Q1 2020 Earnings Call
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Thank you for linear conference I'll begin momentarily. Thank you for their patients again. Thank you for waiting your conference I'll begin momentarily. Thank you for your patience.
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Good morning, My name is armor and I will be your conference operator today at this time I would like to welcome everyone to that first quarter 2020, <unk> earnings Conference call.
And have been compared to meet to avoid noise.
After the speaker comments, there will be acuity section. Because then your question throughout webcast. Please include your name and the name of your company.
Thank you for your attention that's your own Pablo claim will begin the topic today Mr. Craig you may begin your conference.
Good morning, everyone.
Okay.
Earnings Conference call and webcast, most who will discuss the main operational and financial results.
For the first quarter.
Twice.
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It's important to take into account.
Sure.
I'd like to.
Recall that because that's done exceptionally good job. She also.
Well the joined.
Oh, hi, because I do see Oh.
I will now I know, where the presentation to accompany conceal please go ahead.
Thank you want Pablo.
Welcome everyone at least 2021st quarter results conference call.
I hope you on your five minutes per se.
And the mix all this complex an unprecedented situation, both Colombia and the world are facing.
And that has had significant health economic and social applications.
Before presenting the quarterly operational and financial results.
I would like to share with you. So I'm wondering about shirts that yeah Cuattro group, we've implemented to address the Cobbett 19 health emergency.
Our employees are most valuable asset.
And protecting their health, he's our top priority buying Sri safe operations.
I would like to give you an overview of some of these measures that we have adopted.
First we probably implemented remote work.
Even prior to the authorities decoration of the mandatory lockdown measures.
Currently.
The 13000 employees that we haven't group some 9000 employees are working from home.
He said to be possible.
Thanks to the digital transformation that we started sometime ago.
Now provides us with the innovation and technology required to respond to these crisis.
Between 15%, 20% of our employees continue to work on site.
They follow suite safety protocols.
Anywhere from our production fields to refineries.
The oil pipeline product pipeline.
Ports.
I want to make especially a recognition.
To that today.
Actually there effort, we have been able to ensure the continuity to your operations and the supply of crude.
Products.
Country.
We have developed the concept of the minimum operating bite.
Through which we can determine exactly the number of people required for each area in the operation in order to guarantee.
Production and supply a few continuous uninterrupted.
Across the group.
We have joint I referenced in order to cope with these precedents Hill emergency.
To date.
We have allocated so 69 million passengers socially investment.
Mainly to support the strengthening of the health care system provide monetary eight and assistance to different regions across the country.
Thank you.
The only polypropylene producer in the country, that's prioritize its production to cover domestic market needs, where raw material used in the manufacturing all potential products require.
The health providers and food sector.
Also our energy neighbors, some 7000 leaders.
Alcohol, India Department of met.
The allocation of the social investment follow Street rigorous and do you find guidelines as well.
Use of control processors or the verification and the Leary, let's move on to the next slide.
There's no market conditions happy significantly impacted industry performance and results, we actually don't know how long the conditions will remain and we have uncertainty at this point.
When compared to previous crisis is what fine, yes, that's one group in a stronger operational and financial position.
With a profitable investment portfolio and our level of leverage that provides flexibility to navigate through these challenging environment during the first quarter of 2020.
We saw a decline in Brent prices of more than 65%.
In comparison to year end 2019.
For the first quarter with 2020, the average Brent price was $51 per barrel.
And reach a minimum level of $22 per barrel at the end of the quarter.
The measures taken across the countries.
Deal with the expansion of it and then make resulted in a contraction of more than 6% in global demand for crude during the quarter.
And a 22% decreasing domestic demand of our products as compared to year end 2019.
By the end of the first quarter.
Crude basket spread versus Brent was minus 10.5 dollars per barrel.
Compared to a minus 7.6 dollars per barrel for the same period in 2019.
The other hand.
I had a weakening refined products margins.
The spread of our part of basket showed 39% improvement as compared to the first quarter of 2019.
As we look forward price levels will be pen.
The evolution, although I didn't make.
And it to fix on demand.
As well as the impacts on the curtailments off production, we 14 I hope.
We consider that's appropriate short term scenario Brent prices between 30 and worried daughters Oh.
Please let's move onto the next slide.
In order to address the drop in demand for crude.
Products vehicle controlled group, that's up to my it's logistics balance the expert levels looked at the refining throughput as well as crude and fuel storage.
Our sales and marketing strategy I've been fundamental in order to plays our creative products in the market and that's allowed us to what do you see baby experts with groups for the second quarter 2020.
Storage has been another key contributor.
Working our activities to respond to the drop in demand.
The group has currently storage capacity from a strategic point of view of 2.1 million barrels. In addition to the normal capacity required for operation and we are permanently accessing alternative floating and onshore storage should it be required.
In terms of domestic Bemag don't refined products, we could get to work on managing optimum up reports of our refineries and storage to guarantee the minimum levels of crude oil that are required.
To underpin our operation.
Uninsured domestic supply.
Let's move onto the next slide in March we announced an intervention plan.
Included a set of actions in for France, The first one I.
An increasing revenues.
The second reduction in cost and expenses.
Third reduction in the investment plan and the fourth.
Shoring financing cash protection.
In this first stage, we set a target that included a two trillion patches reduction in cost and expenses.
Now $1.2 billion decrease.
Twentytwenty investment plan.
We also reached an agreement with our majority shareholder to pay 86% of its dividend during the second half a year in an effort to protect our cash position, we have already reached and exceeded these goals.
We have managed to identify opex opt to mutations in the amount to 3.5 trillion Petrobras.
Capex.
We will adjust our levels of investment to arrange between two and a half and $3 billion, assuming a price level between 30 and $40 per barrel Brett.
Furthermore, in order to enter into companies liquidity position, we have raised sexually around $3.1 billion in funding.
In order to preserve the company's long term value.
We have maintained our investments in strategic projects, which materially support production and reserves. Please let's move onto the next slide.
On July 31st 2019, we announced strategic partnership with Oxy.
For the development of Unconventionals in an area up approximately 97000 net acres located in the Permian Midland Basin in the state of Texas in the U.S.
We currently have for producing wells and we have achieved the completion and fracturing <unk>.
18 additional wells.
Well, which grilling began in December last year.
And I will come into production very soon.
We also declined the knowledge transfer plan for a group.
Very good Secondees and that will help us director I know niche in the unconventional reservoirs.
Furthermore.
In conjunction with our partner and within the framework of JV agreement, we stopped wish they technical and financial committee with the purpose of monitoring the operators performance reviewing that recommending strategies, where the continued improvement of these partnerships.
The operational flexibility provided by the agreement.
Losses decreased activity low price scenario as the one barely begun.
The us preserving at protecting capital.
In the long term.
The acreage is protected in its vast majority back CST oxys production.
I know JV plan includes investment between 100 native and $200 million.
Your next activities are temporarily suspended and we estimate an average your new production between four and 5000 barrels oil equivalent per day for a quick I.
I would like to highlight that wanted to key advantages of short cycle assets is there potential to be reactivated quickly.
In better market conditions.
It's now continued through the next slide she told the main milestones for the first quarter 2020.
Despite the challenging market conditions.
The first quarter of a year, we achieved a net income excluding impairments.
<unk> hundred 33 billion patches and an EBITDA of 5.33 on patches.
On the exploration campaign group and its partners completed this meeting up three wells in Colombia.
I'd really got don't go mop, though.
For appraisal wells.
Located in Brasil pre salt.
In terms of production.
Despite security events and market conditions the company reach.
735000 barrels oil equivalent per day.
At midstream segment maintain its operational stability.
In the downstream segment the average throughput.
Both refineries was 345000 barrels per day and the refining gross margin was 9.5 dollars per Boe.
Also during the first quarter.
We'll be Canyon engineering, Barry fighting a reduction of an additional 178000 tons, what's your two equivalent.
Competitive bidding process for the San Fernando Solar part you got through our P. P. Eight power purchase agreement.
And that we that installed capacity.
Pete Mega Watts of power.
We will make this is the largest self generating solar park in the country.
Lastly, I would like to highlight the fact that we conducted the first ever 100% virtual general shareholders meeting in compliance with all the metrics dictated by the government in response to the Cobbett 19 pandemic.
I will now honed over the floor to embed book on Sandra will discuss our main operating milestones during the quarter.
Thanks Kelly.
Operational results for the first quarter were stable, despite an up to pick our industry environment. We most footwear within my to read the of course H. on hospital discoveries, which were Brian commercial viability, and consequently, where relocated to produce.
Okay.
Likewise, we applied to their national hydrocarbons agency for commercial viability in down deep enough discovery, and we are especially in the commercial viability in Indian an Arctic.
During the first quarter of 2020 cumulative production of our exploration assets reached 347000 barrels of oil equivalent as a result of extensive tests aimed at Miranda Andina east So I'm, we getting good discoveries.
By the end up the first quarter five wells were on drilling pace. However, due to the health emergency those wells, where guy that to a safe stage and operations are currently suspended.
As part of that tedious planned up road to in 2020, our partner shale completed the drilling of the Gato D'amato for well sooner than expected currently Ecopetrol is finalizing Dan trust procedures into that project.
I would like to highlight the implementation of debt that's our techniques I keep project.
Which has permitted our personnel to conduct their activities consistent of do program.
This allows the advancement in the identification and development of exploratory opportunities.
We will more on till the next slide till this cost production results.
Ecopetrol groups production reached 735000 barrels oil equivalent per day piece production levels was caused by.
Reality, Sanjay give fields successful drilling campaigns and the secondary enhanced recovery program in Chichimene and Castillo.
Devry barrels so I'll turn the floor in your fields on February 29.
Which were operated by account.
And 1400 bottles from the JV with oxy into Permian Basin.
During the period production was affected mainly due to.
Public order security incidents on that decreasing gas sales mainly related to operational aspects and they got the Hana refinery under decreasing national demand from March 17.
Onwards related to the health emergency that caused a massive reduction in terms of mobility.
Reduction in the refineries consumption due to the copied 19 pandemic.
We have been working to maximize the value of our production output.
Our synergies as an integrated company as well as they Opex optimizations, which were announced in March allow that block is part of the group's production remained sustainable at the year me out, but actual $29 per borrower.
However, well some fields that have not met sustainability criteria or have had the adjustments in investments by Ecopetrol and its partners have been closed generating lower production levels estimated in the second quarter of between 660 and six one.
In an 80000 barrels oil equivalent.
Let's move on to the next slide two of these costs about gas initiatives.
The gas production in the first quarter of the year race to 100 on 38000 barrels of oil equivalent per day on generated close to 10% of upstream revenues.
Compensate the lowering turn our consumption and gas demand a commercial strat. The has been developed to sell gas surpluses to that thermal electric arc sector from Wahid apples cannot be out what fields gas remains a strategic priority hi, like Tim three frames it.
Moving to Gration process between but coal tar and its controlled companies with Ecopetrol.
Maintaining operational continuity and achieving Exelis has told legal and financial transition.
Approval of the term section between Hocol, Chevron, where participation in that you'll find but you're not fields locate the thing that Wahid other department was acquired.
The operational transfer was executed on April Thirtyth.
No gas related project has been canceled as part of the Capex adjustments announced by the company. However, some investments planned for 2020 were displaced.
Let's move to the next slide to discuss our sponsors inefficiencies.
We continue on a on course towards efficiency improvements seen various funds, including.
Diluent consumption optimization, thanks to the crude oil transportation strategy with higher viscosity on synergies across segments.
The contribution of our refineries to the performance of the upstream segment is not what the supply in 12000 barrels per day of Mastiff applied that's CRE diluent, they're beginning to stop produced by the Carter Hana refinery amidst the dilution requirements, So Michael patrol fields.
Lower volatility, which translates into lower losses, and a decrease in gas inhalation risk.
Greater supply of those mastitis has generated savings of $3.7 million between January and March 2020, mainly due to lower freight rates compared to the imported product. The lifting cost was 8.2 dollars per barrel achieving reductions through the effect of.
The exchange rate, which compensated then increase of one offs in contracted services energy charges on increase production of liquids going forward with the measures announced in terms of Opex efficiencies, we expect that lifting cost will decrease during the year.
Leverage to buy a strike they use of contract optimization on prioritizing activities, we have obtained savings in drilling and completion investments of around 188 billion pesos. During the first quarter, we turned out to the next slide to talk about the results of the midstream segment.
True SAS board had a slight reduction versus the first quarter of 2019, mainly due to lower oil production in the country on a decrease of crude oil deliveries in the southern systems deal today of the Asian of borrow stalwarts, although systems Eightys was not the scene.
Not that transportation of refined province has been affected by the mandatory national look down the last 11 days of the quarter, an average of 165000 barrels per day, where transported through our systems in March we began the process of a strategic storage in our current oil.
Any infrastructure network to ensure operational continuity of our production.
Let's move on to the results of the downstream segment.
In response to the market situation.
Our refineries have enforced at disciplined approach on the framework gulping check, we t. and efficiency in order to adapt operations through the implementation of measures such as scheduled shutdowns and adjustments in unit Throughputs rescheduling maintenance US an addition.
I'll start to look for crude oil components on products.
During the first quarter of 2020, the Cartagena refinery reached at Triple dose of 146000 barrels per day affected by an operational event on demand conditions.
Barrancabermeja refinery maintain that stable operations performance, reaching an average total adult 199000 barrels per day.
For the margins Debottleneck dichotomy phenol cut to handle refineries had decreases of 6%, a 19% respectively compared to the previous year due to market conditions SNCF exceeded an excellent financial safety and operational performance during the first quarter.
2020, improving margins in a favorable environment in terms of price stability for our raw materials and market preference for region. Our brothers I'm now give the floor to high Mick I get all who will share the groups key financial results.
Thanks identical.
Challenging market conditions affecting the first quarter net income, which reached 133 billion pests.
The decrease versus the net income for the first choir 29 team can be explained by.
Firstly, a negative variation of 740 billion passionless due to the combined effect of lower prices and higher average exchange rate on revenues and purchases.
Second the positive variation of 177 billion pencils due to the additional sales of 21000 barrels per day in the first quarter.
Third 1.2 trillion pass those higher costs expenses and BDNA charges before implementing the austerity measures.
Sulk stronger capex execution.
For certain nonrecurring charges accounting to 683 billion pests.
Mainly the recognition of the fair value of crude and product inventory and the unrealized loss in the mark to market valuation of our an actual portfolio.
Safe.
164 billion pesos increased due to higher interest payments of the group's dollar denominated debt and exchange rate impact given that devaluation of the Colombian peso versus the U.S. dollar.
Allowing for all these effects net income would have been 1.1 treatment pencils before impairments.
Given the current market conditions the company perform an impairment test stantec long term assets, which resulted in the recognition of an impairment expense of 932 billion Pes net access.
Upstream segment accounted for 42% of that amount.
Downsizing to 58%.
He is key to highlight that these impairment charges do not imply cash disbursements and are susceptible to be referred to in the future.
Please turn to the next slide to be the group's capx.
EBITDA margin stood at 34.9% due to lower crude and product prices and increase costs and expenses through the quarter.
The benefits of being an integrated company, where nobody asked in the larger relative EBITDA contribution from the downstream and midstream segments versus the first quarter 2019, compared to a lower contribution bank upstream.
Net income breakeven was 39.7 dollars per barrel.
With the implementation Opex and Capex optimization measures. This ratio is expected to trend downward below $30 per barrel.
Roce are 12.2% Wes aligned with the company's expectations.
Let's move on now to the next slide on the business groups cash flow.
The company's cash position remained solid for the first quarter of the year closing at 11.7 trillion pests.
Cash flow from operations amounted to 2.6 trillion pests, including the changes in working capital.
Investment outflows totaled 3.5 trillion for the Capex program.
Financing outflows totaled one trillion passes including all 0.4 trillion for the payment of dividends to minority shareholders from the midstream subsidiaries.
And 0.6 trillion to cover capital can debt service payments.
Net income amounted to 1.5 trillion passes mainly due to investment portfolio Rotten stations to meet the company, Spain commitments in the base lower operating generation.
The final cash position of 11.7 trillion comprises cash cash equivalents amounting to 8.8 trillion and the short and long term investment portfolio of 2.9 trillion best.
To strengthen its cash position in April Ecopetrol disbursed, all resources of the contingent line of credit contracted with Scotiabank and be suitable bank and described additional short term financing for a total amount of $1.1 billion equipment.
We also issued a 10 year bond in international markets, which was 2.5 times oversubscribed, none amount $2 billion.
Including this additional leverage the gross debt to EBITDA ratio of 1.6 reported for one Q would stand at two times.
Our current cash scenario does not consider additional debt in 2020.
Finally on April 23, the company paid dividends corresponding to 29 net income cuts minority shareholders and the first installment to the Ministry of finance and public credit.
For a total disbursement or close to 1.2 trillion.
Please go to the next slide to see the projected short term financial strength.
The price scenarios were currently considering for 2020 have Brent in that 30 to $40 range.
Accordingly, Ecopetrol has taken actions to reduce cost and expenses by 3.5 treatment vessels.
Could be further deepen up to 4.5 trillion best.
The investment plan was further prioritized adjusted we now estimate a range between $2.5 billion to $3 billion for the full year.
The company has I just said its capital discipline criteria in light lower price expectations. The medium term and he is ensuring that all its produce barrels are profitable at prices below $30 per barrel.
All these activities would provide cash and net income breakevens $30 per barrel.
Lower EBITDA generation and the greater Indebtness will lead to a temporary increase we estimated gross debt to EBITDA ratio.
To a range between three and 3.8 times by year end.
I now give the floor to the precedent for his closing remarks.
Thanks Jaime.
Secondly, the current environment and the measures adopted to address it will impact the targets published in our 2020 2022 business plan.
Which will be reviewed and adjusted to the current price scenario.
We will provide an update of we plan to you during the second half of the year.
In the meantime.
We have adopted our short term financial and operational framework, providing our best estimate of Revlon business metrics for the second quarter of the year as you can see in the presentation.
These figures are consistent with its short term financial framework, we're protecting the company cash balance on capital discipline our fundamental.
We will continue to review these numbers as demand and prices environments evolve.
Finally, let me then quickly sum up the key messages that you've heard during today's presentation.
First.
We are fully committed to our employee safety.
Maintaining operational excellence.
Second.
We have taken pump incisive time de actions, demonstrating both flexibility and resilience to confront this crisis.
We have adopted our short term financial framework to ensure a profitable operation and a positive cash flow.
Net price scenario between 30 and $40 per barrel.
Third.
Yeah prioritize those strategic projects.
I will allow us to procure our long term vision and generate value for our shareholders.
Again, thank everyone for participating in this call.
Given the circumstances, we highly appreciate.
That you could join us today.
I will now open it up for questions and answers.
At this time I would like to remind participants if you have any questions you can send them through the webcast. Please include your name and the name of your company and the question.
Thanks for the question.
And I think that.
If we step back we've seen.
Business plan for the year on for the next couple of years.
Even though the level of uncertainty I think it's important.
That once after we bomb.
Starting with the implementation of these adjustments and we've done very very very swiftly and promptly on decisively we come back to the markets in second half to show what we're thinking in terms of the on the long term so that would be the first part and then.
I think that again, we will need to.
Basically contemplate everything that's going on in our view on prices going forward, where the meat and long term.
And then the any potential distribution of dividends.
We'll need to buy the the current policy that we having plays which is 40% to 60%.
Both the of the net income and will be decided by the ATM doesn't take place in March of next year. So.
We will need to again nothing finalized new work that we need to do in terms of hope you overall plan and then the ATM will pay per view on on dividends going forward.
Thank you. Our next question comes from Santander tasks Trinity Godfrey I.
Hello, refining operations in Maine hostages station significantly reduced.
Sorry about Silicon Valley.
Yeah actually going to question Okay.
It was I was having difficulty with the mikes so they will.
For the for the question so.
If you look at the refineries and then kind of Diana normally runs at a 150 to 155000 barrels per day, we've been running the refinery are at 110000 barrels.
And if you look at might run at that normally runs to 22 to 30000 barrels a day 230000 barrels a day.
We've been running it for the last week at 115.
Over the weekend, leaving cream that the the runs 241000 barrels.
So we are already seeing an increase.
Well no small is significant because its 22% increase.
Against what rehab when compared to what we had over the last weeks or so so utilization has been reduced its been basically adapting.
To to the demand numbers that we've seen the both in terms of the country and some of the markets worldwide.
And I think I would like to again, just emphasize that we're seeing some.
Although small we've seen some recovery going forward as we speak in terms of the loads of the refineries Transmode Eagle.
Thank you.
Our next question comes from Morgan Stanley Carletti.
Hi, Thanks for taking the question.
First question I have isn't the midstream business. If you can tell us the level of discounts being negotiated with independent users.
On the second place and eat.
If you can give us an update on shale pilots in Colombia, I understand they remain key strategic for the company. Despite the lower oil prices currently.
I would like to know if you see idea remains to start activities later this year.
Also as TJ shall we das any up each and every collaterally frac it will be great. Thank.
Yes, Thanks, I will start with the second part to requested in terms of the pilots and then I'll ask me, they're not to talk about the midstream business in more detail. So in terms of the pilots the.
But have yet to be looking business doesn't dig it out you know the pilots projects for EM investigation or research.
Hey comprehensive research.
Our eyes are a strategic priorities for the company.
We are convinced these strategic for the country as well.
The government given everything thats going on with the management of the crisis.
Fielding working on some of the technical procedures and standards.
And we continue internally in our preparation.
And readiness.
To be able to conduct the pilots going forward.
As we as we see this will continue to asses the timing of when these would be possible given everything that's going on but we envisage ourselves going forward with the pilots.
In the next year's those who Pirelli.
There's been some some updates there's been some.
The especially some of the technical standards and conditions have been issued by Ministry for comments. So so there's been progress there can progress on that and again, we're convinced these strategic for the country.
And the Alaska Melena to take the the question around the midstream Milliner go ahead. Please.
Thank you for anything good morning, yet.
Thank you for your question, what we have done in the midstream segment is basically offer temporary discount in order to help produce says it will be specific time period, where prices are significantly lower than what they have been over the last couple of months.
So the first component of the types, it's important to bear in mind is it that break they've been given for two months and we will be reassessing that as time goes by depending on where oil prices are.
Secondly, they had in certain pipeline bought it volumetric requirements. There is a minimum volume we need to see Cpos system.
For the discount to be applicable.
And third the way we have tailored the discount.
It is based off from the fact that we have Paris based in targets. So the discount will range and move depending on how likely the devaluation.
Basically because we have they gain when we look at our income statement Beth as much as currency with functioning and ask the Colombian peso devalued, we already see.
A large attack this hotel so what we have done is link this discount to that devaluation in the epic such that we minimize the impact on our financial state.
That being said.
For the month of April.
What we've seen given the FX over the past couple of months.
It's a different discounted each one of our system in the semi custom it's approximately on average around 10%.
In dealer Thunder damage the discount was approximately 5% and in the audio Bancolombia system to discount was approximately a bit over 8% around 8%.
So those are the discounts applicable for April and May given where the X was and what price though.
In addition to that what we have offered all of our we made them.
For his remarks may and the month of Jim is that we will be financing up to 50%.
Their transportation costs.
Overall, two month period, and and financing can be used for a period between six to 12 month.
So they Didnt mentioned, we are taking in our to help I remain open to any cash flow difficulties. They may have during this period of low prices.
It's a temporary measure however to measure that we believe is designed to take it to help remittance through.
The worse than the price.
And then as time goes by if necessary, we will be renewed.
Whether this is your measure we want to continue or whether it will be so solely happening over the next two month.
One thing that I think it's important to highlight.
Given questions that we've seen earlier in the day is these are discretionary measures by each of the company. So these discounts and payment facilities that we are offering our client. However, these are not.
Regulatory requirements just to make sure Theres no doubt.
Okay.
Thank you.
Next question comes from HSBC from the young.
It's a question for downstream segment.
How much exploratory of $2.5 billion I.E. best match that do not impact lumpy program for SASSA production levels, and where it will be deployed.
If this including Oxy JP.
Isn't that more room to cut capex far there needed.
He did that in the past, we have seen minus $2 billion or tier.
Okay.
Thanks, Neely and good morning, good to have you here in the call. So.
I'll take this one so really we.
As you rightly pointed out we've signaled to and I have two $3 billion in terms of investment and we have some $300 million to $350 million of exploration Capex in those numbers as you saw we managed to drill three exploration wells.
In one Q, we have some wells.
That have been safely in which operations have been safely suspended for the time being we're restarting operations in most of those in the next.
[music] weeks or so so clearly.
We will need to adjust the overall number of exploration wells, but we will continue our exploration campaign going forward.
In terms, so from sort of the priority prioritization that we do on Capex.
Clearly, we've taken the view of reducing significantly the capex on some of the of the concepts are the ones that you mentioned your question around.
Proven reserves impacts on production levels.
And and I would say that none of the two and a half to threebillion, 80% roughly goes to BNP through the upfront. So we're protecting that that part of the business in terms of the JV with oxy.
Dina these that short cycle the investments by the overall nature of the Unconventionals.
Last year, we had the ability to very quickly ramping up activities. So we have so some wells that have been real.
And to date and we expect to end the year.
With some 21 to 20 threes from 22 wells, which is good so we've reduced capex in the JV from 800, Ross 800 million Ross to 180 to 200 median.
Gross so that's a significant.
Two of adjustment that again.
Is the is it circle.
We'll go because of the nature of the business of the short cycle of the business, the and even though capex has been.
Reduced by 75%.
We envisage any Bakken production.
In those assets of around 50%. So previously we had.
Some seven to 9000 barrels equivalent production averaged for the year.
Right now, we're thinking it's going to be a somewhere in between the.
Four to five.
Mbd or four to 5000 barrels per year on average.
So so purely in the we've adjusted the.
The activities in the JV and I think it's provided both by the nature of the short cycle of those businesses, but also the nature of the agreements that we managed to put in place.
And to your questions in there more room to cut Capex.
There's always more room to cup cut capex, but I think given our view of the average prices for the year on brand being between 30 and 40, we feel comfortable again, given everything else we've done in terms of.
The already achieved reductions in topics are not big CMBS financing.
Being able to successfully get some financing.
And we feel comfortable with the 2.5 to three building density.
Thank you. Our next question comes from Scotiabank.
From having while.
We pick up at Chaucer strong balance sheets are you about writing any countercyclical acquisition opportunities.
Or is the highest priority at this stage capital preservation.
Looking organic expansion internationally, you had some Brasil racquetball, Colombia.
Grabbing thanks for the for the question. So I think it's important again to step back and see that cash protection is our top priority.
On ensuring as we've said in the presentation that.
The health and safety on the lives of our employees is not the top of everything in terms of our our priorities but.
As we think about protecting cash and we again very very quickly move.
I am very decisively we've moved to do what we've done to date.
And we've given you some.
Already some guidance on how things are looking forward.
There will eventually be opportunities no I think on the.
Both the divestment sites.
And potentially the acquisition side, so we'll need to see we'll need to see you know the crisis normally it present themselves with some additional opportunities that otherwise would not be impossible. So we'll continue to look at opportunities, but I think priorities are right now it's true that we protected.
Cash.
And we.
We as a as we've done.
Remains strong too to weather at prices that we still don't know how much deeper he will go and how much longer Google.
Thanks, Kevin.
Thank you. Our next question comes from HSBC from the young.
Selling price with regarding to selling price healthier, Chris basket anything you'd like to checked explained this quarter's higher differential to grant.
Some color on where you are exporting kit.
If there any geographical charges in trend on globex with trade flows.
Absolutely and.
Thanks for the question so.
In terms.
The pricing you saw that one Q2 thousand 20 was on average 51.
But the March clearly showed a month, where we saw a dramatic decreasing prices you know the topline Brent prices.
Not only that and 64 to 51 and then in terms of the differentials. We saw a year on year. You go from 7.6 to 10.5. So we had the combined impact of lower brand and greater differentials.
So what we've done.
For some years now is strengthening our relationships with some of the Cline Asia particular, not only in China, but we're also going back to India and we're also looking at some of the refineries.
In the U.S., so it definitely definitely weve.
I don't see there's a massive change probably 50% of our experts will go to China, but we've managed to very successfully put these barrels were places barrels in those refineries and the other thing in these that we've managed to place them more than a couple of months ahead of time so.
We've looked at April May June well in advance to ensure that we can.
The owner our contracts, we charge term contracts that we can deliver those barrels and the weaken insured by doing that but we can maintain production in Colombia. So definitely will be will continue to move in that direction.
But basically we're exporting mainly to China, the U.S. and now indeed as well as the market that's reopening.
And for Us actually.
Thank you our next question comes from.
A couple America from Frank Mcgann.
Could you please provide more detail on easy and you mentioned a cure it at the refinery during the quarter.
Thanks, Frank and obviously on Alaska.
One quick loans on the line to talk about the incidence that being cut the Hana we had an incident with the hydrogen producing unit.
We are we've already fixed in terms of all the mechanical repairs.
I am very mine that we've done this in the midst of up some of the restrictions following the call with 19.
Two of our protocols and everything that has been put in place and we estimate that the units should be restart in the next couple of weeks or so wanted to go ahead. Please.
Okay. Thank you Alicia.
Thank you Frank for your question.
I would mention in getting the first quarter okay. So.
Hey, Barrancabermeja, how we'd be at Chapada stable liquidation with you.
Hey plant shutdowns that took place in the quarter Nikkei, so kind of Diana.
We didn't have.
Have you been bought January and even the two Gogo Sotheby's Weiner.
Hydrogen plant the conducting a refund and we have to hydrogen plant.
And they are normally 100 bucks and come back.
Hey.
How do we know who I know well then so we need to assess deal but it is more than one refinery ran with only one hydrogen plant.
Okay and aside we gave you already be due to the these the hydrotreating units on the nothing has a unique.
We need to shut down.
Did a hydrocracker good a.
Because of an IPO hydrogen and because of that and during the first quarter. We did have an impact on our website you can make production open online and in gossiping Blackstone offered on both the quite nothing so it's I wasn't it is the only thing board time and I'm glad you Ben we did have a.
Okay, what's going to be seal.
For this event took place in got the Hay not we'd be CFO investigation.
We'd say, it's John they conviction and we've already got I'd be bottoms a.
Now we are quarter when they laugh at steps, we have bank will be the mechanical rigs they have a on the both.
Okay and startup the unique immediately a moment ago, but Asia during the day after they think of me.
Thank you.
Our next question comes from.
What do you think on our cash.
What is the impact of the lower Capex you Twentytwenty that production outlook for 2021 case, you do 2.5 to treat video Capex and Twentytwenty average to deprive platform Twentytwenty y on y.
Bruno Thanks for the questions. So I was mentioning earlier that in the second half of the year, we will be presenting to yourselves in the market the updated.
Business plan going forward.
And clearly we need to acknowledge certain of the dramatic reduction in demand that we've seen the dropping prices and we'll come back to you guys.
Yeah, and be able to to share our views on.
In the mid.
Mid term business plan.
So we've given some guidance 2020, particularly around the second quarter and the year.
You saw that there.
Theres impact already in there.
Twoq, you and and the year, we I mean I normally talk about what we've done you know we stepped on the brakes and we tighten the belt at the same time. So clearly there will be some impact going forward, but we will have a better view that we can sure we view ourselves in the second half of the year. Thank.
Q.
Thank you.
Our next question comes from.
Sorry.
We made up.
Hi, Thanks for your presentation could you. Please discuss later about the current state up your refining operations at one level if utilization have you been brining in the past few weeks of April and beginning of May.
So sort of legal on UNEV wanted to providers in more detail, but I was I was getting or near that.
If you think about contextually.
We normally run, but Atlanta at 220 into 230000 barrels for the last few weeks weve been running at 115000 barrels over the weekend, we've increased the runs through a 141000 barrels.
We went down to 50% of the runs of the capacity of the refinery we're going the backup.
240, 141000, and I think that's a reflection of the demand.
Even though it's marginal we've seen some demand increase in the markets in terms of kind of the Hana we normally run the refinery 150 to 155000 barrels we've been running at a 110000 barrels. So I think we've been able to very quickly.
DAP and adjust to runs to cope with the reduction in demand, but also very quickly as we see demand being increase we've been able to ramp it up again, so will you something that we follow up Luzhniki early as we see more segments of the economy and more for two businesses.
As in country.
Being reopen you know construction and some manufacturing and some services.
So clearly it's something that we will need to keep on factoring into our decisions, but we've been able to ramp it down quickly and Oregon start to ramping back up as demand goes on goes up.
Thank you.
Thank you our net.
Thank you. Our next question comes from Frank Mcgann from Bank of America.
How much flexibility there long term easier way to accident.
Capex.
So how does it stay low for an extended period.
So Frank Thanks, and I think it will depend largely on on prices clearly so these these short cycle businesses like the unconventionals in the Permian.
Now it is back in December two very quick you ramp up.
The operations drill the wells Frac, the wells get them into production with some very good operational results. So we're very pleased uncomfortable with the with the quality of the reservoirs the rocks and Julie.
The Operatorship that oxy is doing so that's all very good and.
Again being short cycle, we've been able to run things down. So we've stopped activity. There's no more drilling right now, but we've managed to continue with the completion and fracking the wells and we envisage ending up the year with some 21 23 wells.
And some four to 5000 barrels of production.
Net to work with little too I think thats, good, but given where we are there is uncertainty the prices have gone up a bit, but we will and we're working internally with our partner too.
I understand that key milestones we need to hit.
That will allow us to restart operations in an orderly fashion.
Good news I think is that the Permian before we went into the prices and we looked at some 28 different operational areas in the U.S.
Was the second best in terms of having the no was a breakeven.
Which was very good was around $35 WT on.
Inox he has done a lot of work in over the last few months too.
The in prime were put more efficiencies and more optimizations into the operation. So.
We're going to be reviewing these internally with the operator, and we'll communicate back to the markets.
When we have.
So more.
Do you find answers, so how and when to restart operations going forward. Thanks again for the question Frank.
Thank you. Our next question comes from Central and embedded.
How long you booked a financing of transportation cost for Colombia purchasers.
Thanks, Vincent and I will ask.
Melena to help us with the with the answer.
Merely please go ahead.
Hello.
When we look at the financing and we will be so I'll break it down into two parts be initiatives, we have four.
We really didn't have to company they have a discount and then there is a financing compliment.
So the discount it simply less.
It's simply.
Net income less topline faith and when we look at the financing the financing has two components. So the actual invite you.
We'll continue being in our top line.
And we will have.
And accounts receivable, which we'd each one of our producers and at the same time. This financing has an interest rate of 1.5%.
The income from that interest rate will be interesting.
And Thats front preliminary standpoint, how we plan on booking and just.
I'm not sure if that answers the question.
So you won't see a difference in our San figures and you will see MPC and increasing interest income corresponding to the interest portion of the invoicing.
Thank you.
Our next question comes from Eddie collateral Mckenzie investment how did you see the gas demand in the last two weeks in Colombia, U.S. and Brazil.
Thanks, Eddie can now I will ask.
I'm going to conserve enough to help us, but we've seen.
Particularly in Colombia, where we sell most of our gas remember in the U.S., we have mostly.
Liquid production on again, but I've seen we don't have.
Any production yet.
But in Colombia, we saw the equivalent of 25000 barrels a day reduction.
In demand.
So as some of the industries, where.
Stopped and some of the.
Im going to use where vehicle transportation. We transportation was was that sort of crude deal. We saw an impact, but we're starting to see some pickup again in demand to gas so.
Overall, and then I'll handover to a bit too, but we were seeing.
An increase in gasoline increasing DCIO, we've ramped up in the levels of the runs at their anchor refinery on an as such we were also seeing increasing gas and better do you want to give us more detail keys.
Thanks, Phillip and good morning America, Ana Philippe was saying a 97% some of the group's gas income come from our position in Colombia.
Well, we have 90% the demand signed with take opaque effects with fixed priced in dollars.
In terms of demand.
What do you see embraced release that there were no LNG imports in April or May.
We don't have news about casting money. Please.
Seen it slumped earlier this month.
In USA, the monies flattening off at more than normal levels in most states.
Well, but actually we have seen the legal select recovery in Texas, and Louisiana, Michigan.
With regards to Colombia, I sleep it was seeking.
We have experienced.
I contraction in terms of demand, but up which affected about 27000 barrels made during the month of.
March and April.
Bat and the last couple of weeks, we've been able to.
Please access gas in the thermal electric sector, which has provided some.
Roaming in terms of increasing demand.
Thats kind of the way, we see the scenery in terms of gassing in when in within the group.
Okay.
Thank you.
Our next question comes from at what they need a lot, but yes.
Well I won't be the impact of the Capex cuts and if there is any of the topics of conversation on the upcoming years production.
Our powder morning, and thanks for the questions. So.
I've mentioned that we've given guidance on that second quarter on the full year.
In terms, so what we see right now will be the impact on the production levels.
And.
Over the next.
Few weeks and months, we will continue to work on the updated business plan that we will be sharing and presented to yourselves and the markets.
In the second half of the year so.
At that stage in that time will have.
A better view on impacts the or potential impacts as we move forward, especially in the next couple of years or so thanks for the question.
Our next question from comes from leased got Balchem, Yes.
Hi, Felipe Endgame hope your families a nickel PBR say first of all thanks spicy share in that BPP, mainly on production forecast for any company keep us very useful.
I think there's not a comment from from Lewis.
And so I will continue with the next question.
Thanks, Louise Thanks for the common appreciated.
Thank you.
Our next question comes from any cut off from Mckenzie investment.
Thanks for the call and congrats resilient results in this difficult time.
How the on demand has behaved for the last two weeks soft economy, sorry started to open I can you. Please share what is the most important lesson learned during difficult times.
Any color will thanks for the question and I think we've mentioned some of the elements around how we're seeing demand increase very marginally and snowy, but we see some demand increased.
As I mentioned, we cut the runs in the refineries from 370 380000 barrels.
To somewhere in between 225 230000 barrels right now we've added 25000 barrels more of our of refinery capacity over the last two or three days. So we will continue to to be in seeing.
We're synchronized with the increases in activities.
Surely the these week next week, our fundamental as the Colombian economy.
Opens up again, we've been able ourselves to operate there's a lot of essential services that have continued to operate.
Now, we have more and more industries and people in businesses and on different lines and different sectors in the economy actually being able to to operate so it will continue to watch this but clearly there is these.
I need to be mindful and streak with protocols and how we operate.
The maybe maybe we haven't mentioned did hear me we've mentioned it in the presentation, but weve even in the period of less than four weeks. It. We we basically built a molecular and logical molecular lab to ensure that we can do around tests, but I'm kind of demand. So we move.
Being very very very quickly things are changing dramatically you know one other things that I've heard over the last few weeks or so is that nobody in the world is an expert on cobot 19.
We will learn Theres a big.
Level of uncertainty, we still don't know how much deeper we will go on for much how much longer.
The one Q was not good.
I think to Twoq and Threeq you will be very very very hard you know as we've seen demand being destroyed in terms of the lessons you know and I appreciate.
Thank you for the question any case.
I think we've we've managed to.
To demonstrate to ourselves.
That we can adapt very very quickly.
Having 85% of our people working remotely using technology node doing things that it seemed a difficult you know doing the issuance of a bond remote you know or closing our volume metric accounts that traditionally.
Would it be taken us two weeks, we closed the in four days 150 people working remotely. So we've learned that we can adapt we can move.
And is still we don't know when the final definitive solution for four at Cobiz 19 will beat out there you know, it's a matter of by having a vaccine will need to adapt will need to.
To restore some of the as a country will need to resorts and will be activities.
But there's still a lot of uncertainty so I.
I think that we've learned about empathy, we've learned about humanity.
We've learned about being.
There are others, you know and sharing and paying it forward.
And if you think about Colombia.
More than 50%.
Of the working for US, which is 22 million people.
Don't have a formal social security kind of system or medical assistance. So we'll need to think about them you know and clearly.
We see equity thrown as part of the backbone of the country as we all jointly work towards a recovery. So thats again, not something that we've learned.
We've learned that we can do things differently than we can be very efficient.
And then we can we can very quickly adapt so I am I want to thank everyone. We're being today in the call and again given the circumstances appreciated that week on and have you today join us and do we fully fully appreciate your insights.
On your questions on your remarks, and again I think the it's important for you guys to know that our IR team will be there. It I'm sure there will be more questions on more need for for interaction. So again, thanks for being here today. We appreciate it following you following and such detailed.
Company. It we've managed to react very very quickly to something that is unprecedented in terms of the crises itself both.
From the out the health and economic and social standpoint.
Yeah, as well as from the dropping prices on demand so.
We've strengthened the company we've acted swiftly the we're here ready to.
We stand that storm.
In best shape, much better shape story and we.
We are ready to continue to do what's required to ensure the long term of of the company. So we.
Once again, Thats and hope you guys.
All of you have.
Great. Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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