Q3 2022 Ecopetrol SA Earnings Call
Conference call in which we will discuss the main financial and operational results for the third quarter of 2022.
All lines have been muted.
There will be a question and answer session at the end of the presentation.
Before we begin it is important to mention that the comments in this call by Ecopetrol Senior management include projections of the company's future performance.
These projections.
Do not constitute any commitment as to future results, nor do they take into account risks or uncertainties that could materialize as a result, ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call.
This call will be led by Mr. Felipe <unk>.
Ill of Ecopetrol.
Jamie bias VP of low emission solutions Alberto Consuegra COO.
And Jaime Caballero CFO . Thank you for your attention.
Mr. <unk> you may begin your conference.
Good morning, and welcome to the third quarter 2022 earnings Conference call.
We echo methanol group continues to deliver solid operating and strategic results that are joined up by our successful commercial strategy and a disciplined financial management and a year in which we have delivered historical results.
Firstly I want to thank.
More than 18000 direct employees of Ecopetrol, and as well as our allies and contractors and partners.
Jointly look to make the impossible possible for the benefit of millions of Colombians and those in the areas in which we operate and the first nine months of the year. We achieved a net income of $26 six trillion pesos and an EBITDA of $59 two trillion pesos, which equates to an EBITDA margin of 50%.
The net income for these nine months is 59% higher than the whole 2021 net income on 150% higher than the one observed for the same periods in the last year.
From this quarter results I would like to highlight the following milestones.
The gas discoveries in the Caribbean and the Gorgon, <unk>, and which we partnered with shell and shell is the operator and the <unk> hundred one well with Petrobras the operator, both exploratory wells and the announcement by our subsidiary for call of a successful drilling of the four are lino owner well proven in the presence of <unk>.
<unk> structured close to the <unk> discovery in the Department of corridor all of these to reiterate Columbia potential for gas the hydrocarbon of the energy transition.
The growth path and our production levels in accordance with the strategy outlined and announced at the beginning of the year.
The average production in <unk> was 720000 barrels of oil equivalent per day, and so far this year. We have an average of 706000 barrels of oil equivalent per day due to the increase of our execution capacity, which has improved the performance of the fields in Colombia on our growing unconventional operations in the U S.
In the Permian the increasing the capacity of more than 50000 barrels per day at the Cartagena refinery. Thanks to the successful startup of the interconnection of crude oil plants IPCC project, taking a firm step to guarantee the supplier fields in Colombia <unk>.
Energy sovereignty.
Completion of the pilot test for the production of Green hydrogen at the cap. The Hana refinery. This project is part of Ecopetrol strategic hydrogen plan within the framework of its low carbon emissions business portfolio, which we expect will contribute to our operations de carbonization goals as well as those of Colombia.
Let's please turn to the next slide to address issues in line with our key ESG strategy.
During the first nine months of the year, we have made significant achievements in our ESG strategy.
On the environmental front I would like to highlight our progress in decarbonization circular economy and natural climate solutions reflected in the following an 87% fulfillment of the annual emissions reduction goal accumulating a reduction of 229003.
317 tons of Cotwo equivalent so far in the year.
The results of our energy efficiency program, which as of <unk> 2022.
Has led to a savings of 97 billion pesos and avoid avoided the emission of 98000 tons of steel to equivalent the inauguration jointly with and what other airports in Bogota or the first road segment in Colombia with asphalt and recycled plastic.
Low density polyethylene in favor of the protection of the environment and waste reuse on the social front, we continue to work for the sustainable development of the communities in the territories in which we operate the ceremony in where were we awarded scholarships for University or higher education to 65 high schoolers.
Through the Apache get Us Ecopetrol program.
Thanks to which we have now benefit more than 1600 young Columbia's from 32 departments in the country over the initial 36 years of the programs existent.
The contracting of goods and services for 17, six trillion vessels during 2022 by the Ecopetrol group contributing to the economic and social development in different regions.
Alternatives in the ranking of the most diverse and inclusive companies of the National Consulting Center, where we obtained.
<unk>.
On the corporate governance front Ecopetrol was awarded with the undisclosed sustainability award for having the best practices in corporate governance 2022 environment. Additionally, I would like to highlight the balance of our second extraordinary general shareholders' meeting in which we have 305 institutional on 85 retail shareholder.
We reached 1096 connections in our live transmission and our shareholders elected the board of directors, which now is formed by two women on seven men.
Seven independent and two non independent members with strict compliance with the company's bylaws. The board is composed of two.
One member nominated by the Representatives of the minority shareholders, who was reelected.
Three elected members, who continuing office one board member nominated by the hydrocarbon producing departments in which <unk> has a presence and was elected on four new board members the.
The members of the board of directors of Ecopetrol have extensive experience.
Broad technical financial and business knowledge, which supports their role as strategic adviser to the Ecopetrol group.
Finally on the science technology and innovation front.
As of <unk> 2022, we have been able to capture benefits or $136 million.
Mainly due to the results obtained by the business technology and digital solutions implemented in Ecopetrol Unchained amongst others.
We announced the first awarding phase of the innovative 2022 accomplished a program that allocated 720 million persons to promote the energy transition and innovation in the country.
We signed a joint declaration with the representation of a state of Bayern of Germany, and South America to strengthen our bilateral cooperation focused on intensifying the bilateral exchange of knowledge.
Innovation and technology for sustainable development in the energy transition I want to now pass the floor to Jamie buyers, who will talk to you about the main advances and the business segment of low emission solutions anything during this quarter, we reached important milestones in the portfolio of loans.
<unk> solutions on the natural gas side, a pilot project losses parrot key potential of liquefied natural gas on a small scale to the district of <unk> in order to face an alternative gas service to guarantee a reliable supply of these fuels today.
Additionally, <unk> project was ratified with 12 companies from the gas and financial sector. This project is to finance the purchases of approximately 4000 heavy vehicles powered by natural gas.
We have joined with an investment close to 60 billion.
Data suspected that this credit gateway power demand for natural gas vehicles.
Eliminating more than 200 and training thousands tons of field.
Year, we reaffirm our social commitment with the agreement signed by <unk> and gasoline Laguardia to provide funding to connect 308.
Social economic households to the natural gas therapy by 2023.
Similarly to what Philippe mentioned about the proof of concept to produce green hydrogen.
Hey that refinery.
Continue working on the Decarbonisation of the public and cargo transportation industry, we get.
Introduction of fuel cell vehicles.
These line of Warrick, we made progress on the pilot for sustainable mobility in Bogota infrastructure will be created to recast <unk> hydrogen fuel cells promoting yields have no cable solutions within the integrated public transportation system.
Attack is ATP in stocks.
The system will be alive for approximately eight years with the possibility of an extension for up to 10 years.
Finally, I would like to highlight that <unk> capital group continues with the implementation of Bayou no cargo technology to generate energy from nonconventional renewable sources, such as solar wind and biomass geothermal among <unk>.
Others.
Yes of the country, where the group operates.
Operations that already have these renewable energy system.
Have created cost savings close to 19 billion pesos.
Reductions of over 27000 tons of Cotwo per year.
I will now give the floor to Alberto Consuegra, who will talk about the main operational.
Thank you Jamie.
During this third quarter, we drilled four exploratory wells for a total of 13 wells drilled and six confirmed exploratory successes to offshore and onshore. So far this year by the end of the year, we expect to drill 24 exploratory wells in line with the plan.
Precedence of gas has been confirmed in deep waters in the southern Colombia Caribbean in the Gorgon too well operated by shell in which a perpetual has a 50% interest confirming the extension of the discovery made back in 2017 with the Gorgon, one well and confirmed that.
Systems upon offshore gas programs, where the Kronos Purple Angel discoveries were also found in 2015 2017, respectively. This outcome will allow us to proceed with the evaluation of the findings, which is developed would increase Columbia gas reserves.
Additionally, during October the Kora, one well located in the department of corridor and operated a 100% by our subsidiary Hong Kong revealed the presence of gas in the CNI. The auto formation, which is undergoing initial test to determine its technical and commercial visibility.
Moving forward with incorporation of reserves the El Nino to discovery located in the Department of <unk> America progressed from its exploratory stage to the development and production stage.
Total has 50% interest that amcor, 30% as operator.
In <unk>, 20% currently the capital group has a robust and competitive exploration portfolio that drives the country's sovereignty gas opportunities offered an estimated potential of 17 Tcf of gas identified 46 prospects and they discoveries on their evaluation.
Let's continue to the next slide please.
So it's been mentioned that production continues to grow reaching 720400 barrels of oil equivalent per day by third Q2 thousand 22, the highest on record since <unk> 'twenty I'm, placing us at the high end of the target range set for 2022 as compared to second quarter production increased by <unk>.
<unk> thousand 800 barrels of oil equivalent per day, we highlight the incremental production of our operations in the Permian and that will be Allison can you sort of fields. Likewise production recovered in the last Cedar Canyon, Ramon and Caracalla fields. After community events also the contribution of production from the explorer.
30 wells should be highlighted it is important to note the increase in our execution capacity. So far this year, we have drilled and completed 407 development wells, 42% more than in the same period of last year with an average use of 29 active rigs and 373 work.
Coverage finally, we highlight the entry into operation of the first facility strain in Canada, which will increase the production of the field by year end between 7010 thousand barrels of oil per day, let's move on to the next slide please.
In the Permian basin, our activities. During this quarter reached an average production of 43800 oil equivalent barrels nanticoke control per day before royalties 79, 2% more than in the same period of 2021 with a record production of 50000.
200 barrels of oil equivalent per day in September gas production contributed about 16% to total production. We also highlight our solid financial results. So far this year, we have generated an EBITDA of 454.
$5 billion with an EBITDA margin of 88% in line with our <unk> strategy, we highlight the low emissions intensity of our Permian operations as a result of the zebra routine flaring initiative and the use of Fuji deep emissions monitoring assistance in the facility.
Likewise.
Copper total SA alliance with Accenture on AWS to develop a digital solution for water management.
Pilot project is currently being conducted in our Permian assets by year end, we expect another channel production between 36 to 38.
Some barrels of oil equivalent per day net for Ecopetrol before royalties with approximately 93 wells drilled and 95 wells completed let's continue to the next slide please.
The midstream segment transported volume increased by 63000 barrels per day versus three quarter of 2021, mainly due to the higher production of crude in local demand for refined products. This worth noting that in the third quarter of this year, we reached an all time high for product pipeline transport exceeding.
300000 barrels per day in order to strengthen the company's operation and contribute to the hydrocarbon transport business to new tanks, each with a storage capacity of 100000 barrels came into operation at the service. The police station of the mid Magdalena trunk line, increasing the storage capacity of this strategic asset.
The pipeline system by 2006% within the framework of our <unk> strategy, we highlight the inauguration of the photovoltaic solar system into macro medimmune together with the Pacific Technical Development Corporation quarter past, which will supply the energy required for the cocoa Brian process.
This project will benefit 293 families and positively impact 90% of women in the region promote into closing of gender gaps in the cocoa DVT.
Let's go to the next slide please.
In the downstream segment operational integrity was maintained and exceptional financial results were achieved we highlight quarterly historical throughput levels recorded in both refineries as well as an increase in value because of higher diesel and jet fuel production during the third quarter the segment.
Registered the combined refining gross margin of $23 per barrel and an EBITDA of 2.2 trillion pesos. The Cartagena refinery accounted for 36% of the segment's EBITDA during the quarter and 41% so far this year.
These results were leveraged by an efficient plant shutdown execution strategy, ensuring the operational availability and reliability of the assets as well as cost control.
September 15th the Cartagena refinery increased its.
Throughput capacity to 200000 barrels per day, an amount that exceeds the previous operating capacity by 50000 barrels. Thanks to the successful startup of the original unit systems. This project involved the effort of more than 500 people with 93% of labor.
We generated from card Diana no injuries process safety events and environmentalist units were reported this expansion establish the role of the Cartagena refinery as a strategic asset to guarantee Columbia's energy autonomy and will allow us to produce a greater volume of fuels.
That meet the highest international quality standards on the other hand, there are ongoing in Manhattan refinery was recognized as the best in Latin America by the Refiners Association during the Latin American Refining Technology Conference. This award highlights the refiners position inefficient.
Z energy transition profitability and implementation of new technologies in line with our commitment to <unk> is D. The Cartagena refinery and renewable diesel industrial trial will take place during this quarter in order to gain information for the business case and can.
Our progress in the energy transition process during.
During the fourth quarter, we expect to complete the refinery plant shutdown cycle are scheduled.
Cynthia progress continues in the expansion of one of the plants capacity also maintained the operational stability and availability of all our business units.
Move on to the next slide please.
Therefore, domestic and international macroeconomic situation has generated commercial inflationary and logistical challenges for the group.
As of September there has been a significant increase in prices mainly of raw materials and power, which has impacted the cost structure, representing a weighted increase of 13% versus the previous year within the Ecopetrol group, we have been developing comprehensive strategies to mitigate.
The inflationary impact and protect our ability to execute the business plan.
So far this year, we have captured the efficiencies of approximately one eight trillion pesos of which <unk> six trillion pesos have helped contain the inflationary pressure on costs and the absence of these efficiencies we would have had a 16% cost increase.
Patients to these efficiency program, we have worked to ensure the availability of inventories of materials required to operate by developing joint procurement strategies with our suppliers. The total unit cost for <unk> 2022 had a year on year increase of approximately $13 per barrels primarily due to higher price.
As of purchases on imports of crude oil and products the lifting cost increased by 9% versus the third quarter of 2021 from $8 45 to $9 $17 per barrel, mainly as a result of greater operational levels and the influence of inflationary pressure on the cost structure.
Regarding the refining cash costs, we had a 16% reduction with respect to <unk> 2021, thanks to the higher throughput volume at our refineries finally, the cost per barrel transported also decreased due to the higher volume of crude oil and products transported I now give the floor to <unk>.
Our euro who will present, the key financial results of the Ecopetrol group.
Thanks Alberto.
During the third quarter of the year. The group continued to deliver exceptional financial results supported by strong operating and commercial performance. It has allowed distinctive capture positive market conditions at the per barrel of the hydrocarbons business, which does not include east contribution increased $27 $1 per bed.
Compared to the first nine months of 2021, reaching 67 $3 per barrel explained by higher realization prices of the basket of crudes and products incorporation of Asia and the increase in sales volumes net income breakeven was $23 per barrel decreased $14 five.
$5 per barrel as compared to the first nine months of 2021, mainly as a result of higher sales volumes and improved crude and product spreads in the energy transmission and toll road business <unk> EBITDA margin, excluding the construction business closed at 83, 6%.
Mainly explained by the positive effect of macroeconomic variables in Colombia, Chile, and Peru, and the entry into operation of new projects in <unk> 21 in all of the Companys geographies.
Our ROE for the nine months of 2022 was 13, 2% in line with the strategy of generating sustainable value in terms of the Ecopetrol group's consolidated results. The following standout EBITDA margin stood at 49, 5% driven by higher registration.
And prices of the crude and product basket incorporation of Isa the strong performance of the Permian asset under Cartagena refinery Roti continued to increase and stood at 19, 1%. During the first nine months of the year compared to 10, 8% in the same period of 2021.
Explained by higher operating income in line with the previously mentioned factors. It is important to highlight the increase in EBITDA in all of the groups segments, particularly in the downstream, which tripled its contribution compared to the previous year due to its operating stability.
<unk> the energy transmission and road segment contributed stability to the group's revenues and operating cash flow. The gross debt to EBITDA ratio was one five times below june's level explained by a better EBITDA result is important to highlight that the increase in the debt balance observed in the quarter.
Is explained by the foreign exchange restatement, we just mainly recognized in equity due to the use of hedge accounting and not by an increase in that operations in line with what was discussed in previous calls the Ecopetrol group continues to manage debt maturities for the third quarter of 2023 seeking to ensure the most competitive.
<unk> in this volatile market environment. Please let's go to the next slide.
Regarding capex performance during the first nine months of the year five $5 billion were executed 74% more than in the same period of 2021 out of which $4 8 billion correspond to the hydrocarbon business.
This the Ecopetrol group returned to the investment execution levels recorded prior to the pandemic on the other hand investments executed by Isa amounted to <unk> 7 billion, mainly focus on the transmission business with the above we maintained investment target in the initial range of the plan.
This quarter marks the one year anniversary of the consolidation of <unk> within the good results. So I would like to highlight some relevant milestones regarding the investment made in this company.
Regarding the financing of the acquisition during 2021 and 2022, we carried out two liability management operations for a total of $3 2 billion.
Which allowed us to improve the maturity profile and reduce expiries in 2023, thus the balance of the international alone taken for the acquisition of visa announced.
Announced to $472 million.
Which will be refinanced over the coming months in terms of the contribution to the group's results ethos.
And expectations in terms of revenue EBITDA and net income generation when compared against original budgets as of September revenues were 16% higher than the budget estimate.
<unk> generation was 50% higher than ever degeneration, 30% higher this.
This continues to confirm the added value from east to the Ecopetrol group through the generation of stable cash flows without reducing our exposure to Brent as a group. Please let's go to the next slide.
At the end of the third quarter of 2022, the Ecopetrol group recorded a cash position of $15 nine trillion vessels were the following items stand out.
Operating cash flow generation of $14 nine trillion pesos.
Associated to the good performance of the business segments, the favorable price environment and the collection during the months of July and August of $6 five trillion pesos from the fuel price stabilization fund.
I think for its Spanish acronym the account receivable from the fund announced 224 trillion pesos as of September corresponding to the accumulated amount since April regarding feedback. It is important to note that the general budget of the Colombian nation.
For 2023 included an explicit item of 19 trillion pesos to partially pay off the accumulated balances since April to date. In addition to empowering the ministry to offset such payments against eventual dividends, the creativeness, Faber and or use uncommitted budget surpluses.
For additional payments to the fund.
So it is important to highlight that the new government initiated a gasoline price adjustment.
We just critical to slow down the speed of such accumulation and to close the gap of local versus international reference prices. The resources generated by the operation were used for organic capital investment for $5 five trillion pesos as well as for the outflow of <unk>.
Seven three trillion pesos in cash of which $2 one trillion pesos correspond to debt service and $5 two trillion pesos to dividends paid to the company's shareholders and to the minority shareholders of the subsidiaries in the transportation segment I now turn the floor over to Philippe <unk> for his closing remarks.
Thank you Jaime in the context of the long term strategy energy that transforms presented at the beginning of the year, we said.
Different goals not only in terms of our operations and financial indicators, but also around the steps required to move decisively and responsibly towards the energy transition.
Several short medium and long term commitments on the environment, social and governance fronts are part of the roadmap for our various efforts in the areas of water reuse cumulative reduction of greenhouse effect emissions.
Reduction of fugitive emissions, increasing the installed capacity of renewable energies.
Sustainability in terms of transfers to the nation impact generation through social environment.
Investment the constant search of the highest safety standards in our operations in line with the performance evidenced in this on other fronts in our key ESG strategy, we will continue to disclose in a transparent and timely manners, such information to our different stakeholders highlighting the following in <unk> 2022 we presented our second specialize.
Report on climate change management from their perspective of governance strategy risk targets and metrics for 2021. Following the recommendations of the task force on climate related financial disclosures <unk> and international best practices.
We obtained 77 points in the Dow Jones sustainability index measurement, where more than 10000 companies worldwide participate in such evaluation and as such is one of the most recognized international benchmarks for good corporate practices, let's.
Let's now go on to the next slide.
So far this year the Ecopetrol groups has been delivering solid financial and operating results that had been a companion by milestones in each of the pillars of our 2040 strategy energy that transform.
This has allowed us to move forward in an organized manner towards the energy transition and strengthening our commitment to the country and the energy security and.
<unk> Board of Directors has expressed support for the continuity of the 2040 strategy, which seeks to promote renewable and low emission energy, while continuing with exploration and exploitation of oil and gas the new challenges, we face as an industry demand activating leavers that allow us to adapt promptly and took.
Continue to work on generating value for our stakeholders, taking advantage of the opportunities that align with our 2040 strategy and within the framework of the Decarbonisation objectives lets now go to the next slide for closing remarks.
To conclude we continue to deliver solid results to our shareholders and stakeholders, even about the goals we set for ourselves in the year. We have made concrete progress in each of the pillars of our strategy, particularly noteworthy are the results that allow us to ensure supply and guarantee of the energy sovereignty for Colombia, we remain.
Committed to creating value for our shareholders, we're working with the government to contribute proactively to the sign of the country's energy policy until they find different commitments within the frame of a gradual responsible and just energy transition once again thanks.
Thanks to all of you who are participating today in this earnings call. Thanks for your time, thanks for your interest in Ecopetrol.
I will now open the floor for questions and answers.
Thank you.
We will now begin the question and answer session.
A question. Please press star one on your Touchtone phone.
If you wish do we removed from the queue. Please press zero too.
If youre using a speakerphone you may need to pick up the handset first before pressing the numbers.
Once again, if you have a question. Please press <unk> one on your Touchtone phone.
At the moment, we have a question from <unk>.
Bruno Montanari from Morgan Stanley . Please go ahead.
Good afternoon, everyone. Thanks for taking my questions.
I have a question about production and then a question about the Texas on production, even if we look at the top end of the guidance.
Means that in the fourth quarter, there will be a decline right. So can you walk us through what would be the drivers of production now through the end of the year and if there could be a possibility that you actually surpassed the top end of the guidance in 2022.
And then on the tax rate if I understood correctly from the Spanish call.
And it sounded less concerned it seemed about the amount of.
A new incremental taxes that would.
It would flow through.
But I mean.
Members are looking at the potential 15% extra points Opex, it's a meaningful impact over cash flow. So I was wondering if that interpretation.
Correct.
Finally, you see on the taxes can you give us an idea of the impact of the non deductibility of royalties part and perhaps walk us through how that would be measured.
It seems a little bit complex involving what do you think kind royalties royalties and cash being.
<unk> cost base among other items, so any visibility on that specific point would be greatly appreciated. Thank you very much.
Thank you Bruno good morning, and thanks for being here today, I'm going to ask Alberto to take us through a.
A bit more detail on production or <unk> and <unk>.
<unk> year, and then I'm going to ask <unk> to talk about tax reform and the impact. So you can go ahead.
Bruno Good morning, Matt. Thanks for your question with regards to production work you mentioned that there would be any client.
And because of the planned maintenance of the <unk> plant, which was executed during the month of October So what we're seeing is in October .
Weak production because of that.
And with another active about a little bit under 700000 bottles.
But then we expect a strong comeback in November and December so.
At the end of the year, we should be in the higher side of the range that we provided to you between 700000 705000 barrels. So that's a 2022 with regards to 2023 with respect to.
Two paths to maintain you know a higher production in the range of 722, southern hung out at 25000 barrels per day.
Mostly.
These will be the if you look at the well I don't know if the sources.
Outside.
Strong production coming from our mature fields.
Reality is TTM Anacostia, new production coming from Cornwall solar.
Also the additional production that we're seeing coming from.
So 2023 looks very exciting.
2022 of our nation.
Watching language.
We told you before.
Hi, Matt.
Hi, Bruno Hope Youre doing well with regards to the tax reform and we basically see that we're fundamentally talking about a two effects. The first one on and probably the most meaningful E D.
Surcharge on corporate tax that's gonna be linked to the price environment.
The way that the reform has been proposed eight E triggers a three levels of incremental surcharge associated to historical.
This averages.
In the oil sector.
We have been looking at in a lot of detail and we actually believe that.
The methodology that has been proposed in the reform is robust and it's one that acknowledges the realities of the price environment in the sector.
To that extent.
We believe that this 5%, 10% or 15% surcharge that is linked to prices.
It's going to be closely related to the <unk>.
In incremental cash flow that the companies are going to have.
And to the to the extent that those prices materialize, we're going to have a significant effect or not.
In lower price environments.
The impact is minimal in higher price environments.
There is going to be a cash effect.
You need to consider that versus the incremental cash flows that the companies are going to receive any way.
Made it to the increased earnings.
A associated to that a price environment. So.
The way, we look at it the other effect, which is royalties.
We think it's <unk>.
Relatively marginal it's relatively marginal.
Actively but what he is going to occur is that it.
Cost of production, which are currently being deducted from the.
Tax baseline from the our earnings baseline are no longer going to be able to be deducted right.
It's not the commercial cost.
Is associated to these.
Volumes.
It's certainly not the total earnings that.
That the.
A dormant it gets from it as in earlier versions of the reform, it's only the cost of production. So we believe that probably.
<unk> is not going to be as material as initially estimated.
I'm going to go ahead and give you. Some some some estimates that I that I shared in the in the previous call that we need in Spanish for the benefit of the audience and to make sure that everybody has the same information in east.
Ultimately when you take these two tax effective rate.
The way that we're looking at it is that currently in the Ecopetrol group would have a tax effective rate that it's at around 33% it could it could.
If we think in terms of ranges you can think about a nominal tax rate of 35%.
So when you think about a world in under this tax reform in a high price environment. We're gonna have a surcharge of up to 15%. So that's going to take that 33% to 35% to 48, 50%.
On the basis of the surcharges.
And on top of that we think that that change in the methodology around royalties may add somewhere between two 5% of additional points that tax effect effective rate. That's how we think about it and that's how we're modeling it at this stage I do want to.
Emphasize again that this is closely related to what price environment. You are believing what price environment. You are believing can you really in the in the near term when we think about 2023, we continue to see a robust pricing environment.
For our commodities, but when you think about it in the long term when you emit.
Midterm and long term aim we don't believe that and therefore, we don't believe that these tax reform fundamentally changes our evaluation of long term projects. So I hope I hope this addresses kind of about that.
The broader envelope around your questions. Thank you.
Yes.
Yeah.
Thank you.
Our next question comes from Barbara Halberstadt from J P. Morgan.
Please go ahead.
Uh huh.
Hi, good morning.
For the opportunity of the question so I have one.
Wanted to also follow up from.
A comment made earlier on the Spanish call in terms of different financing options for 2023.
Definitely where bonds are trading currently would be a much higher cost of that for the company. So if I understood correctly.
Currently the mean.
We're self funding could be bank line. So if that's the case just wanted to confirm if youre looking more into local sources, where local class international and to confirm if that's the case as well.
And also in terms of the ZIP Pak balance I think we have an expectation that it could end the year around 27, Chilean Colombian pesos. Just wanted to have an update if you continue to think that's more or less where you wonder ear in terms of the outstanding balance point up to pack and if you already have an estimate.
For 2023, considering the modest increases in the domestic prices have been applied for gasoline at least on that would be for me. Thank you.
Thanks, Barbara This is good to have you here and I'm going to ask.
To give us more details on both refining and status of it because we see that.
Year end next year.
Hi, Barbara.
Yes, so effectively what we were sharing.
Spanish stock.
I think there's three key messages. The first one is that the ESI acquisition loan has been refinanced.
To a very large degree out of the $3 seven B E acquisition.
Basically three two have already been.
Refinanced at a on a cost of debt then it's very comparable to the initial acquisition credits.
We have a remaining balances for the fourth quarter of next year or September October of next year of about a $3 5 billion or so.
Credits that we need to refinance it.
And we're actively working on those our our bias is towards bank loans on this we are looking at all sources.
<unk> local and international.
And to the extent that there is a remaining balance.
We don't think its cost competitive too.
To deal through loans.
We will be looking at other options.
I think those are things that are going to sort themselves over time at this stage we have.
Very high degree of confidence that we can.
A refinery is in the short term through the mechanisms available.
With regards to your second question around the <unk>.
No other stabilization fund balance.
And so as we mentioned in our report our violence.
<unk> closing was up.
24 <unk> vessels.
That that will continue to accrue over the next few months, we believe that the yearend.
<unk> is going to be somewhere between 29, and 32 trillion vessels.
Cannot give you a certain number because it depends on how internal international and prices evolve. It also depends on around how the exchange rate evolves with regards to 2023 and we have been working on some internal projections and we are.
Sure sharing those with the ministry of mines, and with the Minister of Finance.
To inform their decision making around and.
Adjustments at a at a local level and what we've seen so far is that the ministry of mines.
Finance has a clear interest in accelerating those adjustments over the coming year.
The view to a reduced.
The differential that we have between the international price and the local price.
I think it's too early to give you a view around projections for next year seems we're going to be heavily dependent on the pace in which the ministry makes those adjustments and how international prices and exchange rate evolves.
Thanks, Hi, Matt Thanks, Barbara.
Okay.
Thank you.
Our next question comes from Louise Carballo from UBS. Please go ahead.
Okay.
Thanks for taking the question.
Two questions here the first one is trying.
I wanted to come back on.
The connection between the setback in the tax reform.
I think we would discuss it with them.
Nicole Miller, a couple weeks ago.
But just trying to understand.
And that has moved up in mining and oil.
There were some impact.
Royalties.
At age.
Also if you could comment on the results, particularly with the car.
And how.
So the tax reform.
Related to the most of it back.
Situation right.
The second question is about some contract renewals or re activation.
There is some thoughts about potentially reactivating, some announced some contracts and some exploratory gareth.
Just trying to understand how this can bring some impact the capex projection.
The company would be thank you.
Hi, Luis good to hear you and hope you're doing well so I'm going to take the first question is going to take your second question around.
The contracts outlook.
Okay.
Basically what Youre asking is how has the patchy form evolved and I think we need to recognize that that east latest version that east that was approved by the chambers of Congress last week.
It's a very different version from the ones that were previously discussed I think directionally you can almost speak about.
This is version three <unk> and there was kind of a version one point or <unk> to point out.
Version one.
<unk> spoke about things like export taxes, and export led east and things like that version two point al.
Spoke about a very aggressive if you will taxation to a or treatment to royalties right.
All of that has gone away all of that has gone away and while we have now that is relevant to the oil and gas sector is fundamentally three effects three.
Fundamentally effects. The first one is this a surcharge that is linked to prices.
There is some bonds basically.
If you are below 60, I don't have the exact numbers here with me, but it's I think it's $63 or so there is none.
The same corporate tax than everybody else.
Above 63 on going from 63 to set any two one I'm going to give you the exact numbers in a moment you basically have a 5% down from 77.
70.
283, you have a 10% on 82 antibody we have 15%.
And when you look at those tax mines they are.
They actually quite reflect our understanding of the international price environment.
We cannot really if you think about it.
Hey, all our our panel prices. They do reflect when you are in a positive price environment. When you are in an exceptional item.
And that's how this has been designed.
Other component, which is our own royalties.
The change is that the cost of production, which has been a deductible item.
In the Colombian tax regime will no longer become a deductible item so on and I think that in the discretion of the of the tax authority on what this reform is doing he's essentially essentially a taking a stand where these cost of production.
<unk> is no longer going to be tax deductible in the context of the overall reform the impact of that in <unk> is not that significant we believe represent somewhere between two to five points of incremental taxation for the industry.
But in the end of the day, we don't believe that's a deal breaker in terms of the economics of a given project.
Third big topic of conversation in throughout this whole tax reform debate was around the continuity of.
And.
A of a duty free songs right and <unk>.
<unk> one <unk> two point no again had a very a strong spans are on the call.
And any deal then they were going to go away in some shape or form basically the project that is in place right now and that was already approved by the chambers.
Basically maintains.
That's a tax a status of the existing <unk>.
A duty free zones that.
That the Ecopetrol group has in place. So therefore, there is not going to be any negative impact associated to that that's kind of where we are on this lease.
Over to Alberto.
Good morning.
What are we hearing from the cohort.
Both the minister of mines, and the Minister of Finance.
You're very welcome in stating that contracts already signed will be permanent.
The Minister of mines also have said that together with A&H umi evaluated the needs of signing new contracts.
So we receive this news though.
With positive messages on this reduced certainly the uncertainty that we have.
In the future with regards to reactivation of suspended contracts I have to tell you that.
Some of them.
Have been suspended.
Social unrest quartz mountain regions, all others will need to have agreement in terms.
In pulmonary shield Anthemic alternatives.
And those closest sport suspension.
A result, desalt offshore we will have to compete with other options that we have no airports definitely.
They are competitive and they will have to go through that maturation process.
Then.
At the end, probably will mean that we'll have exploratory options exploratory infusion associated with this.
Efforts.
Thanks Alberto.
Thanks Louise.
Okay.
Thank you. Our next question comes from Andrew Mccarthy from credit card. Please go ahead.
Yeah.
Thanks, very much good morning, everyone. Thank you Philippe on Germany for their presentation and the opportunities for those questions.
First question was on trucking in Colombia.
Just staying on local media at the moment quite a lot of news flow about so just wondering.
Is it the case of the formal decision has been taken to persist from moving forward with the colors.
And if so what are the key steps to unwind.
So the key contracts behind that that are in place and would there be any sort of cost financial cost implications there.
You have a control group.
That's question number one.
Number two.
And apologies if this has already been covered in the presentation or questions I couldn't quite hear that.
I was just wondering about the whether the tool is now being open to.
The possibility of signing new exploration contracts in Colombia.
Sure.
And then my third and final question, just if you could provide any updates on the input costs.
Divestiture of where that is that's still moving ahead.
And then just generally on any of the sort of asset rotation in the ships that you might be looking at to optimize the portfolio.
That's it for me for now thanks.
Thanks, Andrew and I'll take the first one.
If there is anything Albert do you want to add on that on in their calls I'm going to ask Nikola subsequent I got to give us a bit of a color on that question. So in terms of fracking and you were mentioning some of the media coverage that we've seen over the last few days, what we've said is the companies.
At the end of the day, the government and in particular Congress.
It takes the decision formerly that day.
There won't be fracking in Colombia, we want through fracking and Colombia, So I think that that's it.
Very clear we've asked.
H formally for a suspension of 90 day suspension.
All of the contract that we have as operator, we've done this remember theres Callihan plateau as you were mentioning.
And remember we do have a formal environment.
The environmental license.
On one of those projects.
So what we've said is we're discussing with our partner with Exxon Mobil on it.
How to.
Go back and undo some of the commercial agreements that we had with them.
And then we will take this forward and each company will return to the ownership the original ownership of the areas.
In case of Cali, and collateral so that's where we are.
Would say that.
We will segregate toward remain with the ownership of the acreage.
Long term.
We'll see where that goes in terms of cost implications. We've spent money on preparing for the for the environmental submission of the application of a license.
We've done social investment in the area and we will manage that accordingly, we don't see we don't see an issue with that so right now I think in terms of key steps.
Our waiting for a response from A&H and then taking it from from there on obviously.
In constant and continuous communication with our partner.
Okay.
The potential of the already signed contracts in it.
Both of them have been very vocal in terms of honoring the existing contracts and.
And I think that's important we've mentioned that we foresee.
Eventually some some 10 years of activity going forward in those areas, where not only shooting new seismic drilling wells. We had good success as you've seen from from exploration, but we're also.
Reinterpreting seismic which has proven to be quite useful.
We can do.
An example, if we do 2000 square kilometers per year of new seismic surveys.
That's collected.
And.
The reason for the most recent conversations Andrew have been around.
Possibility of looking at additional exploration.
<unk> potential beyond the contracts that have already been signed and that means.
I mean, we've been talking to both ministries with sat down our technical teams with them looking at.
What that would entice you know how would that look in terms of what's.
What's the potential what are the options just sharing data and information and having open conversations.
Round.
Our view our view of what it is.
Subsurface potential could be.
In terms of their call Center Nikolas, if you can help us with with where we are in the process.
He is delivering under.
Andrew Thanks for your question first in terms of our approach to divestments in general.
On that regard our approach remains unchanged that is basically to constantly review our portfolio.
Transport distribution and commercialization of natural gas in Colombia, where we hold a 51.
One 8% is take our decision to die.
Divest our equity remains unchanged.
Announced earlier this year in May and in due course, we will take this decision to review with the new government. As you know these process of divestment of assets that have the participation of Colombians nation in its equity it through.
Room by low to two six in Colombia, which includes the revision or the stage at which the government needs to provide a green light to proceed so east on when we obtain these green light we envision a process that will take around nine months to complete.
Thanks again for your question.
Thanks, Nicholas Thanks, Andrew.
Next we have a question from Frank Mcgann from Bank of America. Please go ahead.
Okay. Thank you very much just a couple of questions. If I could one could you just confirm you mentioned in this the tax discussion about the ability to deduct production costs. So I. Just you know if you meant total production costs are royalties only.
And then in terms of.
Cost inflation, what you seem to be doing are making a lot of efforts too.
Where are you seeing the biggest effects and.
And are you seeing any acceleration in cost inflation as you look out over the next six to 12 months and then Youre filament volumes seem to be you know.
Much lower and I was just wondering.
What are the expectations for dealer usage as you go forward here and and and how would that maybe affect your overall cost structure. Thank you.
Hello, Frank Colgate doing well the signing so with regards to your first question.
What just to clarify it's the cost of production associated to those specific royalties.
So that's what currently.
The tax regime allows you to go dark on a should be reformed precede us as it has been a prudent two chambers that will no longer be a deductible item.
With regards to your second question about inflation I'm going to make an overarching.
Comment and then I'm going to pass it over to Alberto for some of the specifics on generally what we're seeing so far is that.
We have seen an effect of around 12% to 13% in our in our cost base associated to inflation.
We have been able to mitigate a probably some four or five points of that with the existing <unk>.
A contract strategy and through demand management and through long term pricing and the like as we look into next year's planning and uncertainty into the next two or three year horizon, we are seeing an increasing.
An increasing pressure in that regard probably that.
13% is going to be times, something along the lines of 16, 17%.
Simply due to the fact of indexes kicking in now of course, we are not a we're not saying we're not standing still.
Looking again at.
Value chain opportunities and contract opportunities.
Our direction in <unk>.
Uh-huh and increase pressure I'm going to I'm going to pass it over to a bedroom. So that he can give you some further color Bryan.
Thanks.
When you look at our our refining and transportation costs are very much in line with Atlanta.
This is because we have an indication of transportation.
Actually transported more volumes so we can keep the.
The indicators are under control.
We are seeing I mean at least in terms of lifting costs.
Jumping in about 15% compared to the second quarter of this year. So right now we have it in this new lines of 915.
Percent.
Our cost per barrel.
When you look at what are those areas in which we need to focus I would say energy cost that's number one.
The second one has to be with the cost of raw materials, particularly steel and the third one is about the cost of well services you did subsurface well services intervention well intervention costs going higher quality love it because of what <unk> mentioned is about introducing the indexes.
In line with the inflation that we're seeing pockets of areas.
Okay.
Thanks Deborah.
Thanks Jaime.
Thank you.
Our next question comes from Adnan <unk> from Latin Finance. Please go ahead.
Hello can you hear.
Hello.
And as we can here.
Yes.
Okay, Great I just wanted to make sure.
So thank you so much for taking my question. So I wanted to follow up a little bit on the financing options. There is related to the refinancing of the.
The loan that was used for the ESI acquisition you.
You mentioned that there would be looking at other options and.
I remember earlier this year that there was a mentioned.
Possible sustainable bond sale either later this.
This year at the end of this year.
Is there is there still the possibility of going to the international markets.
Two as an option to finance for the.
To pay off the loan.
Okay.
Yeah.
Hi, everyone. How are you is this is a timing issue.
Yes, so so.
With regards to refinancing.
I think theres two two different buckets to speak about the first one is the ESI acquisition loan.
By itself and a man and theirs.
Everything else, which is basically.
Some some maturities that we have at the backend of 2023 with regards to the East acquisition loan, which was a loan of about $3 7 billion $3 2 billion of that has already been refinanced.
Ooh.
On one end a bond that we issued late last year on a more recently.
We use the <unk>.
Our committed lines that we have for $1 2 billion. So so that's what has already been refinanced and theirs.
Our balance you will a remaining balance of 450 $470 million to go.
Which we're working on.
With regards to 'twenty two 'twenty three maturities.
When you add this.
Balance of visa or hungry and $70 million plus other maturities that we had in the back end of next year, we have a total balance of about $3 5 billion.
We are we are working.
Working with the with our financial system on.
On a different avenues.
Two refiners that hour.
Our preference at this stage is through bank loans, which were working on.
These are.
Bank loans with a variety of of time horizons, but we believe that they actually give us some some some pretty competitive.
Cost of debt associated to them with some with some very interesting.
Extensions in terms of time horizons, which are linked to our business plan that is our.
Preference I'd say.
There are other options.
Bonds are always an option right.
Haas has a longstanding presence in the bond market.
We are cognizant of that.
And on.
We keep that option as a possibility I think as we monitor the.
A credit market at this stage on circumstances around around Colombia on international macroeconomic factors.
We continue to review that.
I would say that as a secondary option at this stage, but it's certainly something that we do not rule out.
At any moment in time, thank you.
Thanks Jaime.
Yeah.
Thank you.
Our next question comes from Oriana cobalt from balance. Please go ahead.
Good afternoon. Thanks for taking my question. This is identical to a balance.
Had one follow up with regards to the F&B T receivable just I understand that you are in conversation and what would be the necessary adjustment for next year to prevent the further acceleration, but if you have any ballpark estimate our view on where do you see the needed adjustments in gasoline and diesel prices as to prevent an accent.
That accumulation of day receivable that that would be the first question and the second question would be more on the Capex side I'm looking at your Capex figures for the quarter. If you can further elaborate on the inflationary pressures that account for the increase in USD terms is specifically for the exploration Capex, which I noticed that.
Indeed, the same number of exploration wells spud.
It was substantially above quarter over quarter and same goes for midstream business. Thank you.
Hello oriented assignment with regards to your first question around <unk>.
Basically.
<unk>.
The balance of our bank has been accruing.
At a rate of around $2 five.
Two 4 billion vessels four months, depending on depending on the months Theres Theres Theres actually two or three key factors that are associated to that you have on one end, how how a product differentials internationally evolve on the other end you have how the exchange.
Evolves and thirdly as a major item of course you have.
The interventions that there are many snaking around around domestic prices.
I actually would argue that there's a fourth element, which you saw some medicine that are the logical adjustments by going to a lot of detail about the actually also influenza.
The rate of accrual.
The extent of of adjustments that need to be made.
Will vary depending on these other factors. So you actually need to look at all the factors in unison in order to close if you will.
The gap right to close that gap.
I would say Directionally I would say that the adjustments that the government has announced suddenly go in the right direction.
And if they are maintained.
On an implemented on a monthly basis.
Believe that gap is going to be a narrowed in a significant way by the end of next year.
But again, there's always the uncertainty around how these other factors involved with.
With regards to your second question around inflationary.
Pressures and Capex.
Firstly say that.
That the Capex execution that you that you saw in <unk>.
E <unk> by and large and by a massive amount dictated by Activision execution needs by no means are result of inflation.
I think the inflation that we have seen in our capex outlay, so far has been minimum.
What youre seeing is basically the result of an inch.
Triste activity set where we have more rigs we have more work over units we have more <unk>.
Crews in the ground.
And that is actually translating into more production. So that's that's really the headroom is now as we look into next year as we look into next year and more longer time gap.
Capex deployment inflation industrial become a factor.
Must become a factor as.
As we sign new contracts associated to those capital projects inflation.
Will be a factor and I would say that depending on.
The specific a commodity sub sector or service sector.
Those effects can be anywhere between 10% to 20%.
Amy we're in that range I think you would have to go into the specifics of each project to see to what extent they are men.
The gain it or not I would say as a as a as a gross average I would say that's a you know.
Our capex effect next year of between.
13% to 50% is a reasonable estimate I hope this helps thank you.
Thanks Jaime.
Okay.
Okay.
Thank you.
Our next question comes from.
Better L Motor walk here from Barclays. Please go ahead.
Yes. Thank you so much and congrats on on your earnings two quick questions for me.
First one is are you expecting to receive any feedback payments from any excess cash from <unk> by year end I think that we read on the news that ecopetrol could potentially receive something around <unk> seven seven trillion pesos in year end and in addition of the 19 trillion peso.
You mentioned earlier on the call. So just just curious if you have any updates on <unk> and some of that.
My second question is regarding your gross debt level for 2023. So are you are you thinking about you know keeping the gross debt is stable at around $24 billion I'm, just asking because if I look at the company right now in 2022 full year picture and I just did.
Tried to do like a quick parallel in 2023, the new this new government is going to increase taxes, let's say you know by factoring in C. O P on ecopetrol or so depending on the assumptions and so the increase in some of our internet taxes and obviously on the upstream is not based on our model is not going to offset that pressure.
From the feedback and even if we increase our local prices by let's call. It you know, 20%. We don't have the feedback you know balance on the working capital balance offsetting these taxes. So just curious if you can give US you know some some your view in terms of.
Gross debt in 2023, and then potentially with the risk of funding you know any dividends or potentially higher taxes with gross debt or or you don't think so you think that you know you can fund it extensively with cash. Thank you so much.
Hi, Beth or how are you and so so let me let me address the additional.
Just some questions I'd say, firstly istar with expectations around setback payments. So this year.
So and there are no further fed back payments budgeted.
In <unk>, that's an initial findings budget for this year. However, there is the flexibility the legal flexibility to apply.
Apply excess.
Budget surpluses to setback.
The extent to which those budget surpluses are going to occur or not is yet.
Yet been defined.
Had been defined in our conversations with the Ministry of Finance.
We discussed that as a possibility, but it is yet uncertain. One so I would say that the base case is no further back payments. This year, but there is an upside that that occurs and that's something that we are actively working with the ministry of finance.
With regards to your second question around gross debt levels.
Yes.
<unk>.
We close with with a healthy gross debt to EBITDA ratio in the third quarter and that's going to continue to age.
A b reduce over the over the next few months and the outlook is a positive one for next year I think the extent to which we're gonna incurring incremental debt or not next year is going to depend on on the assessment of the timing, which stuff theyre back payments or that are coming.
And at the same time, how capital markets evolve I think it's going to be.
All of those factors are going to have to be considered all those factors are going to have to be considered I think it's.
It's still premature to give you a view on that we're going to be discussing with the board.
Over over the coming weeks in what is our view on the investment plan for next year, what is the Optionality that we see around that investment plan and what.
What are the trade offs associated to two the investment plan with regards to cash with regards to <unk>.
A potential dividend payments and decisions are going to be made on that basis, but what I would say is that we do have a very strong inclination to protect the investment plan, we have a strong inclination to protect the debt levels that we have at this stage, but.
We are keeping our flexibility we are keeping our flexibility because things.
Things are dynamic.
And what is going to be the best combination to protect value for the company is something that that is yet to be determined with regards to your third question around working capital.
Bonds.
How to offset the pressure of that back.
M yearly.
I'd say two things. The first thing is that we are approaching this conversation from a from a healthy place you know I mentioned in the call in Spanish.
Our free cash flow in Q, he's the best free cash flow in the company's history. The first free cash free cash in the Companys history ever you know and it's obviously a combination of multiple factors, but it's eighty's accumulating as opposed to a a leisure.
<unk> so it's more around in a less and that helps a lot now to what extent that can fully offset on accumulating setback indefinitely I would say the answer is no. We can't now he cannot it will not fully offset it.
<unk> effect and that's why 19.
Premium pesos were included in the National budget and that's why we are in discussions with the government to to increase that amount.
And I think I think that is something that is going to evolve over the coming months and probably in our next call. We can give you a better view of that.
That's where we are.
Okay.
And timing.
Okay.
Thank you.
Net coming up next we have a question from Andres Cardona from Citibank. Please go ahead.
Hi, good morning, and thanks for.
The presentation I have two questions. The first is zero.
To Oh.
$4 million to $5 million a year.
Incremental cost due to attaching problem and you may have.
No what are the key assumptions you are using there in terms of oil prices.
You kind of exclude that caused between the the searching the novelty of the royalties and the last question is as you can.
Give us an update on how many development wells are you sort of gets into the ring.
And 'twenty two.
Yeah.
Hello Andre.
Let me take the first one of your questions is related to tax reform.
No we havent given an estimate around what is that tax reform impact for the company and I can assure you that it's not $4 billion to $5 billion.
I think we need to we need to look.
Look at the basics and the basics are.
We have a tax effective rate of 35% currently now they are about 35% depending on where you are looking at a group level a radical petrol is a separate level and depending on your price outlook, you need to add either 510 or 15% of that in that.
The highest possible pace, which is in a scenario, where where we end up over the 83 or so dollar per barrel kind of threshold that kicks in the 15% a surcharge.
That tax effective rate is going to go to to about 50%.
And 50% on our total net income in pesos. So that's that's the way that you need to calculate it.
The split of what he thought associated to the surcharge for the <unk> and the royalties is that.
90% to 95% of the effect is associated to the surcharge and the marginal amount is associated to two royalties royalties.
The new treatment of royalties is not a substantial amount as compared to the effect of the surcharge on corporate tax.
And I hope this.
Addresses your question over to Alberto.
Hi, Andreas what we have said is that for this.
This year it will be.
Around 580 wells and for next year around 600 Wells development wells.
And therefore.
Thank you.
Our next question comes from and the rest Duarte from coffee Columbian.
Hello, Thank you.
I have one question can you. Please brief me sorry.
Brief us on the carbon shadow prices you are using to price your products today.
And please remind us if the tax reform include Tom carbon tax component. Thank you.
Yeah.
Hi, Andreas how are you and so with with regards for carbon carbon taxes.
Approach in the company.
It's been around.
Employing what we call a carbon shadow price based.
Basically what what what that east east.
Your theoretical level of a carbon impact.
That is included in the evaluation of a forward economics in projects that we are reviewing it.
And basically the way that it has been implemented is that we we if you will we punish.
The projects that we're evaluating with an incremental cost associated to that.
A tonne of carbon that D N. The unitary a tonne of carbon that a project.
It produces basically the way that we have been modeling that out is that a we use a $20 per ton for the next five years than it goes up to.
$30 per ton and eventually goes up to $40 per ton EDC theoretical economic impact. This has no cash impact whatsoever, but what it does is that it allows us to prioritize projects and to measured projects in terms of there.
<unk> carbon footprint competitiveness, what this will do is that it will and what this actually does is that it actually.
In a way rewards projects that have a low carbon footprint in that they don't have to reflect that cost burden and replenish call eight projects with a with a high <unk>.
Carbon footprint through.
Through an incremental cost.
Again, it's theoretical right. Its not are these these amounts do not go to a person they do not go to a fund or anything like that and they don't have any cash.
Cash implication as of now.
As we look into the future. We are looking at mechanisms to see whether eventually this could actually translate into a real fund whereby a while we accumulate in that fund is used to.
Fund energy transition project site, but again. This is something that is that is still on paper and that we are debating if as a best practice to mainstream.
With regards to to the carbon tax as such Inc.
In Colombia, and there is an existing carbon tax that.
It has different methods mechanisms of the measure, but it ultimately translates into the equivalent of $4 per ton.
Off of it needed a carbon.
A.
Add to that to the system what the tax reform does is that it takes that $4 per ton and it takes it on average on average to about a $20 per ton.
On average this depends on the specific product and it depends on the place in the value chain, where you're actually asked right within the Ecopetrol group Ecopetrol ACI and looking to add kind of behavior are responsible for these box they either directly or in.
Indirectly.
But it does have an effect on them in the context of the total tax reform numbers that we have been discussing it is not.
A material item.
Thanks.
Thanks Jaime.
Yeah.
At this moment, we have no further questions. Mr. Everybody on do you have any final remarks.
Well, thanks, and just want to thank everyone for taking part in today's conference call. Thanks for the interest in the in aggregate rod Thanks for the questions.
I hope to see you.
Sometime soon and please stay safe.
Have a great day.
Thank you everyone you may disconnect now.