Q4 2020 Ecopetrol SA Earnings Call
Good morning, My name is yoga and I'll be your operator for today welcome to Ecopetrol earnings Conference call in which we will discuss the main financial and operational results for the fourth quarter and full year 2020, and the 2021 through 2023 business plan.
All lines have been muted there will be a Q&A session at the end of the presentation.
Before we begin it is important to mention that the comments in this call by Ecopetrol Senior management include projections of the company's future performance. These protections did not constitute any commitment after the future results.
Nor do they take into account risks or uncertainties that could materialize.
As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call.
The call will be led by Mr. Philippe <unk> CEO of Ecopetrol, Alberto Consuegra, COO and Hi, Mike how are you at all CFO.
Thank you for your attention.
Mr. <unk> you may begin your conference.
I'd like to welcome everyone. Joining us today, we will present the operation on our financial results for the fourth quarter and for the year 2020, as well as providing an update on the business plan for the next three years 2021 'twenty two 'twenty three 'twenty 'twenty is set to go down in history as one of the most difficult years the world has faced.
In the last decade, we struggled with the supply and demand prices in the midst of efforts to contain the pandemic juniper petrol we setup crisis committees and maintained our operational with a minimum number of people securing the supply of the fields required by the country. We rapidly the signed and implemented an action plan to gradually reactivate our operations under <unk>.
<unk> bio security products, we work with innovation and technology. Thanks to the previous advances in our digital transformation agenda, we updated the 'twenty 'twenty 2022 business plan responding to the prices in the timely manner, we committed more than 88 billion passengers the social investment for the benefit of our fellow Colombians.
And the attention to the social and health emergencies brought by the pandemic, we prioritized the protection of reserves and production, we accelerated the implementation of key ESG within the company and in our strategy, we progressed and the consolidation of gas as a key lever for the energy transition by increasing our operations in the peer the month of again, the hurdle and where are we.
<unk> done agreement with shell to work together in the Colombian Caribbean offshore gas Province, we signed the first of special contract for research projects choppy with the National Hydrocarbons agency, enabling the start of the licensing and the listing stage for the development of the Prehensile research pilot projects project of the lot of interest to you guys or anything at all.
For the unconventional resources. These project named Kelly will take place in what the Winchester, South and data, let's move on to the next slide lease Ecopetrol was able to face. These challenges stance for the commitment of all of our employees, we proved our resilience and flexibility to adapt to the adverse and volatile environment displaying a risk.
Sponsel gradual recovery and operational and financial terms, while prioritizing the commitment to safety in our operations in 2020, Ecopetrol reached an EBITDA of $16 eight trillion pesos on a net profit of one seven trillion persons standing out for its positive financial results in a year distinguished by a significant losses across the oil and gas.
The industry now lets move onto the next slide. Please in terms of market conditions 2020 was characterized by high volatility the average price of Brent decreased $21 per barrel as compared to 2019 and traded below $20 per barrel during the worst part of the crisis. The average basket for Ecopetrol was 39 points of.
X dollars per barrel in 2020 of 35% decrease as compared to the prior year. However are solely of commercial strategy supported by the diversification of destinations and the better global balance of supply and demand for crude observed in the second half of the year allowed for a sustained recovery in prices in the first quarter of 'twenty and 'twenty one we.
Expect a recovery in volumes of around 12, 5% in an environment of gradual economic recovery, where uncertainty still persists I will now open the floor to Alberto Consuegra, who will tell us about the main operational achievements of the year. Thank you Felipe on exploration, we drilled 18 wells during 2020 of which three.
We're successful six were declared dry and nine are in a pretty slow pace at the end of December for additional wells were being drilled and will be completed during 2021, given the success of the exploratory and appraisal wells got to the amount that is expected to achieve commercial by ability by 2022 to enable the incorporation.
Of the first reserves in the same year unstuck production by 2025, the RSC for three well will continue with the production tests and gas sales to several of the tussle and in the case of the Krajina sidetracked, the one well that patient activities and the declaration of commercial viability will be carried out in case of the.
By the end of 2021 day cumulative production of exploration assets increased as compared to the previous year, reaching for <unk> 3000 barrels of oil equivalent per day of Copa <unk> group's production in 2020 was six one round of 97000 barrels of oil equivalent per day. According to the established.
Production of gold natural gas contributed 17% of the annual production rate exceeding an increase of 3% in the volume produced as compared to the previous year in for Q. 'twenty production was 694000 barrels of oil equivalent per day, which is 13000 barrels of oil.
We will in per day higher than the production achieved in the previous quarter.
The gas business contributed over 30% of the abbey doubt the upstream segment accumulated to December Similarly, EBITDA margin remains up levels of both 50% of as a result of commercial strategies that allowed us to maximize sales volumes, we highlight the reduction of <unk>.
Moving to a level of $21 7 million cubic feet per day as of December 2020, contributing to the commitment of of 20% reduction of emissions by 2030 with an estimated reduction of 600000 tons of cotwo equivalent per year as well as the 771 users that work.
During 2020 through the Gaslog Seattle program in the countries debt transported volume of crude and refined products in for Q 'twenty increased versus free Q 'twenty, demonstrating the recovery of the consumption levels with volume higher than even those transported prior to the pandemic in line with the lowered production.
In the country and the contraction in demand for refined products. The annual volume added 12 per cent reduction during 2020, nor reversal cycles of the bcm and audio pipeline where needed because of the successful operation of our strategy implemented for the cannula non convenience by applying this is the first hearing which day.
As contingent alternative has not be used since its commissioning in 2017 in turn the refinery segment had a competitive performance amidst the worst the scenario of the sector in many years due to the operational stability of all business units and the strict focus on volume.
And the fuel quality path stands out achieving of gasoline production with lower average sulfur content anticipate into the regulation set to come into effect. During 2020 of the Cartagena refinery produced gasoline with the quality of less than 30 parts per million of sulfur gasoline production below 50.
<unk> per million the Barrancabermeja refinery was set to an early start since November the segment continued to improve its results during the fourth quarter and the refinery reached the consolidated load of 355000 barrels per day, the highest of the year. This shows that we are maintaining the <unk>.
The ability of our operations in the face of the challenges brought about by 2020, let's continue to the next slide to talk about the reserves balance at the end of 2020 and co patrols.
P reserves were 1700 70 million barrels of oil equivalent revealing of six 5% the booking versus the reserves registered at the end of 2019. These reserves are classified in 71% liquids and 29% gas the direct team.
Fact of lower prices meant a reduction of close to 215 million barrels equivalent of proven reserves. This phenomenon was partially offset by the results of new drilling projects in different fields, adding approximately 114 million barrels of oil equivalent and the good performance in production and optimization.
Non of technical economic of variables with positive reviews of 30 million barrels of oil equivalent. Similarly, thanks to the increase of proven reserves and the reality field on the commercial viability of east Socs in the Mexican Gulf on Andina in Colombia field discoveries 43 million barrels of oil equivalent, whereas the contribution from the incorporation of <unk>.
Oil reserves by enhanced oil recovery initiatives in 2020 was 113 million barrels of oil equivalent as well as the result of the continuation of water injection processes, mainly of CIT Humana Kirsty yell RCD in front us a P. <unk> E contract value of fields as for gas injection the.
That contributed to the incorporation by EUR, where to pier one Cucina, we closed 2020 with the research replacement ratio of 48% and an average reserve life of seven five years. The investment plan aims to recover the growth path and revert to reserves.
Replacement, achieving our reserves replacement ratio of 100% by 'twenty two of any tool. Thanks to the activities planned for the recovery of reserves such as the technical management financial optimization of assets and different investment projects of the company, let's move onto the next slide in Q4 2020.
We're awarded the special Research project contract Sappy for its acronym in Spanish for the color of pilot project. This project comprises the construction of the four five hectare platform circa located three six kilometers from the European area of port of weakness, where it well we'll be drilling we will apply the.
Multi stage hydraulic fracturing technique with horizontal drilling on the rigorous monitoring program and the use of a minimal impact technologies and methodologies to ensure the protection of the environment and the health of the communities in the area of influence. The community will also be involved in monitoring and follow up.
Processes. The project. It has seen its first phase which consists of advancing in the necessary activities for obtaining the environmental licensing before the responsible entities through the monitoring of local and regional baselines on environmental health and seismic issues as well as of the development of.
The complete relationship plan in the country, one of the institutions and with the communities regarding our activities in the Permian Basin. After reactivating operations in July we ended 2020 with 22 wells in production and 22 additional drilling wells, which are expected to be completed in first Q <unk>.
One black ways, we wrapped up 2020 with annual production of $5 2000 barrels per day of oil equivalent net for ecopetrol prior to royalties and an investment of $185 million with the production.
<unk> levels and efficiencies obtained in 2020, Permian generated an accumulated EBITDA of $27 million and an EBITDA margin of 43%. Similarly, I would like to highlight the following operational performance records the fastest well in nine seven.
Days on average drilling time of 14 days for of wells with average depth of 19800 feet and the execution of 18 fracturing stages in one day by 2021, we estimate the drilling of approximately 90 wells and average annual production of between 12 to for.
The 14000 barrels per day of oil equivalent net for Ecopetrol after royalties and in the investment of approximately $600 million, let's move onto the next slide during 2020, the company maintained a permanent monitoring of its costs, ensuring flexibility to overcome the <unk>.
Critical moments of the year, while guarantee and the availability of resources for a safe and profitable reactivation of the operation in the face of price recovery.
Total unit cost was 27 $4 per barrel in 2020. This is a significant reduction of 23% as compared to 2019, achieving savings of around one trillion pesos in the operating costs, we estimate that by 2021 the costs associated with our operation will grow.
Given the reopening of wells and the increase in the price of Brent that we have been observing since the beginning of the year. However, we ratify our focus on cost control by extending our goal and savings on efficiencies between one five trillion Colombian pesos two two trillion Colombian pesos for the next three years.
This will allow us to maintain the total unit cost around $30 per barrel out of Brent level of $45 per borrower.
We'll now open the floor to <unk>, who will tell you about the main financial results of Ecopetrol group. Thanks, Alberto lower sales volumes related to the historic demand contraction combined with the negative effect of lower oil prices, resulting of 29% reduction in revenue when compared to 2019, the capital group generated on <unk>.
EBITDA of $16 eight trillion pesos and the net income of $1 seven trillion pesos positive returns that stand out in the challenging environment for oil and gas companies worldwide. These results also compare favorably against the last price crisis of the 2015 2016 period. In addition to obtaining of positive financial result, we highlight the.
Lower reduction in production volumes and research demonstrating the growing we're seeing use of the group among different market conditions underpinning each value generation capacity in the long term, let's move onto the next slide to deepen into the net income results Ecopetrol group's fourth quarter net income was 675 billion vessels, although even better improvement in marketing.
The operational indicators it is lower as compared to the third quarter of the year due to lower EBITDA generation of 218 billion pesos related to lower margin in imported crude oil and gasoline sales and an increase in operational activities previously restricted by the lockdown measures Likewise, the fourth quarter income to the effect of for non.
Non recurring events first higher exploration expenses of 212 billion pesos, mainly due to the recognition of the exploration activity in the back the one well in the higher provision for dismantling of non commercial wells second the write off of certain assets that were considered as ongoing projects given the completion of economic feasibility.
For 208 billion pesos third higher labor expenses for 103 billion peso, reflecting the accounting impact of the addition of 182 employees into the voluntary retirement plan for a total of 421 persons during the year. This will represent a positive cash effect of approximately.
<unk> four trillion pesos into the future for other extraordinary items related to tax provisions and the environmental contingencies for 52 billion tests. The aforementioned impacts were partially offset by the financial result of 408 billion pesos, mainly due to the positive effect of exchange rate differences and FX hedges.
Finally during the fourth quarter, we updated the impairment calculation recognized by the company in the first quarter of 2020 for one two trillion pesos, resulting in a recovery of 415 billion peso net of taxes of the total amount of recognizing that period, given better expectations for the market variables on an annual basis 2020 net income was <unk>.
Positive in the close at $1 seven trillion peso as compared to 2019, there is the lower EBITDA of $14 three trillion pesos, mainly affected by the drastic fall in prices lower demand on the recognition of the voluntary retirement plan provision likewise higher financial expenses and other items of $4 six trillion versus where generated off of.
Set by lower income tax of $5 two trillion associated with the lower results. It is important to highlight the effect of three nonrecurring events that occurred between the end of 2019 and during 2020 with the net impact of one six trillion vessels as follows first an extraordinary revenue in the fourth quarter of 2019 of one.
Hi, Chilean pesos related to the expectation of future recovery of historical tax losses in the United States second the recognition of an extraordinary of revenue in the fourth quarter of 2019 for one trillion pesos coming because of market valuation given the increase of stake and change of control. The above was partially offset with the business combination of gain recognized.
The acute train at the stated to the acquisition of the offshore gas assets in our heat finally during 2020 of net impairment of long term assets for 530 billion packages was recognized lower by 748 billion pesos. After taxes when compared to 2019 is important to highlight that this amount includes the previously mentioned recovery compared.
For the first quarter of the breakdown across the business segment is as follows in the upstream and impairment of 163 billion peso was recognized mainly due to the decrease in the price protections in the midstream and impairment recovery of 240 billion peso was recognized related to higher volumes within cash generating units in the times of.
Dino pipeline and the kind of demand pipeline in the downstream and impairment of 617 billion patients was recognized as a result of lower refining margins and kind of the Hana and the lower book value of the assets associated to the modernization plan of the barrel of entitlement, how refinery considering the likelihood of future utilization, let's move onto the next slide with regards to the.
The performance of our main financial indicators is the definitely the first quarter was $4 three trillion, Texas, while the EBITDA margin stood at 35% as previously mentioned the fourth quarter was mainly affected by lower margins in imported crude oil and gasoline sales and increasing operational activity and the effect of some nonrecurring events at the debt for Bell.
<unk> stood at $18 $5 due to lower sales volume and lower crude and product basket price. The net income breakeven was affected by the lower revenue, mainly due to lower throughput and crude spread the main leverage ratio of gross debt to EBITDA reached two eight times a significantly improved performance versus the three five times stated as 2020 target.
Finally, the 2020 capex execution amounted to $2 7 billion within the target range of two $5 billion to $3 billion previously announced 78% was invested in Colombia, and 22% internationally, mainly in the United States and Brazil. In addition of the total investment of 76% correspond to the upstream segment and the remaining 24 per.
<unk> to midstream and downstream segment is important to highlight that 66% of the investment was focused on reserves and production growth opportunities and the remaining 34% to operational continuity activities, let's move onto the next slide to discuss the cash position by the end of 2020, Ecopetrol maintained a robust cash position of $8 one trillion pesos.
During 2020, the main sources of cash were operating activity in China, which allowed disbursements towards for serving the investment plan honoring the dividend policy. Despite the crisis and maintaining a disciplined debt service. We highlight the change on the free cash flow trend during the second half of the year, which allowed the prepayment of short term obligations for a total value.
Of one six trillion in Texas, I now give the floor to the precedent for EBITDA Ewen, who will present. The 2021 2023 business plan. Thank you Jaime the 2021 'twenty two 'twenty three plan reflects an updated perspective on prices reestablish the growth path with the resilient portfolio and accelerates our commitment in terms of sustainability.
The energy transition it also highlight that organic growth and focusing our business as an integrated company remains as our main priority organic investments will be around $12 billion to $15 billion, mainly oriented to the exploration of production segment with a focus on strategic assets that will allow us to restore the growth path for production and reserves operating cash.
Cash flow will show an increasing trend. In addition, we expect to achieve across debt to EBITDA ratio lower than two times by 2023 in amazement segment investments will be between 780 and $960 million and our ambition mainly to prioritize integrity and reliability of the infrastructure the growth of the P.
Pipeline business and the efficiency in the evacuation of the heavy crude in Colombia in refining will allocate between one two and $1 $4 billion, mainly to ensure the integrity and competitiveness of our assets. The plan includes the entry into operation of the project to connect the crude plants in the Cartagena refinery, increasing the total throughput of the <unk>.
Binaries to around 420000 barrels per day by 2023, let's move on to the next slide. Please the panel restores the growth path, reaching production levels of close to 750000 barrels per day in 2023 with regards to enhance oil recovery. We will continue with the expansion of the water injection in Jan Ito.
<unk> and cost of your fields production at Canyon sort of stands out in terms of primary development with an expected contribution to total production between 20020 5000 barrels per day in 2023, our gas strategy includes investments to strengthen our operations in both the other Monte and Wahid is the priority to continue <unk>.
In the future growth of of reserves in Ecopetrol amongst the main projects, we've kind of highlight the increasing the recovery factor of the current feels the development of the discovery of flamenco field in the Middle Magdalena Valley and the wealth of the near field exploration program and the development of fields, resulting from recent international acquisitions, such as <unk>.
The muscle in the Brazilian pre salt and rodeo in the Permian basis in Texas U S. Let's move on to the next slide please the ecological group and expect it to achieve a robust operating cash generation of between 14 and $16 billion in the 2021 2023 period other non operational income range in <unk>.
Between $500 million and $1 billion could be added dust and discounting the debt service would have sufficient cash available to finance the investment plan and generate return to our shareholders at a price of about $50 per barrel. This plan does not require incremental debt to finance. It is noteworthy that the current price of Brent generates Patel.
Liquidity surplus, providing additional flexibility and optionality around organic and inorganic growth prepayment of debt and dividends, let us go to the next slide to see the progress in our ESG, France for the next three years, we will allocate over $600 million.
Decarbonization energy efficiency yields quality agenda, amongst others and the environmental front Ecopetrol will developed six new solar projects. This year. In addition to the Costigan San Fernando solar farms, achieving great advancing the energy transition plan, which contemplates reaching an installed capacity of nonconventional renewable.
The energy of 400 megawatts by 2023, we maintain our target of social and environmental investments of around one seven trillion by 2024, mainly of reentry to breaching social gaps and boosting development and wellbeing of the communities in which we operate and the governor who will remain committed to improving our T E S.
<unk> information disclosure standards by following international best practices in the sense in 'twenty and 'twenty, one ecopetrol will begin to adopt the sustainability metrics recommended by the World Economic Forum also referred to as stakeholder capitalism metrics. In addition of Ecopetrol will incorporate into its main reports the referenced frameworks of D C D and the.
<unk> B as announced at the end of last year. Please go to the next slide I want to share with you some of the strategic considerations behind our interest in the acquisition of 51, 4% of the outstanding shares of Interconnects Jan Electrical SA.
The Isa hydrocarbons will continue to be the most abundant secure and affordable source of energy to meet the world's energy and mobility needs of lower of off the amount of hydrocarbons is expected going forward. It is estimated of hydrocarbons, we lose market share over time as the world transitions towards decarbonization and electrification in risk.
Sponsored to climate change. These process has been accelerated in recent years. We have also seen an increased volatility in oil prices, coupled with less investment appetite for the hydrocarbon sector all of its Pete.
The of change is expected to be slower in Colombia. The country is not exempt from the strength in this context. The companies of this sector of the global level are evaluating options to reposition themselves along the energy chain in new business segments aligned with the strength such as solar and wind renewable generation de carbonization through the use of hydrogen on carb.
Non capture of utilization and storage electrification homers utilization of services to end customers the need to connect and integrate multiple points and types of generation will reinforce the role of transmission as an indispensable actor in the energy value chain and a required enable of the growth of electrification we are convinced.
There is not one unique path to energy transition, let's move onto the next slide to see how ecopetrol plans to respond to this transition ecopetrol has defined for access to phase the energy transition. The first one we will continue strengthening the competitiveness of the oil and gas business to guarantee the capture of value of our current portfolio as well.
<unk> is the resilience of new opportunities second will venture into new energy businesses third is all around decarbonization and fourth key ESG for technology, environmental social and governance. The latitude will be focused on accelerating and prioritizing energy efficiency and reduction in our carbon footprint.
Based on the faxes Ecopetrol plans to gain resilience in the oil and gas portfolio, which will continue to be the central axis of the company's activities, while increasing the exposure to new energy transition resilient businesses by 2030, we ambition and oil and gas business still growing but we expect options such as green hydrogen carbon capture.
Utilization and storage nature based solutions amongst other opportunities to be progressively incorporated to our portfolio as they meet the group's gross cash protection and capital discipline criteria, let's talk about the benefits of this transaction on the next slide. Please east is one of the most relevance electric power transmission operators in Latin.
America. This investment the opportunity would allow the group to achieve a material position in a leading company in our sector that is strategic for the energy transition with our diversified portfolio of by geography, and asset class with great profitability and growth prospects in the markets and businesses, where it's already operates all in a single transaction.
The of ball in addition to its exceptional management team and its robust corporate governance, the acquisition would significantly improve ecopetrol the risk profile east export portfolio share characteristics with the midstream assets of the Ecopetrol group to the extent that both of our regulated linear infrastructure businesses with similar remuneration structures for them, which synergies can be.
Derived in the future alongside each other income associated with this type of businesses would represent around 40% of the group's increasing resilience towards crude oil volatility and allowing us to take advantage of the different economic cycles. The often to enter the energy transmission sector to Luisa is more attractive than other low emissions generated.
Businesses were in the group could invest as the prospects for margins and returns from transmissions are more stable. Additionally, with a single transaction, we would reach the scale of diversification that would otherwise take us years to build with other options. Let US proceed to the next slide the potential transaction generates value for our shareholders and debt.
Closers on the one hand, assuming current market prices the dilution that would be generating by the equity public offering would be more than offset by a higher profit of available to shareholders increasing earnings per share. Additionally, the group's float would increase and with each of the stock liquidity in the secondary market on the other hand several rating agencies have.
Stated that this operation would improve vehicle for gross credit profile since it would obtain more stable cash flows and reduce the risk of geographic concentration as reported to you. The company signed an exclusivity agreement with the Ministry of Finance on February the 12th to move forward on a non binding offer on the terms and conditions of the potential transfer.
This exclusivity agreement is initially expected to end on June 32021. During this time, the Ecopetrol will complete the due diligence process and will work in parallel on structuring the potential equity offering and other financing options leading to the closing of the transaction if the inter administrative contract is perfected by the end of the second.
For the equity offering could be carried out in the third or fourth quarter of this year subject to obtaining all of the authorizations required in parallel and depending on the equity offering results and the surplus of liquidity available adapt the issuance would be executed to obtain the remaining funds for the closing of the transaction, which is planned before the end of the.
The year 2021 net has now moved to the next slide. Please we will see of pro forma analysis of the figures of this potential business with this acquisition Ecopetrol would expand its presence throughout the American continent positioning itself as a reference in the energy transition in the region. The consolidation of figures of Ecopetrol group on east shows the financial strength that would be.
The obtained were reset with contribute with around 10% of the income and 15% of the group's EBITDA, while diversifying the sources of operating cash generation decreasing the income and EBITDA volatility of the Ecopetrol Group. In addition, environmental metrics such as the C. O two emissions to EBITDA ratio would improve upon bringing to the group of <unk>.
That has been recognized both locally and internationally for its commitment to the environment and its debt sustainability practices, let's now move on to the conclusion slide last year's results demonstrates ecopetrol resilience and competitiveness, allowing us to start the year 2021, with a solid financial position and with expectations.
Of our profitable and sustainable growth on all fronts of our business. The 2021 2023 business plan will allow us to meet the environmental challenges with a focus on sustainability and to ensure a strategy that adds value to the business group and to the country with a clear aspirations disease of transformational opportunity for the group as it would be the.
<unk> of a controlling stake in east, we will announce Ecopetrol group <unk> strategy. During the first half of the year. He will present, the comprehensive view of our main metrics and ambitions. In addition, during the second half of the year, we will present the updated long term strategy again, many times to all of you that are participating today I'll go ahead and open the <unk>.
<unk> session.
Thank you we will now begin the question and answer session.
You have a question. Please press star and then one on your Touchtone phone.
If you wish to be removed from the queue. Please press the pound sign or the hashed E P.
Youre using a speakerphone you may need to pick up the handset first before pressing the numbers and so that we may take as many callers as possible. Please limit yourself to two questions. Once again, if you have a question. Please press star and then one you're seeing your Touchtone phone.
We have a question from Barbara Halberstadt from J P. Morgan.
Hi, good morning.
One of my first question is regarding the goal of leverage reduction for at the hearing the Max debt you could provide a little bit of color.
One what will be driving debt reduction or is it the only of the cash generation and in the gas expansion or if the company. The also thinking about liability management for it this year taking into consideration also the potential of debt funding for the east the acquisition and that would be the first question.
Barbara Hi, and thanks for for.
Taking part in the call today.
Can I ask <unk> to take this first one and then depending on the nature of your following the questions, we'll see who are.
Addresses them. So Jaime if you can give us.
Our views and share some color around.
Leverage levels and how we see these going forward.
Sure and thanks, Felipe and thanks for your question Barbara.
So I think when we speak about about leverage and there is there is two scenarios in mind there is the.
Standalone business. If you will you know which is our current.
Oil and gas business and then there is how we see ourselves.
In a success case with the planned acquisition of of Asia right.
When we look at that organic business, which is where we are today the.
The starting position because we because of the year in and of Great place, we close without with a debt to EBITDA ratio of two eight times significantly lower than what we expected originally.
And it's a very healthy metric you say compared to our peers in there and the rest of the industry.
As we stated one of our goals in the Pan East due to.
The reduced these days leverage ratio to under two five times right, we feel more comfortable in a range of two to two five times.
We believe that we have visibility towards that what's going to be underpinning it is going to be.
The combination of two things on one hand.
We expect a growing contribution of EBITDA over over the coming years, starting this year.
In effect immediately affect the debt.
That that ratio and the other component is that we.
We see that we don't have a.
Any any need for new debt a two.
The fund our organic plan.
<unk>.
There is a caveat here that we might choose to tap the markets Opportunistically.
As a function of taking advantage of the low rates that we're seeing right now the low cost of debt that we're seeing right now so we might we might choose to tap the markets of not mined or are we we might choose to do that.
The within the context of our efforts to optimize the.
The capital structure of the company, which is something that I've spoken to you about in the past things for instance to give you. An example, like a putting some debt into the midstream segment for instance.
So those sort of things we will continue to do that so, but we don't need to do them now.
Then we go to the second scenario, which east with with the transaction right.
As we shared with the market. We we plan to approach this transaction with the combination of equity and debt.
The back.
Debt is going to be a <unk>.
Largely contingent on the size of the equity offering that we make and.
For for directional purposes, we see a range of between one and $2 $5 billion of possible debt that we could add to the to the balance sheet right.
When you win if we have success with the transaction when you consolidate that did you see the consolidated Ecopetrol.
And what we see is that by the end of 2020, we are going to be with our gearing.
With this ratio of debt to EBITDA, probably around 2728 times.
And it will be a it will be reducing itself over time, we see actually that around 2023 2024, we are likely going to be the two to two two times debt to EBITDA, what's behind this it's a combination of two things again.
In the case of east out what we are assuming for this aim for this view is the continuity of their assays business. We are assuming the continuity of their of their end of their debt. So we are not assuming prepayments of any sort of a.
And in the context simply when you run the cash flows of the business. That's what we that's what we're expecting.
I hope this addresses I guess just of your question for thank you.
Yeah No absolutely. This is very very helpful. Yeah. My second question would it be interim of the the Capex advances in areas, where you had more attentions with local communities. If you could give more color on how that's going on if there are any updates on how the company is dealing with the situation and what actions can.
Really be implemented.
Looking into account all of the different interest from stakeholders.
We know that the ESG front is very important for the company. So just wanted to get a little bit more color on on that front. Thank you.
Thanks, Barbara and I'll I'll take this one of them I'll ask Alberto to provide a bit more color, but one thing I would say you know having gone through the last 12 months of the COVID-19 and the prices.
Is that we've seen the need to work in something that's fundamental and rebuilding trust with communities.
And during the <unk>.
<unk> of March and April of last year.
We had some 40 to 45 work fronts working in the country.
Day, we have the close to 350 work fronts, which is sort of the number that we had before pandemic hit.
So we've had to actually rebuild trust with the communities and it's been a.
Sort of that collectively we've been doing with communities with authorities at the regional and local level and at the national level as well.
That's point number one second thing and I.
I was 10 days ago, the Winches and Santander talking to communities around the the.
The pilot projects for fracking and that exercise was around we spend out of no. Most of the day listening to communities of apprehensions of worries.
And the big Big themes are around the water management, but some of these things are.
The unresolved needs that are happening there for for many decades.
And we're around water management and the use of water and employment opportunities. So how can we actually get ahead of the game in terms of of being very proactive.
Publishing dialogue with communities and and in that sense again rebuilding trust. The other important thing barberry fulfilling our promises on our commitments and that's one of the things that we do day in and day out we need to close what we've started with promise something you were working with the project or honor a project with come.
We need to ensure that we actually finalize those at TVT. So.
Eventually there will be issues in some parts of the operations, but I feel that we are with the approach that we've taken.
We've actually increased significantly our investment in both social and environmental aspects of the.
Of the those.
Those activities in the communities.
The other thing, which is probably a very.
Vital.
Sort of activity, we're conducting is something called owed us putting blisters.
And this is something which is.
Doing work in lieu of paying your taxes more or less.
And we have a.
A program that it's.
North of 100 million Bucks, so instead of paying those to the.
To the the yen to the tax authorities we construct.
Either.
Schooling or water products of what Iraq with ups or the infrastructure or roads and I'll give you. One example, and I know probably providing a lot of color, but I think it's relevant.
In the tobacco, which is a very.
A difficult part of the country, where there has been violence.
With the just over.
Three of 5 million Bucks, we provided.
Desks in schools for 245000 kits.
And the mum the.
A mother of one of those kits was telling me look.
Not having desks was one of the the highest.
Factors of violence in the in the region and I said I don't understand and I said look in the school, where you have 600 kids and 50 desks.
Imagine what's going to be the source of conflict so with those things.
Im providing you a bit of color. We thing we can reach faster quicker to those communities that are in need.
But overall it is a matter of creating the trust fulfilling your commitments and having direct dialogue with all the time the the one other thing.
Maybe maybe a bit more context.
A couple weeks ago, we announced that we're one of the 61 companies signatories of the west stakeholder capitalism metrics reporting system and that means in terms of transparency and enable them to have data.
About how we conduct our business that is fundamental and we're committed to that.
Hope that helps a lot about I know it was lengthy but I think it was worth providing.
Okay.
A bit of of contracts I don't know Alberto if there's anything you want to add.
Yes.
Good morning, Barbara and it's about the debt actually we've been successful in some areas like the Alice also of the areas in which we have.
The previous problems.
<unk> have been successfully the soul and.
Then we can go full steam ahead, there with Capex deployment.
As we get closer to election year, we see the potential for for additional.
So it's the alone risk, especially in the.
The middle Magdalena basin, and the damage that the absolute it.
It was mentioning we are.
Are putting together a plan that includes a green.
And executing the social investment plans with governor knows the governors and mayors and in production regions.
Creating opportunities for <unk> drilling holes in the regions, increasing the local unemployment increasing the local participation in goods and services.
And involving the central government in the prompt resolution of blockades of when these are present.
And the end Felipe you also mentioned that that's the reason why we are deploying such an aggressive plan in terms of social and environmental.
Investment the one point of seven 3 billion pesos, which is to support the exploration and production and other segment Capex plan.
Thank you that's very helpful.
Thank you. Our next question comes from Bruno Montanari from Morgan Stanley.
Alright, Thank you very much for for taking my questions are for.
First one is about the production curve.
Could give us an update.
What's going on with production now in the first months of the year for both Columbia and the Permian and then going forward. If we look at the 750000 barrels a day.
The target for 'twenty and 'twenty three.
How much of those for you plan to get in the Permian as well.
The second question is about.
The business plan of oil price assumption.
Overseeing february but isn't using $45 per barrel, perhaps that'd be too conservative.
So thinking here, what upside could we see the production and returns and other relevant metrics.
Oil prices stay at 65 or even goes.
Towards 70 and I.
Third week one.
Just looking at the Capex range right you provided between 'twenty, one 'twenty of only three that there is a $3 billion range.
<unk>.
What explains the top of the range is it maybe accelerating shale drilling in Colombia or in the west or is it more inflation driven the higher oil price driven.
So those are my questions. Thank you very much.
I don't know of times and I'm going to ask Alberto to take the first one on production and give us a bit more color around it.
Split between the Columbia.
Particular of the Permian and how do we see that progressing and then I'll ask <unk> to give us some thoughts on that.
The margin questions and.
And what are the ranges in terms of Capex going forward. So Alberto Please go ahead.
Bruno Thanks for your question and good morning.
In terms of exit rates in the past year.
Colombia.
Was about <unk>.
685000 barrels.
M.
And what we believe he said in this first quarter, we're going to be getting closer to 700, but depending on where the weekend and tackle one input that we're seeing in the Casspi appeal.
Just because of the suspension of the disposal of the water disposal structure. So ones would resolve that the we can get back on track and.
Get the over.
And in that range of 700000 barrels.
Back in the in the case of <unk>.
The Permian the exit rate was for 5000 barrels per day last year and as we start completing.
Well the 22 wells that we drilled last year, we're going to get into the range of 9000 thousand barrels net of corporate growth and then at the end of the year with the new pace of drilling and completion. We will ended production at the around 12 to 14000 barrels per day medical the tool.
Sure.
So that's kind of the situation with Colombian Permian and then.
The expected growth.
In in terms of 21% to 23 to get the production of 750, you will see growth in projects such as Dan Ito Cassava, <unk> seating Panthers in the Middle Magdalena Basin ACA fee us in general sodium palace the gas production in the Caribbean only sure.
And for me on of course, which will account for about 20.
20000 barrels during that period.
Okay.
Hi, Bruno Thanks for your questions I'm kind.
The address then I'm going to first address your question or comment on price and then we're gonna link back to the Capex range is conversation.
I think in <unk>.
What we said in terms of price or are planning price for 'twenty 'twenty, One east East 45 in 2020 to 50 20, $23 50 for Asia.
It's at a time.
It's a it's a pathway, where we see a gradual recovery of of balance between supply and demand over the coming years I am.
Admittedly when you look at it today in the light of the current prices it might sound conservative.
But we continue to believe that risks remain right risks remain and we prefer to create.
Create the financial framework of the company with with a with a view that east conservative and that therefore drives efficiencies and drives capital discipline. That's that's the philosophy.
That that that we like to operate and what are the risks that we see remaining in the market. There is three fundamental risks. The risi there is still of risk around the evolution of the of the Covid pandemic. There is still the risk around vaccines and the pacing, which they are deployed.
And the effectiveness of that that may have over the over the coming months and we also believe that there is a risk around our own OPEC plus a particularly when you look at it from a.
From the physical stability of several of the countries that make part of the of that group.
So that's how we're looking at it now we do agree when when we look at it today and if you look at our very short term planning scenarios, we do agree that.
<unk> East East significantly more likely to have a Brent price between 50 and 60, a nowadays for 'twenty and 'twenty. One we do agree with that and I'll give you some some kind of broad sensitivities around it.
And understanding that the low end of the range is 50 on the high end of the range of 60. So for instance for EBITDA, we see we see that that this this this price view could represent between one and $2 $5 billion of incremental EBITDA.
Margins EBITDA margins.
It could increase between one and 4% roti could increase between one and 4%. So those those ranges are directly connected to the price range that I gave the.
Going into Capex.
And understanding whether prices of factor on Capex the way that we've thought about this $12 billion to $15 billion range is it influenced by for key factors.
And the first factor east is actually around in execution capability and it's something that the leap in Alberta addressed in the in the previous question and it has to do with with our ability.
To deliver the projects at the pace that we want in a context, where where where there is still a endemic going on and.
There are some social challenges in certain areas right. So I think that that's a factor of <unk>.
Current factor is around the pace of a maturity of some of the projects, we feel that 2021 east very much underpinned, but 2021 'twenty two 'twenty three there is still some range of uncertainty around those projects being ready for Showtime.
Three the reached a key component on this around capital efficiencies where as.
As you saw it in for a few we continue to deliver capital efficiencies projects continue to come in at lower cost than we anticipate and ideas of factoring in the way that we're thinking about the range and the fourth factor is our non optionality optionality it in the <unk>.
Context of a weather some projects.
Become more attractive at these prices or not.
What has been our guideline.
I'll give you kind of its boundary condition.
All of the of TVD set that we're pursuing within this range works at $50 or below the totality of the of the activity said, we are not bringing to our kind of optional said activities that need breakeven above that.
And the reason for that is the casino portfolio, we have sufficient opportunities.
That are more competitive.
Now specifically thinking about the range the.
The way to think about it east that of that a 12 to 15 812 five to 13 billion. Our firm right are fully firm I would say that they are directly connected to the 750000 barrel target they underpin that.
750000.
Barrel target by 2023, and there is $2 billion.
The above and beyond that that east optional that would give us.
A bit more a upside to the 758, particularly because when you look at that 2 billion, 75% of that east gross Capex right, 75% of that is growth capex. The other 25% it would be a continuing operational continuity Prague.
<unk> that are related to two.
Keeping our infrastructure, so I hope I hope this addresses.
Your question. Thank you Bruno.
Thank you kind of a verity of just can you make.
The make sure I got the right number when you were discussing the range of the oil price of you mentioned the royalty between one and 4%.
What was the EBITDA range.
Yes, so the.
The primary endpoint.
Bruno.
Would all be incremental to what we've shared as part of the baseline plan. So EBITDA.
One to $2 5 billion.
EBITDA margins one 4%.
Roti incremental 124% again this is all incremental on top of the baseline numbers that we've shared today.
Thank you. Our next question comes from Frank Mcgann from Bank of America.
Okay.
Thank you very much I just wanted to follow the little up a little bit more on that last question in terms of the the range of fairly wide.
It seems anyway for 2023 in terms of.
We're going to go.
And I just.
It's clear where the the Permian will be.
A major contributor of that and some of the areas that you mentioned I was wondering which which areas or might you be concerned with in terms of of.
Potentially disappointing or where you're already expecting declines and it's just the question of how how difficult. It is to sustain production in those or what would be the kind of the variable production that would drive how high you can get.
As you get close to 750, and then secondly, just briefly in terms of lifting costs, which went up both year over year and versus the third quarter. What what is your feeling on the overall cost levels. As you look at 2021. Thank you.
Thank you Frank and I'll give you some context on the first one and then I'll ask Alberto to.
So talk a bit in more detail.
And then to talk about cost and the transfer of lifting costs, which is I mean, it's.
Fundamental point that we need to ensure that we keep.
Sort of in control on.
There are belt.
The transfer of production there is a couple of areas that are very very strategic one gas. We've said, we want to become a gas for your company and in that sense, ensuring that we can continue to increase.
Two things one P.
Production in terms of gas and the levels of gas that we've seen we were able to very quickly react during the day.
Covid.
Or have been able to react during COVID-19, but also in terms of.
Our pricing additional gas volumes that will be available. After 2023, so it's a matter of.
Securing an increasing volumes through 2023.
Then.
Our pricing options going forward. So gas is one piece of the Monte where each was which is in person out of where we have lots of activity focused and the other one of the Permian that you mentioned you know of last year, we were able to stop and restart very quickly we stopped in March we restarted in in June.
And we ended up the year with the 22 producing wells in 22 additional wells that will be tied in in <unk> of this year the.
This year 90, more wells and roughly 300 wells in the next three years, so purely the Permian will have a massive impact in terms of.
The production growth and opportunity and I think the oxy.
Who's our partner of the operator in rodeo.
The demonstrated as the Alberta was alluding to.
The.
Operational excellence in terms of delivery.
Through drilling the wells.
The faster and doing more fracs per day, and delivering I don't know a lot of savings in terms of cost as well.
During that.
That operation is profitable so al I, just wanted to give you a bit of context and Alberto do you want to add anything else in terms of production and then go to the trend of lifting cost. Please go ahead.
Yes, Frank.
I guess two things the first one is the we will have to manage tackle the.
Declining, especially in fields. So it doesn't all of the Ollie's uncle Shannon, we're the declining rate base over 3% per month. So that's the challenge, but we have the plans to do so and then the others are projects such as <unk>, where we have scheme inject.
And that the <unk> was saying.
As the get.
The breakeven.
Both of $50 per barrel than they become.
Quite uncertain in terms of.
How we go now developed bills field. So that's kind of the areas for IC that though we will have to focus on the mix.
Months and years.
With respect.
So.
Making calls what we are saying is that.
Lifting cost all of the plan will be eight $5 per barrel add debt.
We see challenges in terms of the energy efficiency as our production from EUR increases the need for more energy consumption.
The also and then.
One opportunity that we have on the part of our plan is to increase.
Alpha generation with solar power in 400 megawatts, and we have more willing to arrangements and the plan more.
The <unk> phase.
Services needed to maintain the base curve and tackled the plane, but we also have opportunities such as.
Capturing additional efficiencies.
The implementation of zero based budget, which is of great initiatives that we're putting together of seeing saw the.
For the last part of last year.
Okay. Thank you very much.
Okay.
As a reminder, if you have any questions. Please press star one.
If you have asked the question, but have follow ups you May also press star one.
The next question comes from Nicole <unk> from credit card the capital.
Yes, good morning, everyone. Congratulations for the result.
It's for.
For the recycling results actually.
Just having to adopt for my side.
The first one is regarding the east transaction, we perceived that the timeline associated considerate of sound in terms of.
Municipal contract.
Could this be understood as the first sign of a not turning back for the transaction.
And the second one also regarded east transaction.
On the regulation front.
Are there some regulatory equaled of boats to bring east to a control, especially the laws.
142.
143 pronged utilities in Colombia.
Thank you Nikolas and with respect to east hub.
I think it's important to.
The take into account that we've designed the.
The process for the transaction with what we've called the.
Several exit ramp for us.
As we move forward in the process, we have the ability to.
The basically not continue with the process should that should that be the case, so we fit.
Initially that we presented the non binding offer we're now into the due diligence process with the.
Exclusivity that we've signed with the Ministry of Finance.
And at the end of that process that may be happening probably at the end of June.
We'll turn the non binding offer if we agree on pricing and conditions into a binding offers so that's point number one and that also launches the.
Basically the issuance of shares you know the process of issuing the shares the additional shares.
We've also said Nicola that we.
We want to have a successful process of.
Issuing the shares.
And in that sense, the equity of float is a necessary condition to close the transaction and I think that's important so.
When you mentioned does that take or makes it basically though does that mean that it's the.
The <unk>.
I'll leave for you guys that you're entering into and Theres No way back I'd say no.
The design the process of wages that we have these exit rents.
And the second point in terms of the regulatory front.
In Colombia in Colombia.
As Alberto was just mentioning in the prior question.
Or a company that's self generate 66, two thirds of the energy that we use for operations. We are of very large use.
User of energy and.
And we want to continue to do that.
Enable too to be efficient in terms of energy production and distribution in the fields is a fundamental strategic aspect of sustainability long term. So we will continue to be in.
Also hinted a load of self regulating or sale of power production.
<unk>.
And currently there are indeed in terms of regulation some limitations if you can be in.
Both generation for public consumption and sales not as we are of the.
Alto hindered Aloha and transmission, so given where we are with the current legislation in Colombia, we will remain as on our total hinted alloa.
Self power generating company and we will go into the transmission, but bear in mind Ecolab is not does not necessarily apply outside of Columbia.
There may be some other opportunities that we will continue to assess going forward.
Thanks, Nicole that's very clear.
Very clear thank you very much.
Thank you.
Thank you as a reminder, it'd be have any questions. Please press star one on your Touchtone phone the.
The next question comes from Liliana young from HSBC.
Hi, Thank you for the opportunity.
Of the simple question of him well.
Well that's true.
The results this quarter first quarter was weaker.
This is the third quarter part of it is the cost of question that this can cause any other trends, but any other reason.
This leads me to the second question because the midstream results continue to be strong or stronger actually the upstream.
I Wonder if that changes day, we should expect for the business going forward I think that in September of you indicated you've settled the dispute of different data I think of you indicated that you're centralizing the assets under the Sydney and that you would have kind of for new business model. So could you give us a little bit more color of neat.
It could be change in the level of revenue and in terms of capella.
The base of dollar versus cop.
For the segment the segment.
And if I may one of the.
The question on your dividends right.
One day you have these one 5 billion dollar of an occasional reserves.
Can you elaborate on it.
You have debt to.
To give you more flexibility for the.
Use of resources.
You would otherwise the Stuart maybe in the future towards investments in working capital today.
Thank you.
The times lately and thanks for being in the call today, So I'm going to start with the midstream.
Answer and then I'm going to hand, it to Milena Lopez, our CFO in the midstream and she can give us a bit more color because there is some context that I think it's relevant to share with you and then I'm going to ask Jaime.
To address the other two questions. Both in terms of the reserves that are ahead of us that we're actually showing or.
Our.
The project for distributions of dividends and then in terms of.
The.
The weak fourth quarter in the upstream and how the one offs that we had impacted the quarter. So in terms of the midstream.
Yes.
As you rightly point out the midstream has been very very stable you know it has.
It provided us with a hedge against volatility in prices.
It has been.
The fundamental that Ecopetrol continues to be an integrated company.
And two aspects.
That are worth mentioning daily one during last year, we conducted a lot of work around something that we called the modelo per table, which is the operating model and basically that means how can we transform the midstream going forward to ensure that even performs better.
What it is or how it's performing to date.
And it has to do with the amongst other things.
And we optimize the way in which we operate and remember that we have several companies in the group that operate different assets of different infrastructure. So theres a lot of effort in.
The <unk> that we can.
The access and realize the synergies of those companies and the second one is that even though <unk> was the owner of the infrastructure. The operation was conducted by Ecopetrol. So what we did is.
We basically.
With a lot of work with the unions.
We managed to bring.
North of 500 people from Ecopetrol in the Senate.
Earlier in two.
2021.
This will provide some important savings going forward and in terms of focus in terms of reliability is actually a very good move so it's a structural change that we've been working for some years and that we've managed now to complete so it's even though I say stable.
In the midstream segment and how it will operate we see that there might be some upside in terms of results going forward and the second point is the one that you mentioned around current data and we settled the dispute with Frontera and with two other producers.
And even though that was done we still are waiting for approval from brokered alethia.
Which is one of the control agencies in Colombia and in this point I'm going to ask Milena true provide a bit more color on both aspects you know the.
How do we see the segment going forward and then the settlement of the.
Dispute.
Go ahead please.
Thank you Philippe.
Hi, Lily. Thank you for your question.
So I'm going to give you a bit of background on the current data agreement for everyone on the call.
And as many of you saw in the second half of last year, we published a press release detailing certain aspects of the agreement we reached with data.
This is an agreement for a joint filing of a foundation trust settlement the <unk>.
<unk> is subject to two approvals that we require which are the approval of the broker that fill codell ODM, which is basically the Colombian attorney General's office as well as the approval by the administrative tribunal of current in America, which is basically the local appeals court that is confident and the.
In charge of reviewing arrangements that involves state owned enterprises in Colombia.
We had these two approval of then the agreement is binding.
What does this agreement provide for it basically eliminates all of uncertainties related to the outcome of the claims and disputes related to the shipper pay contract.
It would terminate the existing contracts.
Provide for no cash settlement to take place between the parks, except for $28 million that are currently held in escrow.
Part of the claims that are being disputed.
As a result of its approval front that would transfer of 43% think.
It currently holds in the 10th an idea of sustaining this would result in a decent the nadir.
The fully owned by Ecopetrol subsidiaries.
And it involves.
The tranches of the outstanding dividends the pipeline line fill up the same thing.
The deal and the setup of taking the questions of the syndicated debt the other.
The Aspen that I think is relevant is that it provides for two new transportation agreements one in the thrill of dental pipeline and another one in the besides scenario kind of any one going the route.
It's important to point out that in the second contract and it is structured in such a way that had insurance for them data does not pay it would have the ship.
Volume was via an alternate route which it is one of the focal points indeed.
In terms of how the.
Does this affect financial statements in terms of what you see for 2020 as well as what you can expect for next year.
As important to point out that when you look at the midstream segment.
In accordance Guadalajara mandates on revenue recognition of 2020 financials don't include revenues from the shipper pay contracts that are currently in dispute. So you should not expect to see a reduction in revenues on the back of the contract that's already incorporated in the numbers you see.
Good day.
One item of second item. That's important is because the agreement is not binding until we obtain all related approvals that are required there is no impact on our financials. This year in terms of the agreement you should expect to see an impact next year on the back of the closing of the agreement we will.
Probably have a one type of revenue that could be up to $200 million.
And one time only.
And so that is actually an upside as opposed to a reduction in revenues for the next year and I think the most important benefits from the transaction is that once we have full control of the different than ideal at the ecopetrol level buyer.
Subsidiaries, which of the company, we will be able to control from an operational standpoint, how we operate the pipeline.
Currently in order to have the versions of the pipeline, we need the approval of the hint and other shareholders. Once the pipeline is 100 per cent that ecopetrol, we will have the flexibility to them.
Right in both directions without additional approvals required in the second half of it but it's also very relevant is that if you look at financial statements sort of be something at the closing of this year, you'll have approximate needs $300 million.
In cash once the agreement, which is the closing we will be able to release discussed that is currently trapped at the different day by day level of all I think this is also an important aspect of.
Of the transaction.
And another thing to bear in mind is that we require these approvals before the 30th of January at the standing of the people. They're not received the either party may terminate the agreement we are in the process of obtaining these approvals.
On the other thing that I think is relevant to point out is that kind of call in bad debt, which are the other two remittance that had the same claims on the pipelines have already settled an agreement and for those two processes. We have already approved it received the approval from the Attorney General's office. So I think that is also relevant with regard to this transaction.
Yeah.
Moving on to the new operating model when we add.
To begin operating in this happened as of February 1st of the here a different scheme for Sydney, where we fully employed the people that are actually operating of a pipeline as opposed to have service contracts for the separation, we will be seeing two things that I think of very important first when we directly operate I think it will be much easier.
For us to obtain efficiencies in terms of the cost of operating of our pipelines.
And secondly from a tax perspective, when we are directly operating and having the operators as employees of Senate as opposed to subcontractors. There are certain taxes that we no longer required to pay basically the tax on service arrangements. So we believe this is going to allow us.
To have a more efficient operation and reduced costs at the Senate level.
On top of sampling of the fact that we have full control of the pipeline says we have both of the local operation with people that are inside and the Senate environment.
Yes.
Very comprehensive thank you.
In terms of like the dollar range revenue stream capacity basis, it doesn't change much.
Not so just to give you an order of magnitude when you look at the composition of revenue for the midstream segment. We basically have two lines of business, one which is oil pipelines, which all have the dollar revenue, which compromise of approximately 80% of revenue and every day.
Fairly similar in proportion of when you look at revenues or EBITDA, and then 20% of those revenues are actually peso based which are revenue from the refined products pipelines, which all have tariffs that are denominated in pesos.
And the split should be pretty much. The same next year, obviously for the expense you have large movements in the FX.
Of that may be out there.
Sure. Thank you so much.
Welcome. Thank you.
Thanks Milena Neely.
Neely I'm going to I'm going to a cover of your questions around upstream performance and.
And the.
Location on the reserve that we constituted so.
The.
Going to your question upstream did close last year with an 18% EBITDA margin.
It's a it's a margin that that reflects the you know.
The challenging conditions conditions that we had particularly over at <unk>, but I think that when you look at <unk> at <unk> in particular day.
There are three key factors that had a material effect on on what you would expect to see as underlying performance of the segment.
In total these factors.
Amount to $300 million roughly.
And I would actually say that roughly speaking each one of the factors that I'm going to speak about a captures.
Captures a third of that amount right. So the first one east east straight up one offs right.
And we had we had a project write offs to the tune of about $55 million.
Associated to two eight for.
<unk> that were undertaken.
With unsuccessful results, particularly in the in the Putumayo area.
We also had.
A.
One of abandonment costs that go above and beyond our.
Our normal.
The cadence of a abandonment that we should have on an annual basis.
That amounted to about $40 million.
We also had.
And we decided to make.
A number of environmental provisions.
In the light of some of them.
Rulings that we've had from from the judiciary authorities to the amount of about $15 million to $18 million and we also had some special I would say the extraordinary costs associated to two two.
Beginning with the Covid.
Contingency and those.
Our minor in that context, but when you add this up this is about 110 $120 million of the 300 million that I mentioned before and these are all one of these aren't these are a non repeatable events I expect oil against that you wouldn't expect to be to see recurring over time.
The second component.
<unk> is about.
I wouldn't call the nonrecurring, but I wouldn't I would call them starting out the items, we did have an uptick of material uptick in the accounting for the voluntary retirement plan.
We made a choice and he was a conscious choice.
At the backend of three Q2 <unk>.
The increase the scope of the program and accelerate the implementation of the program.
Because it adds value to the business, it's consistent with our streamlining efforts into the future.
But it obviously does hub and it will have a cash benefit it is already having a cash benefit but it does have an accounting effect.
The accounting effect that we were not expecting in the upstream was probably to the tune of $20 million.
We also saw an increase in the DNA of the segment.
Normally of.
Of course, there is some judgment involved in what.
What would be your normal expectation versus what but what you can call extraordinary as you know as part of the.
Research process, which is backend loaded in the year of its a process that runs over for Q and that is linked to the external auditor process that we have as you know in ecopetrol of 100% of our reserves are actually.
Certified by external.
And by external companies.
We did have some movement on that and as a result of some specific fields, having adjustments on the research level, we actually had an.
The impact increased depreciation of about $60 million again, and these DS the.
This is something that we shouldn't see repeating over time.
So the combination of these two factors takes you to 200 million and then the third factor East is something that Alberto I addressed which was that we did have a ramp up of activity for Q E, which was the combination of our of our a increase capacity to exit.
On one hand, as we learn to mitigate the effects of all of the pandemic in our operation and at the same time, there was a bit of catch up to do of activities that we expect it to performing <unk> and debt ended up being performing for Q. So so for Q.
Abe reflects Abe and I it doesn't reflect our average a.
Cost trend it reflects a some seasonality that east associated to these two things out of occurred and that accounts for roughly $100 million. So so in all of that for $300 million going forward. What should you expect we should expect to see in the upstream.
EBITDA margins in.
In a range of between 25% to 30% again at plan prices right. We should expect to see cash breakeven operating cash breakeven in that segment to be below 30 Bucks a barrel.
And we should expect to see a significant price upside associated to two to better market conditions.
Roughly and this is something that we've shared in the park.
For every dollar for every dollar of incremental dollar that we have in Brent that represents about $500 million over the plan period. So so if you annualize that you're talking about 152 of $170 million on an annual basis.
Lastly, <unk>.
I think it's important to always take into consideration that the way that we looked at the upstream segment in Ecopetrol the.
The results of that Youre seeing of the upstream segment are on a very pure stand alone basis, we do not capture in the upstream segment results the incremental value as of <unk>, two those barrels going into the midstream on each of the downstream those that value is captured in the other.
Segments, but clearly they're east incremental value beyond what youre seeing directly in the.
In the statement of financial results I Hope this addresses that question lastly, with regards to your reserves.
And the reserves for the provision that we made it's called vocational reserve. That's the that's the literal translation from Spanish language. It is an accounting reserves. It is a non cash reserves.
Sure.
Effectively what he does he allows us to a it allows the deep the company's direction on the board to pay.
Paid dividends that H P.
Can be a less done the totality that the company could in theory from an accounting standpoint are for that that's what it allows it's something that we've been doing for a number of years, it's not a new.
Figure it we kept at a over the last for five years.
It basically protects cash that's what it does.
Thank you very much.
Thank you all very clear very comprehensive thank you.
Thank you we have a question from Bruno Montanari from Morgan Stanley.
Hi, everyone just a quick follow ons.
On the on the private conference call.
Morning, you mentioned that the depth of the Marpol had I think about 100 million barrels of contingent resources just wanted to double check if that was the credit Seeger and this is net the wafer but for or for the entire area. Thank you.
Alberto.
Do you want to come through the <unk>.
Numbers, please Bruno just to confirm that that's the metric orbital.
Thank you.
Okay.
We do we have any more questions from the from anyone.
Mr. Juan Sanabria was your question and answer on that.
Perfect. Thank you. Thank you.
And at this moment I don't see other questions. If you have questions. Please press star one.
We have no further questions I will turn the call back to Mr. <unk> for final remarks.
Well again, thanks to everyone for being today with us and participating in this conference call and.
We value and appreciate.
The way in which you follow the company provide insights and actually challenge us in some of the things that we need to do on how do we need to.
Explain those and actually how do we need to address some of the issues that we've seen.
Over the last year or so.
Last year was challenging west hub was complicated lots of uncertainty I think the thrown at everybody around the world and I think ecopetrol was able to.
Very quickly respond be proactive.
And.
And show.
It's the resilient so that it can be nimble that it can vary.
He was saying it quickly react and.
Demonstrated with the results that we see in spades I think the.
Benefits of being an integrated company and we've had some conversation.
During the Q&A in that sense.
And I think we're very well positioned in terms of how we closed the year.
Tell with.
The most or all of the one offs that we saw at the end of the year, So I think where.
We're set to a very good start of this year 2021.
There is a potential space with the Brent prices, where they are with.
Some of you were asking about our view on the $45 Brent in terms of our.
Our budgeting and obviously, we will continue to monitor things as things progress, but I think we've had.
Good start for the year, we presented a solid program for 'twenty 'twenty, one 'twenty two 'twenty three.
That would allow us to go back to growth.
The reserves production.
So in terms of <unk>.
EBITDA and cash and I think thats very good news and that protect our core business you know with the with the plan that we've laid out.
We can finance everything that we need to do organically in our plan.
We've talked about <unk> quite a bit in terms of how we see the transaction going forward the program the schedule.
Some of the.
Potential risks and how we're addressing those and we've given you our views to date, we will continue to do some.
Some work around that transaction that we are fully convinced is transformational for the company and will provide.
Not only a broader bigger.
The more efficient company in terms of its risk profile and.
And having some.
The additional hedge against volatility.
And also in terms of regional presidents and the like so we will keep you posted on how things progressed in terms of Isa.
And as always we are open to your questions. If there is follow on questions.
Through our team's you. Please reach out you know as I was saying we value your participation we value of our insights.
Helpful very helpful to us and.
Please stay safe and thanks again for participating in today's call.
Bye bye.
Thank you ladies and gentlemen. This concludes today's conference. We thank you for participating you may now disconnect.
[music].