ECOPETROL S.A. | CIK:0001444406 | 3

  • Filed: 4/26/2018
  • Entity registrant name: ECOPETROL S.A. (CIK: 0001444406)
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    • ifrs-full:DisclosureOfImpairmentOfAssetsExplanatory

    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
     
     
    18.1.1
    Oilfields
     
    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
     
     
    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%).
     
    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.
     
    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.
     
    18.2.3
    Bioenergy
      
    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%).