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澳门新永利国际平台登录ECOPETROL S.A.:Ecopetrol 2Q1

澳门新永利国际平台登录,In this report we provide our read of Ecopetrol’s 2Q17 results, update ourforecast model and sensitivity tables, and review our take on the company’sstandalone credit profile as well as our recommendation on the company’sUSD bonds. We are now more constructive on the company’s near-termprospects following a recent large debt prepayment (indicating lower M&A riskto us) and the company’s resilient cash flow and low leverage metrics, whichhelps counter the longer term uncertainty associated with its low oil reservelife and challenges to replace reserves in Colombia. We are upgrading ourrecommendation on the ‘26s, ‘43s and ‘45s to Hold from Sell, downgradingthe ‘23s to Sell from Hold, and reiterating our Hold on the ‘19s. Meaningfulspread pick-up to EM peers for the ‘26s, ‘43s and ‘45s, positive cashgeneration prospects with Brent prices above USD46/bbl, and little supply riskhelp justify our change of view in this part of the curve, while the ‘23s areneither short nor wide enough to compensate for risks, in our view. We alsoprovide relative value charts in the report.

In this report, we provide our read of Petrobras’ 2Q17 results and update ourforecast model and sensitivity tables, as well as relative value charts. We arenot changing our views on Petrobras’ credit profile and prospects or our Holdrecommendation on the company’s fixed-rated USD bonds due 2019 andbeyond. 2Q results were somewhat soft in our view, driven mainly by weakerdownstream top line and E&P production relative to LTM figures. But recentcost-cutting efforts, capex discipline and asset sale proceeds have helped thecompany keep its deleveraging pace, ending the quarter with net leverage of3.15x in USD terms (-0.3x qoq). Our base-case forecasts point to sustainingfree cash flow in the USD+6bn handle in upcoming years and net leveragedropping further to 2.8x in 2019, assuming a flat Brent price of USD50/bbl. Wealso forecast a 2019 Brent-equivalent cash flow breakeven per boe ofproduction in the high USD30s / low USD40s area, which provides animportant cushion to downside risks to near-term oil prices and the executionof the company’s divestment program, as well as risks to E&P productiontrajectory due to lower capex. Despite the company’s positive standalonefundamental momentum and positive bond relative value to EM peers in the 5-and 10-year areas, in our view, we justify our Hold recommendation withcurrent tight bond spreads on a historical basis, our conservative stance onnear-term oil prices, and Brazil’s fragile macro, political and fiscal situation.

In this report, we provide our read of Petrobras’ 2Q17 results and update ourforecast model and sensitivity tables, as well as relative value charts. We arenot changing our views on Petrobras’ credit profile and prospects or our Holdrecommendation on the company’s fixed-rated USD bonds due 2019 andbeyond. 2Q results were somewhat soft in our view, driven mainly by weakerdownstream top line and E&P production relative to LTM figures. But recentcost-cutting efforts, capex discipline and asset sale proceeds have helped thecompany keep its deleveraging pace, ending the quarter with net leverage of3.15x in USD terms (-0.3x qoq). Our base-case forecasts point to sustainingfree cash flow in the USD+6bn handle in upcoming years and net leveragedropping further to 2.8x in 2019, assuming a flat Brent price of USD50/bbl. Wealso forecast a 2019 Brent-equivalent cash flow breakeven per boe ofproduction in the high USD30s / low USD40s area, which provides animportant cushion to downside risks to near-term oil prices and the executionof the company’s divestment program, as well as risks to E&P productiontrajectory due to lower capex. Despite the company’s positive standalonefundamental momentum and positive bond relative value to EM peers in the 5-and 10-year areas, in our view, we justify our Hold recommendation withcurrent tight bond spreads on a historical basis, our conservative stance onnear-term oil prices, and Brazil’s fragile macro, political and fiscal situation.

Despite ARS sell-off at the end of 2Q17, results held up relatively well helpedby better refined product volumes even though there were no meaningfuldownstream price increases

    Solid quarter driven by resilient production, improved crude oil pricing andcontinued cost discipline; USD0.5bn cash burn was due to concentration of taxand dividend payments in the quarter (otherwise it would have been a positiveand sustaining USD0.3bn); gross leverage dropped due to debt retirements andnet leverage was mostly flatEcopetrol (ECOPET) reported solid 2Q17 results that were driven mainly byhigher E&P production (+3.1% yoy and +0.5% qoq, to 717k boepd), a lowercrude oil basket discount to Brent price (to USD6.6/bbl vs. USD8.3/bbl in1Q17), and continued cost discipline; which more than compensated for highercosts associated with pipeline disruptions and refinery shutdowns. As a result,EBITDA increased by 31.5% yoy, in USD terms, to USD1.92bn, beatingBloomberg consensus estimates by about 11%. The company burned aroundUSD0.5bn in the quarter, primarily due to a concentration of tax and dividendpayments, but on a recurring sustaining basis (assuming USD3.8bn ofannualized sustaining capex vs. USD1.7bn annualized actual capex in 1H17and USD2.9-3.0bn budget for 2017) it would have generated USD+0.33bnbefore dividends in the quarter. Cash & equivalents (excluding LT financialassets) declined by USD2.61bn vs. previous quarter, to USD2.67bn, as thecompany retired USD2.4bn of debt. Liquidity remained comfortable though,with cash & equivalents to short-term debt of 2.1x. Total debt to LTM EBITDA(gross leverage) declined by 0.53x sequentially (in USD terms), to 2.20x, mainlydue to debt prepayments. Net debt to LTM EBITDA declined by a slight 0.1xsequentially (in USD terms), to 1.81x.

    Soft quarter relative to LTM figures on the back of lower E&P production,weaker downstream prices, and lower oil products sale volume; recurring FCFassuming USD17bn annual sustaining capex was -54% vs. LTM, at USD+1.0bnPetroleo Brasileiro (Petrobras, PETBRA) reported somewhat soft 2Q17 resultsrelative to its recent quarterly figures, with reported adjusted (companyadjusted)EBITDA of USD5.94bn that was 16% below the average for the lastfour quarters in USD terms (no meaningful seasonality), and 6% lower thanBloomberg consensus estimates. EBITDA adjusted by additional non-recurringand non-cash items1 (DB-adjusted EBITDA) was 12% lower than the averagefor the last four quarters (USD terms), at USD7.16bn. The key drivers of theweaker DB-adjusted EBITDA (compared to the last four quarters) include: 1)E&P production that was 1.6% lower than the last-twelve-month (LTM)average, at 2.66 Mboepd; 2) lifting costs 4% above the LTM average (in USDterms), at USD11.2/boe; 3) domestic oil products sales volume 3% lower thanthe LTM average (and 8% lower yoy), at 1.93 Mboepd; and 4) domestic oilproduct realization price 2% below the LTM average (in USD terms), atUSD68.2/boe, compared to a flat Brent price (vs. LTM average). The domesticE&P business’ adjusted EBITDA was 3% below the LTM average, at USD4.9bn(USD19.3/boe, or 68% of total DB-adjusted EBITDA), while the domesticdownstream business’ adjusted EBITDA was 20% below the LTM average, atUSD2.4bn (33% of DB-adjusted EBITDA).

    Soft quarter relative to LTM figures on the back of lower E&P production,weaker downstream prices, and lower oil products sale volume; recurring FCFassuming USD17bn annual sustaining capex was -54% vs. LTM, at USD+1.0bnPetroleo Brasileiro (Petrobras, PETBRA) reported somewhat soft 2Q17 resultsrelative to its recent quarterly figures, with reported adjusted (companyadjusted)EBITDA of USD5.94bn that was 16% below the average for the lastfour quarters in USD terms (no meaningful seasonality), and 6% lower thanBloomberg consensus estimates. EBITDA adjusted by additional non-recurringand non-cash items1 (DB-adjusted EBITDA) was 12% lower than the averagefor the last four quarters (USD terms), at USD7.16bn. The key drivers of theweaker DB-adjusted EBITDA (compared to the last four quarters) include: 1)E&P production that was 1.6% lower than the last-twelve-month (LTM)average, at 2.66 Mboepd; 2) lifting costs 4% above the LTM average (in USDterms), at USD11.2/boe; 3) domestic oil products sales volume 3% lower thanthe LTM average (and 8% lower yoy), at 1.93 Mboepd; and 4) domestic oilproduct realization price 2% below the LTM average (in USD terms), atUSD68.2/boe, compared to a flat Brent price (vs. LTM average). The domesticE&P business’ adjusted EBITDA was 3% below the LTM average, at USD4.9bn(USD19.3/boe, or 68% of total DB-adjusted EBITDA), while the domesticdownstream business’ adjusted EBITDA was 20% below the LTM average, atUSD2.4bn (33% of DB-adjusted EBITDA).

    In 2Q17, the ARS:USD rate increased by 8%, with most of the currency changeoccurring at the end of the quarter; the timing of the ARS sell-off helped as ona peso basis, downstream ARS prices were essentially frozen with gasolineprices down -0.1% while diesel prices decreased by -2.6%. YPF’s adjustedEBITDA of USD1,028mn was up 6% better than our estimate and on a localcurrency basis came in 5% better than Bloomberg consensus (revenues werepretty much in-line with consensus). Positively, the company saw refinedproduct demand increases in the quarter (+1% yoy growth following -2% in theLQ as YPF has been able to ramp-up its fuel/petrochemical exports--+5% yoy)after witnessing tepid results in recent quarters, which, combined with solidgrowth in Gas & Energy, in our view helped drive the quarter’s earnings beat.

    Sequential improvement in E&P production was an important positive surprise,driven by improved recovery and field reopenings; exploratory campaignbearing fruits with 4 of 5 wells drilled this year reaching oil or gasCrude oil production increased by 3.6% yoy and by 0.5% yoy, to 594k bpd,while natural gas production increased by 0.8% yoy and declined by 1.3% qoq,to 122k boepd. While the yoy increase in crude production was aided by theaddition of ~50kbpd from the takeover of the Rubiales and Cusiana fields in2H16 (organically crude oil production was -4.9% yoy), the qoq improvementwas a positive surprise to us given the increase in pipeline attacks andrelatively low E&P capex. The praise for this achievement goes mainly to goodperformance of recovery efforts, the reopening of operations at Cano Sur andCPO 9 fields, the triggering of the high-price clauses at La Cira Infantas.

    The operational cash flow before working capital variation and after interestwas 28% below the LTM average (in USD terms), at USD4.3bn, as a result oflower EBITDA and higher net interest and cash tax charges; while the recurringfree cash flow (FCF), assuming USD17bn of annualized sustaining capex, was54% lower than the LTM average (in USD terms), at USD+1.0bn. The realized FCF was USD+0.8bn, due to USD-0.3bn of working capital uses and USD-0.9bn of non-recurring operational charges, while capex of USD3.2bn was 26%lower than the USD4.3bn/quarter sustaining level and guidance for 2017.

    The operational cash flow before working capital variation and after interestwas 28% below the LTM average (in USD terms), at USD4.3bn, as a result oflower EBITDA and higher net interest and cash tax charges; while the recurringfree cash flow (FCF), assuming USD17bn of annualized sustaining capex, was54% lower than the LTM average (in USD terms), at USD+1.0bn. The realized

    In our view the trajectory of the company’s cash flow generation goingforward will be guided by the industry/government’s downstream pricingpolicies; which is why we view this year’s policy of quarterly price adjustmentsto be constructive for the company’s credit profile. We could see somevariability of results in case of further sharp FX moves.

澳门新永利国际平台登录ECOPETROL S.A.:Ecopetrol 2Q17-Solid Results;Resilient Metrics;Revising Our Views。    Upstream production stepped back further, though in part due to weather andlabor difficulties; shift to natural gas production should continue

    Total upstream production of 550.1 boed decreased by -4.2% yoy (-4% qoq);realized crude oil prices of USD52.5/bbl were essentially flat sequentiallythough down 13% yoy, in-line with expectations that Argentine crude pricesare converging with international prices in 2017 (USD55/bbl price floor for lightcrude). Natural gas production, not surprisingly, held up better as it was onlydown -0.5% yoy (-1.5% sequentially) as the company is shifting productiontowards selling gas at more attractive price points (gas prices increased by 4%yoy); we expect this production shift to continue. After seeing noticeable costimprovements in 1Q, upstream cash costs picked up by 3% yoy toUSD21.3/boe, possibly reflecting labor cost increases following recent laboragreements with the oil & gas unions.

    Downstream pricing had positive impact as expected; contribution fromGas/Electric segment helped this quarter

    Downstream EBITDA margins of 10% held up well (versus 13% in 1Q17 and5% in 4Q16 in 1Q17) as the prior quarter’s price increases helped yoycomparisons (in ARS terms), gasoline prices increased by 7% yoy and dieselprices increased by 4% yoy (though results suffered slightly sequentially; therewill be a further 6/7% price increase reflected in 3Q results). The Gas andEnergy segment is becoming a bigger contributor to the group as tariffincreases at the gas distribution business (Metrogas) led to a 75% sequentialgrowth in EBITDA; dollarized genco tariffs could eventually help further.

    YPF generated negative FCF in the quarter but is still positive for the year;leverage metrics remain strong for the rating category

    In the quarter, the company reported negative FCF after last quarter’s positivegeneration; overall, the negative FCF could be attributed to working capitalusage as capex remains moderate. As a reminder, last quarter the companyreported a large positive working capital effect as the company collected onback payments owed to it by the federal government for natural gas injections.

    LTM net leverage of 2.1 was flat sequentially and down from 2.4x in 2016.

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