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Ecopetrol - Operational issues derive in weak financials for 2Q14; results in the exploratory front in Colombia are anemic

Precio: COP 3,180; Precio Objetivo: COP 4,260

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August 1, 2014 (www.investorideas.com newswire) Ecopetrol reported financials for 2Q14 with EBITDA and net income below our expectations and market consensus. Oil & gas production reached 734.1 kboed, which is equivalent to a 5.7% y/y decline and lies 3.4% below our estimate. Although operating revenues climbed a mere 0.9% and were in line with our expectations, we highlight that EBITDA and net income fell 11.1% and 18.2% y/y, respectively. Higher realization prices during the quarter mitigated the negative effect of the violent attacks to the oil infrastructure, operating restrictions and higher operating costs. On the other hand, we highlight a worrying exploratory campaign during 1H14 along with significantly low CAPEX execution, as the latter was placed at 32.7% at the end of 1H14 relative to the full year guidance.

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Our conservative scenario on production for 2Q14 was 740 kboed; the actual production figure was below that threshold even though prior to the results the Ministry of Energy and Mines had suggested that production would have been higher. That said, a 40-day downtime on the Caño Limon pipeline along with 29 violent attacks during the quarter and community protests, was enough to cause a 5.7% y/y decline on production. Going forward, we expect to have better conditions, but we cannot be certain that the Government’s initiatives to alleviate the sector’s current situation will be effective.

We were particularly negative regarding the exploratory campaign. When excluding the subsidiaries, Ecopetrol reported zero success during 2Q and 11.1% in 1H14. This is worrying as our top concern remains the addition of new reserves in the long term.

Although market agents have priced in most of these results, we expect a negative reaction before the conference call takes place next Tuesday, August 5.

For charts, tables and the full report, see the attached file.

Regards,
Credicorp Capital

La información contenida en este mensaje es confidencial y para conocimiento exclusivo del destinatario. La información y opiniones contenidas en este mensaje pertenecen únicamente al remitente, excepto cuando en el cuerpo del mensaje se establezca lo contrario y el remitente esté autorizado para enviar dicha información con carácter definitivo y oficial de Credicorp Capital. La información relacionada con su cuenta, los extractos, informes financieros y de productos, sólo será vinculante en la medida en que sea remitida por los canales y en los formatos que Credicorp Capital determine. Las opiniones, conclusiones o cualquier otra clase de información contenida en este correo no relacionadas con los fines del negocio de Credicorp Capital, deben entenderse como personales y bajo ninguna circunstancia son avaladas por Credicorp Capital. Si usted ha recibido este mensaje por error por favor proceda a eliminarlo, y notificar al remitente. De cualquier manera, usted no debe usar, divulgar, revelar, distribuir, imprimir, copiar o adulterar en forma parcial o total este mensaje. Credicorp Capital no se hace responsable por la eventual transmisión de virus o programas dañinos por este medio. Credicorp Capital, no se responsabiliza por eventuales daños o alteraciones como consecuencia de la recepción o uso del presente mensaje.

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