Ecopetrol Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 13 speakers on the call.

Operator

Good morning. My name is Camilla Ruela, and I will be your operator today. Welcome to Ecopetrol's earnings conference call in which we will discuss the main financial and operational results for the Q1 of 2023. There will be a question and answer session at the end of the presentation. Before we begin, it's important to mention that the comments in this call by Ecopetrol's senior management projections of the company's future performance.

Operator

These projections do not constitute any commitments as to future results, Insoor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assume no responsibility Independ that future results are different from the projections shared on this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol Guiana Escobar, Vice President of Sustainability Development Maria Paula Camacho, Vice President of Legal Affairs and General Secretary, Jaime Vaez, Vice President of Law Emission Solutions Alberto Consuegra, COO and Jaime Caballero, Cboe. Thank you for your attention.

Operator

Mr. Rova, you may begin your conference.

Speaker 1

Good morning, everyone, and welcome in today's earnings conference call. It's my privilege to address you today to present the Ecopetrol Group's results for in Q1 of 2023. Before I begin with the material that we have prepared for you, I would like to express my sincere in Our employees are fully engaged and passionate about their work. It is an honor to lead such a talent and committed term. In.

Speaker 1

I want to express my deep commitment to strength and continue Ecopetrol Group's Energy Energy That Transforms, answer the current challenges associated with the energy transition in which society must be balanced in a responsible manner. For the Ecopetrol Group, this is possible through our 4 strategic pillars, growing with the energy Our 2023 plan is a key milestone for the strategy, and we are in ARS25.3 trillion to ARS29.8 trillion to accelerate the path of transition and energy security. COP40 1,000,000,000,000 in 2023. All these in addition to increase the impact of social Investment and always seeking a close and open communication with society and communities with whom we work on in Q1 of 2020. Let's move on the next slide to present the main results and milestones for the Q1 of 20 in Q3.

Speaker 1

I would like to start highlighting our resilience as we move within a high changing market environment on the price Insight as well as challenging local environment and security situations at the beginning of the year. 5th quarter production averaged 719,000 barrels of oil equivalent per day and increased 27,000 barrels versus in Q1 of 2022. Growth was supported by the company's operational strength and higher in in the 3rd in the Q1 of the year, we registered under revenues of ARS38.9 trillion, EBITDA of ARS17.8 ARS8 1,000,000,000,000 and net income of ARS5.7 trillion. These results were a consequence of a Also, it is worth noting that the gas and LPG business recorded an EBITDA margin of 59%

Speaker 2

in the quarter

Speaker 1

last. We also highlight the performance of the Energy Transmission and Tool Road segment ARS24.4 trillion equivalent to ARS5 ARS193 per share, the highest in the company's history. This value will IN-22s net income. We also highlight our target to reduce methan emissions by 40 in in Cement through the detection, deceleration and elimination of fugitive emissions and the reduction of venting in Tanks and Wells. Let's please move to the next slide.

Speaker 1

The global economic environment for 2023 is challenging In this context, the group has taken strategic actions to ensure the completion of the business plan by closely Regarding the price of crude oil during the Q1 of the year, Brent crude oil fell from in $84 per barrel to $79 per barrel between January and March. The movement was explained by the resilience in the Q3. Ecopetrol will continue to use different contactless schemes that include the delivery of crude Oil and Products Market by the company at the customer's facilities. In the Ecopetrol Group,

Speaker 2

in Results.

Speaker 1

I now give the floor to the Anesco Bar by President of Sustainable Development

Speaker 3

In 2023, we continue to generate significant social value. It is worth emphasizing that for this year, the investment plan within the Ecopetrol Group's sustainable development portfolio amounts to a record breaking COP 773,000,000,000 representing in 2020. Here are some relevant milestones. During the Q1, we made remarkable progress in our contribution to the goals of National Public Education in with scholarships through the Bacigieras Ecopetrol program to pursue higher education studies. Furthermore, an initiative aimed at enhancing STEM skills culminated in a transformative visit to NASA's in the space center in August.

Speaker 3

Within the scope of the Ecopetrol emprende program through technical business companionship, we successfully in the enterprise from VIAVI Sensio in the Meta department. As a result, they achieved an increase of 36% in sales in Natural Gas in the City of Barranquilla and in the municipalities of Arauquita, Arauca, Puerto Rondon and in Raul Norte in the Department of Arauca. Moreover, I would like to emphasize our commitment to sustainability and the energy in the environmental sustainability criteria. To honor our commitment to be in close proximity to in in the 2023 National Popular Criminal Assembly, where we had the opportunity to engage with 5,000 members, gaining valuable insights Hydrocarbon Sector, Popular Economy and Environmental Protection. In collaboration with HOKOL, we coordinated in the region and the indigenous communities of Ortega and the Department of Tolima.

Speaker 3

These consultations are crucial to modify in Rubiales fields environmental license and the drilling injector wells project respectively. Last Inc. Now I pass the floor to Maria

Speaker 4

in. Thank you, in Vienna. As part of our commitment to the energy transition and in line with the Ecopetrol Group's strategy and TLD plan, in. The meeting of the Ecopetrol's General Shareholders Meeting, which was attended by more than 3,500 people, was the 1st carbon in the Euroneutrol General Shareholders Meeting of Ecopetrol. In addition, we highlight the following points.

Speaker 4

There was a 3 in the 2023 shareholders meeting compared to the 2022 meeting. Those emissions were offset through the purchase of ECCO. The proper in the company, which oversaw the production of the Iguanas given as a gift to the shareholders. During the meeting, the following in the Q1. Among others, were reviewed and approved.

Speaker 4

First, the annual corporate governance report and the integrated management report for 2022. In. Through these reports, the structure adopted to respond to the challenges of the 2,040 strategy was revealed to the stakeholders through the definition of 3 business lines: hydrocarbons, low emission solutions and transmission and toll roads. Likewise, the results in the Q2 financial year and the advances in the TSG pillar were revealed. 2nd, the Board of Directors member election for the remainder of the 2021 2025 period.

Speaker 4

This board has 7 independent members, 6 directors in in its auditors' election and fees allocation for the remainder of the period 2021 2025. Finally, we highlight after the approval of the 2023 Annual Human Rights Plan that Ecopetrol continued the Involve employees, suppliers and community leaders in the 1st place. I will now pass the floor to Jamie Vaz to elaborate on the milestones low emission solutions. Thanks,

Speaker 5

EBITDA. The Natural Gas and LPG Business reported an EBITDA of $267,000,000 Incense. During the Q1 of 2023, we reached more than 160,000 equivalent barrels per day of Gas and LPG production combined, attribute mainly to the growth in our U. S. Operations, maintaining a in the group's production mix.

Speaker 5

Alongside with the transportation companies, we in the quarter by beginning by directionality of the gas pipeline in the Barrancabermeja in the U. S. Section. Thanks to the contractual management and the Kuciana field volumes, thus allowing us to connect our in the Q1 of 2019. As part of our ongoing effort in.

Speaker 5

We continue growing our social gas program, benefiting during this quarter 2,000 in the U. S. And 400 Families from Rural Communities in Arauca. Likewise, in the Energy Communities Project Portfolio EBITDA, NARINHO and Guajira. In Renewable Energy Sources, the operation of our solar ARS1600 1,000,000, increasing 127% versus 1st quarter in the Q1 2020.

Speaker 5

On the same topic, as part of the group's decarbonization strategy and commitment to the energy transition, We signed an agreement with Total RM in January of this year for deconstruction of a 100 Megawatt solar farm in the Rubiales field, which will reduce more than 24,000 tons of CO2 emissions per year. As per our continued commitment to incorporate new nonconventional renewable energy sources to the group's portfolio, We formed an alliance with EDF Colombia and Refocasta to build a forest biomass to the group through an agreement with our trader, Hezelka. A reduction of 70,000 in the Q1 of 2019. We are pleased to report that the results of the year are expected, additional to the benefit of reforesting an area of 13,000 in 600 Acres. Additionally, a memorandum of understanding was signed with Baker Hughes Inc.

Speaker 5

And the Central Hydroelectrica de Caldas to study the feasibility of developing a geothermal in the Nereidas Valley. This will enable short and medium term possibilities for geothermal energy generation. In terms of hydrogen, 2 projects have advanced to their final phase of maturity, in which it is expected to conclude the development studies alongside with world class strategic allies. Once conclude, The projects will add a capacity of 60 Megawatts each of electrolysis with PEM, Sustainable Mobility Hydrogen Projects. In March, through the partnership with Fenohe, FANALCA and Green Mobile, the 1st comprehensive test with green hydrogen in Colombian public transportation was launched.

Speaker 5

This includes called in the Q4 of this year. I now turn the floor over to Alberto, who will speak about the main operational milestones.

Speaker 6

Thank you, Jamie. 2023 started with 2 exploration successes in wells, in the quarter. Gas was evidenced in the Ciena Gadeo formation. Extensive testing is expected to begin in Q4 of 2023. The Toro Roy 1 well operated by GeoPark in partnership with our subsidiary, Hotel, located in Villanueva Casanare, confirmed the presence in the mid air formation.

Speaker 6

At the end of the quarter, in 2 wells located in the Piedmont Foothills. Regarding offshore exploration activity in Colombia, we continue IN Santander and the Middle Magdalena Valley Basin. This program generated more than 1100 direct and indirect jobs. Please let's move on to the next slide. On the production front, we reached 700 and 19,000 barrels of oil equivalent per day during the Q1 of the year, maintaining robust results despite security situations in some regions.

Speaker 6

In. We highlight the incremental production of Cano Sur and our Permian subsidiary and also the improved performance of Rubiales, supported mainly by the pressure support project with reuse of production water, which allowed us to grow sustainably in and contribute to the water neutrality goal. Additionally, during the period, production was mainly affected by security issues Inc. With an impact of 6,800 barrels of oil equivalent per day due to the closure of the Capachos field from January 21 to April 15 and the shutdown of the Gibraltar gas plant during March, also because of blockades by third parties in the Quifa, Tano INR, which is expected to be a result of the exploration and production segment contributed with 48.6% of the group's EBITDA with an EBITDA margin of 42% being a profitable and sustainable segment that leverages the energy Inc. By the end of the year, production is expected to be leveraged mainly in the Permian, Cano Sur, Rubiales, Piedamonte, Kifa in There are also external factors that could affect production, such as the El Nino phenomenon and environmental and public order situation Inc.

Speaker 6

Let's go to the next slide, please. In the transportation segment for the Q1 of the in the U. S. Market share. We expect to continue to see a significant increase in the U.

Speaker 6

S. And the increase of transported volume of refined products. In addition, for the 3rd consecutive quarter, we in the quarter. We achieved record multipurpose pipeline transported volume of approximately 306,300 barrels in Q4. On the financial front, we highlight the historical quarterly result of the segment with an EBITDA of MXN 3,200,000,000,000.

Speaker 6

Call. The recent scenario pipeline were carried out with an equated volume of approximately 600 and 62,000 barrels. On the other hand, due to the contingency registered in the Southwest of the country after the natural disaster in, among others, a plan for cabotage from the Buenaventura maritime terminal to the tobacco terminal. This included the construction of in the Buenaventura station and terminal. Thanks to the implementation of these adjustments, the flow increased to 2,000 barrels per hour, reducing tanker loading in the Q2 effective hours.

Speaker 6

Under this strategy, during this quarter, 11 vessels have been loaded, which have allowed the in the supply of approximately 279,000 barrels of gasoline and diesel by the Ecopetrol Group. During the Q1, Senate completed the construction and in the Q1 of 2019. We will now begin the Q1 of 2019. We will now begin the Q1 of 2019. We will now begin the Q1 of 2019.

Speaker 6

We will now begin the Q1 of 2019. Expected to reduce stoppages due to high and low inventories, eliminate the payment of tank truck freight and allow the capture of growing demand for fuels. Inconsolidated throughput of 412,000 barrels per day as well as in the production of diesel, in the U. S. And Gasoline and Jet for Domestic Supply, complying with Resolution 40,103 that in Colombia.

Speaker 6

Likewise, the 2nd highest quarter was achieved both in integrated refining gross margin INR22.6 per barrel and the segment's EBITDA of ARS3.2 trillion where the contribution The Cartagena refinery of ARS1.76 trillion stands out, leveraged mainly by the entry of the Cartagena in the Q3 of 2020 Infineries Fuel Quality Baseline in Barrancabermeja and Improvements in the NAFTA Hydro Treater Unit in Cartagena, the Barrancabermeja and Cartagena Inc. To the contribution of Ecopetrol certification of the 1st mining energy company in Latin America to verify its water footprint in the industrial sector in Colombia. Based on the growth and diversification story developed by EcoDiesel, it was approved to start the maturation of in the Q1 of 2019. Let's move on to the next slide, please. During the Q1 of the year, INPEA.

Speaker 6

Efficiencies of MXN905.4 billion were achieved within the framework of an integral strategy focused on mitigating the inflation that the global economy continues to experience. Lifting cost was $8.78 per barrel, increasing by $0.12 per barrel versus the Q1 of 2022, mainly due to inflationary effects on energy tariffs and operational support in with a lower impact due to efficiencies achieved of $0.2 per barrel. The cumulative average cost per transported $18 per barrel versus the one recorded at the end of the Q1 of 2022, mainly explained by higher average Incorporation. This is mainly explained by higher exchange rate and an increase in traded volumes. This demonstrates the effectiveness of the company's policies to face the inflationary pressures in the sector.

Speaker 6

I will pass the floor to Jaime

Speaker 7

Mainly leverage on the sustained growth of the energy business in Brazil. This was reflected in a 10% contribution of this business Incorporation. The group's revenues, 15% to EBITDA and 4% to net income at the end in the Q1. The following milestones stand out in the quarter. Firstly, the award of 13 extensions in Brazil and 8 connections, 5 in Brazil, 2 in Colombia and 1 in Peru, which together will add 3 Thirdly, the entry into partial commercial operation of I.

Speaker 7

E. Ita Unas with the right to 60 Energy Transmission Projects, which represent more than 4,840 kilometers of additional circuits to the network, which will generate revenues exceeding $260,000,000 when they come into operation. The in Q4. Let's please move to the next slide to see the main financial indicators. During the Q1 of 20 in Q3.

Speaker 7

The Ecopetrol Group continued to deliver outstanding indicators amidst a more challenging in price scenario compared to that observed in 2022. ROGE was 17.8%, Incorporation. Regarding EBITDA by business line, the higher contribution of transmission and low emission solutions stands out The gross debt to EBITDA indicator stood at 1.5x, below the 2020 target of 2.1 times. The debt to equity ratio increased to 1.2 times, mainly increased by only 1.1%. The net income breakeven closed at $32 per barrel, mainly explained by higher in.

Speaker 7

Please let's move on to the next slide. At the end of the Q1 of in fiscal 2020 3, the Ecopetrol Group recorded a consolidated cash position of COP17.7 trillion, Explained by, 1st, an operating cash flow generation of COP2.1 trillion, including an increase in in working capital due to the account receivable associated to the fuel price stabilization fund, FEpec in. The Fionn cash balance is composed of cash and cash equivalents for COP15.5 trillion and a portfolio of short and long term investments for COP2.2 trillion. Regarding the management of debt maturities for 2023, Ecopetrol Group continues to advance in its strategy to refinance the outstanding balance Regarding the FEPEC balance, the account receivable at the end of the Q1 closed at ARS34.2 trillion, Reflecting an accumulation of COP 7,900,000,000,000 during the quarter. The Ecopetrol Group's collection expectations INPEB21.6 trillion in Q2 with Ecopetrol S.

Speaker 7

A. Once progress is made with the Ministry of Finance and the respective resolutions are in Q2. The Ecopetrol Group continues working with the Ministry of Finance and Public Credit to define COP8 1,000,000,000,000, once the dividend compensation is made. Finally, in Q1 of the year, the Ecopetrol Group's organic investments amounted ARS6 1,000,000,000. The hydrocarbon business line accounted for 65% of that amount.

Speaker 7

Throughout the integrated chain, both in Colombia and in the United States and Brazil. In the low emission solutions business line, investments in totaled COP0.7 trillion, including investments in renewable energy to underpin cells generation, hydrogen ING. Investment in the transmission and toll roads business line amounted to COP1.4 trillion and correspond to the projects executed by ESA in Energy Transmission, Toll Roads and Telecommunications. These investments allowed Today, we can start to see how progress in the Ecopetrol Group's TESG agenda leverages value generation in in the Q1 through science, technology and innovation as an accelerator of TESG, We achieved a value of R177,000,000 launch through highly relevant technological initiatives such as the launch in in partnership with the Colombian Air Force of the Faksa T2 Chile Vakete satellite, which The group announced a new target of reducing methane emissions by 45% by 2025 and 55 8% by 2,030. Also, during the Q1, we achieved emissions reductions due to operational Incorporate the remainder by 2,045.

Speaker 7

During the Q1 of 2023, progress was made in reducing water withdrawal by 600 INR51,000 barrels per day and initiatives continue to mature to reduce discharges, mainly in projects like Instea, API and Surya, which will mature in the 2025 to 2,030 period. This not only contributes to the water nitrile target, Inc. Finally, to leverage the group's strategy, the Corporate Vice Presidency of Finance has been transformed into the Corporate in financial support to the Ecopetrol Group's profitable and sustainable growth in the energy transition, which ensures capital I now turn the floor over to Ricardo for his closing remarks.

Speaker 1

Thanks, Jaime. To close, Incorporate Governance. We will continue to work hard to create value for our shareholders, employees and communities. Thanks to everyone who call.

Operator

Thank queue. We will now begin the question and answer session. If you want to ask your question, please type in the chat the IMVER1 and follow the instructions. Before we begin, I will give the floor to Ecopetrol's CEO, Ricardo

Speaker 1

Roa. Good morning, everybody, and thank you again. Before we start the question and answer

Speaker 8

in. [SPEAKER CARLOS ALBERTO

Speaker 1

PEREIRA DE OLIVEIRA:] I would like to thank you again for being here. As all of you know, in I joined Ecopetrol 2 weeks ago, and this is my first conference call. This is a complex industry. During in the past weeks, I have been working hard with the team on getting acquainted with the details in the company's strategy, our priorities and how we will work with the national government. Always within the institutional framework to continue generation value for all our shareholders.

Speaker 1

I will, of course, rely on the team to provide detailed information about I have the privilege of over 30 years of professional experience, mainly in the Energy Sector. During the last 20 years, I have held high level positions in energy and gas It's about energy generation and energy efficiency and lead strategic transformations in the companies I worked with. My experience include the CEO role in the Grupoenergia de Bogota, President of Transportadoragas International, TGI I'm General Manager of Empresa de Energia Honduras. I also was the manager of the in the Valley of Cauca. Regarding my vision for Ecopetrol, I want to bring all of this experience in order to permanently monitor the market conditions for the needed adjustments for value generation.

Speaker 1

At the same time, in. We'll continue working to take advantage of the energy transition opportunities and contribute to adjust well balanced and responsible In addition,

Operator

Our first question is from Bruno Montanari of Morgan Stanley. Mr. Montanari, You may ask right now.

Speaker 8

Good afternoon, everyone. Thanks for taking my question. And in. Ricardo, very welcome to Ecopetrol. And here's to hoping that the company continues to follow and deliver its strategy.

Speaker 8

So I have three The first one, it seems very clear that the company is accelerating and really focusing on energy transition. So I wanted to Compare that with hydrocarbons, right? So the recent news flow in the country seems to indicate that new exploration activities and even regular drilling activities will be much more limited going forward. With that and along with the How comfortable is Ecopetrol that it can sustain its production level in the coming years? With the in the U.

Speaker 8

S. And how that compares with the philosophy, if you will, of not being involved with And then the 3rd and last question is about the evolution of CEPAC in the quarter. For us, it sounded like the $2,000,000,000 increase looked a bit surprising, taking into consideration the behavior of International Oil Prices and the Domestic Prices in Colombia. So I was wondering if you could help us reconcile why the balance increased that much in the quarter and then how the company sees the funding or the settlement of the in. On top of the 21,600,000,000,000 that is already on the budget, so you still have about the 3 INR8 1,000,000,000 from 2023.

Speaker 8

So wondering if you have visibility on how that gets worked out. Thank you very much.

Speaker 6

Good morning, Bruno. This is Alberto Consuegra. Thanks for the questions. I will take questions 12. With regards to exploration, as you might recall, we have said that our 2,040 strategy This is supporting in existing E and P contracts where we have about in 265 Exploration Opportunities.

Speaker 6

Our 2023 2025 plan includes Quite a bit of investment in exploration, taking advantage of those opportunities. And particularly in 2023, We have 25 exploration wells, out of which 8 already have been drilled. So we continue seeing exploration in our portfolio is vital. And part of our resources will come from exploration in the future. If We see that we need to replace oil production beyond 2,030 for to maintain the So that's in relation with exploration.

Speaker 6

When we talk about EOR, what I can tell you is that this It's still very important. It represents about 38% to 40% of our total production. And when we look at our reserve in particularly from the Castilla and Chichimen areas where we see water injection and as well as air injection projects. We are beginning pressure in support water pressure support projects also in Rubiales. And we continue to inject gas to support pressure in our Piedmont Foothill Portfolio.

Speaker 6

So EOR becomes quite important and we will We still have a good share of our production in the future years. With regard to Permian Unconventionals. We recognize that we will have to Suspend any activity In terms of unconventionals in Colombia, but Permian is quite important, continues to be a Strategic Asset. It's one of the most profitable assets that we have in our portfolio. From the environmental standpoint, it's particularly very good.

Speaker 6

It exceeds the environmental standards that we have. And we continue increasing our presence there. As in. When you talk about results, EUR142,000,000 EBITDA for this quarter. We're talking about 80% and above 80% EBITDA margin in this business and So very strategic, very fundamental in terms of what it represents

Speaker 7

Hi, Bruno. This is Jaime. Good to hear you. I'm going to take the 3rd question around effect and how it has progressed in over the last quarter. I'll quote you on your question.

Speaker 7

It seems to me that You had a lesser expectation around the balance. In our case, we actually we were not surprised. I think we need to remember There are different there are several elements to the formula. You have an element that is the international price, if you will, the reference price. But you also have what is happening, of course, domestically and what is happening with the foreign exchange And that's what might explain the surprise that you got on your end.

Speaker 7

Directionally, what I would tell you is what we had on one hand, we had a positive momentum in In terms of the balance in that there were there have been a number of adjustments being made on gasoline prices By the government, they're actually quite material. They are actually higher than what they had budgeted before. So I think that speaks It's a lot about their commitment to the balance. But on the other end, some of that gets actually offset by the foreign So

Speaker 1

you need

Speaker 7

to take that into consideration when you do those numbers. Now the bigger message that I would tell you is that when you see The behavior of the accumulation of the effect, it is decreasing. Last year, there were there was a moment in time when We were actually accruing a balance of about ARS3.6 trillion per month. Our accrual rate now is Going forward, that will move depending again on those free variables. I think on the diesel end, There is some pressure because diesel prices continue to be very robust.

Speaker 7

So there is some pressure on the effect on On the gasoline end, there is a lot of relief. And there is a lot of relief on one end because international prices have Softened a bit, but on the other end, particularly because of the interventions that the government has made on domestic pricing. And beyond that, we're going to What can we expect going forward on the settlement? The big element on the settlement of the balance is the exchange, if you will, between the dividends And the government's dividend share versus the balance, that's ARS 21,600,000,000,000, right? And that will leave a balance pending in for 2022 of about ARS 5,000,000,000,000.

Speaker 7

That's the remaining balance. It is not It's going to be around budget surpluses that the national government has. The law allows them To use budget surpluses that you have on other areas towards Quebec. So that's I would say that's the base And there's 2 alternatives to that. One is that you actually create a new A budget allocation to that.

Speaker 7

That is a little bit complicated because it actually needs to go to Congress and all that kind of stuff. And the second one is extraordinary dividends, which again are going to be subject to the performance of the company, The cash availability that we have and obviously our commitment to deliver

Operator

Inc. The next question comes from Badr of Barclays. Mr. Badr, you may

Speaker 9

Inc. Thank you so

Speaker 2

much and thank you so much for taking my question. Congratulations on the earnings and congratulations Mr. In I have a few questions. Some of them were partially answered by Mr. Caballero on the previous question.

Speaker 2

So The first one is to Mr. Roa. If you can let us know if you had any recent discussions with Ascienda about some of the recent topics that were mentioned. The first one is in So obviously as Mr. Caballero said earlier, there is still a balance pending with Ascienda in ARS5 1,000,000,000,000, if I recall.

Speaker 2

Obviously, there are surpluses, but that Any discussions about with the new Ministry of Finance about the potential payment in terms of cash for this €5,000,000,000,000 deficit? And my second related in. The question with Ascender is that, have you also had any discussions with the Minister of Finance about in The announcements about the changes in price in diesel and gasoline prices. So we understand for now that the Ministry of Energy and Mine has little power over in. My second question is related to CapEx.

Speaker 2

So this was also partially answered about the focus on E and P. But I was just wondering if you could break down the CapEx for 2023 and 2024 just to see between upstream, in Midstream, Downstream, EASA Energy Transition, just to see how we're thinking about it. So we still think about a CapEx plan for CAD 6,500,000,000 in. And then how are you going to finance the CapEx growth this year? Is that going to be with new debt?

Speaker 2

And my last question is regarding your healthy cash levels. So obviously, you have a decent cash balance at the moment. And I was just wondering in. If you had any plans of using part of the cash to repurchase some of the low cash price bonds on the market right now with in some of the long dated bonds trading around $0.63 $0.64 on a dollar before potential issuance or are you planning to use part of the cash for potential in. Thank you so much for taking my questions.

Speaker 1

Thank you, Baldur. Ecopetrol is part of the working group with the National in Government, Ministry of Mines and Energy and Ministry of Financing. To support the definition of initiatives at the regulatory, Commercial, Financial and Operational levels and mitigate the impact that it currently generates

Speaker 7

Beder, this is Jaime here. And to complement Ricardo's Policy statement, I guess, around this is we are in an active discussion with the government on this. Actually, President Ricardo and myself are actually meeting the Minister of Finance this afternoon. We have a meeting precisely to talk in And you have heard and I'm sure you have seen the public statements about the minister made in to have a competitive compensation framework for producers to make sure that there The right incentives to produce in Colombia and to make sure that the fiscal balance is unaltered So basically, our expectation on this general expectation is Fuel prices will continue to increase. Minister Bonilla has been very clear about that.

Speaker 7

That's something that we expect. I think that The track record that we have seen over the last 9 months of President Pedro's government is very clear That they are committed to those price increases. So we are expecting them to continue. That's the first thing that I'd say. I think the other element that we're seeing and in line with what Ricardo just mentioned is The compensation to the producer reduce the rate of accrual of the balance.

Speaker 7

That's where, for instance, Focalization of subsidies comes in, right. We actually have done international studies on this regard. This has been done elsewhere And philosophically, where we are and we share this view with the government is that the totality of society It doesn't need to benefit from these subsidies, only certain parts do and that's where the subsidies need to be Going towards. So in any case directionally that's what we're seeing. That's what we're seeing and we're happy to share With regards to CapEx, I think you heard President Roa in his introductory in the Q1 of 2019.

Speaker 7

Thank you, operator. Thank you, operator. Thank you, Plan has a target of being anywhere between $5,600,000,000 to $6,600,000,000 That is unchanged. About 65% of that is in hydrocarbons, I'd say, in our historical hydrocarbon business With an aim to grow production, which is our target. It's our aim and it's our target to the end of the decade.

Speaker 7

And the remainder remainder of that is going into the new business lines, the business lines associated to transmission and to lower emissions. There are No changes to that. 2024 is very similar to that. The general composition of CapEx En ROA has invited us to join is a conversation about can we be more efficient in the That we can do more with the same amount. That is the challenge that he's placed to us.

Speaker 7

I believe that we are going to recalibrate our efficiency program and we're going to establish probably newer targets around that. And we are going to find ways when we look at the portfolio of lower emissions and to make sure that both businesses can grow in an efficient way. But we are

Operator

in and confirm

Speaker 9

with Carvana.

Speaker 7

Sorry, just wait a second. I didn't cover the question around cash. I think we had like 4 questions in there. Sorry, Baader. What can we expect in cash?

Speaker 7

No change to our Cash management, basically. We have a very healthy operational cash generation at this time and that cash That's where it's going. In terms of debt, we are refinancing the balance that we had for this 1 $600,000,000 that's well on track. I spoke about that in my general remarks. We're not seeing changes

Operator

The next question comes from Luis Carvalho of UBS. Mr. Carvalho, go ahead.

Speaker 10

Hi, Ricardo, Jaime and all the executives. Thanks for If I may allow 2, I don't know, 3 questions here. The first one to Ricardo. Ricardo, you recently joined the company, Ecopetrol. It's a super important company to, of course, to Colombia And to Colombians, right?

Speaker 10

So just trying to get a sense in terms of what would be, let's say, your main goals looking 3, 4 years in the Q1. What will be the main achievements that you would like to, I don't know, to potentially be proud of in, I in the 2, 3 years horizon. The second question, it's about, of course, capital allocation. And I I would like to come back to maybe Jaime's answer. This is, I don't know, depending on how we look, right?

Speaker 10

I mean, of course, The oil prices. So one, there are some limitations about what can be done, right? If you penalize, for example, the company too much on the fuel prices, As a consequence, there will be, I would say, lower capability from the company to pay dividends, which it's also important to the Colombian Government as a Controlling Shareholder. So in the end of the day and of course will be some limitations on the investment as well. So I'm just trying to get a sense in terms of what will be the capital allocation priorities among these three lines, right?

Speaker 10

You'd say the potential, I would say, I wouldn't put subsidies, but you'd say the subsidies for the population on the fuel prices in discussion back a couple maybe a couple of years ago where the Congress of the country in Basically approved the government to actually to sell 8% of the stake in the company, right? Is Is that a discussion that you think that would have some room, in order to be back on the table right now? And what would be your thoughts on this? In.

Speaker 1

Thank you, Mr. In. About the first question, the current strategy is solid and robust and in response directionally to the challenges of the energy transition. If adjustments are

Speaker 7

in. Luis, hi, good to hear you. This is Jaime here. I'm going Take your second question and possibly your third question. And in Your question around CapEx allocation, basically our CapEx allocation priorities reflect delivery of the plan, That's the way to think about it.

Speaker 7

We will do whatever it takes to deliver on the existing plan. That hasn't changed, So in that line, the first thing that we want to finance is the investment program, which is between Around $6,000,000,000 that's the way kind of to think about it. You know that it's a range. But as we have discussed this with the Board of Directors, There is a total consensus around the company and with the government that Investment is required to sustain the shareholder value in Think about this is we need to sustain the growth programs that we have and that we have announced. And of course, in that context of growth, there is a big element of new opportunities in the energy So that's the first priority.

Speaker 7

The second priority then, once we cover that, once We cover making sure that CapEx is funded. The second priority is Robust Debt Management. The strategy to 2,040 has a capital structure. We And we remain committed to that. We have discussed extensively with the board and that includes the new members President Roa, the leverage component that we have, I would say that the general guideline on this is that absolute There is some room for that.

Speaker 7

Our performance is allowing us to do that and we will evaluate that Once you cover investing in the future and making sure that, of course, we have a safe and reliable operation, which is part of what we do in CapEx. And once we cover our debt service, the 3rd priority is, of course, dividend distributions. And as As you're aware, we have a dividend policy. When we have extraordinary performance, we have extraordinary dividends. And we will consider that as Our performance and our cash availability allows to do that.

Speaker 7

At this time, We already have declared what is going to be our dividend payment for this year. There are no plans to change that anytime soon, but This is dynamic. And as things change in time, we will continue to review that. I would say those are the general Elements to that. You mentioned in your question the FEPEC role on this.

Speaker 7

And the FEPEC role, the way that we think about FEPEC is a constraint that we need to deal with and that's what we're doing, right? FEpec is part of our operating envelope like anything else is. And as long as we are Aligned with the government on this, we shouldn't be concerned. And that's what we're seeing. What we're seeing is a A government that has been very consistent about delivering on its commitments on FEPEC.

Speaker 7

With regards to your last question About an eventual float of the company. The regulation, The authorization that we obtained on that regard originally in 2021 was for 5 years, so that goes That is simply part of the toolkit and it's something to be reviewed as and when market conditions allow There are no plans in the near term to activate something like that. But if that changes, we will let you know. Thank you very much.

Speaker 10

Thank you, Jaime, and good to talk to you as well and Ricardo, good luck. Thank you.

Speaker 11

Inc. Hi, good morning and thank you for this call. I have three questions. 1 in is regarding oil prices. Oil prices have come down this year and Brent reference is close to 76 in Q4 2023.

Speaker 11

The second one is maybe for Ricardo and is in because the National Hydrocarbons Agency will release their reserves report during May, and this information will be very in Q1 2019. What should this report reveal to change in Colombia. And the third one in. And the last one is, could you please give us an update about the Caribbean Sea operation? When do you expect the gas potential to be incorporated

Speaker 7

German, how are you? This is Jaime. I'm going to start with your question about oil prices and then What assumption are you using for the annual budget? So we are working on an assumption of $81 per barrel. That's what we're using.

Speaker 7

That's our plan assumption This year and actually for the next 3 years. We haven't changed that actually. That's what we used for Back in November to sanction the plan for this year. And there are no plans to change it at this time. And the color that I would give you is that We've looked at the balance between differentials behavior on one end as in price realizations versus volatility.

Speaker 7

And what we see If you look at the oil price year to date, it seems to be very much near What we planned. So no plans to change it.

Speaker 1

About the second question, Currently in Colombia, Ecopetrol Group, which include the companies Ecopetrol and Hocol in between 8 10 years of exploratory activity depending on the results of obtaining the environmental licenses in

Speaker 6

in. Hi, Herman. Good morning and thanks for the question. Just to complement what Ricardo has said, Let me remind you that when we look at our strategy, what we have said is that we're going to grow our Beyond 2000 and 30, and that's very much supported in our current portfolio. Since we are not going to have in The wedge of the unconventionals in Colombia.

Speaker 6

We will probably need to replace those molecules in the future Beyond 2,030, specifically to support the refining throughput. So that's but That will depend very much on the outcome of our current exploration portfolio. So that's kind of the question the response to that question. And I will take the next one regarding the Caribbean Sea operation. What we have said is that our current business plan 20 in We're going to be drilling 7 offshore wells beginning at the end of this year with Our commitment well in Orca.

Speaker 6

Then we will follow with activity in both Uchuba and Gorgon. And Provided that we are successful in these three fronts, we are going to expect to see resources coming into reserves Beyond 2026, because we will have to mature, progress, FID sanction these projects in order to become So that's kind of the plan that we have currently in our portfolio. And a very good point in terms of how are we taking the operation, in We have created a Vice Presidency, an Offshore Vice President to ensure that we fulfill and comply with the level

Operator

The next question comes from Andres Duarte of Corficolombiana. INN. Mr. Duarte, go ahead.

Speaker 9

Hello. Thank you for taking my questions. I have 3 Short questions. And first of all, the best of luck to Mr. Roa The first one is related to gas.

Speaker 9

I wanted to know what's the in. And finally, the The third question is related to reserves, proved oil and gas reserves was pretty low when compared to the previous years. And this happened in Despite that around 40% of the current production comes from fields that apply these methods. So I wanted to know in What's your expectation or what do you expect in the near future for the next year, maybe, in terms of

Speaker 5

Thanks, Andres, for your question. This is Jamie. I will start with the first question related with gas. It is important to highlight that the local gas prices, So the wellhead sales under the current regulations in Colombia are freely set. So they are not tied to any International References or Benchmarks.

Speaker 5

Our view is that our resources in the offshore Caribbean basin are competitive versus other domestic sources as well as import gas. They are also quite material and we Consider them a potential game changer for Ecopetrol and the country. The price level that is required to make those resources viable, well, It is in line with the current natural gas prices in Colombia. So this outlook of competitiveness will allow us to develop these Investments in Ecopetrol for natural gas and therefore, of course, the long term contracts with fixed local prices, Which is pretty much the status quo that we have today in our business will generate stability and profitability Finally, we maintain all the efforts to materialize more synergies to be as efficient as possible by the means of, as Alberto mentioned we have dedicated teams for these projects. We are protecting the capital that has been allocated for these projects in the 3 years Look for hydrogen production.

Speaker 5

So today, our production of hydrogen from the methane reformers is about 130,000 8 tons per year. Remember, 90% of that hydrogen is gray and 10% is blue since we are Capturing part of the CO2 in Barrancabermeja to be sold to local industry. With the proofs of concept that we have delivered, So remember, these are 3 projects that we have today in operations, one located in the Essentials facilities, the second one in Bogota and the last one in Cartagena, we will produce about 35,000 kilograms per year. It is important to highlight as well that in 2024, we will start the construction of 2 projects at an industrial in scale that have progressed to their final phase in maturity in March 2023. So once we conclude those two projects, we will add a capacity of in 2016 Megawatts of Electrolysis each of them.

Speaker 5

This is a production of 18,000 tons of green in hydrogen per year. The first molecule is expected to be produced at the end of 2025 or beginning 2026. And finally, we have Our target for the long term remains the same, which is 1,000,000 tons per year, and this is almost 7x

Speaker 6

Hi, Andres. With regards To the third question, what I have to say is that we always have in the plan to replace 100% of our reserves Every year. And when we look specifically at EOR, this is quite important, not only in this year, in the years to come. And it will represent 40% of our production base and also about 40% of our reserve And I also have to add that most of our contingent resources, existing contingent resources come from

Operator

Ian Milley from Bank of America is asking. What are your expectations for the refining business for the remainder of 2023, given Declining Global Refining Margins.

Speaker 12

Hello, Manny, thank you for your question regarding the downstream business. As you were able to see, we did We have a very strong Q1 with record crude rate, very good level of EBITDA and refining margins. So when we see the following quarter for this year, we see also although the refining margins looks to be In terms of refining margins closing a very good year, probably not as high as the previous year, But still very strong. Our crude rate, we finished with record levels, but we still see the following months between 400 kilobytes D to 420 kilobytes D in our refining business. So probably on the high side in the Q4 of this range.

Speaker 12

Although we do have a planned turnaround at the Barranca Brameja refinery in July, this will be only in So then a crude rate will come back to maximum levels. So in overall, we see a very good in 2020 3 for the rest of the year so far. So I hope

Operator

at this time. Thanks to everyone. This concludes our Q1 2023 earnings conference call. Thank you for your participation. You may connect right now.

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Earnings Conference Call
Ecopetrol Q1 2023
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