Transcripción ECOPETROL

Transcripción ECOPETROL

Fecha de evento: 09-08-2017

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(Karen) Good morning. My name is Karen. I’ll be your conference operator of today. At this time I would like to welcome everyone to the second quarter 2017 Ecopetrol S.A. earnings conference call. All lines have been placed in mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. Thank you for your attention. Mrs. María Catalina Escobar would begin the conference today. Mrs. María Catalina, you may begin your conference.

(María Catalina) Good morning, everyone, and welcome to Ecopetrol’s earnings conference call and webcast, in which we will discuss the main financial and operational results of Ecopetrol for the second quarter of 2017. Before we begin, it is important to mention that the comments in this call by Ecopetrol’s senior management can 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 may occur or materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Juan Carlos Echeverry, CEO of Ecopetrol. Other participants include Felipe Bayón, Executive Vice President; María Fernanda Suárez, Vice President of Strategy and Finance; Max Torres, Exploration Vice President; Héctor Manosalva, Vice President of Development and Production; Pedro Manrique, Commercialization and Marketing Vice President; Luisa Lafaurie, CEO of Cenit; Tomás Hernández, Vice President of Refining and Processes; Rafael Guzmán, Technical Vice President; and Carlos Alberto Vargas, Vice President of Transformation. We will begin the presentation with the main achievements of the second quarter of 2017 followed by the highlights by business segment and financial results under International Finance Reporting Standards. We will close with the outlook for the rest of 2017 in the Q&A session. I now turn the call to Mr. Juan Carlos Echeverry, CEO of Ecopetrol.

(Juan Carlos) Thank you, María Catalina. Welcome to everyone. Following us at this conference on the results of the second quarter of 2017. I am pleased to share with you quarterly results that confirm our financial strength. The performance of our financial metrics place us at the industry’s highest level. We met the operational goals set



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up in our 2020 corporate strategy. Our renewed commercial strategy and the market’s appetite for the quality of our crude have yielded benefits to the business group. Over the past two years, we have accomplished a reduction of 3.9 dollars per barrel, in our basket’s spread versus Brent, from 10.5 in the second quarter of 2015 to 6.6 dollars per barrel in the second quarter of 2017. The quarter’s positive operational performance was achieved despite a challenging environment marked by public security issues particularly on the Caño Limón-Coveñas oil pipeline. Now let’s move on to the next slide to reveal some of the quarter’s highlights. During 2015 and 2016 we focused our efforts on two of the three pillars of our 2020 strategy: cash protection and cost efficiency and strict capital discipline. With solid financial metrics and operational efficiency, at the end of 2016 we moved on to profitable growth in reserves and production, we do know our focus must be on profitable growth based on four pillars. First, increased exploratory activity. Second, development of infill drilling campaigns and pilots of improved recovery in mature fields. Third, inorganic growth opportunities. And fourth, growth opportunities in unconventionals, which is an emphasis that will take place during 2017. Half-year operational and financial results were outstanding establishing a solid foundation for future growth. At the end of the second quarter our liquidity position was 10 trillion pesos. The robust cash balance allowed us to distribute 945 billion pesos in dividends from the fiscal year fiscal year 2016, and to prepay an international syndicated bank-loan of 1.9 billion dollars equivalent to approximately 6 trillion pesos. Our EBITDA margin of 43% is one of the highest of the industry globally. We closed the second quarter with gross debt/EBITDA ratio of 2.2 times in line with the company’s target. At the beginning of 2016, you may remember, this indicator was at 3.6 times. The rating agencies have acknowledged our achievements and maintain our investment grade rating. Standard and poor’s upgraded our stand alone rating from BB to BB+. I will now pass the floor on to Felipe Bayón, the Executive Vice President, who will speak to you about the quarter’s main operating results.

(Felipe) Juan Carlos, thank you. Quarterly operating results were very solid and aligned with 2017 targets. This has allowed the Ecopetrol Group to continue to leverage the profitable growth stage in all of our segments and businesses. We have achieved stable and safe



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operations. This has been possible throughout the years of operational efficiency and compliance with all of our HSE policies. Group’s average production for the first half has been 715.000 barrels of oil equivalent per day. In line with our production target for 2017. We have succeeded in achieving our production rate despite attacks in the infrastructure of Caño Limón-Coveñas pipeline and some operational events that have arisen throughout the year. One year, after the consolidated operations in both Rubiales and Cusiana we have succeeded in maintaining stable and safe operations in both fields. With regard to exploration, 2017 has been a very good year. The Warrior 2 well announced in July was declared successful. This was drilled by our partner Anadarko. And thus we have achieved so far a greater success of 80%. I’m also pleased to note the award of two offered blocks on ground of 2.1 in Mexico in partnership with Pemex and Petronas. During the second half of 2017, Ecopetrol will drill the Molusco well in the Colombian offshore. This is a very important event for the company. It will be the first offshore operated well drilled by the company. The exploration campaign in the second half of the year will focus in the Colombian offshore with the drilling of ten additional wells. In the transportation segment we have seen significant achievements. We have maintained stable operations in particular around the Bicentenario oil pipeline that has allowed the bi directionality to extract crude and produce crude from Caño Limón despite all the attacks that the infrastructure has suffered. As a result, we have been able to perform constant and stable operation and continue with our integrity focused maintenance program in that pipeline. At the new Cartagena refinery, we have now completed the performance test on 28 plants, which equates to 82% progress. This refinery has posted an increase of 12% in its margin, in the first and second quarters of the year achieving 7.7 dollars per barrel. On the load, all the refinery has been 136.000 barrels. The other refineries, Barrancabermeja, continues to be profitable and has very efficient operations achieving a margin of 13.1 dollars per barrel for the period to date in 2017. I will now hand over to Carlos Vargas who will take us to all the achievements of the transformation program.

(Carlos) Thank you, Felipe. During the first half of the year efficiencies are 516 billion pesos and cumulative efficiencies since the start of our program are 4.9 trillion pesos based on strategies of dilution,



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transport and maintenance, and efficiencies in drilling and well completion. Additionally, business transformation is focusing on the actions that seek the growth of the company. During the first half of the year we increased revenues and improved margins as a result of the application of initiatives to increase the production of diesel, petrochemicals and gasoline, as well as commercial actions that improve the spread between our crude oil and Brent. Another element to promote growth of the company is to strengthen our petro technical resources with national and international recruitment. Business transformation is supporting the growth of the company with the creation of the project maturity center in order to add value and maximize the reserves of Ecopetrol using the E&P process based on: optimize the maturity project, identify new growth opportunities, investment portfolio and develop stronger leadership. At the same time, actions are being carried out to become proactive and integrated management in regulation energy and water. Now, Max Torres is going to talk about exploration.

(Max) Thanks, Carlos. After the discoveries during the first quarter, both in the onshore with the well Boranda 1 and in the offshore with the wells Purple Angel 1 and Gorgon 1, the exploration campaign continued during the second quarter in the offshore with the drilling of the well Siluro 1 in block RC11. Although this well did not encounter any evidence of hydrocarbons, the information obtained will contribute to the general understanding of the Guajira offshore basin. Ecopetrol holds 50% equity in this block, which is operated by the company Repsol. On the other hand, on July 10th, the well Warrior 2, in the Gulf of Mexico, Green Canyon area, reached its total depth. The well is operated by Anadarko 70% working interest with Ecopetrol as only partner with the 30% remaining. This well confirmed the presence of hydrocarbons in several zones and it’s currently being evaluated. In conclusion, as of the first half of the year we have completed four wells of discoveries. Striving success in all our fronts of activity, both onshore with the well Boranda 1, as in the Colombia offshore with the wells Purple Angel 1 and Gorgon 1, both operated by Anadarko. In addition, in the Gulf of Mexico, we have made a discovery in the well Warrior 2. This gives us so far an operation success rate of near 80%. With these discoveries and as a result of a joint and integrated effort, Ecopetrol is expecting to



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incorporate more than 250 million barrels of oil equivalent of contingent resources above the expected target set for 2017. Let’s move to the next slide. During the second half of this year the 2017 offshore operations will reach its climax with the drilling of two additional wells: the Brahma 1 and the Molusco 1. And the focus then will be redirected to the projects of the Colombian onshore. On July 9th, commenced the drilling of the prospect Brahma 1 in offshore Colombia, which is estimated to drill until the end of September. This well is operated by Petrobras 40% in partnership with Ecopetrol 30%, Repsol 20% and Statoil 10%. By the end of July, on the onshore activities, the Ecopetrol S.A. affiliate Hocol spudded the two wells: Bonifacio 1 and the well Lunera 1, in blocks LL65 and in block VSM9, respectively. In parallel, two 2D seismic acquisition campaigns will commence in the blocks SN8 and SN18. Looking ahead of the rest of 2017 drilling of a further 9 onshore wells is planned. Operated both by Ecopetrol and Hocol, among others resuming activities in block CPO9 with the wells Lorito 1 and Trogón 1, forseen for third quarter. Finally, in line with further strengthening our international portfolio, Ecopetrol is evaluating its participation in the divestment process of Petrobras and in the big rounds announced by the ANP. In addition a 3D acquisition campaign is planned for the Foz de Amazonas basin. I will hand the floor now to Rafael Guzmán, who will comment about the production results.

(Rafael) Thank you, Max. Regarding production, during the second quarter of 2017 the group's total production reached 716.000 barrels of oil equivalent, which represents an increase of 3% compared to the same period of 2016. In terms of Ecopetrol’s S.A., the growth is explained due to several factors. To start we have the successful operations and the increase in our participation in the Cusiana and Rubiales fields that started during the second semester of last year. Additionally we have reinitiated investments in several fields that has helped mitigate the decline rates, for example for La Cira Infantas, Castilla and Rubiales. Also relevant has been the operational success in Chichimene, where we have had almost no investment for over a year in the field, but we have managed to arrest decline too close to zero, the decline rate that we see today. These thanks to many factors one is the water injection that we have carried out in the field, in addition to well interventions and other operational optimizations. In our subsidiaries, we have



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increased production mainly in Hocol by the start of the operation of the gas treating plant in the Bonga y Mamey field, and in Ecopetrol America with the start of the production of the Gunflint field in the Gulf of Mexico during the second semester of 2016. We have also managed to reduce the deferral production due to the attacks to a Caño Limón pipeline with the bidirectionality of the Bicentenario pipeline. As you can see in the figure to the right, we have managed to reduce the effect significantly. We have come from a negative effect of 24.000 barrels per day in February to close to zero in these days. It is also worth mentioning that we continue to decrease our drilling days. This is reflected in both production and Capex efficiency. As an example, we have Castilla in the figure bottom right where we show that we have decreased the drilling time from 2016 to 2017 it continued this trend with a 10% decrease. In Rubiales overall we have managed to reduce drilling time by 25%, and we have maintained a 6-day drilling time in 2017 despite the drilling of more complex wells in this field. Please, let’s now move to the next slide, where we’ll see the recovery program update. The recovery program is now entering the maturation phase of the expansion projects of the pilots that have already finished in previous years, and we continue. Of the 12 pilots that we currently have in operation, 8 will be completed in this year or next year, and they will enter also in maturation phases for the expansion and application of the technology in the field. It is important to mention that water injection in two of our main fields: Castilla and Chichimene, have been very successful. For the Chichimene field, we expect to function the full field development with water injection this year, and also for Castilla in next year. Also, the knowledge we have obtained from this program has been very useful to reevaluate the potential power field and the efficiency, which we can use for the development. We see now higher balance in our field and to be developed at the lower cost of results in the past. Now I pass the word to Luisa Lafaurie, who will comment on the results of the transport segment.

(Luisa) Thank you, Rafael. During the second quarter of 2017, we continue with our agenda of consolidating the integration of the midstream business. Financial results of the segment remain strong. From the operational perspective during the second quarter of 2017, the total volume of transport decreased by 2.2% as compared to the



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same period of 2016. Crude oil transportation reduced by 4.6% in the second quarter compared to the same period of last year. Mainly due to the lower volumes nominated by our shippers. Out of the total volume transported for department, 66% belonged to Ecopetrol. With respect to refined product, total volume transported through our pipelines had an increase of 6% when compared to 2016. Mainly as a result of our higher availability of our Pozos Colorados-Galán system. Approximately 18% out of the volume of refined products transported belonged to Ecopetrol. Regarding projects currently under execution, I would like to highlight that we continue transporting extra heavy crude from Apiay to Coveñas with this increased viscosities. As a result we achieved our first export of crude oil above 500 centistokes. In addition, we started pumping crude oil to start operational stabilization from San Fernando station. We finished the construction of the diluent connection between San Fernando and Chichimene stations and we move forward with the commissioning activities and final extended test of the diluent transportation system. We expect to start operations in the third quarter of 2017. At the same time, we put operational the blending in facilities in Coveñas. With this I hand over to Tomás Hernández, who will comment on the downstream results.

(Tomás) Thanks, Luisa. During the second quarter 2017, the Cartagena refinery stabilization process and unit performance test will continue. 28 of 34 tests were completed reaching 82% progress. In the second quarter both the Alkylation and Hydrocracking units experienced downtime to perform equipment maintenance. The former to correct defects identified in process equipment and for the Hydrocracking unit to address an operational event. The Alkylation unit restarted its operations on July 22nd and the Hydrocracker is expected to restart operations in August. The refinery stabilization process will continue until the 4th quarter 2017 with the completion of the full refinery performance test. During the first semester 2017 the Cartagena refinery has increased its throughput compared to the same semester in 2016, reaching an average of 130.000 barrels per day versus an average of 109.000 barrels per day in 2016. Upon completion of the stabilization period and the unit performance test, the refinery will have an operation at an optimum throughput level. The Barrancabermeja refinery continued with its profitable and



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efficient performance increasing middle distillate yields which reached 37% during the second semester of 2017 versus 30% in the same semester of 2016. It is important to know that during the second quarter of 2017, there was a scheduled turnaround of heavy oil train which impacted the throughput and utilization factor of the Barrancabermeja refinery. A heavier than planned crude slate also affected these indicators. Now I turn the presentation over to María Fernanda Suárez, who will comment on the financial results for the period.

(María Fernanda) Thank you, Tomás. Good morning, and thanks for taking this call. The solid operating and financial results for the first half of 2017 reflect the consolidation of structural efficiencies achieved. This period also includes the success of our new commercial strategy, which focus on maximizing the value of our crudes, meaning that while Brent rose 28% the price of our basket increased 47%. As a result, the business group revenues raised 19%. Revenues during the period were negatively affected by the lower volume of fields of third parties. The delivery of crude volume all to the transport system and the seasonal declining that demands for natural gas by the thermal section. The export basket spread and the international prices of products had a positive effect on the upstream and downstream segments, also a better yield on high value products in both refineries. Midstream posted a decline in Brent, due largely to the lower crude volume supplied by all the pipelines and the negative effects of the lower average exchange rate on its dollar fees. Let’s move on to the next slide to examine the business group EBITDA performance. The business groups increases EBITDA by 31% versus 2016, generating 11.4 trillion pesos in the first half of 2017. With an EBITDA margin of 43%. With these results Ecopetrol has one of the highest EBITDA margins among experienced oil and gas companies. In the first half of 2017, the larger EBITDA contribution came from upstream leveraged on the lowest spreads of the crude expert basket, and fewer dry wells. The cost increase of the second is associated to the resumption of maintenance activities and workovers in several fields. The decline in margin EBITDA was explained by the higher cost of prime materials and products imported for the refineries and for Propilco, due to the recovery of hydrocarbon practices the impact of a lower exchange rate on the segment revenue and the lower crude group in Barrancabermeja. Finally



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midstream remains an essential segment for the group with EBITDA of 3.9 trillion pesos and stable EBITDA margin, despite its dropping revenue. With the recovery in crude practices in the first half of 2017, each segment contribution to EBITDA has changed. In favor of a larger contribution from upstream versus the first half of 2016 when the larger contributors were the midstream, currently the upstream accounts for 59%. Let’s go to the next slide to see the change in net income between the first half of 2016 and the same period in 2017. Net profit in the first half of 2017 was 83% higher than the reported for the same period in the previous year, and already its total profit posted for all 2016 by some 38%. Cost of sales exclude in depreciation was 1.9 trillion pesos as a result of our 1.3 trillion pesos increase on viable cost due largely to higher value of prices to crude and products. The recovery of international prices and the higher cost of processing materials and electric fees due to the return of the Rubiales field to Ecopetrol. In turn fixed costs raised by 0.6 trillion pesos. With the reduction of activity at several fields and scheduled maintenance at Reficar and the conference system. This increase are offset as a consolidation of operational efficiency. Depreciation was at .7 trillion pesos, due largely to the commission of… Ecopetrol Americas Gunflint field in August 2016, and the lower incorporation of reserves in 2016 versus 2015. Operating expenses fell almost .8 trillion pesos due to a lower wealth tax expense, fewer dry wells and book profit of 169 billion earned from the sale of minor fields in the Ronda 2016. The exchange rate differences saw a negative fluctuation of one trillion pesos. This movement was due to the impact of the 1.7% devaluation over the net asset position in the first half of 2017 versus the revaluation of 5% over the net liability position in the first half of the previous year. Neither of them have any impact on the company’s cash. Net financial income rose by 0.4 trillion pesos given the financial return on the company’s large cash position. The lower value in pesos of interest due to the decline in the average exchange rate and the lower indexation of debt on inflation. The effective tax rate over the past six months is estimated at 63%, slightly below that 55% posted during the same period last year. Finally, profit attributable to Ecopetrol shareholders in the first half of 2017 totaled 2.2 trillion pesos almost double that of 2016. Now, let’s move to the next slide to review the books cash flow. The group



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closed the semester with 10.4 trillion pesos in liquidity including cash and cash equivalent, and short-term and long-term financial indebtedness. Cash flow for operating activities in the first half generated 5.9 trillion pesos thanks to the group’s good operating results. Deficiencies and savings achieved and the recovery of hydrocarbon prices. As it’s typical in the second quarter each year, a large share of its cash will be used to pay taxes, totally sum 3.7 trillion pesos, largely income tax and wealth tax. Capital investment totaled 2.4 trillion pesos. Driven by the resumption of activity in our main field. We estimate capital execution this year will be between 2.6 and 2.9 billion dollars. Due to a renegotiation and obligation with the Colombian national hydrocarbon agencies and long introduction project maturity time. The liquidation of financial assets to prepay the international commercial bank loans, which accrued on June 30th, yielded a cast inflow of 2.9 trillion pesos. Added to that was the revenue received from investments dividends, and from the sales of minor fields generating an additional .6 trillion pesos. The quarter includes two other significant cash outlets in line with the objective of the 2020 business plan. First, prepayment of the international commercial bank loans of 1.9 billion dollars, including the company’s credit metrics. The growth that EBITDA indicators turned to 2.6 times at the 12th of March to 2.2% times at the end of June. A nominal debt reduced by almost 13%. This decision demonstrates Ecopetrol’s commitment to improving its trading rating and secondly the distribution of 1.1 trillion dollars in dividends in 2016 earnings, which includes payment to Ecopetrol’s shareholders and minority partners in affiliated companies. Ratifying our plan to increase the return to shareholders. Finally, equity position of 10.4 trillion pesos allow us to easily develop our portfolio of projects for organic growth, and seize in organic growth opportunities that can contribute to improving Ecopetrol balance of resource. I will now hand the floor to the CEO for final conclusions.

(Juan Carlos) Thank you, María Fernanda. The quarter’s remarkable results have strengthened the foundations for our profitable growth path. The second half exploratory campaign seeks to expand out the portfolio and to continue adding contingent resources. We put the best practices to increase the recovery factor. The fraction of expansion phase of the recovery pilot is a priority as well as our newly integrated center for mature practices. We continue



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challenging our staff to find the best projects to leverage growth, executed on time, within budget and at high quality. Our commitment to create shareholders value is firm all with the capital discipline, fine liquidity, operational excellence, care for the environment, and a prosper share with the communities in which we operate. I will now open our Q&A sessions and thank you very much.

(Karen) Thank you. At this time, I would like to remind everyone in order to ask a question, simply press star, then the number 1 key on your telephone pad. If you would like to withdraw your question, press the pound key. Pause for just a moment to complete the Q&A roster. And we have our first question from Frank Magan, from Bank of America. Frank, your line is open.

(Frank) Sorry, thank you very much. Two questions if I may. One in terms of lifting costs and they rose a bit in the quarter, I was wondering what types of outlook you have for lifting cost and whether you see any pressures or other factors that might influence the trend in the few causes going forward in the few next several quarters; and then secondly, looking at Capex, I believe you said 2.6 or 2.9 billion dollars for 2017 for the full year is the outlook. You look forward in future years it’s that a level you’re assuming you are going to maintain production that would be reasonable? Or with that level you think potentially enable you to seek wells as well?

(Rafael) Frank, good morning, this is Rafael Guzmán. I will be answering your first question about lifting cost. What I would like to say first is that during this year we have seen reactivation of oil works in most of our fields that increases our expenses in the field but in addition to that increases the production. Perhaps a good example of that is Chichimene where we have not done Capex investment in the field, but through Opex we have been able to maintain the production level that we had in the past. In terms of projection, one thing we also do it this year is removing the seasonality of the Opex. In previous years what we had seen is most of the expenses were done mostly in the last two quarters of the year, while this year we have initiated all of the operations starting January so that we’ll see a more stable Opex during the year. In terms of projection, well, we don’t guide the number but we don’t expect any close on what we have seen in the first semester. We are reminding our estimated projections for the year are perhaps a little bit lower, so we don’t see for the year any increment, and last,



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to finish, the savings we have bumped to our transformation program, they have been sustained and they will be continued like that for the years to come.

(Juan Carlos) Hi, Frank, this is Juan Carlos Echeverry to answer your second question regarding new guidance of 2.6 – 2.9 billion dollars, have announced in the budget 3.5 billion dollars and the new guidance is between 2.6 and 2.9 and as you said the idea is to maintain the target for this year of 715.000 barrels per day of oil equivalent, and the target for 2020 of 760.000 with the current prices at 50 dollars per barrel average. If the prices were to rise above that we should be targeting something about above 800.000 barrels per day, but that’s contingent on the bulk of prices. So, what is the nature of this new guidance? The problem we identified at the beginning of this year is that we have projects on one end of the equation and we have the liquidity on the other end, but we didn’t have enough mature projects, so based in that we created a center for maturing projects, which will be dedicated 120 people in 2018 in order to put all these projects ready to deploy capital. This center for maturing projects is starting already in the second half of the year to produce projects ready for deploying capital, and that will be the basis for a substantial part of our growth next year and in 2019. So, we’re confident that since we count already on the liquidity for undertaking these projects we don’t need any new net debt, net borrowing for that. It’s basically our internal generation of cash that will final this. We were just lacking the target for projects, so we are confident that we’ll be able to meet the targets for this year and for year 2020.

(Karen) And we have our next question from Bruno Montanari, from Morgan Stanley. Bruno, your line is open.

(Bruno) Thank you very much for taking the question. So, just one follow-up for the phoned in Spanish. I thought that the discussion of unconventionals was very interesting. I just wanted to double-check whether Colombia already has all the regulatory framework for unconventional, for fracking, and all those sort of things in place or, if anything, they should be approved or changed before the industry can actually start digging into the shale story in Colombia? Thank you very much.

(Juan Carlos) Bruno, yes, Colombia has already regulated a framework for exploration and the government is working as of now in the regulation for exploiting and development of these oil fields. As a



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matter of fact, we have now conical Phillips drilling wells for targeting the unconventionals in Cesar, which is in the northern part of the Magdalena Valley, and other companies are waiting for… for, in order to explore in other parts of the Magdalena Valley. Ecopetrol among them. So, we are asking the government for… to have ready the regulation for exploiting this oil fields, but we see the next two, three years will be intensive in exploration in order to evaluate and assess the amount of resources that we have in unconventionals is apparently clear that we could be the third… have our reservoirs to be the third in magnitude after US unconventionals in Vaca Muerta. So, it’s a thing that we take very seriously. It took for us two years to think thoroughly about this and now we’re confident that this will be an important source of growth for Ecopetrol and for Colombia’s oil industry in the years 2020 to 2030.

(Karen) And, once again, if you have a question, please press star, then 1 on your touchstone phone. And we have our next question from Javier Mocanel from Raymond James.

(Javier) Thank you for taking the question. We are hearing on a regular basis about large numbers of immigrants leaving Venezuela, fleeing Venezuela, and moving into Colombia. And my question is: did you see employees of Pdvsa that are looking to perhaps get a job at Ecopetrol, giving you an opportunity to hire some high-skilled personnel for your company, you know, out of the Venezuelan population? Is that something that’s currently taken place?

(Juan Carlos) Thank you very much. We have had a flow of Venezuelans and also Colombians working in Venezuela who have been coming to the company at different levels of the managerial and technical capacities. Not necessarily more in the last six months or year, but definitely in the last six years or eight years there has been a lot of people who were working in the Venezuelan industry of oil and gas and now are working in different companies in Colombia. In Ecopetrol definitely. I will give the floor to Pedro Manrique who was working in… in Venezuela, and… let him explain you all this.

(Pedro) Thank you for your question, Raymond. Certainly, we’re… these years a lot of Pdvsa employees, but if you recall, when there was an employee… from Venezuela a few years back, any of the Pdvsa employees left the country, and they have been all over the place and some of them are returning to places like Colombia. And… we



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have some of them here in this organization, and if the situation remains, I can foresee that something similar is going to happen, and I can tell you is that most of the employees from Pdvsa, they’re very well trained. Pdvsa used to be a very well-known company with a lot of good people, very well trained and a lot of experienced people that can certainly be of good for a company like Ecopetrol. Thanks.

(Karen) Thank you, and as a reminder if you do have a question, please press star, then 1 on your touchstone phone. And our next question comes from Lilyanna Yang from HSBC.

(Lilyana) Hi. Thank you for the opportunity. Could you please give us a little bit of guidance or try to quantify the upside resources for unconventional? Another question, do you have within your keep expand local money that would go for acquisition of resources? And then, another question is: you mentioned that you’d be looking into the Brazil bids in September, October, and you recently got two blocks in Mexico. Could you elaborate a bit on the rationale of, you know, getting to these out of Colombia instead of focusing more effort and maybe money within Colombia? Thank you.

(Felipe) Thanks, Liliana. Thanks for the question. This is Felipe Bayón. In terms of the upsides of unconventionals in the country, I think it’s important to frame what we’re seeing going forward. First thing is that we do believe there’s quite a bit of resources that will come from unconventional sources, something that has been assessed in the past, but where there has been limited activity, there are other companies that have done some activity in the Middle Magdalena Valley, and that’s where we think that most of the upside will come from. As Ecopetrol we have a very good position in terms of the acreage in the area, and that’s why we’re venturing in saying that the country going forward in terms of its own sustainability of resources and having the fees for the refineries and the products that the country will need to continue to grow, unconventionals in this sense will become one of the major sources of crudes and light crudes that we can use in our refining system. So, in that sense, we’re in the beginning of a journey. Juan Carlos was mentioning earlier there is already regulation around exploration, there is regulation that’s on the pipeline around production and development of unconventionals, but we think it’s clearly something that the country will need to embrace. It’s around



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energy, efficiency and stability going forward. External sources have quoted anywhere between 2, 4, 5 or 6 billion barrels of recovery of our reserves. Its early stages we will need to do more assessment in this area. In terms of your second question, and acquisitions of resource. We’ve explained earlier that there’s four things that we’re working on to try to strengthen our position mid-term and long-term around resource, and our R/P ratios. First thing is exploration or actively conducting activities in that area both in country and outside, and both offshore and onshore; second thing is all the recovery factors increase and all the pilots that we’ve done on secondary and tertiary recovery will be moving forward with sanction and execution of some of those this year. Thirdly is unconventionals, which I just talked about. In terms of acquisitions what we’re doing is we’re actively looking at the opportunities, we’re looking opportunities in the Americas, you know, we’re basically working in Colombia, we’re working in the US Gulf of Mexico, the…

(Karen) Sorry, it looks that we’re having technical difficulties. Please, stand by as we reconnect the speaker. And once again it looks like we have Miss María Catalina Escobar. Please, go ahead.

(Felipe) Liliana, I think we… the call dropped, so I may need to start, and I’m going to take it from the acquisitions and obviously there’s a follow-up in terms of something that’s missing for you, and that we need to clarify, we’ll do so. So, in terms of acquisitions, I was referring to our focus as a company on being a Pan-American company. We’re clearly concentrated in Colombia, both onshore and offshore. We have an increasingly growing presence in the US Gulf of Mexico, we recently entered into Mexico with two offshore blocks with Pemex and Petronas. So, I think in terms of acquisition for reserves, we’re looking at these areas, potentially Brazil, which I know is your third question. So, we’d be concentrating on the continent, on the Americas, and that’s our target areas. Just want to leave room for something that maybe you have lost when the call dropped. I think in terms of reserves there are four avenues that we are progressing, so the first one is exploration, and we’ve talked about our good results this first semester, 80% success rate, four out of the five wells successful both in Colombia and in the US, so we will continue with that, with exploration. The second one is the increase in the recovery factors mainly in the onshore Colombia, so this year we will be seeing a lot of other pilots in



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which we’ve invested throughout the past years, even though the crises we’ve kept on investing in those pilots which can help us improve recovery, so secondary, tertiary recoveries we’ll all be seeing more and more of that, and the good news some of those projects are ready in through sanction, and we’re in through the execution phase. The third thing is the unconventionals, which we’ve talked about, which we’ve clearly committed to helping develop those resources in the country and it will be good for Ecopetrol, more importantly it will be good for Colombia as well. And, again, in terms of acquisitions, these are going to be targeted, these are going to be very specific things that have a good fit with our portfolio strategy, and as soon as we take them through the finish line, we’ll be informing the markets. In terms of Brazil, and what we’re looking, I’m going to ask Max Torres, our exploration vice president, to give you some remarks.

(Max) Hi, Liliana, good morning. Thank you for the question. As an overall philosophy our idea is just to diversify our portfolio, the countries we are focusing in right now are Gulf of Mexico, Mexico and Brazil. Essentially through these countries, you know, we are trying to increase the portfolio value, we’re already doing an intensive portfolio management and the other goal is to create value through exploration. We had a good semester, you know, as Felipe was saying, four wells out of five, which is quite good. And the idea of why to focus abroad is, you know, in Colombia there’s a lot of opportunities, we’re focused in Colombia, but I think the big work here is that we need to diversify our portfolio. We need to find other opportunities, we need to find a portfolio with, you know, better products, light oil, and maybe gas, you know. We need to be more balanced, you know, towards gas as well. So, the answer essentially is portfolio diversification and creation of value, you know, through exploration, and that’s our commitment, you know, with the company.

(Karen) Thank you, and there are no further questions at this time. Mr. Juan Carlos Echeverry, do you have any closing remarks?

(Juan Carlos) Thank you very much to all of you for participating in this conference call. As you have heard, we passed the two years of crisis management between 2015 and 2016, until the second half of last year, especially in this 2017, we have focused on growth, and reserves and production. We have had so far several good resolves, problems and resolves, one of them, just mentioned the



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four out of five successful struck of wells. Some of them in the offshore in the Gulf of Mexico and in Colombia, and some of them in the onshore, and for the second half of the year, we have now the possibility of drilling two or three wells in what could be probably one the most promising onshore oil field available for Ecopetrol which is CPO-9 in Meta, in Guamal, Meta, near Chichimene and Castilla. We are now building the facilities for the rig to get there probably in one month. Additionally, we have reduced the margin versus rent of our crudes from around twelve to two years ago to 6.6 dollars right now, which is a huge achievement for Ecopetrol. There are different elements playing in this. Of course the situation in Venezuela, the situation in Mexico of the supply of some of the Gulf countries, but what we see is that the demand of Colombian oil has gone up and we’re seeing the tightening of these margins as a very positive event. How much of that is permanent? How much of that is transitory? This is to be seen, but we think also that we have the renewed commercial policy that makes some important part of this margin gains to be permanently, we’ll be fighting for that. We have created this new center for maturing projects, which makes us confident that we’ll have many projects with a lot of potential of adding reserves that are in production in the two or three years to come. This center is already in full speed with 120 people, and developing ten projects, maturing them, and other ten will be at it this month. We, then, have reduced the guidance for topics, but we have not modified our targets for production for these years at 715.000 barrels per day of oil equivalent, nor the target for 2020 at 760, and even if prices go above 50 dollars per barrel, we’ll be targeting more than 800.000 barrels per day. As we mentioned, the internationalization policy of Ecopetrol to be in all Americas companies is going to have a stronger presence in Mexico, with new blocks gain the region ground, with a higher production in the Gulf of Mexico, and with new prospect activity in Brazil, and looking at other areas with a lot of attention, with a chief lots of attention, a lot of possibilities depending on what happens in Venezuela, in Argentina, so Ecopetrol is ready, and it has the liquidity and the financial muscle to enter in a new area and that is part also of the diversification of our portfolio. So, as you see, we have many fronts of intensive work, we have the team with the capacity to do that work, and we’ll see the future with a lot of



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optimism. Part of it also, it’s like the new place of unconventionals in Colombia, which has been dormant so far, but it’s not anymore. Dormant for Ecopetrol. Ecopetrol is embracing this new challenge as a huge possibility of growth for the next decade. So thank you very much for participating in this conference call and I wish you a very good day.

(Karen) Thank you, this concludes today’s conference call. You may now disconnect.

Transcripción ECOPETROL

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