Q1 2023 Ecopetrol SA Earnings Call
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[music].
Good morning, My name is Camilla Wheeler and I will be your operator today welcome to a corporate drove earning conference call in which we will discuss the main financial and operational results for the first quarter of 2023, 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 a corporate for senior management includes predictions 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 choose not to realize as a result, ecopetrol assumes no responsibility in the band that Fisher results are different from the predictions shared on this conference call the call.
It will be led by Mr. Ricardo Dutra CEO of corporate Trust Dennis go out Vice President of sustainability development might have probably like a much vice president of legal affairs and general separate study Jamie buys Vice presidents of one mission solution I was better considering it out C. O O I met Gala Jato C V.
Thank you for your ethane should Mr. AHL you may begin your conference.
Morning, everyone and welcome to the earnings.
It's my privilege to address you today took place in the cockpit.
For the first quarter of 2020 to be told I began with the maturity on the Vita prefer for you I would like to express my sincere gratitude to all the members of this organization for their commitment and dedication to day daily work literally draw employees fully.
<unk> engaged and passionate about their work.
No not to lead such a talented and committed team together, we will work to secure that Ecopetrol continues to be a reference within the energy sector with operational excellence.
<unk> four months, a global leader for the energy transition.
I want to express my deep commitment to his plant and continue our capital So any party strategy, which was announced at the beginning of last year close to her in the group's consolidation as a leading energy group in the region.
And they did that.
Answer the current challenges associated with the energy transition, we society must be balanced seamless sleep three energy.
Ah bilaterally depth disability in terms of cost and efficiency I know look decent umbrella and mentally sponsor to get them on board.
Corporate group this is possible through our forest strategic pillars grow we'd be.
Energy transition generates home value through he is he could no.
No less on coffee.
Returns.
Our 2023 planned east.
Milestone for this strategy and we are committed to effectively and efficiently implemented into a cheap power goes down.
Between 25.3 to 29.8 trillion passes to accelerate the parts of the energy security.
Between 720, <unk> hundred 20 pie that was some barrels of oil equivalent per day that are key for the trade balance of stability and.
We supply.
Transfer to the notion of Arbor 43 billion Colombian pesos in 2023 all of these in addition to increase the impact of social investment and always seeking up close on open communication with society and communities with whom we work on a day.
The basis in our operation, let's move on the next slide to present. The main result on milestones for the first quarter of 2023.
I'd like to start highlighting all our resilience us we move we would email high changing market environment on the price side us way less challenging local environment and security situations at the beginning of the year with current production there is $719 somebody.
Of oil equivalent per day, an increase 27, some boroughs versus the first quarter of 2022.
It was supported by the company's operational discipline on higher production, so keep each of us.
Food regardless.
But demand in Texas, maybe displaced in the first quarter of the year we registered.
Use of $58 nine trillion pesos EBITDA up 17 point, a pretty impressive on net income of $5 seven trillion basis. These assault, where it consequence apart this affect any of the brand prices principally in the Colombian peso given the devaluation.
One of the covenants operational strength in the hydrocarbon business with higher production, probably nordea phone call as well as growth is transported crude and refined products also east worth noting that the gas.
You business with Kurt on the beat the margin up 59% in the quarter last week.
We also highlight the performance of the energy transmission on sooner or segment due to the new projects and they're just meant in topics because of injection.
Bundle with at hand, I would like to point out that the dividend payment approved by the Florida. This general meeting up to any port POI import trillions basis equivalent to 593 basis per share the highest in the company history. This value will represent.
Our dividend yield of 275% and imply that dividend payout of 73% of the two.
2022 net income we also highlight our target to reduce mccann emissions by 45% by 2025, and 55% by 28 30 compared to the 2019 baseline in the direct operations of the producers.
Through the patient recruitment and elimination of who gets to the nations under Robertson Benskin inbound awards.
Let's please move to the next slide.
Global economic environment for 2020 is challenging with low growth expectations and inflationary pressures that limit the possibility of a chain in contractionary monetary importance in this context. The group has taken strategic actions to ensure the complexion of the business plan.
Sleep monitoring that he put America risks, which include not only those related to the price of crude oil, but also macroeconomic variables such as inflation exchange rate and the cost of debt among others regarding the price of crude oil during the first quarter of the year bring crew.
<unk> oil fell from $84 per barrel to $79 per butter between January and mesh to move them into what's explain it but the resilience of Russian production.
Building of crude inventories in the United States, Europe , and Japan, and the financial this type of service in the second week of March with the bank increases that began in the United States.
During the quarter, we saw opportunities that we were able to take advantage.
As the recent OPEC plus announcements to cut through the soon as starting in May support in the spreads of our crude oil basket likewise.
Likewise, the reactivation on demand in China represents an opportunity for our society in Singapore to matter.
As these market opportunities Ecopetrol will continue to use different contact from scans that include the liberty of crude oil and produced America. They buy the company at the customer's facilities in the Ecopetrol group each business line is constantly looking for new fishing.
As we.
Low us to manage the impact of inflation and also alternatives that allow us to use technology and innovation to fulfill our business plan for an increasingly efficient use of resources.
Now give the floor to DNS go bye bye precedent of sustainable development. So that we can begin to review progress on the milestone of the <unk> strategy.
Thank you Ricardo and 2023, we continue to generate significant social value. It is worth emphasizing that for this year.
Investment plan within the Copay card growth sustainable development portfolio amounts to a record breaking 773 billion Colombian pesos, representing a 25% increase compared to 2022.
Here are some relevant milestones during the first quarter, we made remarkable progress.
Contribution to the goals of National public education, benefiting Debbie 1000 students.
We collected 94, new students to grant them with scholarships good back to get US Ecopetrol program to pursue higher education.
Are there more 35 talented young women and a place to participate in the program called she is an authentic and initiative.
At enhancing stem skills terminated.
Parameters visited NASA space Center.
Within the scope of their co petroleum bring the program to technical business companionship, we successfully completed our support for 100 entrepreneurs micro and small sized enterprises from be Gary's, saying seal in the met that department as a result.
Chip and increased 36% in sales and expanded their customer base by 52% with the goal of narrowing the National Guard and access to public services, we achieved a significant milestone this quarter by connecting.
11500 families to natural gas in the city of <unk>.
And in the municipalities.
Uh huh.
Uh huh.
Don I'm glad we're not in the department of Idaho.
I would like to emphasize our commitment to sustainability and the energy transition in a collaboration between Ecopetrol and Cynthia we proudly inaugurated the first sustainable bogden of Bogota mass transportation system draft millennium, which operate under an <unk>.
Mental sustainability criteria to honor our commitment to be in close proximity to the country's communities. During this quarter. We conducted nine social dialogues engaging community action Board Academy, and Triple nurse and local institutions on top of that.
That we actively participated in the 2023 national popular coming in Latam, where we had the opportunity to engage with 5000 members gain valuable insight from functional leaders across the country on topics such as energy transition dynamics of the hydro car.
And sector popular economy and environmental protection.
Collaborations with Holdco, we coordinated the road map.
Consultations with the I don't.
<unk> made that indigenous reserve with the write down and the indigenous communities of Ortega and the department of scaling this.
These consultations are crucial to modify.
Let's fields environmental license and the drilling injector wells project respectively.
But at least we volunteered it really utilizing public spaces conducting pedagogical activities for the responsible use of plastic and installing a children's playground with seven tons of recycled plastic now I pass the floor to Mario Polak Amato.
Who will enlighten us on the accomplishments and corporate governance and responsibility.
Thank you Deanna as part of our commitment to the energy transition and in line with the copper tour groups with tragedy and TNT plan. The meeting of the Capitals channel shareholders' meeting, which was attended by more than 3500 people. Once the first carbon neutral general shareholders' meeting of Ecopetrol.
Reason, we highlight the following points there was a great ton decrease C O two emissions in their plenty plenty Queen shareholders' meeting competitive plenty plenty to meet those submissions with all that through the purchase of pumps from that coast project, which prevented degradation in the first person or maybe parse embargo colima.
And by Yamana that England into it the proper disposal of the way generated during the event was warranty could provide a second mask or the different optics used in the meeting the printing of S.
Uh huh.
And that decrease and finally, creating employment for mothers, who are heads of households, who bananas company, which oversaw the paradox Sanofi you Wanna, Steven I say deep to the shareholders. During the meeting the following points among others, where we viewed unapproved third the annual corporate governance report.
And the integrated management report for 2022 to these reports with truck to adopt it to respond to the challenges of the 2040 strategy was revealed to the stakeholders to the definition of three business lines hydrocarbons, low emission solutions and transmission and toll roads. Likewise the results of the plant.
Plenty to find ourselves here.
And the advances in the ph D pillar, where we build second the board of directors member election for the remainder of the plenty plenty one plenty plenty class period. This board has seven independent members six director who continue in office and for the first time, we have clean women in this executive by.
And finally tax auditors election.
This allocation for the remainder of the period plenty plenty one plenty of 25 people.
It's also worth noting the appointment of it got a little out of that as the new CEO of the company. The selection and appointment process was carried out in accordance with the succession policy of the seal of a couple of thoughts and with the support of an international Headhunter to finally, we highlight after the approval of the plan to 'twenty three.
Men's rights plan that Ecopetrol continue the survey of human rights risks associated with our business activity in the operational area. This exercise it's carried out with a two way perspective on PD in bulk employees suppliers and community leaders in the first place I will now pass the floor to Jamie back to elaborate on the milestones.
Automation solutions, Thanks, Maria Paula in the first quarter of 2022 week, we achieved significant milestones in our portfolio of no emissions energy solutions, the natural gas and LPG business reported an EBITDA of $267 million. We please.
And then year over year increase of 7% with an EBITDA margin of 15, 9% during the first quarter of 'twenty to 'twenty. Three we reached more than 160000 equivalent barrels per day of gas and LPG production combined attribute mainly to the.
Growth in our U S operations, maintaining a 22% share of gas and L. P. D. In the group's production mix.
On side with the transportation companies, we are sheep, a historic milestone for Columbia by beginning bi directionality of the gas pipeline in the barrancabermeja by Gainer section, thanks to their contractual management and <unk> in that field volumes, thus, allowing us to connect our.
Felix with Northrop part of the country, which in turn increases the reliability Optionality and security of the natural gas supply in this area.
As part of our ongoing effort to improve community wellbeing, we continue growing our social gas program benefiting you in this quarter 2004 hundred families from rural communities in our outcome Likewise in the energy community project portfolio.
Graham more than 20 initiatives were highlighted and four of them were put forward to be developed in putumayo.
Data now Daniel on Guajira.
In renewable energy sources.
Operation of our solar farms with us Cathy Yeah, San Fernando and the small hydroelectric power plant can't they use a lot.
<unk> US two reviews 6400 tons of field to equivalent emissions, making significant progress to our de carbonization goals as well as reported savings of more than 6000 600 million pesos increasing 100.
<unk> 27 per cent basis first quarter 2022 on the.
The same topic as part of the group's Decarbonisation strategy and commitment to the energy transition, we signed an agreement with total and in January of this year for the construction of a 100 megawatt solar farm in the reality of scale, which will we deal with more than two.
<unk> 4000 tons of Cotwo emissions per year.
Third our continued commitment to incorporate new nonconventional renewable energy sources to the group's portfolio, we formed an alliance with Evs, Colombia and grateful Costa.
Build a forest biomass plant with a 25 megawatt capacity in the municipality of B and labor cost scenario. These energy will be supplied to the group through an agreement with our trade their hip Alka.
A reduction of 70000 tons of C. O two emissions per year is expected additional to the benefit of Reforesting an area of 13600 acreage additions.
Additionally, a memorandum of understanding we will sign with Baker Hughes and the Central Israel Lake recap they called US to study the TCE ability of developing ideal third month, well inventory that's value. These will enable short and medium term possibilities for geothermal energy generation.
In terms of hydrogen to projects have advanced to their final phase of maturity in which it is expected to conclude that Ebola studies alongside with World class strategic allies. Once conclude the projects will add a capacity of 60 megawatt.
What each of electrolysis with B E. M brought on exchange members technology powered by renewable energy sources. The Ecopetrol group continues to advance in sustainable mobility hydrogen projects in March through their partnership with panel HAE Pan Africa, and Green mobile.
The first comprehensive test with green hydrogen in Colombia, and public transportation pools allowance. This includes hydrogen production compression and storage systems, a charging station and a 50 passenger bus that will be incorporated in that volatile.
Integrated public transportation system during the second quarter of 2023. In addition at the Caribbean Innovation and Technology Center in Cartagena. The first vehicle powered by hydrogen with our Colombian license plate number in the country was introduced.
Yeah, Tommy di is operational and the green hydrogen production storage and recharging system will be available for the innovation and entrepreneurship ecosystem in the fourth quarter of D. G I.
I now turn the floor over to Alberto who will speak about the main operational milestones. Thank you gave me.
2023 started with two exploration successes in wells, which were drilled at the end of 2022 and tested during this quarter.
The shipper north of 100% operated by whole goal and located South East of Ontario gas was evidenced in the CNI got the order formation.
Extensive testing is expected to begin in fourth quarter of 2023, the totaled only one well operated by Geo Park in partnership with our subsidiary for Paul.
<unk> began work has confirmed the presence of 35 degrees API light crude oil in the <unk> formation at the end of the quarter. The initial tests were completed.
The well is currently undergoing extensive testing in order to have a weight its potential in the first quarter, we advanced 32%.
On the 2023 drilling campaign, we finished drilling eight exploratory wells out of a plan of 25 six located in eastern Plains General sodium palace.
It's located in the peer monitor for appeals.
Regarding offshore exploration activity in Colombia, we continued to advance with the evaluation on the appraisal plan of the Gorgon discoveries in the Colombian Caribbean innovation contracting is underway to start drilling the orca north of one operational will estimated for the end of this year in order to identify.
Prospects on mature new opportunities Ecopetrol acquired 300 square kilometers of seismic data with the Flamenco Street D program located in the municipalities, where we've just some sub $100 in sometime there in the Middle Magdalena Basin. These program.
Generated more than 1100 direct and indirect jobs. Please let's move on to the next slide.
On the production front, we reached 719000 barrels of oil equivalent per day during the first quarter of the year maintaining robust results. Despite security situations in some regions. We highlight the incremental production of Canyon and our Permian subsidiary and also the.
Improved performance of yellows supported mainly by the pressure support project with reuse of production water, which allowed us to grow sustainably and contribute to the water neutrality goal. Additionally, during the period production was mainly affected by security issues with an impactful six.
<unk> thousand 800 barrels of oil equivalent per day due to the closure of pickup buttress field from January 21 to April 15, and the shutdown of the Gibraltar gas plant during March.
Also because of the blockades by third parties in the Keathley Canyon and <unk> fields with an impact of 2600 barrels of oil equivalent per day, and also because of lower gas demand from external customers compared to estimates.
It should be noted that the exploration and production segment contributed with 48, 6% of the group's EBITDA with an EBITDA margin of 42% being a profitable sustainable segment that leverages. The energy transition by the end of the year production is expected to be leverage mainly in <unk>.
Permian Gardner sure, yes, PNM, Monterrey, Chihuahua and allow gaskets.
Also external factors that could affect production such as the El Nino phenomenon, and environmental and public order situations that constantly monitor it let's go to the next slide. Please in the transportation segment for the first quarter of the year, we obtain exceptional financial and operating results.
Volumes transported during the first quarter of the year increased by more than 49000 barrels per day compared to the same period of the previous year, mainly due to higher crude oil production and beyond this area.
The increase of transported volume of refined products. In addition for the third consecutive quarter, we achieved record multi purpose pipeline transported volume.
Approximately 306300 barrels per day on the financial front, we highlight the historical quarterly results of this segment with an EBITDA of three to three basis in order to ensure their equation of production from the category one field. After the January one convenience pipeline was up.
Three reversion cycles, albeit the centenary a pipeline were carried out with an Eva weighted volume of approximately 662000 barrels on the other hand due to the continuous registered in the southwest of the country. After the natural disaster that blocked a part of that.
Pan American highway, which among its effects generated fuse shortages. The Ecopetrol group acted immediately in order to enable new routes to meet the demand for products in this area of the company developing among others planned for tableau batch from the winter into the Meridian terminal two.
Tobacco terminal base included the construction of facilities in that when I went to the station <unk>. Thanks to the implementation of these adjustments the floor increased 2000 barrels per hour, reducing tanker loading times through 'twenty two effective hours on their desk tried to you. During this quarter 11 vessels have been loaded.
Which have allowed the supply of approximately 279000 barrels of gasoline and diesel by the Ecopetrol group during the first quarter <unk> completed the construction and startup of the UN booked Teekay 8000 starts tank with a nominal capacity of 60000 borrowers which is expected to reduce tau.
Cheers due to high and low inventories eliminate the payment of tank truck freight and allow us to capture a growing demand for fuels. Let's go to the next slide. Please in the downstream segment, we obtain a historical quarterly records in consolidated throughput of 412000 barrels per day.
As well as in the production of diesel gasoline and jet for domestic supply complying with resolution 40103 that establishes the quality limits for fuels in Colombia.
Wise the second highest quarter was achieved both in integrated refining gross margin of $22 $6 per barrel on the segment's EBITDA of $3 2 billion peso, while the contribution of the Cartagena refinery of $1 76 trillion pesos stands out.
It's mainly by the entry of the card the Hana crude oil plants and reclamation project from the third quarter of 2022, and the first quarter of 2023, we continue to make progress in T. A C highlighting.
The progress and the development and maturation of such broad access green hydrogen in both refineries few quality baseline in barrancabermeja and improvements in the NAFTA Hydro Treater unit in Cartagena, and Barrancabermeja and Cartagena refinery. So the contribution of Ecopetrol certification up there.
First mining energy company in Latin America to verify its water footprint with E. Comm Tech in the ESG study medical response, how does 2022 sector rankings SMT have ranked <unk> in the industrial sector in Colombia based on the growth and diversification studied developed by.
Colby. So it was approved to start the maturation of the expansion project to double valued diesel capacity, let's move on to the next slide please.
During the first quarter of the year efficiencies of $905 4 billion pesos were achieved within the framework of an <unk> strategy focused on mitigating the inflationary effects that the global economy continues to experience lifting cost was $8 $78 per barrel increasing by <unk>.
$12 per barrel versus the first quarter of 2022, mainly due to inflationary effects on energy targets and operational support services with a lower impact due to efficiencies achieved.
$2 per borrower the cumulative average cost per transported borrow as of March 2023 was 2.5 $8 per barrel decreasing by $19 per barrel versus the one recorded at the end of the first quarter of 2022, mainly explained by higher average.
Evaluation of the peso against the dollar.
Fact of the additional volumes transported the refining cash cost indicator was $369 per barrel showing a decrease of 18% compared to the one evidence in one Q2 thousand 22, mainly due to the exchange rate effect. Additionally, the first quarter of the year. The total unit costs decreased by 700.
44% versus the same period of the previous year.
Mainly explained by a higher exchange rate and an increasing trade volumes.
Demonstrates the effectiveness of the company's policies too faced inflationary pressures in the sector.
We'll pass the floor to Jaime Caballero, who will talk about the main milestones of that transmission and roads business line and the financial results of the Ecopetrol group.
Thanks Albert.
In the transmission and toll roads viciously east have delivered positive operating and financial results, mainly leverage on the sustained growth of the energy business in Brazil. This was reflected in a 10% contribution of this business line to the group's revenues, 15% to EBITDA and 4% to net income.
At the end of the first quarter.
Following milestone stand out in the car Firstly the award of 13 extensions in Brazil, and eight connections tied in Brazil drilling, Colombia, and one in Peru, which together will add 334 kilometers certainly to the network secondly, the entry into.
Can one reinforcement on 15 improvements in each asset.
Certainly the entry into partial commercial operation.
I get that one us with the right to 66% of its annual regulated revenue equivalent to $8 million.
Asia will advance in the construction of 31 energy transmission projects, which represent more than 4840 kilometers of additional circuits through the network and which will generate revenues exceeding $260 million when they come into operation the construct.
<unk> stage of route as the law could teams with an extension of 136 kilometers, which is expected to come into operation.
Thousand 24.
Let's please move to the next slide to see the main financial indicators.
During the first quarter of 2023, the Ecopetrol group continues to deliver outstanding indicators amidst a more challenging price scenario.
Compared to that observed in 2022.
<unk> was 17, 8% underpinned by the last 12 months of operating income we have.
<unk> benefited from a favorable Brent vessel in Miami.
Strong operating performance and solid results in all business units.
That result, partially offset higher taxes and the increase in capital employed.
EBITDA margin was 45, 9%.
Mainly explained.
The good operating performance across our business lines and solid product registration prices, which offset the increase in operating costs and expenses associated me, where the highest change rate and higher inflation.
Regarding EBITDA by business line, the higher contribution of transmission and low emission solutions sends out in line with the capital group strategy for 2014.
Which aims at EBITDA participation in these instances of between 30% and 50%.
The group's total the gross debt to EBITDA indicator stood at 145 times below the 2023 target of two one times debt to equity ratio increased to one two times, mainly due to the 16% decrease in equity.
Associated with the recognition of the dividends declared at the general shareholders meeting.
While debt increased by only one 1% the net income breakeven closed at $32 per barrel, mainly explained by higher sales volumes and better product spreads. Please let's move on to the next slide.
At the end of the first quarter of 'twenty phase III. The Ecopetrol group recorded a consolidated cash position of $17 seven treated patients.
Claimed by first on operating cash flow generation Dupont.
One trillion vessels, including an increase in working capital due to the account receivable associated to the fuel price stabilization fund.
Thanks for its Spanish acronym and payments of accounts payables and current taxes during the period. The above was partially offset by the decrease in inventories intention given their deliveries during the quarter secondly, the outflow of investment resources for organic activities for a total.
$5 two trillion pitch, mainly associated to Ecopetrol S. Yeah, Permian and east and thirdly, the inflow of financing resources as well as principal and interest payments that generated a debt service of $2 two trillion pitch. The final cash bonds is composed.
Cash and cash equivalents for $15 five trillion pesos and a portfolio of short and long term investments for $2 two trillion pesos.
Regarding the management of debt maturities for 2023, the Ecopetrol group continues to advance in its strategy to refinance the outstanding bonds of $1 $6 billion through tools, such as credit operations with local and international banks and bond issuances in the capital markets.
Regarding the asset backed bonds the account receivable at the end of the first quarter closed at $34 two trillion patch, reflecting an accumulation of seven nine trillion pesos during the quarter the.
Ecopetrol group's collection expectations, a few the offsetting of the dividend approved for the majority shareholder of around $21 six trillion vessels at the general shareholders meeting against the balance of the setback that for the second third and part of the fourth quarter of play do you do with Ecopetrol.
S. K once progress is made with the ministry of finance and the respective resolutions are issue.
It's all group continues working with the Ministry of Finance and public credit to define <unk>.
Further mechanisms that allow settling the outstanding amount for 2022.
<unk> four eight trillion pitch once the dividend compensation is me finally in the first quarter of the year Ecopetrol group's organic investments amounted to six trillion pesos. The hydrocarbon this is lynn accounted for 65%.
Of that amount.
The integrated chain, both in Colombia, and in the United States in Brazil in the low emission solutions. This is lane investments totaled <unk> seven trillion vessels.
Including investments in renewable energy to underpin self generation.
Hydrogen energy efficiency projects as well as investments associated with the exploration and development of gas investments in the transmission toll roads. This is mine amounted to $1 four trillion persons and correspond to the projects executed by Isa in energy transmission toll road.
<unk> and telecommunications.
These investments allowed progress in the construction of electric circuits and improvements aimed at increasing the reliability of the existing it.
As well as in the Rutile Lora, Ruth I rely on alchemy, and rutile ilmenite bolt road projects Ichi.
Let's move onto the next slide. Please today, we can start to see how progress in their corporate role groups. The ESG agenda leverages value generation in the launch in the first quarter through science technology and innovation.
Accelerator of <unk>, we achieved a value of 177 million loss through highly relevant technological initiatives such as the loyalty space in partnership with the Colombian Air Force.
Our Fox P. Two TD that gateway satellite, which helps monitor greenhouse gas emissions over the Colombian geography and allows for better interpretation of data images to define the country's carbon sink capacity.
In line with the next year or aspiration, the group announced a new target of reducing methane emissions by 45% by <unk>.
25, and 55% by 2030.
Also during the first quarter, we achieved emissions reductions due to operational inefficiencies that bring us close to 1 million tons produced.
The water neutrality target by 2045, we have identified a 66% reduction in freshwater withdrawal for industrial use.
This chart just to freshwater bodies and to compensate the remainder by 2045 during the first quarter of 2023 progress was made in reducing water withdrawal by 651000 barrels per day and initiatives continue to mature to reduce discharges.
Mainly in projects like this.
<unk>.
Which will mature in the 2025 to 2030 period. This not only contributes to the water neutrality target, but also brings us closer to being less dependent on this resource which is fundamental for the sustainability of the business over time.
In local development.
More than 6000, new non oil related jobs, Mercury, which puts us on track towards meeting the target of <unk>.
25000, new non oil related jobs.
This is in addition to the progress made in local social impact in the regions, where we offered previously.
Previously covered by Dino squad in.
In corporate governance, Ecopetrol group continues to make progress in transparency and sustainability reporting exercises substantially improving its rating in the Dow Jones sustainability index and the CDP, formerly the carbon disclosure project on climate change positioning the group as a global leader in these two recognized standards.
Finally to leverage the group's strategy, the corporate Vice presidency of finance actually transform into the corporate Vice presidency finance and sustainable then.
Which will allow all the more effective and efficient financial support.
Ecopetrol group's profitable and sustainable growth in <unk> transition, which ensures capital discipline cost efficiency and cash protection underpinning the continuity of competitive value generation throughout the group I'll now turn the floor over to Ricardo.
For his closing remarks.
Thanks, Hi man to close I would like to highlight that we have shifted our strongest start of the year with 2023 plan that is still on track good progress in the energy transition thrown in line with the pillars of the two though some part of your strategy to Hudson.
<unk> to expand into new geographic regions and strengthen our relationships with our investors business partners. We are excited about the future with many opportunities have had leveraged by the strong corporate governance will continue to work hard to create value for our shareholders.
Employees and communities. Thanks to everyone who is participating in this call today for your time.
With this I open the question and answer session.
Thank you.
We will now begin the question and answer session. If you wanted to ask your question. Please type in the shots the number one and follow the instructions before.
Before we begin I will give the floor to a corporate trust CEO Ricardo.
Good morning, everybody and thank you again.
<unk> will start the question and answers.
July .
Thank you again for being here.
As all of you know.
During the typical pay through two weeks through.
This is my fees components.
It is a complex industry during.
During the past weeks.
<unk> been working hard.
We did <unk> and <unk>.
Plant.
The days of each business line.
I must mention that I have.
Tom.
Deeply deeply experienced and enthusiastic team.
I will answer your questions regarding my general be soon for the company strategy.
Probably early days on how.
We work with the National government.
Always within the.
Framework to continue generating value for our shareholders.
Coors rely on the team to provide Italian information about other topics.
Britain procurements.
I also would like to share with you a little bit more about my sense.
Hi, Dana.
Electromechanical.
A mechanical engineer from the University.
Of Colombia.
Hold on a specialization in management engineering systems.
I have two <unk>.
30, <unk> <unk>.
Personal experience mainly in the energy sector.
During the last 20 years.
High level positions.
And gas companies in Colombia, Peru, what the Milan and Honduras.
Throughout my career.
The studies and you need to keep some projects about energy generation and age of the PCC and leading strategic transformations in the companies I work at <unk>.
Previous include the CEO role in the group put it here they will return.
It's a bit of transport burden symptoms.
Thomas and the PGA junior and manager.
Then it here on <unk>.
I also was the manager of <unk> funded.
Electricity distribution company.
I'm the manager of the energy and be it on the business in that sugar and refinery company in the body.
Okay.
Regarding my Bcm.
I wanted to bring Colo.
Bruce in the gas and power sector to the company to a strict than the implementation of the 2040 <unk> strategy.
My first message.
For all of you easily turn endorsement of this strategy.
We'll remain focused on growing the hydrocarbons business line.
Permanently monitor the market conditions for the needed adjustments for value generation.
At the same time, we will continue to take advantage of the energy transition opportunities and contribute to adjust well balanced and responsible energy transition in Colombia under regions.
We have operations.
I value the Ecopetrol has a positive impact in the community is close to our assets.
Good to see that.
Our strategy does not lose cycle contribution to program to reduce soon will increment in those regions, where we operate this is fundamental for Colombia, some bottom line concession in fiscal performance and the learning curve.
Finally, I want to share with you.
Continue working closely with the national government to look for solutions.
Solutions for the chip bags deficit with our sustainable from a fiscal perspective in.
Maintain our corporate value proposition to all shareholders. In addition internally we are going to work using technology to create a general purpose, bringing higher international standard.
We continue with the question.
And as for efficiencies.
Thank you Mr rollout, we will start with the questions. Our first question is from Bruno Montanari of Morgan Stanley . Mr. <unk>, you may ask right now.
A good afternoon, everyone. Thanks for taking my question regard, though very welcomed graco patrol Ah.
And here's hoping that the company continues to follow and deliver its strategy.
Three questions. The first one it seems very clear that the company is accelerating and really focusing on energy transition. So I wanted to compare that with hydrocarbons right. So the recent news flow in the country seems to indicate that the new exploration activities and even regular.
Drilling activities will be more limited going forward.
That along with the fracking ban.
One portable is echo patrol that it can sustain its production level in the coming years.
With the mature aid for all these oil fields isn't there a risk that are only the secondary and tertiary recovery.
To offset the natural production decline.
The second question.
About.
Your commitment to the <unk> JV in the west and how that compares with the philosophy. If you will of not meaningful fracking activities and then the third and last question is about the evolution of setback in the quarter for us it sounded like that too.
Billion dollars increase.
Look a bit surprising taking into consideration the behavior of international oil prices and the domestic brushes and Colombia. So I was wondering if you could help us reconcile that.
The balance increased that much in the quarter and then how the company sees a the funding or the settlement of the firm's AUM.
Top of the $21 six trillion there is already on the budgets. So you still have.
About.
The three year or four three of them their source from from from the 2022.
Volumes in other almost eight trillium business from 2023.
So I'm wondering if you have visibility on on how that gets worked out. Thank you very much.
Yeah.
Good morning, Bruno This is Alberto Consuegra. Thanks for the question. So we'll take questions one and two.
With regards to exploration.
As you May recall, we have said that our 2040 <unk> based in growing our production beyond 2030.
He is supporting the existing E&P contracts, where we have about 265 exploration opportunities.
Our 2023 2025 plan includes quite a bit of investment in exploration.
Taking advantage of those opportunities and particularly in 2023, we have 25 exploration wells out of which eight already have been drilled.
We continue to see an exploration in our portfolio is vital and part of our our resources will come from exploration in the future. If we need to have a conversation with the government about future exploration contracts will hand, particularly if we see that.
We need to replace oil production beyond 2034 to maintain the throughput our refineries needs. So that's in relation with exploration when.
When we talk about <unk>, what I can tell you is that this is still very important.
So about 38% to 40% of our total production.
When we look at our reserve.
Folio as well of our contingent resources most of them will come from EUR, particularly from the <unk> main areas, where we see water injection and as well as air injection projects. We are beginning pressure support water pressure support projects also deemed to be honest and we continue.
Q to inject gas to support pressure in our monthly food heel portfolio. So so EUR becomes quite important and we.
Still have.
A good share of our production in the future years.
With regard to Permian.
Unconventional.
We recognize that.
We'll have to practically.
Okay.
So spin.
You know Amy any activity in terms of.
Unconventional in Colombia, but Permian is quite important continues to be M&A strategic asset is one of the most perfect profitable assets that we have in our portfolio.
The environmental stance point is particularly.
Particularly very good it exceeds the environmental standards that we have.
Continuing increasing our presence there as you might remind last year, we acquired a position in the Delaware Basin, and we increased our share in the Midland Basin.
When you talk about results.
$142 million EBITDA for this quarter, we're talking about 80% on a both 80% EBITDA margin in this business and.
Is one of the future asset that would represent the cash flow that the business.
<unk> energy transition will require in the future so very strategic very fundamental in terms of what.
<unk>.
It represents an important for the strategy in Ecopetrol.
Hi, Bruno this is Jaime good to hear you I'm going to take.
The third question around bank on how it has progressed over the last.
Over the last quarter.
I'll I'll quote you on your question Yeah. It seems to me that you had a you had a.
A lesser expectation around the balance in our case, we actually we were not surprised.
We need to remember that there are different there are several elements to the formula you have an element that is the international price age will the reference price.
But.
You also have what is happening of course domestically on what is happening with the foreign exchange rate.
And that's what might explain the surprises that you got on your end.
Directionally, what I would tell you is while we had on one on one hand, we had positive momentum in terms of the balance in that there were.
There have been a number of adjustments we made on gasoline prices by the.
The government there.
They are actually quite material they are actually actually higher than what they had budgeted before so I think that speaks a lot about their commitment to the balance.
But on the other and some of that gets actually offset by the foreign exchange movements. So.
Need to take that into consideration.
When you do those numbers now the bigger message that I would tell you is that when you see the behavior of the of the accumulation of a bank. It is decreasing you know last year there were.
There was a moment in time, when we were actually accruing a balance of about three six.
Trillium vessels per month.
Our accrual rate now is at around two <unk>.
So it's significantly less than it was before.
Bank going forward.
<unk> will move.
Move depending again on those three variables.
I think on the diesel and there is some pressure because diesel prices continue to be very robust. So there is some pressure on the bank on the diesel and on the gasoline and there is a there is a lot of relief and the reason our relief on one end because international prices have softened a bit.
But on the other end, particularly because of the interventions that the government has made on domestic pricing.
And beyond that we're going to have fluctuations around the FX. So that's that's kind of my attempt to reconcile that behavior on <unk> with regards to what can we expect going forward on the settlement the big element on the settlement of the balance is the.
Exchange, if you will between the dividends and.
Hey, Doug.
The government dividends share versus the balance that's 21.6.
Trillion pesos right and that will leave a balance spending for 2022 of about five eight trillion pesos. That's the remaining balance it is not a big number there are two or three mechanisms to deal with that.
One and probably the like the most likely mechanism is going to be around.
A budget surpluses that the national government Haas.
<unk> allows them to use budget surpluses that you have on on other areas towards the bank. So that's I would say that's the base case.
Theres two alternatives to that.
One is that you actually create a new.
A budget allocation to that that is a little bit complicated because they actually needs to go to Congress and all that kind of stuff and the second one is extraordinary dividends.
Which again.
Going to be subject to the performance of the company the cash availability that we have.
On an on and obviously our commitment to deliver on the existing plan. So so that's the outlook that we're seeing I hope. This is helpful. Thank you.
Super Thank you.
The next question comes from better for of Barclays. Mr. Bother you may ask.
Thank you so much John Thank you so much.
Taking my question congratulations on the earnings congratulations material up or elimination as a CEO .
I have few questions some of them were firstly answered by me.
Mr Kobayashi.
Good question. So the first one is to Mr. ROA. If you can let us know if you.
You had any recent discussions with us and some of the recent topics that were mentioned the first one is is the setback. So obviously, yes.
Mr. Kobayashi said third year, there is still a balance pending and around five five to <unk> if I recall.
Obviously, there are surplus but that the decision of the payments of this balance will redeploy a massive rollout on a corporate towards funding. So have you had any discussions about.
The new Minister of finance about the potential payment in term of cash for the structural deficit and my second my second related question with US Canada is that have you also had any discussions with the minister of finance about.
The announcements about the changes in price and diesel and gasoline prices. So we understand for now that the ministry of energy and mines has little power over patrols, but just wondering if you are in agreement about the future of diesel and gasoline prices with the minister.
Uh-huh findings.
My second question is related to Capex.
It was also partially answered about the focus on A&P, but I was just wondering if you could breakdown the capex for 'twenty three 'twenty four.
With just just to see between upstream midstream downstream energy transition.
How are you thinking about it so we still think about our Capex plan for six and a half video daughters, mostly geared towards upstream.
And then how are you going to finance the Capex growth just curious is that going to be with new debt and my last question is regarding your healthy cash levels. So obviously.
If you have a decent cash balance at the moment.
And I was just wondering if you had any plans of using part of the cash to reverse some of the low cash price bonds on the market right now with some of the long dated bonds trading around $63.64 on a dollar before a potential issuance or are you planning to use part of the cash for potential M&A. Thank you so much for taking my questions.
Okay.
Thank you Brian .
But truly for part of the working group with the National Government Ministry of mines.
The minister of finance since two.
To support the definition of free new chips.
Golar commensurate financed under producing labels and mitigate the impact study that <unk> currently generates for the country the polo women's done.
Our collaboration technology tools for the <unk>.
Absolute sidings.
We put in the pudding TRT prices for industrial consumption segment.
<unk> come through becoming Alberta, the use and destination of volumes.
Regulated prices among others.
Beta. This is this is I'm a hearing to complement regardless.
Policy statement I guess around disease.
We are in active discussion with.
With the government on this actually Brazilian regardless and myself are actually meeting the minister of Finance. This afternoon, we have a meeting precisely to talk about this.
And you you you have heard and I am sure you have seen the public statements about the minister made.
This last Monday, which is basically a very clear statement around the requirement to have a competitive compensation framework for producers to make sure that.
They are the right incentives to produce in Colombia and to make sure that the fiscal balance is an altered in any in any move that's made so so basically our expectation on this general expectation east.
Fuel prices will continue to increase and administered <unk> has been very clear about that that is something that we expect and I think that the track record that we have seen over the last.
Nine months of prescient Bedrose government is very clear that they are committed to those price increases. So we are expecting them to continue that.
The first thing that I would say.
I think the I think the other element that we're seeing on in language. What regardless just mentioned is a a very aggressive agenda to to implement measures that without affecting the compensation to the producer reduce the.
The rate of accrual of Netherlands, That's where for instance for calculation of subsidies comes in right.
We actually have done a international studies on this regard.
This has been done elsewhere, and philosophically, where we are and we shared this view with the government is that.
Not the totality of society doesn't need to benefit from these subsidies only certain parts do and that's where the subsidies need to be going towards so in any case directionally. That's what we're seeing.
And that's what we're seeing on <unk>.
And we're happy to share it kind of that I'm in with the government.
With regards to Capex.
I think you heard prescient drawing his introductory.
Presentation being very clear about the commitment towards the 2040 strategy and plan.
This year's Brian has a target of being anywhere between $5 $66 $6 billion that is unchanged that is unchanged and about 65% of that is in hydrocarbons and I'd say you know.
Our historical hydrocarbon business with.
With an aim to grow production, which is our target. It is our aim and it's our target to the end of the decade.
The remainder of the remainder of that is going into the into the new business lines the business lines associated to transmission and two and to lower emissions and there are no changes to that 'twenty 'twenty four is very similar to that.
The general composition of Capex breakdown is not changing in 2020 for either I think while we are the conversation that prescient raw has invited us to join easy conversation about can we be more efficient in the deployment of capital.
In the hydrocarbon business on in that lower emission business a.
In a way that we can do.
More with the same amount that is the challenge that he's got his place to us.
I believe that.
We are gonna and recalibrate, our efficiency program and we're gonna established probably newer targets around that.
And we are going to find ways when we look at the <unk>.
Portfolio of a lower emissions in hydrocarbons to to make sure that in.
Both businesses can grow in a in an efficient way, but we are not seeing headline numbers changing at this time, nor are we seeing the capital allocation between the businesses changing at this time.
Thank you.
Okay.
The next question please.
From the linear forcefully.
Sorry, <unk> latest thinking.
I didn't cover the question around cash that I think we had like four questions in there sorry later.
What can we expect in cash.
<unk>.
No change to our cash management, basically and we have a very healthy operational cash generation at this time and that a cash he's been fundamentally directed towards the increased capital intensity of the business, where we want to grow production and that's where it's going.
In terms of depth and we are refinancing the bonds that we have for this year $1 $6 billion.
That's well on track I spoke about that in my general remarks.
We're not seeing changes on cash.
The headline message.
Uh huh.
The next question comes from Luis Carvalho of UBS, Mr. <unk> go ahead.
Hi, Ricardo behind me and the Executive Board.
For taking the question if I may.
Two quick questions here the first the first one to Ricardo.
Regarding your <unk>.
Recently joined the company Echo control, it's a super important company to of course to Colombia.
Colombians right. So just trying to get a sense in terms of would we be D&C your main goals.
Three four years ahead.
What will be the main achievements that you would like to I don't know to potentially be proud of.
I don't know when the three.
Two to three years.
Isn't it.
The second question.
About.
Of course capital location, and I would like to come back to maybe behind us.
Sure.
This is no depending on how we look right I mean of course, the oil prices. One there are some limitations about what can be done right.
If you're penalized for example, the company too much on the few prices as a consequence, there will be I would say lower capability from the company to pay dividends, which it's also important to the Columbian government as a controlling shareholder.
So in the end of the day.
And of course, we'll be some limitations on the investment as well.
So I'm just trying to get a sense.
In terms of what will be the capital allocation priorities.
Among these three lines right, you'll see the potential.
I would say I wouldn't put subsidies, but TSA the subsidies for the population on the few prices last investments is less the dividends to the government and the last question.
It's about you had said the potential discussion back.
Maybe a couple of years ago at the.
Congress of the country.
Basically approved with the government to actually to sell 8% off of the stake in the company right.
<unk>.
Is that a discussion that you think that would have some room.
In order to be.
Feedback on the table right now and what would be your thoughts on this thank you.
Thank you Mr got run room.
About the foods question. The current strategy is solid and robust and response directionally to the challenges of the energy transition.
Adjustments are required along the way.
Adjustments are required along the way.
These will be carried out within the framework of the company's strong corporate governance.
It will lead to opportunities to accelerate new business associated with the energy transition, but always in accordance with our capital discipline got to PCC and sustainable competitive returns for all the shareholders.
No change sort of expected in the 2020 investment plan announced in November of last year.
Hi, good to hear you the timing here I'm going to take your second question.
<unk>.
And possibly a third question.
And your question around Capex allocation.
A.
Basically our capital allocation priorities reflect delivery of the plan.
The way to think about it we will do whatever it takes to deliver on the <unk>.
<unk> done.
That hasn't changed right so in that line.
The first thing that we want to finance is the investment program.
<unk>.
Between.
Around $6 billion, that's the way to think about it.
That is a range, but you know as we have discussed this with the board of directors.
There is a.
Total consensus around the company and with the government that a.
Investment is required to sustain a.
Shareholder value in the short medium and long term.
That is well understood there is full support to that.
Every level of government and with the board so in under under that light.
The first element.
We think about this is we need to sustain the growth programs that we have.
And now we have.
Announced and of course and of course.
In that context of growth there is a big element of a new opportunities in the energy transition that we have already a.
Declared and talked about so that's the first priority.
Second priority then once we cover that once we cover a making sure that Capex is funded the second the second.
Priority ease.
A robust debt management.
The strategy to 2040 has a capital structure. We have said that we will not surpass a leverage ratio of two five times debt to EBITDA that is at low prices.
And we remain committed to that we have discussed extensively with the board and that includes the new members on Brazilian broad the the leverage component that we have.
I would say that the general guideline on these is that absolute debt levels in ecopetrol or are in a good place.
Leverage ratios are competitive with the rest of the industry, but we need to be very very thoughtful about incremental debt going forward. There is room for incremental debt. There is some room for that.
Our performance is allowing us to do that.
And we will evaluate that.
Our circumstances arise in that structure of priorities and then the third component of course.
Do you cover investing in the future and making sure that we're of course, we have a safe and reliable operation, which is part of what we're doing capex.
And once we cover our debt service the third priority is and of course dividend distributions.
And as you are aware, we have a dividend policy. When we have extraordinary performance, we have starting on the dividends and we will consider that us.
Sure.
Performance in our cash availability allows us to do that at this time, we already have declared why he's going to be.
Dividend payments for this year.
There are no plans to change that anytime soon but this is dynamic.
And as things change in time, we will continue to review that.
I would say those are the general elements to that.
You mentioned in your question.
The <unk> role on this and have a big role the way that we think about for <unk>. The bank is a constraint that we need to deal with and Thats what were doing right.
<unk> is not a risk for <unk> is not a surprise.
As part of our operating envelope.
Anything else is on us.
So long as we are aligned with the government on these we shouldnt be concerned.
That's what we're seeing what we're seeing is a government that has been very consistent about delivering on its commitments under the bank.
And with regard to your last question about.
And eventual float of the company.
Dr. A regulation the authority the authorization that we obtain on that regard.
Regionally in 2021 was for five years, so that goes in.
In 2026.
That is an option that we have in our capital structure.
That is simply part of the toolkit is.
Something to be reviewed as and when market conditions allow.
Allow for that there are no plans in the near term to activate something like that.
If that changes we will.
We'll let you know.
You very much.
Thank you Jaime and good to talk to you as well and Ricardo Good luck. Thank you.
The next question comes from Herman <unk> of WB Endako Mr.
Mr. <unk> you may ask.
Hi, Good morning, and thank you for for this call I have three questions. One is regarding oil prices.
Oil prices have come down this year and Brent reference is close to 76% of barrel.
I would like to know what oil price assumption are you using for the annual budget and if you're planning to change does number for 2023.
The second one is maybe for four regard, though is because the nation. The national hydrocarbons agency will release the reserves report during May and this information will be very relevant for the an energy transition strategy of the country and <unk>.
Ending decisions on these modern what should does report revealed to change your mind in favor of signing or allocate a new exploration contracts in Colombia and.
Third one and the last one is could you. Please give us an update about the Caribbean Sea operation. When do you expect I guess potential to be incorporated into the reserves of the company.
Okay.
Hey, Matt how are you. This is jaime I'm going to start I'm going to start with your question about oil prices and then.
But it really is going to take your questions around <unk>.
Sorry, I think I think I missed a question there, but I am going to cover oil prices what assumption you're using for the annual budget. So we are working on an assumption of $81 per barrel, that's why we're using and Thats our planning assumption.
This this year and actually for the next three years.
We haven't changed that actually that's what we used for <unk>.
Back in November to sanction the plan for this year.
And there are no plans to change it at this time and the color that I would give you is that we've looked at the balance between differentials behavior on one N as in price realizations versus volatility on what we see is that if you look at the oil price year to date.
Seems to be very much near what we.
While we planned.
So no plans to change it.
About the second question.
Currently in Colombia.
All groups, we see good company to co petroleum, who coal has 48 exploration contracts signed at 30.
Asian contracts with near field exploration options. These contracts provide an estimate range between eight and 10 year sort of exploratory activity depending on the results of the Permian the environmental licenses.
Ability of executing the projects to do that the 2004 is strategy is supported by base produced sooner recovery for our current <unk> the contribution from Permian exploration.
We will look.
<unk>.
Enterprise in areas already provided by.
Both in the Colombian Caribbean and we did in the country among which earn.
The cone unloaded in meta guarantees.
Sure.
A replay in the pit Amun.
<unk> <unk> in the <unk>.
Sure.
Two more returns.
Please.
So just to.
Hi, Herman.
Good morning, and thanks for the question just to complement what Ricardo has said.
Right.
Let me remind you that when we look at our strategy. What we have said is that we're going to grow our production beyond 2030, and thats very much supported in our current portfolio.
Since we are not going to have the wedge of the unconventional in Colombia, we will probably need broadly need to replace.
Those molecules in the future beyond 2030.
Quickly to support the refining throughput. So that's that's but that will depend very much on the outcome of our current exploration portfolio.
So that's kind of the question that response to a question on I will take the next one regarding the Caribbean Sea operation.
What we have said is that our current business plan 2023 to 2025, we're going to be drilling seven offshore wells beginning at the end of this year.
With our commitment well in orca.
Then we will follow with activity in both <unk> and Gorgon.
And provided that we are successful in these three brands, we are going to expect to see resources coming into reserves.
Beyond 2026, because we will have to mature progress.
<unk> sanction these projects in order to become a.
<unk> reserves, so that's kind of the plan that we have currently.
In our portfolio.
And.
Very good point in terms of how are we.
You know taking the operation we have created a vice presidency and offshore vice presidents to ensure that we fulfill and comply with the level of activity needed.
In the current study.
Yeah.
Thank you.
The next question comes from Andres Duarte of coffee Columbian Mr. Doug go ahead.
Hello.
Thank you for taking my questions.
Three short questions with first of all.
Yes.
Best of luck to you Mr Earl.
And the rest of the team in Florida.
Thank you.
Okay. So two questions might be taking us follow ups from that to say.
Good questions.
The first one is related to gas.
Yeah.
I wanted to know what's the required average local gas price.
Nor does it refer to offshore.
Reserves to become economically viable.
That's the first question the second one is related to hydrogen.
So in terms of our hydrogen volume.
And what's your production expectation in our forecast.
For the next couple of years.
And finally the question.
The third question is related to reserves proved.
Oil and.
In gas reserves to FRE.
Right.
So.
And those reserves related to your enhanced oil.
Sorry.
So far.
2022.
Sure.
Yes.
Oil addition related to U R.
Was pretty low when compared to the previous years.
And this happened despite that.
That around 40%.
Okay production comes from.
Fields that apply these methods.
I wanted to know what's your.
Your expectation or what do you expect.
In the near future for next year, maybe in terms of reserves addition, coming from.
Your.
Thank you very much.
Okay.
Thanks, Andrew for your question. This is Jamie I will start with the first question related with gas.
It is important to highlight that the local gas prices. So they will head sales under the current regulations in Colombia are freely site. So they are not tied to any international references our benchmarks are.
Our view is that our resources in the offshore <unk> are uncompetitive vessels other domestic sources as well as import gas. They are also quite material and we consider them a potential game changer for ecopetrol and the country the.
The price level that is required to make those resources viable when it is in line with the current natural gas prices in Colombia.
So this outlook of competitiveness will allows us to develop.
These investments in our copper telephone natural gas and therefore of course, the non term contracts with fixed local prices, which is pretty much the status quo that we have today in our in our business will generate stability and profitability of our investments.
Finally, we maintained all the efforts to materialize more senior needs to be as efficient as possible by the means of as Alberto mentioned, we have a dedicated team for these projects. We are protecting the capital that has been allocated for these projects in the three year plan.
We are working very close with our World class partners shell and Petrobras and of course, we are also working in the use of existing infrastructure to process transfer Amtrust and transport this gas volumes to the Colombian market.
For the second question related with our outlook for hydrogen production on songs.
Today, our production of hydrogen from the methane reformers is about 100 and theory thousand tons per year, I remember, 90% of that hydrogen is great and 10% is do you think we are capturing part of the tier two in barrancabermeja to be sold to local industry.
We the proofs of concept that we have delivered so remember these are three projects that we have today in operations one located in the St. Charles facilities. The second one in Bogota and the last one in Cartagena, we will produce about 35000 kilograms per year.
It is important to highlight as well that in 2024, we will start the construction of two projects at adding do sell scale that have progress through their final safety maturity in March 2023. So once we conclude those two projects. We will have a capacity of 60 megawatts of electrolysis is.
Tom.
This is a production of 18000 tons of green hydrogen per year.
This molecule is expected to be produced at the end of 2025 are beginning 2026, and finally, we have our target you know for the long term.
The theme, we have 1 million tons per year.
And this is almost seven times the capacity that we have today.
I hope to leave you with a more detailed context about our hydrogen production outlook and of course, the competitiveness of the offshore gas volumes.
My address with regards to the third question I want I have to say is that we always have in the plan to replace 100% of our reserves.
Every year and when we look at specific at EUR. This is quite important not only in in this year, but in the years to come and it will represent 40% of our production base and also about 40% of our reserve replacement.
Polio and also have to add that most of our contingent resources existing contingent resources come from EUR. So you will see that there are a lot of the capex deployed for the next years will be.
Related to increasing our EUR.
State.
Okay. Thank you.
The next question comes from the Shadwick and Neal Lee from Bank of America is asking what are your expectations for the refining business for the reminder of 2023, given declining global refining margins.
Hello, Amy.
Thank you for your question regarding the downstream business.
As you were able to see we did have a very strong first quarter with record crude rate very good level of EBIDTA.
On refining margins.
So when we see the following quarter four this year.
We see also providing marches looks to be going down, but you still look strong between a $15 per Robert plus or minus two so we see in terms of refining margins are close in a very good he brought in not as high as the previous year, but this.
Still very strong and our cool right.
We finished with record levels, but we still see therefore, we months between 400 to 420 <unk> in our.
Refining business so.
Probably on the high side of this of this range.
Although we do have a planned turnaround at the Barrancabermeja refinery.
In July this will be only for 30 to 40 days. So then accrue rate will come back to maximum levels. So in overall, we see a better route the rest of the year 2023, a lot of focus on safety.
In our business high operational availability a lot of focus on.
Opex Opex.
Opex performance.
You know in general very strong 2023 for the rest of the.
So far.
So I hope I was able to answer your question.
Thank you Mr. Shaw there are no further questions at this time.
Thanks to everyone. This concludes our first quarter 2023 earnings conference call. Thank you for your participation you may disconnect right now.
[music].