Executive Summary / Key Takeaways

• Ecopetrol ($EC) is demonstrating robust operational performance and strategic diversification, achieving its highest semester production in a decade (751,000 boepd in H1 2025) and maintaining a strong EBITDA margin of 40% despite volatile crude prices.
• The company is aggressively advancing its energy transition, with significant investments in natural gas infrastructure, renewable energy projects like Windpeshi, and a target to exceed 900 MW of self-generation capacity by year-end 2025.
• Strategic acquisitions, such as the 45% stake in the CPO-09 block and the commerciality declaration of the Lorito discovery (250 million barrels recoverable), are bolstering reserves and production, while the Orca project in Brazil is set to incorporate proven reserves in 2025.
• Ecopetrol maintains disciplined financial management, with COP 2.2 trillion in efficiencies achieved in H1 2025, a healthy cash position of COP 13.1 trillion, and a gross debt-to-EBITDA ratio of 2.4x, supporting its ambitious $6-6.8 billion investment plan for 2025.
• Key risks include ongoing crude price volatility, geopolitical tensions, and a significant COP 11 trillion claim from the Colombian tax authority (DIAN) regarding VAT on fuel imports, though Ecopetrol is actively pursuing legal defense and does not currently recognize payment obligations.

Ecopetrol: Forging a Diversified Energy Future

Ecopetrol S.A. ($EC), a cornerstone of Colombia's energy landscape since its incorporation in 1948, has evolved from a national oil company into a diversified integrated energy powerhouse. Operating across the entire hydrocarbon value chain—exploration, production, transportation, and refining—and increasingly expanding into electric power transmission and renewable energies, Ecopetrol is strategically positioning itself for a dynamic global energy future. This integrated model, coupled with a proactive approach to energy transition and operational efficiency, forms the bedrock of its investment thesis, enabling resilient performance even amidst challenging market conditions.

The company's strategic journey has been marked by significant milestones that underscore its commitment to growth and diversification. The 2016 commissioning of the Cartagena refinery's hydrocracking unit enhanced its downstream capabilities, while the 2019 entry into the Permian Basin in the United States and the acquisition of a 51.4% stake in ISA (ISA), a leading energy transmission and road infrastructure company in Latin America, have been pivotal in expanding its geographic footprint and revenue streams. Ecopetrol's overarching strategy is to strengthen its traditional hydrocarbon business while aggressively advancing its energy transition agenda, aiming for sustainable value creation for its stakeholders.

Technological Edge and Operational Prowess

Ecopetrol's operational strength is deeply intertwined with its strategic application of technology and continuous innovation across its diverse segments. In the upstream sector, the company leverages advanced recovery techniques and optimized drilling designs to maximize resource extraction. For instance, the expansion of water treatment capacity in fields like Rubiales and Caño Sur, alongside the gradual commissioning of crude treatment capacity at the Orotoy Station, which increased to 35,000 barrels by July, are critical for sustaining and growing production. These facilities enable operational continuity and support production growth. The company's drilling campaign in the Permian Basin, which contributed to a semester production of 106,000 barrels of oil equivalent per day in H1 2025, reflects optimized completion designs and efficiencies in bringing new wells online, showcasing a tangible benefit in accelerating production schedules.

In the midstream segment, Ecopetrol employs technology for rapid detection, repair, and evacuation at affected points in its transportation infrastructure, mitigating the impact of external disruptions. The expansion of the Pozos Colorados terminal, including Colombia's largest tank with a 320,000-barrel capacity and an increased unloading capacity of 550,000 barrels, enhances logistical efficiency and enables the reception of larger vessels. This technological and infrastructural upgrade directly contributes to the resilience and efficiency of Colombia's hydrocarbon transportation system.

Ecopetrol is also a leader in energy transition technologies. Its energy efficiency program, which achieved a cumulative optimization of 2.42 petajoules in H1 2025, is driven by initiatives such as the replacement of turbo compressors and optimization of gas injection systems. These measures resulted in savings of over COP 53 billion and a reduction of approximately 171,000 tons of CO2 equivalent in H1 2025. Furthermore, the company's focus on renewable energy self-generation, which accounted for 5.6% of its electricity demand in H1 2025—a nine-fold increase from five years ago—demonstrates a clear commitment to decarbonization and reducing energy costs in its operations. The acquisition of Windpeshi, Ecopetrol's first wind project, further solidifies its renewable energy portfolio, which reached 630 megawatts by the end of H1 2025. These technological advancements and strategic investments are not merely environmental initiatives but are integral to Ecopetrol's long-term competitive moat, driving operational efficiencies, cost reductions, and a diversified energy matrix.

Operational Momentum and Strategic Expansion

Ecopetrol's operational performance in the first half of 2025 reflects a company firing on all cylinders, despite a challenging external environment. The group achieved a semester production of 751,000 barrels of oil equivalent per day, marking its highest level in a decade. This was significantly driven by fields in Colombia, such as Caño Sur and CPO-09, which contributed to the highest national crude production in four years, alongside a strong performance in the Permian Basin in the United States. Domestic crude oil production reached 57,000 barrels of oil per day in H1 2025, the highest since 2021.

A pivotal development in Q2 2025 was the declaration of commercial viability for the Lorito discovery in Meta, representing the most significant discovery in terms of resource potential over the past decade, with approximately 250 million barrels of recoverable resources, including 109 million barrels classified as certified contingent resources. The strategic value of this discovery is amplified by its proximity to existing infrastructure and potential reservoir continuity with nearby fields like Akacias and Chichimene, facilitating operational synergies. The development plan for Lorito is slated for submission to the ANH in Q4 2025.

Internationally, Ecopetrol is making strides with the Orca and South Orca (formerly Gato do Mato) development areas in Brazil, where commerciality was declared in May 2025, enabling the incorporation of proven reserves in 2025. Detail engineering for the floating production unit and processing facilities is already underway. The company is also actively expanding its gas potential, initiating drilling of the Papayuela well in the Caribbean offshore and progressing the Sirius project towards its development phase. Furthermore, Ecopetrol has submitted a request to the ANH to acquire Shell's 50% interest in the Southern Caribbean offshore assets, underscoring its commitment to expanding its gas portfolio.

The midstream segment, despite a 6% decrease in transported volumes in Q2 2025 due to external events and refinery maintenance, demonstrated resilience with a 9% increase in EBITDA in H1 2025 compared to the same period in 2024. The downstream segment also showed a strong recovery in Q2 2025, with a 53% increase in EBITDA year-over-year, supported by improved operational availability (95.8%) and better international gasoline and diesel differentials. The integrated gross refining margin reached $12.5 per barrel in Q2 2025, a 37% increase from Q2 2024.

Financial Strength and Disciplined Capital Allocation

Ecopetrol's financial performance in the first half of 2025, while impacted by external factors, highlights its underlying resilience and commitment to capital discipline. Net income for H1 2025 stood at COP 4.9 trillion, a year-over-year decline of COP 2.5 trillion, primarily due to a $12 drop in Brent prices compared to H1 2024, which accounted for 78% of the impact. Despite this, the EBITDA margin remained strong at 40%, exceeding the annual target of 39%. The exploration and production business line continued to be the largest contributor, accounting for 54% of total EBITDA, with the transportation and refining segments combined contributing 83%. ISA, the electric power transmission and road infrastructure segment, contributed the remaining 17%, reaffirming its role in the group's diversification strategy.

The company's aggressive efficiency program is a critical financial lever. Ecopetrol achieved COP 2.2 trillion in savings in H1 2025, surpassing its semester target by 27%. These efficiencies directly benefited OpEx and revenues, with COP 1.5 trillion in optimizations within the hydrocarbon segment alone, leading to reduced lifting costs, energy consumption per barrel, and cost per foot drilled. Lifting costs stood at $11.59 per barrel in H1 2025, a decrease of $0.45 per barrel compared to the same period last year, supported by a favorable exchange rate and captured efficiencies. Ecopetrol aims to go beyond COP 5 trillion in efficiencies for the full year 2025 to mitigate external value impacts.

Ecopetrol maintains a healthy liquidity position, with cash and cash equivalents of COP 13.1 trillion as of June 2025, and a positive free cash flow of COP 3.1 trillion. This was bolstered by the early collection of COP 7.6 trillion from the Fuel Price Stabilization Fund (FEPC) for 2024, and the FEPC balance was reduced to COP 2.5 trillion as of June, its lowest level since Q2 2021.

The company's gross debt-to-EBITDA ratio was 2.4x as of June, remaining within its long-term target range of below 2.5x, and 1.7x excluding ISA. The net debt-to-EBITDA ratio further decreased to 2.2x, and to 1.6x excluding ISA, indicating a strong financial position well below the industry average. For 2025, no increase in debt levels is expected for organic portfolio activities.

The 2025 investment plan, totaling $6-6.8 billion, is aligned with historical levels and prioritizes energy security (59% of investments) and energy transition initiatives (41%). The company has also implemented a $500 million CapEx flexibility target to protect production, with 56% progress achieved by mid-2025. Ecopetrol's dividend policy targets a payout ratio of 40% to 60% of available profit, with 59% paid out this year, reaffirming its commitment to shareholder value.

Competitive Positioning and Market Dynamics

Ecopetrol operates in a highly competitive global energy market, facing integrated oil and gas giants like Petrobras (PBR), Chevron (CVX), ExxonMobil (XOM), BP (BP), and Shell (SHEL), as well as emerging players in the renewable energy sector. Ecopetrol's unique value proposition stems from its integrated operations, strong regional presence in Latin America, and its strategic diversification into electric power transmission through ISA.

When compared to its peers, Ecopetrol demonstrates competitive profitability and OpEx competitiveness, standing in quartile 2 among its peers. Its lifting cost of $11.59 per barrel in H1 2025 is a testament to its efficiency. While global majors like ExxonMobil and Chevron often boast larger scale and more advanced R&D in certain deep-water or low-carbon technologies, Ecopetrol's deep understanding of the Latin American operating environment, coupled with its established transportation and refining infrastructure, provides a significant regional advantage. For instance, its extensive pipeline network translates into stronger customer loyalty and efficient transportation, which helps differentiate it from competitors.

Ecopetrol's strategic focus on natural gas as a transition fuel and its aggressive expansion into renewable energy sources also differentiate it. While companies like BP are making significant shifts towards low-carbon solutions, Ecopetrol's integrated approach allows it to leverage existing infrastructure and expertise to develop new energy sources. The company's commitment to securing national gas supply through long-term contracts and evaluating regasification projects positions it as a key player in Colombia's energy security.

However, Ecopetrol is not without its vulnerabilities. Its exposure to geopolitical risks and operational dependencies within Colombia can impact financial performance. The company's production, particularly gas, faces natural decline rates, a reality that Ecopetrol is addressing through significant investments in offshore exploration and mitigation initiatives like the Cupiagua project, which increased gas production by 14%. The ongoing DIAN VAT claims represent a significant regulatory and financial challenge, though Ecopetrol is actively defending its position. Despite these challenges, Ecopetrol's diversified portfolio, particularly the stable, regulated income from ISA, provides a natural hedge against the volatility inherent in the hydrocarbon business.

Outlook and Forward Guidance

Ecopetrol's outlook for 2025 is one of sustained growth and disciplined execution. The company is maintaining its production target of 740,000 to 750,000 barrels of oil equivalent per day. This is supported by an upstream investment plan of $4 billion, allocated between $3.6 billion for production and $400 million for exploration, with no anticipated impact on reserve incorporation or production levels. Management expects to capitalize on improved downstream margins in the second half of the year, following the completion of major maintenance activities. No further significant refinery stoppages are scheduled for H2 2025.

The company is committed to achieving over COP 5 trillion in efficiencies for the full year 2025, building on the COP 2.2 trillion already realized in H1 2025. This aggressive efficiency drive is crucial for mitigating the impact of external factors and maintaining competitive profitability. Ecopetrol also aims to keep lifting costs below $12 per barrel.

In the energy transition segment, Ecopetrol expects to exceed its goal of 900 megawatts in renewable energy self-generation by 2025. Investments in clean energy projects, including the Windpeshi wind farm, are estimated between $300 million and $400 million for the year. The first long-term imported gas deliveries from the Colombian Pacific Coast are scheduled to begin in H2 2026, with Ecopetrol evaluating further regasification projects in the Caribbean for 2026-2027.

Regarding the FEPC balance, Ecopetrol anticipates it will reach COP 5 billion by the end of 2025. The company does not expect adjustments in gasoline and diesel prices for the remainder of the year, though discussions to increase diesel prices for high-end vehicles may take place in early 2026. Ecopetrol's investment plan is designed to adapt to different price scenarios, ensuring capital discipline and competitive returns.

Conclusion

Ecopetrol stands as a compelling investment story, characterized by its integrated resilience and strategic pivot towards a diversified energy future. The company's ability to deliver strong operational results, including record production levels and significant reserve additions, while simultaneously making aggressive strides in its energy transition agenda, underscores its adaptive strength. Its robust financial health, marked by substantial efficiency gains, a healthy cash position, and disciplined debt management, provides a solid foundation for its ambitious investment plans.

While external challenges such as crude price volatility, geopolitical tensions, and regulatory disputes like the DIAN VAT claims persist, Ecopetrol's diversified business model, particularly the stable contributions from ISA, offers a crucial buffer. The company's technological advancements and strategic investments in both traditional hydrocarbons and new energies are not merely reactive but are proactive measures to secure long-term value and competitive advantage. Investors should monitor Ecopetrol's continued execution of its efficiency programs, the progress of its key exploration and development projects, and its ability to navigate the evolving regulatory landscape, all of which are critical to realizing its full potential as a leading integrated energy player in the region.