, there are differentials between the volume reported by the Colombian companies
at the time of the sale and the difference between the international parity price and the regulated price actually charged, where
the parity price is the daily price of gasoline and diesel oil of the respective month in Colombian pesos, indexed to the United
States of America Gulf market, calculated in accordance with Resolution 18 0522 of 2010 and the Producer Price reference defined
by the Ministry of Mines and Energy. These differentials may be in favor or against the producers. The value of this differential
is detailed in Note 25 - Sales revenue and 7 – Trade and other receivables, net.
|
|
c)
|
National Tax and Customs Direction
|
Ecopetrol, just like any other company
in Colombia, has tax obligations that it must comply with and does not have any other kind of association or commercial relationship
with the National Tax and Customs Direction. For more information see Note 10 – Taxes.
|
|
d)
|
Comptroller General of the Republic
|
Ecopetrol, just like any other state entity
in Colombia, is obliged to comply with the requirements set out by the Comptroller General of the Republic and make an annual payment
to this entity on account of a maintenance fee. Ecopetrol does not have any other kind of association or commercial relationship
with this entity.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The Group carries out exploration and production
operations through Exploration and Production (E&P) Contracts, Technical Evaluation (TEA) Contracts and Agreements signed with
the National Hydrocarbons Agency or ANH, as well as through Partnership Contracts and other types of contracts. The main joint
operations in 2017 are as follows:
|
|
32.1
|
Contracts in which Ecopetrol is not the operator
|
|
Partners
|
Contract
|
Type
|
%
Participation
|
Geographic area of
operations
|
|
Occidental Andina LLC
|
Chipirón
|
Production
|
30-40%
|
Colombia
|
|
Harvest
|
30%
|
|
Cravo Norte
|
50%
|
|
Rondón
|
50%
|
|
Chevron Petroleum Group
|
Guajira
|
Production
|
57%
|
Colombia
|
|
Mansarovar Energy Colombia Ltd
|
Nare
|
Production
|
50%
|
Colombia
|
|
Meta Petroleum Corp
|
Quifa
|
Production
|
40%
|
Colombia
|
|
Equion Energy Limited
|
Piedemonte
|
Production
|
50%
|
Colombia
|
|
Perenco Colombia Limited
|
Casanare
|
Production
|
64%
|
Colombia
|
|
Corocora
|
56%
|
|
Estero
|
89%
|
|
Garcero
|
76%
|
|
Orocúe
|
63%
|
|
ONGC Videsh Limited
|
RC-10 Caribbean Round
|
Exploration
|
50%
|
North Caribbean Offshore
|
|
Petrobras, Repsol & Statoil
|
Tayrona
|
Exploration
|
30%
|
North Caribbean Offshore
|
|
Repsol & Statoil
|
TEA GUA OFF-1
|
Exploration
|
50%
|
North Caribbean Offshore
|
|
Anadarko
|
Fuerte Norte
|
Exploration
|
50%
|
North Caribbean Offshore
|
|
Shell
|
Deep Rydberg/Aleatico
|
Exploration
|
29%
|
Gulf of Mexico
|
|
Repsol - Leon
|
Lion
|
Exploration
|
40%
|
Gulf of Mexico
|
|
Noble Energy
|
Gunflint
|
Production
|
32%
|
Gulf of Mexico
|
|
Murphy Oil
|
Dalmatian
|
Production
|
30%
|
Gulf of Mexico
|
|
Anadarko
|
K2
|
Production
|
21%
|
Gulf of Mexico
|
|
Equion Energia Limited
|
Niscota
|
Production
|
20%
|
Brazil
|
|
Chevron
|
CE-M-715_R11
|
Exploration
|
50%
|
Brazil
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
32.2
|
Contracts in which Ecopetrol is the operator
|
|
Partners
|
Contract
|
Type
|
%
Participation
|
Geographic
area of
operations
|
|
ExxonMobil Exploration Colombia
|
VMM29
|
Exploration
|
50%
|
Colombia
|
|
CR2
|
|
C62
|
|
Talisman Colombia Oil
|
CPO9
|
Exploration
|
55%
|
Colombia
|
|
ONGC Videsh Limited Colombia Branch
|
RC9
|
Exploration
|
50%
|
Colombia
|
|
CPVEN Sucursal Colombia
|
VMM32
|
Exploration
|
51%
|
Colombia
|
|
Shell Exploration and Production
|
CR4
|
Exploration
|
50%
|
Colombia
|
|
Hocol S.A.
|
AMA4
|
Exploration
|
100%
|
Colombia
|
|
SK Innovation Co Ltd.
|
San Jacinto
|
Exploration
|
70%
|
Colombia
|
|
Repsol Exploración Colombia S.A.
|
Catleya
|
Exploration
|
50%
|
Colombia
|
|
Emerald Energy PLC Suc. Colombia
|
Cardon
|
Exploration
|
50%
|
Colombia
|
|
Gas Ltd.
|
CPO9 - Akacias
|
Production
|
55%
|
Colombia
|
|
Occidental Andina LLC
|
La Cira Infantas
|
Production
|
58%
|
Colombia
|
|
Teca
|
86%
|
Colombia
|
|
Ramshorn International Limited
|
Guariquies I
|
Production
|
50%
|
Colombia
|
|
Equion Energy Limited
|
Cusiana
|
Production
|
98%
|
Colombia
|
|
Perenco Oil And Gas
|
San Jacinto Rio Paez
|
Production
|
18%
|
Colombia
|
|
Cepsa Colombia
|
San Jacinto Rio Paez
|
Production
|
18%
|
Colombia
|
|
Total Colombia
|
Mundo Nuevo
|
Exploration
|
15%
|
Colombia
|
|
Talisman Oil & Gas
|
Mundo Nuevo
|
Exploration
|
15%
|
Colombia
|
|
Lewis
|
Clarinero
|
Exploration
|
50%
|
Colombia
|
|
Maurel & Prom Suramerica
|
CPO17
|
Exploration
|
50%
|
Colombia
|
|
Equion Energia Limited
|
Alto Magdalena Pipeline
|
OAM
|
45%
|
Colombia
|
|
Emerald Energy
|
Alto Magdalena Pipeline
|
OAM
|
45%
|
Colombia
|
|
Frontera Energy
|
Alto Magdalena Pipeline
|
OAM
|
45%
|
Colombia
|
|
ONGC Videsh Limited
|
Block RC-9 Contract- Caribbean Round No. 37-2007
|
Exploration
|
50%
|
Gulf of Mexico
|
|
JX Nippon
|
FAZ-M-320_R11
|
Exploration
|
70%
|
Brazil
|
|
JX Nippon
|
POT-M-567_R11
|
Exploration
|
100%
|
Brazil
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
32.3
|
Relevant operations during the period
|
During 2017 and 2016, the following significant
events occurred in respect of our joint operations contracts:
|
|
a)
|
Acquisition of interests in joint operations
|
On December 11, 2017, Ecopetrol América
Inc. acquired the 11.6% interest in the K2 oil field in the Gulf of Mexico MCX Exploration USA LLC (“MCX”), increasing
its share from 9.2% to 20.8%.
The acquisition of MCX’s interest
was recognized in accordance with policy 4.4 Joint Operations. To determine the fair value of the assets acquired and liabilities
assumed, the income approach model was used, using the discounted cash flow and market data to determine the fair values of oil
and gas properties. This model incorporated future commodity prices, estimated volumes of oil and gas reserves, future developments,
operating costs, future abandonment and packing costs and a risk adjusted discount rate.
The fair value of the consideration
transferred in the operation was US$47.6 million (COP$141,950), the fair value of the net assets acquired was US$198.4 million before
deferred taxes (US$146 million net of deferred taxes) with recognition of a gain of US$150.8 million before deferred taxes
(US$98 million after deferred taxes) in the period’s statement of profit or loss (equivalent to COP$451,095 before
deferred taxes), mainly due to the transaction price being fixed before the closing date of the transaction and the fair
value of the net identifiable assets acquired having increased during the interim period.
Transaction costs incurred in the operation
amounted to US $ 0.2 million, recognized in profit or loss for the year.
|
|
b)
|
Termination of the Rubiales and Pirirí field contracts
|
On July 1, 2016, Ecopetrol took over the
direct operation of the Rubiales and Pirirí fields, which up to that date had been operated by Pacific Rubiales Energy.
Upon termination of the contract Ecopetrol gained control over the assets and the obligations associated with the BOMT contracts
for US$46 million.
|
|
c)
|
Termination of the Tauramena association agreement
|
On July 3, 2016, the Tauramena Association
Agreement was terminated and for this reason, Ecopetrol began to operate directly the Cusiana field, Casanare. Since its commercialization
in 1993, it was operated first by BP and then by Equion. Cusiana represents for Ecopetrol a 98% participation in the Unified Exploitation
Plan (PEU) of the field, while Equion and Emerald maintain 2%.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
33.
|
Information by segments
|
A description of the Group’s business
segments is in Note 4.19 – Information by business segment.
|
|
33.1
|
Statement of profit or loss
|
The following segment information is reported
based on the information used by the Board of Directors as the top body to make strategic and operational decisions of these business
segments. The performance of the segments are based primarily on an analysis of income, costs, expenses and results for the period
generated by each segment which are regularly monitored.
The information disclosed in each segment
is presented net of transactions between the Ecopetrol Business Group companies.
Below are the consolidated statements of
profit or loss by segment for the years ended December 31, 2017, 2016 and 2015:
|
|
|
For the year ended on December 31, 2017
|
|
|
|
|
Exploration
and Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transport
and
Logistics
|
|
|
Eliminations
|
|
|
Total
|
|
|
Third-party sales
|
|
|
25,004,320
|
|
|
|
27,343,359
|
|
|
|
3,606,549
|
|
|
|
-
|
|
|
|
55,954,228
|
|
|
Inter-segment sales
|
|
|
11,490,614
|
|
|
|
1,300,657
|
|
|
|
6,991,515
|
|
|
|
(19,782,786
|
)
|
|
|
-
|
|
|
Total sales revenue
|
|
|
36,494,934
|
|
|
|
28,644,016
|
|
|
|
10,598,064
|
|
|
|
(19,782,786
|
)
|
|
|
55,954,228
|
|
|
Fixed costs
|
|
|
8,055,925
|
|
|
|
2,886,745
|
|
|
|
2,637,604
|
|
|
|
(3,239,880
|
)
|
|
|
10,340,394
|
|
|
Variable costs
|
|
|
18,254,159
|
|
|
|
23,968,650
|
|
|
|
634,231
|
|
|
|
(16,289,109
|
)
|
|
|
26,567,931
|
|
|
Cost of sales
|
|
|
26,310,084
|
|
|
|
26,855,395
|
|
|
|
3,271,835
|
|
|
|
(19,528,989
|
)
|
|
|
36,908,325
|
|
|
Gross profit
|
|
|
10,184,850
|
|
|
|
1,788,621
|
|
|
|
7,326,229
|
|
|
|
(253,797
|
)
|
|
|
19,045,903
|
|
|
Administrative expenses
|
|
|
781,386
|
|
|
|
516,501
|
|
|
|
466,669
|
|
|
|
(32
|
)
|
|
|
1,764,524
|
|
|
Operation and project expenses
|
|
|
2,070,916
|
|
|
|
965,457
|
|
|
|
142,847
|
|
|
|
(253,155
|
)
|
|
|
2,926,065
|
|
|
Impairment of non-current assets
|
|
|
(183,718
|
)
|
|
|
(1,067,965
|
)
|
|
|
(59,455
|
)
|
|
|
-
|
|
|
|
(1,311,138
|
)
|
|
Other operating income and expenses, net
|
|
|
(545,218
|
)
|
|
|
11,694
|
|
|
|
28,121
|
|
|
|
-
|
|
|
|
(505,403
|
)
|
|
Operating income
|
|
|
8,061,484
|
|
|
|
1,362,934
|
|
|
|
6,748,047
|
|
|
|
(610
|
)
|
|
|
16,171,855
|
|
|
Financial result, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income
|
|
|
1,062,393
|
|
|
|
164,006
|
|
|
|
106,659
|
|
|
|
(173,702
|
)
|
|
|
1,159,356
|
|
|
Financial expenses
|
|
|
(2,288,576
|
)
|
|
|
(1,110,874
|
)
|
|
|
(434,664
|
)
|
|
|
173,513
|
|
|
|
(3,660,601
|
)
|
|
Foreign exchange gain (loss), net
|
|
|
(101,030
|
)
|
|
|
163,992
|
|
|
|
(57,448
|
)
|
|
|
-
|
|
|
|
5,514
|
|
|
|
|
|
(1,327,213
|
)
|
|
|
(782,876
|
)
|
|
|
(385,453
|
)
|
|
|
(189
|
)
|
|
|
(2,495,731
|
)
|
|
Share of profits of associates
|
|
|
120,786
|
|
|
|
15,245
|
|
|
|
(42,493
|
)
|
|
|
-
|
|
|
|
93,538
|
|
|
Income before tax
|
|
|
6,855,057
|
|
|
|
595,303
|
|
|
|
6,320,101
|
|
|
|
(799
|
)
|
|
|
13,769,662
|
|
|
Income tax
|
|
|
(3,034,556
|
)
|
|
|
(238,625
|
)
|
|
|
(2,527,087
|
)
|
|
|
-
|
|
|
|
(5,800,268
|
)
|
|
Net profit (loss) for the period
|
|
|
3,820,501
|
|
|
|
356,678
|
|
|
|
3,793,014
|
|
|
|
(799
|
)
|
|
|
7,969,394
|
|
|
Profit (loss) attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group owners of parent
|
|
|
3,820,501
|
|
|
|
358,859
|
|
|
|
2,999,978
|
|
|
|
(799
|
)
|
|
|
7,178,539
|
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
(2,181
|
)
|
|
|
793,036
|
|
|
|
-
|
|
|
|
790,855
|
|
|
|
|
|
3,820,501
|
|
|
|
356,678
|
|
|
|
3,793,014
|
|
|
|
(799
|
)
|
|
|
7,969,394
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
5,981,294
|
|
|
|
1,188,871
|
|
|
|
1,111,182
|
|
|
|
-
|
|
|
|
8,281,347
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
|
For the year ended December 31, 2016
|
|
|
|
|
Exploration and
Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transportation
and Logistics
|
|
|
Eliminations
|
|
|
Total
|
|
|
Third-party sales
|
|
|
20,527,332
|
|
|
|
24,194,024
|
|
|
|
3,764,205
|
|
|
|
-
|
|
|
|
48,485,561
|
|
|
Inter-segment sales
|
|
|
7,693,878
|
|
|
|
629,690
|
|
|
|
6,884,571
|
|
|
|
(15,208,139
|
)
|
|
|
-
|
|
|
Total sales revenue
|
|
|
28,221,210
|
|
|
|
24,823,714
|
|
|
|
10,648,776
|
|
|
|
(15,208,139
|
)
|
|
|
48,485,561
|
|
|
Fixed cost
|
|
|
6,940,074
|
|
|
|
2,458,745
|
|
|
|
2,861,269
|
|
|
|
(2,968,780
|
)
|
|
|
9,291,308
|
|
|
Variable cost
|
|
|
16,032,574
|
|
|
|
20,385,242
|
|
|
|
488,522
|
|
|
|
(11,946,223
|
)
|
|
|
24,960,115
|
|
|
Cost of sales
|
|
|
22,972,648
|
|
|
|
22,843,987
|
|
|
|
3,349,791
|
|
|
|
(14,915,003
|
)
|
|
|
34,251,423
|
|
|
Gross profit
|
|
|
5,248,562
|
|
|
|
1,979,727
|
|
|
|
7,298,985
|
|
|
|
(293,136
|
)
|
|
|
14,234,138
|
|
|
Administrative expenses
|
|
|
832,266
|
|
|
|
574,413
|
|
|
|
516,884
|
|
|
|
(295
|
)
|
|
|
1,923,268
|
|
|
Operation and projects expenses
|
|
|
1,656,960
|
|
|
|
1,206,718
|
|
|
|
180,353
|
|
|
|
(292,344
|
)
|
|
|
2,751,687
|
|
|
Impairment of non-current assets
|
|
|
196,448
|
|
|
|
773,361
|
|
|
|
(41,062
|
)
|
|
|
-
|
|
|
|
928,747
|
|
|
Other operating income and expenses, net
|
|
|
(349,419
|
)
|
|
|
20,947
|
|
|
|
53,559
|
|
|
|
801
|
|
|
|
(274,112
|
)
|
|
Operating income
|
|
|
2,912,307
|
|
|
|
(595,712
|
)
|
|
|
6,589,251
|
|
|
|
(1,298
|
)
|
|
|
8,904,548
|
|
|
Financial result, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income
|
|
|
983,472
|
|
|
|
46,469
|
|
|
|
61,373
|
|
|
|
220,429
|
|
|
|
1,311,743
|
|
|
Financial expenses
|
|
|
(2,017,641
|
)
|
|
|
(952,006
|
)
|
|
|
(262,844
|
)
|
|
|
(231,049
|
)
|
|
|
(3,463,540
|
)
|
|
Foreign exchange gain (loss), net
|
|
|
923,573
|
|
|
|
94,715
|
|
|
|
(41,858
|
)
|
|
|
-
|
|
|
|
976,430
|
|
|
|
|
|
(110,596
|
)
|
|
|
(810,822
|
)
|
|
|
(243,329
|
)
|
|
|
(10,620
|
)
|
|
|
(1,175,367
|
)
|
|
Share of profit of associates
|
|
|
39,397
|
|
|
|
22,785
|
|
|
|
(837
|
)
|
|
|
-
|
|
|
|
61,345
|
|
|
Income before tax
|
|
|
2,841,108
|
|
|
|
(1,383,749
|
)
|
|
|
6,345,085
|
|
|
|
(11,918
|
)
|
|
|
7,790,526
|
|
|
Income tax
|
|
|
(1,518,738
|
)
|
|
|
(446,595
|
)
|
|
|
(2,577,713
|
)
|
|
|
-
|
|
|
|
(4,543,046
|
)
|
|
Net income for the period
|
|
|
1,322,370
|
|
|
|
(1,830,344
|
)
|
|
|
3,767,372
|
|
|
|
(11,918
|
)
|
|
|
3,247,480
|
|
|
Income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group owners of parent
|
|
|
1,322,370
|
|
|
|
(1,823,020
|
)
|
|
|
2,960,449
|
|
|
|
(11,918
|
)
|
|
|
2,447,881
|
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
(7,324
|
)
|
|
|
806,923
|
|
|
|
-
|
|
|
|
799,599
|
|
|
|
|
|
1,322,370
|
|
|
|
(1,830,344
|
)
|
|
|
3,767,372
|
|
|
|
(11,918
|
)
|
|
|
3,247,480
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
5,482,827
|
|
|
|
1,145,780
|
|
|
|
978,394
|
|
|
|
-
|
|
|
|
7,607,001
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2015
|
|
|
|
|
Exploration and
Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transportation
and Logistics
|
|
|
Eliminations
|
|
|
Total
|
|
|
Third-party sales
|
|
|
25,669,213
|
|
|
|
22,456,866
|
|
|
|
4,221,192
|
|
|
|
-
|
|
|
|
52,347,271
|
|
|
Inter-segment sales
|
|
|
6,063,398
|
|
|
|
788,810
|
|
|
|
6,623,358
|
|
|
|
(13,475,566
|
)
|
|
|
-
|
|
|
Total Revenue
|
|
|
31,732,611
|
|
|
|
23,245,676
|
|
|
|
10,844,550
|
|
|
|
(13,475,566
|
)
|
|
|
52,347,271
|
|
|
Fixed costs
|
|
|
7,208,632
|
|
|
|
1,902,797
|
|
|
|
3,304,815
|
|
|
|
(2,790,793
|
)
|
|
|
9,625,451
|
|
|
Variable costs
|
|
|
18,500,240
|
|
|
|
18,856,011
|
|
|
|
439,607
|
|
|
|
(10,426,793
|
)
|
|
|
27,369,065
|
|
|
Cost of sales
|
|
|
25,708,872
|
|
|
|
20,758,808
|
|
|
|
3,744,422
|
|
|
|
(13,217,586
|
)
|
|
|
36,994,516
|
|
|
Gross income
|
|
|
6,023,739
|
|
|
|
2,486,868
|
|
|
|
7,100,128
|
|
|
|
(257,980
|
)
|
|
|
15,352,755
|
|
|
Administrative expenses
|
|
|
731,626
|
|
|
|
451,250
|
|
|
|
518,109
|
|
|
|
-
|
|
|
|
1,700,985
|
|
|
Operation and projects expenses
|
|
|
2,969,723
|
|
|
|
1,155,301
|
|
|
|
157,596
|
|
|
|
(248,352
|
)
|
|
|
4,034,268
|
|
|
Impairment of non-current assets
|
|
|
4,504,497
|
|
|
|
3,278,993
|
|
|
|
81,388
|
|
|
|
-
|
|
|
|
7,864,878
|
|
|
Other operating income and expenses, net
|
|
|
(399,954
|
)
|
|
|
122,595
|
|
|
|
(101,182
|
)
|
|
|
-
|
|
|
|
(378,541
|
)
|
|
Operating income
|
|
|
(1,782,153
|
)
|
|
|
(2,521,271
|
)
|
|
|
6,444,217
|
|
|
|
(9,628
|
)
|
|
|
2,131,165
|
|
|
Finance results, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial income
|
|
|
536,121
|
|
|
|
135,622
|
|
|
|
86,568
|
|
|
|
(136,387
|
)
|
|
|
621,924
|
|
|
Financial expenses
|
|
|
(1,774,090
|
)
|
|
|
(451,906
|
)
|
|
|
(492,485
|
)
|
|
|
67
|
|
|
|
(2,718,414
|
)
|
|
Foreign exchange gain (loss), net
|
|
|
(4,798,741
|
)
|
|
|
(949,176
|
)
|
|
|
181,303
|
|
|
|
-
|
|
|
|
(5,566,614
|
)
|
|
|
|
|
(6,036,710
|
)
|
|
|
(1,265,460
|
)
|
|
|
(224,614
|
)
|
|
|
(136,320
|
)
|
|
|
(7,663,104
|
)
|
|
Share of profit of companies
|
|
|
(70,407
|
)
|
|
|
23,187
|
|
|
|
533
|
|
|
|
-
|
|
|
|
(46,687
|
)
|
|
Income before tax
|
|
|
(7,889,270
|
)
|
|
|
(3,763,544
|
)
|
|
|
6,220,136
|
|
|
|
(145,948
|
)
|
|
|
(5,578,626
|
)
|
|
Income tax
|
|
|
2,037,650
|
|
|
|
(257,256
|
)
|
|
|
(2,490,747
|
)
|
|
|
-
|
|
|
|
(710,353
|
)
|
|
Net income (loss) for the period
|
|
|
(5,851,620
|
)
|
|
|
(4,020,800
|
)
|
|
|
3,729,389
|
|
|
|
(145,948
|
)
|
|
|
(6,288,979
|
)
|
|
Income attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Group owners of parent
|
|
|
(5,851,620
|
)
|
|
|
(4,016,050
|
)
|
|
|
2,819,759
|
|
|
|
(145,948
|
)
|
|
|
(7,193,859
|
)
|
|
Non-controlling interest
|
|
|
-
|
|
|
|
(4,750
|
)
|
|
|
909,630
|
|
|
|
-
|
|
|
|
904,880
|
|
|
|
|
|
(5,851,620
|
)
|
|
|
(4,020,800
|
)
|
|
|
3,729,389
|
|
|
|
(145,948
|
)
|
|
|
(6,288,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
5,318,587
|
|
|
|
570,033
|
|
|
|
881,738
|
|
|
|
-
|
|
|
|
6,770,358
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
The sales by product for each segment are
detailed below for the years ended December 31, 2017, 2016 and 2015:
|
|
|
For the year ended on December 31, 2017
|
|
|
|
|
Exploration
and Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transport and
Logistics
|
|
|
Eliminations
|
|
|
Total
|
|
|
Local sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid-distillates
|
|
|
1,334
|
|
|
|
9,588,992
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,590,326
|
|
|
Gasoline
|
|
|
-
|
|
|
|
8,052,289
|
|
|
|
-
|
|
|
|
(1,062,102
|
)
|
|
|
6,990,187
|
|
|
Services
|
|
|
181,384
|
|
|
|
221,910
|
|
|
|
10,597,698
|
|
|
|
(7,127,640
|
)
|
|
|
3,873,352
|
|
|
Natural gas
|
|
|
2,540,233
|
|
|
|
4
|
|
|
|
-
|
|
|
|
(724,483
|
)
|
|
|
1,815,754
|
|
|
Crude oil
|
|
|
11,668,529
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,758,658
|
)
|
|
|
909,871
|
|
|
Plastic and rubber
|
|
|
-
|
|
|
|
833,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
833,982
|
|
|
LPG and propane
|
|
|
199,796
|
|
|
|
309,823
|
|
|
|
-
|
|
|
|
-
|
|
|
|
509,619
|
|
|
Asphalts
|
|
|
34,834
|
|
|
|
240,969
|
|
|
|
-
|
|
|
|
-
|
|
|
|
275,803
|
|
|
Other products
|
|
|
214,059
|
|
|
|
1,103,089
|
|
|
|
-
|
|
|
|
(109,903
|
)
|
|
|
1,207,245
|
|
|
|
|
|
14,840,169
|
|
|
|
20,351,058
|
|
|
|
10,597,698
|
|
|
|
(19,782,786
|
)
|
|
|
26,006,139
|
|
|
Recognition of price differential
|
|
|
-
|
|
|
|
2,229,953
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,229,953
|
|
|
|
|
|
14,840,169
|
|
|
|
22,581,011
|
|
|
|
10,597,698
|
|
|
|
(19,782,786
|
)
|
|
|
28,236,092
|
|
|
Foreign sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil
|
|
|
21,426,665
|
|
|
|
52,398
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,479,063
|
|
|
Fuel oil
|
|
|
-
|
|
|
|
1,982,408
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,982,408
|
|
|
Gasoline and turbo fuels
|
|
|
-
|
|
|
|
1,223,994
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,223,994
|
|
|
Diesel
|
|
|
-
|
|
|
|
1,213,740
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,213,740
|
|
|
Plastic and rubber
|
|
|
-
|
|
|
|
1,169,101
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,169,101
|
|
|
Natural gas
|
|
|
32,303
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,303
|
|
|
LPG and propane
|
|
|
15,631
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,631
|
|
|
Cash flow hedge for future exports – Reclassification to profit or loss
|
|
|
160,772
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
160,772
|
|
|
Other
|
|
|
19,393
|
|
|
|
421,364
|
|
|
|
367
|
|
|
|
-
|
|
|
|
441,124
|
|
|
|
|
|
21,654,764
|
|
|
|
6,063,005
|
|
|
|
367
|
|
|
|
-
|
|
|
|
27,718,136
|
|
|
|
|
|
36,494,933
|
|
|
|
28,644,016
|
|
|
|
10,598,065
|
|
|
|
(19,782,786
|
)
|
|
|
55,954,228
|
|
|
|
|
|
|
|
|
|
For the year ended December 31, 2016
|
|
|
|
|
Exploration
and Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transportation
and Logistics
|
|
|
Eliminations
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Med-distillates
|
|
|
-
|
|
|
|
8,553,503
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,553,503
|
|
|
Gasoline and turbo fuel
|
|
|
-
|
|
|
|
6,465,939
|
|
|
|
-
|
|
|
|
(373,200
|
)
|
|
|
6,092,739
|
|
|
Services
|
|
|
73,247
|
|
|
|
41,736
|
|
|
|
10,572,170
|
|
|
|
(6,643,869
|
)
|
|
|
4,043,284
|
|
|
Natural gas
|
|
|
2,383,323
|
|
|
|
11,763
|
|
|
|
-
|
|
|
|
(406,750
|
)
|
|
|
1,988,336
|
|
|
Plastic and rubber
|
|
|
-
|
|
|
|
724,708
|
|
|
|
-
|
|
|
|
-
|
|
|
|
724,708
|
|
|
L.P.G. and propane
|
|
|
90,783
|
|
|
|
319,644
|
|
|
|
-
|
|
|
|
(4,558
|
)
|
|
|
405,869
|
|
|
Crude oil
|
|
|
5,284,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,730,888
|
)
|
|
|
553,666
|
|
|
Asphalts
|
|
|
31,277
|
|
|
|
309,123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
340,400
|
|
|
Aromatics
|
|
|
-
|
|
|
|
186,228
|
|
|
|
-
|
|
|
|
-
|
|
|
|
186,228
|
|
|
Oil fuel
|
|
|
1,382
|
|
|
|
146,866
|
|
|
|
-
|
|
|
|
-
|
|
|
|
148,248
|
|
|
Other products
|
|
|
424,952
|
|
|
|
669,568
|
|
|
|
75,793
|
|
|
|
(510,144
|
)
|
|
|
660,169
|
|
|
|
|
|
8,289,518
|
|
|
|
17,429,078
|
|
|
|
10,647,963
|
|
|
|
(12,669,409
|
)
|
|
|
23,697,150
|
|
|
Recognition of price differential
|
|
|
-
|
|
|
|
1,048,022
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,048,022
|
|
|
|
|
|
8,289,518
|
|
|
|
18,477,100
|
|
|
|
10,647,963
|
|
|
|
(12,669,409
|
)
|
|
|
24,745,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude
|
|
|
19,516,197
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,237,618
|
)
|
|
|
17,278,579
|
|
|
Oil fuel
|
|
|
-
|
|
|
|
2,158,539
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,158,539
|
|
|
Med-distillates
|
|
|
-
|
|
|
|
1,594,945
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,594,945
|
|
|
Plastic and rubber
|
|
|
-
|
|
|
|
1,171,342
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,171,342
|
|
|
Gasoline and turbo fuel
|
|
|
-
|
|
|
|
1,046,758
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,046,758
|
|
|
Natural gas
|
|
|
350,685
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(291,875
|
)
|
|
|
58,810
|
|
|
L.P.G. and propane
|
|
|
6,342
|
|
|
|
2,225
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,567
|
|
|
Cash flow hedging – Reclassification to profit or loss
|
|
|
33,074
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33,074
|
|
|
Other products
|
|
|
25,395
|
|
|
|
363,250
|
|
|
|
814
|
|
|
|
316
|
|
|
|
389,775
|
|
|
|
|
|
19,931,693
|
|
|
|
6,337,059
|
|
|
|
814
|
|
|
|
(2,529,177
|
)
|
|
|
23,740,389
|
|
|
Total sales revenue
|
|
|
28,221,211
|
|
|
|
24,814,159
|
|
|
|
10,648,777
|
|
|
|
(15,198,586
|
)
|
|
|
48,485,561
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
|
For the year ended December 31, 2015
|
|
|
|
|
Exploration and
Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transportation
and Logistics
|
|
|
Eliminations
|
|
|
Total
|
|
|
Local sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Med-distillates
|
|
|
25,782
|
|
|
|
10,206,599
|
|
|
|
-
|
|
|
|
(17,157
|
)
|
|
|
10,215,224
|
|
|
Gasoline
|
|
|
-
|
|
|
|
6,464,661
|
|
|
|
-
|
|
|
|
(336,453
|
)
|
|
|
6,128,208
|
|
|
Services
|
|
|
118,812
|
|
|
|
198,369
|
|
|
|
10,822,078
|
|
|
|
(6,703,985
|
)
|
|
|
4,435,274
|
|
|
Natural gas
|
|
|
2,198,284
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(352,939
|
)
|
|
|
1,845,345
|
|
|
Crude oil
|
|
|
5,847,368
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,356,089
|
)
|
|
|
491,279
|
|
|
Diesel and asphalts
|
|
|
49,583
|
|
|
|
411,605
|
|
|
|
-
|
|
|
|
-
|
|
|
|
461,188
|
|
|
Plastic and rubber
|
|
|
-
|
|
|
|
724,392
|
|
|
|
-
|
|
|
|
-
|
|
|
|
724,392
|
|
|
L.P.G. and propane
|
|
|
154,201
|
|
|
|
190,346
|
|
|
|
-
|
|
|
|
(9,053
|
)
|
|
|
335,494
|
|
|
Other products
|
|
|
262,906
|
|
|
|
1,070,725
|
|
|
|
22,472
|
|
|
|
(367,757
|
)
|
|
|
988,346
|
|
|
|
|
|
8,656,936
|
|
|
|
19,266,697
|
|
|
|
10,844,550
|
|
|
|
(13,143,433
|
)
|
|
|
25,624,750
|
|
|
Recognition of price differential
|
|
|
-
|
|
|
|
441,871
|
|
|
|
-
|
|
|
|
-
|
|
|
|
441,871
|
|
|
|
|
|
8,656,936
|
|
|
|
19,708,568
|
|
|
|
10,844,550
|
|
|
|
(13,143,433
|
)
|
|
|
26,066,621
|
|
|
Foreign sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude
|
|
|
21,495,762
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(314,497
|
)
|
|
|
21,181,265
|
|
|
Fuel oil
|
|
|
-
|
|
|
|
2,166,469
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,166,469
|
|
|
Trading of crude
|
|
|
1,309,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,309,196
|
|
|
Natural gas
|
|
|
233,500
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(50,550
|
)
|
|
|
182,950
|
|
|
Gasoline and turbo fuel
|
|
|
27,756
|
|
|
|
65,369
|
|
|
|
-
|
|
|
|
-
|
|
|
|
93,125
|
|
|
Diesel
|
|
|
-
|
|
|
|
81,982
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81,982
|
|
|
Plastic and rubber
|
|
|
-
|
|
|
|
1,096,730
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,096,730
|
|
|
Cash flow hedging – Reclassification to profit or loss
|
|
|
7,646
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,646
|
|
|
Other products and services
|
|
|
1,815
|
|
|
|
126,558
|
|
|
|
-
|
|
|
|
32,914
|
|
|
|
161,287
|
|
|
|
|
|
23,075,675
|
|
|
|
3,537,108
|
|
|
|
-
|
|
|
|
(332,133
|
)
|
|
|
26,280,650
|
|
|
Total revenue
|
|
|
31,732,611
|
|
|
|
23,245,676
|
|
|
|
10,844,550
|
|
|
|
(13,475,566
|
)
|
|
|
52,347,271
|
|
|
|
33.3
|
Capital expenditures by segments
|
The following are the investments
amounts made by each segment for the years ended December 31, 2017, 2016 and 2015:
|
2017
|
|
Exploration
and Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transport and
Logistics
|
|
|
Total
|
|
|
Property, plant and equipment
|
|
|
927,282
|
|
|
|
606,749
|
|
|
|
829,252
|
|
|
|
2,363,283
|
|
|
Natural and environmental resources
|
|
|
3,568,355
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,568,355
|
|
|
Intangibles
|
|
|
154,155
|
|
|
|
4,941
|
|
|
|
16,772
|
|
|
|
175,868
|
|
|
|
|
|
4,649,792
|
|
|
|
611,690
|
|
|
|
846,024
|
|
|
|
6,107,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Exploration
and Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transport and
Logistics
|
|
|
Total
|
|
|
Property, plant and equipment
|
|
|
1,208,464
|
|
|
|
1,099,850
|
|
|
|
1,338,615
|
|
|
|
3,646,929
|
|
|
Natural and environmental resources
|
|
|
2,121,295
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,121,295
|
|
|
Intangibles
|
|
|
53,774
|
|
|
|
10,274
|
|
|
|
5,205
|
|
|
|
69,253
|
|
|
|
|
|
3,383,533
|
|
|
|
1,110,124
|
|
|
|
1,343,820
|
|
|
|
5,837,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Exploration
and Production
|
|
|
Refining and
Petrochemicals
|
|
|
Transport and
Logistics
|
|
|
Total
|
|
|
Property, plant and equipment
|
|
|
2,460,975
|
|
|
|
3,590,279
|
|
|
|
2,497,679
|
|
|
|
8,548,933
|
|
|
Natural and environmental resources
|
|
|
6,856,761
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,856,761
|
|
|
Intangibles
|
|
|
69,126
|
|
|
|
18,494
|
|
|
|
24,635
|
|
|
|
112,255
|
|
|
|
|
|
9,386,862
|
|
|
|
3,608,773
|
|
|
|
2,522,314
|
|
|
|
15,517,949
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
34.
|
Contractual obligations
|
The Group has several commitments and contractual
obligations that may require future disbursement of funds. The main commitments are related to a) payments of loans and borrowings,
which are disclosed in Note 30.5, b) payment of benefits post-employment, the amounts of which in the next 5 years are disclosed
in Note 22.4 c) future payment commitments in service contracts, operational leasing, gas and energy supplies, purchase of assets
and others, and d) commitments of exploration activities and others with the National Hydrocarbons Agency in current contracts.
The details of the commitments and contractual
obligations can be found in section 4.8 Financial Review - Financial Indebtedness and Other Contractual Obligations.
|
|
-
|
On April 13, 2018, Ecopetrol redeemed all of its outstanding 4.250% notes due September 18, 2018 in an aggregate principal
amount of US$350 million. The notes were issued in September 2013.
|
|
|
-
|
On March 14, 2018, Ecopetrol formed the subsidiary Ecopetrol
Energía SAS E.S.P., domiciled in Colombia, whose corporate purpose is the commercialization of electric energy for the
Ecopetrol Business Group. Ecopetrol has a direct participation of 99% in the capitalization of the new subsidiary, and indirect
participation in the remaining 1% interest through Andean Chemicals Ltd.
|
|
|
-
|
On March 2, 2018, a seepage of water and traces of crude oil occurred near the Lisama 158
well, located in the village of La Fortuna, in the Middle Magdalena Valley of Colombia. Ecopetrol activated its contingency
plan to contain the spill. It is estimated that 550 barrels of crude, mixed with mud and rainwater, seeped into the streams
of La Lisama and Caño Muerto. As of March 30, 2018, the Lisama 158 well was sealed and stopped flowing. Ecopetrol has
ordered an investigation to determine the cause of the seepage. As of the date of this annual report, the National
Environmental Licenses Agency (ANLA) has opened an investigation into the incident and the Prosecutor’s Office and
other control entities may also open investigations. Besides the notice of seven constitutional actions for protection of
fundamental rights. Ecopetrol is not aware of any
other third party claims in connection with this incident, it cannot offer any
assurance as to whether or not there will be third party actions in the future.
|
|
|
-
|
As part of the investigations carried out by various control
entities of the modernization and expansion project of Reficar the following developments in the investigations and proceedings
have occurred:
|
Office of the Comptroller General
(Contraloría General de la República): On February 2, 2018, the Legal Accounts Commission of the National House of
Representatives of the Republic of Colombia informed Reficar that the House of Representatives decided, through Resolution No.
2713, that it would not close the General Budget, Treasury Account or the National Balance Sheet for the 2016 fiscal year, since
the 2016 Financial Statements of several state entities, among them Reficar, had received a negative opinion from the Office of
the Comptroller General. Pursuant to Resolution No. 2713, Colombian control entities have been ordered to initiate disciplinary,
fiscal and/or penal investigations.
Ecopetrol is not in a position to
forecast the results of these investigations; nor is it possible to evaluate the probability of any consequence that may impact
the financial statements, such as additional provisions, fines or ignorance of tax deductions that affect the amounts of deferred
tax assets.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Supplemental information
on oil and gas producing activities (unaudited)
The information in this note is referred to
as “unaudited” as a means of clarifying that it is not covered by the audit opinion of the independent registered public
accounting firm that has audited and reported on the “Consolidated Financial Statements”.
In accordance with the requirements of the
United States Securities and Exchange Commission (SEC), Rule 4-10(a) of Regulation S-X, Release 33-8879, Accounting Standards Codification
932 and the ASU- 2010-03 “Oil and Gas reserve Estimation and Disclosures” rule, this section provides supplemental
information on oil and gas exploration and producing activities of the Group. The information included in sections a) to c) provides
historical cost information pertaining to costs incurred in exploration, property acquisitions and development, capitalized costs
and results of operations. The information included in sections d) and e) presents information on Ecopetrol’s estimated net
proved reserve quantities, standardized measure of estimated discounted future net cash flows related to proved reserves and changes
in estimated discounted future net cash flows.
The following information corresponds to Ecopetrol’s
oil and gas producing activities as of December 31 2017, 2016 and 2015, and includes information related to the Group’s consolidated
subsidiaries as well as its investments the joint ventures Equion Energía Limited and Offshore International Group. The
oil and gas exploration and production activities of these two joint ventures are immaterial, as such the corresponding information
has not been disclosed separately.
Under the SEC final rule optional disclosure
of possible and probable reserves is allowed but, the Group opted not to do so. Ecopetrol estimated its reserves without considering
non-traditional resources.
|
|
(a)
|
Capitalized costs relating to oil and gas exploration
and production activities
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Natural and environmental properties
|
|
|
48,129,595
|
|
|
|
47,097,475
|
|
|
|
45,789,713
|
|
|
Wells, equipment and facilities - property, plant and equipment
|
|
|
30,405,565
|
|
|
|
29,931,039
|
|
|
|
21,822,897
|
|
|
Exploration and production projects
|
|
|
6,632,812
|
|
|
|
6,855,832
|
|
|
|
9,145,198
|
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(51,791,897
|
)
|
|
|
(49,714,944
|
)
|
|
|
(39,743,147
|
)
|
|
Net capitalized cost
|
|
|
33,376,075
|
|
|
|
34,169,402
|
|
|
|
37,014,661
|
|
It includes information of the Exploration
and Production segment subsidiaries.
In accordance with IAS 37, costs capitalized
to natural and environmental properties include provisions for asset retirement obligations of COP$598,125, COP$766,909 and COP$580,575
during 2017, 2016 and 2015, respectively.
|
|
(b)
|
Costs incurred in oil and gas exploration and developed activities
|
Costs incurred are summarized below and include
both amounts expensed and capitalized in the corresponding period.
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Acquisition of proved properties (1)
|
|
|
591,875
|
|
|
|
-
|
|
|
|
-
|
|
|
Acquisition of unproved properties (2)
|
|
|
164,180
|
|
|
|
-
|
|
|
|
357,772
|
|
|
Exploration costs
|
|
|
1,095,588
|
|
|
|
852,097
|
|
|
|
1,012,264
|
|
|
Development costs
|
|
|
3,599,385
|
|
|
|
2,190,426
|
|
|
|
8,018,131
|
|
|
|
|
|
5,451,028
|
|
|
|
3,042,523
|
|
|
|
9,388,167
|
|
|
|
(1)
|
On December 11, 2017, Ecopetrol América Inc. acquired the 11.6% interest in the K2 oil field
in the Gulf of Mexico from MCX; increasing its share from 9.2% to 20.8%.
|
|
|
(2)
|
Corresponds mainly to investments made by Ecopetrol América Inc in offshore exploration
projects of the Warrior and Rydberg wells. For 2015, relates to drilling for the Leon 2 exploratory project, operated by Repsol
as well as acquisition of the lease sales 235 and 246 (unproven lands).
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
(c)
|
Results of operations for oil and gas exploration and production activities
|
The Group’s results of operations from
oil and gas exploration and production activities for the years ended December 31, 2017, 2016 and 2015 are as follows:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Net revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
29,823,565
|
|
|
|
21,322,662
|
|
|
|
26,039,708
|
|
|
Transfers
|
|
|
7,518,216
|
|
|
|
7,734,195
|
|
|
|
5,692,902
|
|
|
|
|
|
37,341,781
|
|
|
|
29,056,857
|
|
|
|
31,732,610
|
|
|
Production costs (1)
|
|
|
6,535,794
|
|
|
|
5,785,950
|
|
|
|
6,006,563
|
|
|
Depreciation, depletion and amortization (2)
|
|
|
6,349,382
|
|
|
|
5,927,466
|
|
|
|
6,234,190
|
|
|
Other production costs (3)
|
|
|
14,066,593
|
|
|
|
12,370,540
|
|
|
|
14,457,836
|
|
|
Exploration expenses (4)
|
|
|
1,342,952
|
|
|
|
730,393
|
|
|
|
1,586,940
|
|
|
Other expenses (5)
|
|
|
882,743
|
|
|
|
1,684,590
|
|
|
|
6,364,414
|
|
|
|
|
|
29,177,464
|
|
|
|
26,498,939
|
|
|
|
34,649,943
|
|
|
Income before income tax expense
|
|
|
8,164,317
|
|
|
|
2,557,918
|
|
|
|
(2,917,333
|
)
|
|
Income tax expense
|
|
|
(3,678,955
|
)
|
|
|
(1,367,357
|
)
|
|
|
(371,376
|
)
|
|
Results of operations for exploration and production activities
|
|
|
4,485,362
|
|
|
|
1,190,561
|
|
|
|
(3,288,709
|
)
|
|
|
(1)
|
Production costs are lifting costs incurred to operate and maintain productive wells and related
equipment and facilities including costs such as operating labor, materials, supplies, and fuel consumed in operations and the
costs of operating natural gas liquids plants. In addition, they include expenses related to the asset retirement obligations that
were recognized during 2017, 2016 and 2015 of COP$380,810, COP$305,653 and COP$206,570, respectively.
|
|
|
(2)
|
In accordance with IAS 37 the expense related to asset retirement obligations that were recognized
during 2017, 2016 and 2015 in depreciation, depletion and amortization, were COP$179,601, COP$188,370 and COP$294,849, respectively.
|
|
|
(3)
|
Corresponds to transportation costs and naphtha that are not part of the Group’s lifting
cost.
|
|
|
(4)
|
Exploration expenses include the costs of geological and geophysical activities as well as the
non-productive exploratory wells.
|
|
|
(5)
|
Corresponds to administration and marketing expenses.
|
During 2017, 2016 and 2015, the Group transferred
approximately 20.1%, 17.7% and 17.9%, respectively, of its crude oil and gas production; (percentages based on the value sales
in Colombian pesos) to intercompany business units. Those transfers were 48.4%, 46.1% and 37.4%, respectively of crude oil and
gas production volume (including Reficar).
The intercompany transfers were realized at
market prices.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Ecopetrol follows international standards for
estimating, classifying and reporting reserves framed under SEC definitions. The process is led by the Reserves Department which
submits the report to the Board of Directors for approval.
The reserves were audited at a level of 99%
by 2 specialized auditing companies: DeGolyer and MacNaughton and Ryder Scott Group. According to these certifications the reserves
report complies with the content and guidelines set forth in Rule 4-10 of Regulation S-X issued by the United States SEC.
The following information relates to the net
proven reserves owned by the Ecopetrol Business Group in 2017, 2016 and 2015, and corresponds to the official reserves statements
prepared by the Group:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Oil
|
|
|
Gas
|
|
|
Total
|
|
|
Oil
|
|
|
Gas
|
|
|
Total
|
|
|
Oil
|
|
|
Gas
|
|
|
Total
|
|
|
|
|
(Mbls)
|
|
|
(Gpc)
|
|
|
(Mbe)
|
|
|
(Mbls)
|
|
|
(Gpc)
|
|
|
(Mbe)
|
|
|
(Mbls)
|
|
|
(Gpc)
|
|
|
(Mbe)
|
|
|
Proved reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
1,033
|
|
|
|
3,218
|
|
|
|
1,598
|
|
|
|
1,239
|
|
|
|
3,479
|
|
|
|
1,849
|
|
|
|
1,465
|
|
|
|
3,529
|
|
|
|
2,084
|
|
|
Revisions of previous estimates (1)
|
|
|
124
|
|
|
|
294
|
|
|
|
175
|
|
|
|
(50
|
)
|
|
|
(23
|
)
|
|
|
(54
|
)
|
|
|
(64
|
)
|
|
|
225
|
|
|
|
(25
|
)
|
|
Improved recovery
|
|
|
72
|
|
|
|
4
|
|
|
|
73
|
|
|
|
11
|
|
|
|
1
|
|
|
|
11
|
|
|
|
16
|
|
|
|
3
|
|
|
|
17
|
|
|
Purchases
|
|
|
3
|
|
|
|
2
|
|
|
|
4
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Extensions and discoveries
|
|
|
44
|
|
|
|
-
|
|
|
|
43
|
|
|
|
22
|
|
|
|
25
|
|
|
|
27
|
|
|
|
24
|
|
|
|
-
|
|
|
|
24
|
|
|
Production
|
|
|
(188
|
)
|
|
|
(264
|
)
|
|
|
(234
|
)
|
|
|
(189
|
)
|
|
|
(264
|
)
|
|
|
(235
|
)
|
|
|
(202
|
)
|
|
|
(278
|
)
|
|
|
(251
|
)
|
|
Closing balance
|
|
|
1,088
|
|
|
|
3,254
|
|
|
|
1,659
|
|
|
|
1,033
|
|
|
|
3,218
|
|
|
|
1,598
|
|
|
|
1,239
|
|
|
|
3,479
|
|
|
|
1,849
|
|
|
Proved developed reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
779
|
|
|
|
3,131
|
|
|
|
1,329
|
|
|
|
913
|
|
|
|
3,176
|
|
|
|
1,470
|
|
|
|
1,042
|
|
|
|
3,284
|
|
|
|
1,618
|
|
|
Closing balance
|
|
|
818
|
|
|
|
3,158
|
|
|
|
1,372
|
|
|
|
779
|
|
|
|
3,131
|
|
|
|
1,329
|
|
|
|
913
|
|
|
|
3,176
|
|
|
|
1,470
|
|
|
Proved undeveloped reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening balance
|
|
|
254
|
|
|
|
87
|
|
|
|
269
|
|
|
|
326
|
|
|
|
303
|
|
|
|
379
|
|
|
|
423
|
|
|
|
245
|
|
|
|
466
|
|
|
Closing balance
|
|
|
270
|
|
|
|
96
|
|
|
|
287
|
|
|
|
254
|
|
|
|
87
|
|
|
|
269
|
|
|
|
326
|
|
|
|
303
|
|
|
|
379
|
|
|
|
(1)
|
Represents changes in previous proved reserves, upward or downward, resulting from new information
(except for an increase in proved area), usually obtained from development drilling and production history or result from changes
in economic factors.
|
For additional information about the changes in Proved Reserves and the process for estimating reserves, see section 3.4.3
- Business Overview - Exploration and Production - Reserves.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
|
|
(e)
|
Standardized measure of discounted future net cash flows relating to proved oil and gas quantities
and changes therein
|
The standardized measure of discounted future
net cash flows related to the above proved crude oil and natural gas reserves is calculated in accordance with the requirements
of ASU 2010-03. Estimated future cash inflows from production under SEC requirements are computed by applying unweighted arithmetic
average of the first-day-of-the-month for oil and gas price to year-end quantities of estimated net proved reserves, with cost
factors based on those at the end of each year, currently enacted tax rates and a 10% annual discount factor. In our view, the
information so calculated does not provide a reliable measure of future cash flows from proved reserves, nor does it permit a realistic
comparison to be made of one entity with another because the assumptions used cannot reflect the varying circumstances within each
entity. In addition, a substantial but unknown proportion of future real cash flows from oil and gas production activities is expected
to derive from reserves which have already been discovered, but which cannot yet be regarded as proved.
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
Future cash inflows
|
|
|
182,114,282
|
|
|
|
140,458,230
|
|
|
|
176,865,586
|
|
|
Future costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
|
|
|
(70,159,534
|
)
|
|
|
(60,705,779
|
)
|
|
|
(76,363,169
|
)
|
|
Development
|
|
|
(14,860,992
|
)
|
|
|
(12,005,835
|
)
|
|
|
(16,498,118
|
)
|
|
Income taxes
|
|
|
(23,660,328
|
)
|
|
|
(15,400,000
|
)
|
|
|
(30,052,830
|
)
|
|
Future net cash flow
|
|
|
73,433,428
|
|
|
|
52,346,616
|
|
|
|
53,951,469
|
|
|
10% discount factor
|
|
|
(22,216,583
|
)
|
|
|
(18,221,004
|
)
|
|
|
(19,117,422
|
)
|
|
Standardized measure of discounted net cash flows
|
|
|
51,216,845
|
|
|
|
34,125,612
|
|
|
|
34,834,047
|
|
The following are the principal sources of
change in the standardized measure of discounted net cash flows in 2017, 2016 and 2015:
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in sales and transfer prices and in production cost (lifting) related to future production
|
|
|
26,918,170
|
|
|
|
3,603,876
|
|
|
|
(50,472,025
|
)
|
|
Changes in estimated future development costs
|
|
|
(1,978,913
|
)
|
|
|
(4,767,340
|
)
|
|
|
592,529
|
|
|
Sales and transfer of oil and gas produced, net of production costs
|
|
|
(30,805,987
|
)
|
|
|
(23,270,907
|
)
|
|
|
(25,726,047
|
)
|
|
Net change due to extension discoveries
|
|
|
284,374
|
|
|
|
154,352
|
|
|
|
(93,190
|
)
|
|
Net change due to purchase and sales of minerals in place
|
|
|
211,777
|
|
|
|
(83,450
|
)
|
|
|
-
|
|
|
Net change due to revisions in quantity estimates
|
|
|
9,090,882
|
|
|
|
(2,570,103
|
)
|
|
|
(985,217
|
)
|
|
Previously estimated development costs incurred during the period
|
|
|
3,482,570
|
|
|
|
5,042,697
|
|
|
|
10,769,369
|
|
|
Accretion of discount
|
|
|
4,416,512
|
|
|
|
5,423,781
|
|
|
|
11,321,221
|
|
|
Timing and other
|
|
|
11,934,458
|
|
|
|
6,394,404
|
|
|
|
(4,381,037
|
)
|
|
Net change in income taxes
|
|
|
(6,462,611
|
)
|
|
|
9,364,255
|
|
|
|
18,775,304
|
|
|
Aggregate change in the standardized measure of discounted future net cash flows for the year
|
|
|
17,091,232
|
|
|
|
(708,435
|
)
|
|
|
(40,199,093
|
)
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Exhibit 1. Consolidated
subsidiaries, associates and joint ventures
Consolidated subsidiary companies (1/2)
|
Group
|
|
Functional
currency
|
|
Ownership
interest
Ecopetrol
|
|
|
Activity
|
|
Country/Domicile
|
|
Geographic
area of
operations
|
|
Equity,
net
|
|
|
Profit
(loss) of the
year
|
|
|
Total
assets
|
|
|
Total
liabilities
|
|
|
Ecopetrol Global Energy SLU
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Investment vehicle
|
|
Spain
|
|
Spain
|
|
|
3,056,580
|
|
|
|
102,120
|
|
|
|
3,056,719
|
|
|
|
139
|
|
|
Ecopetrol Oleo é Gas do Brasil Ltda.
|
|
Real
|
|
|
100
|
%
|
|
Exploration and exploitation of hydrocarbons
|
|
Brazil
|
|
Brazil
|
|
|
36,385
|
|
|
|
(54,591
|
)
|
|
|
50,933
|
|
|
|
14,548
|
|
|
Ecopetrol del Perú S.A.
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Exploration and exploitation of hydrocarbons
|
|
Peru
|
|
Peru
|
|
|
48,969
|
|
|
|
(2,271
|
)
|
|
|
51,792
|
|
|
|
2,823
|
|
|
Ecopetrol America Inc.
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Exploration and exploitation of hydrocarbons
|
|
United States
|
|
United States
|
|
|
2,964,718
|
|
|
|
163,529
|
|
|
|
3,368,997
|
|
|
|
404,279
|
|
|
Black Gold Re Ltd.
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Reinsurer of Ecopetrol and its subordinates
|
|
Bermuda
|
|
Bermuda
|
|
|
607,199
|
|
|
|
28,135
|
|
|
|
729,125
|
|
|
|
121,926
|
|
|
Ecopetrol Germany Gmbh
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Exploration and exploitation of hydrocarbons
|
|
Germany
|
|
Angola
|
|
|
2,345
|
|
|
|
(118
|
)
|
|
|
2,773
|
|
|
|
428
|
|
|
Hocol Petroleum Limited
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Investment vehicle
|
|
Bermuda
|
|
Bermuda
|
|
|
2,223,406
|
|
|
|
(135,261
|
)
|
|
|
2,223,464
|
|
|
|
58
|
|
|
Hocol S.A.
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Exploration, exploitation and production
of hydrocarbons
|
|
Cayman Islands
|
|
Colombia
|
|
|
1,529,052
|
|
|
|
(60,103
|
)
|
|
|
2,747,950
|
|
|
|
1,218,898
|
|
|
Andean Chemicals Ltd.
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Investment vehicle
|
|
Bermuda
|
|
Bermuda
|
|
|
5,168,133
|
|
|
|
(526,869
|
)
|
|
|
5,169,911
|
|
|
|
1,778
|
|
|
Refinería de Cartagena S.A *
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Refining, commercialization and distribution
of hydrocarbons
|
|
Colombia
|
|
Colombia
|
|
|
17,008,913
|
|
|
|
39,195
|
|
|
|
25,805,231
|
|
|
|
8,796,318
|
|
|
Propileno del Caribe Propilco S.A.
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Production and commercialization of polypropylene
resin
|
|
Colombia
|
|
Colombia
|
|
|
1,414,530
|
|
|
|
225,175
|
|
|
|
1,927,883
|
|
|
|
513,353
|
|
|
COMAI - Compounding and Masterbatching Industry
|
|
Colombian Peso
|
|
|
100
|
%
|
|
Manufacture of polypropylene compounds and
masterbatches
|
|
Colombia
|
|
Colombia
|
|
|
141,580
|
|
|
|
114,241
|
|
|
|
202,879
|
|
|
|
61,299
|
|
* Information taken from the audited financial
statements.
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Consolidated subsidiaries (2/2)
|
Group
|
|
Functional
currency
|
|
Ownership
interest
Ecopetrol
|
|
|
Activity
|
|
Country/Domicile
|
|
Geographic
area of
operations
|
|
Equity, net
|
|
|
Profit (loss)
of the year
|
|
|
Total
assets
|
|
|
Total
liabilities
|
|
|
Bioenergy S.A.
|
|
Colombian Peso
|
|
|
99,04
|
%
|
|
Production of biofuels
|
|
Colombia
|
|
Colombia
|
|
|
335,858
|
|
|
|
(237,846
|
)
|
|
|
433,582
|
|
|
|
97,724
|
|
|
Bioenergy Zona Franca SAS
|
|
Colombian Peso
|
|
|
99,04
|
%
|
|
Production of biofuels
|
|
Colombia
|
|
Colombia
|
|
|
246,866
|
|
|
|
(197,949
|
)
|
|
|
702,627
|
|
|
|
455,761
|
|
|
Amandine Holdings Corp.
|
|
Colombian Peso
|
|
|
99,04
|
%
|
|
On sale
|
|
Panama
|
|
Panama
|
|
|
6,657
|
|
|
|
-
|
|
|
|
6,657
|
|
|
|
-
|
|
|
The Arces Group Corp.
|
|
Colombian Peso
|
|
|
99,04
|
%
|
|
On sale
|
|
Panama
|
|
Panama
|
|
|
5,100
|
|
|
|
-
|
|
|
|
5,100
|
|
|
|
-
|
|
|
Cenit SAS
|
|
Colombian Peso
|
|
|
100
|
%
|
|
Storage and transportation by hydrocarbon
pipelines
|
|
Colombia
|
|
Colombia
|
|
|
13,801,943
|
|
|
|
3,014,820
|
|
|
|
15,243,690
|
|
|
|
1,441,747
|
|
|
Oleoducto Central SA - Ocensa
|
|
U.S. Dollar
|
|
|
72,65
|
%
|
|
Transportation by crude oil pipelines
|
|
Colombia
|
|
Colombia
|
|
|
3,014,831
|
|
|
|
1,667,219
|
|
|
|
6,205,436
|
|
|
|
3,190,605
|
|
|
Oleoducto de los Llanos
|
|
Colombian Peso
|
|
|
65
|
%
|
|
Transportation by crude oil pipelines
|
|
Panama
|
|
Colombia
|
|
|
1,106,571
|
|
|
|
321,792
|
|
|
|
1,919,509
|
|
|
|
812,938
|
|
|
Oleoducto de Colombia SA - ODC
|
|
Colombian Peso
|
|
|
73
|
%
|
|
Transportation by crude oil pipelines
|
|
Colombia
|
|
Colombia
|
|
|
351,308
|
|
|
|
202,432
|
|
|
|
555,250
|
|
|
|
203,942
|
|
|
Bicentenario de Colombia SAS
|
|
Colombian Peso
|
|
|
55,97
|
%
|
|
Transportation activity by crude oil pipelines
|
|
Colombia
|
|
Colombia
|
|
|
1,069,490
|
|
|
|
385,500
|
|
|
|
3,205,369
|
|
|
|
2,135,879
|
|
|
Ecopetrol Capital AG
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Financing, liquidation of financing of group
companies or any type of company
|
|
Switzerland
|
|
Switzerland
|
|
|
1,240,473
|
|
|
|
145,970
|
|
|
|
5,806,746
|
|
|
|
4,566,273
|
|
|
Ecopetrol Global Capital SLU
|
|
Euro
|
|
|
100
|
%
|
|
Investment vehicle
|
|
Spain
|
|
Spain
|
|
|
20
|
|
|
|
(51
|
)
|
|
|
39
|
|
|
|
19
|
|
|
Esenttia Resinas del Perú
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Marketing polypropylene resins and masterbatches
|
|
Peru
|
|
Peru
|
|
|
3,866
|
|
|
|
(84
|
)
|
|
|
15,981
|
|
|
|
12,115
|
|
|
Ecopetrol Costa Afuera SAS
|
|
Colombian Peso
|
|
|
100
|
%
|
|
Offshore Caribbean exploration
|
|
Colombia
|
|
Colombia
|
|
|
15,671
|
|
|
|
(69,242
|
)
|
|
|
139,192
|
|
|
|
123,521
|
|
|
ECP Hidrocarburos de México SA de CV
|
|
U.S. Dollar
|
|
|
100
|
%
|
|
Offshore Caribbean exploration
|
|
Mexico
|
|
Mexico
|
|
|
4,100
|
|
|
|
(3,653
|
)
|
|
|
5,851
|
|
|
|
1,751
|
|
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Associated companies and joint ventures
|
Group
|
|
Functional
currency
|
|
Ownership
interest
Ecopetrol
|
|
|
Activity
|
|
Country/Domicile
|
|
Geographic
area of
operations
|
|
Equity,
net
|
|
|
Profit
(loss) of
the year
|
|
|
Total
assets
|
|
|
Total
liabilities
|
|
|
Associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Invercolsa SA (*)
|
|
Colombian Peso
|
|
|
43
|
%
|
|
Holding with investments in transport
and distribution of natural gas and LPG
|
|
Colombia
|
|
Colombia
|
|
|
516,640
|
|
|
|
84,628
|
|
|
|
560,368
|
|
|
|
43,728
|
|
|
Serviport SA (*)
|
|
Colombian Peso
|
|
|
49
|
%
|
|
Services for the support of loading and unloading
of oil ships, supply of equipment, technical inspections and load measurements
|
|
Colombia
|
|
Colombia
|
|
|
20,212
|
|
|
|
2,031
|
|
|
|
70,966
|
|
|
|
50,754
|
|
|
Sociedad Portuaria Olefinas y Derivados S.A.
(*)
|
|
Colombian Peso
|
|
|
50
|
%
|
|
Construction, use, maintenance and administration
of port facilities, ports, private docks.
|
|
Colombia
|
|
Colombia
|
|
|
2,847
|
|
|
|
178
|
|
|
|
3,189
|
|
|
|
342
|
|
|
Joint Ventures
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equion Energy Limited
|
|
U.S. Dollar
|
|
|
51
|
%
|
|
Exploration, exploitation and production
of hydrocarbons
|
|
United Kingdom
|
|
Colombia
|
|
|
1,336,811
|
|
|
|
253,709
|
|
|
|
1,865,776
|
|
|
|
528,965
|
|
|
Ecodiesel Colombia SA (*)
|
|
Colombian Peso
|
|
|
50
|
%
|
|
Production, marketing and distribution of
biofuels and oleo chemicals
|
|
Colombia
|
|
Colombia
|
|
|
76,766
|
|
|
|
13,236
|
|
|
|
128,420
|
|
|
|
51,654
|
|
|
Offshore International Group (*)
|
|
U.S. Dollar
|
|
|
50
|
%
|
|
Exploration, development, production and
processing of hydrocarbons
|
|
United States
|
|
Peru
|
|
|
1,007,754
|
|
|
|
(178,280
|
)
|
|
|
1,858,013
|
|
|
|
850,259
|
|
(*) Information available as of November 30,
2017
Ecopetrol S.A.
Notes to the consolidated financial statements
(Figures expressed in millions of Colombian
pesos, unless otherwise stated)
Exhibit 2 - Conditions
of the most significant loans
Class
of
credit
|
|
Group
|
|
Initial
Date
|
|
Expiry
Date
|
|
Currency
|
|
Original/nominal
value in original
currency
|
|
|
Outstanding
balance
Dec 31, 2017
|
|
|
Outstanding
balance
Dec 31, 2016
|
|
|
Type
of
interest
|
|
Amortization
of the
principal
|
|
Payment
of
interest
|
|
|
|
|
|
Dec-10
|
|
Dec-20
|
|
COP
|
|
|
479,900
|
|
|
|
479,900
|
|
|
|
479,900
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Dec-10
|
|
Dec-40
|
|
COP
|
|
|
284,300
|
|
|
|
284,300
|
|
|
|
284,300
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
Banks,
|
|
|
|
Aug-13
|
|
Aug-18
|
|
COP
|
|
|
120,950
|
|
|
|
120,950
|
|
|
|
120,950
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
domestic
|
|
Ecopetrol S.A.
|
|
Aug-13
|
|
Aug-23
|
|
COP
|
|
|
168,600
|
|
|
|
168,600
|
|
|
|
168,600
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
currency
|
|
|
|
Aug-13
|
|
Aug-28
|
|
COP
|
|
|
347,500
|
|
|
|
347,500
|
|
|
|
347,500
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Aug-13
|
|
Aug-43
|
|
COP
|
|
|
262,950
|
|
|
|
262,950
|
|
|
|
262,950
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
Local
|
|
Ecopetrol S.A.
|
|
May-13
|
|
May-25
|
|
COP
|
|
|
1,839,000
|
|
|
|
1,532,500
|
|
|
|
1,736,833
|
|
|
Floating
|
|
Half-yearly
|
|
Half-yearly
|
|
Currency
|
|
Bicentenario SAS
|
|
Jul-12
|
|
Jul-24
|
|
COP
|
|
|
2,100,000
|
|
|
|
1,373,750
|
|
|
|
1,549,625
|
|
|
Floating
|
|
Quarterly
|
|
Quarterly
|
|
syndicated loan
|
|
ODL Finance SA
|
|
Aug-13
|
|
Aug-20
|
|
COP
|
|
|
800,000
|
|
|
|
352,000
|
|
|
|
480,000
|
|
|
Floating
|
|
Quarterly
|
|
Quarterly
|
|
|
|
|
|
Jul-09
|
|
Jul-19
|
|
USD
|
|
|
1,500
|
**
|
|
|
1,500
|
|
|
|
1,500
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Sept-13
|
|
Sept-18
|
|
USD
|
|
|
350
|
**
|
|
|
350
|
|
|
|
350
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Sept-13
|
|
Sept-23
|
|
USD
|
|
|
1,300
|
**
|
|
|
1,300
|
|
|
|
1,300
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Sept-13
|
|
Sept-43
|
|
USD
|
|
|
850
|
|
|
|
850
|
|
|
|
850
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
Bonds, foreign
|
|
Ecopetrol S.A.
|
|
May-14
|
|
May-45
|
|
USD
|
|
|
2,000
|
**
|
|
|
2,000
|
|
|
|
2,000
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
currency
|
|
|
|
Sept-14
|
|
May-25
|
|
USD
|
|
|
1,200
|
**
|
|
|
1,200
|
|
|
|
1,200
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
June-15
|
|
June-26
|
|
USD
|
|
|
1,500
|
**
|
|
|
1,500
|
|
|
|
1,500
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
June-16
|
|
Sept-23
|
|
USD
|
|
|
500
|
**
|
|
|
500
|
|
|
|
500
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
Oleoducto Central S.A.
|
|
May-14
|
|
May-21
|
|
USD
|
|
|
500
|
|
|
|
500
|
|
|
|
500
|
|
|
Fixed
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Feb-15
|
|
Feb-20
|
|
USD
|
|
|
1,925
|
**
|
|
|
-
|
|
|
|
1,925
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
|
|
|
|
Jul-13
|
|
Jul-23
|
|
USD
|
|
|
245
|
**
|
|
|
147
|
|
|
|
171
|
|
|
Floating
|
|
Half-yearly
|
|
Half-yearly
|
|
International
|
|
Ecopetrol S.A.
|
|
Jul-13
|
|
Jul-19
|
|
USD
|
|
|
151
|
**
|
|
|
35
|
|
|
|
66
|
|
|
Floating
|
|
Half-yearly
|
|
Half-yearly
|
|
commercial
|
|
|
|
May-16
|
|
May-21
|
|
USD
|
|
|
300
|
**
|
|
|
-
|
|
|
|
300
|
|
|
Floating
|
|
Bullet
|
|
Half-yearly
|
|
credits
|
|
|
|
Feb-16
|
|
Feb-21
|
|
USD
|
|
|
175
|
|
|
|
-
|
|
|
|
175
|
|
|
Floating
|
|
Half-yearly
|
|
Half-yearly
|
|
|
|
|
|
Dec-11
|
|
Dec-27
|
|
USD
|
|
|
2,747
|
|
|
|
2,012
|
|
|
|
2,177
|
|
|
Fixed
|
|
Half-yearly
|
|
Half-yearly
|
|
|
|
Ecopetrol S.A.
|
|
Dec-11
|
|
Dec-27
|
|
USD
|
|
|
310
|
|
|
|
227
|
|
|
|
246
|
|
|
Floating
|
|
Half-yearly
|
|
Half-yearly
|
|
|
|
|
|
Dec-11
|
|
Dec-25
|
|
USD
|
|
|
440
|
|
|
|
344
|
|
|
|
374
|
|
|
Floating
|
|
Half-yearly
|
|
Half-yearly
|
**Financial debt designated as hedging instrument
(See Note 30.2).
SIGNATURES
The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
|
|
Ecopetrol S.A.
|
|
|
|
|
|
|
By:
|
/s/ María Fernanda Suárez
|
|
|
|
Name:
|
María Fernanda Suárez
|
|
|
|
Title:
|
Chief Financial Officer
|
|
|
|
|
|
|
By:
|
/s/ Felipe Bayón Pardo
|
|
|
|
Name:
|
Felipe Bayón Pardo
|
|
|
|
Title:
|
Chief Executive Officer
|
Dated: April 19, 2018
|
Exhibit No.
|
|
Description
|
|
1.1
|
|
Amended and Restated Bylaws of Ecopetrol S.A., dated March 23, 2018 (English Translation).
|
|
4.1
|
|
Transportation Agreement between Ecopetrol S.A. and Oleoducto Central S.A., dated March 31, 1995 (incorporated by reference to Exhibit 4.1 on Form 20-F filed with the U.S. Securities and Exchange Commission on September 12, 2008 (File No. 001-34175)) (English Translation).
|
|
4.2
|
|
Supplementary Agreement to Transportation Agreement between Ecopetrol S.A. and Oleoducto Central S.A., dated January 17, 2013 (incorporated by reference to Exhibit 4.2 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2013 (File No. 001-34175)) (English Translation).
|
|
4.3
|
|
Natural Gas Transportation Agreement between Ecopetrol S.A. and Transportadora de Gas del Interior S.A. ESP, dated October 1, 2008 (incorporated by reference to Exhibit 4.3 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2013 (File No. 001-34175)) (English Translation).
|
|
4.4
|
|
Supplementary Agreement No. 1, dated December 5, 2008, to the Natural Gas Transportation Agreement between Ecopetrol S.A. and Transportadora de Gas del Interior S.A. ESP, dated October 1, 2008 (incorporated by reference to Exhibit 4.4 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2013 (File No. 001-34175)) (English Translation).
|
|
4.5
|
|
Supplementary Agreement No. 2, dated April 11, 2012, to the Natural Gas Transportation Agreement between Ecopetrol S.A. and Transportadora de Gas Internacional S.A. E.S.P., dated October 1, 2008 (incorporated by reference to Exhibit 4.5 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2013 (File No. 001-34175)) (English Translation).
|
|
4.6
|
|
Crude Oil Transportation Services Agreement between Ecopetrol S.A. and Cenit Transporte y Logística de Hidrocarburos S.A.S., dated April 1, 2013 (incorporated by reference to Exhibit 4.6 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2013 (File No. 001-34175)) (English Translation).
|
|
4.7
|
|
Refined Products Transportation Services Agreement between Ecopetrol S.A. and Cenit Transporte y Logística de Hidrocarburos S.A.S., dated April 1, 2013 (incorporated by reference to Exhibit 4.7 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 29, 2013 (File No. 001-34175)) (English Translation).
|
|
4.8
|
|
Indenture, dated as of July 23, 2009, between the Company and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.2 to the Company’s Form F-4 filed with the U.S. Securities and Exchange Commission on July 31, 2009 (File No. 333-160965)).
|
|
4.9
|
|
Bicentenario Transport Contract between Oleoducto Bicentenario de Colombia S.A.S. and Ecopetrol S.A., dated June 20, 2012 (incorporated by reference to Exhibit 4.9 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 25, 2014 (File No. 001-34175)) (English Translation)).
|
|
4.10
|
|
Amendment No. 1 to the Indenture, dated as of June 26, 2015, between the Company and The Bank of New York Mellon, as trustee (incorporated by reference to Exhibit 4.10 on Form 6-K of the Company furnished to the U.S. Securities and Exchange Commission on June 25, 2015 (File No. 001-34175)).
|
|
4.11
|
|
Supplementary Agreement No. 2, dated March 28, 2014, to the Bicentenario Transport Contract between Oleoducto Bicentenario de Colombia S.A.S. and Ecopetrol S.A., dated June 20, 2012 (incorporated by reference to Exhibit 4.11 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 28, 2016 (File No. 001-34175)) (English Translation).
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4.12
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Supplementary Agreement No. 4, dated April 6, 2015, to the Bicentenario Transport Contract between Oleoducto Bicentenario de Colombia S.A.S. and Ecopetrol S.A., dated June 20, 2012 (incorporated by reference to Exhibit 4.12 on Form 20-F filed with the U.S. Securities and Exchange Commission on April 28,2016 (File No. 001-34175)) (English Translation).
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4.13
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Amendment No. 6, dated April 25, 2016, to the Crude Oil Transportation Services Agreement between Ecopetrol S.A. and Cenit Transporte y Logística de Hidrocarburos S.A.S., dated April 1, 2013 (incorporated by reference to Exhibit 4.13 on Form 20-F filed with the U.S. Securities and Exchange Commission on May 31, 2017 (File No. 001-34175)) (English Translation).
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4.14
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Amendment No. 7, dated December 28, 2016, to the Crude Oil Transportation Services Agreement between Ecopetrol S.A. and Cenit Transporte y Logística de Hidrocarburos S.A.S., dated April 1, 2013 (incorporated by reference to Exhibit 4.14 on Form 20-F filed with the U.S. Securities and Exchange Commission on May 31, 2017 (File No. 001-34175)) (English Translation).
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8.1
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List of subsidiaries of Ecopetrol S.A.
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12.1
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Section 302 Certification of the Chief Executive Officer.
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12.2
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Section 302 Certification of the Chief Financial Officer.
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13.1
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Section 906 Officer Certification.
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99.1
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Third-Party Reserve Report of Ryder Scott Company, L.P.
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99.2
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Third-Party Reserve Report of DeGolyer and MacNaughton.
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101*
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The following materials from the Ecopetrol S.A. Annual Report on Form 20-F for the year ended December 31, 2017 formatted in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Financial Position, (ii) the Consolidated Statements of Profit or Loss, (iii) the Consolidated Statements of Other Comprehensive Income, (iv) the Consolidated Statements of Changes in Equity, (v) the Consolidated Statements of Cash Flows and (vi) related notes to the Consolidated Financial Statements.
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* To be filed by amendment.
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11.
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Cross-reference to Form 20-F
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Sections
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Item 1.
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Identity of Directors, Senior Management and Advisers
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N/A
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Item 2.
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Offer Statistics and Expected Timetable
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N/A
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Item 3.
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Key Information
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A. Selected Financial Data
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1.3
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B. Capitalization and Indebtedness
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N/A
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C. Reasons for the Offer and Use of Proceeds
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N/A
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D. Risk Factors
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5.1
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Item 4.
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Information on the Company
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Note 1 to the consolidated financial statements
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A. History and Development of the Company
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2.1; 3.1; Note 1 to the consolidated financial statements
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B. Business Overview
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2; 3.3 – 3.9; 4.5.1
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C. Organizational Structure
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3.2
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D. Property, Plants and Equipment
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3.4 – 3.6; 4.6.2; Notes 15, 16 and 17 to the consolidated financial statements
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E. Oil and Gas Disclosures
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3.3 – 3.6; Notes 15, 16 and Supplemental information on Oil and Gas producing activities (unaudited by EY) to the consolidated financial statements
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Item 4A.
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Unresolved Staff Comments
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None
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Item 5.
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Operating and Financial Review and Prospects
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A. Operating Results
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3.8; 4; 5.1; 5.2
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B. Liquidity and Capital Resources
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2.1; 4.6; 4.8; Consolidated statements of cash flow and Notes 9, 20, 29 and 30.6 to the consolidated financial statements
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C. Research and development, Patents and Licenses, etc.
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3.7; Note 17 to the consolidated financial statements
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D. Trend Information
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4.10
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E. Off-Balance Sheet Arrangements
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4.9
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F. Tabular Disclosure of Contractual Obligations
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4.8
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G. Safe Harbor
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1.2
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Item 6.
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Directors, Senior Management and Employees
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A. Directors and Senior Management
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7.3; 7.5
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B. Compensation
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7.6; Notes 4, 22 and 31 to the consolidated financial statements
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C. Board Practices
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7.3
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D. Employees
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3.12
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E. Share Ownership
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7.7
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Item 7.
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Major Shareholders and Related Party Transactions
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A. Major Shareholders
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6.3; 6.8; 7.7
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B. Related Party Transactions
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3.10; Note 31 to the consolidated financial statements
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C. Interests of Experts and Counsel
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N/A
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Item 8.
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Financial Information
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|
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A. Consolidated Statements and Other Financial Information
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4; 5.3; 6.2; 8
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B. Significant Changes
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7.8; Note 35 to the consolidated financial statements
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Item 9.
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The Offer and Listing
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A. Offer and Listing Details
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6.3
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B. Plan of Distribution
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N/A
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C. Markets
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6.3
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D. Selling Shareholders
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N/A
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E. Dilution
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N/A
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F. Expenses of the Issue
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N/A
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Item 10.
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Additional Information
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A. Share Capital
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N/A
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|
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B. Memorandum and Articles of Association
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7.1
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|
|
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C. Material Contracts
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3.4.4; 4.8; Exhibits 4.1 – 4.12
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|
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D. Exchange Controls
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5.1.4; 6.6
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|
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E. Taxation
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4.2.1; 6.5; Note 10 to the consolidated financial statements
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F. Dividends and Paying Agents
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N/A
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G. Statements by Experts
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N/A
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|
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H. Documents On Display
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1.1
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|
|
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I. Subsidiary Information
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N/A
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Item 11.
|
|
Quantitative and Qualitative Disclosures About Market Risk
|
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4.10; 5.1.1; 5.2.1; 5.2.3; Note 30 to the consolidated financial statements
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Item 12.
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Description of Securities Other than Equity Securities
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|
|
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A. Debt Securities
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N/A
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B. Warrants and Rights
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N/A
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C. Other Securities
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N/A
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D. American Depositary Shares
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6.4
|
|
Item 13.
|
|
Defaults, Dividend Arrearages and Delinquencies
|
|
None
|
|
Item 14.
|
|
Material Modifications to the Rights of Security Holders and Use of Proceeds
|
|
None
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|
Item 15.
|
|
Controls and Procedures
|
|
5.2; 7.8
|
|
Item 16A.
|
|
Audit Committee Financial Expert
|
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7.3.2
|
|
Item 16B.
|
|
Code of Ethics
|
|
7.2; 7.4
|
|
Item 16C.
|
|
Principal Accountant Fees and Services
|
|
7.8
|
|
Item 16D.
|
|
Exemptions from the Listing Standards for Audit Committees
|
|
N/A
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|
Item 16E.
|
|
Purchases of Equity Securities by the Issuer and Affiliated Purchases
|
|
N/A
|
|
Item 16F.
|
|
Changes in Registrant’s Certifying Accountant
|
|
7.8
|
|
Item 16G.
|
|
Corporate Governance
|
|
7.4
|
|
Item 16H.
|
|
Mine Safety Disclosure
|
|
N/A
|
|
Item 17.
|
|
Financial Statements
|
|
N/A
|
|
Item 18.
|
|
Financial Statements
|
|
8
|
|
Item 19.
|
|
Exhibits
|
|
10
|
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