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Ecopetrol's (EC) Q2 Earnings Decline Y/Y on Lower Oil Price

Zacks Equity Research

Ecopetrol S.A. EC reported second-quarter 2019 net income of 3,487 billion Colombian pesos, lower than 3,519 billion Colombian pesos in the June quarter of 2018. However, revenues of 18,309 billion Colombian pesos improved from 16,987 billion Colombian pesos reported in the corresponding period last year.

Cartagena refinery’s lower margin and decline in oil price realization hurt the company’s profit, partially offset by higher crude transported volumes.  

Segmental Performances

Being an integrated energy firm, Ecopetrol operates through Exploration and Production, Transportation and Logistics, and Refining and Petrochemicals segments.

Exploration and Production: The company generates operating income of 3,877 billion Colombian pesos from this business, which is below 4,449 billion Colombian pesos a year ago. The decline in realization of oil price hurt the segment.

The company produced 723 thousand barrels of oil equivalent per day (mboed), up from 720.9 mboed in the June quarter of 2018. Crude volumes — representing almost 82.3% of total production — were 594.9 thousand barrels per day (mbd), up from 593.2 mbd in the prior-year quarter.

Average realized Brent oil price was reported at $68.5 per barrel, down from $75 a year ago.

Transportation and Logistics: The unit contributed operating profit of 2,157 billion Colombian pesos, up from 1,932 billion Colombian pesos in second-quarter 2018. This was because of a rise in transported volumes of crude oil.

Refining and Petrochemicals: Ecopetrol incurred an operating loss of 75 billion Colombian pesos at this segment against a profit of 3 billion Colombian pesos in the comparable quarter last year. Lower margin from Cartagena refinery hurt the segment’s performance.

Financial Position

Through second-quarter 2019, the company invested $745 million of capital. Of the total capital budget, 75% was allotted to production.

As of Jun 30, 2019, Ecopetrol had cash and cash equivalents of 5,524 billion Colombian pesos while total debt, including short-term and long-term loans plus borrowings, was roughly 37,467 billion Colombian pesos. The company’s debt-to-capitalization ratio was roughly 40%.    

Zacks Rank and Key Picks

Ecopetrol carries a Zacks Rank #3 (Hold). Meanwhile, a few better-ranked players in the energy space include World Fuel Services Corporation INT, Delek Logistics Partners, L.P. DKL and TC PipeLines, LP TCP. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

World Fuel beat the Zacks Consensus Estimate in each of the prior four quarters, the average positive earnings surprise being 16.4%.

Delek Logistics is likely to see earnings growth of 4.9% through 2019.

TC PipeLines has an average positive earnings surprise of 12.6% for the past four quarters.

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