Ecopetrol SA Investor Day: Q2 2020 Earnings and 2020-2022 Business Plan Update Call

Good morning. My name is he'll then I'll be your operator today welcome to Echo petrels group second Investor Day.

Today, we will discuss the financial and operational results for the second quarter up 2020, and 2020 and 2022 business plan update.

All lines have been me would it there will be acuity session at the end of the presentation.

Before we begin it's important to mention that the common sense, it's called by Ecopetrol Senior management include projections of the company's future performance. These projections do not constitute any commitment as to future results nor do they take into account risks or uncertainties that couldn't <unk> to realize that sorry.

So.

Ecopetrol, that's some snow responsibility and the event at future results are different from their projections shared in this conference call.

The call what led by Mr. forgive me about young CEO Ecopetrol.

I backed up on saga COO in high make our Yetto CFO.

Thank you for your attention.

Sure about young you may begin your conference.

Good morning, everyone. Thank you for joining us during the second Decrementals Investor Day, Some 2020, where we will discuss operating and financial results for the second quarter year over year on the 2020 2022 business one uptick.

Let me I'll pick up a drone we hope you wanted your findings are keeping save during these very difficult time.

We reiterate our gratitude for your participation in this conference call on your permanent support other bets hosted by the company, especially under the current circumstances first of all I would like to highlight that the life and well being of our employees remain that's her main priority to cope with the current challenges caused by these pandemic.

Currency about 80% of Barclays computer to work Remoxy stance toward digital transformation.

In order to ensure the well being of Iran. You send her family, we have decided to maintain their remote working scheme for the rest 2024, those employees, whose tough hello.

We're 2021, we will continue to assays are progressing on same return of these employees to the workplace.

Since March of Spark apartment genius, you plan, we adjust your operations by reducing our drilling on projects where pricing Colombia from some 300 during the first quarter, although year to 50 work Crohns Nick.

Did you end up doing absolutely progressive increasing activity levels. Some 200 work fronts were active.

I see what you will continue to increase as we come from favorably unsafe conditions, who operate.

As part of our common communities, where we operate we have already announced he believed Texas and social investments through our social investment programming as well you place probably 19 Morgans. This program is mainly focused on the delivery of foot kids I see the elements medical equipment strengthen the health system in the country support too.

Technological initiatives on Sunday night, Ricky we those families that most needed in 21 departments, where we operate.

So I'd be possible tax the strategic alliances with different entities.

Let's move onto the next like to East coast market conditions.

The guidance, we provided our previous earnings conference call. The second quarter has been at this time that most challenging period of accrued crisis with a reduction of 38% in Brent pricing has come from switch 19 year end.

From prices reached their lowest level decreasing 71%.

Local demand of our main products, such as gasoline diesel and jet fuel had a steep drop mainly due in April and May.

Since the month of June we have seen a gradual recovery related to be eating up lockdown restrictions the crude oil basket reported a significant decline during the first Smith, reaching 29.8 dollars per barrel compared to 59.8 dollars per barrel in the same period when Nike.

The unprecedented contraction in demand our commercial strategy successfully position or crudes in the market and we were able to protect all the production that was profitable.

Let's move onto the next slide for a summary of our second quarter results.

Despite the gradual improvement in oil prices and local demand for products. It's made me our operating and financial results were strongly impacted in line with a negative performance of the global economy and the industry.

During the second quarter Ecopetrol groups production was 677000 barrels.

Per day.

In the high end of the range I know in the first quarter. These lower production combined with the negative impact of what prices resulted in a 54% decrease in revenues in comparison to the same quarter 2019.

Despite the exceptional environmental conditions.

A couple different groups reach and it'd be down to 3 million passengers on a net income of 25 billion pesos during this quarter.

I know given the floor to a better consumer who will provide further details of our operational results for this semester.

Thanks Phillip it when exploration, we completed the dream of seven wells during the first half of the year highlighting the successful completion of the gazzola my before well.

Oh, Colin announced the discovery of gas into medicine, but one well in the Colombian Department of Atlantic When do you like.

Additionally, I would like to mention the official approval granted on June 12 by the Brazilian Ministry of mines, and the National Petroleum agency to Ecopetrols, 30% interest in they got to them I believe recovery.

On production despite volatility in the price of crude and the impact of the pandemic I'm probably go to events. We reached 706000 barrels of oil equivalent per day during the first half of the year.

Drilling campaigns were impacted so that we completed 148 wells during the first half of the year in contrast to the 311 drilled uncompleted in the first semester 2019.

The key milestones, where the closing of the acquisition by Who'll go well, 43% of the offshore gas assets you know what he does the entry into production of 18 wells in me in the Permian Basin as well as the upturn of 11000 barrels oil equivalent per day in June that were closed.

Total sustainability break T I know where Colombian fields.

Our current production remains profitable at less than $30 per barrel.

Yes remains a strategic pillar in our energy transition strategy as well as in our production portfolio.

During the quarter, we provided financial release to end users in the amount of 168 billion pesos. Additionally, we rapidly reacted to lower demand on the country's energy requirements in order to supply the thermal power sector with regards to the midstream segment.

The transport crude and refined products decreased reflecting the effect of lower local production midstream companies woolford commercial release, so just discounts on financing of the transport times up to six months and in certain cases in volume.

Requirements on the ship or pay contracts were made more flexible in the downstream segment results were affected by the contraction of both domestic and international demand for their main products, our refineries have been adapting their operational schemes implementing measures.

So just adjustments in throughputs on maintenance rescheduling in order to guarantee the integrity and reliability of our operations.

Our refineries reached a joint throughput of 255000 barrels per day during the first quarter on 300000 barrels per day during the first half of the year with a growing trend seems aprils operating minimums.

Gross refining margin reached 6.2 dollars per barrel during the quarter. However, we have seen a gradual recovery in demand on margins seems with me on.

Oh petrochemical side, the same chia continues to a lever excellent financial and operational outperformance.

Addition, due to the partnership with companies both from the group on the National plastic industry. It has many initiatives to provide protective equipment. During the pandemic. These results where feasible tends to have brought to commercial structure.

That enabled production above the minimum operating by though of our refiners to agreements with new clients unanticipated sales of crude them problem surpluses within international markets, Let's continue to the next slide two this caused our progress in turn.

Comes up efficiencies.

We have reacted appropriately to reduce costs and expenses to confront these new environment.

Through the capture of significant savings and activities reserves.

The results of these measures were reflected during the second quarter with May and June the months with the highest efficiencies.

Lifting costs was 7.1 dollars per barrel during the first half of the year. We therefore spoke used on targets with negotiation.

The structure optimization energy matrix and exchange rate impacts.

The cost per transported borrow was three daughters. During the first half of the year slightly lower when compared to the same period. The 2019, mainly due to the optimization of contracts.

You are each station of activities on exchange rate effect.

The average for just sorry of non regulated energy portfolio was 29% below market price as a result of the incorporation of bilateral contracts and self generation optimization during the first half of the year.

I now keep the floor to Jaime quite yet.

I will share the group's main financial results.

Thanks Albert do.

Indeed, the margin stood at 31%, mainly due to the price juncture and the effects of declining demand.

Did the per barrel was 15.3 dollars and was adversely affected by decreasing sales volumes, partially offset by lower prices and purchase volumes.

Despite a challenging market and operating conditions production only decreased 3% as compared to the first half of 2019.

The cash breakeven dropped to 19.9 dollars per barrel taking into account financing rates during the semester, which increased gross debt to EBITDA ratio to 2.4 times.

Thanks remained steady as compared to the first half 2019, 68% of investments were allocated to growth projects within the S&P segment.

During the first half of 2020 net income decreased versus 2019, mainly due to.

Firstly, a negative impact of five point 95 trillion passes from the effect of lower prices and secondly, a negative variation of three trillion past us primarily driven by inventory fluctuations and higher operational expenses that were partially offset by lower costs as a result.

Uh-huh stracey measures implemented and the rephasing of activities due to diminish operational levels.

Financial expenses increased 490 billion pesos due to the increase in debt levels and peso devaluation.

Tax proficiency in 2020 were 3.1 billion pesos less than 2019.

Our two nonrecurring events income before impairment and nonrecurring events reached 80 billion pests.

Nonrecurring events for the first half of 2020 represented a positive effect of one trillion tasks.

It is important to highlight the income from business combination arising from the acquisition of offshore gas it seemed like Wahid.

Partially offset by the voluntary retirement plan. It was initially accepted by 122 employees and the contributions to support the communities during the kinetic.

Net income for the first half of 2020 after the impairment of long term assets recognized during the first quarter amounted to 158 billion pests.

I will hand over now to feed the Ryan who will present the business plan update.

Thank you Jaime.

We might actually probably reassessed the business lines and whats initially announced the markets in February seeking to respond to the new market conditions and the impact of the covert 19 doable endemic.

We have strengthened our street capital discipline cast protection and cost efficiency pillars with no criteria for portfolio opportunities valuation focus on profitable projects opex optimization initiatives throughout the company and this new debt management, we maintain our strategic commitments to protect our production and reserves such.

All the exploratory activities increased production with the existing field development of the comprehensive research pilot projects for unconventional reservoirs in Colombia, and the international best against our strategic so the group.

We reaffirm our commitment to make progress to the energy transition.

Our share in terms of gas increasing renewable energy in our energy matrix supported by fundamental enablers, such a social and environmental investments as well as technology.

Let's now move onto the next like to deepen on each well the segments.

Yes, one remains as a key pillar of the equity group.

An expiration we plan to drill more than 30 wells within high materiality basins, mainly in Colombia. Likewise, we will continue the assessment on development of the offshore gas discoveries into Colombia, Caribbean with investments that we estimate and some $118 million between 2020.

Two.

Production, we will leverage the production increasing existing fields through enhanced recovery projects. We will also continue focus on building a portal for do that allow us to preserve our reserves prioritizing our position if any strategic assets.

78% of the investments will be allocated to Colombia, and the remaining 22.

Positioning on development of our international operations, mainly in Brazil, and the U.S.

Let's move on to the next slide.

It is a priority to continue leveraging the future growth of reserves within the equitable group.

To do so we have maintained our investments in order to be a strategic portfolio with significant contributions towards ensuring production and reserves.

Among our main projects I want to highlight the development of the PNM on to guess trend drilling activities in rubiales and into kind of food fields in Colombia, and the development of the got to the month of these covering Buffy on the Permian in the west.

Our enhanced recovery programs remains an essential source to increased reserves and production.

Supporting a large parts of our growth and value generation strategy.

I would like to mentioned water injection projects in the Middle Magdalena Valley and the fields in the already Nokia.

Let's move onto the next slide.

Yes, we maintained our investment commitment and some $780 million without potential upside of $870 million that will enable us to grow to know demand participate in new segments and the part of the full energy chain integration.

Leverage on the competitiveness of our prices, we seek to maximize our efficiency and diversify and accelerate the time to market of gas LPG, we'll focus our efforts on the development of offshore gas discoveries in the Caribbean.

Element of that give them on to gas trend on other onshore gas source is mainly in the middle Magdalena Valley and its you know something I've seen for basis.

Let's move onto the next slide.

We will continue to mature our short cycle assets.

Regarding development of the comprehensive research by the projects ridiculously low thing to see us anything in Spanish the Ministry of my son energy obvious the corresponding technical regulation on July the seven and in the coming months, we expect the government to each of the environmental civil and contractual regulations said we've competed regulatory framework.

And allow us to move forward with all the planning activities will invest around $127 million on continued on the definition of the preliminary agreement, we announced with exome recently in order to work jointly on those pilots in the middle Magdalena body.

Regarding our activities in the Permian Basin, Texas, and that's a result over the recovery of prices along with our partner Oxy, we have decided to increase operations. During the second half of 21 on start really an additional 22 wells. These 22, new wells, we let up to the 22 wells already.

Reducing which were completed earlier in the year.

No 22 wells, we start production in the first quarter 2021.

We estimate that average net production for Ecopetrol, we reached 5.5 thousand barrels of oil equivalent per day by the end of Twentytwenty.

Higher than the four to 5000 barrels of oil per day announced in the first quarter of the year, let's move onto the next slide with regards to the midstream segment, our efforts will be focused on ensuring the integrity and reliability of our infrastructure.

While simultaneously guaranteeing logistical flexibility on efficiency the transport recruits to this end, we'll invest some 782 $830 million maintenance few techniques tack integrity and operational storage of refined products, we expect that to transport bonds will remain stable during the next.

For years in a range of 1.0 to 1.0 to 5 million barrels per day in line with the country's production forecast.

Let's move onto the next slide in the downstream segment were located between 1.2 and $1.3 billion in order to security reliability and sustainability of our operations, while generating greater value for the segment.

The total refining throughput will be in a range of 300000 to 280000 barrels per day.

As for growth opportunities, we have maintaining our planned investment to interconnect regional crude unit at the end from Africa, we have an outflow spawn first operation and first production to 2022 due to the new operational protocols implemented as a result endemic.

We are committed to deliver ever cleaner fuels the country prioritizing applying that maintains diesel quality at low levels between 10 to 15 parts per million up sulfur and a maximum of 50 parts per million of software for gasoline by 2021.

Let's move onto the next like to discuss more details on the investment plan.

Organic investments for the plot period will be in to range between 11, and $13 billion out of which $3 billion to $3.4 billion will be executed in the current year 20 twin.

Most of the investment will go to the S&P second 80% of the investment will be in Colombia, and 20% mainly in but I see on the U.S.

Let's now move onto the next slide to discuss the cash situation.

We will concentrate on generating rowing operational revenues, adding to more than $11 billion by 2022.

Some for now have medium dollar so incremental debt are also incorporated into the plant.

Diesel ready goods the successful financing achieved in Twentytwenty.

Gross debt to EBITDA ratio for Twentytwenty will be close to three and a half times.

We will have a downward trend to two and a half times twentytwenty too.

Let's now move onto the next slide.

During 20 fled to we have captured more than three and a have freedom pensions and saves due to growing synergies among the segments as well as Oh, sorry can efficiency measures in each of our TV over.

Over the next three years, we will pursue some additional savings between two and a half and three trillion passes.

Our may challenge will be the total cost our focus will be on its stability uneven. It's reduction to this end formulated aggressive strategy is to maximize the value of our trusting us it's extremely safe reliable and.

And efficient operations.

Let's move onto the next slide to discuss our main targets on G E G.

Our commitment to technology, the environment, social governance, GE as GE remained resolute and we're working mainly around for aspects.

In the environmental front, our main goal is to achieve a 20% reduction in greenhouse gas emissions by 23.

Emphasizing in the capture and reduction of Seo too.

Increasing energy efficiency and growing our capacity in renewable energy power generation.

We will continue working to reduce routine canary on fugitive emissions inventing.

The social front.

Around 1.7 trillion passes will be allocated by 2024, social and environmental investments focused mainly on closing the social gaps and promoting development well being of the communities in those areas, where we operate.

The projects in these areas are mainly around infrastructure public services education sports and healthcare and the a curtailment of rural development Entrepreneurialism.

On business development.

Terms of governance, we remain determined to improve our information disclosures standards by prioritizing relevant company matters, such as the reentry into the DG is higher Dow Jones sustainability index on fulfilling the projects defined by the carbon disclosure project.

To boost our digital transformation will allocate nearly $158 million towards capturing an expected returns related mainly to watch artificial intelligence.

Okay on boss amongst others, let's now move onto the next slide to see the plan targets.

In addition to the objectives mentioned throughout the presentation I would like to highlight on the financial front, a cash breakeven below $30 per barrel.

Unless that $40 per barrel like 20 to 22.

The reserve replacement targets are under evaluation I will be subject, mainly to the evolution of the plant execution.

On the market conditions.

On the other had aligned with our commitment to maintain a low carbon operation. We estimate reduction of some 1.8 to 2 million tons of Seo two by 20.2. According to the target set in the prior plan.

Let's move onto the next slide for final remarks.

During the first half of the year at the rest of the company's worldwide. We have faced tough market conditions that have required sweet and time to decisions.

We implemented a package of measures focused on optimizing our investment by reducing cost and expenses.

Seeking a rapid adjustments to new market conditions, while ensuring the long term value on sustainability of the country.

We updated our main operational financial and TSG metrics for a 2020 2022 business plan, which protect the main pillars of our corporate strategy.

Guaranteed group sustainability and ratifying our commitment to the energy transition.

Thank you again.

Joining us in the second Investor Day every year.

We fully appreciate your continued interest on supporting the company despite the very difficult current circumstances.

Now I would like to open the floor for QNX.

Thank you we will now begin to question and answer session. If you have a question. Please press Star then one using your Touchtone phone.

If you wish to be removed from the question Keith Please press the pound side or the hash key.

Are you seeing a speaker phone you may need to pick up the antech first before pressuring the numbers.

So that we may take us many questions as possible. We ask you please limit yourself to three questions.

Once again, if you have a question please press star one.

We have a question from Frank Mcgann from Bank of America. Please go ahead.

Okay. Thank you very much I was wondering if perhaps you could provide just a little bit more detail I'm on the cash freaky breakeven that you mentioned what drives the increase from the below $30. This year to the to the higher range that you're using for the for the plan I'm Secondly, I'm in terms of natural gas.

How you know how how big do you see that getting in terms of Oh, there's a portion of production.

Over the plan period, and perhaps longer term what do you what do you see as the possible upside there and as a percentage of EBITDA.

And then so just on renewables what I'm currently that has been it'd be get becoming a bigger focus how how much upside is there beyond what do you have in the current plan. If you wanted to become more aggressive in renewable investments. Thank you.

Thanks, Frank and good morning, Thanks for being here I'll start with the last one on renewables and then Alaska Jaime to talk of it to the cash breakeven on a little to talk about the the natural gas. So in terms of renewables what weve, what we've said.

Frank is that we want to a to be in a place by 2022, where we have 300 Mega watts of power generation capacity that will be used it for our own operations. So right now we have 21 megawatts of our first solar plant it's been work.

And since October of last year.

Yeah, and both saw both on the sites of.

Reducing emissions.

We're very pleased with that but also in terms of the economics of the plant and eventually the the savings could be at around 10 million Bucks per year. So from that point of view, we're very happy was our first.

Entry, if you will need to into using renewables and people ask me, so you're you're using solar energy to produce oil and gas and yet the answer is absolutely. Yes, you know we can combine both things and thing actually coexist.

We're currently in the mix of I'm looking at the second project, which would be around 50 megawatts and you should be hearing from that soon.

We're very enthused with that the because that if that comes through it'd be the largest solar park.

For a self generating power in Colombia, and then we already have a lot of projects in the pipeline.

They both solar and wind so that's that's roughly where we are.

It's important for US, yes, I was saying, it's not only important for the environmental side of things and reduction in emissions, but also for for cost savings you know and.

Clearly, where we are prices, where we are it's good to have.

Hi sources of efficiency as well the from from energy as such so a highlight why did you go ahead and take the breakeven one and then they are there.

Thanks Frank.

Thanks, Thanks for your question.

So with regards to cash breakeven so.

Firstly, firstly I'd start with kind of a couple of brief brief definition say that cash breakeven that we refer to it both in the K P eyes on end.

In the kind of in the plan metrics are we referred to the all in.

Hey price that we need in order to sustain our our minimum level of cash now what I mean by minimum level of cash Isa East a according to our an analysis of our treasury position on.

And our liquidity that we need a how do we sustain a level that gives us confidence that.

Can respond to a.

Volatility on I don't expect to conditions that level currently is somewhere around around 800 million dollarss out at group level right. So that's kind of like the baseline that we set ourselves that we don't want to go a belief and the other component of this is that typically what we referred to this eight hour certainly when we were.

In the planned targets, we refer to that as an annual targets. So we expect to be under 30 in 2020 on.

We expect to be in the range of 30 to 48 a. throughout the plan duration eight.

[noise] [noise] I'm it.

[noise] I think we met we may have lost I highlighted.

And that's why don't you take the question on natural gas and we will allow him it's come back.

Again.

Going back to definitions.

Okay and all that.

Hey, Thirtyth April.

We see and not a over.

Yes, sorry.

Hello.

Not to for a minute.

Okay, you lost meter so.

And I don't know exactly where did we get me, but well explaining that.

Hey, we we had growth in <unk> metric from plenty 20 to 22 to the next years in the plan basically because we have incremental capex over the next couple of years. So capex is going to grow in 21, and 22 that house on effect on the metric and we also have debt payments through.

That period on and that relative impact that the initial cash position on the financing flow hassane the metric east reduced in 21 22. So basically those are those are the components of off of that cash breakeven evolution.

Hi.

Good morning, Yeah, Kinda as regards to best.

Frank with morning with regards to best.

Yes, the is indeed, absolutely, but they do come our agenda, we see gas as they hydrocarbon for energy transition.

And ER right now in our plan to 20 to 22 gas will represent about 17% of their production sure.

Uh-huh, we'll see us a slight increase in terms of volume could add production 2020 about a 120 mbd equivalent.

And going.

So at 135 in 2022.

But when you see at our strategy, we won gas to represent about 30% to 35%. So we will be investing a lot in terms of exploration.

In order to ensure that volumes will begin to increase.

Hi, there.

The pace I suspect that.

In the period 2024 to 2030.

So I guess in terms of any that when you compare to our numbers in 2019, it represents about 11% of the upstream EBITDA.

But.

When you look at the period.

All saw April to make the two during this year.

Oh it represented about 53% of the EBITDA. So maybe that will basically be depending on a on oil price behavior, but no oh and the long term, we want we are seeing that down gas.

Good.

The representing.

And at very high portion about why our upstream EBITDA.

Okay. Thank you very much.

Thank you. Our next question comes from Barbara how to stop from JP Morgan.

Hi, good morning.

I'd like to show in your presentation indication for operating cash flow.

Deterring, what's the Capex.

It just is that we might see negative free cash flow for the next year, but just wanted to come from that ensure could provide additional color from that perspective.

Also on its second point.

Working capital.

Quarter, you had a build up in inventory. So just wanted to come Starway cyclical factors accretion.

Yeah.

The year. Thank you.

Alright, Thanks for the question Thanks for being here, Alaska Jaime to take the questions. Both your questions Highland. Please go ahead.

Okay. Thank you Barbara Thanks, Thanks for the question.

With regard to the first question around around cash flow. So so there are two two components of that the eye. The first thing that I would say.

Where are we here mid year right and what we've seen east positive operating cash flow from from the business over the first half of all of the year.

Indeed, we have seen negative free cash flow that's it that's a going beyond the operational cash flow line, including a capex outflows.

Hey, that's being basically a an outcome associated to that to that market conditions that we had on particularly during the second quarter.

And also delayed effect of the cost optimization measures that we have been taken by that I mean that a yeah. As you know we enacted a intervention plan by the end of March and an early April and our results the full results of that.

Our actually a weighted towards the second half of the year.

The outlook that we see for the second half of the year, each one where it operating cash flow and free cash flow is actually Pos it did a both in Threeq and Fourq you on for 2021 and 2022, a we will continue with that trend, we will continue with that trend.

Yes, obviously, they see a highly link to to the a market conditions that we have I ask you know we have some price assumptions and discipline going from 38 average this year to 45 next year on 50 the year after that on of course, it's also linked to the success that.

We have with our cost optimization measures that we have announced that that's the overall a picture with regards to cash with regards to your your second question was around inventories right on.

Basically, let let me set that baseline and we did we did have some movements in inventory around in the second quarter.

Context here. This is that in late one Q, we didn't make our significant provision around inventory devaluation has proceeded to that dropping prices that were seeing so basically it from an accounting standpoint, we basically where were going to 19 are.

Statement that the value of that inventory would like the fall over time over over the period right. What we've seen is that with the with the up picking in prices, we have recovered and a significant amount that we still have about and 120 billion pesos.

Yes.

In any in an accounting provision associated to that we expect to recovered to recover a significant amount I would say at this stage, possibly at somewhere between 70 to 90 billion pesos of that 120, a should be recovered over the next six months I hope this answer.

Is your questions. Thank you Barbara.

Yes. Thank you.

The next question comes from Kinda recently from JP Morgan.

Hi, Hi pellets.

Thanks, So much for taking my question hope everything Israel or with you and your feminist so.

Couple of questions a lifestyle first one is on lifting costs. If you look at the number that you guys reported for the second quarter there were very very.

A much lower than what you were running before around $6 per barrel. So.

That a normalized level reports you expect some kind of a normalization pro cronto $6 per barrel and then the second question would be on the realized prices.

Are those interest you only have looked on the third quarter, but if you could give us some color on harder selling and marketing your crude if we should see a discount Mary or the third quarter in the fourth quarter compared to what are your husband second quarter that'd be great fit there.

The Cardinal times, I know last kind of benefit to take the the first one and be less his his view on a.

Forward trends and how do we see lifting cost moving on and in terms of the of the second question.

I'll spend a to provide more color, but I'd like to give you. The sense that we are seeing the coupled with the increasing in the Brent as such we have as you were mentioning the strengthening of the differentials and there are actually looking looking better even though we're only beginning the.

We're in the mid of of Threeq, you as such so I'll bet to why did you take the first one and then pivotal you take the second one that's sustainable.

Regarding our good morning, and thanks for the question.

Our estimate is that lifting costs would be around $7 per barrel at year end. Indeed, we were able to lower lifting down to $6 given that we've trained staff substantial reduction in activity because of that combine effect of both the pandemic on the oil price.

We had sort of those operations to minimum vital suspended on postpone well work activities as well as sarbanes maintain us work.

Gross production optimize energy cost on contracting services.

Going forward needs can call should increase given that we will have to bring production back rainy shaped well work.

Also facilities maintenance works.

Bad.

Given the level of interventions optimization of that we're doing in several funds like energy targets optimization of contract services, especially well work.

Water treatment and what we should.

We are we should see the benefits of the implementation of our digital projects.

All in low we should see lifting costs in the range over 72 $9. During the period open to be closer to the lower end of the range.

Thank you Albert though we've got to thank you for your question, let me take there the one on the marketing of the troops out to realize pressboard. So this quarter.

Our commercial strategy has been very successful had anticipated sales and.

Focusing on our long term customers and end market diversification. That's what he is we've been doing for a while done a really work during the second quarter well, we had the did prizes and demand prices in it but as both the second quarter.

We basically focus on placing every barrel in the market on the third quarter. We sold is the demand was speaking out and there was a lot of appetite for a crudes.

And.

And we have already because we're anticipating sales we have already placed all our program throughout the quarter and that looks pretty strong and that's up basically in the lower single digits on average.

However on the fourth quarter.

This week, we already offering and we're seeing that the demand it's a weakening a little bit. So so we are expected that the fourth quarter.

Might be.

Somewhere in between what we already saw on third quarter and the second quarter and that's basically what we're seeing in the market.

Thank you.

Great. Thanks, so much.

Our next question comes from Lilyanna Yang from HSBC.

Hi, Thanks last question the call hope all the travel you all are could you talk a little beat up all your too, but if you had to prioritize our rank apologize. If you had to let's say six began at the poster probably $10 odd appealing southern total through 2000 and that's material.

Oh, what will be there wasnt that come first priority right.

Give us an ideal according to how much this maintenance capex as well.

Good that show us at that event that production that they have for that.

Oh, yes.

Larry Thanks.

Is that you're only question.

No actually [laughter], a lot, but let me put that out to get it also.

Oh, let's not deepwater like yet, but that's what I will.

At any time, all dry spring and local paddy it won't get sick so what next steps.

Our septal no area right and you can give us an idea how much was the cost of the well at all how much you actually paid for the Tempur sample the block and what would you.

Did you see before you would coffee that you laid off such investment that's one also on Brazil.

On the same way if he can give an update on the beep politics, Florida.

So forget the debacle, Michelle where you have a fake steak.

But nonetheless, which is part of the bigger what you can give us an.

Color about the JV leaf option.

If you can tell us about the breakeven for these permanent battles and what have you been able tremendous five with a joint venture.

You think could be using Colombia on your pellet projects Claudia Thank you.

There will be one set of questions. Thank you Sir Alec.

Science Lily thanks for being here thanks for participating so.

I'll I'll provide some context around the first one on the Capex on first thing is that we what we actually did when we see with recasting the business plan for 2020, Twentytwenty too is it precisely due a detail prioritization of opportunities.

So.

[music].

Should should there be more space going forward and should there be.

Additional inflow into the company in terms of revenues. It will have the optionality to look at if you're going to be investment in topics is are we going into something else with the debt. So we have the flexibility from that point of view, but we've been very disciplined in terms of how we did.

ROI, the capital and how we actually execute the capital.

And and we have the the ability to to react very very quickly and.

I like that to probably to expand a bit on this in a second.

And.

We are a bit the was mentioning we have prioritized expiration, we want to keep on exploring gas, it's a very big.

Our to what we do it you are enhanced oil recovery near field is so we can we've been very successful with near field in the past a few years or so so we want to do that and as you rightly pointed out we have a.

Presence, both in the U.S. and investing and I'll talk I'll talk about but I feel a bit and I'll talk about the oxy deal and then I'll go back to I bet for the for the Catholic extraordinary Capex.

In terms of but I see it two things on you've talked about got to that might do and you've talked about sooner.

So intends to know the well from an operations point of view extremely successful very pleased with the performance in terms of the time and everything else.

Has provided very significant information around the potential of the area and you would you would notice that the area in which we are exploring is this I still feel is on April. So it's a very big area, where we see a lot of potential. So it we will continue the assessment with our partners. We will continue to work with them.

And jointly decide the best path forward.

And what do we do to ONTAP on us as the potential for the blocks in terms of got to D'amato. The Pos so.

Very very pleased with.

Having four wells down.

The four wells that have been successful.

The Brazilian authorities it formally now granting the entry if I could get thrown into the joint venture very very pleased with that and I can say that based on the results. We're looking at.

Around the first quarter 2021.

Going out to tender for the FPSO.

So we're looking at all the technical data Weve.

Obviously, the the operator has been working with the markets on providers and everything else, but we're in that sense, we're already making some good progress. So we're very very comfortable with that.

So the oxy deal and.

Being these short cycled.

The activities we were very.

We can turn so have a starting operations last year. It was only a year ago do like 31st that we announced the deal September we started drilling November we already had oil into tanks. So we had production very very quickly and then came endemic and then came the the price war around oil and.

In the in the middle of the second quarter, we decided to ramp down activities.

And.

In that sense. It we've had 22 wells already drilled 22 wells that are producing the and seeing the outlook for prices going forward.

We decided to restart operations and we were thinking maybe two to be restarting around.

Early August September we were actually able to do it in July so we already have a drilling rig in operation and we're bringing a second breaking totally operation. The plan is to to drill another 22 wells and these wells will be put into production in the first quarter of next year.

In.

And the material you saw that we've talked about are going to have thousand barrels equitable net in June we actually had 18000 barrels of production in the Permian. So we're very very piece from a.

From from the operations.

Breakevens you know the Permian is probably one of the best if not the best in the U.S. and.

Well below 40 Bucks. So we're very comfortable with that every every project economic in itself every set set of wells and the other thing which is great is that the operational cost with everything included that for this group that it's 40 40, a pie crude is between.

Seven and 10.

Dollars per barrel. So if you rank these operations in our portfolio there would be amongst the up the five with the lower operating cost can turn to what we've learned.

We are conducting a formal.

Technology and local knowledge transfer sessions.

Between our our team the oxy team, we have people sit content into the the operations with our people in Colombia, and we're providing a lot of remote that supports as well and things around.

Drilling and completions and things around cracking in turn things around logistics.

And things around the proppant, you know and how the Fracs, we will actually be.

Take place and how they are performing and things around facilities. You know oxy has been very very good at a very quickly in space of months designing building and putting into operation facilities and that's part of the.

Recent why we have production as quickly as we have so all that transferees being.

Oh, sorry, all that knowledge is being transferred back into the teams and as you rightly pointed out it will help us in all the work we're doing to underpin the projected to be looked to the unconventional pilot projects in Colombia and that'll can can you go at the exploration. One. Please can you can give us more.

Yes color, thanks, Emily but.

Good morning.

First of all in terms of upstream Capex break down during the period, we're going to be spending at $1.5 billion in exploration.

In terms of production growth you won't be about 5.5 billion.

In terms of facilities maintenance it will be about 2.5 Bailey.

Specifically im exploratory capex, well, we won't be prioritizing investment in Colombia, Betsy onshore gas specifically before they Monte.

And then offshore gas Colombia.

And then we'll also have to fulfill our exploratory commitments in Brazil, so that that corporate softball, whereas.

Planning to spend in terms of exploration.

Thanks, David.

Thank you. That's a reminder, so that we may take as many questions. That's possible. Please limit yourself just three questions. Our next question comes from Bruno Montanari from Morgan Stanley.

Hi, Thanks for taking my questions and for being transparent in communicating the changes in strategy on the back of open market developments, it's very helpful.

First question as of August the Sanjay being the Permian week. When are you actually three hedging the west sale price taking advantage of the nice rebound the nwk prices.

Second question is about a longtime production trend I was just to understand.

Production trajectory, a little bit better it's understandable that the seventh when do you target is lower than the prior years been declining the oil price, but if we assume that the JV the west will contribute wouldnt growth.

We don't forget to your outlook in Colombia will actually be declining.

You bet, a fair assessment and what would make you revised your domestic production curve higher in the medium to long term.

And the third question is about asset sales.

Very strong balance sheet, so different from many other companies don't really need to have a material disposal program, but we didn't make sense to divest of any business as you had purely on the perspective of them not contributing to the required return on capital employed within the current portfolio. Thank you very much.

Oh, thanks for being here. Thanks for attending the calling thanks for the question I'll take the up the last one on the assets and then I'll ask a high mid to talk a little bit about the hedging and then I've got to talk about the production trajectory. So.

One of the things that Weve.

Developed over.

Over the last few years. He is the ability to understand in detail the portfolio that we have and that it allowed is largely to recast the plan very very quickly the 20 twentytwenty too.

Plant so in terms of any potential divestments, we have a very good.

Good understanding of the portfolio, we continuously look at opportunities and should they happen going forward, we'll communicate that in due time as you may remember, but who knows that the couple of years back we talked about potential acquisitions and we've done.

Well quite a few things over the last 18 to 24 months. So in similar way should something happen in terms of divestments, we will communicate them promptly.

I mean can do a can you. Please respond were answered the first one times.

No no a high thanks for your venture question.

The rights to hedging out all the.

Patients are on hedging a are under the umbrella varadero hedging strategy I think.

Which is evolving right over the course of eight to Q. We we did use hedges with a view to ensure our.

Floor for our for our pricing an adequate for pricing that could ensure the flow of profitable barrels for their game station on how should we look forward.

And at group level.

We are basically focused on two things were focused on on a from a Brent standpoint, particularly a because that's where we have the largest exposure as a group a to see if there is a business case to ensure a or too to get some downside protection if.

Our responsibility and what I mean by business cases of course, you need to see what is the cost of these hedges and why what level of protection do they gave us on on on of course in the context, so much volatility whether we feel comfortable with that.

And that's that's one focusing and the other focus areas around the kind of tactical Ed just that we do in support of.

Specific point that transactions and we do a lot of those and basically what they do is they gave us a risk protection for changes between the dates when we add negotiate add a particular transaction and the day worried that transaction is executed that's that's the umbrella for this conversation.

Hi in that that level of exposure that we have at group level.

A east relatively low right.

So the group's exposure to WK when you see it at group level is relatively low compared to other are there to Brent for instance, or to diesel and therefore, if not a priority at this time, having said that we have been we have started to look at whether.

A head, yes in the Permian transaction would make sense over the long run right.

Something that we need to study in more detail going forward.

I hope. These these addresses your question Bruno Thank you heard us thank you.

Thank you. Our next question comes from and Mail from Bank of America.

Before that the we're gonna answered Bruno's question.

Around production.

Oh, Bruno good morning, and thanks for your question.

We are considering the plan.

With regards to Permian production is that.

Production will be a slightly increasing from the range of five to six.

That was on barrels per day or liquid all in this year to about 20 to 25000 barrels per day in 2022.

So that leaves that our production in Colombia will will remain flat, whereas so many in the plan and the Cline platter of about 17% in our mature fields.

So in terms of growth for the future we see.

Several.

I'll turn things one is being successful in our exploration efforts, especially piccoli in offshore and onshore gas.

Secondly, and we want to be successful and in the secondary and tertiary recovery projects. We have 51 projects in the plan that if assuming successful will bring additional production.

And also we are betting on on my true probing says don't whereas we still have asked phase for growth. So.

By 20.83 on all works, we'll see that they belong in production will be increasing as well.

Okay.

Thank you we will now move to mess and Melton that question. Please go ahead.

Thank you very much for the call today couple of questions. The first one is I know you had this quarter to reduce your refinery output due to lower demand and I was just wondering if you could explain to us how you decide what level each refinery is going to be and what the advantages and disadvantages.

It is each of them are.

Second question is I wanted to know if you have any new targets for leverage or liquidity, a ecopetrols liquidity is still strong and your leverage is still below your peer group.

And so just wondering if you have any new targets since your leverage did go up this quarter and then just a quick question. There was a new loan that was just first it was a treasury loan is that from the Colombian treasury and with that for a specific purpose. Thank you.

Thanks for the question.

I'll take the first one in Alaska.

What that too to give a little bit more detail around and then Jaime can help us with leverage our liquidity on the the Treasury zone.

In terms of refineries, here's what would happen we started the year with both but I'm kind of demand.

Hanna.

Running at a capacity well, but aren't going to listen capacity, but mainly some 220000 and and a 150 260000 and then in March the backend of March and April we saw the dramatic reduction and destruction of demand and so we had put that.

Very very quickly to cope with the new demand levels in the country and we've talked about that but roughly sales for products in the in a month would be around 300000 barrels and that's the remain products diesel gasoline and jet and in April we were doing 100000 barrels.

So that led us to.

To adapt very very quickly.

And.

And.

What we did and we have a lot of flexibility in the in banker and we have well one of the.

The most advanced refinery from got behind Us so that.

Combination proved to be very very.

They are appropriate and we were very.

We were able to cope with that need to a.

To a reduced demand so.

I'm proud of the 50 plants, we had at some stage.

So my eight plans or nine plans running and out of five or 6000 people that we would see everyday the refinery had 600 people. So we have to two at that very quickly demand and also all the it biosafety and bio security protocols to operate.

And so what that Wasnt why don't you give us a little bit more more more color around that.

Thank you. Thank you. Thank you and for your question, Yes, Felipe said and we were running but we acquired a pool right by the limited look modules that we the demand for our products dropped significantly.

And then we need to be news around call. It two badlands crude and not by the mine.

So that doesn't happen I will find that don't 50% capacity.

Turning cycle Barbara March 8 million Pulpo May also and then after that.

Look I think Monistat could go to grow and we're starting to increase rate. They barrancabermeja following the local demand marketing company volatility. So from that point of view, we didn't have a broader than that brought him will mainly at local demand for formal wrong.

America.

We are running that I'm hungry and they can you need which is around 80% of their capacity built up inside into grateful.

At the handle a we need to hear deals right to around 70 per say no normal capacity.

That took place a comparable March 18.

Also may and it seems that we haven't going up in weight. The following the local demand, but mainly the ability to export our commercial group has been doing a great.

Joel.

We export of our product at the car, but they're not refinery underneath and allow us to maintain that refinery and running all the units.

Okay and currently we are at around 90% of or Kubacki supported mainly by my exports.

I Hope I know you answer your question.

Walter Schenker.

And before handing over to a two high me I'd just like to at and that we're also able to perform or some of our key maintenance on both refineries and even though some of them. We're in the middle of the.

Response to the pandemic and everything else, we were able to adapt and weve card than through not only to Q, but threeq you as well Jaime. Please go ahead.

Excellent. Thanks, Aaron Thanks for your questions. Let me, let me provide a bit of color around liquidity and the loans. So I guess first sleek and with regards to leverage to Q was was a very reactive.

Last quarter, we actually subscribe to about $3.1 billion of loans through through the period and there was a combination and then there were basically three elements of that.

There was a in a bond place in international markets of about $2 billion there was.

A line of credit that we had for about $600 million that we pulled we pulled in and it was an existing line of credit and there were about $400 million to $500 million of of what we called and.

Treasury lines, which I think theres a translation issue in that effectively they are short term loans that have that that have a 12 to 24 month duration actually typically less than 12 month and in Spanish and they're called Okay does that sort of idea which can be.

Loosely translated us, especially loans. These are not loans that are received from from the government. They are receipt from a private banks right effectively. So so that I think that answers a bit the treasury long question with regards to leverage targets.

[music].

I see no probably the this crisis took us in a in a in a in a very strong both liquidity and a gearing position.

Compared to our peers, and we will decrease and lines of credit that we pulled over the over the second quarter.

We are seeing our leverage.

The.

Increase and.

2.4 times, that's just what we've heard today and we think that actually over the rest of the year. We're actually that leverage ratio is probably going to grow eight keeping all under 3.5 times debt to EBITDA right. The reason why that growth is that basically when you look odd that makes a lot.

Our a operating cash flow and the capex requirements that we have.

Plus dividend payments that were going to make or the second half of the year.

The Dod that ratio deteriorated a bit.

When we look longer term, what we see is that a by 2022 ash out where.

Operating cash flow improves our free cash flow improves actually on a sustained basis, we see that.

That ratio is he is going to be a below 2.5 times stacked where did that when we look at the we feel comfortable with that we feel comfortable with that both from a context off of.

The flexibility that we have within the plan to make changes we believe that we have a lot of flexibility around that the price. The primary driver for this increase in leverage is actually a it actually discretionary capex. So we can always pool on that lever if we need to so that's that's why.

On one reason why we're comfortable.

I think the reason why we're comfortable is that when we look at it from a from a pure standpoint, we are we despite this increase leverage we continued to be probably in that in the high second quarter tile off of a companies in the sector with.

Lois leverage ratios.

I hope that answers your question.

Thank you.

Very clear thank you.

Our next question comes from Christian Audi from sometime that.

Hi, actually behind me just two questions. Please the first one on Rossi second run on dividends, but we're also you have also always stood out in terms of generating a very impressive return on capital employed could you talk a little bit about yeah.

Evolution, you expect up during the.

Length of the plant and any color as to the differences you expect to enroll she between upstream midstream and downstream and then secondly on the dividend front. If you could talk a little bit given all the adjustments that you have made.

To protect the company from market conditions, what should we expect in terms of your dividend payout for this year and during the duration of the plan. Thank you.

Thanks, Christian and thanks for your question Thanks for being today in the call I Love It.

Hi me.

He was a bit more color around the roce.

And on how we're looking it at the the plan and also if he wants to add up on dividends, but I just wanted to say Oh in terms of dividends we have a.

The policy around students, which is a very clear.

And the the ultimate.

Dividend decision will be a b based on the on the decision of the ATM.

Of considerations and the assessment and then the final decision of the ATM that will take place one Q. Both next next year.

Having said that obviously it will depend on how we end up the year.

And.

We've we've managed to go through a very very very complicated until second quarter, we're seeing a little more support for prices you've seen how we've adjusted some of the operations.

Yeah. Good we're conducting so it will depend on all those aspects, but Jaime if you want to talk about Roce and then expand on dividend. Please. Please go ahead.

Thank you Philippe a Christian thank you and thanks for your for your question with regards to Roce.

And as we've discussed in the pass our goal in Ecopetrol has has been to to deliver our return that that exceeds cost of capital fundamentally on over the last number of years, we had a very good run with regards to creating I actually growing spread between that cost of copper.

And on the Roce that that we deliver with with this plan and we continue with that aim right. If it is challenging you will be extremely difficult to sustain roce itself.

Double digits in in that market price. It that we weren't prices are simply for the time is very very challenging, but we can see with this investment plan, we can see ourselves in 2022 with Roche piece.

In the very high single digits, I mean, you know, 8% to 10%, which week a competes favorably with the cost of capital that we have us.

That's what we're expecting obviously to the extent that we have a price upside to our plan assumptions, which I might recall. There are 38, 45 50 to the extent that we have upside to that Roce scana improve in a in a very direct way that's what we're seeing.

So if if I were to give you a bit of color with regards to segment a behavior on that and in the in the very near term and I mean kind of 2020, right and it clearly a both the upstream and downstream A.R.R. challenge because they did the contribution.

A this year relative to historical is going to its going to be lower like I'd add the clearing price environment midstream remains essentially unchanged with regards to their historical contribution on what we're seeing from an outlook standpoint, 21, and 22 is a very on a growing contribution from the upstream.

Stable contribution from the midstream.

Gradual recovery from the downstream, particularly us as the and got a Hannah interconnection kicks in that project, which I'm sure that Walter is going to give us a little bit more color later on kick, saying, we're going to see that down.

The Roche in the downstream improved that's that's the general color of that add with with regards to dividends a.

If the leap has laid out the general framework on from a from a planning standpoint, what I would say status, we look at that range of 40% to 60% payouts Hey, we we believe that a we move within that range closely linked to the actual pricing.

Merriment right so.

Even given the price environment that we see for 2020 on 2021, which is 38 and 45, we see from a planning standpoint, we believe that we should be in the lower end of that range.

As we go to 2022, we're going to be on the high end of that range, but but again as I say Lipa said you know this this is going to be determined.

Okay Bye bye bye the shareholders in due time.

I hope these answers your question.

Thank you Christian.

Very helpful. Thank you actually been Jaime.

Thank you. Our next question comes from at least Carvalho from a UBI yes.

Hi, everyone hopefully to I mean, thanks for taking the questions them and congratulations to be for being selective by addressing due to the company.

The Russian through the year to during the crisis.

So we'll have to your questions I'd like to come back on the dividend policy.

It's clear that second quarter was very challenging so just.

How do you have to be capex allocation in the I want to the to the capital allocation would match with the dividend policy that that accompany crude house.

That's the first one the second question, it's about potential acquisitions M&A.

Yes the company.

Quite active trying to.

Increase production and keep the reserves.

Very healthy level.

But what you're taking potential acquisitions.

Got it no junior companies or I don't know some huge in a more advanced stage.

That could boost your production Slash reserve life and be more short term.

And the third question is more about the lower activity that we are seen on on the U.S. SCHIP Bill I mean, when you look to the rig count over the last I would say couple couple.

Say 18 months.

There is much lower activity so just.

Trying to decide what will be the potential benefits that bids is bringing to your partnership with oxy in the U.S. shame that these are the question from my end. Thank you.

Jason Thanks for being here I'll I'll take the number two and three on acquisitions on the U.S. and then Alaska high mid to provide a bit more context on a.

On dividends and Capex on location. So in terms of M&A and you are you've mentioned that we've been quite active and weve.

I think demonstrated that we've.

Followed strategy in terms of where we want to go we've gone into what I feel we've gone.

To the Permian into in the U.S. and we've done a few things in the Gulf of Mexico as well so I.

I think how I would I would think about this is that we've we've been able to.

Exercise the muscle to a very quickly assess opportunities look at the market that seat, though how things are progressing and then should we see something that's a that would fit this strategy. It we would consider that in detail, but having said that as we all know <unk> times.

There is a bit stretched you know in terms of.

The cash flows in terms of Ah It I mean, even even some.

Even I was looking at prices today, they're up a bit.

But there is still there still uncertainty and eventually there will be some volatility you know we don't know if in terms of demand and then he can lockdowns are we gonna see something that's it.

Very tough in the next few months or no. So we will continue to look at opportunities both to a two.

Continue to build on strategy and as you rightly point out look at production opportunities but.

We'll see I think we'll.

We're being cautious right now you know with everything going on and in terms of the U.S. the.

And I provided a bit of a color around that but I'll repeat some of the.

The numbers so it being it short cycle will very quickly started operations in the U.S.. So we announced the deal July 31st last year September we started really November we had production.

And.

We drilled 22 wells, we completed 22 wells, we Fracked 22 wells and we're producing those 22 wells on in June we reached 18000 barrels gross for the JV, which is very good so very quickly.

We were able to see the benefits of or a very very good operational performance by biopsy by the operator, and we're very pleased with that and if we were able because the nature of these oh this business to a slowdown in may.

And.

As I remember April when we saw a negative WT ISO we stepped on the brakes, we adjusted things and we were thinking about Endo Threeq you restarting you know around September or so and we were able to bring the first week.

Into operation back in July I think the Permian and where we are is one of the areas with the highest potentially to have some of the best Breakevens are operational costs are between seven and $10 per barrel.

Very light crude so it has all the right elements for it to be a.

Grief in terms of what it brings and in addition to that they were and I've answered. These I think two libbey earlier, we're we're bringing a lot of Ah.

No how technology.

Expertise you know by having our second DC, the JV by having the formal technology and knowledge transfer workshops and meetings on seminars and the like so we're very comfortable with that and in the next few months.

We'll work on pouring the plan.

Sure for next year on the following year in detail.

Since we say Hi me, if you want to take the dividend question.

Thank you.

Thank you very bad it. Thank you lease and thanks for your questions. So with regards to dividend on how we think about it I'd say firstly, if we look at the I'd add that makes between dividends and capex from a in the context of our capital structure right on when we look at that capital structure.

What's the what's the baseline position you know low gearing ratio relative to our peers.

He was asking before spaced space to to prove that that A.A. gearing level importantly on growing operating cash generation over over the next a month and years, that's that's our expectation right.

In that context to Q E.

He is out is that is that it had tough a quarter.

It's one that we believe that's the worst stay at that should be expected on on it in the past right. The outlook going forward. He is a better outlook. So in that context, when we looked at that.

I had a what should be the right level of capital allocation and what should be the right a dividend assumption for the time and again recognizing that we don't we don't necessarily decide that but what we would like to propose from a plan standpoint, while we saw is that we launched a company. We have we had a full ability.

To to honor the dividend in commitments that have already been made importantly, a associated to to the 2019 performance. So we had that capacity. How we also had the capacity to sustain a capex levels when we compare them to the previous years and of course there is.

Strong value proposition associated to to sustaining that that level of Capex I think it was asked before you know a 20 extend that we can sustain that level of capex, a we protect reserves, we a generate between $5 billion to $6 billion of NPV associate.

It to that too on a it is actually what drives the right that roce a target dot and.

Aspiration and that that I spoke about later off of being somewhere between 8% to 10% a.

I mean, any case returning to our shareholders more than the cost of capital over the long run right. So so that's that's the way that we thought about it and I think thirdly, Hey, East East not part of our plan, but I think it's an important consideration is that when you look at our price assumptions.

38, 4500, 50, and depending on where you said you know, but I think that most of the feedback that we received so far is that it could be conservative you certainly looks to inserted into in the IND in the short term right Hey, we feel good about that because of the on sorry.

And piece and risks that that Philippe has spoken about a but a if these risks do not materialize.

Certainly there is significant.

Hey, a price upside and therefore cash upside associated to the span a ultimately using the price assumptions. What do you can see is that by the end of the 2022 period, we have $17 billion off a base level gosh, a of which eight.

Between 11 on 13 goal to Capex right, even on a high K. So that that allows for $4 billion to $5 billion of affects us caching potential.

A distributions if the shareholders see fit.

I hope that answers your questions.

Yeah pretty clear thank you very much time insulated.

Thank you.

Sorry might only have any questions. Please press star, one you're saying you're touchtone phone.

Our next question comes from killer.

Levy from Morgan Stanley.

Hi, Good afternoon, Oh I have just one question actually if you could elaborate on all the opportunities to increase that's prediction, but.

But she clubs in Colombia, and I referred here too.

Supply and demand charge.

On slide 17, or if you can explore what can be done in good momentum in wahid that Wasnt tried before and also if you can elaborate on the timeline for.

The offshore project just so we can have any huge all oh, when any potential prediction trending from there could.

Turning to market.

Lastly, you.

The amounts in the charge.

It would include.

And you start up production coming from from Chile, Colombia.

The element transfer for the question and I'll give.

A very brief contact center last kind of better through to expand but there's a few things that are very important one.

Yeah the Monty.

Over the years we've.

Become the 100% the owner of the main fields you know.

2011, who siano 2016 on this year.

Okay, Yeah. They want the you know the float in young out of fetal so now we have.

A full alignment in terms of ownership on Operatorship of the full yeah.

Trend well that give them on to you guys see opportunity. So I think that's one element and the second one in Wahid.

We now have of Operatorship. So us hopefully we bought the the equity or the ownership from from Chevron.

I agree with what was the partner then so now cyclical on Hong Kong and we have a company. That's net operating offshore is very important gas gas fields. So there's there's those two elements that I wanted to highlight because they've changed a bit the landscape and clearly provide I think more it not only.

Realignment that opportunities going forward. So a lot count there so to give us a bit more detail around your specific questions I lip Atlantic go ahead.

Hey, let Matt good morning. Thanks for your question. So in terms of production. What we are included in our plan in terms of gas production and when you look at 2020. Our current production is around 100 on 20000 barrels oil equivalent.

And we want to increase production by 15000 barrels by 2022.

In order to those so we will have to cope.

The declining production into two probably you know that's still Wahid assets recently acquired on operated by local.

The big they claim ratio would be about 17% by 2022, so we need to.

Basically do something turns of.

Ensuring comfort every hour reliability and.

I'm trying to call, but in terms of.

With those same pressure in compressing compression facilities.

In the other Monte.

What we're planning is.

Increase our PBT in terms of bringing new wells, that's imploring unpalatable and also the bolt on making treatment on transportation systems that will allow us to bring additional molecules of gas and also there will be activity in the Caribbean onshore.

Michael call, where we are planning to increase our production by Tim console barrels oil equivalent.

Going forward when you look beyond 2020 tool, we want to be successful in terms of our exploration activities.

And there are two areas, although all prior to realization when it's offshore.

When you look at our planned by 2024, we would like 2024 2025, we would like to bring the old Cup 40 gig Onstream.

And also PNM won't that there will be aggressive activity in terms of expiration looking to see all the trend. This is going from the customer not into that okay. Yes. So there is gonna be a lot of focus on gasol Delevering definitely.

That's it thanks.

Thank you and we have a question from Lilyanna Yang from HSBC.

Hi, Thank you very much again, Oh gosh, Glenn close my phone great. Okay, well follow up on the list.

Thank you.

I'm, having trouble fight the Capex of 1.2 up I could be there fidelity problem to put it seems a bit hi, but how do you mentioned I think you guys have a little bit of flexibility here. So could you give us a break down of the investment he was fighting meaning how much heath for capex tight capacity expansion.

Right.

If you have any if I did want to cut the he not refinery expansion of college.

How much of that will be for increasing that we find the black.

Complexity lightly, but that's held the cleanest fuse, which it looks like as multiplied by the end of next year right.

So anything on that.

On that front will be great and on top of patient midstream.

Mm typical quarter right you announce type b sponsoring a panel complete said, you're helping with what the capsule.

On the condition of bad being very low below 40, right. So what's the status now did you end up and negotiate all of the crude transportation.

Well the tight.

Yep.

And also if you can talk about what we can expect on the right review for fuel transportation for next year.

Thanks. Thanks for your question, So Alaska, Walter I want to be was the.

A bit more detail on some of the investments on the Capex, but we're seeing forward and then Alaska milliner to help us with the transportation wanted.

Thank you for leap day.

Thank you really for your question regarding the Army got the television for without being overly.

He is 1.2 1.8 billion dollar that you match.

Our focus for banking has been the truck capacity focus on Ajay Sunny and legal compliance and tissue or we have at label up at age on for the following yes, and as such we've got the amount I will say 50, I've been saying if he said located on Turner TBD.

The improvement process a lease a this area I would say that if for example in the case look I think now we are running any anything anyone on beneath into in the first cycle. All made a tenant on a PBT for the main process units in a SaaS, we need to make sure that.

I think you're dead Brooklyn.

Hi Tech accelerated for that indicates a baraka also.

Thats capital located for or they may not PBT Banca maybe focus on the FCC unit community.

Those units are running into that cycle and aside so they need an important topics allocation to make sure that we woke up.

And I love brokerage operation for the University in the following Neil So that these pieces of it but that's another topic then we have around 25% over the topics.

Okay equal in case anybody kit.

Yes, a media development of America, you make sure that we.

And compliance oil.

The legal requirements locally as a bottoming in demo what that is bulky Sean on emissions and then we got them out within 5% of lease a 1.21 bookie beyond that is a growth project on broad quality indicators of Logan said, we are talking about maybe they cut back in that refinery.

A group.

Our next on project and also we do hope on.

Gross profit at the same idea is empty February petrochemical often yet.

He did intermodal.

Quality.

Vocals insight improvement.

We would have been important yes, I do around couple Amir.

Oh, I said the pace of they need to connect you all know local unit are they talk Hana disposables ARPU.

Enough when I see a on the project is still renting is already and execute on base and we'd expect into to complete these brush it either so powerful Tony will do.

I would allow the refinery to go from lumpy KBB to 200 can be the approximately.

This is well ahead that we check in the quarter, an impediment unless it you know it has a very good return and we are this is one of only I will say growth project that we talked in adopting that we are progressing gorgon environment. Because he is maybe you said is positive for the future economics of the refinery.

Okay and.

They will come to any one we are planning to you gave flow for content of our gasoline.

Currently 11 and as such we operate in fact, it's more caution DC I've been around how there may have refinery by both bullshit.

Allow us to meet those a GDP and much more gasoline, but with a small investment.

That change out so we have not planning in the short them.

To change the complexity of that we find that although we are progressing.

The begin to any DTC and I'm planning to do it has some in both Diane I will say a portion.

To improve the quality of our product and basically to make sure that we have all our diesel and gasoline lived on 10 DPN.

Thank you I don't project Windy debate in the beginning this year I'm thinking do and they'd be beckman, although for all hit a will.

Maybe between clinically and 2026.

I hope.

Maybe I answer your question.

Thank you so much.

Yeah highly thank you for your question.

I'm going to break the question up into into three components in terms of what we have done to support a produces through this period.

And basically one could break up what we have done into into three different thing.

There were discounts offered over a two month period.

There were financing and then there was a alterations to a couple of contracts, which more than alterations to the contracts I would say let to be decisions.

For the.

So in terms of a discount we had discounts doing a two month period. That's almost bid has already expired. There were three requirements. You noted for the discounts to to be in place, which were basically a minimum.

Level of volume going through the system, where they would discounts offered.

Discounts were only all could it be a fixed rate was above a certain level, which was 3600 basis to the dollar.

And there was moving scale, where defense dependent on where the FX was.

And oil had to be below 40, so that took place to that two month period, we do not foresee any discussions going forward at this point in time with the market where it is right now.

The second measure we had was we offered financing.

Our remittance and this basically hi, six months, where we find that up to 50% there been.

That financing.

Up to 12 months with a six month greatly grace period, after which you begin amortizing the financing and the financing heightened district associated with.

And then the third thing we did what any copel specific cases, where clients were not able to meet the volumetric requirements of ship or pay contract. What we basically did was over those couple of months, where they delivered volumes and then we expect that they need to compensate those blood.

Later on in the so basically when you look at this from a full year perspective, the impact is might you know and we basically gave them this flexibility.

Given the current environment. So it's not a change in terms of the contract.

Shipper pay contract, it's not a facility that is recurring it was something we flexible line so to speak.

Points in time in order to accommodate produces so these would see measures. So when you look at the Flexibilisation up contract and the financing.

There's no impact in terms of revenue for the company because.

The volume didn't receive now you receive later in from the financing perspective, we still have an accounts receivable from all these companies and as a matter of fact revenues go slightly up because we charge and interest.

And then the discounts, which only without doing a two month.

Thank God anyway. So.

The level of EBIT that dropped my first question.

We just because of the beach, but parties also because that wed love concept, probably isn't that allows for lower volume right.

The third quarter can I expect we cooperate on the revenue EBITDA tool centric more like last year and not only should be kind of closer to what we thought in the first half second question.

So when you look at the changing revenues for the midstream and you compare first to second quarter.

It is really a two large drivers in terms of what you see.

The first one is it's important to remember in the rough numbers because the change with the effects.

Approximately 80% of the revenues come from dollar denominated Paris, which are oil pipeline.

Between 20, and 25, depending on where the FX. It comes from refined products pipeline, whose tired isn't it.

So the big impact between first quarter and second quarter is basically.

A reduction in volumes, which is not associated to ship or pay contracts really it's associated because the super Big contract Clicktools Asian was marginal it's really associated from lower transport.

Both because that was lower production.

And because in the refinery.

The pipeline.

The measures taken by government requiring people to stay at home.

Reduce our transportation volumes of gasoline diesel et cetera significantly during that period.

So when we look at what's going to happen going forward it you're going to C. H sharper recovery when we find but its transportation just because of the dynamics of people no longer being under a stay at home or there so to speak and then a gradual recovery of volumes in line for much of what to what you have heard from the upstream.

Those are related to largest moving factors between first quarter in second quarter, it's not related to the ship or pay contracts or the seems to be sage.

Thank you we have reached the allotted time do we have put questions I will now like to turn the call back too much of my own for any final remarks.

Thank you and thanks, everyone for participating we have a.

<unk> hundred 71 seven through connections.

That's a that's something we appreciate your interest and participation in following what we do whatever we put all your questions are very important to us they cannot provide us some additional insist that we need to a two used to see how we're doing what we need to do things that we need to adjust.

So we really appreciate it we expect that you remain say that you take care of your sales and the you on your family.

Our our safe throughout these very trying and difficult times.

We've gone through a very top second quarter, you saw that in the results.

We hope that the probably the worst is behind US we've managed to prepare what we think it's a very comprehensive.

Plan for the rest of the year on the next couple of years.

And Oh, obviously, we will continue to a monetary conditions, how they evolve how things change and we'll continue to communicate the promptly with you and we appreciate the comments.

Some of you've made around the transparency of our communications the frequency of our communications and we also value your feedback so with that thanks again for participating and I hope that everyone has a very good rest of the day Goodbye.

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

[music].