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

Good morning. My name is Natalia, and I will be your operator today. Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operational results for the first quarter 2024. There will be a question-and-answer session at the end of the presentation. Before we begin, it is important to mention that the comments in this call by Ecopetrol senior management include projections of the company's future performance. These projections do not constitute any commitment as to future results nor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared in this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol; Alberto Consuegra, COO; and Maria Catalina Escobar, Acting CFO. Thank you for your attention. Mr. Roa, you may begin your conference.

Good morning, everyone. Welcome to the first quarter of 2024 earnings call, a quarter in which we are moving forward on the path of growth, thanks to the collected work and effort of all our employees and partners. The results show that we are still maximizing the opportunities in our traditional business. We continued to achieve excellent operational features. We closed the first quarter with a production of 741,000 barrels of oil equivalent per day, a transported volume of 1,118,000 barrels per day and refining loads of 428,000 barrels per day with a high operational availability of our refineries in 96%, reaching levels comparable with the best refineries in Latin America. During the quarter, we announced the commercial viability of the recipe gas drilled in the Cordoba department, adding approximately 6.7 million cubic feet of gas and the signing of a gas exploration agreement in Piedemonte Norte with Paris. This milestone is trading our commitment to the country's energy security. These achievements are complemented by the outstanding commercial strategy highlighting our subsidiary in Houston, Ecopetrol U.S. trading, which started operations in October 2023, with a commercialization of 16.7 million barrels of crude and products generating an EBITDA of $37.1 million and a net profit of $28.5 million in the first quarter of 2024, 185% above the plan for the period. We are able to face the El Nino phenomenon with resilience, implementing, planning, optimization and saving strategies throughout the operations and the processes. Examples include the accelerated maintenance at Cupiagua diesel timely delivered to the power plants and 80% water reuse rate in our operations. Moving to the next slide. Our growing production translates into solid financial figures with competitive profitability showing an EBITDA margins in line with the average of the last 8 years. In this way, revenues of COP 1.3 trillion, EBITDA of COP 14.2 trillion, net profit of COP 4.0 trillion and ROACE of 11%, in line with our annual target. The main impacts on the results compared to the first quarter of 2023 are mainly due to exogenous variables. Over the past year, the exchange rate dropped by COP 845 affecting the expiration of variables in pesos, explaining 80% of the variation in EBITDA. When analyzing the figures in dollars for the quarter, we observed financial results at similar levels compared to the first quarter of 2023, other by able affecting the results are increased costs due to the El Nino phenomenon, inflationary pressures and the fall in differentials as a result of the market oversupply. Efficient management of the accounts receivable with the fuel price stabilization fund accompanied by adjustment to gas line prices allowed us to reduce the accumulation by 72% compared to the first quarter of 2023, ensuring lower working capital pressures for the company. Additional on April 1, we received the transfer of COP 7.8 trillion, corresponding to the account for the first quarter of 2023, highlighting the nation's commitment to prepayments. I want to highlight the successful closure of the legal process of the arbitration award of the Cartagena refinery after 7 years of organ port in which we protect the interest and reputation of the company and for which we have already received the corresponding compensation. I want to give a special recognition to the Cartagena refinery and its entire team for their constant work and commitment to successfully complete in this process. We maintain competitiveness in returns for our shareholders. At the general shareholders meeting a dividend distribution of 67% of the profits for 2023 was approved, corresponding to COP 312 per share to be paid into installments in 2024, one which has already been paid to minority shareholders in April. Additionally, I highlight the annual dividend yield of 14%, which continues to be highly competitive in the industry. Moving to the next slide. The operational achievements shown go along with environmental, social and governance milestone that support the good performance of traditional business and the path towards a fair energy transition. In the environmental field and in line with our ambition to achieve net 0 emissions by 2050 and decarbonized our operations in the first quarter of the year we achieved a reduction of 50,000 tons of CO2 equivalent of dirt emission scopes 1 and 2, accumulating a reduction of 1.54 million tons of CO2 equivalent from our operation, which to give you an idea is equivalent to the annual electricity concession of 80 million Colombian households. We also manage responsibly and efficiently the order that we use for our operations. In the quarter, we achieved the use of 39.6 million cubic meters. Its value is equivalent to the quarterly domestic demand of 5.4 million Colombians. In line with the above, we highlight the launch of the new circular economy model which we have a production and construction system that promotes efficient and sustainable management throughout a product life cycle in our value chain, and we focus our effort on achieving climate change order biodiversity among other goals. On the renewable energy incorporation we announced the inauguration of the Cartagena solar firm, making it third the first refinery in Latin America with a solar forward plant. In the social feed during the first quarter of the year, COP 6.8 billion were executives in social, environmental and relationship investments and 50 projects were developed through the tax for works mechanisms for a value of COP 451.6 billion signed the beginning of the mechanisms. Through the social gas line, we achieved the connection of 852 homes to gas fuel networks, accumulating a total of 3,971 connections since 2019, thus contributing to the expansion of access to essential public service for the people living in the communities where we operate. Additionally, and in line with our commitment with these communities, we generate more than 73,000 jobs through our contractor companies hiring around 85% of local labor and generating 23% inclusive jobs. The update of the bylaws reflect our commitment to gender diversity and the adequate preparation of our leaders, ensuring that at least 30% of the Board of Directors are women and requiring more than 12 years of experience for members of this governing body, ensuring the presence of experts from diverse fields. The recent change in the composition of Ecopetrol Boards of Directors do not imply modifications or change in the implementation of the Ecopetrol's group, 2040 strategy by itself. Like a wiz, the corporate governance model remains valid. And to date, no change proposals have been present by Ecopetrol administration. Finally, at the end of March, we observed a normal change in senior management, among which I want to highlight that 73% of the new [indiscernible] presidents come from internal talent in the Ecopetrol Group in the expected line of association, reflecting our commitment to the development and recognition of talent and high performance within our organization. And finally, on the science, technology and innovation front, I highlight that within the framework of Ecopetrol Colombian Navy agreement, the participation in the tent and target exploration conclude where measurements of gases and sampling of particular matter were carried out the data of which will serve in the results of offshore energy generation from renewable sources. Now I give the floor to Alberto, who will talk to us about the hydrocarbons line, not without first thanking him for his valuable management more than 7 years in the Ecopetrol Group. His contribution to the achievement rates were fundamental for the consolidation of the strategy. Ecopetrol which is in mass success in his new challenges. Rafael Guzman current President of Hocol will take over as Executive Vice President of May 11, 2024. Rafael has been President of the subsidiary for more than 5 years and has around 14 years of experience in the Ecopetrol Group. Go ahead, Alberto.

Thank you, Ricardo. We highlight the advances in the exploratory campaign, allowing us to progress discovered resources into contingent resources and reserves. I would like to mention the following: the commerciality of the Reficar gas field, 100% operated by Hocol located in the Department of Cordoba consisting of the producing wells, Arrecife-1 Side Track, Arrecife-3, Arrecife Norte- 1 and Coralino-1. The 2 showed an initial production between 5 million to 10 million cubic feet per day already available in the local market and is expected to reach a production between 20 million and 30 million cubic feet per day by 2026. We continue pursuing the commerciality of the exploratory success of the Arauca- 8 well drilled in 2023 in the Llanos Foothills by our partner, Parex with a 50% participation. The well confirmed the presence of light crude of 32 API degrees in the [indiscernible] formation and condensate gas in the Une formation with a gross production of approximately 4,573 barrels of oil per day and 7.5 million cubic feet per day of gas as of the end of April. Additionally, I would highlight the agreement with our Parex Resources to explore new sources of domestic gas and light crude in the Piedemonte Norte Foothills. The agreement includes the LLA-4-1, LLA-6-1, LLA-2-1 and CDD blocks with a 50% participation for each party as well as the option to jointly participate in 2 additional blocks. With this alliance, both companies expand their exploratory portfolio and work together to reactivate exploratory areas expecting to increase gas supply in the medium term. Regarding offshore exploration activity, progress is being made in the maturation of the Uchuva-2 appraisal well, which is expected to start drilling by the end of this month in partnership with Petrobras as operator. We also continue to make progress in structuring the business case for the development of the Caguan, Glasscock discoveries. Let's move on to the next slide, please. During the first quarter of 2024, the Ecopetrol Group achieved a production of 741,000 barrels of oil equivalent per day, increasing by 22,000 barrels of oil equivalent per day compared to the same period of the previous year, maintaining outstanding results even under security issues and blockades in some territories, which impacted production by 7,500 barrels of oil equivalent per day. These results were leveraged by the increase in production from our subsidiaries, mainly in Permian as well as positive results in Cano-Limon, CP0-9 and the contribution of secondary and tertiary recovery through water injection. We highlight the successful execution of the scheduled turnaround of the Cupiagua plant in January, which improves its reliability and integrity. The plant maintenance was executed in a shorter time with less production losses and more flaring reduction compared to the plan, thanks to the operational discipline and the use of equipment with the state-of-the-art technologies. The higher production level during the first quarter triggers that our projection for the year increases to a range between 730 and 735,000 barrels of oil equivalent per day. In line with our TSG strategy, it is important to highlight that 93% of the water required to operate in the upstream segment came from the reuse of production water, thus reducing dependence on water resources. Let's go to the next slide, please. Regarding our activities in the Permian Basin, 25 new wells were drilled during the first quarter of 2024, reaching a production of 84,600 barrels of oil equivalent per day for Ecopetrol before royalties, which represent 11% of the group's production. We also highlight the strong financial results of Ecopetrol Permian. In the first quarter of 2024, we achieved an EBITDA of $229 million and an EBITDA margin of 80%. Next slide, please. The upstream segment contributed 54% of the group's EBITDA being a profitable and sustainable segment that leverages the energy transition. The EBITDA per barrel increased by 4%, reaching $29.2 per barrel, mainly due to higher production levels, better crude basket prices and cost efficiencies, which partially offset the exogenous effects such as inflation, higher exchange rate and the El Nino phenomenon. On the other hand, the lifting cost was $12.1 per barrel. If normalized for generous factors, which represent about $3.45 per barrel, the lifting cost will be at levels similar to those of the first quarter of 2023. We also achieved efficiencies of $0.38 per barrel driven by the execution of strategies focused on electrical power, reliability and subsurface maintenance, which contributed to mitigating the impact on the lifting cost. Let's go to the next slide, please. Transported volumes increased by approximately 28,000 barrels per day, mainly driven by the increase in crude oil production in the Llanus area and higher deliveries of Castilla Norte crude at the Barrancabermeja refinery. During the first quarter, 5 reversal cycles were carried out through the Bicentenario pipeline with more than 1.2 million barrels transported in response to a preventive intervention at kilometer 153 of the Cano Limon-Covenas pipeline, which affected operations in the Banadia- Ayacucho section in March. After successful completion of the repair work, the pipeline resumed operations on April 7. As part of the strategy against crude oil theft, beginning November 2023, the Ecopetrol Group implemented an operational adjustment to transport crude oil production from the southern region of the country through Ecuador's pipelines. During the first quarter, the Transandino system has remaining contingency mode being available for use as needed. This measure will be reviewed over the year. Lastly, we highlight the segment's financial results, generating revenues of nearly COP 3.6 trillion and an EBITDA of COP 2.8 trillion, contributing with 20% of the group's EBITDA. Next slide, please. In the first quarter of 2024, the combined refining throughput reached 428,000 barrels per day, leveraged on more than 96% operational availability, the rigorous execution of a scheduled major maintenance activities and the maximization of domestic crude loads. The integrated refining gross margin was $14.8 per barrel, mainly affected by weaker diesel jet and gasoline spreads. This resulted in an EBITDA of COP 1.4 trillion for the quarter. In this quarter, we accomplished multiple milestones, of which we highlight this, the commissioning of the mechanical recycling plant at Esenttia currently under stabilization with the production capacity of 12,000 tonnes per year. The start-up of the third chemical recycling reactor to increase the production of pyrolysis oil for processing at the Barrancabermeja refinery.The completion of the construction phase of the solar park at the Cartagena refinery inaugurated on April 12 with a self-generation capacity of up to 22.1 megawatts. The commissioning of the new wastewater treatment plant at the Barrancabermeja refinery in February of this year. Lastly, the solid cash generation of the segment resulting from strong operational results and the repayment of the Cartagena refinery on April 1, 2024, corresponding to the balance of the first quarter of 2023. Now I will turn it over to Ricardo, who will discuss the main milestones of the low emission solution business line.

Thank you, Alberto. In the first quarter of 2024, the gas and LTE solution reached 172,000 barrels equivalent per day, representing 23% of the group's total production, 65% of Colombian's market share and an EBITDA of COP 753 billion. reimporting our commitment to continue the path of de-carbonization and diversification of our energy metrics during the first quarter of 2020 all in a scenario marked by the El Nino phenomenon, the Ecopetrol Group intensified its efforts in energy efficiency, achieving a cumulative optimization of its internal confusion of 0.4 petajoules for this quarter with an impact of approximately 36,000 tons of CO2 equivalent and savings of COP 11.6 billion. These efforts, combined with timely, efficient commercial action allowed us to decrease the energy cost per barrel from $3.03 per barrel with a 23% share in the overall production lifting cost in the last quarter of 2023, $2.5 per barrel and 21% year in the first quarter of 2024. In addition, the rerating energy security progress was made on 2 fronts. First, in the planning of the supply chain and the maintenance of backup inventories to guarantee an eventual requirement of diesel for thermal generation; second, in the optimization, in times of major maintenance of Cupiagua to guarantee the reliability and availability of one of the mine sources of gas in the country. In terms of renewable energies, we completed the construction of the solar farm at the Cartagena refinery, which has a capacity of 22 megawatts equivalent to the consumption of COP 18,200 being the previous solar farm built inside refinery in Latin Abric with an expectation of reaching 524 megawatts in operation, construction and execution by the end of 2024, restating our goals in the short, medium and long term within the framework of our strategy to incorporate 900 megawatts by 2025, growing with sustainability and generating value for our shareholders. On the social front, we highlight 2 important initiatives with a positive impact on the sustainable development of the communities in which we operate in the special gas program, the completion of the pilot project in Manaure in the department of La Guajira in alliance with Hocol, which allowed the connection of more than 500 families to the natural gas service and the beginning of Phase II that will allow the extension of the benefit to 250 more families and the consolidation of energy communities in Puerto Pier and Barranca, Velez, Santander, Cravo Norte Arauca and Puerto Carreno in alliance with idle conservation society, leveraging the experience of the WIL project. These projects not only allow us to improve population access to renewable energy, but also to guarantee the conservation of key ecosystems and specialists in the country. I will pass the floor to Maria Catalina, who will talk to you about our transmission and toll road line and the mine financial milestones.

Thank you, Ricardo. In the first quarter of the year, the transmission and roads business maintained good financial results despite the strong impact of the Colombian peso revaluation against currencies such as the dollar, the Chilean peso and the Brazilian real during the period. EBITDA decreased by around 16%, standing at COP 2.3 trillion. However, when eliminating the exchange rate effect on EBITDA, the results are at similar levels to those of 2023. Furthermore, committed to our strategic objective of diversifying our operations, the transmission and roads business continues its sustained growth in Ecopetrol Group's results, reaching a 16% share of EBITDA for the first quarter of 2024. Some of the most relevant milestones for the first quarter of 2024 include in Panama, ISA was awarded a tender to rehabilitate, improve and maintain 246 kilometers of the East Pan-American highway. The Panamanian Ministry of Public Works awarded this project to Intervial Chile in January with an estimated investment of COP 1.1 trillion. In Colombia, ISA was awarded the contract for the design, construction, operation and maintenance of the second transformer project at the Primavera substation and the fourth transformer project at the Sogamoso Substation Additionally, it signed a private connection contract for the execution of the Guagepo-3r project for the expansion of the Sabanalarga substation, the order projects amount to reference CapEx of COP 146 billion. With these significant awards, the total committed investments up to 2030 amount around COP 29.4 trillion, consolidating the growth trajectory of our subsidiary in different geographies. Finally, on April 1, the sale of Internet to Brazil was closed with a final estimated price of COP 2.1 billion equivalent. Please move on to the next slide to detail the group's financial performance. In the first quarter of 2024, we maintained competitive levels of profitability, supported by excellent operational results and efficiencies captured worthing over COP 600 million. We achieved an EBITDA of COP 14.2 trillion and an EBITDA margin of 45%, keeping us within the average of the last 8 years for this period and at competitive levels compared to the industry. Additionally, the return on average capital employed ROACE remains in double digits, recording 11% and above our annual target of around 9%. On the path to diversifying our business lines in the first quarter of 2024, the contribution to the total EBITDA from the exploration and production business was 54% and followed by transportation with 20% transmission and roads with 16% and finally, refining with 10%. On the other hand, we maintain healthy debt metrics with a gross debt-to-EBITDA ratio of 1.9x at the end of March. This is in line with our long-term guideline where we aim to maintain a level below 2.5x for this indicator. Regarding debt maturity management, we maintain a dynamic of anticipating refinancing needs. Thus, Ecopetrol successfully issued bonds in the international market in January of this year or $1,850 million and obtained approval from the Ministry of Finance and Public credit to carry out the debt management operation for $1.2 billion in March. These resources are committed by banking entities and are expected to be disbursed in the second quarter of the year. With these operations, Ecopetrol addresses its debt maturities for 2024 and 2025, in addition to demonstrating its commitment to refinancing strategy through the capital markets and access to different credit alternatives with local and international banks. As for our investment plan by the end of the first quarter of 2024, the Ecopetrol Group invested around $1,289 million, equivalent to COP 5 trillion, with dollar investments being the highest recorded since 2016 for the same period. Investments were mainly made in Colombia with a 57% share while the remaining 43% was at the international level, mainly in the United States and Brazil. Investments in the hydrocarbons line accounted for 67% of the total investments grouping the exploration and production, transportation and refining businesses. For exploration and production activities in Colombia, investments were concentrated in the Rubiales, Castilla, Cano Sur, [indiscernible] and Chichimene fields. Meanwhile, internationally, exploration investments focus on the Permian Basin in the United States. Refining and transportation activities focus on operational continuity and maintenance of refineries and pipeline systems. In the low emission business line, projects associated with gas and energy transition represented 13% of the total investments in the quarter. Resources were mainly allocated to the growth of the gas chain and supply in fields such as Cupiagua and in the Tayrona block in the offshore Caribbean in Colombia. Investments in the translation and roads line accounted for 20% of the total and were mainly allocated to the development of energy projects in Brazil, Peru and Colombia. By the end of 2024, we expect to make investments between COP 23 million and COP 27 trillion as announced in our financial and investment plan. Please move on to the next slide. Regarding net income in the first quarter of 2024, we recorded COP 4 trillion with the following highlights compared to the same period in 2023. First, an outstanding operational performance reflected in our EBITDA through a positive volumetric effect of COP 0.8 trillion. This was associated with increased production and greater operational availability in both refineries as well as lower purchases of crude and products; second, an impact of COP 2.9 trillion due to a lower average exchange rate, a higher level of costs and expenses by COP 0.8 trillion and a lower weighted average selling price of crudes and products with an impact of COP 0.7 trillion. This resulted in a total decrease in EBITDA of COP 3.6 trillion in the period. Likewise, there was an increase of COP 0.7 trillion in the recognition of depreciation and amortization as a result of higher investment levels and increased production. On the other hand, there was a lower tax provision resulting in a positive effect on net income of COP 2.7 trillion derived from the decrease in results. The effective tax rate for the first quarter of 2024 was 36.5%, assuming the deductibility of royalties and a windfall tax of 10%. Regarding tax regulation, the final ruling on the prohibition of deducting royalties will be issued soon by the constitutional court. And the effects of such decision on the Ecopetrol Group will be analyzed based on this decision for the corresponding periods. About the liquidity position, we finished the quarter with a robust cash balance at the Ecopetrol Group of COP 17.3 trillion. The primary source of liquidity during this period was the operating cash flow of COP 6 trillion followed by net debt and interest inflows of COP 1 trillion. There is an improvement in working capital associated with the lower accumulation of the fuel price stabilization fund. And regarding cash outflows, the main disbursements were allocated to Ecopetrol's CapEx in its subsidiaries totaling about COP 4.3 trillion. Additionally, in the early days of April, the first installment of dividends was paid to minority shareholders, totaling approximately COP 738 billion, along with the payment to the nation for the same concept amounting COP 4 trillion. Regarding the fuel price stabilization fund, we continue to make progress towards reducing the accounts receivable balance. By the end of the first quarter of the year, it stood at COP 22.7 trillion, supported by the positive differential between the local gasoline price and the international reference price. This has partially offset the accumulation of the diesel related account given the current price levels in the country. There is a notable and sustained decrease in the pace of accumulation of the account receivable with a 72% decrease in its value in the first quarter of 2024 compared to the same period in 2023. Furthermore, the government's commitment to reduce the balance was clear in April of this year with the payment of COP 7.8 trillion from the accumulation corresponding to the first quarter of 2023. During 2024 we expect to continue receiving quarterly payments from the FEPC and collect the entire outstanding balance from 2023, totaling COP 12.7 trillion. By the end of the year, with an average price close to $83 per barrel, we estimate an accumulation of the account receivable of the fund between COP 8 million to COP 10 trillion, subject to fluctuations in the international crude oil market price and the exchange rate primarily. This estimate is significantly lower than the amount accumulated in 2023 of COP 2.5 trillion and in 2022 of COP 36.8 trillion. I will now hand over to Ricardo for the closing remarks.

Thank you, Maria Catalina, and thanks to all who have made these results possible for the first quarter of 2024. In conclusion, the capital discipline, the regard of the financial evaluation of our process allow us to face the challenging environment marked by the reevaluation of the peso, the increase in energy cost, inflationary pressures, the price differential of products and our full commitment to advancing gas supply to the country. Likewise, thanks to the technical and operational strength, we have been able to capture opportunities such as the brain price situation, exceeding our expectation, maximizing our excellent operational performance and diversifying into new markets to maintain a profitable and competitive business. On the production front, the good operational management of the last few months, which highlights the performance of the drilling campaigns in the Permian Rubiales and Cano Sur in the scheduled maintenance, the assurance of reliability levels and the entry of the new wells allow us to move forward on the growth path. We expect to be above the target range by 2024 placing us between 730,000 and 755,000 barrels of oil equivalent per day. We will continue to execute our plan for 2024 with technical and financial strength and advising in our strategy towards 2040. Our operation remains solid accompanied by a rigorous plan of efficiencies and cost control. I thank everyone for their participation.

[Interpreted] [Operator Instructions]. [indiscernible] be online with the question.

[Interpreted] I have a couple of questions. The first one on production. I'd like to understand in a better way, and if you could give me some details of the reduction in the production we saw quarter versus quarter, both in Colombian and premium and how you expect the production to be during the rest of the year and on line with production, looking at new production change you published. This means that we'll have an average production for the next 9 months between $720 million and $730 million barrels per day. What are the risks you're seeing in relation that production during the next 9 months would fall in 14,000 barrels per day versus what you had in the first quarter of 2024. And the last one, a very good one. Could you give us details about the details on tax provisions for the second quarter of 2024 as a result of the enrollment of the decision of the constitutional court in 2024.

[Interpreted] Ricardo here to give you my reading. Let's talk about production. When you look at the last quarter of last year, we have to take into account that Permian was doing its last drilling and completion of wells campaign. So production increased during the last quarter, reaching 158,000 equivalent barrels per day. What happened during this first quarter? The first thing is that we see the effect of the declination of the basic curve of Permian. This means that production goes down from 100,000 to 840 something, which was the average in the first quarter. And the materialization of risks that have to do, first of all, with we had a campaign of maintenance in the Cupiagua plant that affected the production of gas. And I'll talk about the forward-looking later for the rest of the year. And the second thing was the materialization of risks associated to the blockades and problems of third-party actions that affected us in 374,000 barrels per day, which affected us in Cano Sur. The third impact has to do with the closing of the time as a product of the neo phenomenon that changes the production from 757 in to what we had in average, what happens for the rest of the year. Everything has to do with managing risks, so one of the things that we were seeing was the possibility of an expansion of the new phenomenon to April, May, that is not occurring with the intensity, we were expecting so production is behaving in a better way that allows us to increase the range from $725 to 730 or $735,000. The subject of blockages and theft of electrical materials, especially in the heavy oil world areas that could also have an incidence in the rest of the year. So this is a subject related to how we approach the territories, how we create relationships with the communities and the authorities in order for us to manage those risks in a better way. So we'd be seeing a better perspective of production in that regard. And the third thing is that we'd be able to develop the activities in the time plan. We have to handle the declination of the field and natural downward to and make sure that, that happens in the right time. For example, in BP-09.Right now, we have the idea of having an early start between June and September in those facilities, but that depends on the advance of the construction works if we don't do it. That would just mean a lag in production and we'll see a positive impact only in the last quarter. So this has to do with the risk management issues. We're very optimistic. We think that we're going to be able to have a production above the initial target set. But we have to insist and say that this has to do with the opportune handling of the risks we see in the operations.

[Interpreted]This is Maria Catalina thank you for your question. The first thing would be to say that we understand that the court notified the Ministry of Finance on the suspension of the decision. So right now, the effect has been suspended. However, it is important to mention that in Ecopetrol for some days, what the decision was still an effect and royalties were deductible. We presented our income tax returns according to what was in effect at that time. In relation to the impact that we might be seeing in the second quarter of 2024. It's very difficult to say exactly what the impact will be because that will depend a little bit on how the court is modulates its decision or the final ruling after they look through the fiscal incident. However, let me tell you about some prospective scenarios, the first and the best one would be to keep on as we are with deductible royalties, which would be consequent and in line with what we announced at the end of the year or what we announced at the closing of the first quarter of 2024. Let's say, model scenario that could be brought about by the court is that, that adjustment of the income tax in 2023 would be able to cross it with future years and that prepayment, let's say, if that moderation of the crossing, if there's no impact on the GDP, we might have an effect in our cash flow that will be one scenario. And then asset scenario would be one where the court will the ruling and say that royalties would not be deductible in 2023, that would impact us in COP 1.5 trillion, which we would have to adjust as a lower balance in or higher tax versus what we reported on the first quarter that impact not making royalties accountable would be more or less 50 million. And when the court comes out with the ruling, we would have to see how much would have been accrued in the second quarter of the year, but the impact would be more or less around 2 or 2.30 million approximately COP 1 trillion. I would reiterate that these scenarios, it will depend, of course, on the decision taken by the court. We are respectful of the decision they make, and we will act according to that ruling.

[Interpreted] The next question comes from Ricardo [indiscernible] and Bank of Colombia.

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

[Interpreted] This is Ricardo speaking. In effect, we have no through the communication media, the possibility of going to a sale of its shares and of exact in the country that, of course, is probably part of the appraisal opportunities that Ecopetrol has on its portfolio and understanding larges we've announced certain deficits of gas in the country for the next 5 years. This asset will be observed in the internal protocol analysis of those opportunities of investment within the Ecopetrol Group not only Canacol, but any asset that we might be thinking of incorporating within our purpose of ensuring or guaranteeing to the country, the supply of gas in a permanent way. Those are being evaluated within the procedures that I've already mentioned and which are part of the record that we appraise. Any decision that could be taken, of course, if we take a decision would be advising the market in a timely manner as to the level of production to reach the levels we had in the fourth quarter of 2023. That's the debt in the investment plan we have right now. We are trying to maintain the levels of production we reached in 2023. The path looks bright in the first quarter, 733 million barrels per day. I can't announce a number of April yet, but I think it's an even better number and it shows that we are maintaining on the path of making all of our fields ready and reach the excellent production levels we obtained at the end of last year. I would now give the floor to Alberto, if he wants to go in depth on the subject of production and gas assets Canacol.

[Interpreted] I'd add the following. We are neighbors in many of the different feels or blocks of Canacol in the lower value of the Montana area. So what we do is take an analogy with what's happening in our own fields to understand the adjustments we have to do in the development plan. Our plans of our production fields, for example, the one we announced recently, which is the face but also to address the profile of what would be the exploration objectives or targets in those blocks of fields. We're continuously looking over and looking at Canacol we at least have more certainty of what we have to do in our own fields.

[Interpreted] Now we have Andres Duarte from Corporacion Financiera Colombiana. Mr. Duarte you may ask now.

[Interpreted] I have 3 questions. If you could answer them all or great, but at least the first I'd appreciate if you can answer it. In relation to the production of Ecopetrol without America and Permian and without Hocol, only 4 fields, CPO-09, [indiscernible], Cano Sur and San Francisco, highlighting Cano Sur, which shows increases in production, rather show a reduction all annual and most of them quarterly. I'd like to know within your expectations, you have the recovery of some of those fields that have had a reduction and what would support that expectation? And the other question is related to gas, specifically with the possibility of importing gas from Venezuela, if that would be feasible and the restrictions that sometimes exist sometimes on exist would be in place. I'd like to know that gas oil pipe is from Peleweza, the 100% of the investments related to the recovery of that gas line would be done by peleweza if you are foreseeing the participation of Ecopetrol for the recovery of that gas pipeline. And a question about the Midstream. There is a reduction in the quarterly cost versus the fourth quarter last year of the prior year and the cost of the barrels transported from 22.8%. I'd like to have an explanation, and that's a reduction in dollars. I'd like to hear your explanation about that reduction. And if you can remind us what part of the transport is in dollars, and what part is in dollars? And if it's the gas oil pipelines or the oil pipelines for the poly pipeline is the ones that are indexed into dollars.

[Interpreted] Well, in relation to subject of production, I would like to clarify the following. Usually, the production in Rubiales and in Castilla fall during the first quarter. And it's more pronounced in Rubiales because of the closing of [indiscernible] that occurs during the summertime. What would we like to see an increase in the production of Rubiales and Castilla in addition to the fields you mentioned. But you must remember that the Pareto of the national production is in those assets in Rubiales, Castilla, Chichimene in CPO-09 and in Cano Sur. That's big portion of our production. And we have to keep an increasing production there to counter arrest the natural declination, especially in the Penfield where there is a reduction or a declination in gas. At the end of the year, we would be expecting a slight increase in Castilla, Chichimene, Rubiales and that, together with the fact that the Permian will keep an outlook of production between 81 and 83,000 barrels for the year.

[Interpreted] Ricardo on the subject of gas, Andres and the possibility of importing from Venezuela from 3 points of view. The first is to have enable the legal and normative platform to do it. And we still holding discussions with FEPC about permanent supply of information in relation to the request we made in November of 2022 to fact to consider the decrease of the restrictions we have in Venezuela, the ambassador of the U.S. in Colombia still is that they are reviewing the subject. And secondly, to remind you that we have an agreement in effect from 2017 to 2027 where we have enabled between 300,000 and 340,000 cubic feet per day to be transported connections related to the quality of gas and the price established. And this agreement is an effect and that is the mechanism or the legal vehicle to be able to -- once the restrictions are taken way, the one we'd be using now in relation to Peleweza and their news they'd be able to deliver 50,000 meters of gas per day. That's the information they've given us, and we've been working with them on the activities of inspecting the gas oil line. We send it, went through it, and we have an estimated budget of between $35 billion and $40 billion to make this asset operational. The asset is owned by [indiscernible]. And any activity or investment that would be needed is to be borne by them. We've had some manifestations of interest from the gas transporters of Colombia to have participation both in the repairs and obviously, in the possibility of receiving the charge from the use of that system is enabled within the country. So we think that there will be no restriction for one of them to be in charge of the repairs and the reading of that gas pipeline.

[Interpreted] This is [indiscernible] the President of Citi. I'd like to talk about the cost of transportation, the average cost of transportation for 2023 was more or less $3 per barrel. And for the last quarter of 2023, it was 3.75%, mainly associated to the higher OpEx that we made for the repairing of the system either because of geotechnical reasons or mechanical reasons for the third quarter of 2024, the cost is of 299, I'm sorry, associated to 2 main components: one, the exchange rate; and 2, lower OpEx costs because of lower needs of repairs in comparison to the last quarter of last year in relation to the fees with the shares of the oil pipelines that are denominated in dollars, the ones of the poly duct denominated in pesos, thus 80% of the revenues denominated in dollars for the segment and 20% in pesos. But in terms of cost, 84% of the costs are executed in places and 16% in dollars.

[Interpreted] Katherine Ortiz Sogamoso is in line with the question you may proceed.

[Interpreted] I have 2 questions. The first one is related to the cost of raising even though that cost was impacted by the exchange rate and a significant amount. I'd like to know if at that level if we exclude the effect that we might see forward in the exchange rate, we could reach a stability level of that cost or if on the contrary, we might still see additional effects inflationary or any other type in that sense? That would be my first question. Then the second question is connected to the answer just given about the imports of gas from Venezuela. And I'd like to know or have clarity in Ecopetrol would not have this an intermediary in any aspect in the process that we would be completely done through external parties and Ecopetrol would not intervene then.

[Interpreted] Katherine I am going to refer about the cost of these. We look at the monitoring mass and specifically look at the outcome of the last quarter of last year. The cost of raising it was $20. This first quarter has a better result of $12 per barrel and of that survey. And what is that due to -- it's because we have an important level of production and also because we've been able to achieve certain efficiencies we're combating the level of the accumulated inflation with renewed contracts. And there is an element that's extremely important is the stock exchange price of energy. And it's I think we said 25% of the cost of the survey, as the EL Nino phenomenon decreases, the prices in the energy Stock Exchange will reflect a better view for the rest of the year. So that price in the Energy Stock Exchange will be extremely significant. We're trying to maintain that monetary mass flat and through efficiencies and, of course, managing the risks. But on our target, we have a guidance of between $12 and $13 per barrel, with the idea that we'll be very close to the low range of $12 per barrel. And Katherine, I'd like to complement Alberto to try to illustrate the importance of our program of efficiencies and the control costs. We have a program of efficiencies in the different areas of the company, and we're trying to find efficiencies in COP 3 billion in 2024. During the first quarter of the year, we had efficiencies around COP 650,000. When you translate that specifically into the indicator of the surveying costs, that serving costs of 12.1% that we're seeing during the first quarter would be a cost of more or less $12.4 million or $12.5 per barrel. If we had not implemented that efficiency plan, we're seeing it in a different way, we were able to avoid more or less between $0.30 and $0.40 in the cost of the survey. So I'd like you to keep that data in line as an example of how the efficiency plan is really setting or trying to stabilize the cost trend.

This is Ricardo Katherine. Good morning to clarify the subject of the eventual import of gas from Venezuela. Ecopetrol would be then has entered into that commercial vehicle for some time already. And we might eventually do the import of the import crew and on the gas line. And that's why I mentioned the elements. I said before that we have to have no restriction in order to biovalize the flows of gas from Venezuela into Colombia, but the intermediary role would be an eventual scenario where Ecopetrol would yield rights of that agreement to an operator or assign them to a commercialized dealer. But that would be something that would also need a political willingness of the counterparty in this case of Peleweza something we have not evaluated yet and we're not considering yet because Ecopetrol is historical role is to guarantee the supply of gas into the country. Then if the gas pipeline exists. And if there's a root map in the gas pipeline already. That's something we've been analyzed and taking into account what we said before, provided that the legal conditions and the restrictions of FEPC would allow us to develop that project.

The next question is from Ana Guasca Rojas from Corredores Davivienda you may ask.

My question refers to the changes that we published recently from the senior management. I'd like to know that process is like if you have a date, and if you can tell us about the process of the selection given the conditions in the country.

First, I'd like to remind you that there is a policy of succession in Ecopetrol that we are complying with. There's also a policy of deputy positions, and they are in effect for those highly relevant precision cyber changes that occur because of several reasons, beginning with the one-off executive review that they have to close their journey and the company, others related to health reasons or others because of priorities and their own personal life that make them decide to leave their positions, and we have to understand them and that we expect a company to have 7,553 employees is exposed to those dynamics. But in the succession policy, we are having people who fill 100% of the requirements of the profile to become the parties of the position, 70% of the positions that have been replaced. We substituted during this year have come from the organization or administrative structure of people who have been in the company for many years and who have assumed those physicians. There is an agreement with the Board of Directors understanding that some of their duties are among their duties as the possibility of assessing and evaluating those positions at Level 1. And there, we decided to do screening processes and next placement, we're placing directors who have the experience and the profiles and the skills, and they can participate in the screening process through a head-haul. That's what we've been doing, reflecting the times for those positions and the succession line that exists within the policies associated to that process inside Ecopetrol.

[Interpreted] Rodrigo Reis de Almeida from Santander is online.

I have 2 questions from my side. First, I wanted to discuss a little bit the capital allocation strategy of the company and get particularly related to the hydrocarbons and reserve growth on the inorganic perspective. It seems like the company is getting good prospectives in Colombia itself, mostly gas focused, right? So I wanted to think about outside of Colombia and what's the strategy there. I think this comes into the perspective that we've seen a lot of low-carbon profile discoveries across the world. I think the last one that we saw Namibia with Gap, you're talking about Venezuela. But I wanted to get your international perspective here. If you could bring to us what's your priorities on the international side, Venezuela, U.S. and conventional Brazil offshore, offshore in other countries, I think it would be great to understand. And if you could give us a quick update on the exploration efforts in Brazil offshore also regarding Pau Brasil and GatodoMato. If I'm not mistaken, you might have just started drilling in Pau Brasil and GatodoMato was under review a couple of years ago, so wanting to see where it stands. And this also, I mean, leverage is quite low if just for CapEx, so I need to understand if you see space for inorganic growth there, especially outside of Colombia. And then the second point I wanted to ask you is, we talked a little bit about the lifting cost, so I need to check on the dilution costs, which went up a little bit. So now that we see production going a little bit up, I would say, second quarter. How can we balance a higher production with probably lower naphtha prices that could potentially benefit the dilution cost there also? So that's what I have from my side.

[Interpreted] This is Maria Catalina, I'm going to answer one part of the first question, and then I'll give the floor to Alberto and Nicolas, so they can continue giving more details in relation to the allocation of capital strategy, specifically with the business of Hydrocarbons I'd like to highlight 2 topics. Number one, we announced to the market that we have a investing plan for the following 3 years, 2024, '25 and '26. That's more or less reaches COP 20.2 billion. Our idea is to maintain annual investments between $5 million and $7 million and online with the strategy that we have up to 2024, the idea is that between 60% and 65% of that CapEx would be executed on the line of hydrocarbons prioritizing or giving a lot of relevance to the subject of the growth of the resource of the company and making sure that those investments are done in a profitable way in the business group looking for returns between 8% and 10% so to what we have announced specifically in the plan of 2024. But we are considering in relation to investments in the U.S. and Brazil of the $6.5 billion of the total plan for 2024, more or less 1 billion to round up the figures will be invested in the U.S. and $51 million is the capital is allocated for investments in Brazil. The plan does not incorporate any resource up to date for assets in Venezuela. And we evaluate or we have opportunities to do so and if the conditions would enable the potential prospective investment, we would then do the appraisement according to our process of capital allocation if we could or not allocate those resources. Now Alberto you have the floor.