Ecopetrol S.A. (EC) Cash Flow Statement

The dramatic compression in the OCF/NI ratio from 5.02 to 0.95 over the last eight quarters suggests that earnings are becoming less cash-backed, possibly due to working capital outflows and timing of FEPC collections. While the 2026Q2 ratio of 0.95 implies that net income is barely covered by operating cash flow, the earlier quarters showed robust conversion, indicating that the quality of earnings may be deteriorating as the company faces revenue headwinds. Investors should monitor whether this trend persists, as it could signal that reported profits are not translating into cash at the same rate as before.

The free cash flow margin has contracted by over 35 percentage points over the past two years, aligning with the -16.4% revenue decline and suggesting that the company's cash generation is highly sensitive to commodity prices. Despite a slight sequential improvement from 8.2% in 2025Q1 to 9.7% in 2026Q2, the absolute FCF remains well below the levels seen in mid-2024, implying that the company may be entering a period of constrained cash flow. This trajectory warrants close monitoring, as it may limit the company's ability to fund dividends and growth capex without increasing leverage.

The capital expenditure ratio has remained relatively stable at 10-15% of revenue, even as revenue declined, indicating that management is prioritizing long-term asset maintenance and growth projects over short-term cash preservation. This is consistent with the company's need to sustain production and integrate ISA, but it also means that FCF is being sacrificed to support capital programs. Given the revenue contraction, the elevated capex intensity may pressure free cash flow further, and investors should assess whether these investments are yielding adequate returns in a lower-price environment.

The large swings in working capital changes, from positive to negative, suggest that Ecopetrol's cash flow is heavily influenced by timing of government receivables (FEPC) and inventory builds. The -$5.0T outflow in 2026Q2 is particularly notable, as it more than offset the operating cash flow, contributing to the low OCF/NI ratio. This pattern indicates that the company's cash conversion is not only a function of earnings but also of its ability to collect on government obligations, which may be subject to fiscal constraints. Investors should monitor the FEPC balance and collection pace, as delays could further strain liquidity.

The company paid out more in dividends than it generated in free cash flow during 2026Q2, which is a notable divergence from earlier quarters when FCF comfortably covered dividends. This suggests that Ecopetrol may be drawing on cash reserves or increasing debt to maintain its dividend, which is critical for the Colombian government's budget. While the company has historically prioritized dividends, the current cash flow trajectory may force a reduction or increased borrowing, which could impact the balance sheet. Investors should watch whether this pattern persists, as it could signal a shift in capital allocation priorities.

The cumulative OCF/NI ratio of approximately 2.4x over the period suggests that Ecopetrol has historically generated significantly more cash than its reported net income, likely due to large non-cash charges like D&A. However, the recent quarters show a narrowing gap, with OCF/NI ratios falling below 1.0 in 2026Q2, which may indicate that the quality of earnings is deteriorating. This convergence could be a warning sign that the company's cash generation is becoming less robust relative to its accounting profits, potentially due to working capital outflows and lower commodity prices. Investors should monitor whether this trend continues, as it may affect the sustainability of dividends and debt service.