Q3 2019 Earnings Call
Good morning. My name is he'll then I'll be your conference operator today.
At this time I will like to welcome everyone to that a couple of talked or corn is 2019 results conference call.
All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session. Thank you for your attention.
Mr. Forgotten the slightest will begin the conference today.
You may begin your conference.
Good morning, everyone and welcome to Ecopetrols, earning conference call a webcast, which we will discuss the main financial and operational results what the cutthroat for the third quarter of 2019 before we begin it is important to measure that the common seem to be school by Ecopetrol Senior management cutting good.
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 salary. So ecopetrol assumes no responsibility, India that future results are different from the.
Projections shared on this call frescoes vehicle will be led by Mr. For you do I don't see hope of the collateral or their work do you see bunch in queue I'd bet, the courseware <unk> Executive Vice President Jaime Colorado CFO .
We'll go opinion exploration Vice President of course, I saw you Vice president of development and production.
And I love this CFO of sand it until my sudden on this vice president of refining those trends processes. We will begin the presentation. We the main achievements over the third quarter of 2019, followed by the highlights by business segment I'm financial results on their fight International Finance reporting.
Founders, we close we'd ask you a nice session I will now handover the presentation to equity co CEO . So do you feel like <unk>.
Thank you Fernando.
Welcome everyone joining us at this conference call for the third quarter 2019 results.
I'm very pleased with the results with the liver yesterday to the market.
We continue to the lever on the business pad were presented at the beginning of the year inline with our strategy of cash protection capital discipline and growth in reserves and production.
For the first nine months of the year, we reported net profit of 9.2 billion pesos on an EBITDA of 23.9 billion passes.
This equates to an EBITDA margin of 46%.
At the close of the quarter, we maintain a very solid cash position of 16 trillion Petros, even after completion of the payment of dividends to shareholders amounting 10.1 billion pesos throughout the year.
These results primarily reflect our positive operating performance no basis.
The positioning of our heavy crudes in the markets to generate high value.
All this combined with an improved average exchange rate that helped us offset the lower Brent price.
Which was $73 per barrel for the first nine months on the last year and these $65 per barrel for the first nine months in 2019.
Let's move onto the next slide.
We have been ceasing value accretive opportunities for inorganic growth leading to the strengthening of our position in production and reserves.
The first of this is our entry into the Midland in the Permian Basin. The most prolific in the world or joint venture with Occidental to participate in Unconventionals.
The joint venture we signed we had allowed the company to incorporate proven reserves in the order of 160 million barrels in 2019 and gradually increase production all the way to 2027, when we see a coupled with a 95000 barrels per day share of production in the JV.
Over 22nd we received the approval from the U.S. authorities for these transaction.
We expect to close the deal by the end of this year.
Currently there are two rigs operating in the Midland.
Two wells have already reached total depth and we expect to complete these wells in November .
In 2020, we expect to see four rigs operating in the JV.
As we mentioned one of the key components of the deal is a transfer of knowledge.
We're currently advancing in this election, a recording of the Echo Petro personnel that we'll be working in the Permian.
We expect that the first group will engage in a jvs operation during the first quarter of 2020.
The second deal is our recent acquisition from shell over 30% stake in they've got below market lease coverage in the Santos basin are progressing and pre salt basin with some of the largest prospects in the world.
We estimate will be adding some 90 million barrels of contingent resources in 2020, which would be gradually incorporate it into a couple of course, we service balance.
Ecopetrol Oh, so estimates that its share of production from these projects.
I would be some 20000 barrels per day of crude by 2025 under this agreement that quit thought will deepen strategic position in Brasil Santos basin.
We estimate these two transactions will generate an incremental EBITDA Osama 1.4 billion per year.
During the years 2022 at 2027, yielding a positive impact on wage.
Let's move onto the next like to this cause unconventionals in Colombia.
The development of Unconventionals is one of the group strategies for growth in production and reserves.
We have respectfully prudently and responsibly received the provision from the state Council, allowing us to advanced was stage of research for the pilot projects as recommended by the commission of exports.
We believe this is a real opportunity for Colombia to advance on how the unconventional expectation can be made preserving the environment the water and the surroundings, and then be able to make the best decision about the development of Unconventionals.
Always taking into account.
Environment, social and economic aspects.
As we previously mentioned Ecopetrol has allocated $500 million for the period 2019 2021 for developing these pilots.
We estimate to initiate the first pilot and the second half of 2020 subject to the regulation that it's got to be issued by government by year end.
In the meantime, we'll continue working in the construction of the social environmental baseline on other recommendations given by the commission of experts.
I will now hand, the floor over two at a better consuela, who will comment on our principal operational achievements.
Thank you fully back.
Third quarter operating results show, the financial and operational strength of the company, which faced a challenging environment. During this period, given the public order situation and market conditions. Our production is in line with a plan, reaching a business group average cumulative production up 723000 equivalent.
Barrels oil per day.
For the quarter. The production was 720000 equivalent barrels of oil per day, having being affected by security down operational events. Similarly, the ecopetrols fields, which utilize secondary and tertiary recovery technologies contributed around 213000, Nyquil embargoes appoint per day approach.
Actually monthly 30% of the group's daily production.
On the exploratory from the 2019 campaign has shown very positive results.
Oh petroleum its partners have completed the drilling of 13 exploratory wells. So far this year five of which were declared successful improvement flamingos, one which is 100% ecopetrol.
We hope to finish our exploratory campaign with a total of 17 wells five more than originally planned for 2019.
In the transport segment, we come hike like that 4.1% increase in transported volumes of crude oil compared to the same period. In 2018. This is the result of inquiries in national up production and commercial strategies aimed at greater use of pipeline transport.
Additionally, during the month of September well since I broke the record the most oil palmed with 751000 barrels of oil per day on the monthly average over 700 them 4000 barrels of oil per day for the quarter.
On the other hand transport by product pipelines remained stable during the period, we highlight the beginning of the operation of the changing operate up Orient, allowing Austrian should there be liability on the integrity of our operation.
In the refining segment.
The refineries how to stable operation unscheduled maintenance was progressed.
They got the Hana refinery in third Q1 9 reach they'll throughput up a whole around 60.5 thousand barrels per day being the highest quarterly result, since its operation began.
The what uncovered way how refinery maintained the throughput level to hone around 28000 barrels per day similar to that presented in Twoq, you 19 benefited from stability and operational performance. However, the gross refining margin showed a decrease having been affected mainly by the.
In our market environment.
At the end of September the cumulative efficiencies of the year, where around one point 74 billion pesos, mainly leverage by drilling completion and construction facilities, which are focused on ensuring their profitability. The LP investments in development commercial operations and increasing the production.
Middle distillate and gasoline in refineries all aimed at increasing revenues and or margins of both operations. These three large levers have contributed 85.1% of the total efficiencies to the period 1.48 premium passes.
The lifting costs showed a slight decrease thanks to the cost control on graded accretions of of the transformation plan.
The results of the quarter show the operational strength of each of the segments, which put us in line with the fulfillment of goals set up for the end of the year now I will turn the presentation over to Google Police, who will comment about exploration results for the quarter.
Thank you about ball as part of exploration campaign, three exploratory wells were drilled and completed during the third quarter was a total of Turkey wells So far this year.
I want to highlight the two discoveries that seems during the third quarter that contribute to the near field exploration strategy.
Im equals one.
Located in the Middle Magdalena Valley fell 30 degrees, a pie light crude in La Paz formation.
During the initial production test the will delivered 600 barrels of oil per day.
It is important to highlight the competitive and operational advantages of this well, which is in an area close to receiving stations and the bottom line cover maker refinery.
Additionally, the role Cassetta CW, one sidetrack operated by Oxy that is located near the pipeline infrastructure of the hanging on the Mone complex in Africa confirmed the presence of hydrocarbons.
A long term production test in the Cretaceous is being carried out with an average rate of 2727 barrels of oil per day of light crude oil of 26.7 degrees a pie.
Currently there are three wells evaluation stage.
Boron threem located in the Middle Magdalena Valley operated by pipe.
In initial testing Ecopetrol has a 50% stake.
Delaying southwest one located in see new Sarkozy into a basin from our subsidiary Holdco in partnership with Louis Energy and finally, our NATO one.
Located in the Middle Magdalena Valley is also operated by politics.
As for the seismic activity the acquisition of 2000 square kilometers of three the marine seismic in the coal five blog will start in November . This block is held 100% by Ecopetrol and is adjacent to the Kronos Gorgon and purple Angel discoveries.
So the new seismic will be used to further progress the maturation of these discoveries and to identify new exploration of opportunities.
Now Jorge authority or we'll continue with the groups production results.
Thanks overall.
During 2019, we have been inline with our plan to produce between 720 and say how that 30000 barrels equivalent per day.
The third quarter production was 720000 barrels for a total cumulative for the year of 720000 barrels equivalent per day.
The results of the period were affected by external events, we have impact of 8400 Boes per day.
Security events affected kind of the loan covenants pipeline and that you feel and power supplies shortcuts caused by the rainy season affected the operations in Cascadia Chichi, many acas, yes, and who got its fields.
During the month of September we started incremental production of the FDA project and the commissioning and stabilization phase of the LPG planting could be Iowa, which will contribute to the fourth quarter production increase.
The subsidiaries has ceased production of 59000 barrels per day, maintaining share around 8% of itself on a global production.
The fields will recover to programs contributed 30% of the total production.
The light also illustrates the relevant fields that increased production compared with the quadrant of the previous here.
Now I turn to within a Lopez, who would tell you about the results of the transport segment.
Thank you question during the third quarter of 2019, the midstream segment continued achieving positive financial results with an EBIT that reaching 2.7 trillion.
This represents increase when compared to last year's third quarter, EBITDA and EBITDA margin of approximately 78%.
During the third quarter of 2019, the segment transported higher volumes, achieving 1.161 million barrels per day, which represents a 3% growth compared to last years third quarter body.
The volume of crude oil transport that increased 4%, mainly due to an increase in the countries overall oil production to the transportation of additional barrels that were previously transplant outside of our infrastructure entity injection of crude from the accordion NATO oilfield adequate.
During the third quarter 2019, the volume of refined products transported remain stable when compared to the same period last year.
Mainly driven by higher demand in border areas, which compensated for lower volumes from the high refinery.
We continue to focus our efforts are repaying systems that have been affected by third party.
During the quarter there were 27 attacks on our pipeline infrastructure as a result, there were 17 revisions cycles in the recent the now your pipeline with a total of approximately 4.4 million barrels which guaranteed oil production.
Finally, I would like to highlight three activities executed to ensure safe operation and guarantee refined product supply to the western region of the country.
First the beginning of operations at the change in up at Ada section of the sell that that will jumbo pipeline to eliminate your technical risk second the installation of flexible pipelines in the Copacabana area of the softer for jumbo pipeline to mitigate integrity risks related to potential the landslides lastly.
The redesign of supply chain to permit the continuous use of the part of went on to that to provide field to this area of the country.
With this I will handover the call to Tomas Hernandez, who will comment on results for the downstream sector.
Thanks Molina during the third quarter 2019, thanks to process optimization initiatives focused on crude slate improvements and plant reliability and refining the integrated crude throughput of our two refiners reached a historical maximum of 389000 barrels per day.
The quarter handle refinery also achieved a quarterly historical crude throughput record with an average of 161000 barrels per day exceeding by 3000 barrels per day. The result of the third quarter of the year before while increasing the percentage of domestic crudes in the feed slate, 88% up from 80% in the third quarter 2018. This is.
Increasing the proportion of domestic crudes had a positive impact on the cost of the refineries feed slate mitigating the strengthening of heavy and medium crude prices in the international markets.
The bank of America refinery maintained stable and reliable operations as demonstrated by the throughput increase of 2% in third quarter 2019 versus the previous quarter, reaching 220000 barrels per day benefiting from higher availability of domestic light and intermediate crude oil.
In addition, during 2019 compared to 2018, our refineries have been impacted by challenging market conditions in international product price differentials versus Brent, which reached historical minimums for NAFTA and gasoline he trend that recently has approved for gasoline.
In addition, the refineries experienced higher crude price differentials versus Brent in their crude slate.
These conditions have resulted in weaker refinery margins impacting our initial outlook for margin results.
Along with its difficult market environment and despite back about it may have refinery stable operations and higher yield a valuable products. During the third quarter 2019, the gross margin decreased by 17% compared to the same period last year, reaching 11.5 dollars per barrel versus 30.9 dollars per barrel in the third quarter 2018.
Mainly affected by lower product prices and higher crude price differentials for the refinery feed slate.
The gross margin of the cup to handle refinery in the third quarter of 2019 decreased by 31% compared to 2018, reaching 8.4 dollars per barrel, mainly due to international market behavior and an operational event in the alkylation unit, which affected high octane gasoline production during the quarter and has since been resolved.
In our petrochemicals area during third quarter of 2019 ascent via demonstrated excellent safety performance and stable operations, capturing better margins with a more stable behavior, but raw material price.
On the Biofuels fraud in September view energy started this European harvest season, and ethanol production.
Now I turn the presentation over to high Mcauley, who will comment on the financial results for the period.
Thank you Tomas during the first nine months of the year Ecopetrols continued to deliver sustained financial results. Despite the $8 per barrel decreased in the average price of Brent crude between January and September 2019, and the same period of 2018.
These results were due to a higher volume crude oil both produced and sold a $2 reduction in the crude oil spread devaluation of the dollar to Colombian peso exchange rate lower financial expenses due to the effect of debt prepayments and a lower effective tax rate.
Net income close at 9.2 trillion panels and EBITDA Act 23.9 trillion passes the EBITDA margin was 46% year.
Year to date net profit breakeven stands at 31.2 dollars per barrel, improving 5.5 dollars as compared to the same period 2018 gross debt to EBITDA indicator reached 1.3 times, while the net debt EBITDA indicator is stood at one time.
Likewise.
Roce remain above 13% in line with the business plan target of our Roce above 11%.
Let's move onto the next slide to see the cash flow at the group.
At the end of September Ecopetrol reported a cash position of 16 trillion pencils.
Cash flow generated by the operation before the variation in working capital amounted to 20.3 trillion patch.
This value includes the payments received from the fuel price stabilization fund in 2019, amounting 3.8 trillion pencils.
The investment flow in capital activities shows an outflow of 7.4 trillion patches, which is explained by a better pace of investment execution.
The financing outflow of 12.4 trillion passes includes the payment of dividends to shareholders for 9.3 trillion pencils and two non controlling shareholders of the subsidiaries of the midstream segment 4.8 trillion pests.
The company maintain a positive free cash flow of 12.7 trillion vessels, which exceeds the amount of dividend payments executed this year.
The company's final cash 16 trillion passes includes cash equivalent resources of nine trillion and a short and long term investment portfolio of 6.9 trillion.
Cumulative cash flow to date exceed stab available cash prediction incorporating in that 2019 to 2021 business plan.
Let us move onto the next slide to see the status of the group's investment plan.
During the first nine months of the year investment execution increased by 29% compared to the same period of the previous year, reaching $2.3 billion, mainly concentrated on the growth upstream segment.
We highlight investment of $1.1 billion for drilling and completion of wells and point $3 billion to expand the capacity of facilities.
We expect to close the year with an execution of organic investments between 3.5 at $3.9 billion, which would take us together with announced inorganic investments in the Permian and Brazil.
Between <unk> 0.9, and $1.1 billion to our total that would range between 4.4 and $5 billion for 29 team.
Now I'll give the floor to the precedent for his closing remarks.
Thank you Jaime one of Ecopetrol strategic priorities is to grow sustainably and in harmony with the environment.
We believe long term growth requires a commitment to energy transition and operations that demonstrate good environmental practices and promotes social development.
As part of our efforts to contribute to preserving the environment and reducing the impacts of our operations. We have set a de carbonization plan under which we commit to reduce greenhouse gas emissions by 20% by the year 2030 and to reduce operational who will narrow ability to climate change.
These goals are in line with the country's commitments set in the parties accord of 2015.
Consistent with this we have advance and on several initiatives.
We are the first oil and gas company in Columbia that achieves the verification of the reduction of more than 1 million tons of sealed to emissions coming from our operations.
Last October 18th we navigated the largest solar farm for self generation in Colombia, located in the department of Mehta.
He'd happening cell capacity of 21 peak megawatts and will supply energy for the next 15 years to the cast the appeal Ecopetrols second largest its operation will avoid amongst others. The emission of over 154000 tons of seal tooling to the atmosphere.
And the self generated energy will be 30% less expensive than the energy of the national grid.
The inclusion of solar energy is added to the power generation, we already have from biomass from sugarcane and the production of Biofuels based from sugar and Palm tree.
Last October 20, Threerd, we're ratified our commitment to energy transition in Colombia through the allocation of 30 megawatts of energy between solar and wind.
In the last renewable energy auction held by the Colombian Ministry of mines and energy.
It is important to highlight that we have the potential to expand our energy generation portfolio based on renewable sources to over 300 megawatts in the coming years.
The circular economy is another focus of our social environmental commitment we have concentrate our efforts on activity such as recycled water in our operations as of September 2019, we have recycle some 66 million cubic meters of water.
Some 4% higher than that for the same period of last year.
Let's move onto the next slide.
To conclude I would like to mention some aspects of relevance as we close the year.
We expect to close the JV with oxy before yearend and advance towards the completion of got below Matas purchase.
Which is subject to approval of the Brazilian authorities.
In Colombia.
We will continue to advancing preparing for the pilot projects for Unconventionals Ecopetrol is fully committed to executing the pilots responsibly respectfully.
Of the environment other communities with total transparency on within the framework of the government's decisions.
Operationally.
The execution of the first nine months of a year brings us closer to the fulfillment of the goals that we announced for 2019.
Fourth quarter production should be in the range between 734007 hundred 40000 barrels of oil equivalent per day, confirming the estimate that we've given in the range of 720000 to 730000 barrels per day.
For the fourth quarter, we expect to see an improvement in refining margins, while sustaining refining throughput in the range of 350000, so 375000 barrels per day.
Finally, we estimate that our level of investment execution, our capex will be between 4.4 and 5 billion.
This includes our inorganic investments.
Thank you very much for being part of the call today.
I will open now for acuity.
At this time I will like to remind everyone in order to ask a question simply you Press Star then the number one on your telephone keypad.
If you will like to withdraw your question pressed upon key well cost just for a moment to compile the Q and a roster.
We have a question from Frank Mcgann from Bank of America.
Okay. Thank you very much good good day.
If I could two questions. Perhaps one is just in midstream, which continues to have strong results.
With revenue increased to 35%.
The factors that seem to drive it we're volumes were up 3.1% to you highlighted and the peso.
I believe would have added about 13% I was just wondering if there were other factors that contributed to the year over year increase in revenues and then secondly.
I just highlighted the expectation for pretty sizable pickup in output for the fourth quarter as you look into the beginning of next year.
20, I was wondering if you.
Thought there would be continued momentum.
Any any thoughts on.
What would drop a.
Production growth as you go out over the next 12 months.
Frank Hi, this is felipe and thanks for the questions. Thanks for being in the call I'll I'll start with the upstream question and then.
And that's been going up to help us with the midstream one so in terms of production and how we see these.
Sort of exiting the year the current year and then moving onto 2020 m. beyond so the first thing is that the the range that Weve signaled 722 730000 remains.
We've given at the end of a presentation.
Some guidance around the exit rate for the year that should be in the range or even above 734000, all the way to 740000.
But I wanted to provide a bit more color.
There were a few things on one offs relate to two security around annually Mon around the room a field that we.
We closed or we shut down operations and production back in July and Weve restored both keneally Mone Weve restored people and we're in the process of actually ramping up production. There. So those one offs have been dealt with the other thing that it's probably not a.
Explicit or hasn't been explicit on Monday this past Monday, we.
Inaugurated the.
Propane butane plant in Cupiagua that should give us some 8000 barrels of production.
It's going to be between seven and 8000 barrels we've actually test to the planned.
All the way up to 9200 barrels. So that's good news as well so we've dealt with a one off we have some additional volumes coming through from things like Poopy. Our work, which are very good. So that helps us go to the range that we've signaled the 734 to 740.
As we move forward a.
We had signaled in our business plan. The 2019 2021 business plan that for next year, we'll be in the 742 760 range.
That it remains unchanged that hasn't change, which is good news, we'll we'll continue our internal work to.
Pinned down the.
The forecast on the budget for next year, the activity said and budgets for next year and will be communicating those in time and will be also working in an update to the 20 2020 to 2022 story.
Business plan, so we'll be able to provide a bit more color and guidance around those so I think and I hope. That's that's helpful in terms of providing a bit more color around production melena.
Hi, Frank.
When you look at third quarter versus third quarter last year figures in on top of the increase in volumes, which is approximately 3.1% and the FX, which is up approximately 15% you'd have to additionally back.
First effective July 1st of this year, we have the new tires.
For the oil pipeline. So when you look at the impact that is approximately slightly over 3% impact when you compare quarter on quarter. In addition to that this quarter.
Much more activity from revision in cycles at the recent than ideal pipe.
So when you compare revisions that took place during the third quarter. This year. The same period last year, we have 17 revision cycles, which total approximately 4.4 million barrels the blend which operate on a revision basis and that compares to five cycles, where we moved 1 million barrels with of the variation.
So when we operate on a contingent basis absent an ideal pipeline, we're basically rerouting oil and that generate additional income for the midstream segment and just to give you a sense of the order of magnitude of these numbers. When you look at them at a year to date level and you compare year to date revision cycle versus year to date revision cycles with.
Same period last year, a the difference it's much more you're looking at.
8.9 million barrels operated on a revision basis this year compared to 8.3 last year, so that generate part of the difference. He see when you look at the CCP third quarter fees.
Okay very clear thank you very much.
Okay.
The next question comes from 40 apart from yes.
Hi, Thank you for taking my question I had question.
First is on the downstream currently we have been concerned with the downstream segment.
That is aiming to balance the shift centralization liability, which.
Could lead to lower refining margins and hurt the company's results.
Provide an update regarding this matter.
Or any color about the timeline for the government.
Sure.
The company's dealing with the price volatility.
Good question.
The recently.
Yes.
Okay.
The production and reserves.
However, the company did not disclosed the demo paid which we recognize that the company might limit that disclosure.
Sure.
Jim.
The lack of transparency me some concerns on the card.
Matter and it also.
Hard to investors.
Thank you.
Sure.
Perspective.
The company provide more color under what conditions that deal with maiden.
Its conclusion.
And my last question is regarding upcoming bidding rounds in Brazil could you provide more details on nickel Petro interest on the two bidding rounds that will happen next week.
Consider those assets that fit.
Girls.
Thank you.
Julio Thanks, and I'll ask better than anybody could to start with the first one and then I'll take the ones on but us heat.
Julie Thank you for your question.
First of all like to say that the government doesn't have any timeline to make an announcement regarding the they feel stabilization fund.
Actually they have announced that define will remain in place.
And also there.
Have expressed that the producers income will remain also unchanged.
As a matter of fact.
The government is sick into or other alternatives to improve there.
Fiscal condition and last month, we receive.
Rather large payment of 2 billion pencils and they have the government is working to get up to speed up before the year and so there's no timeline and the government is not making any further allows announcements regarding.
The stabilization fund.
I will take the the one on Brazil so.
I'd like to provide a bit more color around got the momentum.
I think we the information that we're going to share or I'm going to sure you'll be able to have.
Better understanding and visibility on.
Why this is in a very accretive.
The transaction that was made by a quick throat. So the first thing is that as you pointed out in your question the.
The consideration or what we paid for the transaction is confidential and that's the terms that we've agreed with shell.
But we can't confirm that the transaction itself is in line with the multiples that.
I have been seen in similar transactions.
And.
Durations that we've seen from analyst in the sector.
The transaction itself represents the a milestone for us in but I see.
And I want to spend a bit more time here so.
You've seen the over the last 12 to 15 months, we deepened our presence in the pre salt we've gone into what I feel initially and then there. So I don't know and those are two exploration opportunities a that we wanted to real quickly in the next 12 18 months.
The that we'll have if we're successful.
Possibility to bring discoveries and further on production and value.
In the mid to long term example, d'amato provides the opportunity.
For us to enter first with World class, operator shell with World Class partners, both shell and proton.
With a percentage equity that's good the 30%.
That actually provides us some materiality, where there is already being a three wells drilled and I'll go into a bit more detail and it's in line with this strategy of having a stronger presence in but I see.
And especially in the pre salt in one of the most prolific basins in the world.
And I'm going to share some numbers that were not in the presentation and have not been talked about before.
That our numbers that we've prepared internally at Taco petrol and I think will provide some additional guidance.
So.
First thing on inline with the.
90 million barrels of contingent resources that we've signaled.
We envisage that over the next month, we'll be working on debit on preparing to development plan.
We will be working with the consortium and on drilling an additional appraisal will.
In the next.
Six to eight months that will provide.
Some additional very keen formation on we will help us inform deconstruction of development plan in particular, all the process to acquire the FPSO I mean to size the FPSO and then acquire the FPSO as such.
We envisage a that we will be in terms of well activity.
Aiming.
At a total of some eight to nine wells to something Thats been discussed includes producers injectors, both for gas and water.
And.
Remember that we've already drilled three of those wells the estimated capex over the next few years three to four years. She is around $3 billion that's gross.
And we have a share of 30%.
In our payment.
We'll have a a component of our.
An upfront payment and there will be a carry as well.
We envisage that again some of these wells that I've mentioned will be drilled.
Over the next few years, we've signaled in the presentation that we we won or we see some 20000 barrels of production in 2025.
We see that there will be production before that and that will help bridge to provide or bring into the into equitrust. Some at $200 million of EBITDA in that period.
Each will we estimate and again remember these are costs that have been prepared by our teams. We see will be in the $55 million to 60 million dollar range.
In terms of if indeed, we see a range of 19 to $21 per barrel lifting cost.
We see nine to $11 per barrel.
We need to remind ourselves duties light crude a greater than 37, Apiay, which is very good in terms of balancing our portfolio.
Remember that we have.
Majority of heavier crudes.
These are deepwater wells as you know it's.
Water depth of 1700 meters to 2100 meters and the top of the objectives reservoirs hurt at 5200 meters.
So in summary, we believe is something that will produce a benefit for the for Ecopetrol in terms of having production in the 2024 2025 period, some 20000 barrels starting with the EBITDA contributions as of 2024, 2020 590 million barrels of contingent resource.
Courses that we as soon as we go through all the approval process, we will be able to moving to the.
The proved reserves part of our books, which is great news in terms of longer term for Ecopetrol and again, we're very very happy to have the the possibility to partner.
With the World Class partners on a world class operator, that's.
Deeply committed to breast feed so I hope that provides a bit more color, which is one of the the things.
You, where you were asking us.
Julio shows so hopefully that's helpful.
Helpful in terms of new businesses and the other parts of your question. Then if we can provide a bit more detail on the coming round. So you've seen that we bump.
We've been very determined in.
Being able to deliver against our strategy, but I see again, we've borrowed a field subdued non now got below motto, we're looking at the upcoming rounds in detail.
With a lot of discipline and rigor, it's something that we've been discussing for sometime now our teams our technical teams commercial teams.
Our working on these and we'll continue to the review those over the next few days until then we will be able to take some some decisions, but again as we will know.
Assets in investing are very very good that's why we've we've.
Steered our strategy towards the pre salt and we've been able to deliver around those areas. So hopefully you'll be hearing.
Around the rounds in in due course, thanks William.
Thank you.
Thank you very much.
The next question comes from Christian Audi from Santander.
Thank you hope for the period Jaime and congratulations with the result.
Three questions.
The first one.
If you could providers.
With a general updates on vehicle, Vince Shuttling, Colombia throat.
You mentioned the potential pilot.
But could you since the last conference call with the second quarter results could you just provide us with what has changed since then and.
The pilot expectation of when that happened and if successful what would the plan for pilots thereafter.
The second question on the JV with looks at them. So.
It would they be possible for.
Numbers to read it be impacted as early as the fourth quarter or no.
The color that would be helpful. And then we'll have sleep.
On the all the cost front.
I was wondering if it could.
Share with us in general terms, where you see.
The biggest upside for cost going down.
I've already proved on many fronts, but are there be it lifting costs are refining cost or other calls they do see still being a source of put they show we cut thank you.
Your next question, so I'll give you a bit more color around the unconventionals in Colombia. So if you think about our to Q and.
Call and then the call that we're having today.
There is one fundamental thing that transpired in that period.
There's a clarification from the consolidated style, which is the highest administrative court a that has been in charge of reviewing the possibility of doing unconventionals in Colombia.
And the clarification that they made.
The allowed the possibility of the pilots to actually go forward. So that's the one thing I want to highlight initially it's very very very good news so a.
Following on from that there's a lot of work that both the ministry of mines and energy on the Ministry of the environment are conducting around it specific technical and environmental protocols on how to develop the pilots. So this is things from they use.
Technology, the wells that need to be drilled it transparency of information with the communities things like.
Environmental monitoring and communicating.
The the results from from such monitoring too.
The rather than stakeholders, so with that verification with the work all the regulatory work that the ministries doing both ministry is on the government are doing in we have now line of sight.
Say that at the backend of next year, we should be able to start operations in the pilots.
So thats message number two message number three is that in the meantime, and simultaneously in parallel entirely where we're working on the creation of all the baselines around social environmental so things like.
And do seismicity things like noise things like commissions things like effluents things like the social conditions of the areas in which will be operating are the ones that were working whilst we continue to the sign.
Well, it's the horizontal sections the frac the number of Frac sand the detail Frac design cost estimated cost and schedule and obviously all the logistics around.
The.
US doing us being able to do the pilots for the Unconventionals.
So I think it's very good news that's why we actually included some material in the presentation. So.
We will be able to conduct the pilots on we envisage to be doing that at the backend of next year. So is the pilots are successful which is the other part of your question is.
When can we have a development so as part of the pilots will need to.
Well drill the wells completed wells Frac, the wells produce the wells and we'll be able to have dynamic information. Both on initial rates rates will decline estimated you ours on wells that will help us in addition, with the cost and everything else it define the fees.
The BBGI of doing the unconventional development in country, and it's something that we're working with the government as well in terms of how do we actually transition from the pilot phase two development phase. So I think that's that's.
It's something that's also being worked and it's in progress in terms of the JV with oxy. So.
A few things one.
We've actually seen an accelerated pace.
On the activities that were conducting in the Permian basin with Oxy. So that's the first thing I want to see I want to highlight sorry, and that's why we've seen an increase in some of the.
Inorganic numbers and as we're highlight earlier in terms of our spend.
At the back end of the year, we've already we already drilled a couple wells will be fracking those wells in November will have more wells coming at the back end of this year and we'll have some production.
Although it be.
Small some production from Unconventionals and we see that going forward, we should be able to have.
Some three to four rigs running as we're highlighting earlier in the basin. So thats I think very very good news in terms of affecting our for Q numbers.
Theres different things one.
We will always obviously be doing the disbursed disbursement of the Capex on our share of the carry that we need to do we'll be seeing some production and as we've said before we're targeting 160 million barrels of reserves that will go into our books does not this year.
So I think thats very very good news and that will help us significantly with our Tupi, which is one of the things that we've been working over the last few years.
So I think the answer is yes, it will be a positive impact.
Remember that these JV with Oxys accretive in terms of provoked providing EBITDA.
All the way from this year onwards, and then ramping up to 2022 forward with 1.1 1.2 billion of EBITDA. In addition to the data that we organically are creating at the company.
On the financials. It so I think theres theres, a few things analyst some of the guys in the team to talk about here on lifting and tomorrow and refining so I think.
Biggest upsides Theres a couple of things transformation. The transformation program, we've already in the last four years or so being able to save 11.5 trillion passes this year alone 1.74 trillion passes. So the transformation is part of our DNA is part of how we do things I need.
We'll go away so we see that and there's there's massive things like energy, you know and maintenance and a dilution factors you know we transport very heavy crudes. So the use of technology. It all the way from dilution and using dilution, but also a using downhole techniques and nanotechnology.
And the other thing that we're working on you sold a digital transformation, but I think is helping US you a lot of our are things differently. So we're working for example on refineries to have.
Some.
Some software that can help us see real time, a benefits on cost and on margins in revenue from from doing things in the different plants at the refinery salutes instead of just seeing pressure and throughput and temperatures, we'll be able to look at the dollar signs as will real time so.
And that's good Tomas if you can talk about refining a bit and then Jorge if you can talk about lifting cost. Thanks.
Great Opex in refining we continue to have a focus on energy efficiency heat recovery and focused on furnace efficiency over the main drivers in refining to reduce costs.
As you can see we've been reducing the cost the optics in refining quarter on quarter year on year.
Strong focus on margin improvements as well, but maximizing utilization in the plants had been a key focus and that is a lot of reliability lot of focus and reliability in our conversion units and in that way driving driving costs down on a per barrel basis.
Thanks Christian in terms of lifting cost.
Over the last nine months.
We are optimizing basically on energy consumption.
Moving to more.
Preventive done interactive maintenance and we started to use technology in different fronts to optimize cost.
Looking into 2020.
So once you Mark DVD on on maintenance basic Aliso lifting cost could go a little bit up before going down for the 2021 2022.
And also are moving into production, which are more on secondary and tertiary recovery programs. We now that and that is why our optimization program, which is dynamic he's looking into sources of optimization Felipe already mentioned dilution. So.
We have some pilots going on on that front and we will be implementing in the next couple of years actually some programs that will drive close down on dilution.
We also are looking into all their options in terms of technology like.
Into rated fields, which basically are looking into getting all the information from an hour feel this earning in central team looking for additional optimizations. So our program is it's an ongoing lawn and we already identified some options for next year.
And we would continue working in that going into 2020.
Great and older less point of lifting cost that you can you give us that idea of the range of what lifting cost could be in 2001 at a total of 21, given what your call it definitely.
Good marginally higher because it later.
Hi.
Sorry, I think that we will be around $10 barrel.
And again the maintenance that I mentioned is is more on the preventive sites or this high goes between maintenance.
We'll be more time, which will drive costs down.
Okay.
Quick question do provide some kind of overall context, where this cost conversation eight you might recall that when we launched the business plan to 2021, we spoke about a.
Target for the transformation program of and around $2.6 billion.
And that program he is on track.
We believe that that dare dairy say potential aim to capture a all those efficiencies over the next few years, obviously that number of 2.6 has a component of capex efficiencies, but a most of the targets re actually read.
All around cost I think thats a key that's a key message. The other key message is that at the program expands throughout the group and all of this segments have targets on this regard clearly add production business. This is the one with.
Highest potential we can see whilst the plan a half a lifting costs assumption of a being between nine and $10 per barrel that day, that's kind of the planning assumption. We ask you can see from the results that we just published were actually well below that.
Right now and on our efforts are aimed at act and sustaining that and implementing that over time I think the the other important a component here is that our focus evolving now from a strictly a lift.
I think last conversation to actually a unit costs conversation that goes across the group. So in that sense E Commerce, a refining cash costs. It covers transportation costs. It covers.
<unk> costs importantly, a and dilution ash as was mentioned before so so I don't know what I'd say that and we being successful at a arresting the increase a that trend that we had of increasing lifting.
Cost we've been successful add that a on Wi Fi potential going forward to impair among those trends.
Very clear height and of the 2.6 billion target are you able to quantify for us how much you.
A cult already or how much you've been able to get out of the 2.6 billion targets.
Yes so.
Brian .
Bob Bob.
Essentially.
600 million range, which is about 1.8 trillion vessels.
Which he asked about got shed on how we're confident that is going to be bad team by the end the year.
Great.
Very good. Thank you everybody are very complete answers.
Thank you. The next question comes from Koolaire Levy from Morgan Stanley .
Hi, Good morning. Thank you for thinking the question I have just a quick follow up question day. It got to D'amato condition I know that you cannot disclose.
Much regarding the amounts that we will be.
But I I saw that they are getting capex for the year increased.
From zero by nine choosy verify $9 billion to $1.1 billion seems to choose to 19 results.
And I I just want to choose to understand if these increase is just related to the got to the motto acquisition are there might be order acquisition charges. Both spend that you expect to do that is behind this increase.
Thank you.
Hi, Good made this is this timing here and yes effectively late.
Hey update a better guidance a considering that it was threeq you add but essentially what we're seeing Isa astelit bespoke before a we are seeing an accelerated pace of execution in the Permian and one that we were not expecting in into Q and.
Actually translates into into higher Capex. So while we wanted to do at this stage east.
Hey to give ourselves a beta space to even in the capex need the inorganic capex guidance to capture.
Side of that activity level that could occur in the Permian a well.
Including in that figure.
Any any amounts related to battle, a mental and that's because a we do not expect closing that transaction to occur this year.
Yeah.
Mr. Levy does that answer your question.
Okay, great. Thank you.
Thank you. The next question comes from and Jeff Thanks from Macquarie Columbian.
Hello debt today, a question I had.
Yes, I answered for.
So thank you very much.
Thank you.
Next question comes from Mohammed column from Raymond James.
Hey, guys. Thank you for taking the questions.
So in July the environmental regulators suspended one of your shale pilots can you give me an update on the status and when you plan to resume activity over there.
Thanks, Hi. This is Felipe is so I I gave a bit of color earlier on but I will highlight I think the key messages there so the.
The event that we saw in July was with a.
Development of Unconventionals that Weve submitted a request for where an application for permit for license.
What has changed and transpired over the last few weeks is that there's been a clarification by the conceptual this data which is the highest administrative court country.
And that will continue to study and assess the development of Unconventionals in country and clarified that.
The pilots the pilot project lows, but have yet to be locally in bisti to be mystic thats been data, which is the.
Integrated research pilot projects are able to continue so that's the first thing the confirmation on the pilots being doable.
And from that point of view now with the government and there's a bit of a.
Schedule that we showed in the material on page six the following this state Council clarification, the Ministry of mines in energy and the Ministry of the environment are working on the detailed regulatory framework. So these are things like from a technical point of view or not.
Regions point of view, how to conduct the activity around the pilots the wells the frac everything else from a social point of view being able to.
Have a framework in terms of how to communicate and be transparent with information timely information around our activities and potential impacts things like the environmental Microsites MITG watery qualities.
Effluent submissions noise you name it there's there's all sorts of different things that we need to work.
So in parallel with that we're doing the work to the sign the pilots from a technical point of view the defining the wells the vertical and horizontal sections completion and fracs.
Rollbacks and that will allow us to have data.
Around the pilots.
So we have not started activity we have not.
When when this happened in July there is no timeframe in which we're working with these we choose diesel the.
Clarification of the State Council and we envisage that we will be able to start operations at the backend of 2020 . So I hope that provides a bit more clarity.
Around the the timing of the the pilots for Unconventionals and obviously there are a follow on questions. We can have the team also contact you and provide a bit more detail hope that's helpful. Mohammed none of that's definitely helpful. Turning.
Further north so can you talk about how you plan to use the Permian JV to develop your workforce for example.
How many ecopetrol workers are going to go to Texas.
Yes, so very good question. So one of the key things and aspects for the JV with with Oxy in the Permian is the transfer of knowledge and transfer of technology. So were mentioning earlier that we've already started operation Theres. A couple wells that have reached TD will be fracking those wells.
It's in November we will be ramping up the number the number of wells and activity at the back end of this year next year, we we envisage running with three or four rigs in parallel we are conducting the selection processes for all the people that we'll be working in the JV physically in Texas. So we have asked.
I made it an initial group of 25 people.
That are from from our staff and that will be we're doing that to selection recruiting process and we envisage to have those people.
Working in the Permian and in Houston, a over the next day of five to six months. So at the end of one Q beginning of QQ. It we want to be very pre size in terms will the profiles on the people on the capabilities and the potential of those those workers and.
And remember that in due course, the JV and our operations in the U.S. will help us deepen our understanding around unconventionals I'm, bringing some of that back into Colombia, which is strategically long term one of the key things on why we actually did the deal I mean, we've mentioned its.
As we are very accretive it's 1.1 to 1.2 billion Bucks of EBITDA, a north full bore 2022 going forward. So it's very very important from that point of view.
Thanks, we'll have it yeah, okay. Thank you.
Sure.
Once again, if you have any questions. Please press star then one on your telephone keypad.
We have no further questions Mr. bioenergy have any final remarks.
Well, thanks, and thanks, everyone for being part of the third quarter 2019 conference call.
Since we appreciate your insights.
We appreciate the areas of inquiry is we had a very strong quarter I want to acknowledge the teams around the group that helped us deliver this it with delivered on strategy around doing the M&A portion of that with the Permian and got the low motto.