Ecopetrol Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 8, 2024

There are 9 speakers on the call.

Operator

Good morning. My name is Natalia 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 2024. There will be a questions and answer session at the end of the presentation. Before we begin, it is important to mention that comments in this call by Ecopetrol's senior management include projections of the company's future performance.

Operator

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 in this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol Alberto Consuegra, COO and Maria Catalina Escobar, Acting CFO. Thank you for your attention.

Operator

Mr. Roa, you may begin your conference.

Speaker 1

Good morning, everyone. Welcome to the Q1 of 2024 earnings call, a quarter in which we are moving forward on the path of growth, thanks to the collected work and a part of our employees and partners. The results show that we are still maximizing the opportunities in our traditional business. We continued to achieve excellent operational figures. We closed the Q1 with a production of 741,000 barrels of oil equivalent per day, a transported volume of 1,118,000 barrels per day and refining loads of 428,000 barrels per day with an high operational availability of our refineries in 96%, reaching levels comparable with the best refineries in Latin America.

Speaker 1

During the quarter, we announced the commercial viability of the Radecipe gas field in the Cordoba department adding approximately 6 700,000 cubic feet of gas and the signing of a gas exploration agreement in Piedmont Norte with Paris. This milestone is trading our commitment to the country's energy security. These achievements are complemented by the outstanding commercial strategy highlighting our subsidiary in Houston, Ecopetrol U. S. Trading, which started operations in October 2023 with a commercialization of 16,700,000 barrels of crude and products generating an EBITDA of $37,100,000 and a net profit of $28,500,000 in the Q1 of 2024, 185 percent above the plan for the period.

Speaker 1

We are able to face that El Nino phenomenon with resilience, implementing, planning, optimization and saving strategies throughout the operations and the processes. Examples include the accelerated maintenance at Copiagua diesel timely delivery to the power plants and an 80% water reuse rate in our operations. Moving to the next slide. Our growing production translates into solid financial figures with competitive profitability showing an EBITDA margins in line with the average of the last 8 years. In this way, revenues of ARS 31.3 trillion, EBITDA of ARS 14.2 trillion, net profit of ARS 4,000,000,000,000 and ROCE of 11% in line with our annual target.

Speaker 1

The main impacts on the results compared to the Q1 of 2023 are mainly due to exogenous variables. Over the past year, the exchange rate dropped by ARS 845 affecting the respiration of variables in pesos explaining 80% of the variation in EBITDA. When analyzing the figures in dollars for the quarter, we observed financial results at similar levels compared to the Q1 of 2023. Other variables affecting the results are increased cost due to the El Nino phenomenon, inflationary pressures and the fall in product differentials as a result of the market oversupply. Efficient management of the accounts receivable with the fuel price stabilization fund accompanied by allowed us to reduce the accumulation by 72% compared to the Q1 of 2023 ensuring lower working capital pressures for the company.

Speaker 1

Additional, on April 1, we received the transfer of COP 7.80 trillion corresponding to the account for the Q1 of 2023 highlighting the nation's commitment to pay back payments. I want to highlight the successful closure of the legal process of the arbitration award of the Cartagena refinery after 7 years of work and effort in which we protect the interest and reputation of the company for which we have already received the corresponding compensation. I want to give a special recognition to the Cartagena Refinery and its entire team for their constant work and commitment to successfully completing this process. We maintain competitiveness in returns for our shareholders. At the General Shareholders Meeting, dividend distribution of 67% of the profits for 2023 was approved corresponding to MXN312 per share to be paid in 2 installments in 2024, one which has already been paid to minority shareholders in April.

Speaker 1

Additionally, I highlight the annual dividend yield of 14%, which continues to be highlight competitive in the industry. Moving to the next slide. The operational achievements shown go along with environmental, social and governance milestone that support the good performance of traditional business and the path towards a fair energy transition. In the environmental field and in line with our ambition to achieve net zero emissions by 2,050 and decarbonize our operations in the Q1 of the year, we achieved a reduction of 50,000 tons of CO2 equivalent of direct emission scopes 12, accumulating a reduction of 1,540,000 tons of CO2 equivalent from our operation, which to give you an idea is equivalent to the annual electricity consumption of 80,000,000 Colombian households. We also manage responsibly and efficiently the water that we use for our operations.

Speaker 1

In the quarter, we achieved a reuse of 39,600,000 cubic meters. This value is equivalent to the quarterly domestic demand of 5,400,000 Colombians. In line with the above, we highlight the launch of the new circular economy model which we have a production and consumption system that promotes efficient and sustainable management throughout the product life cycle in our value chain and we focus our effort on achieving climate change, water, biodiversity among other goals. On the Renewable Energy Incorporation, from we announced the inauguration of the Cartagena solar firm making it the 1st refinery in Latin America with a solar powered plant. In the social feed during the Q1 of the year, MXN 65,800,000,000 were executed in social, environmental and relationship investments and 50 projects were developed through the Tax for Works mechanisms for a value of ARS431.6 billion since the beginning of the mechanisms.

Speaker 1

Through the social gas line, we achieved the connection of 80,052 homes to gas fuel networks accumulating a total of 43,971 connection since 2019 thus contributing to the expansion of access to essential public service for the people living in the communities where we operate. Additionally, and in line with our commitment with these communities, we generate more than 73,000 jobs through our contractor companies hiding around 85% of local labor and generating 23 percent inclusive jobs. The update of the bylaws reflect our commitment to gender diversity and the adequate preparation of our leaders ensuring that at least 30% of the Board of Directors are women and requiring more than 12 years of experience for members of this governing body ensuring the presence of experts from diverse fields. The recent change in the composition of Ecopetrol Boards of Directors do not imply modifications or change in the implementation of the Ecopetrol's Group 2,040 strategy by itself. Like a WIS, the corporate governance model remains valid and to date no chain proposals have been present by Ecopetrol administration.

Speaker 1

Finally, at the end of March, we observed normal change in senior management among which I want to highlight that 73% of the new Vice Presidents come from internal talent in the Ecopetrol Group in the expected line of association, reflecting organization. And finally, on the science, technology and innovation front, I highlight that within the framework of Ecopetrol Colombian Navy agreement, the participation in the 10th Antarctic expedition conclude where measurements of gases and sampling of particulate matter were carried out the data of which we serve in the reserves of off shore energy generation from renewable sources. Now I give the floor to Alberto who will talk to us about the hydrocarbons line not without first thanking him for his valuable management during more than 7 years in the Ecopetrol Group. His contribution to the achievements reached were fundamental for the consolidation of the strategy. Ecopetrol wishes him much success in his new challenges.

Speaker 1

Rafael Guzman, current President of JOCOL will take cover as Executive Vice President of May 11, 2024. We will come Rafael has been President of the subsidiary for more than 5 years and has around 14 years of experience in the Ecopetrol Group. Go ahead, Alberto.

Speaker 2

Thank you, Ricardo. We highlight the advances in the exploratory campaign allowing us to progress discovered resources into contingent resources and reserves. I would like to mention the following. The commerciality of the Recife gas field, 100% operated by HOCO, located in the Department of Cordova, consisting of the producing wells Arecipe 1 Sitetrack, Arecipe 3, Arecipe Norte 1 and Coralino 1. The field showed an initial production between 5000000 to 10000000 cubic feet per day already available in the local market and is expected to reach a production between 20,030,000,000 cubic feet per day by 2026.

Speaker 2

We continue pursuing the commerciality of the exploratory success of the Arauca-eight well drilled in 2023 in the Janus Foothills by our partner Paddix with a 50% participation. The well confirmed the presence of light crude of 32 API degrees in the Gajaca formation and condensate gas in the Une formation, with a gross production of approximately 4,573 barrels of oil per day and 7,500,000 cubic feet per day of gas as of the end of April. Additionally, I would highlight the agreement with our partner Parex Resources to explore new sources of domestic gas and light crude in the Pedemonte Norte Foothills. The agreement includes the GIANOS 41, GIANOS 16.1, GIANOS 121, and CDD blocks with a 50% participation for each party, as well as the option to jointly participate in 2 additional blocks. With this alliance, both companies expand their exploratory portfolio and work together to reactivate exploratory areas expecting to increase gas supply in the medium term.

Speaker 2

Regarding offshore exploration activity, progress is being made in the maturation of the Uchuba II appraisal well, which is expected to start drilling by the end of this month in partnership with Petrobras as operator. We also continue to make progress in structuring the business case for the development of the Gorgon and Glaukos discoveries. Let's move on to the next slide, please. During the Q1 of 2024, the Ecopetrol Group achieved a production of 700 and 41,000 barrels of oil equivalent per day, increasing by 22,000 barrels of oil equivalent per day compared to the same period of the previous year, maintaining outstanding results even under security issues and blockades in some territories, which impacted production by 7,500 barrels of oil equivalent per day. These results were leveraged by the increase in production from our subsidiaries, mainly in Permian, as well as positive results in Cano Sur, CPO-nine and the contribution of

Speaker 3

secondary and tertiary recovery through

Speaker 2

water injection. We highlight the which improves its reliability and integrity. The plant which improved its reliability and integrity. The plant maintenance was executed in a shorter time with less production losses and more flaring reduction compared to the plan, thanks to the operational discipline and the use of equipment with the state of the art technologies. The higher production level during the Q1 triggers that our projection for the year increases to a range between 730 and 735,000 barrels of oil equivalent per day.

Speaker 2

In line with our TESG strategy, it is important to highlight that 93% of the water required to operate in the upstream segment came from the reuse of production water, thus reducing dependence on water resources. Let's go to the next slide please. Regarding our activities in the Permian Basin, 25 new wells were drilled during the Q1 of 2024, reaching a production of 84 1,600 barrels of oil equivalent per day for Ecopetrol before royalties, which represent 11% of the group's production. We also highlight the strong financial results of Ecopetrol Permian. In the Q1 of 2024, we achieved an EBITDA of $229,000,000 and an EBITDA margin of 80%.

Speaker 2

Next slide, please. The upstream segment contributed 54% of the Group's EBITDA being a profitable and sustainable segment that leverages the energy transition. The EBITDA per barrel increased by 4%, reaching $29.2 per barrel, mainly due to higher production levels, better crude basket prices and cost efficiencies, which partially offset the exogenous effects such as inflation, higher exchange rate and the El Nino phenomenon. On the other hand, the lifting cost was $12.1 per barrel. If normalized for exogenous factors, which represent about $3.45 per barrel, the lifting cost would be at levels similar to those of the Q1 of 2023.

Speaker 2

We also achieved efficiencies of $0.38 per barrel, driven by the execution of strategies focused on electrical power, reliability and subsurface maintenance, which contributed to mitigating the impact on the lifting cost. Let's go to the next slide, please. Transported volumes increased by approximately 28,000 barrels per day, mainly driven by the increasing crude oil production in the Llanos area and higher deliveries of Castilla Norte Crude at the Barrancabermeja refinery. During the Q1, 5 reversal cycles were carried out through the Vicentenario pipeline with more than 1,200,000 barrels transported in response to a preventive intervention at kilometer 153 of the Cano Limon Covenas pipeline, which affected operations in the Banadilla Yacucho section in March. After successful completion of the repair work, the pipeline resumed operations on April 7.

Speaker 2

As part of the strategy against crude oil theft, beginning November 2023, the Ecopetrol Group implemented an operational adjustment to transport crude oil production from the southern region of the country through Ecuador's pipelines. During the Q1, the Transcendental system has remained in contingency mode been available for use as needed. This measure will be reviewed over the year. Lastly, we highlight the segment's financial results, generating revenues of nearly COP 3,600,000,000,000 and an EBITDA of COP 2,800,000,000,000, contributing with 20 percent of the Group's EBITDA. Next slide please.

Speaker 2

In the Q1 of 2024, the combined refining throughput reached 428,000 barrels per day, leveraged on more than 96 percent operational availability, the rigorous execution of scheduled major maintenance activities and the maximization of domestic crude loads. The integrated refining gross margin was $14.8 per barrel, mainly affected by weaker diesel jet and gasoline spreads. This resulted in an EBITDA of COP 1,400,000,000,000 for the quarter. In this quarter, we accomplished multiple milestones of which we highlight this. The commissioning of the mechanical recycling plant at Essentia currently under stabilization with a production capacity of 12,000 tons per year.

Speaker 2

The start up of the 3rd chemical recycling reactor to increase the production of pyrolysis oil for processing at the Barrancabermeja refinery The completion of the construction phase of the solar park at the Cartagena refinery inaugurated on April 12 with a self generation capacity of up to 22.1 Megawatts. The commissioning of the new waste water treatment plant at the Barrancabermeja refinery in February of this year lastly, the solid cash generation of the segment resulting from strong operational results and the repayment of the FEPEC to the Cartagena refinery on April 1, 2024, corresponding to the balance of the Q1 of 2023. Now I will turn it over to Ricardo, who will discuss the main milestones of the Low Emission Solution business line.

Speaker 1

Thank you, Alberto. In the Q1 of 2024, the gas and LPG solution raised 172,000 barrels equivalent per day representing 23% of the group's total production, 65% of Colombia's market share and on EBITDA of MXN 753,000,000,000. Reinforcing our commitment to continue the path of the decarbonization and diversification of our energy metrics during the Q1 of 2024 in a scenario marked by the El Nino phenomenon, the Ecopetrol Group intensified its efforts in energy efficiency achieving accumulative optimization of its internal consumption of 0.4 petajoules for this quarter with an impact of approximately 36 1,000 tons of CO2 equivalent and saving of MXN 11,600,000,000. These efforts combined with timely efficient commercial action allowed us to decrease the energy cost per barrel from $3.03 per barrel with a 23% share in the overall production lifting cost in the last quarter of 2023, dollars 2.5 per barrel and 21 percent in the Q1 of 2024. In addition, the digitization energy security progress was made on 2 fronts.

Speaker 1

First, in the planning of the supply chain in the maintenance of backup inventories to guarantee an eventual requirement of diesel for thermal generation. 2nd, in the optimization in times of major maintenance of the reliability and availability of 1 of the main sources of gas in the country. In terms of renewable energies, we completed the construction of the solar farm at the Cartagena refinery, which has a capacity of 22 megawatts equivalent to the consumption of 18,200 Colombian homes. Being the free solar farm built inside our refinery in Latin America with an expectation of reaching 5 24 megawatts in operation, construction and execution by the end of 2024, restating our goals in the short, medium and long term within the framework of our strategy to incorporate 900 megawatts by 2025 growing with sustainability and generating value for our shareholders. On the social front, we highlight 2 important initiatives with a positive impact on the sustainable development of the communities in which we operate.

Speaker 1

In the social gas program, the completion of the pilot project in Manaore in the Department of La Guajira. In Allianz with Jocoll, we shallowed the connection of more than 500 families to the natural gas service and the beginning of Phase 2 that will allow the extension of the benefit to 250 more families and the consolidation of energy communities in Puerto Para and Barranco Vermeja Santander, Clavonorte Arauca and Puerto Carreno Beachada. In alliance with White Life Conservation Society leveraging the experience of the wild project, These projects not only allow us to improve population access to renewable energy, but also to guarantee the conservation of key ecosystems and species in the country. I will pass the floor to Maria Catalina, who will talk to you about our transmission and toll roads line and the mine financial milestones.

Speaker 4

Thank you, Ricardo. In the Q1 of the year, the transmission and roads business maintained good financial results despite the strong impact of the Colombian peso revaluation against currencies such as the dollar, the Chilean peso and the Brazilian real during the period. EBITDA decreased by around 16%, standing at ARS 2,300,000,000,000. However, when eliminating the exchange rate effect on EBITDA, the results are at similar levels to those of 2023. Furthermore, committed to our strategic objective of diversifying our operations, the Transmission and Roads business continues its sustained growth in Ecopetrol Group's results, reaching a 16% share of EBITDA for the Q1 of 2024.

Speaker 4

Some of the most relevant milestones for the Q1 of 2024 include: In Panama, ESA was awarded a tender to rehabilitate, improve and maintain 246 kilometers of the East Pan American Highway. The Panamanian Ministry of Public Works awarded this project to Interval Chile in January with an estimated investment of ARS 1,100,000,000,000. In Colombia, ESA was awarded the contract for the design, construction, operation and maintenance of the 2nd transformer project at the Primavera substation and the 4th transformer project at the Sogamoso substation. Additionally, it signed a private connection contract for the execution of the Guajeppo III project for the expansion of the Savanadarga substation. The awarded projects amount a reference CapEx of COP 146,000,000,000.

Speaker 4

With these significant awards, the total committed investments up to 2,030 amount around ARS 29,400,000,000,000, consolidating the growth trajectory of our subsidiary in different geographies. Finally, on April 1, the CELO InterNEXTA Brasil was closed with a final estimated price of ARS 2,100,000,000 equivalent. Please move on to the next slide to detail the group's financial performance. In the Q1 of 2024, we maintained competitive levels of profitability, supported by excellent operational results and efficiencies captured worth over ARS 600,000,000,000. We achieved an EBITDA of ARS 14,200,000,000,000 and an EBITDA margin of 45%, keeping us within the average of the last 8 years for this period and at competitive levels compared to the industry.

Speaker 4

Additionally, the return on average capital employed, ROCE, remains in double digits, recording 11% and above our annual target of around 9%. On the path to diversifying our business lines, in the Q1 of 2024, the contribution to the total EBITDA from the exploration and production business was 54%, followed by transportation with 20%, transmission and roads with 16% and finally, refining with 10%. On the other hand, we maintain healthy debt metrics with a gross debt to EBITDA ratio of 1.9x at the end of March. This is in line with our long term guideline where we aim to maintain a level below 2.5x for this indicator. Regarding debt maturity management, we maintain a dynamic of anticipating refinancing needs.

Speaker 4

Thus, Ecopetrol successfully issued bonds in the international market in January of this year for $1850,000,000 and obtain approval from the Ministry of Finance and Public Credit to carry out the debt management operation for $1,200,000,000 in March. These resources are committed by banking entities and are expected to be disbursed in the Q2 of the year. With these operations, Ecopetrol addresses its debt maturities for 2024 2025, in addition to demonstrating its commitment to refinancing strategy through the capital markets and access to different credit alternatives with local and international banks. As for our investment plan by the end of Q1 of 2024, the Ecopetrol Group invested around $1289,000,000 equivalent to ARS 5,000,000,000,000 with dollar investments being the highest recorded since 2016 for the same period. Investments were mainly made in Colombia with a 57% share, while the remaining 43% was at the international level, mainly in the United States and Brazil.

Speaker 4

Investments in the hydrocarbons line accounted for 67% of the total investments, grouping the exploration and production, transportation and refining businesses. For exploration and production activities in Colombia, investments were concentrated in the Rubiales, Castilla, Cano Sur, Tepe Oseronueve and Chichimene fields. Meanwhile, internationally, exploration investments focus on the Permian Basin in the United States. Refining and transportation activities focus on operational continuity and maintenance of refineries and pipeline systems. In the low emission business line, projects associated with gas and energy transition represented 13% of the total investments in the quarter.

Speaker 4

Resources were mainly allocated to the growth of the gas chain and supply in fuels such as Floriena and Cubiagua and in the Tayrona block in the offshore Caribbean in Colombia. Investments in the transmission and roads line accounted for 20% of the total and were mainly allocated to the development of energy projects in Brazil, Peru and Colombia. By the end of 2024, we expect to make investments between ARS 23,000,000,000,000,000,000 as announced in our financial and investment plan. Please move on to the next slide. Regarding net income, in the Q1 of 2024, we recorded ARS 4,000,000,000,000 with the following highlights compared to the same period in 2023.

Speaker 4

First, an outstanding operational performance reflected in our EBITDA through a positive volumetric effect of ARS COP 0.8 trillion. This was associated with increased production and greater operational availability in both refineries as well as lower purchases of crude and products. 2nd, an impact of COP 2,900,000,000,000 due to a lower average exchange rate, a higher level of costs and expenses by COP 0.8 trillion and a lower weighted average selling price of crudes and products with an impact of ARS 0.7 trillion. This resulted in a total decrease in EBITDA of COP 3,600,000,000,000 in the period. Likewise, there was an increase of ARS 0.7 trillion in the recognition of depreciation and amortization as a result of higher investment levels and increased production.

Speaker 4

On the other hand, there was a lower tax provision, resulting in a positive effect on net income of ARS 2,700,000,000,000 derived from the decrease in results. The effective tax rate for the Q1 of 2024 was 36.5%, assuming the deductibility of royalties and a windfall tax of 10%. Regarding tax regulation, the final ruling on the prohibition of deducting royalties will be issued soon by the constitutional court, and the effects of such decision on the Ecopetrol Group will be analyzed based on this decision for the corresponding periods. About the liquidity position, we finished the quarter with a robust cash balance at Ecopetrol Group of ARS 17,300,000,000,000. The primary source of liquidity during this period was the operating cash flow of ARS 6,000,000,000,000, followed by net debt and interest inflows of ARS 1,000,000,000,000.

Speaker 4

There is an improvement in working capital associated with the lower accumulation of the fuel price stabilization fund. And regarding cash outflows, the main disbursements were allocated to Ecopetrol's CapEx and its subsidiaries totaling about ARS 4,300,000,000,000. Additionally, in the early days of April, the first installment of dividends was paid to minority shareholders, totaling approximately ARS 738,000,000,000 along with the payment to the nation for the same concept amounting ARS 4,000,000,000,000. Regarding the fuel price stabilization fund, we continue to make progress towards reducing the accounts receivable balance. By the end of the Q1 of the year, it stood at ARS 22,700,000,000,000, supported by the positive differential between the local gasoline price and the international reference price.

Speaker 4

This has partially offset the accumulation of the diesel related account given the current price levels in the country. There is a notable and sustained decrease in the pace of accumulation of the account receivable with a 72% decrease in its value in the Q1 of 2024 compared to the same period in 2023. Furthermore, the government's commitment to reduce the balance was clear in April of this year with the payment of COP 7,800,000,000,000 from the accumulation corresponding to the Q1 of 2023. During 2024, we expect to continue receiving quarterly payments from the FEPEC and collect the entire outstanding balance from 2023, totaling ARS 12,700,000,000,000. By the end of the year, with an average Brent price close to $83 per barrel, we estimate an accumulation of the account receivable of the fund between ARS 8,000,000,000,000 to ARS 10,000,000,000,000, subject to fluctuations in the international crude oil market price and the exchange rate primarily.

Speaker 4

This estimate is significantly lower than the amount accumulated in 2023 of ARS 20.5 trillion and in 2022 of ARS 36 800,000,000,000. I'll now hand over to Ricardo for the closing remarks.

Speaker 1

Thank you, Maria Catalina, and thanks to all who have made these results possible for the Q1 of 2024. In conclusion, the capital discipline, the rigor of the financial evaluation of our process allow us to face the challenging environment marked by the revaluation of the peso, the increase in energy cost, inflationary pressures, the price differential of products and our full commitment to advancing gas supply to the country. Likewise, thanks to the technical and operational strength, we have been able to capture opportunities such as the Brent Price situation exceeding our expectation, maximizing our excellent operational performance and diversifying into new markets to maintain a profitable and competitive business. On the production front, the good operational management of the last few months, which highlights the performance of the drilling campaigns in the Permian, Rubiales and Cano Sur, the success in the scheduled maintenance, the assurance of reliability levels and the entry of the new wells allow us to move forward on the growth path. We expect to be above the target range by 2020 4 placing us between 730 and 755,000 barrels of oil equivalent per day.

Speaker 1

We will continue to execute our plan for 2024 with technical and financial strength and advising in our strategy towards 20 40. Our operation remains solid, accompanied by a rigorous plan of efficiencies and cost control. I thank everyone for their participation. With this, we'll begin the question and answer session.

Speaker 3

To give enough room for the rest of the participants. I need Guartiola from CIB Capital Capital. I have a couple of questions. The first one on production, I'd like to understand in a better way. And if you could give me some details about the reduction in the reduction we saw quarter versus quarter both in Colombian and Permian and how you expect the production to be during the rest of the year.

Speaker 3

And online with production, looking at the new production chains you published, this means that we'll have an average production for the next 9 months between 720,000,000 and 730 1,000,000 barrels per day. What are the risks you're seeing in relation that production during the next 9 months would fall in 14,000 barrels per day versus what you had in the Q1 of 2024 in the last one, the very quick one. Could you give us details about the details on tax provisions for the Q2 of 2024 as a result of the enrollment of the decision of the constitutional court in 2024? Those would be my questions. Good morning, Daniel.

Speaker 3

This is Alberto Concepcuegra. I like to give you my greetings. Let's talk about production. When you look at the last quarter of last year, we have to take into account that Permian was doing its last drilling and completion of wells campaign. So production increased during the last quarter, reaching 158,000 barrels per day equivalent barrels per day.

Speaker 3

What happened during this Q1? The first thing is that we see the effect of the declination of the basic curve of Permian, this means that production goes down from 100,000 to 840 something, which was the average in the Q1. Then the materialization of risks that have to do, first of all, with we had a campaign of maintenance in the Cupiawa plant that affected the production of gas. And I'll talk about the forward looking later for the rest of the year. And the second thing was the materialization of risks associated to the blockades and problems of 3rd party actions that affected us in 374,000 barrels per day, which affected us in Cayneos Sur, Luellares and Carpacha.

Speaker 3

The third impact has to do with the closing of the Virtuientes as a product of the Nino phenomenon that changes the production from EUR 70,000,000 EUR 757,000,000 to what we had in average, what happens with the rest of the year? Everything has to do with managing risks. So one of the things that we were seeing was the possibility of an expansion of the NIMA phenomenon to April May. That is not occurring with the intensity we were expecting. So production is behaving in a better way that allows us to increase the range from 725,000 to 7,030,000 or 735,000.

Speaker 3

The subject of blockages and theft of electrical materials, especially in the heavy oil well areas, could also have an incidence in the rest of the year. So this is a subject related to how we approach the territories, how we create relationships with the communities and the authorities in order for us to manage those risks in a better way so we'd be seeing a better perspective of production in that regard. And the third thing is that we'd be able to develop the activities in the time planned. We have to handle the declination of the fields and natural downward slope and make sure that, that happens in the right time. For example, in PPO-nine, right now, we have the idea of having an early start between June September in those facilities, but that depends on the advance of the construction works.

Speaker 3

If we don't do it, that would just mean a lag in production, and we'll see a positive impact only in the last quarter. So this has to do with the risk management issues. We're very optimistic. We think that we're going to be able to have production above the initial target set, but we have to insist and say that this has to do with the opportune handling of the risks we see in the operations. This is Maria Catalina.

Speaker 3

Thank you for your question. The first thing would be to say that we understand that the court notified the Ministry of Finance on the suspension of the decision. So right now, the effect has been suspended. However, it is important to mention that in Ecopetrol, for some days, while the decision was still in effect and royalties were deductible, we presented our income tax returns according to what was in effect at that time. In relation to the impact that we might be seeing in the Q2 of 2024.

Speaker 3

It's very difficult to say exactly what the impact will be because that will depend a little bit on how the court modulates its decision or the ruling the final ruling after they look through the fiscal incident. However, let me tell you about some prospective scenarios. The first and the best one would be to keep on as we are with deductible royalties, which would be consequent and online with what we announced at the end of the year or what we announced at the closing of the Q1 of 2024. Let's say that a moderate scenario that could be brought about by the court is that, that adjustment of the income tax in 2023 would be able to cross it with future years. And that prepayment, let's say, if that moderation of the crossing, if there's no impact on the GDP, we might have an inflection in our cash flow.

Speaker 3

That would be one scenario. And the asset scenario would be one where the court would correct the ruling and say that royalties would not be deductible in 2023. That would impact us in ARS 1,500,000,000,000, which we would have to adjust as a lower balance in favor or higher tax versus what we reported on the Q1, that impact not making royalties deductible would be more or less KRW 500 1,000,000. And when the court comes out with a ruling, we would have to see how much would have been accrued in the Q2 of the year, but the impact would be more or less around ARS 2,000,000,000 or ARS 2.3 1,000,000,000 approximately, or ARS 1,000,000,000,000. I would reiterate that these are just scenarios.

Speaker 3

It will depend, of course, on the decision taken by the court. We are respectful of the decision they make, and we will act The next question comes from Ricardo Sandoval of Bancolombia. Mr. Sandoval, you can ask now, please. Good morning, everybody, and thank you for the talk.

Speaker 3

I have a doubt in relation to your interest related to gas. I'd like to hear Alberto and Ricardo talk about or to tell me if you have studied the assets that you that Cano has in the production of gas. It represents more or less 20% of the demand of the country. So undoubtedly, the country needs the gas produced by that company, which might have which might be going through difficult financial situations. I'd like to know about those assets and if you'd be interested in an acquisition process or if you think that it's probable that you might improve the production of gas in those fields.

Speaker 3

What are your thoughts about this? Good morning, Ricardo, and thank you for your question. This is Ricardo Roa speaking. In effect, we have known through the communication media the possibility of having Comeacol going to a sale of its shares and of its assets in the country. That, of course, is probably part of the appraisal opportunities that Ecopetrol does on its portfolio and understanding logically, as we've announced, certain deficits of gas in the country for the next 5 years, this asset will be observed in the internal protocol of analysis of those opportunities of investment within the Ecopetrol Group, not only Canacol, but any asset that we might be thinking of incorporating within our purpose of ensuring or guaranteeing to the country supply of gas in a permanent way.

Speaker 3

Those are being evaluated within the procedures that I've already mentioned and which are part of the rigor that we appraise. Any decision that could be taken, of course, if we take a decision, we would be advising the market in a timely manner as to the level of production to reach the levels we had in the Q4 of 2023. That's our big bet in the investment plan we have right now. We are trying to maintain the levels of production we reached in 2023. The path looks bright in the Q1, 733,000,000 barrels per day.

Speaker 3

I can't announce the number of April yet, but I think it's even an even better number, and it shows that we are continuing on the path of making all of our fields ready and reach the excellent production levels we obtained at the end of last year. I would now give the floor to Alberto if he wants to go in-depth on the subject of production and gas assets at Canacol. Ricardo, thank you. And thank you for your question. I'd add the following.

Speaker 3

We are neighbors in many of the different fields or blocks of Canacol in the lower valley of the Magdalena area. So what we do is make an analogy with what's happening in our own fields to understand the adjustments we have to do in the development plan. Plans of our production fields, for example, the one we announced recently, which is the Arecifer case, but also to address the profiles of what would be the objectives, the exploration objectives or targets in those blocks or fields. We're continuously looking over and looking at Canacol. We at least have more certainty of what we have to do in our own fields.

Speaker 3

Thank you very much. Now we have Andres Duarte from Corficolombiana. Mr. Duarte, you may ask now. Good morning and thank you very much.

Speaker 3

I have 3 questions. If you could answer them all, great. But at least the first, I'd appreciate if you can answer it. In relation to the production of Ecopetrol Ecea without America and Permian and without Jocol, in fact. Only 4 fields, CPO 9, Hector, Cano Azul and San Francisco, highlighting Cano Azul, which shows increases in production.

Speaker 3

The others show a reduction all annual and most of them quarterly. I'd like to know if within your expectations, you have the recovery of some of those fields that have had a reduction. And what would support that expectation? And the other question is related to gas, specifically with the possibility of importing gas from Venezuela, if that would be feasible and if the restrictions that sometimes exist, sometimes don't exist, would be in place. I'd like to know that gas oil pipe is from Piraeusa.

Speaker 3

The 100% of the investments related to the recovery of that oil line gas line would be done by Parevesa or if you are foreseeing the participation of a corporate rule for the recovery of that gas pipeline? And a question about the midstream. There is a reduction in the quarterly cost versus the Q4 of last year of the prior year in the cost of the barrels transported for 22.8%. I'd like to have an explanation. And that's a reduction in dollars.

Speaker 3

I'd like to hear your explanation about that reduction. And if you can remind us what part of the transport is in dollars and what part is in dollars? And if it's the gas oil pipelines or the oil pipelines or the poly pipelines, the ones that are indexed into dollars? Thank you very much, and good luck for the rest of the year. Well, in relation to subject of production, I would like to clarify the following.

Speaker 3

Usually, the production in Rubiales and in Castilla fall during the Q1. And it's more pronounced in Rueles because of the closing of the Vertimiente that occurs during the summer times. What would we like to see? An increase in the production of rubiales of Castilla Castilla in addition to the fields you mentioned. But you must remember that the Pareto of the national production is in those assets in rubiales, Castilla Chichimenes, in CPO 9 and in Cano Sur.

Speaker 3

That's the big portion of our production. And we have to keep an increasing production there to counter arrest the natural declination, especially in the Piedmont fields where there is a reduction or a declination in gas at the end of the year, we would be expecting a slight increase in Castilla, Chichimene and Rueles, and that, together with the fact that the Permian will keep an outlook of production between 81,000, 83,000 barrels for the year. Ricardo Roa. On the subject of gas, Andres, and good morning, and the possibility of importing from Venezuela from three points of view. The first is to have enabled the platform, the legal and normative platform to do it.

Speaker 3

And we're still holding discussions with OFAC about the permanent supply of information in relation to the request we made in November of 2022 to a fact to consider the decrease of the restrictions we have with Venezuela, the ambassador of the U. S. In Colombia, has told us that they are reviewing this subject and secondly, to remind you that we have an agreement in effect from 2017 to 2027, where we have enabled between 300,340,000 cubic feet per day to be transported, connections related to the quality of gas and the price established. And this agreement is in effect, and that is the mechanism or the legal vehicle to be able to once the restrictions are taken away, the one we'd be using now in relation to PDVSA and their news, they'd be able to deliver 50,000 cubic meters of gas per day. That's the information they've given us, and we've been working with them on the activities of inspecting the gas oil line.

Speaker 3

We send it, went through it, and we have an estimated budget of between $35,000,000,000 $40,000,000,000 to make this asset operational. The asset is owned by Epero Besa Gas. And any activity or investment that would be needed is to be borne by them. We've had some manifestations of interest from the gas transporters of Colombia to have participation both in the repairs and obviously in the possibility of receiving the charge from the use of that system, if enabled, within the country. So we think that there'd be no restriction for one of them to be in charge of the repairs and readying of that gas pipeline.

Speaker 3

This is Hector Manus Salva. I'm the President of Celis. I'd like to talk about the cost of transportation. The average cost of transportation for 2023 was more or less $3 per barrel. And for the last quarter of 2023, it was 3.75, mainly associated to the higher OpEx that we made for the repairing of the system either because of geotechnical reasons or mechanical reasons.

Speaker 3

For the Q3 of 2024, the cost is of SEK 2.99, I'm sorry, associated to 2 main components: 1, the exchange rate and 2, lower OpEx costs because of lower needs of repairs in comparison to the last quarter of last year In relation to the fees where the tariffs of the oil pipelines are denominated in dollars. The ones of the polydocks are denominated in pesos. Thus, 80% of the revenues denominated in dollars for the segment and 20 percent in pesos. But in terms of costs, 84% of the costs are executed in pesos and 16% in dollars. Thank you.

Speaker 3

Thank you. Sereno, please, is in line with a question. You may proceed. Thank you. Good morning.

Speaker 3

I have two questions. The first one is related to the cost of raising. Even though that cost was impacted with by the exchange rate in a significant amount, I'd like to know if at that level, if we exclude the effect that we might see forward in the exchange rate, we could reach a stability level of that cost or if, on the contrary, we might still see additional effects, inflationary or of any other type in that sense? That would be my first question. Then the second question is connected to the answer just given about the imports of gas from Venezuela.

Speaker 3

And I'd like to know or have clarity if Ecopetrol would not add this intermediary in any aspect in the process, that would be completely done through external parties and Ecopetrol would not intervene? Catherine, good morning, and thank you for your question. I am going to refer about the cost of the survey. We look at the monetary mass and specifically look at the outcome of the last quarter of last year. The cost of raising it was $20 this first quarter as a better result of $12 per barrel and of that survey.

Speaker 3

And what is that due to? It's because we have an important level of production and also because we've been able to achieve certain efficiencies. We're combating the level of the accumulated inflation. We've renewed contracts And there's an element that's extremely important, is the stock exchange price of energy. And it's, I think, let's say, 25% of the cost of the survey.

Speaker 3

As the Nino phenomenon decreases, the prices in the Energy Stock Exchange will reflect a better view for the rest of the year. So that price in the Energy Stock Exchange will extremely significant. What we're trying to do is to maintain that monetary math flat and through efficiencies and, of course, managing the risks. But on our target, we have a guidance of between $12 $13 per barrel with the idea that we'll be very close to the low range of $12 per barrel. And Catherine, I'd like to complement by saying to complement, Alberto, to try to illustrate the importance of our program of efficiencies and the control of costs.

Speaker 3

We have a program of efficiencies in the different areas of the company, and we're trying to find efficiencies in ARS3 1,000,000,000 in 2024. During the Q1 of the year, we had efficiencies around ARS 650,000,000. When you translate that specifically into the indicator of the serving costs, that serving cost of ARS12.1 that we're seeing during the Q1 would be a cost of more or less $12.4 or $12.5 per barrel If we had not implemented that efficiency plan or saying it in a different way, we were able to avoid more or less between $0.30 and 0.40 dollars in the cost of the survey. So I'd like you to keep that data in mind. It's an example of how the efficiency plan is really setting or trying to stabilize the cost trend.

Speaker 3

This is Ricardo Roa, Catherine. Good morning. To clarify the subject of the eventual import of gas from Venezuela, Ecopetrol would be the one who has entered into that commercial vehicle for some time already. And we might eventually do the import off the import through the Antonio Cartagas Bank. And that's why I mentioned the elements.

Speaker 3

I said before that we have to have no restriction in order to biologize the flows of gas from Venezuela into Colombia, but the intermediary role would be an eventual scenario where Ecopetrol would yield the rights of that agreement to an operator or assign them to a commercialized dealer. But that would be something that would also need a political willingness of

Speaker 1

the

Speaker 3

counterparty, in this case, of PDVSA. It's something we have not evaluated yet and we're not considering yet because Ecopetrol in its historical role is to guarantee the supply of gas into the country. And if the gas pipeline exists and if there's a road map in having the gas pipeline already ready. That's something we've been analyzed and taking into account what we said before, provided that the conditions, the legal conditions and the restrictions of OFAC would allow us to develop that. Thank you very much.

Speaker 3

The next question is from Ana Huasca from Coradores Davivienda. Ms. Huasca, you may ask. Good morning. My question refers to the changes that were published recently from the senior management.

Speaker 3

I'd like to know what that process is like if you have a date and if you can tell us about the process of the selection given the conditions in the country. Thank you. Ana, good morning again, Ricardo Roa. First, I'd like to remind you that there is a policy of succession in Ecopetrol that we are complying with. There's also a policy of a deputy positions, and they are in effect for those highly relevant position cyber changes that occur because of several reasons, beginning with the one off executives who believe that they have to close their journey in the company, others related to health reasons or others because of priorities in their own personal life that make them decide to see their positions, and we have to understand them.

Speaker 3

And in that respect, a company that has 7,553 employees is exposed to those dynamics. But in the succession policy, we are having people who fill 100% of the requirements of the profile to become deputies of Delok's position. 72% of the positions that have been replaced or substituted during this year have come from the organizational or administrative structure of people who have been in the company for many years and who have assumed those positions. There is an agreement with the Board of Directors Understanding that some of their duties are among their duties is the possibility of assessing and evaluating that those positions at level 1. And there, we've decided to do screening processes and mix placement.

Speaker 3

We're placing directors who have the experience and the profiles and the skills, and they can participate in the screening process through a headquarter. Monitoring. That's what we've been doing, respecting the times for those physicians and the succession line that exists within the policies associated to that process inside Ecopetrol. We will continue with a question and answer session in English. Rodrigo Almeida from Banco

Speaker 5

So I have two questions from my side. First, I wanted to discuss a little bit the capital allocation strategy of the company. And I guess particularly related to the hydrocarbons and reserves growth on the inorganic perspective. It seems like the company is getting good perspectives in Colombia itself, mostly gas focused, right? So I wanted to think about outside of Colombia and what's the strategy there.

Speaker 5

I think this comes into the perspective that we've seen a lot of low carbon profile discoveries across the world. I think the last one that we saw is Namibia with Galp, talking about Venezuela also. But I wanted to get an international perspective here. If you could rank to us what's your priorities on the international side, Venezuela, U. S.

Speaker 5

And conventionals, Brazil Offshore, Offshore in other countries, I think it would be great to understand. And if you could give us a quick update on the exploration efforts in Brazil offshore also regarding Pao Brasil and Gato do Matu. If I'm not mistaken, you might have just started drilling in Pao Brasil and Gato do Matu was on review a couple of years ago. So I wanted to see where it stands. And this also, I mean, leverage is quite low if you adjust for Fedex.

Speaker 5

So I wanted to understand if you see space for inorganic growth there, especially outside of Colombia. And then the second point I wanted to ask you is, we talked a little bit about the lifting costs, so I wanted to check on the dilution costs, which went up a little bit. So now the received production going a little bit up, I would say, Q2, how can we balance a higher production with probably lower naphtha prices that could potentially benefit the dilution cost there also. So that's what I have from my side. Thank you.

Speaker 3

Rodrigo, good morning. This one part of the first question, and then I'll give the floor to Alberto and Nicolas so they can continue giving more details in relation to the allocation of capital strategy, specifically with the business of hydrocarbons, I'd like to highlight 2 topics. Number 1, we announced to the market that we have an investment plan for the following 3 years, 2024, 2025, 2026. That's more or less reaches 20,200,000,000 dollars Our idea is to maintain annual investments between $5,000,000,000 $7,000,000,000 And online with the strategy that we have up to 2024, the idea is that between 60% 65% of that CapEx would be executed on hydrocarbons on the line of hydrocarbons, prioritizing or giving a lot of relevance to this subject of the growth of the reserves of the company and making sure that those investments are done in a profitable way in the business group, looking for returns between 8% 10% as we have announced. Pursuant to what we have announced specifically in the plan of 2024, what we are considering in relation to investments in the U.

Speaker 3

S. And Brazil of the $6,500,000,000 of the total plan for 2024, more or less, dollars 1,000,000,000 to round up the figures will be invested in the U. S. And BRL 51,000,000 is the capital we've allocated for investments in Brazil. The plan does not incorporate any resource up to date for assets in Venezuela.

Speaker 3

And if we evaluate or we have opportunities to do so. And if the conditions would enable a potential or a prospective investment, we would then do the appraisement according to our process of capital allocation if it's if we could or not allocate those resources. Now Alberto, you have the floor. Rodrigo, thank you for your question. And now I'll talk about Brazil.

Speaker 3

What are we doing in Brazil so far? Right now, we have 3 types of activities. The first one is related to completing the seismic studies on the fields we have with Shell on the south basin of Santos. That seismic work was already completed, and now we're doing the evaluation process to determine the exploratory objectives. The second thing has to do with Pau Brasil.

Speaker 3

We're ready to build the well in Pau. We are waiting for the resolution of an environmental strike in Brazil that is affecting some fields, specifically ours. And the second one has to do with the Gato Amato. The idea is to have the idea of the sanction of the process either in the last quarter of this year or early next year.

Speaker 5

Could I just make a follow-up on this question, Maria Catalina, regarding the

Speaker 3

Maria Catalina, Coca Cola,

Speaker 5

Do you include any inorganic growth? Or if we do see M and As or anything related to that front, how do we how can we connect that to the investment plan?

Speaker 3

Good morning. This is Nicolas I'm the Vice President of Strategies and New Business in relation to inorganic opportunities outside of Colombia. And in fact, as part of the systematic process of a review of the portfolio and analyzing options in all the different areas where we're present, Right now, there's nothing concrete. And if something could materialize and reach the maturity point required, we'd be informing the market. Rodrigo, in relation to the cost of the service, the perspective of what we're seeing is that we're going to maintain the guidance of $12 to $13 per barrel.

Speaker 3

But with the interventions that we're doing from the point of view of introducing efficiencies and the renegotiation of contracts related to maintenance activities, both on the surface and in the subsoil work, Being able to see certain stability and inadequate management versus or trying to combat the high inflation we saw in former years. This allows us to see that we're going to live through a period of certain stability, and we're going to try to maintain the low range of $12 to $13 per barrel. That's what we're trying to maintain.

Speaker 6

Hi. Thanks for taking my questions. So my first would be regarding lifting cost. It came down this quarter sequentially. It has been kind of erratic.

Speaker 6

And I would be interested to understand how we can think of it going forward throughout this year. Also, I would like to hear your comments about any progress to extend the Permian deal with Oxy. And also in the another question would be in the downstream refining segment. We have been seeing solid margins. If you have any comments on how this could continue to behave for the remainder of the year?

Speaker 3

Now in relation to the lifting, I would say the following. In relation to the behavior, it varies, of course, because of the exogenous maintenance on the surface and subsur, labor costs and costs allocated that monetary mass is stable, remains stable. So in as much as we don't have an exogenous effect, mainly of the exchange rate. And if we can control the levels of inflation that we are doing right now, we'll see lifting costs that's more stable. And that's why I mentioned that we're going to maintain that range between 12% 13%.

Speaker 3

And the goal is to be closer to the $12 per barrel floor in relation to the margins and the downsides. I'm going to the 3rd question, and then I'll give the floor to Ricardo and to Nicolas. On the downstream, the margins are solid. We have to recognize that they're lower than the ones we had last year. And this is related to a reduction in the prices of gasoline and diesel at the international level.

Speaker 3

And that, of course, has an incidence in the result of the margins, but we're seeing margins between $14 per barrel, and we expect that, that perspective will be maintained throughout the year. This is Nicola Espuenaga in relation to the opportunities of expanding our presence in Permian with Oxbee. Following my earlier answer, we analyzed the portfolio not only with OXI but also with other opportunities that could come up in that area and in other areas. And if the opportunity matures, we would communicate it in a timely manner to the market. Thank you.

Speaker 6

Thank you all.

Speaker 3

Now we have Ann Mills from the Bank of America. Mrs. Mills, you may proceed. And we also have Baader from Berkeley. Mr.

Speaker 3

Badr, you can ask your question now.

Speaker 7

So some of my questions have already been answered before. So my final one would be about your cash balance, if we can have an update. So if we can based on your 1Q earnings, your cash balance ended around $4,000,000,000 And you also suggested that you get between $1,500,000,000 to $2,000,000,000 of the Fed back payments from Ascender on the earlier side of April, so pushing the cash balance to $5,500,000,000 to $6,000,000,000 And I think that in the slides, you only show that you have something around $1,500,000,000 to $1,800,000,000 of maturities for the remainder of 2024. And part of that is going to be covered with the revolver of $1,200,000,000 that you will get the funding from in 2Q. So my question is that why are you keeping the cash balances so high at the moment?

Speaker 7

Is that related to the previous questions for potentially some sort of M and A or I have not seen cash balances for Ecopetrol around $5,500,000,000 to $6,000,000,000 in the past. So what are you planning to do with that? Thank you so much.

Speaker 3

Good morning. This is Maria Catalina Escobar. Thank you for your question. Here, we have 2 important subjects in effect, the balance the cash balance of approximately what we have in dollars is what we reported for the business group. And it's important to say that out of those $6,500,000,000 approximately $1,700,000,000 is the cash position of ESA.

Speaker 3

And so in that sense, those resources from ESA are the resources that ESA will be using during the year to guarantee their operations. ESA is an affiliate where in the different areas, depending on the business it manages, it requires high levels of cash availabilities, especially in many of the big businesses it's doing or it's carrying out in Chile. So that's important to mention. And the second one I'd like to mention is that the figure you mentioned reflects the cash position after receiving the payment of a PIK from the beginning of April. What it does not reflect is that we, in the beginning of April, made a payment to the nation and to the shareholders, to the minority shareholders of COPE per barrel of more or less ARS 4 1,000,000,000,000 that's ARS 1,000,000,000 more or less.

Speaker 3

That's what we ended up drawing in dividends at the beginning of the year. We will also be making additional payments in dividends to those shareholders in the remainder of the year, starting in the 2nd quarter of more or less 2 $1,000,000,000 or ARS 8,000,000,000,000 approximately. So when we talk about the fact that ESA has part of the a big part of the cash and that we have to draw to pay dividends during the rest of the year that we need resources to guarantee the operations of the company. The investments of the year, which are quite considerable. The company is having a cash balance that even though it looks high right now and in addition to the receipt of the funds from Quebec, we'll have a seasonality that's normal throughout the year.

Speaker 3

And right now, we're not seeing it as a very high balance that would allow us to make possible mergers or acquisitions or maybe an organic higher CapEx. But we'll be monitoring the cash balance as the year goes forward and also depending on the prices of the crude oil.

Speaker 7

Thank you so much.

Speaker 3

The next question comes from Vaso Vasconcelles from UBS. You may proceed with your question, Mr. Vasconcelles.

Speaker 8

Hi. Thanks for taking my question. It's on the energy transition theme and taking advantage of the company's stake in NISA. I would like to get your updated view on the best way to balance investments in the core business hydrocarbons with investments in alternative sources of energies. In your view, what would be the best alternative to invest in other sources?

Speaker 8

Is it organically, inorganically? Other than Colombia, what would be the top priorities in terms of regions? And also, are you seeing much difference in returns in each one of the regions? This is my question. Thank you.

Speaker 3

Thank you, Taso, for your question. This is Ricardo Rova speaking. ISA in the business model, the original business model, has shown better performance, economic performance. The nature of the core of the essential business of ESA is the transmission of electricity. Today in Brazil, the business is larger in assets and in revenues than the one Icer has in Colombia.

Speaker 3

And with its presence in 7 countries, it's been developing intensive CapEx investments and assets related to roads and also in the transmission assets. ESA has the possibility today of developing additional services to their core business of transmission that we've been evaluating permanently, for example, going into the business of generation or into the storage of energy with batteries or accumulators, we have thought that if that because of that could grow and contribute to the results of the Q1 of 2024, it's 16% of the EBITDA of the whole company, of the whole Ecopetrol group. That would be like ARS 2,300,000,000,000 of net profits of EBITDA, I'm sorry. That would denote a very good performance. The possibility of having more business or more deals as part of that portfolio.

Speaker 3

We have, of course, restrictions related to the debt relationship with EBITDA at higher with the Coopetrol and EBITDA relationship. And in those investment plans, we've been working jointly with ESA's administration or management to try to allocate CapEx and allocate resources, mainly focused on continuing developing the traditional business of energy transmission. Other options that we're looking at, either organically or inorganically outside of Colombia, obviously, in ESA's portfolio, there are many, but all of them centered were focused on transmissions and roadways. And in the hydrocarbon sector, we've continued to evaluate opportunities of business outside of the country, provided they represent 1, a contribution of growth in our economic indicators and 2, a contribution of reserves and the intention of maintaining reserve, a reposition indicator of 3%, which is our target. And on that line, they should generate the adequate returns or value.

Speaker 3

Those assets should generate those returns, and we're permanently evaluating them from the Vice Presidency of strategies. Thank you very much. Right now, we don't have any questions live. Now we have questions from the chat. Bruno, since the government has paid a significant part of the balance and accounts payable of the foot peg, those were reduced to ARS 23,000,000 to ARS 15,000,000,000 on the 1st April, should we expect important quarterly payments from the government?

Speaker 3

In that case, how quickly would the balance of the back should converge to 0? The second one is given the free cash flow and the recent agreements with the PEC, what level of payment are you considering for the next 12 months? And the third question is, would you be able to remind us about the gap that you have between the prices of gasoline and diesel in Colombia with respect to the international prices? Could you comment on the trends of prices both of gasoline and diesel in the country? Bruno, good morning.

Speaker 3

This is that we expect from the effect of the stabilization and the fuels. First, I'd like to reiterate that Ecopetrol sees that its outcome is very much benefited from the payments we continue to receive from the national government that have allowed us to reduce significantly the accumulation of monies into the fund to the almost ARS 15,000,000 we had to date, in effect today. Of those ARS 15,000,000, we have approximately ARS12.7 trillion that would correspond to the balances of effect were accumulated during the 2nd and third and fourth quarter of 2020 3, and approximately DKK 2,200,000,000 correspond to the accumulation we've had during the Q1 of 2024. Our expectation and what we've been talking with the Ministry of Finance, discussing with the Ministry of Finance is that we could receive during 2024 the balances that are still pending payment of 2023. That is ARS 12,700,000 that I just mentioned.

Speaker 3

That in relation to the first part of your question, now what are we expecting in terms of the cost of effect? And what might make it converge to 0. Right now, Ecopetrol is starting off from the basis that we would not have, at least during 2024, we would not potentially have an increase in the prices of diesel unless the government makes a decision besides otherwise and that says we would have to have the higher rent prices into account that they could pressure that accumulation of prices upward. We're seeing the accumulation of the PEC during the 2024 term. It will be between ARS 8,000,000 10 1,000,000.

Speaker 3

This is a range that will, of course, depend on the behavior of those prices. In relation to I think the President wants to add something. Yes, I'd like to say or tell Bruno that during the last 18 months, we have diligently and because of the good attitude of the national government, we've been managing revenues and payment from Quebec of around ARS 51 trillion. And in addition to the possibility we've had of recovering those balances in an adequate manner, there are other permanent permissions between the finance ministry and the Copetrol to channel and to manage the payments in the times that we've been managing historically. Of course, we must say that, this is part of the product of the policy of increasing the prices of gasoline.

Speaker 3

In today's price conditions, we would have a small surplus that might offset the deficit being generated by the non increase in the prices of diesel with the figures already mentioned by Maria Catalina, but which would also reflect a behavior that comes from the demand of those fuels. The increase of diesel is 3 I'm sorry, gasoline is 3.3 percent, and diesel has also increased considerably. And that's an increase of 6.3%. The dynamics of demand are associated to the final result of the subsidies to both diesel and gasoline are being evaluated by the national government, by the Ministry of Mines, by the Ministry of Finance. So probably those balances would go back to the original conditions of the FEPEC from 10 or 13 years, and deficit per year would be Ps.

Speaker 3

2,000,000,000 or Ps. 3,000,000,000. We would go back to that condition or that position. If the conditions take place, the national government is thinking about enacting several decrees about the higher control of the price of those fuels to the different segments of the market that require it. Talking about a decree that would be final to eliminate the subsidy to large consumers, we're talking about a regulatory division that would probably bring about a lower price of fuels to the market.

Speaker 3

And with those decisions and those actions, the expectation is that in at least a year, we'd be returning to the normal conditions of the balance in FedBag that would be at least ARS 2,000,000,000 or ARS 3,000,000,000 per year ARS 3,000,000,000 per year. Thank you, Bruno. In relation to the second question on dividends and what we're expecting in the next 12 months. What we were expecting pursuant to what was approved in the general shareholders meeting as a dividend of 3.12 pesos per share, over which, as I just said, we made a first payment to the minority shareholders and to the majority shareholder. And we're pending those additional payments for BRL 8,000,000 during the year.

Speaker 3

And that distribution of dividends would correspond to an ordinary dividend payment of 60%, which is within our framework of policies of distributing between 60% 90% and an extraordinary dividend of approximately 7%. And right now, we don't have any additional anything additional to what I'm just telling you. Thank you. From Credicorp Capital, she asked, what expectations do you have about the differentials in the prices and what expectations do you have on the tax rate for the second quarter? This is Felipe Trujillo.

Speaker 3

I'm the Marketing and Commercial Vice President. In relation to Brent and the spreads, we see a positive trend for the interest of Ecopetrol. We see spreads of 1 digit versus this quarter and the same quarter of last year. We had a recovery of that debt differential of 3.4 dogs in the Q1 of 2023. We had 2 digits.

Speaker 3

1st quarter, we're managing 1 digit, and this is how we're forecasting it for the remaining quarters. Stefania, Thank you for your question. This is Maria Catarina Escobar. In relation to the expectation on the tax rate for the second order of 2024. As you realize our effective tax rate of the Q1 of 2024 was 4.5%.

Speaker 3

It's important to mention that, that rate assumes because of the level of rent that we experienced during the quarter, a surcharge in the income tax of 10%. What is the expectation that we would have for the Q2 of 2024. According to the behavior of Brent that we're seeing, the price trend would be above $82.3 or $82.5 per barrel. And that lead to that surcharge income to be around 50% instead of the 10% that we had. And that directionally would make the effective tax rate to be higher in the second quarter than the one we saw in the Q1 of the year.

Speaker 3

We continue to do the technical assessment of having found gas in the fields different from the Orca Norte, the initial discovery, that assessment or not. That evaluation should be finalized when at the end of the Q2, and we'll give you more information when we provide the results for that period. The second thing we have to highlight is that the offshore should be seen as a province or we have 4 large basins, the one associated with the different fields that we have with Oxy. Comoyo well will be drilled in the beginning of this year and the end of this year and the beginning of next year. Anything related to the Rorca well and everything related to the northern area, which was our main well.

Speaker 3

This means that we'll continue drilling, trying to find other prospects. And then in the South Caribbean Basin, we have to understand how we assign capital or allocate capital in the best way. All of this analysis will probably lead to have a better or a clearer perspective when we have the results from the different wells. You've indicated that Ecopetrol might participate in the development of offshore renewables. Could you please indicate what your return parameters for that investment are?

Speaker 1

Ricardo Roa.

Speaker 3

Alejandro, good morning. This is Ricardo Roa. In our portfolio and in the map roadmap of 24b or going to 2,040, we have to incorporate in our energy metrics projects with renewable energies, one of them with a higher potential. And that would be the ILEC, the power offshore. The government has taken has done a round of allocating areas of the Caribbean Sea to develop those potentials of EOLED energy power, which is one of the main supports for the eventual production of low emission hydrogen.

Speaker 3

And we start off from that expectation of developing projects using that type of technology. The parameters and the figures are we don't have them yet. We are trying to see if we can allocate those levels of investment required in the offshore. Our evaluation matters would give us a central priority to develop those types of projects and the territorial platform where there are good factors and wind regimes compared to planned factors that could be of around 50% to 60%, which is the greatest benefit shown by the wind regimes in the Caribbean Sea. If we look at it in that manner, we'd be interested in participating in the developments that according to the scheme stated by the government in this round of allocating areas for the potential exploration of IOLED power to be awarded to a person, a public entity in the country or a juridical person in the country and would have that possibility of exploiting all the power, both in and the skills to develop those technologies in the offshore.

Speaker 3

And that's why it's part of the portfolio of the projects we permanently evaluate. There is no more questions, so we'll give the word to the President. He wants to give you a final message, thanking you for your presence, for your questions that have allowed us to clarify several aspects of what we already announced. And to reiterate that at Ecopestrol, we're more than 120,000 people who work very hard every day to protect, as we have shown you, what is under our domain of control for Ecopetrol to continue being the big or the great company of all Colombians and to be able to generate in them and in the evolution of our main indicators, the possibility of having available the resources required to move forward in our road map of energy transition. Thank you very much.

Speaker 3

Thank you, everybody. With

Operator

that, we

Speaker 3

close the conference of our results of the Q1 in 2024. Thank you for your participation. You can now disconnect.

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Earnings Conference Call
Ecopetrol Q1 2024
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