Message from the Chairman
of the Board of Directors to the Stakeholders
On behalf of the Ecopetrol Board of Directors, I am pleased to present the 2022 Comprehensive Management Report.
The results contained in this report are a reflection of the constant and determined work of thousands of people who make the impossible possible through their perseverance, commitment, and innovation.
Today, we are proud to show our stakeholders that we continue to lead by example, and that our commitment to Colombia and the world is ever-present in all our actions:
In safeguarding life, as expressed in our cultural principle of “Life First,” honoring it with tangible and historical results in the reduction of our accident rates.
In protecting the environment, also aware of the active role that we must play in the mitigation of climate change and the energy transition, with milestones such as the reduction of emissions, our commitment and measures adopted to become water neutral, the promotion of biodiversity and circular economy strategies, self-generation projects using renewable energies, and pilot testing for the production of green hydrogen, among other initiatives.
In the importance we place on local development and employment to contribute to improving the quality of life of the population and closing socioeconomic gaps.
In the undertaking of responsible, safe, and efficient operations, and in decision-making following rigorous corporate governance processes and practices focused on generating value.
In the promotion of knowledge and the use of technology to develop innovative solutions to face current and future challenges.
All of the above, within the framework of building trust and harmonious relationships with our stakeholders, based on ethics, transparency, respect, and the promotion of human rights.
In the last few years, we have witnessed Ecopetrol’s transformation and evolution to become a leading diversified energy group in the American continent. This commitment was materialized in the “2040 Strategy: Energy that Transforms,” which was released at the beginning of 2022, in response to global environmental, social, and governance challenges. By means of the Strategy, we ratify the Ecopetrol Group’s commitment to TESG and to the sovereignty and energy transition of the country.
The roadmap outlined for the coming years aims to continue advancing towards decarbonization and the generation and use of clean energy, without neglecting the competitiveness of the hydrocarbon business, and particularly the increase of gas supply, while maintaining competitive returns for all shareholders.
Ecopetrol is aware of the need to advance on the path to a just energy transition. In this sense, it has made a decisive commitment to reduce its carbon footprint and become a zero net carbon emission company by 2050 (Scopes 1 and 2), produce at least 1 million tons of low-carbon hydrogen (H2) by 2040, and generate 900 MW of renewable energy by 2025, just to mention some of the objectives that we have set for ourselves.
To leverage this strategy, as the Board of Directors, we approved the 2023 Investment Plan, which will allow the Ecopetrol Group to invest between 25.3 and 29.8 TRILLION COP in 2023. Allow me to highlight that around 23% of this plan will be allocated to diversification into new low-emission businesses, including investments in hydrogen production, renewable energy, carbon capture, and electrical transmission. Roughly COP 2.3 trillion will also be allocated mainly to decarbonization, comprehensive water management, and fuel quality projects, as well as investments associated with research, circular economy, health, and process and industrial safety.
All this is possible thanks to the superb financial results attained in 2022. We ended last year with a net income of 33.4 TRILLION COP, doubling that of the previous year, and an EBITDA of 75.2 TRILLION COP, with a 47% EBITDA margin. These figures not only enable investments in the aforementioned projects, but also play a part in the well-being of all Colombians by contributing 2.3% to gross domestic product (GDP).
Ecopetrol has been committed to the socioeconomic growth of the country by being a relevant player in the development of local and national programs and projects aimed at promoting prosperity and territorial peace. “Contributing to the effective improvement of social welfare conditions, environmental conservation, and the strengthening of democratic institutions at the local level” is the slogan that motivates us. For this reason, the Board of Directors approved the allocation of 472 BCOP in social investments for 2023, which will strengthen the Company’s commitment to the local development of the regions.
As Chairman of the Board of Directors, I hereby reaffirm our pledge to continue guiding the Company in its strategic matters and overseeing the achievement of the goals that we have set for ourselves, as well as those that we set for ourselves in the future. Continuing to be “Energy that Transforms” will motivate each of our steps to continue positioning Ecopetrol as a benchmark for the just energy transition and as a leader in the management of environmental, social, and governance issues.
Saúl Kattan Cohen
Chairman
Ecopetrol Board of Directors
Message from the CEO/
Sustainable Development Strategy Statement
It is with great pleasure that I present to you our 2022 Comprehensive Management Report, which includes the most significant aspects and achievements attained by Ecopetrol and its subordinate companies in the previous year, for the benefit of all their stakeholder groups. We take great pride in our learning and evolution over more than 70 years of experience, and I am pleased to reaffirm that our commitment to act responsibly and deliver value opportunities remains intact, as evinced in the exceptional results reported in this document.
The 2040 Strategy: Energy that Transforms, made up of four (4) pillars:
1
Growing with the energy transition.
2
Generating value
with TESG.
3
Cutting-edge expertise.
4
Competitive returns.
Attests to the relevance of sustainable development for the Ecopetrol Group, by coining the term TESG and incorporating it as one of its pillars.
This strategy outlined a horizon with great challenges, which is why we have strengthened ourselves to become the largest diversified energy group in Latin America with three (3) business lines: hydrocarbons, low emissions, and transmission and toll roads. To this end, our corporate governance has played a vital role in the Company’s vision and in obtaining our current results. I wish to highlight that the strategic guidelines of our Board of Directors in the context of TESG has defied the Company to be at the forefront of the challenges imposed on us by our stakeholders, the market, and the territories where we operate.
The operational, financial, and TESG results materialize the work undertaken in 2022 and are reflected in the achievements obtained in each of the business lines pursued by the Ecopetrol Group.
On the pillar of Growing with the Energy Transition, the Ecopetrol Group recorded a Reserve Replacement Index of 104% in 2022, incorporating 249 MBOE thanks to the management efforts exerted in the development fields, reflected in the optimal and timely maturation of new projects, better execution capacity, and implementation of improved recovery expansion projects. 75% of the total balance of reserves consists of liquid and 25% of gas, and the average life of the reserves stood at 8.4 years.
On the exploration front, we accumulated seven (7) exploratory successes in the Colombian offshore (Uchuva-1, Gorgon-2), Valle Superior del Magdalena (El Niño-2 and Ibamaca-2ST), Valle Medio del Magdalena (Morito-1), Llanos Orientales (Tejón-1), and Valle Inferior del Magdalena (Coralino-1 operated by our subsidiary Hocol), which will contribute to the country’s energy sovereignty with the supply of natural gas to the market.
Our production hit targets above the goals announced for 2022 (700-705 kboed), with a total of 709.5 kboed, 4.5% higher compared to 2021. Gas production contributions accounted for 20%, which we expect to continue expanding. For this reason, and consistent with our 2040 Strategy, the Gas Vice Presidency became the Low Emission Solutions Vice Presidency, integrating the areas of natural gas, biogas, LPG, energy, renewables, hydrogen, and CCUS (Carbon Capture, Use, and Storage), with the purpose of capitalizing opportunities and synergies geared towards the energy transition.
Not to mention the outstanding operating and financial results of our operation in the Permian, with an increase of 57.4% kboed in average production (net values for Ecopetrol before royalties).
1,071 KBPD were transported in 2022, increasing by 6.3% compared to the previous year, thanks to higher production, the transportation of additional third-party barrels, and increased multi-pipeline transportation due to the higher fuel demand in the country.
The refining segment recorded superb operating and financial results throughout the year, with a consolidated load of 357.5 kbd, the highest in the last three (3) years, and an annual historical gross margin record of 21 USD/Bl. Furthermore, the Barrancabermeja refinery was recognized as the best in Latin America by the World Refining Association in the framework of the Latin American Refining Technology Conference (LARTC). The award highlights the refinery’s leadership in efficiency, energy transition, profitability, and the implementation of new technologies.
In 2022, the Cartagena refinery completed the crude oil plant interconnection project (IPCC, as per its Spanish acronym), increasing the load capacity from 150 kbd to 200 kbd to meet the growing demand for fuels in the country.
The refinery recorded a load of 139.8 kbd, with an annual historical gross margin record surpassing that of 2021 by 169.4%. This, mainly due to:
- i) Better differentials versus Brent in fuels.
- ii) Higher performance in gasoline production by maximizing the load in the cracking and alkylation units. .
It is also important to highlight the Transmission and Toll Road business line, which contributed COP 8.6 trillion to the Ecopetrol Group’s EBITDA, thus ensuring the successful consolidation of ISA.
With regard to the pillar of Generating Value with TESG, accomplishments can be seen in all dimensions of sustainable development.
Our principle of “Life First,” in pursuit of reliable and safe operations for all our collaborators and contractors, led us to a low level of accidents with a TRIF1 of 0.33, the lowest annual figure recorded in the history of the Ecopetrol Group, consolidating us as an international benchmark.
In the environmental dimension, the Ecopetrol Group is committed to reducing net CO2 emissions to zero by 2050. By deploying energy efficiency and renewable projects, among others, we have accumulated a reduction of 910,113 tCO2e since 2020 to this date, of which 586,226 tCO2e have been verified by a third party. By year end, we had exceeded our emission reduction goal by 59%.
In 2022, we sold four (4) cargoes of carbon-compensated Castilla Blend® amounting to 4.0 million barrels to the United States, India, and Spain. Furthermore, at the end of 2022, we implemented a pilot in Colombia for the sale of carbon-compensated premium gasoline to wholesale distributors, thus contributing to the mitigation of climate change in Latin America and the region. Similarly, we conducted test applications of asphalt modified with recycled plastic on various roads in Bogotá and Medellín, advancing steadily in our circular economy projects.
The midstream segment, led by Cenit, was granted the Carbon Neutrality certification this year, ranking it as the first segment to achieve said milestone globally. The same certification was obtained by our subsidiary Esenttia.
Our commitment to be water neutral by 2045 also remains firm. In 2022, 131.5 million m3 of water were reused, which is equivalent to 77.5% of the total water required for operation, representing an 18% increase with respect to the previous year. In turn, a sustained 6% decrease was recorded in catchments compared to 2012, bringing us closer to the goal set.
In line with our commitment to advance towards the energy transition, we doubled our renewable energy capacity, including three (3) eco-solar parks and the first small hydroelectric plant (PHC) in the country, thus generating 208MW of renewable energy in operation, connected to the self-generation grid.
We are the largest renewable energy self-generator in the country and our purpose is to continue pressing forward. The goal is to incorporate 900 MW of renewable energy sources for self-consumption by 2025.
In hydrogen, we are creating an ecosystem in Colombia with the signing of six (6) agreements with companies in Europe and Asia, as well as our adherence to the Hydrogen Council, and the formulation of a diversified portfolio. We successfully completed the pilot test for the production of green hydrogen at the Cartagena refinery, which serves as the foundation for the development of two green hydrogen megaprojects at our refineries, and we also advanced in the construction of two (2) mobility parks. In so doing, we have taken determined steps in the implementation of the Company’s strategic plan in this regard.
With respect to the energy management business, the Ecopetrol Group was able to reach its energy efficiency goal of reducing its electricity demand by 3% before the established deadline in 2022. Since 2018, the Company has optimized its electricity demand by 44.7 MW, which means an improvement of 5.5%. By 2022, the Group reduced its electricity demand in operations by 16.8 MW and we conducted six (6) pre-feasibility studies for the underground storage of CO2.
In the social domain, were reinforced our commitment to sustainable territorial development and closing inequality gaps, with investments that enable the diversification of local economies, improve the quality and coverage of national education, and expand access to basic utility services. The foregoing is evinced with the execution of more than 615 BCOP in socio-environmental investments, translated into benefits for more than 2,100 families who were able to access marketing channels for their agricultural products; more than 128,000 students; more than 7,600 new users connected to the gas grid; more than 763,000 people with access to water; and 204 km of tertiary road network built.
The Works for Taxes mechanism enabled the handover of 8 projects throughout the year, amounting to 101,374 BCOP, which benefited more than 276,000 inhabitants in 14 municipalities of 4 departments around the country. Similarly, the historic allocation of 16 new projects was completed, including access to photovoltaic energy for the first time. The new projects amount to 155 BCOP and represent 31% of the national total, contributing significantly to the consolidation of peace in the municipalities affected by the conflict. With the allocation of these projects, the Ecopetrol Group accumulates a total assignment of 59 projects since the inception of the program, in the amount of 557,608 BCOP, equivalent to 39% of the total assigned in the country.
We also wish to highlight the work of the companies under the Ecopetrol Group, which procured goods and services totaling COP 32.6 trillion in 2022, of which 5 TRILLION COP were contracted with local suppliers and generated more than 130 thousand jobs, including the hiring of more than 28,000 people with disabilities, members of ethnic groups, victims of armed conflict, and people in their first jobs. This demonstrates the contribution and importance of the Group to the local economy and its commitment to the promotion of human rights, inclusion, and business development in Colombia.
In the field of Corporate Governance, three (3) General Shareholders’ Meetings were held, one ordinary and two extraordinary. In addition, we have a new Board of Directors made up of people with a well-reputed professional career and extensive experience in various sectors of the economy, including energy, which is relevant to furthering the strategy towards the energy transition. In line with our efforts in pursuit of diversity and inclusion, we now have two (2) women as part of this team.
Throughout the year, we published the Comprehensive Sustainable Management Report, consistent with our commitment to transparency, which is the second SASB report and the second TCFD report for 2021. Our commitment to TESG was reflected in our Dow Jones Sustainability Index, where we grew our rating by eight (8) points compared to the previous year, and we were recognized as members of the Sustainability Yearbook for the second time in a row.
With regard to the pillar of Cutting-edge Expertise, the CT+I (science, technology, and innovation) initiatives contributed to operational efficiency, the generation of TESG value, and the competitive advantage of our businesses, through the automation of processes and the implementation of avant-garde technologies. The CT+I portfolio was made up of 201 projects in execution, generating certified benefits of about 596 million USD.
In this field, among others, we highlight the Visual Mesa digital tool, which allows real-time optimization of the power generation system at the refineries, thus enabling the reduction of operating costs, greater process efficiency, and the reduction of CO2 carbon emissions. With the implementation of this tool, the Barrancabermeja refinery was able to reduce emissions by 12,377 Ton/CO2.
We also wish to mention the deployment of the first versions of the water management platform, developed jointly with Accenture and Amazon Web Services (AWS), focused on optimizing water catchment, use, and discharge processes at the Barrancabermeja refinery, in the conventional (Campo Ocelote de Hocol) and unconventional (Permian) upstream, which is a key initiative to fulfill our goal of being a neutral water company by 2045.
In December, at the Caribbean Innovation Center, we entered into an agreement with the Ministry of Commerce, Industry, and Tourism, the Ministry of Mines and Energy, the Bogotá Energy Group, Promigas, Siemens Energy, the Embassy of Colombia in Germany, and LATAM, to seek financing mechanisms for the development of renewable energy and green hydrogen projects in the country, thus reinforcing Ecopetrol’s commitment to the energy transition.
On the pillar of Competitive Returns, the Ecopetrol Group ended 2022 with the best financial results in its history, by recording a historical income of COP 159.5 trillion, a net profit of COP 33.4 trillion, an EBITDA of 75.2 trillion, and an EBITDA margin of 47.2%. At the end of 2022, the gross debt/EBITDA indicator was 1.5 times over and the return on capital employed (ROACE) was 18.8%.
This solid financial performance was leveraged by:
- i) The favorable pricing environment.
- ii) The higher contribution to production by Permian and Ecopetrol S.A.
- iii) The record achievements in the refineries.
- iv) The solid results secured by ISA.
The foregoing allowed the Group to offset:
- i) Inflation and the exchange rate effect on operating costs and expenses.
- ii) The higher debt interest.
- iii) The higher level of exploratory expenses.
- iv) The increase in the nominal income tax rate for 2022.
Our subsidiary in Singapore, Ecopetrol Trading Asia, allowed us to consolidate our crude oil exports to the Asian market, with new commercial relationships with clients in China, India, Japan, South Korea, Brunei, and others, by intensifying the diversification strategy and significantly improving our sales margins.
Our contribution to the country was outstanding: in 2022, we contributed COP 42.4 trillion to the Nation in dividends, royalties, and taxes, compared to COP 16.8 trillion in 2021, and similarly distributed COP 2.1 trillion to our minority shareholders.
We are proud of our results. They are the result of the dedication of more than 18,000 direct employees and 130,000 partner company employees committed to generating sustainable and responsible value for society and our shareholders, and who push us forward in the implementation of the 2040 Strategy to guarantee a just energy transition and energy sovereignty in Colombia.
Felipe Bayón Pardo
President – CEO