Ecopetrol SA (EC) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2008 Ecopetrol Earnings Conference Call.

My name is Noella and I'll be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question and answer session towards the end of this conference.

We ask that for audio quality purposes that during the Q&A session participants limit the use of speaker phones, headsets or BlueTooth devices and this will cause feedback and echo into the call.

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Ms.

Monique Skruzny with MBS Value Partners.

Please proceed.

Good morning, everyone, and thank you for joining us for today's 2008 fourth quarter and full year conference call with the management of Ecopetrol.

Hosting today's call is Dr.

Javier Gutierrez, Chief Executive Officer and President of Ecopetrol.

He is joined by Adriana Echeverri, Chief Financial Officer, Nelson Navarrete, EVP of Exploration and Production, Pedro Rosales, EVP of Downstream Operations and Alejandro Giraldo, Director of Investor Relations.

During this call, management's comments may include forward-looking statements relating to future performance.

Such statements do not constitute any guarantee of performance nor do they take into account any risks or uncertainties that may occur or materialize.

Consequently, Ecopetrol hereby declines any responsibility in the event that actual performance differs from comments made on this call.

Also, as a point of clarification, please note that full year results are presented on a consolidated basis.

However, fourth quarter results are presented on a non-consolidated basis.

At this time, I would like to now turn the call over the Dr.

Javier Gutierrez, President and CEO of Ecopetrol.

Good morning, everyone, and thank you for participating in today's conference call where I would like to review our financial and operating results, how we are executing on our strategic plan and go over our capital investment program for 2009.

Our earnings release which was published yesterday after the markets closed contains very detailed information on the 2008 fourth quarter and full year results.

In summarizing we believe that there are several important take-aways from our performance.

First, we continue to report very solid financial and operative results supported by increased production which as you know is major strategic initiative of ours.

In the fourth quarter we absorbed a 57% decline in oil prices and were still able to report solid profitability.

For the year consolidated net income increases 124.5%.

Importantly in these first year of the execution of our seven year plan, we were able to significantly narrow the gap between current production levels and our 2015 objective of producing one million barrels of oil per day.

Second, we move ahead at (inaudible) with out exploration program in Columbia and actively balance our portfolio with a record number of international joint exploration agreements principally in other parts of South America and the US Gulf of Mexico, many of which were concluded in the fourth quarter.

Third, our financial and operative results were achieved while maintaining a very strong balance sheet.

This takes on added significance in the present environment like that of the fourth quarter improvise Ecopetrol with substantial growth opportunities.

Our strong net cash position and debt free balance sheet give us important competitive advantages in making acquisitions of prospects and returns.

Fourth, beyond increased production levels we executed actively on a number of the elements in our strategic plan from increasing exploratory drilling to improving refinery operations to making synergistic acquisitions and I am sure that you have seen our most recent news on the joint acquisition of the parent company of Petro-Tech's Peruana with KNOC for international oil company which is a good example of how we continue to execute our growth strategy.

And finally the fourth quarter we announced an expanded capital investment plan for 2009, which calls for a 29% spending increase over 2000 levels of which 61% is allocated to exploration and production activities.

To briefly review our fourth-quarter and full-year results, as you can see from Slide Five, fourth quarter net income increased 48% versus the fourth quarter of 2007 despite an almost 12% decline in revenues driven by a 47% decline in the basket of exported crude prices.

Our fourth quarter earnings growth benefited from a 10.4% increase in production and Ecopetrol's very competitive cost structure.

Looking at our consolidated results for the full year, revenues were up 52% as a result of a combination of higher production and higher oil prices.

Net income more than doubled reflecting significant operating leverage as well as over COL5 trillion positive swing in non-operative income.

Taking a closer look at production [left] trends you can see from a slight fix that after a steady production levels for several years, both crude oil and natural gas productions trended up in 2007 and really began moving up last year when production increased 12.6%.

This organic growth comes from our strategy of investing in heavy crude and [brownfields] development in Columbia.

With annual production of 447,000 barrels of oil equivalent per day, in that way we narrowed the gap between current levels and our 2015 objective by 4% in 2008.

As you can see on slide seven, crude oil refined in Barrancabermeja average 232,000 barrels per day for 2008, similar to 2007 levels.

We also had a lower refining margins and optimized inventories.

That refinery margin which has been compressed by higher oil prices was further reduced to $8 from almost $10 per barrel reported in the fourth quarter 2007.

For the full year the refining margin was almost $5 compared to $11.40 per barrel in 2007 reflecting the high cost of oil prevailing during 2008.

International sales doubled in 2008 compared with 2007.

They declined almost 5% in 2007 fourth quarter as a result of lower prevailing prices.

In the final quarter of the year we achieved an important milestone in our client diversification strategy through the sale of four million barrels of [Castilla] crude oil to one of the most important companies in the Chinese petroleum market.

Also, fourth quarter and full year export revenue benefited from natural gas sales to Venezuela which began in 2008.

Looking at sales volume, Slide Nine shows that the annual trends for domestic and international volume.

Fourth quarter domestic volume was affected by lower consumption and demand [softened as you] to higher pricing which upset increase sales of crude to Cartegena refineries.

Export volumes increased due to higher production, the Company's ability to identify additional commercial opportunities for domestically produced hydrocarbons, and the sale of natural gas.

For the year the export volume increased of 46% due (inaudible) 115,000 barrels of oil per day equivalents was driven by higher crude and natural gas volumes, domestic sales volume was up 1.4% with the year-over-year increases coming from crude and petrochemicals.

On slide ten we have tracked the WTI price which is the market reference for Ecopetrol and the basket prices for our crude and byproducts over the four quarters of 2008 and 2007.

As you know prices fell off dramatically during the 2008 fourth quarter.

I think it is important to note that despite a price drop of 57% compared to 2007's final quarter, Ecopetrol's fourth quarter revenues only declined 11.8% reflecting the ways in which our company is benefiting from the drive towards higher production, higher exports and greater diversification.

Our projections for the first few months of 2009 call for prices of around $45 per barrel.

Accordingly, we are keeping a close eye on our costs and expect to align our future investments with our cash flows.

Ecopetrol is also benefiting from a very favorable cost structure.

On Slide 11 you can see a breakdown of fixed and variable costs companies of our current course of sales and operative expense.

The important take-aways here are first, variable cost represent a high percentage.

For the year, variable costs were 63% of the cost of sales and operative expense, up from 52.6% in 2007.

In the fourth quarter that percentage was 47.4% compared to 48.8% in the last quarter of 2007.

That sequential decline in that percentage in the fourth quarter was principally due to reduced revenues, higher labor costs as we expanded operations and other costs associated with increased production as well as the lag effect in readjusting service and maintenance costs to the rapid drop in oil prices.

Second, higher cost of sales per [buck] this year and the quarter related primarily to that significant fluctuation of oil prices and exchange rates in these periods as we are also a purchaser of hydrocarbons.

As you can see from Slide 12 we have maintained relatively stable lifting, refining, and transportation costs over the last couple of years.

Increased raw material costs that jumped from 2006 to 2007 but it has successfully implemented programs to contain these costs at reasonable levels.

We believe that our cost structure is quite competitive and relatively low as compared to the industry average.

Slide 13 shows our sales, general and administrative spending.

For the full year sales, general administrative costs were 7.2% of total sales compared to 6.6% in 2007 as a result of higher taxes and personal costs and the increased expenses associated with evaluating exploration and development opportunities outside of Columbia.

For the quarter operating expenses increased as a percentage of sales to 13% as a result of the rapid decline in oil prices, the doubling of our seismic activity and the higher costs related to evaluating international exploration activities.

Slide 14 details the sources of our non-operating income for the fourth quarter of 2008 and 2007.

For the full year non-operative income was COL3.4 trillion compared to a COL1.7 trillion loss for 2007.

That significant positive swing resulted from foreign exchange gains, higher net asset evaluations and greater returns on our investment portfolio.

Taking a closer look at our investments, you can see from Slide 15 that we were very active in 2008.

We invested USD4.8 billion.

Exploration and production accounted for 53% of our spending while 11% was invested in domestic oil pipelines principally for heavy oil transportation.

Our major acquisition was Propilco for USD690 million which took place in April and firmly established our leading position in the synergistic petrochemical business.

As you know, the Columbian Ministry of Proteccion Sociale authorized us to commit COL10.09 trillion of pension liabilities to six independent trusts that were already managing the funds which review our assets at the end of December 2008.

These trusts will now also share responsibility for the obligations along with Ecopetrol.

These pension liabilities are 83% funded.

Remaining on our balance sheet is a COL2.16 trillion obligation related to (inaudible) health and education benefits.

As you can see on Slide 16 after that significant investment of 2008 and the transfer of pension assets necessary to fund existing and future pension liabilities, Ecopetrol continues to have an industry leading balance sheet with a significant cash position and no debt.

And year-end cash, cash equivalents and investments totaled COL11.16 trillion.

Investments were up 133% year-over-year reflecting the accelerated pace of exploration and production related investing such as the K2 builds in the US Gulf of Mexico, the investment in bioenergy to improve the quality of biofuel products and on the downstream side as Propilco.

The absence of debt give us significant opportunities to utilize our strong balance sheet to fund future growth and we continue to have a strong cash flow with consolidated net cash from operating activities in 2008 equal to COL11.8 trillion.

Here on slide 17 are our full year results by segment.

2007 segment results have been adjusted from the numbers reported on the previous 20-F that were provided utilizing metals at cost allocation.

In October 2008 the Company's Audit Committee elected to treat the main business areas of five operating units with separate P&Ls.

In line with the best industry practices we will continue to provide segment reporting on a quarterly basis going forward.

Slide 18 summarizes some of the fourth quarter exploration and production accomplishments and the quarter's new highlights are contained in our earnings release.

Wet drills totaled 185 development wells in the fourth quarter of 2008 bringing the total for the year to 618 up from 403 in 2007.

Seismic activity reached a total of 4,654 kilometers.

We finalized the drilling of another 11 exploratory wells in the fourth quarter and our exploration success rate increased from 29% from 17% last year.

In 2008 we completed a record number of international exploration and development agreements and as you can see from Slide 19 we are partnering with large global energy companies.

Our international activity is primarily in Brazil, Peru and the US Gulf of Mexico.

We moved ahead with several important refining fuel quality and transportation projects in 2008 which are noted on Slide 20.

Our hydro-treatment project at Barrancabermeja is about 60% completed and by December 2009 we will be able to deliver diesel with less than 500 parts per billion of sulfur nation-wide and less than 50 parts per billion to Bogota.

We also advanced on our modernization project at the Cartagena refinery which will double capacity and enable us to deliver higher quality fuels.

Additionally we have several biodiesel projects underway.

In transportation we have moved ahead with the construction of pipelines to transport heavy crude from the eastern plains of Columbia to the refineries and ports for export.

We are very pleased with our results of our best practices in this efforts having achieved a near perfect delivery rate in 2008 of over 95%, a 50% reduction in a planned stoppages and superior reliability in refinery and transport overall.

Investments over the past few years have resulted in reserves of oil and gas at December 31 of 2008 of 1,473 billion barrels of oil equivalent based on SEC technical standards and the Company's forecast of oil prices.

While under SEC criteria that amount was 1,384 billion barrels of oil equivalent.

On December 18, we announced our 2009 capital expenditure plan we summarize here on slide 21.

That USD6.2 billion prime reflects a 29% increase over 2008 capital spending as you can see.

61% of the dollars are earmarked for exploration and production activities.

We expect to finance the plan through internally generated funds but we may decide to access commercial debt depending on market conditions.

As you can see from slide 22 we will continue production expenditures with the development of heavy crude and mature fields mainly located in the Llanos Orientales and middle Magdalena regions of Columbia.

Our production goal for 2009 is an average of 450,000 barrels of oil equivalent per day while we expect to end December with around 500,000 barrels of oil equivalent per day.

Our exploration CapEx project is significantly increasing and as noted on slide 23 it's easily two-thirds domestic, one-third international.

The domestic exploration will take place across Columbia with international exploration continuing in our traditional areas of South America and Gulf of Mexico US.

As you can see we have accomplished a lot during our first full year as a publicly traded company.

Our financial results have been strong even as a very positive record of profitability and cash generation.

Operating progress has been supported by increased production and exploration successes (inaudible) to continued progress.

We have significantly increased our international profile, partnering with global international companies, and listing our shares of ADRs on the New York Stock Exchange.

While our growth strategy is focused on our upstream business we are also making important investments in our downstream operations in order to capture opportunities for synergies, higher margins and to add value.

Our main goals with regard to exploration and production are to add reserves of 2,100 million barrels of oil equivalent by 2012 of which we expect 1,280 million from exploration activities.

This will enable us to achieve a daily output of one billion barrels of oil equivalent by 2015.

As mentioned earlier to accomplish these objectives we will invest in high potential hydrocarbon areas in Columbia (inaudible - background noise), increase reserve recovery and near brownfields by using newer strategies and state of the art technologies and invest in the development of natural gas and heavy crude oil.

Additionally we will be systematic in acquiring reserves and entering in to new joint ventures with regional and international companies in Columbia and abroad.

Importantly we have the financial resources to support our ambitious growth strategies.

Finally we will continue to invest management assistance, research and development, human capital and our environment through socially responsible programs as well as a strong foundation for the long-term growth.

Thank you very much and at this point I would like to open the call for questions.

Thank you for your attention.

(Operator Instructions) Juan Dauder with Interbolsa.

Hello?

Are you listening to me?

Okay.

I have two questions.

The first is how much do you expect to -- sorry?

Again, please?

Okay, again.

The first one is how much do you expect to reduce expenses with the [original computations] you did this year?

This is the first one.

The second one is you're planning any kind of hedging strategy different while we have seen before in this conjuncture?

And the third one is how will you include the investments you did in the production assessment Petro-Tech and K2 in the Gulf of Mexico and what is the expected output in this production set?

Okay, thank you very much.

The first two questions are going to answered by Adriana Echeverri, our Chief Financial Officer.

The first one in relation the pension funds, please, Adriana?

Okay.

Before the commutation in 2008 the expenses for what we call the [repuries] payrolls were for the full year more or less COL400 regardless which are COL400 billion for international reference.

So that's the number.

That is not going to appear any further in the Ecopetrol financial statement since now the (spoken in Spanish) the trusts that are now taking care of these obligations are going to pay.

Okay.

And the second one.

Yes, Adriana is also taking the second one.

Wait a moment, please.

Okay, regarding our hedging strategy, Ecopetrol has in place a policy for hedging WTI and crude oil prices since year 2000 and 1989 and year 2000.

What we do is to have to run a motor that we do now weekly taking care of what the prices are in any moment.

So just in case we need to get additional or any hedging for in order to cover our needs for cash flow for the current year we go to the market and execute over the counter operations.

That's more or less the idea, however, what's the point at which we get that hedging?

It's essentially when we see that the average WTI prices are going to be located below the average that we have proposed for the full year.

Okay.

And for the third one in relation with the output of K2 and Petro-Tech, Nelson Navarrete is going to take the answer.

Please?

Thank you.

Regarding production from K2 field from Gulf of Mexico and Petro-Tech from Peru, Ecopetrol share for 2009 is going to be 1,000 barrels oil per day from K2 field and 6,000 barrels per day from Petro-Tech in Peru.

It's important to remember that we have a low stake in K2 of 9.2% and our participation in Petro-Tech is 50%, the number (inaudible - background noise) corresponds just to a 50% of Ecopetrol.

That is the current level of production of Petro-Tech and the idea is maybe to carry the less production for the next three years to approximately 30,000 barrels per day.

Okay, one more question.

Can we have on a follow-up question could you please clarify it's to understanding that there was a commitment to actually pay out 90% of the net income in dividends.

I think the markets are a bit confused.

This was the initial commitment the first year.

Is that same commitment for the following years or is the market confused with that?

The market is confused, definitely.

Okay, thank you very much because --.

What we are obliged is that take into consideration what is included in the declaration of the government as the major shareholder of the Company and as you remember have the obligation to present a proposal that at least consider 70% of the net income in accordance to that commercial code in Columbia.

I don't remember the exact number of the article, maybe -- okay, it doesn't matter -- but it is the obligation.

But you cannot say that at least the proposal is going to represent 70% of the Company, that is the obligation, okay?

Okay.

Thank you very, very much.

I don't know if it's clear.

Totally.

Thank you.

Thank you, Juan Camilo.

Sergio Torres with JP Morgan.

Okay, thank you.

Good morning, everybody.

I have a couple of questions.

One has to do with your development costs.

I couldn't see that number in your presentation but you usually discuss that.

And I'd like to understand also, on top of that, what's the natural decline you're seeing in your existing fields before the enhanced recovery effort?

And if you could walk us through the main difference when it applies to your situation in particular of the difference between [SPE] and [HAC] treatment when it comes to your replacement in excess of reserves?

I see a material difference in the treatment varies to -- what are the Company-specific aspects of that difference?

Thanks.

Regarding costs, the natural declination production of the areas enter in relation with the difference between the specification of the research.

Okay, Sergio?

Okay.

Nelson is going to take the answer.

Thank you.

For the first question does the development cause within that three year period we are considering a development cost of around I would say between $9 and $12 per barrel.

So it varies and depending on the area which you explore the field.

And the second question, an average decline for the current fields without [EOR] is around between 10% and 12% per year.

And the third question regarding the difference between the two numbers in terms of return reporting, I would like to clarify.

First one, both have a Securities Exchange Commission technical standard so in terms of technical volumes all are the same.

The difference is in the price we use to calculate the returns.

For the first one we use the forecast portfolio oil prices that we use in the Company and the second one is the SEC criteria as you know is the price of the last day of the year.

In that sense for said criteria, 2008 we use $44.6 per barrel while in 2007 we used $96 per barrel.

So in terms of reserve replacement that means that for SEC criteria we have around a 37% of replacement ratio while with our company oil prices our reserve replacement ratio was 110%.

Thank you, Nelson.

Just to clarify regarding the development costs, you say it's an average between nine and 12.

But can you tell what was the development cost for '08 in specific?

'08, 2008.

For 2008 it was $11 per barrel.

It was close to 11.

If you want we can disclose it to you but it was close to 11.

Thank you.

The only way we're going to disclose information, okay?

Thank you.

Thank you for your question.

Frank McGann with Bank of America Securities.

Thank you.

Good day, everyone.

Just two questions.

One is on the downstream side I was wondering if you could perhaps comment on the trend that you expect to see in the first quarter versus the fourth quarter in terms of refined product pricing in Columbia?

And then secondly looking at costs and looking into this year as you go forward, what potential are there for cost reductions both from a management standpoint in terms of looking at the operations to be more aggressive in cutting costs and also in looking at your service providers?

How much and how quickly do you think you can see some cost alleviation as a result of negotiations?

Okay, excuse me, Frank, can you repeat the first question?

The difference between -- can you repeat the first question?

In the refinery business or the downstream business in terms of refined product prices, I didn't see those specifically separated in terms of the trends both in the fourth quarter but also looking in to the first quarter how much of a decline you think there will be?

Pedro Rosales, our Executive Vice President of Downstream is going to take the answer.

Please, Pedro?

The pricing of our products in the Columbian market is your question specifically.

We have local definition that is given by the Ministry of Mines and Energy that indicates that our prices are [retired] to the US Gulf Coast prices with indexes that refer to international prices.

Then in the local price to the customers or to the clients the government decides to maintain the same price and to establish a fund that collects the difference to cover future variations on the price and to maintain a stable price in the long term.

That is the local definition.

The second is relation with the cost cuts.

We are working to lower our costs processes mainly in two ways, with automated and reliable operations.

We are working on both ways and our best indicators move into that direction that give us the confidence that we will obtain benchmark standards on those topics.

And additionally we're trying to renegotiate some conditions of the actual contracts considering the decline of the oil prices and the lack right now we have in terms of the conditions we got in the initial negotiations of the contracts.

That is an overall strategy of the Company for all of our activities.

Do you think that means you might be able to see material reductions in some of those costs --?

We are working but anyways, yes, we are working that ground but anyway we include initial values in our projects.

But we are in the process of the negotiation.

But the budget considers the initial conditions.

Tereza Mello with Citigroup.

Hi, good morning.

I have a couple of questions.

First, going back a little bit to Petro-Tech, what are your plans for investments in Petro-Tech in the next few years?

What exactly the issues that the Peruvian government has raised on the Petro-Tech acquisition?

And whose decisions delay these investments in the next few years?

Then I have some questions on Propilco.

What were the results of Propilco in 2008?

You paid $690 million for Propilco and when we look at consolidated EBITDA, for instance the consolidated EBITDA is lower than unconsolidated EBITDA.

I'm assuming that at this point most of it is Propilco.

Is Propilco losing money?

Can you have a little bit more clarity on there?

And then I have some questions on costs.

Okay, maybe can you repeat the first question, Tereza.

The issues in relation with Petro-Tech?

Exactly.

The Petro-Tech, I want to know how much you are going to be investing in Peru in the next few years through Petro-Tech?

And what are exactly the issues that the Peruvian government have raised regarding the acquisition?

We have seen a lot of news articles and even Ecopetrol said that you are going to contribute and provide any information required but what are the allegations there?

In relation with the investments in the future years what the business plan that was conferred by KNOC and us is considering an average investment of $250 million during the next ten years approximately for a total of $2,500 million.

In that way, what are our expectations, right now the Company is producing around 13,000 barrels per day, maybe we are projecting is to double that production for the next three years and then our expectation is carry the production of levels of around 50,000 barrels per day.

And in relation with the issues that the Peruvian government have raised in relation with the process what we can mention is we develop a complete transaction, we don't have any aspect to hide.

We consider that aspect Peruvian government are related are not exactly related with the Company itself.

We offer to collaborate with any investigation that the Peruvian government think to undertake in relation because at the end (inaudible) is going to be good for us because it's going to contribute to clarify all the situation and we are continuing to develop our plans for the Company.

So there are going to be no delays probably in these investments, this 250 million because of these investigations?

No.

Okay.

We're going to roll fast in pace.

Okay.

On Propilco?

On Propilco, Adriana, is taking the answer.

Yes?

Hi, Tereza.

Hi.

Okay, when you take a look at our consolidated financial statements, you don't only take into account Propilco.

You also have to take into account Ecopetrol, Oleo e Gas Brasil, Ecopetrol America, Ecopetrol Peru, Black Gold Re, which is our reinsurer, Andean Chemicals, COMAI, and ODL Finance which are the main ones.

So regarding Propilco itself they had a net income of COL53 billion,

Okay.

53 [mediatos], what we call mediatos, you already know that.

The other one given that our pre-operative companies, I mean these are investment companies that were recently created, this ones are Brasil, Petrol America and (inaudible), they gave of course a net loss.

So the effect of Propilco in fact as we add COMAI which is consolidated in Propilco already, are positive effects but the others are negative effects and that's why you see in that consolidated that negative impact that you already mentioned.

However, at the end the net impact is only COL1 billion, one [mediato], which is in fact not too much.

When the difference I was thinking about in EBITDA level, but that explains it.

Thank you.

And would you be considering reporting consolidated results on a quarterly basis?

Or that's not an option?

We are right now fixing our IT development and all that in order to have all that information consolidated for each quarter because right now according to Colombian law we only have to do it once a year which is by the end of the year and so we don't have that available right now.

But we are working on it.

Right.

That's our objective.

And if I may, another question on costs.

When you look at your fixed costs, fixed costs is quarter-over-quarter, third quarter versus fourth quarter, we saw increase there.

Do you know what that is related to?

Yes, fixed costs third quarter to fourth quarter, is your question?

Exactly.

Yes, okay.

Your question is why they rise?

Yes.

Okay.

I already explained sometimes to investors and to our analysts that we have kind of a cycle in Ecopetrol.

Given that by the first month of the year we just start contracting and making the competitive bids and all that.

All of our executions, cost executions as well as our accruals are very much concentrated in the third quarter as well as in the fourth quarter but the fourth quarter is of course the heaviest one.

And that's why you see that for example in the first month of the year we kind of accumulate cash and have not a very hard, I don't know how to say this.

It's not a very hard activity in terms of numbers (inaudible) past two quarters.

And that's why you see that in fact accruals, depreciations, amortizations, maintenance, contracts this and all that related to suppliers is concentrated in the last quarters and the last one is the heaviest one.

Okay.

Thank you very much.

Thanks, Tereza.

[Anna Horoa] with [Arujas Bolivar].

Good morning.

(inaudible) I want to ask what are the main type of assets does Ecopetrol have from the portfolio investment in dollars?

That's how the main difference or the main effect of devaluating or revaluation of Columbian peso?

Thank you, Anna.

Adriana is going to take the answer, please.

When taking a look at our portfolio investments, financial investments, the first thing that you have to take into account is that given that we are reporting right now under Columbian GAAP you will find our investments in current assets as well as some of them in long term assets under the line of investments.

So the total number for us of our treasury investments now is COL11.1 trillion for international reference, COL11.1 trillion.

The most part of those investments are dollar denominated so that means when we have devaluation those investments have a positive impact in terms of valuation.

As backwards, when we have revaluation, we have losses in terms of foreign exchange fluctuations.

Regarding the exact number for 2008, we had a net number of gains, of foreign exchange gains of 1.9 trillion and our returns on those portfolios including by that time the (inaudible) which were the trust that managed our pension funds, were COL1.6 trillion.

So the main assets in this portfolio are treasuries?

No.

We have several assets, one of which is treasuries.

We are authorized by our Board of Directors to have several kinds of assets, all of them very secure.

We have very strict and --.

So that's the question, we have to be -- we are safe in this portfolio?

Yes, of course.

It is important to say now that we have no mortgages of those kinds of assets because those are not authorized by the Board of Directors to be used by Ecopetrol.

Okay.

Thank you very much.

Thank you, Anna.

Sergio Torres with JP Morgan.

Hello, everybody, again.

I forgot to congratulate you earlier for the segment reporting.

It's going to be very, very useful.

Thank you.

Thank you, Sergio.

I like to hear that.

We're sure we need to improve.

That is a great step and it's great news that you say that you're going to releasing that on a quarterly basis.

That was like music to my ears.

Okay.

Thank you, Sergio.

On that note, I just want to make sure that I'm understanding what you're reporting as refining.

Is it correct to assume that Propilco's included there as a refining, maybe refining/petrochemicals?

No.

No?

No, Propilco is included not in the quarters because remember that in the quarters we are not consolidating with our subsidiaries and affiliates.

So Propilco's included in the consolidated results for the full year, not in the numbers that you have.

Right.

So in the segments, Propilco's out?

Yes.

It's out, right.

Okay.

And just to understand also the refining, the numbers that are there for refining, are you still using the accounting for the transfers of oil from upstream to refining still at cost in those numbers?

No, that's a big change.

No, no.

That's a big change because our Audit Committee recently, I mean in October, analyzed the model that we have to report, to have the second end reporting.

At the end what they decided was to try to reflect the five different businesses that we are reporting as segments like they were separate companies.

So what we're using now are market prices to transfer the crude oil from production to refining and then the products to the commercialization segment.

Okay.

That's great.

The longer costs, you will see a reconciliation on that in our [20 year] form.

Okay.

That's great.

And when it comes to the balance sheet, can you remind what is the amount outstanding from the receivables of the subsidy from the government?

And I wonder why there's a portion of that that you account as an investment?

Okay, I'm going to clarify.

In terms of the subsidies that --.

We are not accounting that as an investment, Sergio.

Maybe there's a confusion but that's not.

We have an account we've developed from the government that by the end of the year was 3.9, almost COL4 trillion.

COL4 billion?

COL3.9 trillion which (inaudible)

But maybe the most important -- I don't know, Adriana, excuse me -- it's important to remark that they already included in the government budget that was approved by the Congress in the last year.

Really we're going to have any issue with that payment.

Okay.

That's great.

I'm sorry.

I can follow-up offline about the confusion why I thought a part of that was considered an investment.

But as a follow-up, just --.

You identify that they are considered our investments.

Just on page, let me ask the question, now that I mentioned it.

Yes, please, Sergio.

It's important to clarify it.

It's on page eight where you say that it's the middle of the page you say the total value of the investment portfolio is COL11 trillion and 0.33 trillion is the recognition of subsidies.

Where are you reading this?

Page eight.

In the fourth paragraph.

No, what we mean there is that given that the government is not paying to us in a current basis, they are not paying us monthly, they are recognizing to us a return on the unpaid benefits until they pay.

See?

So this 0.33 trillion are their returns on the monies that the government is owing to us pertaining to the subsidies.

Okay, so it's like a -- So they're going to pay you interest?

[Tell me?]

It's like they're paying you interest on the money they owe you.

Right.

That's correct.

It's a translation problem maybe.

Basically.

Yes, sorry.

Okay.

That's good.

(inaudible) interest, that's it.

Got it.

Thank you very much.

Thanks a lot.

Thank you for your comments, Sergio.

(Operator Instructions) Juan Dauder with Interbolsa.

Actually, it's Andres Jimenez here.

I just have one last question and I couldn't actually stop not passing by and saying congratulations first and second I would like to actually know if you guys have actually thought of during because of the current environment that we're experiencing in oil, how that would impact your margins going forward in 2009?

What are you guys expecting about that?

And also I saw that EBITDA margin is actually reducing and probably that's because there's a lifting cost which I saw that went from seven and a half to eight something, and then I would like to know if that's going to be progressing, if that EBITDA margin is going to keep on deteriorating going forward in 2009?

And also on the margins as [him] first mentioned.

Thank you.

You talk very fast.

In relation with the second topic is the behavior of the EBITDA, how is the perspective and the expiration with relations with that levels for fourth quarter.

Okay?

Okay, so first of all let's take into account for the quarter's results that we have the cycle that I already explained to Tereza and that's why the EBITDA for the last quarter is [functually] every year reduced.

That's the first thing.

The second thing in terms of the EBITDA for the next years, what we have to take into account is that last year the prevailing average price of the WTI was $99 per barrel.

Now we are returning to let's say the 40s or 30, 35, something like that, so we are returning to the same prices that we have in the previous years so the expectations are going to be around what the oil prices will be.

But following on that, what I'm actually asking is if you guys have projected that during 2009 if your current costs and how that income is going to be reduced because of exactly what you're saying, the international oil price, the price of international oil.

How is that EBITDA margin going to be able to maintain itself around 44% which is currently I think more or less the level?

Or if it's actually going to keep on deteriorating going forward because of where we are on prices of oil?

We can not speak about deterioration.

What we can say is that we are returning to the same levels that we had before the oil prices got this let's say extraordinary gains in levels.

Okay, so I couldn't actually understand that the costs are going to be maintained at currently the same levels?

No.

Anyway we are trying to reduce our costs, trying to recuperate with the same criteria to the levels before previous prices because we are trying to renegotiate the conditions of the current contracts that they are basically reflecting the high levels of oil prices but right now we are in an overall renegotiation process trying to reduce the costs by any way, the budget considers initial conditions of the contracts.

Okay.

Thank you.

This concludes the Q&A portion.

I would now like to turn the call over back to management for closing remarks.

Thank you very much.

It has been a pleasure.

Thank you for your comments.

Anyway, we are available to answer any other requirement or questions you may have through our Investment Relations offices or through any person you need to contact.

Thank you very much.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a great day.