Ecopetrol [EC] Conference call transcript for 2023 q3
2023-11-08 19:10:19
Fiscal: 2023 q3
Operator: Good morning, my name is Natalia and I will be your operator today. Welcome to Ecopetrol's earnings conference call in which we will discuss the main financial and operational results for the third quarter of 2023. There will be a questions-and-answers session at the end of the presentation. Before we begin, it is important to mention that the comments in this call by Ecopetrol's 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 risk or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared in this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol, Milena Lopez, CFO, Alberto Consuegra, COO, and David Riano, Vice President of Low-Emissions Solutions. Thank you for your attention. Mr. Roa, you may begin your conference.
Ricardo Roa: Good morning, everyone, and welcome to Ecopetrol's third quarter 2023 results presentation. Before we begin today, please allow me to introduce you to some of the new members of Ecopetrol's management team. First, in the Vice Presidency of Finance and Sustainable Value, we welcome Milena Lopez, who has been the CFO of Cenit, a transportation Company of the Ecopetrol Group for the past five years. Milena has held senior roles, including General Director of Public Credit and National Treasury at the Ministry of Finance and Public Credit, and various positions at J.P. Morgan. In the Vice President of Low-Emissions Solutions, we welcome David Riano. David has more than 28 years of experience in the energy sector and has held positions in various companies in the energy market, such as Transportadora de Gas Internacional TGI, Empresa de Energia de Cundinamarca, Gas Natural Penoza, Red de Energia del Peru, Filial ISA, and government entities, making him a key leader to drive our low emission solution business line and advance the energy transition in a responsible and profitable manner. I thank David, Milena, and the other senior managers for their commitment to bring new knowledge and experience. I would like to take this opportunity to thank each of our employees because it is you who make these results possible. Let's move on to the next slide, please. I want to start by highlighting the excellent operating performance achieved during the quarter. We achieved an average of 741,000 barrels of oil equivalent per day, a figure we had not seen since the last quarter of 2015, and volumes transported and cargoes higher than the same quarter of the previous year. This reaffirms our commitment to the Company's core business. Besides, in recent months, we have achieved significant milestones that we wish to highlight. In early October, we confirmed the presence of natural gas in deep waters in the South Caribbean of Colombia in the Glaucus I, while emphasizing the importance of the gas province in the region and our active exploration portfolio. This achievement joins a major exploration campaign with 10 wells declared successful so far in 2023. Our accounts receivable from the Fuel Price Stabilization Fund continue to decrease, COP 16.4 trillion offset by dividends to the nation so far this year, a cash payment of COP 1.9 trillion, and the smallest difference between the export parity gas line price and the local price, highlighting Ecopetrol's active management and the nation's commitment. This has resulted in a 34% lower accumulation than in the same period last year. Also, I want to emphasize the commemoration of our 15 years on the New York Stock Exchange with an Investor Day, reaffirming our strategy for 2040 energy that transforms. We highlight the launch of operations of our new trading subsidiary, Ecopetrol U.S. Trading, in Houston, Texas, in October. The commercial and operating strategy seeks to strengthening and enhancing relationships with our clients through a local support team, through fluent communication with consumers and suppliers, and providing first-hand access to market information. Additionally, on the commercial front, we emphasize the performance of our subsidiary, Ecopetrol Trading Asia, which has managed to market more than 100 million barrels of crude oil in the Asian market today and strengthen the strategy of diversifying customers and countries, reaching new destinations such as Malaysia, Thailand, and Japan. Finally, up to the end of the quarter, we have made transfers to the nation of more than COP 45 trillion through taxes, royalties, and dividends, reaffirming our commitment to the country's development. Let's move on to the next slide, please. Here to date, up to the third quarter, we have recorded revenues of COP 108 trillion, an EBITDA of COP 48.5 trillion, and a net profit of COP 15 trillion, all aligned with our 2023 financial plan and achieving efficiencies of COP 2.9 trillion. We look optimistically toward the coming months, although we will face challenges. In preparation for the Fenomeno del Nino and in response to potential additional requirements for liquid fuels to support the country's electricity generation, the operational supply chain has prepared itself by building inventories in coordination with the Ministry of Mines and Energy, fuel cells, and generators. Priority is given to the available volume of excess diesel from the Cartagena refinery to match the potential needs of thermal power plants. Additionally, logistical operations have been planned to ensure the supply of the additional required fuel and supply contracts for diesel to fuel cell distributors for thermal power plant operations have been structured. Similarly, all contingency operational scenarios in the areas of production, transportation, refining, and marketing quarantine the country's normal supply, supported by our operational excellence and commitment to the energy transition. Thank you, everyone, for being part of this journey and for your continued support of Ecopetrol. Let me invite Milena López for the key financial and management figures.
Milena Lopez: Thank you, Ricardo. It is an honor to address you on my first earnings call as CFO of the Ecopetrol Group. I am deeply grateful for the opportunity to join the Ecopetrol team and want to take the opportunity to emphasize that our financial successes as a Company result from the collective effort, which I look forward to being a part of, as I am committed to further strengthening our market position and generating value for all our stakeholders. Ecopetrol Group's organic investments amounted to COP 19.2 trillion year-to-date, the highest quarterly figure in the past seven years, representing 20% year-on-year growth versus September 2022, and in line with investment guidance for 2023. The hydrocarbon business line closed the third quarter with executed investments totalling COP 13.3 trillion, representing approximately 70% of the group's total. These resources were mainly allocated to drilling and to upstream completion activities in the Rubiales, Cano Sur, Castilla, Chichimene, and Florena fields, along with exploration activities in the Llanos, Piedemonte, and Lower Magdalena Valley. International investments for the quarter concentrated on development activities in the Permian Basin. In the low-emission solutions business line, the enabler of our energy transition investments, resources totaling COP 2.4 trillion were invested, including COP 2 trillion allocated to natural gas projects in assets primarily located in the Piedemonte region and exploratory blocks, mainly offshore. Additionally, investments in the transmission and toll roads businesses amounted to COP 3.5 trillion and corresponded to the projects executed by ESA in energy transmission, toll roads, and telecommunications. These investments allowed for advances in the construction of the electric transmission lines and improvements aimed at increasing the reliability of the existing network, as well as in the toll road projects of Ruta del Loa, Ruta del Araucanía, and Ruta de los Rios in Chile. At the same time, EBITDA amounted to approximately COP 48 trillion up to September 2023, contributing to the second-best financial results in this period in the Company's history. The hydrocarbons line of business continues to be the most significant EBITDA contributor as we progress with a gradual diversification of our business lines. The Ecopetrol Group continues to implement its comprehensive strategy for energy efficiency and competitiveness. As of September 2023, we have achieved approximately COP 2.9 trillion in efficiencies through initiatives that have reduced costs and expenses, increased revenues, and optimized investments. Please continue to the next slide. As of September 2023, the Company's consolidated cash balance was COP 14.1 trillion, with business operations as the primary source of cash generation. Main cash outflows that stand out were CAPEX disbursements and dividend payments to minority shareholders. Additionally, during the period, COP 16.4 trillion of the FEPEC accounts receivable have been offset against the payment of dividends due to the Republic of Colombia. As of September 2023, there is a notable decrease in the accumulation of the fuel price stabilization fund when compared to 2022. This is primarily due to ongoing increases in gasoline prices throughout the country. During the third quarter, COP 8 trillion of FEPEC receivables were offset against the payment of dividends payable to the Republic of Colombia, and a COP 1.9 trillion payment was received in cash, resulting in a FEPEC accounts receivable balance of COP 25.7 trillion at the end of the quarter. Furthermore, it is worth noting that thanks to the refinancing efforts undertaken throughout the year, the gross debt to EBITDA indicator at the end of the third quarter was 1.7 times. At the same time, debt maturities for 2023 have been fully refinanced, and we continue progress in refinancing the 2024 maturities. With this, we continue to maintain a gross debt to EBITDA ratio below the 2.5 times long-term level. I want to highlight that rating agencies have maintained Ecopetrol's rating, corroborating the Company's solid financial profile, excellent operating performance across all segments and business lines, and proven access to the global capital markets. Please continue to the next slide. Our commitment to TESG creates value for the Company and enables our energy business in the long run. With regards to the environment, and specifically in terms of our holistic approach to responsible water management, leading up to the third quarter of this year, we reused 114 million cubic meters of water in our operations, which means that the Company avoided the capture and or discharge of this water volume, thus reducing pressure on water resources. This amount equals to 79% of the total water required to operate. The results were achieved thanks to the implementation of best practices in the reuse and recirculation of water at the Barrancabermeja and Cartagena refineries, as well as our production fields. In line with our ambition to achieve net zero emissions by 2050, as of the third quarter of this year, and using 2020 as our benchmark, we achieved a cumulative greenhouse gas emissions reduction of 1.33 million tons of CO2 equivalent in our direct emissions, scope one and two, mainly in the upstream and downstream segments. This result was achieved through initiatives focused on reducing flaring and venting, improving energy efficiency, and through the use of renewable energies. With regards to our ambition to generate more renewable energy for self-consumption and to promote the use of cleaner energies, our goal is to incorporate 900 megawatts by 2025. Currently, we have 208 megawatts in operation. We successfully completed the construction of seven megawatts at the Cartagena solar farm and currently have an additional 94 megawatts under construction. Regarding social development, we highlight the creation of 4,442 non-oil jobs and a TESG-related investment of COP 1.33 trillion by the end of the third quarter, mainly through investments in items just mentioned, as well as in energy efficiency, better fuel quality, and investments in biodiversity. By the third quarter of the year, 36% of Ecopetrol's investments were allocated to energy transition initiatives, with 51% of these resources invested in the transmission and toll roads business line, 30% invested in natural gas, and 19% allocated to TESG initiatives. I now give the floor to Alberto Consuegra, who will lead you through our most significant milestones in the hydrocarbons business line.
Alberto Consuegra: Thank you, Milena. At the end of the third quarter, the 2023 exploration campaign was 60% complete, with the drilling of 15 exploratory wells, one of them located in the Caribbean offshore, two in the Piedmont Basin, and two in northern Colombia, all with gas potential. Also, 10 wells were drilled in the Llanos Orientales Basin with liquid hydrocarbons potential. In 2023, we achieved 10 exploratory successes, of which I would like to highlight the following. Glaucus 1 well, located in the southern Colombian Caribbean in the Coal 5 block, operated by Shell, in which Ecopetrol has a 50% interest. The Glaucus 1 well confirmed the presence of natural gas in a new accumulation in Block Coal 5, where the Kronos 1, Purple Angel 1, and Gorgon 2 wells are located. Also, four crude oil successes in the Llanos Orientales Basin, three operated by Geopark, partner of our subsidiary, Hocol. Those are Zorzal 1, Saltador 1, and Toritos 1, and the Kimera 1 well, operated by Ecopetrol in partnership with Repsol. On the offshore front, we continue the evaluation and appraisal plan for the Uchuba 1 discovery, which is expected to be executed in 2024. We also expect to start drilling the Orca Norte 1 well, operated by Ecopetrol, in November of this year. To date, the 2023 exploratory campaign has a success rate of 45%, which is above the industry average. Let's move on to the next slide, please. During the third quarter of the year, we achieved the production of 741,000 barrels of oil equivalent per day, an increase of 20,000 barrels of oil equivalent per day compared to the same period of the previous year. These results are driven by the incremental production from Caño Sur, Rubiales, and the Permian Basin, as well as the solid performance of secondary recovery fields, such as Castilla and Chichimene. In particular, I would like to highlight that production via secondary and tertiary recovery technologies contributed around 40% of the Ecopetrol group's production from 23 assets, including water injection at Chichimene and Castilla fields. We are also maintaining our focus on efficiency. As of September 2023, the upstream segment achieved COP 1.8 trillion in efficiencies, accounting for 61% of the Ecopetrol group total efficiencies, thanks to the execution of initiatives that have allowed us to reduce drilling completion and dilution costs. The lifting cost increased around $2.72 per barrel versus the third quarter of 2022, mainly explained by higher inflation reflected in the increase in electricity tariffs and contracted services, partially offset by efficiencies totaling $0.24 per barrel. Finally, on the decarbonization front, the upstream segment reduced 351,000 tons of CO2 equivalent above the expected target for the year, contributing to 83% of the group's greenhouse gas emission reduction. These results were achieved thanks to energy efficiency initiatives in the Piedmont fields and the reduction of methane emissions in fields such as Dina Cretaceous, Jasmin, and Provincia, among others. By year end, we expect production in the range of 720 to 731,000 barrels of oil equivalent per day. Let's move on to the next slide, please. In the Permian Basin, 33 new wells were drilled during the quarter for a total of 312 cumulative wells since 2019, reaching an average production of 66,300 barrels of oil equivalent per day, net to Ecopetrol before royalties. By the end of September, a record production of 120,000 barrels of oil equivalent per day was achieved in our Permian assets, of which 74,000 barrels of oil equivalent per day are Ecopetrol net. In line with our TESG strategy, our assets maintain a low carbon intensity between seven and eight kilograms of CO2 per barrel, a low carbon intensity between seven and eight kilograms of CO2 per barrel. Also, progress has been made in the initiative to replace diesel with compressed natural gas in drilling and completion generation operations, achieving an average cumulative substitution of 30%. By year end, we expect an average production between 62 to 64,000 barrels of oil equivalent per day before royalties and the drilling of more than 110 wells. Let's move on to the next slide, please. In the midstream segment, transported volumes increased by approximately 52,000 barrels per day as compared to the third quarter of the previous year, mainly due to the higher production in the Llanos region and additional barrels from third parties that were outside of our pipeline network. We highlight that in September 2023, a 42-month crude oil evacuation record was achieved, reaching 850,000 barrels per day, showing pre-pandemic levels. In the product pipeline transport, we highlight the performance of the Pozos Colorado's Galan system, which reached a pumping rate of 160,000 barrels per day, achieving a system transportation record with direct pumping to the Barrancabermeja refinery. During the third quarter of the year, a successful dilution test of Rubiales crude oil was performed at the Monterrey station, where 88,500 barrels of naphtha were received for dilution, and in total, 562,000 barrels of Rubiales crude were diluted from approximately 15 degrees to 21 degrees API quality, which leverages the midstream strategy of becoming an integrated logistics service provider by offering solutions that reduce transportation costs for shippers. Finally, during the quarter, the cost per barrel transported decreased by 43 cents per barrel compared to the same period of the previous year, mainly explained by higher maintenance and contracted service costs, as well as higher volumes of crude oil and products transported. Let's move on to the next slide, please. In the downstream segment, during the third quarter, scheduled maintenance were executed in line with the annual plan to guarantee the operational availability and reliability of the assets. As of the end of September, 90% of the annual shutdown plan was completed, and in October, the maintenance of the crude oil unit U-001 in the Cartagena refinery was also concluded. The refineries achieved a consolidated throughput of 410,000 barrels per day and an integrated gross margin of $20.6 per barrel, supported by the continuous operation of the interconnection of the Cartagena crude plants, IPCC by its acronym in Spanish, the removal of bottlenecks while achieving 95.1% operational availability. This resulted in an EBITDA of COP 2.5 trillion, mainly explained by the incorporation of efficiencies, feedstock optimization, higher polypropylene prices, as well as favorable gasoline, diesel, and jet fuel prices. During the quarter, we made progress in achieving milestones, including the production of premium gasoline with less than 15 parts per million of sulfur at both refineries, paving with recycled plastic asphalt in roads at the Barrancabermeja refinery. Essentia, a subsidiary of the Ecopetrol Group, announced the start of the first advanced chemical recycling project in South America, which in its first stage will recover around 500 tons of plastic waste that is difficult to recycle and transform into raw material for new plastic elements. With the first delivery of pyrolytic oil from post-consumer plastic waste to the Barrancabermeja refinery, this project officially begins in Colombia and opens the door to producing 100% circular polypropylene from post-consumer plastic. Finally, during the third quarter, the refining cash cost increased by $1.24 per barrel compared to the 3Q 2022, primarily due to the rescheduling of activities from previous months, higher cost execution, increased operational activity, and inflation. I will now hand over the floor to David Riano, who will comment on the main milestones of the low-emission solution business.
David Riano: Thank you, Alberto and Ricardo, for introducing me. It is a true honor to address all of you in this new role within the Company that serves all Colombians. I'd like to begin by expressing my gratitude for the trust the Company has placed in me and reaffirming my commitment to continue contributing to a more sustainable world while delivering value to our investors. As of September 2023, the natural gas and LPG production reached 161,000 barrels equivalent per day, representing about 23% of the group's production mix, with a generated EBITDA of COP 2.5 trillion and an EBITDA margin of 40%, reinforcing our commitment to positioning natural gas as the energetic transition fuel during the third quarter of 2023, we launched different commercial processes that seek to contribute to the group's strategic objectives. Among them, we highlighted the completion of the long-term gas commercialization process of the Gibraltar, Capachos, Cusiana, and Cupiagua fields, in addition to the public offering of LPG quantities for the period between September 2023 and February 2024, volumes that will supply approximately 77% of the domestic market. On the other hand, the operation of our Brisas, Castilla, and San Fernando solar parks, in addition to the Cantayus small hydroelectric plant, has allowed us to reduce close to 19,000 tons of CO2 equivalent and capture savings of more than COP 28 billion so far this year. Likewise, we made progress in the construction of the solar parks of Captagena, La Sera, Copay, Ayacucho, and Basconia of our subsidiary, CENIT, in addition to the park of the subsidiary ODC in Caucasia. This, as part of our efforts to incorporate non-conventional energy sources to our energy matrix, contributing to our goal of 900 megawatts operating and in construction by 2025. Additionally, the energy efficiency program has achieved the optimization of 3.4 megawatts and more than 2.5 thousand gigawatt hours, resulting in an emission reduction of 198,000 tons of CO2 equivalent and an energy cost efficiency of about COP 38 billion. The equivalent of an electric energy optimization of 5.9% accumulated from 2018 to date allows us to continue advising towards the target of 6.3% by the close of 2023. Also on this front, we highlight ongoing initiatives for the inclusion of technological tools throughout the operation, such as artificial intelligence applied to energy planning and optimization of power resources. It's important to mention that Ecopetrol, in response to the El Niño event, has prepared to meet the increased need of diesel required for thermal power generation. At the same time, we have been managing the entry of new renewable self-generation projects that contribute to reduce the energy requirements of national electric systems. Finally, we highlight two important initiatives to improve the welfare of the community. The social gas program, which in 2023 has connected more than 14,000 families to natural gas service in rural areas of Arauca and Guajira, and the extension of the micro LNG agreement in Buenaventura until November this year, giving support and reliability to the gas supply for 37,000 families in this area of the country. I now pass the floor to our president, Ricardo Roa.
Ricardo Roa: Thank you, David. The transmission and growth business generated positive operational and financial results in the third quarter of the year. These results are leveraging the energy business in Brazil and Colombia and growth in Chile. This was reflected in 10% contribution to the group's revenue, 14% to EBITDA, and 5% to net profit over the nine months of the year. Some of the most relevant milestones for the quarter include, first, the award through ISA CTEEP of Lote 1 in Brazil and three extensions with a referential capex of approximately COP 2.9 trillion, which will be invested gradually until the initiative of operations in 2029. Second, in Peru, the award of three projects through the Consorcio Transmantaro and the commissioning of the connections of the Nabucimache solar project and the connection to the Parque Portón del Sol, collectively adding 2,020 megawatts to the Colombian electrical system. ISA continues to advance in the construction of 39 energy transmission projects in the countries where it has a presence representing over 7,190 kilometers of additional circuit to the network, which when operational will generate approximately $372 million in revenue. Finally, progress continues in the execution of the Ruta del Loa project and the works in the consessniories Ruta de la Araucanía and Ruta de los Ríos, which will generate new income and extensions of the concession terms. Let's move on the next slide from the closing message. I want to close by recognizing the commitment of Ecopetrol employees to operational excellence and the transition to more sustainable future as reflected in these positive results. I want to remind all our shareholders, investors and stakeholders of our commitment to the investment plan outlined in the 2040 strategy. This leads us to have a solid hydrocarbon business that supports the energy transition. With a strong routine and a clear vision for 2024, we are prepared to overcome the challenge. Ecopetrol continues to be a driving force for Colombia's development, contributing to economic growth and the well-being of communities. Thank you everyone for being part of this journey. Finally, I open the Q&A section.
Operator: Thank you very much. We will start the session for Q&A. Andres Duarte is online with a question. Mr. Duarte, go ahead with your question. Mr. Duarte, you can go ahead with your question. While Ms. Andres is able to ask his question, we will have a question from Goldman Sachs.
Unidentified Analyst: [Interpreted] When do you expect accumulation for CPC accounts will be in zero?
Ricardo Roa: [Interpreted] Good morning. We will go into details with a report from Milena López. And in this period, we can tell you that we have advanced very significantly in closing this gap with the one we started this year in January with COP 33.4 billion. With the stabilization oil gaps with gains that was beyond COP 16 billion, with the help from the in money from COP 1.9 billion in resources assigned to the operation in the Cartagena refinery in the production of liquid oil. I give the word to Ms. Milena López, our CFO. Thank you, Ricard. Thank you, Joao, for your question. Yes, I give you a bit of context with the advantages of the FETEC and how we see it ahead. We have to underline the continuous diminishment of the third quarter, thanks to the increase of the oil prices by the national government. We went from a 2022 with a balance of COP 37 billion with a FETEC that from this year, 2023, we expect to close with COP 20 billion and COP 21 billion. So, there is a continuous improvement that we see quarter from quarter. In this sense, we have had several increases in oil prices, several increases in oil prices. First one was in November, it was COP 600. We expect two more increases and this is going to bring oil to market prices. This is where it is going to be from these increases in oil prices, this would be closed. Next year, the national government has given the indication that progressively there will be the increases in diesel so that by the end of the year, we will have a diesel price according to market. This tells us that after December 2024, we will have no more accumulations of FETEC. This is the important key problem. All the balances of FETEC have been paid the 12 months following the accumulation. There has been the policy of agreement with the government and it's going to continue like this. We have COP 8 billion to be paid from here to the end of the year that we expect to receive the composite. This is going to be dividends already decreed around 5 million and there is another part which is going to be COP 2.9 billion that will be paid in cash. This was going to bring us to the end of the year of COP 20 to 21 billion to the end of the year. Thank you very much.
Operator: Next question comes from Andres Duarte from Corfi Colombiana. Mr. Duarte, you can ask your question. Mr. Duarte, we are listening to you. You can ask your question. Hello. Good morning. You can ask your question.
Andres Duarte: [Interpreted] I'm having some trouble with the communication so I will send you my questions. Thank you for taking my questions into consideration. I wish great luck to everyone in the rest of the year. The investment of the infrastructure for offshore gas which we expect, will we expect to get these objectives? Also the estimates you gave the ones to the end of the year? I'm afraid the sound is not good. Okay. I have several questions. I don't know if maybe you want to answer the first one that has to do with the conditions for the offshore production and if you are going to do an investment in transportation infrastructure. The other one is the estimate of production for 2024, especially which is going to be the evolution of production costs associated. And the last one would be if you can remind me the detail for investments related to the hydrogen production, specifically if you already have some investments you have considered for the transportation of the liquid and also for increasing the capabilities of renewable energy? I do apologize for the connection problems I've been having. Thank you very much.
Ricardo Roa: [Interpreted] Thank you, Andres, for your questions. First of all, we have to tell you that the investments for the development and maturity of the projected resources found in the region of the offshore Caribbean began this year in the assignment of resources, in a year in the assignment of resources, in a perforation well one, ORCA 1, that will be maintained in 2024 and will continue with the campaign for perforation in COL 1 in the COMOD 1 exploratory well. Alberto will give you details for these expectations for production and also the objective for production for next year. We will expect to give important resources to maintain this at the closing of 2023. This is what we want to do. We want to maintain these production regimes that we will get to in 2023. And the third question will be given to David Riano, who is going to answer to that question, for the hydrogen production and the transportation infrastructure for the incorporation also from liquids and the installed capabilities that we have updated for the strategy 2040 in the New York stock market.
Alberto Consuegra: [Interpreted] Thank you for your question, Andres. As for the next steps in the offshore, complementing what Ricardo said, I would say this. In Caribe Norte, we expect to continue defining and confirming the potential that we have in Uchua. This means to have appraisal wells that will start in 2024-25. We also can share that we had good news from the mines ministry, the government, on the expedition of normality of abandonment, so that the wells that we will do as appraisal will be able to be used as development wells as well. We will also proceed with the environmental licensing. This is key. And the third point would be if we can use the existing infrastructure in Chuchupa-Vallena to bring the gas from Uchua and from the prospect of this area of Caribe Norte and Caribe Sur, which is Kronos, Glaucus, Corgon. Everything is defined within the call five block. We have a perspective for gas at long term. We have to work on the development scheme and we would be using it as the system of evacuation of this gas, which would have dedicated to the interior of the country. This would be for the offshore area. And for this last quarter, we're looking at a production over 730 barrels. The challenges we will face will be, for example, Fenomeno del Nino that is going to be very aggressive and close for Rubiales and Castilla. We have to look into this. We haven't seen it yet, but I think in October we have had a higher production than expected. And for costs, I think we are looking at an inflationary impact. And this is going to take us that the lifting cost for the last quarter is going to be very close to what we had in the third quarter this year, close to 11.9. These places in a place between $11 to $12 dollars a barrel to end for the end of 2023. For the perspective, 2024 will be part of the conversation we will have once we define the business plan.
Ricardo Roa: [Interpreted] For the third question, we give the floor to David Reaño, Vice President of Low Emissions, considering that the last updated of the 2040 agenda that we announced in New York a few months before, we announced this objective for 2030 to incorporate about 900 megabytes newly generated for non-conventional renewable energies. This objective, we have established it for 2025 and the expectation for 2030 is to be able to have 1900 megawatts from these renewable energies in La Guajira. For more details, I give the word to Mr. Reano. Thank you, President.
David Riano: [Interpreted] As you mentioned, we have anticipated the delivery of renewable energy that has to do with the hydrogen projects and talking about them, as we mentioned in the question, we are maturing several initiatives as was announced in the period between 2023 and 2030. We have understood this as a stage for learning and scaling to go after 2030 in a stage of maturity when entering hydrogen to be the leader in this energetic vector in the country. In particular, we are maturing in several initiatives. We have two projects, one in each refinery for green hydrogen. These projects are under study. They are being matured and we expect to get for them to give the most value possible in these circumstances. Of course, this is a new technology that has challenges in the supply chain and in the implementation and construction of the projects. Additionally, and in a pilot scale, these will start operating at the end of the year, in the first quarter next year in Cartagena, Bogotá, which are going to bring us to this new stage of tests and possibilities that I just mentioned. Thank you.
Operator: [Interpreted] Ricardo Sandoval from Colombia has a question for you, Mr. Sandoval. Please go ahead.
Ricardo Sandoval: [Interpreted] Good morning, everyone. Thank you very much, Ricardo, Milena, Alberto, David, for this space. I have two questions. First one is very simple. If you can give us a little more color on the declaration of Minister Bonilla, when he mentioned the entrance of ecopetrol in solar and eolic energy. Is it getting bigger programs for you for self-consumption or is it a stage in generation for commercialization of this type of energy? And the second issue would be about the production that I just heard Alberto about some restrictions on the linear phenomena that could have in some fields for 2024. I would like to know if we could have some guidelines about production and the production in 740, which is very positive for 3T. But what can we expect for 2024? Thank you very much.
Ricardo Roa: [Interpreted] Thank you very much, Ricardo, for your questions. The first question is in the sense as David said and as I presented in the last question related to the incorporation or the role of ecopetrol in the production of clean energies from sun or wind and geothermics. This is already part of the strategy that we announced to the market a few months ago. There are no plans associated to this that could be new or that could have more expectations to those that have been already placed in non-conventional energies. Always in the line of allowing the capacity of ecopetrol to cover its own demand and also in the line of being able to develop this potential of resources of nature in eolic and sun projects in Guajira as an important resource, cost-efficient resource in the expectations of ecopetrol to be a large producer of hydrogen in low emissions in its own refineries for self-consumption and what we determined in the roadmap for 2024 in the world context for an expert. This is part of what we have studied already and the expectation of CAPEX of each project are specific. We could for example have a participation with some ally in this generation project. We could also develop them ourselves but we also have the possibility to have contracts for long-term energy that wouldn't ask additional CAPEX. This is something we're going to be looking into and deciding the investments associated to this important issue of the economy in the new roadmap of the energetic transition that we have established. For the second question I will give the floor to Alberto so that he can give details on the repercussions that could have an eventual critical condition of the El Niño phenomenon that has been evaluated. We have heard it's going to be a moderate situation that could have the worst period for the effects of hydrological and energetic products by the end of next year.
Alberto Consuegra: [Interpreted] Thank you Ricardo. Yes this impact in the virements we would only see them at the beginning of next year in the months that go from January to March. For the guidance for the next year we have to be very prudent and careful. We have investment and availability for resources for FEDPEX to be able to establish which is going to be this range of production but the vice president has already told us that we have to try to maintain at least the same production level of 2023. So for now this is the information that we should work with and we expect to have these conversations at level of board of directors and have something that we could communicate to the market. Thank you very much.
Operator: Thank you. Next question comes from Alejandra Andrade in JP Morgan. Miss Andrade you can ask your question.
Alejandra Andrade: [Interpreted] Hello thank you for taking my questions. I have two questions. First, I would like to ask if you could explain a bit better the work capital that impacted the cash flow this year on the first quarter?
Operator: Yes. Please select the interpretation mode so that we can hear you.
Alejandra Andrade: [Interpreted] Can you hear me? Thank you very much. So I have two questions. First one is several work capital for the quarter that impacted cash flow. If you could give us more details on what happened? And the second one is for the refinancing exercises that you are carrying out this year and for next year and that level of Ecopetrol. Do you have a syndicated loan and have you been able to extend this loan and you have a short term debt? I would like to understand what was refinanced what has to be done still and which are the exercises that you are performing in this sense? Thank you very much.
Ricardo Roa: [Interpreted] Thank you Alejandra for these questions. About these I give the floor to Milena Lopez our CFO.
Milena Lopez: [Interpreted] Thank you Ricardo. Thank you Alejandra. First thing the working capital when we have a change with about COP 8.9 billion from which the first component is the net of the move for FEBEC movement which is around COP 2.8 billion and the largest one is the rent for 0.4, 0.5 billion which affected working capital and the third is the change in stock. We have about 5 million barrels that affect this figure as well. This is what the impact on the work capital. And for the second question the maturities for 2023 have been refinanced and been managed and this has been finished. We have the maturities for 2024 that we are working on. We have about 1800 billion dollars. This is a club deal. 1200 million dollars and the difference of the 600. It is important to note that in January 2025 we have a bonus of 1500 million dollars. All of these we are refinancing it during next year and it's important to mention that this credit is going to be refinanced especially with the same banks. We have been talking about this and we have presented all the documents from the Ministry of Finance and this is important to underline as well. Also and for the other question on the adjustment for oil prices I think we already answered this question. Thank you very much.
Unidentified Analyst: [Interpreted] Thank you very much. We do not have more questions, live questions so we will read from UBS. We have for the expectations of adjustment in the prices for oil and in future especially diesel since it has a gap with international prices and the larger participation in the FIPEG. And also a question as the year ends the attention is on the expectation of dividends. Do we have to expect something closer to the lower or higher ranges of the 40 to 60% with the tax income tax higher but the government using its part to compensate the EFP, IFP?
Ricardo Roa: [Interpreted] Thank you, Tasso, for the question. On the expectation for adjustments on the oil prices in what we have in this year and next year, Milena already presented what we talked about with the Ministry of Finance and this shows that in these deliberations with this platform that we have on the oil prices and diesel prices are going to continue advancing even if we do not have a bunch of figure on what these increases are going to be. The evaluations of the finance ministry tell us that there is going to be a deliberation of this price of diesel. We are going to continue with the restriction to apply and get to an equal price in the price for oil for the final consumer. We have indicated which are the numbers with which we would negotiate and that Ecopetrol would have from this policy articulated by the national government for the liberation of subsidy oil prices with the oil and diesel for the stabilization of prices. With the expectation of dividends I give the work floor to Milena so that she can tell us what is being observed in the Ministry of Finance in the medium term figures and the declaration of a possible approval and distribution of dividends next year. Thank you for your question. I'm going to divide the answer in two, the first component giving clarity on what is for this year and then the expectations for next year. In order to finish the FIPEG payments from here to December 31st there is a possibility of an extraordinary dividend to pay this 0.9 billion missing for this year. We are going to receive this amount in and so there will be no extraordinary dividends this year. So, the policy of dividends we have a policy for a pay up between 40% and 60% and in extraordinary circumstances we have given higher pay ups. We do not have a range to give you for next year in what this payment could be. This will be determined in March in the General Shelter Holders Assembly and as long as soon as we have some information, we will be giving it to you.
Alejandro: [Interpreted] Thank you. Alejandro from HLS from NASA asks how can we expect cash flow for next quarter and which level is sustainable for Ecopetrol?
Ricardo Roa: [Interpreted] Thank you, Alejandro, for the question. One of part of it was already answered by Milena but I give her the floor so that she can answer the question with the expectation of cash flow for the next quarters.
Milena Lopez: [Interpreted] I think that when we look at the free cash flow for Ecopetrol the main subject is that moves this cash flow is the FIPEG account which is a payable and accountable receivings account and inevitably this is the highest limit that we have in the cash flow. I can repeat what I said in the last question is that this balance has been reducing itself quarter after quarter, diminishing quarter after quarter. So if we look at the accumulation figure of FIPEG this year this was about COP 7.9 billion. If we look at the figure in the third quarter this year this was about 0.6, 0.7 billion, 4.7 to be exact and when we look at the figures from here to the end of the year it's the figures going to be lower because we continued with the increasing gas prices. So the most important decrease that we're going to see during next year is going to be this one and we're going to have the increase in diesel prices and this is going to take us to eliminate from here to the end of next year to generate the elimination of this cash flows in Ecopetrol. I've said this many times this policy of dividends from 40 to 60 is what we consider the level of dividends for long term that the Company should have in order to have enough cash to have our plan of investments and cash flow. As there are exceptional events, we have paid the higher dividends and this has happened in last year in order to cross it with FIPEG and it's important to underline that this has been possible because we have had crude prices that are higher so they go hand in hand and it's not something different to what our peers have done in other oil companies which is rebuying stocks. This is something we cannot do so this order of ideas this is what I think that could be the medium-term policy in respect to dividends. Thank you.
Leonardo: [Interpreted] Leonardo from Bank of America asks which are the expectations of production for the fourth quarter and from where should come most of this increase? And also the investments of capital in this quarter have been very high this supposes a higher investment of the Company in the last seven years most of it was in upstream right so does it mean that we're going to see a higher increase of the production in the fourth quarter?
Ricardo Roa: [Interpreted] Thank you, Leonardo. One of the questions is with the production expectations well for what is left of this year and the expectations of growth for next year we have already mentioned that we expect to close the year with a production close to 730 barrels per day this call as said at the beginning was in 735 barrels per day and we also reported in this third quarter in very important investments in the upstream and also in the energies for low emission energies. And for more detail on to both questions, I give the floor to Alberto Consuey. Thank you.
Alberto Consuegra: [Interpreted] To answer your question, I would say that the highest investment would be on Rubiales and Caño Sur. These have the greatest investment and also the best expectation for production. Of course, the investments for capital this quarter have been very high for capital execution, which means that the number of wells that we had contemplated in the plan and the number of interventions in wells or treatment of wells have been executed in line. And we have 732 wells already drilled by the end of the year. So, in fact, this investment is being given in the off-stream. And as the president said, we are waiting to see an effect in the growing production which that is going to take us above 730 barrels by the end of the year. Thank you very much.
Agustin Bonasora: [Interpreted] Agustin Bonasora from Pembridge is asking, which are the alternatives that you analyzed to refinance the credit of 1.6 thousands of millions consolidated in the FT debt that went to $4,000 million?
Ricardo Roa: [Interpreted] Thank you, Agustin, for this question. Milena, please take the floor.
Milena Lopez: [Interpreted] Thank you, Agustin. We have a syndicated credit of $1,200 million and the other amortizations are credits, short-term credits. The syndicated we are going to refinance mainly with the same banks of the syndicated. So this has been agreed and it's in process. The maturities of these 400 million, we will probably do it with local bank and these are short-term credits, especially with local bank that are getting mature. When we look at the debt, the consolidated debt, we have to see in the radar that we have loans in ESA. When we talk about the debt that we have to pay next year in Ecopetrol, we're talking about this $1,800 million. The rest is just credits that we have in the Filial and ISA is of course the great challenge and we have things in Peru, Chile, and Brazil that are being consolidated.
Santiago Durao: [Interpreted] Santiago Durao from KCORI is asking, from a role of Ecopetrol in generating energy in Colombia, which would be the implications in the investment plan of the Company?
Ricardo Roa: [Interpreted] Thank you, Santiago. As we have said in other answers to similar questions, Ecopetrol, its roadmap and expansion in the incorporation of renewable energy production is to lever its own production in the demand of this electric energy in order to cover its own needs for energy. So we have some important resources for the incorporation of these non-conventional energy resources. 1,600 megawatts in projects that we are evaluating where the scheme of incorporation of energies has not been decided yet and has a lot to do with possibilities of starting with being partnered with a third party to develop a project or be the full owner of the active generation or incorporating these energies through the long-term contracts of PPAs that also give us an opportunity that would require low investment until financing that could be from the emission of the scheme of the project. We are going to have the necessity of making important investments or doing it with third parties. Thank you.
Lily Young: Lily Young from HAPT asked, could you please mention the investment plan for 2024 and 2025?
Ricardo Roa: [Interpreted] Thank you. Lily for the question. Yes, we have an expectation of construction for the roadmap for 2024, 2025 and 2026 is a tri-annual plan and we are considering the board of directors for the goals of investment in 2024. We can tell that we expect to have the levels of production that we are going to have this year and based on these levels, we are determining the investment possibilities to be presented to the board of directors for the expenses and investments for next year. Milena, you have the floor for more details.
Milena Lopez: [Interpreted] Thank you, Ricardo. Hi, Lily. The only thing I could add to what Ricardo said, because we are building the plan at this moment and maybe at the beginning of December, we will be able to tell you how we see the investments and production goals, etc. But we have to see that we have an investment plan that is in line with the production, which is 6 to 7 billion and I think we will be within these figures. We will give you details in December. Thank you very much.
Catherine Ortiz: Catherine Ortiz from Davivienda. Stakeholders take into account the strategic plan of Ecopetrol that we just knew and its energy is focused on gas. Is there the possibility to import the gas from Venezuela? And also, if the government has increased the price of oil to close the FETEC gap, how much corresponds to oil and how much to diesel? And when will the increase begin in the FETEC?
Ricardo Roa: [Interpreted] Thank you, Catherine. First of all, we are evaluating in the medium and high levels this balance of offer of natural gas in the country, where we are studying alternatives of supply or source in the different sources that Colombia has imported natural gas, especially to balance this relation of offer demand that we have very tight with the presence of phenomena such as El Nino, where there is larger demand for thermic production in the industry and the commerce and residential consumption. So, facing these expectations, our scenarios allow us to see that there would be some gas deficits for next year from 31 GTWA for 2026 to 250 GBT per day. And we are considering different alternatives in order to leverage this deficit of the country in these medium range scenarios. So, I give the floor to David Reaño.
David Riano: [Interpreted] And for the second question, we have already explained in detail which are the expectations that Ecopetrol has in closing this gap that began this year with FIPEG resources that has significantly been reduced with the policies of the government with liberating this price and getting to this parity price. And we would be by the middle of next year, the third trimester, we would be facing this parity cost that will be translated to the users. First part of the question, Mr. Reaño, and then for the second part of the question, Milena will tell you as for the participation of gas and diesel in closing this FIPEG gap that would increase the demand of these products in the country.
Milena Lopez: [Interpreted] Yes, Mr. President. We are working very hard in guaranteeing the energetic security for this oil, covering the expected demand without problem. We're looking at different options and we will see which portfolio will allow the best efficiency in answering to this demand. As the President said, it is an option and the country in the third quarter of 2023, importing about 2.3 GBTVA per day, which could cover a percentage of the national consumption. The import in Colombia has allowed us to guarantee the supply of gas in the country and we have to say that there is a source of energy that has to be contemplated among others because there is not only one possibility for import. And in the group, we have analyzed several additional to the one we have today and always looking for the best efficiency in responding to this demand and guaranteeing the supply in the short, medium and long terms. As for your question for the differentiation of the feedback in oil and diesel, the accumulated deficit corresponds to oil, to gas or petrol in monetary terms. The third quarter has COP 2.7 billion, where 8700 were from gas and the rest were diesel. So, next year we're going to have the parity with gas and so the next deficit will be due to diesel.
Daniel Guadalupe: [Interpreted] Thank you very much, Daniel Guadalupe VTC. Awesome. Which would be the gas oil prices to have the offshore infrastructure prices covered, investment covered?
Milena Lopez: [Interpreted] Thank you for the question. On this, of course, all the exercises that could take us to a price of offshore gas for it to be, for the exploitation to be viable, all these analyses are being evaluated for there are important reserve of volumes and on the quantity in order to develop the necessary infrastructure for each export and all these elements, once we do all the analysis, will give us a very clear sign. We have not designed clear figures on this and we could give us a price, reference price, the prices that are being in the market and that have been compromised. And this would be a reference, but it is not the one that is giving us the reference value for gas that could make viable its exploitation or its commercialization in the system. Thank you.
Diego Sanchez: [Interpreted] Diego Sanchez from Alianza Valores, which is allowed for refrigera and the potential indemnity. Has it been considered to sell stocks 50% in order to contribute that the market doesn't go beyond the border?
Ricardo Roa: [Interpreted] Thank you. This would be one of the alternatives, but we do not have in the agenda or the administration of Ecopetrol or the board of directors a proposal of this type. There are elements that we are going to study in the strategy that the country could consider. But for now, more than thinking in a placement of additional stocks in the market, we are first thinking about the reinforcement of the traditional lines in generating greater wealth. And of course, it would be one of the actions that we will evaluate together with the board of directors. But today, this subject is not in the agenda of Ecopetrol. With the Laudo? Yes. And for the Laudo and the evaluation with the CBI, we have worked in the Board of Directors with the Cartagena Refinery in getting all the funds ready where we can follow these resources. We expected last month, by the end of last month, the sentence in the judiciary in this refinery in the court of New York. It has taken some time so that CBI in the markets do not have many active. So, we could continue with the CBI. We are talking about a billion dollars. And these resources we are following. We are talking about the United Kingdom, Holland. And we have important resources. And in the declaration of CBI of these markets to do a renegotiation or a review of the passives, we have had to hire the best attorneys and follow the best process for this penalty. And this is going to be in the New York court. And also the judiciary levels that could accept this renegotiation, the CBI would do from the passives. And this is why we are continuing to see, we're seeing this study and the decision on the future of the Cartagena Refinery. Thank you.
Janice Caceres: [Interpreted] Janice Caceres from Acciones y Valores. Can we expect an increase of a level of debt facing 2024?
Milena Lopez: [Interpreted] Milena here. As for the debt for next year, we have a series of credits that we will be refinancing. So the question is from the incremental debt. There will be no substantial increase in the debt next year, depending on the level of payment of dividends and the speed of the increments of diesel, of the increase of diesel. We could have a marginal debt too for our additional investment, but figures very low compared to these years. There could be something marginal from Ecopetrol, but nothing really significant. We do not have more questions at this moment. We will give the floor to Mr. President for a final closing words.
Ricardo Roa: [Interpreted] I want to reiterate and thank all the team of Ecopetrol and to you all. Thank you for your participation in this third results call for the third quarter. A great end of day for all of you. Thank you very much. So we finish our conference.
