Ecopetrol Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 8 speakers on the call.

Operator

And operational results for the Q2 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 include projections of the company's future performance. These projections do not constitute any commitment as to future results nor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call.

Operator

The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol Diana Escobar, Vice President of Fustainability Development Jamie Vaez, Vice President of Low Emissions Solutions Alberto Consuegra, COO and Jaime Caballero, Cbo. Thank you for your attention. Mr. Roa, you may begin your conference.

Speaker 1

Good morning, everyone, And welcome to the Ecopetrol Group's 2nd quarter 2023 conference call to present our operational and financial results. We appreciate your participation. 1st, I would like to highlight the dedication Our entire team, which has allowed us to achieve outstanding operating results In such a challenging market environment, 2nd quarter production averaged 728 1,000 barrels of oil equivalent per day with a general increase of 23,000 barrels versus the second quarter Of 2022 and the highest quarterly figure in the last 3 years. This dynamism It's a result of the strongest execution of our operation and increased production from strategic Fields including Callejosur and Rubiales in Colombia and Permian in the United States. These fields We have played a crucial role in supporting our growth, allowing needs to meet our production targets For the year today, in the Q2 of this year, we recorded revenues of ARS54,000,000,000, EBITDA Of ARS 14,600,000,000,000 and net incomes of ARS 4,100,000,000,000.

Speaker 1

These figures are consistent with the 2023 financial plan. These results are supported by: Firstly, an enhanced operating performance through record in production, Pumping lots in some of our transportation system and refining throughputs and clean fuel production loads In our refineries secondly, the exceptional results in Permian, Raficar, ESA and Ecopetrol trade in Asia. Thirdly, a positive impact of the exchange rate on sales And an efficient commercial strategy. During the Q2, we reached the following significant Strategy milestones. In May, we complete negotiations on the collective bargaining Agreement for the next 4 years.

Speaker 1

Negotiation took place within a constructive and respectful dialogue With union organizations finalizing with an agreement that will concurrently benefit Our workers, the company and the country. In June, the Refineria de Cartagena was notified Of the international arbitration tribunal's decision regarding to the claim filed on the engineering Procurement and construction contract for the expansion and modernization of the refinery. The arbitration process began through a record filed by Reficar in March 2016 And CORRobert 8, a contractual breach, the decision notified is subject to corrections, Revisions and clarifications as the request of the parties. This same month, we ranked in the top spot Of the Mercotallento Colombia 2023 ranking, the business monitor of corporate reputation Practifying Ecopetrol as the best company for attracting, entertaining talent in the country. This First half on 2023, we have added more than COP 23,000,000,000,000 in transfer to an Asia So taxes, royalties and dividends, maintaining our firm contribution to national development.

Speaker 1

On the other hand, This quarter, the account receivable to the fuel price stabilization fund had the lowest average Accruals since January 2022. Finally, I would like to highlight that the cumulative CapEx Execution to the 2nd quarter reached ARS 12,300,000,000 being the highest in half yearly view in the last 7 years demonstrating our commitment to innovation and growth. Please continue the next slide. During the

Speaker 2

first half of

Speaker 1

the year, we faced a highly uncertain macroeconomic situation. The possibility of a recession in the developed world, high interest rates and banking stress in the United States, Together with the slowdown in the Chinese economy have impacted the price of crude oil and refined products, Introducing greater volatility to the market. Despite these challenges, we have excelled Because of our company's operational resilience and adaptability, we have found opportunities within The current situation as OPEC could have focused on intermediate goods and USA strategy reserve purchase Seek out grades similar to those we offer. We have been able to exploit the opportunities With our ongoing strategy aimed at diversified markets and destinations, emphasizing the strategic position Of our trading subsidiary in Singapore, Ecopetrol Trading Asia, which has sold over 80 5,000,000 barrels of crude oil in the Asian market. During this quarter crude oil sales To the Asian continuing to represent 54% of our exports.

Speaker 1

Ecopetrol Trade in Asia Also successfully translate Carbon Ultra crude cargoes in line with the company's TESG agenda. Its EBITDA for the Q2 of 2023 reached $62,500,000 An increase of 42% over the previous quarter. In addition, the active reports of the Carbon Trade Index Has allowed us to commercialize 10,000,000 barrels of accumulated carbon offset crude oil As of last July, also the commercialization of asphalt with recycled plastic With an export level of 3.50 tons and the execution of 5 projects in Colombia Has boosted the energy transition and circular economy in the region. All the commercial performance has allowed As trend in the differential of the crude oil basket, ensuring our positioning in the market. The Ecopetrol Group continues to action It's all inclusive strategy of efficiencies and competitiveness allowing us to uphold the company's solid operating performance despite inflationary and market challenge.

Speaker 1

We are confident in our team's ability to meet the adversities and remain committed to sustainable growth and success in this dynamic business Slide 8. I now give the floor to Diana Escobar, Vice President of Sustainable Development, who will update you On our progress in the company's social impact.

Speaker 3

Thank you, Ricardo. Ecopetrol's commitment To generation of social value was evidenced during this quarter through advancements in the performance of our Social and environmental investment plan, which in 2023 totaled MXN 766,000,000,000, A figure equal to nearly 5% of the comparable investment by the nation's general budget. I would like to underscore the most relevant achievements during this past quarter. We highlight the Start of the 2nd phase of the Meta Food Supply Network Program in partnership with the Food and Agriculture Organization Of the United Nations, over the next 3 years, this program should positively impact 3,000 farming families And 32, associations in the region, strengthening production change and their commercial viability. Moreover, a cooperation agreement was defined with the national government and companies in the industry to pave 43 kilometers of the Puerto Gaetan to Ruiales Road located in the Department of Meta.

Speaker 3

With an investment of more than COP240,000,000,000, this project will sponsor the agroindustrial Productive and Rural Development of the Orinokea region, enabling over 1,000,000 hectares with agricultural development Potential and generating a positive annual impact of over 2.5% on the regional GDP. We also emphasize the successful National Summit of the Ecopetrol's entrepreneurship social investment program With the engagement of 1576 entrepreneurs, micro and small enterprises From 45 municipalities that will receive benefits this year. In education, our school quality and retention programs Have aided 641,000 students, which is 8% of the total enrollment in public educational institutions Nationwide, regarding the expansion of higher education coverage through the Ecopetrol graduate program this quarter, We awarded 94 new scholarship to students in rural areas, reaching a historical total of 17 And 61 beneficiaries to date in healthcare, our mobile unit, Unidade Mobile, Has assisted more than 6,500 people in 7 municipalities of the Mid Magdalena region With access to low complexity health services, which is equal to 8% of the vulnerable population in this area. Regarding access to utilities, namely gas, water and power supply, our social gas program Certified gas service connections for more than 5,200 new households In the departments of Atlantico, Santander and Casanari concerning water supply, we highlight The provision of ARS 6,500,000,000 for the construction of 1 public drinking water well that benefits more than 13,000 people From the Wayuu ethnic group as a part of our commitment to provide water supply solutions in the department of La Guajira.

Speaker 3

In access to electricity, we participated in a task force led by the Ministry of Mines and Energy Seeking to define a portfolio of initiatives that can develop into self sustaining energy communities. Our social investment portfolio has been further strengthened with the allocation to the Ecopetrol Group Of 27 new projects valued at MXN 167,000,000,000 through the work for Our business group have the highest participation in this mechanism, 37% Of the nationwide allocation. Finally, we would like to highlight the social dialogue processes carried out with the communities In our areas of influence, in the quarter, we conducted 13 dialogue processes involving more than 1,000 social 1st nationwide for the participation of community action boards, academia, businesses and local institutions. In addition, we launched the ethnic inclusiveness support program called Forming and Diversity Training YU and Pazto Siveria ethnic communities in La Guajira and Putumayo to strengthen their individual and organizational In this way, through our business lines, we contribute to generate social value throughout the country, closing gaps And improving the quality of life for those most affected by social inequality. I will now Turn the floor over to Jaime, who will present the key financial results for the Q2.

Speaker 4

Thank you, Diana. Ecopetrol recognizes that generating long term value in a context of energy transition requires an integrated balance Between the achievement of financial profitability goals and the delivery of our strategic technology, environmental, social And governance commitments with our stakeholders. Our performance dashboard shows significant progress in this regard. Technology, the main accelerator of this strategy, generated benefits for close to more than COP 1,000,000,000,000 In the first half of twenty twenty three, through increased revenue generation, cost reduction, avoided costs and productivity increases. On environment, the group, aware of the active role it must play in terms of climate change and energy transition, Has made progress as follows.

Speaker 4

Regarding emissions reduction, during the first half of twenty twenty three, the group achieved an accumulated reduction of greenhouse gas emissions 1,090,000 tons of CO2 equivalents in Scopes 12, mainly in the upstream and downstream segments through different enablers Such as fugitive emissions, venting, flaring optimization, energy efficiency programs and the use of renewables. A cumulative reduction of 1,400,000 tons of CO2 equivalents by 2023 with respect to the 2019 baseline is projected. On water, the following has been achieved: 1st, An average water withdrawal of 657,000 barrels of water per day for industrial use, well below the withdrawal limit of 724,000 barrels of water per day established for the operation. 2nd, a 49% reuse of freshwater withdrawal, Achieving an over compliance of 123% compared to the target set for the 1st semester of 2023 And third, a 29% reuse of production water affected by the pressure injection flow systems in Andin Oriente and Orinokia, but compensated by the good performance of the other two indicators. As part of the ambition to incorporate non conventional and alternative energy sources For self consumption and promotion of cleaner energies, the company plans to incorporate 400 Megawatts by 2023.

Speaker 4

Currently, 208 Megawatts are in operation and another 200 Megawatts are under construction to deliver the set target. Regarding social matters, in addition to the milestones previously mentioned by Diana, the following stand out: the 4,298 non oil Jobs generated that contribute to diversification of local economies and the 55,659 students benefited through Quality and educational coverage projects. In terms of governance, the company maintains a solid and transparent corporate governance With a level of independence of 78 percent of its Board of Directors and a 33% female representation, This guides the fulfilling of the company's strategy and is evaluated in indexes such as the Dow Jones Sustainability Index Where the Ecopetrol Group aims to maintain or improve the corporate governance rating obtained in 2022. Please move on to the next slide. During the first half of twenty twenty three, we achieved outstanding financial indicators amidst an environment of lower crude oil and refined product Realization prices: ROACE recorded its 2nd best result since 2016 and closed the semester at 14.8%, Above the target of 10% for the year and higher than the average of around 11% reported by peer companies to date.

Speaker 4

The impact of higher fiscal contributions and the increase in capital employed was partially offset by higher operating income in the last 12 months. EBITDA margin was 44.3%, mainly explained by the lower average Brent price compared to the 1st semester of 2022 And the lower cracks of refined products, diesel, gasoline and jet, which was partially offset by the net effect on revenues And purchases associated to the higher average exchange rate. Likewise, there was an increase in activity costs And operating expenses associated with the increase in activity in terms of production, refinery throughputs and transported volumes, as well as some inflationary effects. During the semester, the Ecopetrol Group recorded a higher EBITDA margin compared to its peer companies, which reported an average margin of around 34%. Regarding EBITDA by business line, a 78% contribution Hydrocarbons stands out, underpinned by the upstream and midstream segments.

Speaker 4

Transmission and toll roads contributed with 16% of the EBITDA, mainly associated to the results of the Energy Transmission segment. Finally, low emissions contributed with 6% of the EBITDA, explained by a higher gas contribution. The gross debt to EBITDA indicator remains stable at 1.6 times, below the target of 2.1 times for the year. The debt equity ratio was 1.1 times, primarily due to the higher financing U. S.

Speaker 4

Dollars acquired mainly by Ecopetrol SEI in the first half of the year. During the first half of twenty twenty three, the Ecopetrol Group generated an operating cash flow of MXN 5,200,000,000,000 as a result of the solid operating performance and the positive effect of the average exchange rate, which offset Lowerization prices and the inflationary effect on costs. Operating cash flow accounting for the balance of the effect, which I will explain in detail later, would be Ps18,200,000,000,000 at the end of the semester. Please move on to the next slide. In the first half of the year, Ecopetrol's organic investments amounted MXN 12,300,000,000,000, the highest half year figure in the last 7 years, 41% above what was executed in the first half of twenty twenty two and in line with the target for 2023 of between MXN 25,300,000,000,000 and MXN 29,800,000,000,000.

Speaker 4

This demonstrates the company's execution capacity In line with the target set out for the 4 pillars of the 2,040 strategy and contributes to our commitment to the economic growth of Colombia And the other countries where we operate. The hydrocarbons business line, as a strategic priority for the company and as an enabler of investments in the energy transition, Closed the semester with a solid execution for Ps. 8,400,000,000,000, which represents 69% of the group's investments. These investments were represented in growth projects throughout the integrated chain, both in Colombia and the United States. The investments in low emission solutions And TESG closed at COP1.5 trillion, of which circa COP1.3 trillion were allocated to gas projects Focus on assets located in the Piedmont and other exploratory blocks.

Speaker 4

In TESG, resources were allocated to decarbonization projects, Efficient water management in operations, energy efficiency, fuel quality and hydrogen. Investments in the transmission and toll roads business line Amounted to COP 2,400,000,000,000 and corresponded to projects executed by ESA in energy transmission, Toll, roads and telecommunications. These investments allowed progress in the construction of the electric circuit and in improvements aimed at increasing the reliability of the existing As well as in the Ruta del Loa, Ruta del Araucania and Ruta del Los Rios road projects in Chile. Please move on to the next slide. At the end of the first half of twenty twenty three, Ecopetrol recorded a consolidated cash position of MXN13 1,000,000,000,000 explained by: 1st, an operating cash flow generation of MXN5.2 trillion mainly associated with higher sales volumes due to higher production, the solid performance of the midstream and downstream segments as well as energy projects.

Speaker 4

This was partially offset by the increase in working capital, mainly due to the accumulation of the FEPEC account And the payment of income tax in some subsidiaries. Secondly, the outflow of investment resources for organic activities For MXN10.7 trillion mainly made by Ecopetrol and its subsidiaries Permian, ISA and Cenit. And thirdly, The outflow of resources for the payment of dividends for Ps. 2,600,000,000,000 to minority shareholders And subsidiaries. Regarding the management of debt maturities for 2023, Adeco Petroleum will continue to advance in the refinancing strategy With which in June it carried out a partial disbursement of close to Ps.693 billion From the financing line with Bancolombia, the prepayment of debt maturing in 2023 for $305,000,000 The issuing of bonds in the international capital markets for $1,500,000,000 and the launching Of the repurchase offer for around $822,000,000 plus interest for the prepayment of the remainder of the international bond issued in 2013, Executed in August.

Speaker 4

As a result, the balance of maturities for 2023 at the end of August is close to $198,000,000 corresponding to principal installments of long term debt. As for the average cost of debt between the end of the first half of twenty twenty two In the first half of twenty twenty three, the cost increased 28 basis points and closed at approximately 6.07%, which represents A highly controlled growth despite the generalized context of higher international interest rates. It is also noteworthy that despite the higher cost, Average exchange rate and indebtedness, the increase in financial expense between these periods was only 1%, reflecting the company's ability To manage its debt even in a challenging rate environment, the company does not expect a substantial increase in the cost of debt for the remainder of 2023. Regarding the FEPEC balance, the account receivable closed at COP 30,900,000,000,000 reflecting an accumulation of COP 13 Ps. 1,000,000,000,000 during the semester.

Speaker 4

Likewise, compensation was made without transfer of resources between the balance receivable from the FEPEC account And the dividends in favor of the nation for ARS 8,400,000,000,000, leaving an amount of ARS 13,200,000,000,000 pending for compensation. It's important to mention that thanks to the adjustments in the price of gasoline and the price environment, the monthly accumulation of the FEPAC has been decreasing and is expected to be below Ps. 1,000,000,000,000 per month in the second half of the year. Finally, it is important to reiterate That the financial priorities of the Ecopetrol Group continue to be the value generation through the delivery of the investment plan, Proactive and competitive debt management and the distribution of dividends as cash conditions allow. I will now pass the floor to Jaime Valles, who will give us more details About the low emission solutions business line.

Speaker 5

Thanks, Cai. In the first half of the year, the gas and LPG production Reached 160,000 of equivalent oil barrels per day, 22% of the group's production mix. Enviva business delivered an EBITDA of MXN2,142,000,000 with an EBITDA margin of 47%. Our continued efforts to decarbonize our operations were bolstered by the implementation of A wide range of initiatives and investment projects of low emission solutions aiming to significantly contribute To our strategic objectives, I would like to highlight the reduction of flare gas from San Roque, Piztirama and Agua Blanca's bills by the means of connecting them to the gas market to offer additional volumes of about 1400 MBTU per day. This initiative allows us to reduce emissions of more than 36,000 tons of We also were able to implement energy efficiency initiatives that led to reduce 5 gigawatt hour, 2 megawatts of consumption equivalent to the electricity consumption of 16,000 tons And another 110 kilo BTU of thermal energy, energy management, Operational control and the use of plating and bending of gas for self generation of energy resulted in the mask of the EU.

Speaker 5

We continue to work on sustainable mobility during the Q2 of 2023. First, we started to deliver financial support To natural gas vehicles with the gas truck program, a fund of COP730,000,000,000 That includes an endowment by Ecoprocess. 2nd, our subsidiary, Essentia, renew its transportation fleet With 40 gas powered brand new trucks in its operations. And finally, we delivered the first Hydrogen refilling to the public transportation bus in Bogota for commissioning tests with the support of CEMIC and H2B2. It is estimated that all these initiatives in sustainable mobility will achieve a reduction of more than 5 70 tons of CO2 per year.

Speaker 5

I will give some further remarks on Ecopetrol's efforts To improve the well-being of the Colombian people, to date a program to connect vulnerable communities to the natural gas grid Has delivered 4,843 connections positively impacting families in rural areas of Guajira And Arauca, Senator O'Connell and Canos and Sur Gas have been the main vehicles to meet the target. We also signed new agreements that will allow us to expand the program coverage to connect another 4,000 families in 2020. In addition, we extended the micro LNG plant operations in Buenaventura and in November Providing reliability of gas supply to 37,000 families in this building. The company has done a significant amount of work to enrich its renewable energy portfolio. To that end, New technologies have been introduced to our opportunities funnel such as biomass, geothermal and small scale hydropes.

Speaker 5

The operation of Riza, Castilla and San Fernando Solar Farms as well as the Cantayo small hydroelectric plant allows us to reduce 5,883 tons of CO2 equivalent And save MXN 6,915,000,000 in the Q2 of 2023. We are also making progress in the construction of new photovoltaic capacity in Cartagena 23 Megawatts La Cira 56 Megawatts Copen Ayacucho Ambasconia Solar Farms with 15 Megawatts And caulkacia with order 7 megawatts, which will contribute to the incorporation of 101 megawatts To our renewable energy matrix by the end of 2022. Finally, last June we held The energy transition for 3 days more than 3,000 people including Ecopetrol's employees, International and local leaders and experts gathered to share knowledge of the national and global context, Industry experience, technological trends and challenges of the energy transition. We continue to leverage The consolidation of the architecture for the business line, framed in the strategic pillar of cutting edge knowledge, A key theme for our 2,040 strategy energy that transforms. I will now pass the floor to Alberto who will talk about The main operational milestones.

Speaker 2

Thank you, Jamie. Progress in the 2023 exploratory campaign reached 40% by the end of the semester. As we completed the drilling of 10 exploratory wells, 7 of which Have hydrocarbon potential and are located in the llamas orientalis, 2 having gas condensate potential in the Piedmont Foothills And one with natural gas potential in Northern Colombia in Cordoba. For this quarter, I would like to highlight the announcement we made about the success of the The number 1 exploratory well operated by Ecopetrol located in Castilla and Nueva in the Department of Meta, Confirming the presence of 16 degrees API heavy crude oil. Extensive testing is planned to begin in the Q3 of 2020 3, we made important progress in the assessment of onshore discoveries.

Speaker 2

In Northern Colombia, in the Arecipa area, Early production connection of the Coralino-one and Arrecita Norte discoveries to the existing infrastructure is underway. Extensive testing is expected to begin by the end of 2023 for potential commerciality in 2024. With regards to the Flamancos discovery located in the Mid Mardalena Valley, the Flamancos 1 is now commercially viable And the production license is expected to be awarded during the second half of twenty twenty three in order to proceed with Extension of commerciality for Flamenco's 2 and 3 wells. Finally, extensive tests are being carried out in the Upper Magdalena Valley on the El Nino 1 Anibanmeca 2 wells and in CPO-nine on the Hon one and Lolito wells. Progress In offshore exploration activity in Colombia includes assessing the results of the Gorgon-two appraisal well and the drilling of the Glaukos-one Well in the same area, which is expected to reach total depth in the second half of this year.

Speaker 2

In addition, we continued with Pre drilling activities of the Orca Norte-one well as part of the appraisal process of the Orca discovery and with the planning of the appraisal campaign of the Ultuba discovery to start in 2024. As part of the ongoing consultation with government agencies, Mediation agreements were signed with the National Hydrocarbon Agency, ANH and the Agencia Nacional de Defense Acuridica del Estado, National State Legal Defense Agency concerning controversies regarding the exploration and production agreements For the Farahones and Magangay areas. Let's go to the next slide, please. During the Q2 of this year, We achieved production of 728,000 barrels of oil equivalent per day, up 3.3% Versus the same quarter of 2022, driven by a solid performance of Rubiales and positive results of the drilling campaigns At Canasur and Permian, these results were obtained despite the negative production impacts of around 6 1,400 barrels of oil equivalent per day during the Q2 of the year due to social unrest issues Including the Capachos field closures as well as load restrictions and the temporary shutdown of the gas plant in Quirrell Tar Due to attacks to the Cano Limon Covinas pipeline, we continue to make progress in decarbonizing our upstream segment.

Speaker 2

During the first half of the year, we highlight the development of projects that will eliminate venting emissions at the Castilla and Dina Curitacios Production facilities in line with our commitment to reduce methane emissions by 2,045. During this period, The upstream segment succeeded in reducing 141,000 tons of CO2 equivalent emissions Figure which is above expectations for the semester. Let's go to the next slide please. After 3 years of the start of operations in Permian, The joint venture between Ecopetrol and Oxy reached a record production at the end of May of 100,000 barrels of oil equivalent per day Before royalties, with approximately 62,000 barrels of oil equivalent per day corresponding to Ecopetrol's participation. In addition to the production in the Midland Basin, we highlight the start of production in the Delaware area After drilling and completing the first 19 wells, during the Q2 of 2023, we drilled 22 new wells, Totaling now 279 wells and reaching a net production for Ecopetrol before royalties 58,700 barrels of oil equivalent per day.

Speaker 2

By the end of the year, more than 110 wells Are expected to be drilled and production should reach an annual average daily production in the range of 62,000 to 64,000 barrels So oil equivalent per day before royalties for Ecopetrol. On the TESG front, Permian assets maintain low carbon intensity Based on 0 routing priority, methane monitoring continues at production facilities along with other practices such as tankless Storage facilities to reduce emissions at the source. Please continue to the next slide. For the midstream segment, transported volumes increased year on year by nearly 20,000 barrels per day, primarily as a result of Higher crude oil production in the Janus region, greater availability of both refineries as well as operational optimizations in the refined product Transport systems. So far this year, 10 reversal cycles have been carried out in the present scenario pipeline, Ensuring the evacuation of production from the cannula in one field.

Speaker 2

Likewise, an alternative route was implemented to evacuate Condensed crude from Gibraltar and unloaded in Ayacucho Station as a heavy crude diluent, The bottlenecking production of approximately 30,000,000 cubic feet of gas in the Gibraltar field. During the Q2, Senate continued to perform a cabotage operation from the Buenaventura Maritin terminal to the Tumaco terminal, Supplying part of the demand of products in this region of the country affected by restrictions on the Pan American highway. In line with our TESG strategy, after 3 years of work led by Ocensa in partnership with Oleoducto de los Janos Orientales, ODL, Oliaducto Vicentenario de Colombia, OBC and other regional entities, we highlight the completion of the Vida Manglar project, Which restored and rehabilitated 39.2 hectares of mangrove in the Cispata Bay in Cordoba, Contributing to the natural regeneration of the area. Finally, the Ministry of Mines and Energy through the issuance of Resolution 279 of 2023 temporarily suspended the updating of crude oil transport tariffs that takes place in July of each year. Therefore, the current tariffs will remain in force until the tariffs for the following period are set in accordance With the terms established by the regulator, let's continue with the next slide, please.

Speaker 2

In the downstream segment, The Cartagena refinery achieved a record quarterly throughput of 209,000 barrels per day, thanks to the continuous operation of the Cartagena crude oil Plant Interconnection Project, IPCC, by its acronym in Spanish, as well as the high operational availability of the plants. During the quarter, we reached an integrated throughput of 427,800 barrels per day, A 17% increase versus the same period in 2022, in line with our commitment to contribute to the improvement of air quality in Colombia and delivered cleaner fuels. We stand out the record production of diesel, gasoline and jet fuel for local supply in compliance with the Resolution 4,103 that establishes the fuel sulfur content limits for Colombia. In 2Q 2023, We reached an integrated refining gross margin of $14.4 per barrel as a result of higher refinery throughput With plant availability levels surpassing 96%. Compared to 1Q 2023, The margin was mainly affected by a contraction in global demand reflected in lower diesel and jet fuel prices and higher crude oil prices.

Speaker 2

By the end of the year, margins are expected to remain at the double digit level. In addition, scheduled maintenance will be carried out at both refineries During the second half of the year, ensuring the reliability and integrity of our operations. During the quarter, we made progress in achieving various milestones Of which I would like to emphasize, start maturation of the project to produce sustainable aviation fuels And renewable diesel in the Barrancabermeja refinery contributing to the carbonizing deviation sector. The start up of the electrolyzer project in Essentia that aims to generate hydrogen from water using solar panels as an energy source To partially cover the operations self consumption, the execution of the 5 gs technology pilot test at the Barrancabermeja refinery With the aim of implementing industrial technology solutions in the operation, which will enable efficiencies in maintenance and operation processes. We continue to advance on the 0 fuel oil path, initiating production of AC30 quality asphalt At the Barrancabermeja refinery, those opening up new market opportunities.

Speaker 2

Let's move on the next slide, please. During the first half of the year, efficiencies of COP1.6 trillion were achieved, of which COP1.1 trillion Contributed to mitigate the inflationary effects that continue to impact the Group's costs and expenses. On this front, I would like to highlight the multiple initiatives that have allowed us to optimize dilution And evacuation costs of heavy and extra heavy crude oil, the implementation of production strategies that have contributed to reducing lifting costs As well as energy efficiency strategies with the use of technology solutions and self generation. Listing cost As of June 2023 amounted to $9.41 per barrel, a year on year increase of $0.13 per barrel, Mainly attributed to inflationary effects on energy tariffs, well services and chemical treatment, whose impact was mitigated due to achieved efficiencies $0.24 per barrel. Refining cash cost decreased by 14% Compared to the first half of twenty twenty two, explained by increased throughput and exchange rate variance, Offsetting higher costs from greater operating activity and inflationary effects.

Speaker 2

The cost per barrel transported as of June 2023 Was $2.76 per barrel, which remains stable versus the same period of 2022, Primarily due to the aggregate effect of higher operating costs, a greater average devaluation of the peso against the U. S. Dollar And additional volume transported, the total unit cost as of June 2023 reached $45.6 per barrel, A 14.7% decline compared to the same period of the previous year, mainly resulting from the effect of a higher exchange rate And an increase in traded volumes. It should be noted that there was a COP700 per dollar year on year increase in the average exchange rate In this period, which resulted in an impact of approximately COP 340,000,000,000 in operating costs and expenses. I now give the floor back to our CEO, Ricardo Roa.

Speaker 1

Thank you, Alberto. The transmission And Toll Road business line generated positive operating and financial results In the first half of the year, these results were primarily sustained by the energy business in Brazil and Colombia This echoed in a 10% contribution by the business line to the group's revenues, A 16% input to EBITDA and 8% participation in net incomes For the first half of the year, the most relevant milestone for the quarter includes the allocation of 2 lots awarded In the Energy Transmission auction by the Brazilian National Electric Energy Agency As well as 6 extension in Brazil and one connection in Colombia. The start up of the ULM-seven twenty 17, Sabana Larga Bolivar project, an inception of the Smart Bulbs operation in the Santa Marta substation, Forwarding reliability and the connection of renewable energies. These projects will represent additional revenues Of $10,000,000 ESA continues advising in the constitution of 34 energy transmission projects, Which represent the addition of over 4,825 kilometers of transmission lines to the network and will generate revenues of approximately $260,000,000 when they enter in operation. Finally, progress continues in the execution of additional works in the Ruta del Norteos and Ruta de la At our Canadian concessions, which will generate new revenues and extend the terms of these concessions.

Speaker 1

I would like to highlight that in this first half of twenty twenty three, the Ecopetrol Group demonstrate exceptional resilience And solid operational capabilities within a challenging landscape. This was achieved Through hard work and dedication as well as years of support and commitment by every member of our organization To the devotion of our team worldwide and the proclivity to recognize strategic opportunities, We continue to ensure sustainable growth with a historical execution of the investment plan. In Colombia, from the production fields in the Llanos Orientales to the offshore stations in the Caribbean And globally from Chile through Power Transmission and Toll Roads business line to our trading company in Singapore, We will continue to focus on delivering operational excellence, innovation and commitment to the energy transition. With great enthusiasm, we invite you to celebrate with us in September 15th anniversary Of our listing on the New York Stock Exchange, we will hold an event to share our achievements, financial results And prospects on the path to our 2,040 strategy. Finally, I wish to thank All our employees and investor partners for their continued support and to all of you You participated in this call conference today.

Speaker 1

Thank you for your time. I now open the floor for the questions.

Speaker 6

Thank you. We will start now our Q and A session. If you want to ask your question, please write in the chat number 1 and follow the instructions. Well, thank you for a maximum of 2 questions so that we can have room for other questions. Our first question comes from Andres Cardona from Citibank.

Speaker 6

He's in line with the question. Mr. Cardona, the floor is yours. Good morning. Thank you for this opportunity.

Speaker 6

I have two questions. The first one is with respect to the EBITDA margin in the Downstream segment. I understand there is an impairment because of the essential result and the reduced margins of petrochemicals, but I would like to understand If there are non recurrent events, perhaps losses for revaluation of inventories that would explain this Impairment of the segment. And second, my question is if you have estimated the present value of the indemnity for Reficat. And if you could give us the perspective of the company regarding the possibility to recover these resources Because it has been published in the media and also in the thieving of the minister of mines is there any Possibility of waiting for new auctions for oil fields in Colombia.

Speaker 6

Thank you. Andres, good morning. Thank you for your question. With respect to the first one, about the effect on the EBITDA and the downstream effect And inventories, I would say that in Essentia, we had an inventory And accumulation in the 1st month of the year with a drop in the 2nd Q and at large the On the inventories of Essentia amounted to $5,000,000 Talking about the refineries, the inventory effect we've had Cumulative in the first half of the year has been positive. In the case of Barranca, we had an accumulation of A volumetric inventory because of a drop in the demand, but in general, both Cartagena, Barranca We have had positive inventories in the whole downstream segment to give you an idea of the You mean that the inventory between Cartagena and Stetia and Barranca was $27,000,000 positive, vis a vis an EBITDA of $120,000,000 So the inventory effect in the first Semester, I would say, is positive and of less than 3% as compared with EBITDA.

Speaker 6

We haven't had any adjustments or one time adjustments. Hi, may you may complement this? Yes. Thank you, Walter. Yes, Andres.

Speaker 6

With respect to the Downstream, I don't have much to add to what Walter said. We don't have any exceptional material issues In the Q2 and what you have seen in terms of margin is just a reflection of the change in the environment conditions. But still the down margins are still very appealing and competitive also. So I would say that and with respect to your question about Replicar, As it is of public knowledge, in early June, we received the news of the favorable ruling for the refinery In the dispute with CBI today, the owner is McDermott And this gives rise to a potential expectation of recovery in the future. The Steps to follow are first that the ruling is made firm.

Speaker 6

This is something we will be expecting by the end of the I think by the end of this year and once we have a firm ruling, we will be able to formalize a number of procedures for the Recovery of those sums with the counterparty. To the extent that the Strategy for recovery and the dialogue with the counterparty shed light on the amounts, timing, matters Of this recovery, we will be adjusting The financial statements do reflect that expectation in an educated manner. That's what I can say now. Thank you. Andres, and the last question, With respect to the leaving of the Ministry of Mines and Energy, is there a possibility for new routes for Awarding areas for exploration and search for gas and oil.

Speaker 6

And I should mention that this continues to be a public policy of The government or will it depend on the Ministry of Mines and Energy and whoever is the head or leader of the ministry And also the analysis and exercises as to the implications of this In the macroeconomic aspect and also with the participation of the Ministry of Finance and Public Credit, What we have been doing very rigorously is to participate in technical groups with representatives of these entities In order to show them what we have in respect of contracts that are enforced To undertake the search and we have been making some announcement that are small but important. And in that line, we will continue working with Ecopetrol with the contracts that are enforced and obviously Favoring the institutionality and student macroeconomic relevance of the Availability or not of those new contracts? Thank you, Ricardo. And Jaime? Thank you to you all for your answers.

Speaker 6

Catherine Ortiz from Correores A Bivienda. Mrs. Ortiz, you may Good morning. I have two questions. The first one is related To your opinion with respect to the mentions of the President of Colombia in respect of a corporate Yes, I am in Spanish.

Speaker 6

Okay. Okay, now you can add. Thank you. Well, good morning to you all. I have two questions.

Speaker 6

The first one is related to the announcement made by the President of the Colombia with respect to the strategy and the role of Ecopetrol in terms of The development of unconventional project, he mentioned it in Guajita. And in this regard, I would like to understand if, for example, Ecopetrol will try to absorb projects in this regard that had been abandoned By other companies because of the difficulties of making them viable due to their challenges with the communities Or what is the plan of that role that the government has mentioned, RECOPETROL, in the development of this project in this area, Other areas of the question. And my second question is related to the fact that recently We became aware of a document that shows the guidelines of the roadmap for energy transition. And in that document, there is a possibility that very soon we will be having to Import gas as compared with the current ones and when you think of the estimated reserves, they're quite different. If you compare them with what Ecopetrol had shown in the 20 So it's a plan.

Speaker 6

So I would like to know what is your opinion with respect to those figures and what is the alignment Well, if they have the expectations of Ecopetrol and if you could tell us if there have been any Changes in these expectations with respect to the plan that we knew with respect to Ecopetrol strategy. Thank you. Thank you, Catherine, and welcome to this conference. In the context of the possibility of Ecopetrol Becoming an important actor in the development of Power generation from unconventional sources of nonrenewable energy, we cannot ignore, In particular, the great potential that exists in this region of Energy based on wind and solar radiation. Those potentialities are determined And they also constitute one of the plans of Ecopetrol in its 2020, 2,040 Roadmap.

Speaker 6

Insofar as based on this Energy Resources, it is possible to think about the development of Energy in the transition that we have already mentioned, such as green hydrogen, methanol. So in this road map, we are foreseeing investment And potential for development, and we cannot ignore them and they will be part of that Crosscutting access for economic decisions at Ecopetrol, which is called Capital discipline, each of these opportunities will be developed as they are defined and studied Thoroughly in a rigorous manner as part of the premises and tenants that have been planned and Disseminated about this discipline, the timing and the opportunities for decision on such investments We'll be part, obviously, of that road map and that portfolio That we are supposed to assess. Also considering that Not only as to the expectations of the government, but also with respect to the existence of new conditions In the legal platform derived from the derogation of some articles That prohibited the vertical integration of energy business in a company such as ESA. And second, In the issuance of emergency decrease were By the regulatory and legal spaces being open for Ecopetrol to be able to make investments In generation of renewable and conventional energy sources.

Speaker 6

With respect to your second question, I would like To pass the floor to Jamie, by mentioning, of course, that this is A draft document for comments and observations of the stakeholders, We have been participating in it and conducting our analysis. So I pass the floor now to Jamie. Thank you, Mr. President, and thank you, Catherine, for your question. The Ministry of Mines and Energy published recently this Draft of the roadmap for energy transition that gathers a very interesting diagnosis of the government since 2022 and part of 2023 With dialogue that have been conducted throughout the Colombian territory with benchmarks, thanks to the multilateral We have received from different governments worldwide and this concludes the analysis of scenarios that President Rao said We'll have comments until August 16.

Speaker 6

Before going specifically into the natural gas theme, I would like to share that the diagnosis highlights several points where we have full alignment between the government's vision and the Strategy of Ecopetrol in 3 areas. The first one, the relevant in the renewable and conventional energy sources And the importance for the country that we continue on the road of developing this type of energy. 2nd, of course, we are aligned. The document says as to the relevance of natural gas And its fundamental role in energy transition and I will talk further about that. And finally, the document recognizes something that is very And that is the importance of this transition being a gradual process.

Speaker 6

Having said that with respect to gas, I We'll go back to something we mentioned in previous calls about simplifying There is 3 types of resources that we have in our portfolio, reserves that have a very high probability of being We will introduce the contingent resources that have more uncertainty and then The prospective resources that have even more uncertainty, when you detail the scenarios that you mentioned in your question With respect to projections of gas in this roadmap of energy transition, well, effectively Only considering the reserve, it is evident that the reserve today are insufficient To have to meet all the demand for gas in the medium and long term, that's something that is in line with our figures. And that's the conclusion of this road map and the COPETROL strategic plan. And it is essential to have development of the Cover that we have announced recently in the Caribe offshore basin Because that will enable us to develop contingent resources, the resources that be discovered and the prospective resources. In this regard, the road map shows that to be able to reverse that situation, we must continue investing in gas offshore. And as you will see the document, the contingent resources that the government mentions are around 4.2 as cost in the most Like the scenario which is recognized as to see resources.

Speaker 6

In the COPITROL numbers, We are close to 3.9 for CTF. So there's full alignment. The government And includes some volumes that are from the 3rd party producers that are not part of the Ecopetrol group. In addition to these contingent resources, we have the prospective resources that as we said in Ecopetrol amount to 5 Tcf. So this is a subject in which we all recognize that we need to invest foreign cash The potential exists primarily in the Caribbean offshore basin and that's why we are conducting such an important Activity in this basin.

Speaker 6

With this said, the country needs to manage this uncertainty. And the way to do that is through auction because all these volumes have Certain challenges for development, and that's why the government and us are working on options to cover This possible gap that we could have in the short term through options of imported gas as Technologies of micro LNG or using the capacity of regasification that are already exist in Colombia, Other additional sources, the name of the games having optionality to make sure that Colombians will have gas And for Ecopetrol to do it in a profitable manner. Thank you, Catherine, and I hope this will help you understand the way we see Right now, the documents that have been published recently by the Ministry. Thank you. Thank you for your answers.

Speaker 6

The next question comes from Daniel Guardiola from BTG. The floor is yours. Thank you. Good morning, Riccardo. Hi.

Speaker 6

May I have a couple of questions? The first one is about Production of unconventional oil considering that without any doubt that type of Our reservoir production has been one of that has yield had good yields for Ecopetrol. And I would like to know if you could share with us What is the expectation of production for the close of the year and what is the CapEx that you plan to allocate for the next 2 years? That's my first question. But also I would like to know if you see any risk of interference by the Colombian government To change this development that's already planned For the production, basically the Permian Basin.

Speaker 6

And my second question has to do with ESA. Recently there was a shareholders assembly where some modifications in the Board of Directors were made. And I would like to know if you are considering Any changes in the management of ESA? Those are my two questions. Daniel, good morning.

Speaker 6

This is Alberto Consuegra. With respect to unconventional production, I can say that Permian Continues to be a very profitable asset where we have all of our focus and expectations. Production for the first half of the year has been very good and the perspective for the rest of the year is And we hope we will end up with 110 drilled wells where we already have wells in Delaware. We already have additional activity in Delaware in addition to Midland. So this will be about $1200,000,000 this year With the perspective of investment similar for next year, so Permian is a source of for focus, for all of our focus.

Speaker 6

And as we have stated, it's a highly profitable asset with EBITDA margins that exceeds 70%. Daniel, with respect to your second question, about the risk or interference On the businesses that are part of Ecopetrol's portfolio at present, I have just come back From the Permian, I attended the Board of Directors meeting where we met with a partner and as I said is one of the more profitable businesses OpExoPetrol has in its Portfolio and the expectation about the continuity of The development of this business with the partner is stable With very good feedback on the outcome so far achieved and obviously the decisions that are to be May the time will be in line with what is legally and contractually established In that partnership for this project. And regarding your question about Movements in ESA or any of the affiliates of the Ecopetrol Group It's a decision of the President of Ecopetrol and the Board of Directors. And if any decisions are made about changes, it will Always be within the rigor and the corporate governance Principles that are clearly established for such purpose, both in ESA and at the Ecopetrol Group. Thank you.

Speaker 6

The next question is from Andres Duarte from Okay. I have 2 questions. The first one Has to do with gas offshore and what has been said regarding the importance And the road map or the part that has been published so far, In the last conference call, I understood that what you were registering of Offshore gas was viable at the current prices in the country, not only at import price, but domestic prices. I would like to know what's still missing for you to build the infrastructure that is necessary to bring it And to register those reserves, I would like to understand What is the delay at this time for those additional configurations? And my second question is to ask Also, if you could update give us an update of the goals And objectives relative to the self supply of electricity and hydrogen or hydrogen replace Let's call dirty hydrogen for green hydrogen in the industrial processes that you have.

Speaker 6

And that question is related to, as far as I know so far, your objective Of having to tell supply as to power and hydrogen is To replace what you already are using and what I understand now from the President is that you would like to extend This lies beyond the fact of being self sufficient or have self supplied. Sorry Thank you For your question, this is Jamie Weisz. First, the offshore gas and then we can review the renewables that you were asking about. With respect to offshore, yes, we see that the potential that we have in the Caribbean offshore is very important. I already mentioned the volumes.

Speaker 6

And as you mentioned, we have found that according to the estimate, this gas Can be competitive at the domestic market prices. The combination of these two factors is what enables That all projects related to this basin with respect to gas are very well ranked for capital allocation. To be able to move those resources, which are either contingent or discovered to be the limited to reserves, there are 2 aspects. 1st, We need to carry out all the limitation work. This is the process that allows us to understand What is exactly or to know with more certainty the volume that we have in each of these opportunities?

Speaker 6

All the limitation works imply drilling of wells and building facilities. We have told you before that in the 2023 to 2025 plan, we have planned the drilling of 7 offshore wells. This will be essential for the limitation And at this time, we are completing 1 of the 2 wells that we have planned for 2023. That means that in some weeks we will be completing it. Before the end of the year, we will start the drilling of the second well.

Speaker 6

That is an activity that will continue until we complete the 7 wells of this 3 year plan. And in the 2nd activities, the infrastructure, understanding volumes, how are we going to take that gas to the How are we going to treat it and process it? What is the transport system it will be connected to? And we have found fantastic synergies with the infrastructure that we already have at the facilities of Ballena and Chinchupa That somehow are available. So that will allow us to expedite the work that we are foreseeing.

Speaker 6

Infrastructure and the limitation are crucial. And when we complete those two aspects, we were able to pass this to reserve. All this activity of the wealth and the infrastructure of course requires environmental licensing processes, Consultation with the communities and at Ecopetrol, we are always committed to doing things well upfront. So we will do this calmly following processes, but with a clear approach, understanding what this means for Ecopetrol and for the country. And hopefully, we're able to pass these volumes to reserve between 20252027 and to get them in an early stage, So that by the end of the decade, we will have full development on this volume.

Speaker 6

With respect to renewables, I will go very rapidly on the way we see it with respect to hydrogen in 2022. We closed the year with an Solar capacity of 208 megawatts of renewable energy, primarily solar, 99% This technology and 1% is more hydraulic plants. Our next goal is that by the end of the year, we will have 400 Megawatts as we had announced. And in 2025, we will have around 900 megawatts that will start Ready in 2026. Of course, this is management of the portfolio that is continuous as I Paul, before this is one of our own projects.

Speaker 6

We already have 101 megawatts being built, Different assets, but we're also working with partners and allies to bring 99 Megawatts in Peru Reales field, 25 Megawatts from biomass in Villanueva Castanade and several projects from small hydraulic plants. So I think we're in the right path to the 400 megawatts. In the medium term, To the extent that we have been walking and understanding the opportunity of hydrogen for Ecopetrol and the country, It is evident that renewable and conventional energy will play a fundamental role. And that's why we have said that there is 900 megawatts I think of the story for hydrogen project that the refiners will work like the one we are very close to sanction. It will require 2 50 megawatts.

Speaker 6

Green hydrogen project will require at least 1 gigawatt. And for this line of hydrogen business, the needs will be between 3 5 gigawatts By 2,030 and in 2,048, it will be above 9 or 10 megawatts. This, as you can He has a magnitude and figures that is demanding the development of a capacity and an architecture in Ecopetrol that Sorry, I interrupt to have clarity. In those 900 megawatts by 2026 and what you're saying In magnitude of Gigas, for purposes of hydrogen, please clarify At what point in both cases you are exceeding the requirement of self supply? Because I think you consume those 900 in electricity, where does it start going beyond The requirements of Ecopetrol for hydrogen to go to a phase of being able to export or to sell.

Speaker 6

And with respect to hydrogen, also I would like to understand if that installed capacity, Which is beyond what is required for self supply as to power generation. If 100% of that additional installed capacity Would be intended for the production of hydrogen or is the sale contemplated for the national system? Well, to go to the point, at Ecopetrol, we have installed capacity for self generation 1300 Megawatts, primarily thermal. All the figures I'm giving you correspond to self generating Projects of nonconventional energy sources that will complement the portfolio that we have for cell generation. When we talk about cell generation is for the hydrocarbon business in the upstream middle or down, but also for future production of Hydrogen and derivatives like green ammonia or green hydrogen, all these focused on self generation for low emission Supply and for the hydrocarbon business and our main objective in the medium term, of course, We evaluate permanently the profitability and competitive activity of these opportunities.

Speaker 6

And as the President mentioned, Being out of that framework are things that will have to be reviewed, we are focused, but it is Material to build the facilities that are required to focus on this. We have tested different business cases, Which are quite profitable options and the replacement that we have of sources that are CO2 emission intensive with sources that will improve to reduce that emission with more The next question has from Bruno Montagnari From Morgan Stanley.

Speaker 2

Good afternoon. Good morning. Thanks for taking my questions. I have two questions here. Can you talk a little bit about trends in oil production for the second half of the year?

Speaker 2

Maybe address Where you see upside risks and downside risks, what the main challenges are for you to finish the year according to the guidance The most recent guidance provided, please. And then the second question, it's very interesting to see you making a lot of advances on hydrogen With the actual operations, but can you give us some clarity or color on the level of returns You currently see on hydrogen operations or the expected returns? And how do they compare with the returns You are able to do on the hydrocarbon business. Thank you very much.

Speaker 6

Bruno, good morning. Thank you for your first question. I will answer the one related Introduction. My name is Alberto Consuegra, and I would like to tell you that we maintain our production forecast, The range that we have been giving you and by the end of the year it will be between 720,000,725,000 barrels, Hopefully, clear to the upper range. We, in the first half, I have had a materialization of risk related to the environment.

Speaker 6

This trend could continue in the second half, but we will have scheduled Maintenance in some of the production fields. This will not be substantial, but we must consider the impact in the plan. This is to tell you that we continue with the perspective of finishing in accordance with what we have planned. The Q3 looks quite robust with respect to production. But as I said, there are factors That perhaps will not help us such as the plan, the scheduled shutdowns for maintenance And the environmental issues that continue to materialize.

Speaker 6

Thank you. Bruno, thank you for your question. With respect to To date is that we are managing the hydrogen portfolio. I would like to share that we are focusing on those That enable us to have some links that are more sophisticated in the volume chain And I have synergy with the hydrocarbon business. That is what is allowing us to reach Profitability rates that are appealing and that means that they could exceed 2 digits The GDP in dollars, the most evident example that we have is the Two projects that we have at the refineries of Cartagena refinery, as I have shared before.

Speaker 6

In this case, to give you the example, what we do is to build a facility to produce green hydrogen Based on a nonconventional renewable source, hydrolysis is used primarily for processes that have more hydrotreatment At the refineries, thus producing fuels such as diesel and gasoline that are clean and have no sulfur But also producing more sophisticated product, concretely green methanol. In Colombia, We are net importers of methanol and it is used in industry processes And we think that this could be replaced with a local product, but also with a product that It's less deal too intensive. When we combine all these pieces in the business case, We are raising, in fact, a tier that is competitive. The middle and long term, the challenge for Ecopetrol And for all the companies that are working with Ygrene and Blue Hydrogen Worldwide to be able to have those profitability Rates being the characteristic of the project and then probably we'll be focusing on Hydrogen for hydrocarbons and not for new markets. We're working on this every day, but we know this is a technological project We're in which we are committed to and it is facing challenges that are not minor, but of course we are working hard on them Because the capital discipline and the profitability parameters are very important for us and we will continue doing so.

Speaker 6

And as far as the opportunities start to mature, I hope this has clarified your concern. Jamie, I would like to add to give you a group perspective. I think Jamie's Answer is absolutely clear. We're looking for competitive returns, 2 digit return, And we are following all the criteria of capital discipline that for which we are known. This should be also seen within a more broader context.

Speaker 6

If you look at the allocation of capital, 70% The company's capital is directed to the hydrocarbon business line, 20% to transmission and road. So we're talking about 10% allocation first. 2nd, as part of that 10% in our business line of low emissions, The predominant component is gas as to capital allocation. It will continue to be gas in the short and medium term. So what we are talking about is some plans that in the context of the total allocation of capital Our measured, calculated, calibrated where we want to understand and make this business model viable And understand its long term profitability.

Speaker 6

And second, I would like to mention That comparison with the hydrocarbon business because as you very well know, The hydrocarbon business and its profitability is highly linked to the price cycle. One thing is when we are in the Good times of prosperity and different when we have the opposite. And as history has shown, nobody can anticipate That entirely and what we have noted historically that there is great volatility. So for us, in the context of hydrocarbon having returned, and you know We always look for sustainable returns over time of about 10%. That's what we're looking for.

Speaker 6

And in that line, we see that the low emission businesses can be competitive. With those return, This could be favorable and with less volatility. We will have to see how this evolves And if we have regulatory conditions, market conditions, execution environment That will enable those returns to become real. That's the way we see this topic. And third, The structure of the capital that accompanies the project, While in the hydrocarbon business, given its long story and that the value chains Are quite mature and well established.

Speaker 6

The general pattern of the capital structure is that the company contributes its cash flow 100% in many of the projects and in this low emissions businesses With the other scheme, where partnerships are protagonists, the project finance is also Product on it is part of the structure of the project for several reasons. First, because given the Maturity conditions of those value chains, we need those alliances for market to materialize. And second, also because of the risk capital ratio, we are inviting that risk capital And financial institutions that are willing to offer financial conditions that are more Vegetable than in the competitive area. To give you an example, while the capital cost of a hydrocarbon business, depending on the company, of course, Could be close to 8% 12% depending on who's the player In these businesses, it could be as low as 4% or 7% or 8%. So really the issue here is to understand if we are able to generate profitability for the shareholders That differential of the profitability and the capital cost is something that we have seen so far To the extent that those projects are sanctioned, we will be able to confirm that value proposal.

Speaker 6

That's the way we are approaching it. Thank you.

Speaker 2

Perfect. Thank you.

Speaker 6

Thank you for your answers. The next question comes from Dassault Oscar Kantelos from UBS. You can ask now.

Speaker 7

Hi, everyone. Thanks for taking my questions. My first question, historically, the company has been a solid dividend player, but in 2023 on the lower Brent environment, higher CapEx and also income tax from the country, we view a drop in the capital allocation flexibility for the company. It would be great to hear company's view in terms of capital allocation ahead. If you see dividend payments to be closer to the bottom or the high range Between the 40% to 6% policy and maybe breaking between your expectations for this year 2023, But also looking the mid- to long term considering investments in the strategic plan and also oil and fuel prices Environment.

Speaker 7

My second question, in the past months, we have seen some discussions in the country to potentially change fuel prices calculation and fuel prices has actually been increasing gradually in the past months, right? So it would be great to hear how discussions with the government have been going on this front and your thoughts On fuel prices ahead, how much gap you still see to international prices and how much and on what timing These gaps could eventually be adjusted. Those are my questions. Thank you.

Speaker 6

I will take both questions. First of all, in relation with the CapEx, As you have observed, the CapEx is being well executed. We are fully in line With the expectations so far and to that extent, we hope to finish the year within the ranges That we have mentioned to the market before, which is a rate that is in the order of $5,800,000 to $6,500,000 and the distribution or allocation of that CapEx, as I mentioned before, It's in line with the 2,040 strategy, which is an important focus in the hydrocarbon business Of about 70% transmission enrolls, 20% low emissions the rest. So we are not expecting surprises and it shows the commitment of the company to its growth And with respect to the second question that has to do with the fact If I understood correctly about prices, the government has opted for a commitment Making an adjustment on the fuel prices, domestic fuel prices, and it has been Consistent in a committed manner and thanks to that you have been able to see the change in the trend of Accumulation of PEPPEC. We as the government has announced, we hope those internal price adjustments And this is not only for the end of the year, but also for 2024.

Speaker 6

The goal of the national government is to have domestic prices aligned with international prices By the end of 2024, that is the plan that has been announced and the route The next question is from the Chad from Goldman Sachs, yes, About the accounts payable of effect Resolution 16.12 refers only to the balance of effect For the Q2 of 2022 and what is the expectation of the company to receive the remaining balance of Hi, Joel. Thank you for your question. With respect to FEPAC, as you saw in the financial disclosures, the balance of FEPAC As of this semester, it was ARS 31,000,000. In the second quarter, there was an off corresponding to last year and what we see from now on Is that those compensations will continue to be quarterly. At least that's what we have seen so far.

Speaker 6

The idea is to have conversations so that the balances will not accumulate above 12 months, but at the same time that the conversations will not be premature So as you have a margin for maneuvering and also for the government to see how the prices have evolved as well as the adjustment. We think that is a viable mechanism. The fiscal framework in the Medium term is giving us visibility on how the government is considering to offset balances from now on. We have a public document that shows what is the balance that the government expects for the end of the year And also how we plan to offset that next year and that's a premise of the planning. So if you look at it from a historical Effective, the level of uncertainty with respect to the recognition of FX account And the evolution of the balance has decreased dramatically This year and we see our path, so that by the end of next year, the disbalance in the Quebec account should be minimal.

Speaker 6

That's what we are seeing, and I hope that has answered your question. The next question is also from Chad Ednon Goicochaia from Latin Finance. He said, Ecopetrol announced yesterday that it has Redeem $822,000 in bonds. How did the company Finance and redemption of those bonds and what other finance plans does Coca Cola have for the rest of the year? Edna, thank you for your question.

Speaker 6

And the operation that we announced yesterday, it's an appendix All the operation that we carried out a month ago associated to the bond That was issued. The idea was to issue that bond, which was $1,500,000,000 in order To refinance the existing debt, so the resources used for this redemption were Partially what we collected a month ago with the RMB1.5 billion. So the situation, As I said in my presentation, at least as with the challenge of refinancing for the year, So all of the short term deadlines or exploration have already been resolved. We refinanced them in medium and long term, some to 5 years, always to 10, another to 7 years. So that gives us a debt profile that makes us feel more comfortable and gives us more financial flexibility from now on.

Speaker 6

So the focus then for the rest of the year is transit to next year. We will have a couple maturities next year, about $1,500,000 We will be monitoring market conditions. So as to understand if it makes sense to activate some of the refinancing, that's one of the themes, And also the ordinary course of the business always considers operations to maintain our working capital. That's what we are anticipating. Thank you.

Speaker 6

Thank you for your answers. The next question comes from the chat. Alvaro Escobar asked, what is the self sufficiency strategy for gasoline, diesel and natural gas According to the demand behavior in Colombia? Alvaro, good morning. Thank you for your question.

Speaker 6

I will answer Walter Anova from the Refining And industry processes by presidency. I would say that it should be mentioned that Ecopetrol As an extremely relevant role for the supply of clean fuels to the country, it is worth mentioning That in diesel, the country is self sufficient and we even have balances that are exported from the Cartagena And we have international quality. In jet fuel, we are also self sufficient and Balances for export. And this is Don from Cartagena Refinery and talking about a normal operation with All our plants in operation, sometimes periodically, we have to have shutdowns in our assets and Production units and the production can go down. But at large, we have surplus in diesel and jet.

Speaker 6

When talking about gasoline, it should be mentioned and remember that by 2013, the demand was 60,000 or 65,000 barrels per day and it was supplied with national production. However, since 2014, We have seen a sustained growth of demand for gasoline in the country and Reaching values of 140,000 or 150,000 barrels per day. So gasoline demand has doubled Volumetrically in the past 10 years, although in the COPETROL, we have could be increasing our products. The Cartagena refinery started operations in 2016 or 2017, increasing The production of fields, including gasoline, our current production is between 80,000 1,000 barrels per day from both refiners. So for these demand levels to supply the market, we do need imports of gasoline of about 60,000 barrels per day, which are also managed by Ecopetrol to ensure Meeting the market demand, to the extent that the demand is maintained this level, Our production will be sustained about 90,000 barrels per day.

Speaker 6

So we will have to meet that demand Through imports, we have relevant projects in both refineries at Barrancabermea and Cartagena In order to ensure that we will continue improving the quality of that gasoline, Less than lowering the sulfur levels, we want to get to be less of 10 parts per million And also to improve the octane and this is being executed from now to 2,030 to meet the domestic regulations That is already issued and effective as to the enhancement of fuel quality. In general, in 2023, we have had a reduction in the level of imports of both diesel and gasoline. And I would like to mention that last year in September, we started the expansion of the Cartagena refinery, And we were able to add 6,000 barrels of additional gasoline production, reducing the import level. And to the extent that the demand is maintained at these levels of 140,000 or 100 1,000 barrels per day, the imports of gasoline will continue to be necessary to meet the demand in the country. As part of our strategy 2,040, we are not foreseeing so far Thank you.

Speaker 6

Well, we have finished our time. Mr. President, you can convey Well, thank you to all the participants, executives and directors

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Earnings Conference Call
Ecopetrol Q2 2023
00:00 / 00:00
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