Ecopetrol S.A. (ECOPETROL) Earnings Call Transcript & Summary

Good morning. My name is Laura Avila, and I'll be the operator today. Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operational results of the fourth quarter and year-end 2022. There will be a Q&A session at the end of the presentation. Before we begin, it is important to mention that the comments in this call by Ecopetrol's senior management include projections of the company's future performance. These projections do not constitute any commitment as to future results nor do they take account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that the future results are different from the projections shared on this conference call. The call will be led by Mr. Felipe Bayón , CEO of Ecopetrol; Yeimy Baez, Vice President of Low-Emission Solutions; Alberto Consuegra, COO; Jaime Caballero, CFO; María Paula Camacho, Vice President of Legal Offices and General Secretary; and Diana Escobar, Vice President of Sustainable Development. Thank you for your attention. We may now proceed with the conference call.

Good morning, and welcome to Ecopetrol's Fourth Quarter and Year-End 2022 Results Conference Call. I would like to start by highlighting the efforts and commitment of more than 18,000 direct employees and some 130,000 indirect employees. Thanks to all of them, we can deliver the best results ever in the history of the Ecopetrol Group. In the year 2022, we generated revenues of almost COP 160 trillion, an EBITDA of COP 75.2 trillion and a net income of COP 33.4 trillion, doubling the net income obtained in year 2021. These results are underpinned, amongst other things, by some of the following factors: a favorable environment of international prices, the increased production of hydrocarbons, our traditional business, our trading strategy, outstanding results in the electricity transmission, toll roads and telecommunication business line and the growth in domestic demand for our fuels, which meant higher sales of products. Our operational, financial and TESG results were aligned with the goals set for the year, exceeding them in some cases. This reflects our commitment to our competitiveness and sustainability of all of our businesses. I would like to take the opportunity to highlight some of the achievements. In 2022, we had no fatalities in our operations and achieved the lowest total recordable injury frequency rate or TRIF, in the company's history, reflecting a reliable and safe operation environment for all of our employees. We had an average production for the year of over 709,000 barrels of oil equivalent per day, exceeding the goal set for 2022. Our renewable energy supply capacity reached 208 megawatts in 2022. We had higher social and environmental investments which reached COP 615 billion, a 31% increase when compared to year 2021. And some of the other indicators I'd like to highlight are gross debt-to-EBITDA ratio, closing at 1.5x; our operating cash flow generation of some COP 36 trillion; and the execution of our CapEx of more than $5.4 billion in year 2022. All this reflects the group's capital discipline and financial strength. Let's move on to the next slide. After overcoming 2 crisis in less than a decade, we managed to deliver historic results, accomplishing transformational milestones such as the drilling of the first offshore well operated by a Colombian company, Molusco-1 in 2017, and; and then the 3 offshore discoveries in the Colombian Caribbean achieved since then. We entered the Permian Basin in a very successful alliance with Occidental in 2019. And during the years of 2020 and 2021, through a program called, Apoyo País, we contributed more than COP 139 billion to Colombians during the pandemic during COVID and provided commercial relief to customers and suppliers. In 2021, we acquired 51.4% of ISA. And we've had, over all these years, deployed several initiatives in terms of strengthening our operations, safety, TESG and our financial discipline. All of these have allowed us to trace a path of responsible transformation to move from being the traditional integrated oil and gas company to now a diversified energy group. Today, Ecopetrol operates in 3 solid business lines aimed at guaranteeing the generation of value for all of our stakeholders. The first one, hydrocarbons, where I would like to highlight the increase in the volumes of our production, transportation and refining operations. And I'd like to share with you that in the year-end 2022, we reached a production exit rate exceeding prepandemic levels. Our refining segment reached more than 400,000 barrels of consolidated throughput basically due to the expansion of Cartagena refinery and very good operational capabilities in both refineries and the transportation of hydrocarbons and fuels that increased by more than 6% when compared with 2021. For their low-emission businesses, I'd like to highlight the Gorgon-2 and Uchuva-1 discoveries that confirm the presence of gas in deep and ultra-deep waters in the Colombian Caribbean. The production of the first green hydrogen molecule in the country as part was strategic plan of low carbon hydrogen and the operational startup of our third solar park, Brisas in the Department of Huila, with a capacity of 26 megawatts. Finally, for our third line of business, in electricity transmission, toll roads and telecommunications, I would like to highlight the 32% growth in ISA's net income year-on-year as well as the progress in the construction of 32 energy projects that represent more than 4,600 additional kilometers of high-voltage power transmission lines. Let's now move on to the next slide. Ecopetrol acknowledges its position as a key player in the national economy and its development. That is why our strategic planning always considers responsibility and commitment with the regions in which we operate. Last year, 2022, Ecopetrol transferred to the nation over COP 42 trillion in dividends, royalties and taxes. Likewise, the company's contribution is also reflected in things like. Today, more than 2,100 families in the farming and rural communities, 128,000 students and some 764,000 people with access to drinking water and sanitation, all benefit with our social and environmental investments. The value promise to our more than 255,000 minority shareholders and some 18 million Columbian will contribute to the pension funds. Our contribution to the country's balance of trade, which exports that represent around 30% of total Colombian exports. The continuous improvement in the quality of fuels consumed every day by Colombians, the promotion of employment through the increase in the hiring of diverse talent with more than 20,000 inclusive jobs that include, amongst others, more than 560 people with disabilities, 7% of our human talent identified as part of ethnic minorities and 5% identified as victims of the armed conflict. The generation of some 130,000 indirect jobs through our contractors in year 2022. It is through these fronts and efforts that we continue to work to be the energy that transform. Let's move on to the next slide. When we think about decarbonization, our goals in all of our operations remain intact, remain in place, where we're focusing on achieving a 25% reduction of Scope 1 and 2 emissions by 2030 and a net zero emissions by 2050 whilst also reducing total emissions, that would be Scope 1, 2 and 3, by 50% by year 2050. In 2022, we made decisive progress in our decarbonization strategy. And I want to highlight a few things. Energy efficiency. And through some of his initiatives, we have allowed to avoid the emissions of 138,000 tons of CO2 equivalent. Last year, we closed around 1,700 methane leaks, exceeding the goals that we have set for ourselves. We avoided emissions in the start-up of our Castilla and San Fernando solar farms of more than 32,000 tons of CO2 equivalent. We've offset in crude oil and products that we've given to our clients some 149,000 tons of CO2 equivalent. In the same year, we purchased over [ 180,000 ] tons of carbon credit through our trading desk, our first fuel gas flaring report to the global gas flaring reduction partnership according to the commitments made to the World Bank Zero Routine Flaring initiatives. And we also did something; it was an unprecedented research campaign where we started the Caribbean mangroves, the Middle Magdalena wetlands and the Orinoco forest that was initiated to understand, amongst others, the state of conservation, ecological capacities such as carbon inventories under carbon fixation capacities, analysis of vegetation covered through multitemporal images, global factors of loss and gain of ecosystems functionality and relationships with the communities. In addition, today, Ecopetrol has different businesses certified as carbon neutral. These are Essentia, our subsidiary in the petchem business, our hydrocarbon transportation businesses that would be CENIT, Ocensa, [indiscernible] and Bicentenario as well as ISA and its subsidiaries in transmission, roads and telecommunications. The above reflects the company's commitment and alignment with the country's decarbonization goals and the Paris agreement. I also want to highlight that in year 2022, we had several milestones in terms of defining goals and the management of water resources in our operations. Last year, we achieved a reuse of 78% of the water required to operate, which represents an increase of 6% when compared to year 2021. I also want to take this opportunity to reflect on the fact that Ecopetrol is committed to be water-neutral by 2045. And this means that we will replenish at least 100% of the water consumed in our operations achieving a positive impact in each of the water basins where we operate. To this end, by 2045, we expect to eliminate these charges to surface water bodies, reduce freshwater collection by 66% or 2/3 and offset the remaining 34%. In line with this commitment, it is that a few days ago, we announced that Ecopetrol is the first mining energy company in Latin America to verify its water footprint. This [indiscernible] to the work with [ Econtec ], the certification of the calculation and reporting of the water footprint in four of our major facilities in the company. The Cartagena and Barrancabermeja refineries; the production fields of La Cira Infantas in Santander; and Castilla in Meta. Integrated water management at Ecopetrol seeks to contribute to the equitable, economically sound and environmentally sustainable provision of water resources in an aligned manner with our strategy 2040 energy that transforms on our TESG and climate change agenda. I will now pass the floor to Yeimy Baez, who will share with us the results and milestones of the low emission solution businesses line.

Thanks, Felipe. In 2022, we reached significant milestones in our portfolio of low emissions energy solutions. Reported EBITDA of the natural gas and LPG businesses for 2022 was $1,027 million, an increase of 27% compared to previous year. We also delivered a robust netback of $16.2 per equivalent barrel, increasing it by over 14% versus 2021. Ecopetrol Group is committed to maintaining a strong investment in low-carbon solutions, expanding it by 140% year-over-year. In renewable energy sources, Ecopetrol continued to make significant progress, incorporating more power capacity, reaching 208 megawatts of renewables in the energy supply mix by the end of 2022, benefiting from the competitive levelized cost of energy and the low emissions intensity. The up, mid and downstream segments have reported accumulated cost savings of more than COP 22,000 million and CO2 equivalent emissions reduction of about 32,000 tons. We entered 2022 with high expectations about the hydrogen agenda, and we closed out on a high note. Since we launched our strategic plan in last March, our achievements have positioned Ecopetrol as a leader for low carbon hydrogen development in Colombia and throughout the region by the means of delivering the first proof of concept in the country to successfully produce green hydrogen and use it in an operational refinery. As expected, in August, this test reached its final stage, allowing to capture the lessons learned and use this incorporated know-how on the development of 2 mega scale projects that will be operational by the end of 2025. Each of these projects is expected to have a 60 megawatts electrolysis capacity powered by green energy sources and be able to produce 9,000 tons of hydrogen per year. Please proceed to the next slide. In sustainable mobility, Ecopetrol continues to make strategic progress. Several programs have emerged and broadened, one of which is the fund to promote use of natural gas in heavy-duty trucks known as Kandeo that has evolved in conjunction with fuel companies in Colombia. We moved forward with the pilot in Bogota, where public transportation buses powered by green hydrogen are expected to be on the road in 2023. Ecopetrol raised awareness on the importance of innovation ecosystems and made progress with the infrastructure to produce hydrogen and refuel light vehicles that is under construction in the Caribbean innovation and technology center. This mobility park comes from an agreement between Toyota and Ecopetrol. Also, I would like to highlight the 249 electric hybrid and gas vehicles that are now part of the Ecopetrol's fleet, making up 25% of our automotive park. Throughout 2022, Ecopetrol continues to focus on increasing reliability of natural gas sources. The micro LNG project in Buenaventura completed 6 months of being online and has allowed us to test an efficient system that creates optionality. It achieved 100% service availability and proved a scalable and easily replicable solution. It also provided an autonomy of 7 days to Buenaventura district and worked 24/7 during contingency periods experienced during the last year, thus allowing more than 45,000 families to receive uninterrupted natural gas. In addition, we were able to consolidate in 2022 an ecosystem that leverages the reduction of greenhouse gases emissions and underpins new businesses for Ecopetrol. This ecosystem was strengthened with strategic alliances and platforms such as the International Gas Union, IGU; the Hydrogen Council; the International Renewable Energy Agency; and the World Energy Council, among others. As part of our ongoing effort to improve community well-being, we expanded the social gas program connecting more than 13,000 families in the country's rural communities to the natural gas network. We reached more than 2 million final users and families of vulnerable communities with our utility company, Invercolsa. And while there was a cycle of high prices, the Ecopetrol group reduced the LPG price by 30%, benefiting more than 3 million families in Colombia. I will now give the floor to Alberto Consuegra, who will go through the main operational milestones.

Thank you, Yeimy. By year-end 2022, the net proven reserves 1P of the Ecopetrol Group amounted to 2,011 million barrels of oil equivalent with a reserve replacement ratio of 104% and an average reserve life equivalent to 8.4 years. Over the past 5 years, the Ecopetrol Group has maintained an average reserve replacement of 130% even under challenging market conditions by implementing continual infill innovations in its processes. The CapEx executed in 2022 contributed to providing organic reserves totaling 215 million barrels of oil equivalent through the execution of successful drilling and workover campaigns in fields such as Rubiales, Cano Sureste and Castilla. Under [ SEC ] methodology, the Brent price used to value reserves was $97.90 per barrel. It should be pointed out that by the end of 2021, we were able to capture the volumes lost due to the price decreases of 2019 and 2020. And consequently, by the end of '22, the contribution of this factor was reduced to 19% versus 39% in '21. However, it is important to highlight the growth and progression of volumes, which have allowed for a positive trend of recovery and growth, improvement in reserves over the last 6 years. Ecopetrol continues progressing towards becoming a more gas-focused company by 2030, in line with our energy transition strategy. Approximately 60% of the exploration portfolio is gas targeted, and we continue to focus our efforts to materialize reserve additions from the development of the offshore and onshore Colombian Caribbean as well as in the Piedemonte basin discoveries. Ecopetrol delivered, in 2022, the highest historical gas volume since 2010. 92% of the nation's gas is produced in the Tren Piedemonte and nevertheless, will replace the 67% of the production volume. Moreover, the balance of resources and improving reserves of the Ecopetrol Group reflect the potential headway to develop these volumes into proven reserves. And therefore, it is imperative to continue allocating capital to mature new projects and include their production in order to strengthen organic growth and the country's energy sovereignty. Let's move on to the next slide, please. During 2022, we drilled a total of 24 exploratory wells in line with the plan. By year-end, we totaled 7 exploratory successes in basins that hold interesting prospects for Ecopetrol, which allowed progressing more than 50% of the drill prospective volumes to discover resources. Furthermore, 6 wells are currently under evaluation. I want to highlight the success of the Ibamaca-2 sidetrack appraisal well, wholly operated by our subsidiary, Hocol, which confirmed the discovery of crude from the Ibamaca-1 well drilled in 2021 and located in the Tolima department. By year-end, we incorporated 12 new blocks in our exploratory portfolio with strategic partners. In Brazil, 6 offshore blocks in the southern region of the Santos basin in Colombia, 4 deep water blocks in the Caribbean, and our subsidiary, Hocol, was able to acquire a 50% stake in 2 blocks in the Lower Magdalena Valley and Sinú-San Jacinto basin in partnership with Lewis Energy as operator. For 2023, we expect to drill 25 exploratory wells out of which 12 will be focused on gas, mainly in Piedemonte, the Caribbean offshore and the Northern onshore Colombia. Let's move on to the next slide, please. As Felipe mentioned, in 2022, production continued its growth path, reaching 709,500 barrels of oil equivalent per day, exceeding the target set for the year. The December result, which reached 734,900 barrels of oil equivalent per day, was the highest recorded since February 2020. I would like to highlight the performance of Cano Sur Este, with an increase of 15,000 barrels of oil per day thanks to the entry into operation of the first fluid treatment train as well as additional production from the Permian subsidiary. It is worth mentioning the increase in execution capacity during 2022 with 36% increase in development wells drilled as compared to 2021 with an average use of 28 rigs and a 25% increase in workover activities. In 2023, production will maintain its growth trend with target volumes of 720,000 to 725,000 barrels of oil equivalent per day, mainly leveraged by incremental production campaigns in the Permian subsidiary Cano Sur Este Rubiales, Piedemonte, Quifa and Akacias. Let's continue to the next slide, please. We are pleased to report positive operational and financial results from our Permian Basin with average production in 2022 reaching 37,800 barrels of oil equivalent per day net for Ecopetrol before royalties, a 96% increase over 2021 with an EBITDA margin of 87%. The acquisition of the new areas in the Delaware sub-basin added 48 million barrels of oil equivalent to the 2022 reserve balance. Drilling operations in the region began in December. In line with our TESG strategy, we highlight the progress in the decarbonization of our Permian operations with 0 routing flaring and the use of monitoring systems for the early detection of methane fugitive emissions. For 2023, we foresee average production of between 60,000 to 65,000 barrels of oil equivalent per day with about 120 to 130 new wells to be drilled. Let's continue with the next slide, please. Transported volumes increased by more than 63,000 barrels per day in 2022 mainly due to increased crude production, higher local demand for refined products and additional barrels from third parties. We emphasize that, for the second consecutive quarter, we achieved record evacuation indicators in our multipurpose pipelines due to the intensified use of the Pozos-Galan system which allowed us to have a greater availability of products in the Barrancabermeja refinery. The midstream segment of the Ecopetrol Group received the carbon-neutral certification from the Colombian Institute of Technical Standards and Certification. [ Econtec ]. We are very proud to be the only midstream segment in the world to be carbon neutral. Likewise, at year-end, Cenit acquired the Cantayus small hydro power plant, SHP, which has an annual generation capacity of 25.4 gigawatt an hour and is the Ecopetrol Group's first hydropower generation asset. This will avoid approximately 63,000 tons of CO2 emissions over the next 15 years, thus contributing towards reducing the company's carbon footprint. Let's go to the next slide, please. In our downstream segment, we achieved exceptional financial and operational results with increased operational availability, a yearly record reach in terms of gross refining margin of $21 per barrel and a segment EBITDA of COP 9.5 trillion. We highlight the historical financial results of the Cartagena refinery with an EBITDA of COP 4 trillion and a net profit of COP 2.2 trillion. In 4Q 2022, the combined refining throughput reached 344,900 barrels per day, exceeding 4Q 2021 results by 4,800 barrels per day due to the greater availability of domestic crudes and the execution of a scheduled major maintenance activities. In 2022, we accomplished multiple milestones, of which we highlight, the successful start-up of the crude unit interconnection product in the Cartagena refinery, IPCC, increasing its throughput capacity by 50,000 barrels per day for a total new capacity of 200,000 barrels per day. The refinery's operational availability was about 94% with the successful execution of 12 preventive major maintenance activities contributing towards safeguarding the operational reliability of our assets. In Q4, the first scheduled major maintenance of the U-100 crude oil unit was performed after 7 years of continuous operation. The Barrancabermeja refinery was recognized as the best refinery in Latin America by the World Refining Association, stronger refinery operations due to technological investments that ensure energy sovereignty and fuel quality under the highest world standards. Since July 2022, the Ecopetrol Group has delivered gasoline with a sulfur content below 50 parts per million; and as of January 1, 2023, diesel with a sulfur content of 50 parts per million; the successful execution of the green hydrogen production pilot test at the Cartagena refinery. Finally, I would like to highlight Esenttia's new recycled plastic resins plant that will be online by 4Q 2023 with an annual capacity of 12,000 tons and a carbon footprint that is 50% lower than that of comparable mechanical recycling plants. It will positively impact more than 3,000 recyclers and generate over 8,000 jobs. Let's move on to the next slide, please. In 2022, the Ecopetrol Group designed a comprehensive strategy focused on mitigating the effects that international markets have had on the cost structure of our operations and investments. We achieved efficiencies of approximately COP 3.5 trillion, of which COP 1 trillion impacted OpEx and, as such, was one of the main drivers to contain inflationary forces. These initiatives included strategies focusing on optimizing lifting costs as well as the crude dilution factor and also that improved the operational and technical performance of investment projects, among others. In fact, we saw a 13% inflationary impact on total costs. Total unit cost for the fourth quarter has a year-on-year increase of $7 per barrel, largely due to the effect of higher prices on purchases and imports of crude end-products. The lifting cost exhibited a year-on-year increase of 11%, mainly explained by an increase in operations and by the effect of inflationary pressure on the cost structure. On the other hand, the downstream cash cost remained constant versus 2021 levels due to a greater throughput volume to the refineries, which offset the inflationary effect. Finally, the increases in cost per barrel transported were offset by a lower unit cost due to the greater volume transported as well as the effect of a higher exchange rate when converting costs from pesos to dollars. I would now like to turn the floor to Jaime Caballero, who will update you on the transmission and toll road segment and recount the main financial results of the Ecopetrol Group.

Thank, Alberto. ISA announced its results on February 23. At Ecopetrol, we want to highlight excellent performance of the company during 2022, which resulted in a historically high dividend for the benefit of all its shareholders. We see great potential for joint value creation going forward. And to capture it, 8 working groups were set up to identify and structure synergies between ISA and Ecopetrol as a result of the electrical infrastructure synergy statement. Initiatives with estimated potential benefits for the Ecopetrol Group of up to $360 million have been identified. During the collaboration process between companies, other lines of work on low emission solutions have been identified, such as green hydrogen, gas to power, energy communities, amongst others. The specific plans associated with the synergies program will be incorporated in its strategic update to the '24 horizon. Let's go to the next slide, please. In 2022, the Ecopetrol Group presents exceptional performance in financial indicators, supported by solid operating performance of all its business lines that, together with the marketing strategy, allowed us to take advantage of positive market condition. And the results at the consolidated level and EBITDA margin of 47.2%, a return on capital employed of 18.8%, a gross debt-to-EBITDA indicator of 1.5x and a net debt-to-EBITDA of 1.3x all stand out. These indicators improved compared to the previous year due to, firstly, contribution of all the group companies, especially in Permian and the Cartagena refinery, which also broke records in several results; second, rebound in production at Ecopetrol domestic, which returned to levels pre-pandemic; thirdly, the added value of the incorporation of ISA for the full year; and fourth, a favorable market price level. These factors allowed the group to generate a record EBITDA level of COP 75.2 trillion with a growth 79% compared to the previous year. At the level of the contribution of all business lines, crude oil sales stand out, which by 2022 continued at 83% of the group's EBITDA generation. The performance of the refining segment is highlighted which tripled its contribution compared to the previous year, supported by its operational stability and record results in refining events. The transmission and roads segment had a share of 12% of the group's EBITDA continued to provide stability to the group's revenues and operating cash flows. The lower emission solutions business grew its EBITDA by 34% in 2022 versus '21. with a significant contribution in past, [indiscernible] which we see as fuel energy transition. In line with what was discussed in previous calls, the Ecopetrol Group continues to manage debt maturities for the third quarter of 2023, seeking to ensure the most competitive conditions in this volatile market environment. As part of the refining strategy so far in 2023, its successful bond issuance was carried out in the international market for $2 billion, and a partial repurchase of the international bond issued in 2017. Ecopetrol has successfully refinanced close to 7% of the debt maturities in 2022, close to $5 billion, and there are $1.6 billion in the refinancing process [indiscernible]. Finally, it is important to highlight how compared to peer companies, Ecopetrol Group presents world-class results and indicators such as ROACE, EBITDA margin and EBITDA per barrel, amongst others. Regarding solvency and liquidity, we can see how these indicators are in the market average despite the effect on working capital associated with the fuel price stabilization fund, FEPC, for its Spanish acronym. Let's go to the next slide, please. At the end of 2022, the Ecopetrol Group recorded a robust cash position of COP 18.1 trillion, where the following items stand out. Operating cash flow generation reached COP 36.2 trillion, mainly associated to the good performance of the business segments, favorable price environment and the payments received during the year COP 18.3 trillion from the fuel price stabilization fund, broke down as follows: Nation contributions in cash for COP 11.5 trillion, dividend surpluses in favor of the nation were used to compensate without transfer of resources, the liquidated obligations [ of this event ] for COP 6.83. They have receivables from the fund at the end of 2022 amount to COP 26.3 trillion. On this front, it is important to inform that according to the update of the financial plan, the national central government, December 2022. For 2023, explicit item COP 26.4 trillion was included to settle the accumulated balances as of December 2022. According with the publication of the general budget of the nation, ministries in power to offset set payments and the substantial dividends we can save and/or use uncommitted budget services for additional [indiscernible] On the other hand, the new government initiated a gasoline price adjustment, which is critical to slow down the speed of such accumulation and close the gap for local versus international prices. The resources generated by the operation were used for organic capital investment for COP 21.9 trillion, as well as to cover the outflow of COP 18.5 trillion in cash flow of which COP 5.1 trillion correspond to debt service and COP 13.4 trillion to dividends paid to the company's shareholders. Finally, in terms of capital structure, it's important to highlight that the balance sheet of the group remains quite solid, growing in equity while maintaining a constant level of debt in dollars. Let's go to the next slide, please. The Ecopetrol Group investment plan in 2023 is in a range between COP 25.3 million and COP 29.8 trillion. This amounts to about $5.6 billion to $6.6 billion, in line with our commitment to the energy transition, 40% of the investments will be allocated to renewable self-generation, hydrogen transmission and roads, energy efficiency and gas self-sufficiency. The other 60% of the investments will be focused on energy security and cash generation. The [ client ] considers CapEx and other resources for a value close to COP 3 trillion aimed at generating complete actions for 2023 against our growth ambitions, shared with the state. Initiatives mainly stand out in the following fronts: climate change to achieve a reduction in emissions of 407 kilotons of CO2; comprehensive water management focused on reducing 40% of the water that is collected; and territorial management to leverage 157 kilometers of intervening tertiary roads; education to 70,000 students; and access to drinking water for 16,000 families. Finally, it's important to highlight that the financial plan is robust, generates an EBITDA margin greater than 40%, ROACE greater than 11% and a gross debt to EBITDA lower than 2.1. I'll give the floor now to María Paula Camacho, who will give you additional color about the positive evolution of Ecopetrol's TESG.

Thanks, Jaime. Ecopetrol has been recognized for its good performance in corporate responsibility and TESG by various analysts issuers and users of the nonfinancial information reporting ecosystem. This recognition has been the result of the company's rigorous processes and challenges of its performance in environmental, social and governance matters as well as proper communication to all stakeholders. In recent years, Ecopetrol has been adopting several sustainability and reporting standards, and it has been participating in assessments in which the company's TESG performance is evaluated. The latter has allowed the company to improve its performance and communicate more clearly and effectively its results. In the last 4 years, Ecopetrol has substantially improved its rating in all the dimensions rated by the Dow Jones Sustainability Index. In 2019, Ecopetrol had an overall score of 29 points. And in 2022, we received an overall score of 76. As a result of such improvement, Ecopetrol is now part of the Latin American Integrated Market, MILA, and emerging markets indexes within the Dow Jones Sustainability Index and has been recognized as member of the Sustainability Yearbook for 2 consecutive years. Ecopetrol's TESG path has been upward and outstanding among its peers. Our improvements and progress are also being reflected on the CDP climate and CDP water ratings. Our current CDP ratings are above the average of companies in the oil and gas sector. I now turn the floor over to Diana Escobar for remarks on Ecopetrol's impact in the regions.

Thank you, María Paula. We are proud to be a driving force of development for the country and the source of employment for thousands of Colombians whose work contributes to make the energy transition a reality. This creation of social value was evidenced through the achievement of manyfold milestones in 2022, among which I would like to highlight the following. The Ecopetrol Group's sustainable development investment portfolio amounted to more than COP 615 billion, 31% more than in 2021, prioritizing education, road construction, community infrastructure, entrepreneurship, inclusive rural development and access to public services, such as water, sewage, gas and electricity. These investments focused on closing in equity gaps and diversifying local economies resulted in positive impact in national production, generating a GDP growth of 0.1% per year. Over 120,000 students benefited from our educational programs, equivalent to 1.5% of the total students enrolled in public institutions across the country. By the end of the year, Ecopetrol reached the workforce of 129,000 employees. 22% of them are people with low rate of participation in labor market. Furthermore, we facilitated direct and in direct connections for over 31,000 local companies through our supply chain network. We made it possible for more than 763,000 people to have access to safe drinking water, thus, reducing the national gap to access this essential service by 1.5%. Ecopetrol Group continues to lead the implementation of social investment projects through taxes mechanism. We participate with 31% of the total national quota allocated by the government, contributing to closing inequity gaps in 72 municipalities and 15 departments severely affected by armed conflict and poverty. During the 6 years of the mechanism, a total of 59 projects adding up to [ COP 58,000 billion ] have been allocated to the group, generating social prosperity in the regions. We promote a fair and equitable energy transition. Therefore, in 2022, the government assigned Ecopetrol to implement solar portable type solutions for 766 homes in the department of Putumayo to increase the coverage of electricity service in rural areas. Finally, between 2019 to 2024, we estimate an accumulated social environmental investment of COP 3.6 trillion. This is part of the Ecopetrol Group's commitment to the transformation of Colombia and the generation of sustainable value for all Colombians. I now turn the floor over to Felipe for closing remarks.

Thank you very much, Diana. Year 2022 was a year with outstanding financial and operating results, meeting the established goals and with significant records achieved in our 3 business lines. In March of 2023, we will have our AGM, our General Shareholders' Meeting, where we will be able to present to our shareholders the balance of the year in terms of energy sovereignty, TESG, safety, finance and operations. In 2023, Ecopetrol will continue to make decisive progress, thanks to a solid and highly qualified team, which will work on a business plan aligned with a responsible and just energy transition and with the value promise to all of our shareholders. I want to take the opportunity to thank 18,000 employees, men and women that, every day, in Ecopetrol make the impossible possible. With this -- and I open the floor to question and answers.

[Operator Instructions] The first question is from [ Taso Consuelos ] from UBC -- UBS.

Felipe, first of all, I would like to congratulate you for the time leading Ecopetrol and the great performance achieved in this period. We, here from UBS and Luis as well, wish you success in the new challenge ahead. Our first question, we saw a solid performance in 2022 with a solid cash flow, allowing the payment of relevant dividends, right, as you guys just announced. But looking at 2023, we expect a lower average Brent and a slightly change in production and increase in CapEx and, of course, tax rate increase to 55%. So in summary, it's expected a decrease in cash flow, right? What could we expect in terms of capital allocation for the company, especially dividends based on 2023 figures and so on? Can I expect something closer to the 40% range following the Ecopetrol's policy? And are there any discussions with the government about a possible change on this policy? And my second question is, could you guys provide an update on the nomination of the new CEO for the company? Any comments from you on how the process is going is really helpful.

Thanks, [ Taso ]. Thanks for being here, and thanks for your kind words. So the first question, I'll provide a bit of context. But given where we are, our CapEx for 2023 has been decided. I mean, obviously, we, as always have been, will be watchful of what's coming, if there are things from a macro perspective that change. And I think the good news is that historically, we've demonstrated that we're very quick, nimble we can adapt, and we've learned from that. Having said that, the COP 25 trillion to COP 30 trillion in terms of CapEx allocation stands. And I'll ask Jaime to provide a bit more context. I know there are several variables and things that you've put on the question, and I think it's worth that we spend some time. In terms of the update of how the process to nominate and basically select the new CEO, I'll ask María Paula to help us with that. So Jaime, if you can start with the first part of [ Taso's ] questions, that would be great.

I think there's a lot in your question. And the way that I would propose to approach it is what are we seeing as positive trends versus what are we seeing as potential pressures when we think about that outlook. And I think there's a lot on the positive end. Firstly, the trajectory that we are foreseeing is one of production growth, and it's competitive production growth. It's not production growth at any cost. You have heard about the outlook for the Permian. You have heard about the outlook for gas in Colombia. And these are all very, very profitable and competitive projects. So production growth will be a factor, and we are going to see it, importantly, in operating cash flow, which we see increasing over the next months and years to come, actually. The second thing that I would put on the positive category is prices and differentials, particularly -- differentials, in particular. Some of you might have heard Pedro in the previous call in Spanish that we are probably in a juncture right now where there are some challenges, but the medium- and long-term outlook is a positive one as well. So that's something to bear in mind. And thirdly, I think we cannot underestimate the collections for FPEC because what we are seeing and what we've actually seen over the last 9 months is actually a very credible and a very proactive approach from the government in terms of dealing with that balance, which actually translates to cash for Ecopetrol in some shape or form. So I think those 3 elements are positive in the outlook going forward. What are the pressures? I think there's 2. Predominantly, one you've identified, which is, of course, tax reform, but we always need to bear in mind that it's very relative. The tax reform is linked to price bands. So it's not a set amount. The way to think about it is the more we earn, the more we pay tax, but the proportion is always one that's in favor of the company. So I think that we need to see it in those terms. And the second pressure that we have is around debt service because, clearly, the refinancing effort that we've done over the last 12 months has come at a time where rates are a bit higher because of -- worldwide because of inflation, and that's going to be translated into some nominal increased debt service over the next months. I think that all of that is positive. I think that, in the end, the balance of that will largely depend on what is the price outlook that you use. The price outlook that we are using, which I mentioned a couple of times, which is about $80 Brent, is one where we see a capital allocation remaining in the $5 billion to $6 billion per annum over the next few years. We've actually targeted 20 billion for the 3-year period between '23 and '25. That number stands. And from a dividend standpoint, what I would say is that the dividend policy of the company remains unchanged. It's 40% to 60% of ordinary net income. And what I would expect is that at these price bands, we will always try to remain in the very high end of that price band. This, of course, will depend on how performance goes, but our outlook remains very positive.

Thanks, Jaime, and María Paula, if we can go to the second question.

Thanks, Felipe. [ Taso ], on your second question, I would say that the process to appoint the new CEO for the company is undertaken by the Board of Directors with the support of first-tier headhunters and compliant with the CEO succession policy that we have enforced in the company. The process is advancing. It is being carried out on a very serious and professional manner. And I would say also that the Board and its advisers are working to have results as soon as possible, nevertheless, without jeopardizing the seriousness of the process and, obviously, its result.

The last question is from [ Tiago Caisquero ] of Morgan Stanley.

First of all, I would like to congratulate Felipe for all the work done and wish you all the success. I have 2 questions here. The first one is taking into consideration our exit production rate, which was quite robust. Is there any upside risk to the 2023 production target? And the second one is if you have any news on the path of the stabilization funds receivable from the government. Can we expect new collections in the coming quarters?

Thanks, [ Tiago ], and thanks for your kind words. So I'm going to ask Alberto. Why don't you take the first one and share your views on how we were seeing production? And Jaime, in terms of FEPC and everything else, if you can provide some insights. Alberto?

Thanks, Felipe. [ Tiago ], with regards to production, we maintained our guidance in terms of having a production of about 720,000 to 725,000 barrels of crude oil. We take a look -- a conservative view in terms of production because we have to manage, throughout the year, different risks. The first one is associated with the seasonal behavior of the gas sales. Particularly, when you look at December, the second half of December and also the month of January, we see always a reduction in terms of gas sales. Also, think about social unrest. When you look at January production, so far, we have had already impacts in our Rubiales and Caño Sur Este production rates because of social stoppages. But also, we have production shutdown coming from the Arauca field from one of our partners. So we will have to continue to manage this throughout the year. Thirdly, we have a maintenance profile in our different operations. We have routing maintenance in both Cusiana and Cupiagua. We will have to have a major turnaround in Floreña for a change of the flare tip, which probably will take between 5 and 10 days. Also, we have maintenance in our triangle, where we have most of the mature oil fields in Apiay, Castilla, Chichimene. We will have to do some maintenance in tanks and also in pipelines that will need some repair. Finally, the other thing that you have to consider is the client management. We have to replace every year between 100,000 and 105,000 barrels a day. So the client management will be fundamental. And the CapEx that we have targeted for this year will cover that replacement of production. So all in all, we maintain our range of 720,000 to 725,000 barrels oil equivalent per day.

Thanks, Alberto. And Jaime?

Thank you, Felipe. [ Tiago ], with regards to your question around FEPC and its outlook, so I'd start with saying that the balance by the -- at the end of 2022 was of -- about COP 26 trillion, right? And that's an important number to have in mind because it's actually the rationale for the allocation that the government made in its budget for 2023. What the government intended to do was actually synchronize to make sure that the balance in the FEPC by the end of the year match the budget allocation for the next year, which it's actually great news in the past. Actually, I'll give you some history. Over the last 15 years of FPEC, that had very rarely occurred, that match between the budget and the projection for FPEC. So that's positive news. The second point that I'll make is that with the dividend project that we announced yesterday, basically, through dividend exchange, we are going to meet, if you will, about COP 21.5 trillion, nearly COP 22 trillion of that balance, which leaves a balance of about COP 4 trillion to COP 5 trillion yet to be defined going forward over the next few months until the end of the year. The government has different mechanisms to deal with that. Dividends is a mechanism, but it's not the only mechanism. Actually, the largest consideration that they have from a cash standpoint is budget surpluses. So the government can actually reach out to budget surpluses in other areas and assign those to FEPC. How will that occur? And what will the government decide on that? We don't know. To our understanding, they haven't decided that yet. But what we do know is that the government is pleased with the results of Ecopetrol for 2022, very pleased. And they're actually supportive of the dividend distribution project that we released yesterday. Actually, there was an announcement from the Ministry of Finance today in that regard. So that, I believe, is also a positive news. I think the third point that I would mention is what is the accrual rate of FEPC going forward. In the first month of this year, we accrued about COP 3 trillion of FEPC. We expect that to have a downward shift over the next few months the rate of accrual is going to be reduced mainly because the government has announced and they are very committed to this pathway of increases in gasoline prices. And to the extent that those increases occur, the rate of accrual of the balance is going to be reduced over time. So all in all, a positive outlook, I think, on the matter of FPEC. If we go back 12 months ago, we had pretty significant uncertainty about how this was going to be dealt with, and that has actually been narrowed down to something that we see as appropriate and more predictable in time.

The next question is from Andrés Duarte from Corficolombiana.

First of all, congratulations to all of the company's employees for the outstanding results that you achieved. And to Felipe, the best of luck to you. And again, I really hope that you remain vocal with respect to the sector in our country. So the questions -- the first question is related to gas. I would like to know what explains the quarterly reduction that was observed in gas production. And the second question is related to hydrogen. Please explain the company's forecasts regarding hydrogen production and sales, including self-consumption, local sales and exports, if any.

Thanks, Andrés, and thanks for your kind words. So both questions, I'm going to ask Yeimy to help us with that in terms of understanding what happened with gas on 4Q of last year and then our views on hydrogen. So Yeimy, please go ahead.

Thank you very much for your questions. First, about gas. So what happened is that we had a planned maintenance in our infrastructure in the Llanos foothills. So we were running this maintenance during the fourth quarter, and that was the main reason because we decreased the production during that quarter. It was planned as it happened. So the routine operations that we do every year to actually be sure that the reliability of all the infrastructure in terms of gas is ready to deliver what is needed for all the Colombian people. Regarding hydrogen, which is your second question. Today, we are producing 130,000 tons of hydrogen per year. 90% of that hydrogen is gray hydrogen and 10% is blue. All the hydrogen that we are producing today is being used in our own refineries to hydrotreat the fuels that we sell -- that we produce and sell in Colombia and abroad. In 2022, we successfully delivered our pilot to produce the first molecule of green hydrogen in Cartagena refinery. So what we are doing now is that we are incorporating all the lessons learned and the know-how to actually mature 2 mega projects that will hopefully sanction the FID at the end of 2023. Those 2 projects will produce about 9,000 tons of hydrogen per year, each of them with an electrolysis capacity of 60 megawatts. So because we are targeting the FID of those 2 projects by the end of this year, we are expecting to have the first molecule in 2025 or 2026. That's like the days that we are targeting. Most of these hydrogen will be used in our own refineries to cover a deficit that we have today, but we will have a surplus production that we will use to actually develop new markets in Colombia and abroad. In 2023, we will also deliver 2 mobility projects in Colombia: 1 in Bogota and the second 1 in Cartagena. What we are aiming with those 2 pilots is to actually develop domestic demand for hydrogen that, of course, will be a very, very important key issue for the next decade. In the medium and long term, what we are doing is to actually take into consideration all the competitive advantage that we have as a country, wind speed, radiation, biomass to deliver the competitive and conventional energy resources that are required to produce competitive green hydrogen. So we are more than sure that for the next decade, we will have, for sure, portfolio to produce hydrogen in a massive scale, not only for local production but also to export. But to actually share more details, we will need to wait and see how this [ hopper ] of opportunities is progressed in the next or coming years. Thank you very much. And I hope Andrés that it helps to actually get a very understanding on how we are progressing on our hydrogen agenda.

Thanks, Yeimy. Thanks, Andrés. Do we have any more questions?

Now we will answer the questions coming from web. The first question is from Badr of Barclays. Can we have an update on the impact of frozen tariffs that President Pedro wants for water electricity on ISA, please?

Thanks, Badr. Thanks for being here. Thanks for participating in the call. What I'd say on this is, first, as we think about ISA, obviously, as a controlling shareholder of ISA, first thing I want to say is that we're very, very pleased with the investment in terms of ISA. Over the last few days or so, and I'm going to share a few numbers and a few concepts here, the first thing is that ISA has proposed to its AGM a very robust dividend distribution. That accounts to roughly 88% in terms of distribution. So very, very comfortable with what ISA is doing in terms of its business. And that, the considerations that went into the recommendation for the AGM take into account the future and forward view the company has of its business. So from that point of view, ISA is not considering impact from the potential -- any intervention in terms of tariffs, in terms of transmission. So very pleased, historical dividend, and it's been accounted for in terms of the numbers that we're seeing and, again, underpins and supports the decision for the dividend distribution. And the other thing that I want to highlight and that we've been discussing over the last couple of days is that we've now identified, in addition to the value that we saw in the purchase, some $360 million of synergies in terms of transmission and in terms of new projects in terms of transition that we can jointly do between ISA and Ecopetrol. So I think it's very, very bullish, very, very bullish in terms of what that brings. Thanks, Badr. Anything else? Do we have more questions?

The next questions are from Frank McGann of Bank of America. How are transportation costs for exports affecting netbacks? What are the expectations for crude oil and natural gas production in Colombia and the U.S. this year? And the last question is what are the trends you are seeing in oil services costs? Are you seeing much upward pressure?

Thanks, Carolina. So Pedro, can you help us with the first one and then we'll take it there? And then Alberto, if you can help us with the second and third one, that would be great. Pedro?

Okay. Thanks, Felipe. Frank, thank you for your question on transportation. When we talk about transportation cost, basically, we're talking about 2 portions: the pipeline transportation, which is regulated, and in 2022, it was actually slightly lower than 2021 because of our volumes. Now when it comes to the shipping side of the transportation cost, we are at all-time high cost of -- in the shipping, but it's something that is basically for the entire market. So we're competing very well. But also, I would like to take advantage of this question to let you know that we have become very active in the shipping because we set up a shipping desk in 2021, and we are doing more deliver to the customers. And actually, the numbers in 2021 was that 17% of our exports were delivered to our customers internationally. And in 2022, because of the activity picked up really well, and we basically delivered 37% of our export volumes going into the international markets, and that has actually become a new line of business. That is becoming a new source of income for the company.

Thanks, Pedro. Alberto?

Thanks, Felipe. Frank, with regards to production in Colombia, we are expecting 500,000 barrels of oil and about 150,000 barrels of oil equivalent coming from gas sales, LPGs and condensates. In terms of U.S., think about 60,000 to 65,000 barrels of oil coming from both Gulf of Mexico and Permian and then about 10,000 coming from gas in Permian. With regards to service costs, what we're expecting this year is an inflationary impact in this particular sector of about 17%. But when you look at our lifting cost in total, we expect that to be in the range of $10 to $10.50 per barrel, which means that we are going to see an increase in terms of inflation in energy, which is the main component in terms of the lifting cost impact, inflation coming from the service sector as well. But we expect to cope with our efficiency program that provided us with extraordinary results during 2022. As a matter of fact, in total, the amount of efficiencies that we saw in 2022 amounted COP 3.6 trillion.

Thanks, Alberto. Thanks -- and thanks, Frank, for being part of the call. Do we have any more questions?

Yes. We have the last 2 questions from Carlos Carazas. The first one is, should we expect new changes in management going forward? And the second one: how would operations be affected by the regulatory changes that are taking place?

Thanks, Carlos, and thanks for being here. So in terms of management, as we've described before, focus right now for the Board of Directors is in ensuring that the process to change or appoint a new CEO is done orderly, and it's done, as María Paula was saying, in a way that's very disciplined and very thoughtful and very methodical. So I think that's happening. In terms of management, we'll need to see. And I'd say that, over the years, for those that have been following the company, you've been able to see that we've managed to basically create a very, very strong world-class team in Ecopetrol. A lot of people that we've brought to the ranks, a lot of the experience that has been in Ecopetrol for many, many years and people from different geographies that they wanted to come back to Colombia and have been part of this journey and have been part of these great results. So we'll see what happens. We'll see what happens. But I think the important here, Carlos, is that institutions, companies, organizations prevail and that we protect those going forward. In terms of operations and if there's any impact on regulatory changes, there's conversations on those, and I think we addressed some of that in a prior question. And we'll need to see what happens. There's conversations around the national development plan. There's some specific conversations around president being in charge of CREG, the regulatory body, for the next 3 months. So we'll need to see how things progress, how things pan out. And if at the end, there's some impact that -- particularly, the things around ISA that I've explained before, we're bullish. We don't see impact in the short term. But again, we'll need to be watchful. We'll need to see what happens and what goes on in the next months or so. I'm not sure if there's any more questions.

No more questions. Mr. Bayón, you may now proceed to closing remarks.

So before doing that, and I'm going to take a few minutes of your time if you guys can help me, there is a graph that I want to share with you. And hopefully, hopefully, this provides some more insights in terms of reserves. And there were some very good questions around production profiles and what happened in 4Q, how do we see these going forward. Both Yeimy and Alberto talked about this. But I want to -- if you can just turn your attention to this graph, which is something new that we haven't shared or disclosed before. And I'll try to be very executive on this. But the first number is the 2.011 billion, so 2,011 million barrels, 2 billion barrels of reserves in yellow. That's 1P reserves, and that's the number that we've historically been reporting. It basically shows the highest 1P reserve number in the last 8 years. And that number is basically 75% crude and 25% gas. That's the number that we've all seen and that you guys have seen. And here, we're showing -- and this basically tries to paint the picture that we shared with the market over the weekend when we talked about reserves. The 3P reserves or total reserves would be 2.8 billion barrels, and roughly, I think it's 21% gas. So this shows, look, we are sort of, I wouldn't say unveiling, but we're sharing with you some of the numbers that we see in terms of the pipeline or in terms of what comes next. So we're expanding the vision from the 1P reserves to 3P reserves. And what would say -- one would say or could say, look, let's stop there. But again, if you look further out, in time and in terms of maturity of those resources, we're also sharing a view on contingent resources. And you say that -- you see that we're saying, look, it includes Gorgon, amongst a lot of other things. And those could be 2.3 billion and roughly percent -- or 14% would be gas. So we think about gas, and back to the question that was made -- addressed by Yeimy, we have 2.8 Tcf right now. This would be an additional 1.9 Tcf. If we go further out, in terms of maturity, we have discovered resources that still need to be appraised. And that includes, amongst other things, Uchuva. And that would be 3 billion barrels. And roughly, it's 30% gas. And then further out, as the technical teams, the geoscientists, the geophysicists, the people in exploration think about what's next, we're foreseeing, in terms of prospective resources, 6 billion barrels, 53% gas. So we wanted to share this with you. This is something that I think will be used going forward. It provides a more holistic view, and it's our own view of how we're seeing resources, its progression and then where do we stand in reserves. So we hope this is helpful. So thanks, everyone, for being part of the call today. And thanks for your feedback. Thanks for your comments. Thanks for your questions. All of those help us immensely and deeply in terms of better understanding your needs; what are the areas of concern, of interest; what are the things or areas in which we need to do better in terms of explanations, in terms of providing supporting material, in terms of ensuring that this relationship between the company and yourselves is stronger and stronger. And every time, it's just stronger and gets much better and much more fluid in terms of communications. So thanks for everything. Thanks for your support. Thanks for your kind words today. And this is, on a personal note, my last conference call of results for Ecopetrol. You have a solid team here in Ecopetrol. Thanks for everything you do. Thanks, guys. Thanks to the team as well. To the ones that are here, there's a lot of people in the backstage. There's 18,000 men and women that do the -- that turn the impossible into possible things every single day. So thanks for everything. Stay safe. Have a great day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.