ECOPETROL S.A. | CIK:0001444406 | 3

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

    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).
     
    (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.
     
    (d)
    Reserve information
     
    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.
     
    (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)