Ecopetrol SA (EC) 2009 Q1 法說會逐字稿

Good morning and welcome to the conference call where we will review the operational and financial results of Ecopetrol for the first quarter of 2009.

Before we begin, it's important to mention that during this call management's comments may include forward-looking statements relating to future (technical difficulty) not constitute any guarantee of performance, nor do they take into account 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.

Today's call will be hosted by Mr.

Javier Gutierrez, Chief Executive Officer of Ecopetrol.

He is joined by several members of the Company's senior management; Adriana Echeverri, Chief Financial Officer; Nelson Navarrete, Executive Vice President of Exploration and Production; Pedro Rosales, Executive Vice President of Downstream; and Mauricio Echeverry, General Counsel.

I would like now to turn the call over to Mr.

Javier Gutierrez, Chief Executive Officer of Ecopetrol.

Thank you and good morning, everyone.

I will review the highlights of our first quarter operating and financial performance and then discuss key transactions and equipments, provide additional perspective on our plans for the year and then open the call for questions.

Within what has been a very difficult period for our entire industry, I am pleased to report that Ecopetrol succeed in making important progress in the 2009 first quarter, executing actively on key elements of our strategic plan.

We increased oil and gas production by 6.3%, reaching our objective of producing 457,000 barrels of oil equivalent.

Our sales volume increased by 16.2%, driven by higher exports.

We reported a net income of COP1.6 billion for the quarter, despite the sharp decline in international oil prices.

Exploration activity was at record levels, both domestically and internationally.

We made progress in the modernization of our refineries, which will improve the future efficiency, margins and profitability of the Downstream segment.

And thanks to our strong financial position, we were able to complete a number of strategically important transactions during this period of softer market conditions, thereby significantly increasing Ecopetrol's long-term growth potential.

I would like to review the first quarter results in light of our three key objectives for 2009, which are to increase average production to 457,000 barrels of oil equivalent for the year, reaching 500,000 barrels in December 2009; to execute effectively and efficiently on our investment plan of $6.2 billion and to create value for our shareholders within this difficult economic and business environment.

Let's start by reviewing our first objective for 2009.

Reviewing the first objective, slide seven provides an overview of our production performance.

In addition to meeting our production objective in the 2009 first quarter, we are on track to reach 500,000 barrels by December of this year, excluding production from acquisitions, which is an important milestone in our long-term plan of producing 1 million barrels of oil in 2015.

As you can see, we have steadily increased production since 2005 with the greatest acceleration taking place in 2008 at a rate of 12% per year.

The first quarter, 8.4% increase including production, was primarily from the Rubiales field, with an increase of 15,000 barrels of crude oil per day and Apiay and Castilla fields with an increase of 14,000 barrels of crude per day.

These increases relate to Ecopetrol's share in the fields.

Gas production fell slightly as compared to the first quarter last year, but production has been steadily increasing since 2005.

The decrease in gas production was driven mainly by a lower demand for electrical generation, compensated by increased sales to Venezuela.

At the bottom of the slide you can see the linear progression of our first quarter 2009 production, which shows the significant pick up that occurred in February and March compared to January levels when we experienced decreases in the production coming from the southwest of the country.

Refining volumes for the first quarter dropped 6.6% to 213,000 barrels per day due to a scheduled stoppage for maintenance at the Barrancabermeja refinery, which also brought utilization rates down from 97% to 94%.

Gross refining margins, including trading of products, increased to $7.97 per barrel from $3.76 per barrel in the first quarter of 2008, mainly due to sales of products with higher express versus WTI.

The gross refining margin of the Barrancabermeja refinery increased to $9.40 per barrel, up from $3.15 per barrel in the first quarter of 2008.

We maintain a diversified product mix with gasoline accounting for 35% of the refined products, followed by the middle distillates and fuel oil with the three representing 89% of our production.

Now let's review the second objective of executing the 2009 investment plan for $6.2 billion.

With respect to our investment plan objectives, slide ten gives you an overall look at the progress we made in the 2009 first quarter.

As you know from our news flow, we have been very active in each segment of our plan, bringing Ecopetrol closer to meeting its long-term strategic goals in each of the areas.

Our strong financial position allowed us to be opportunistic during this period of soft market conditions and complete several strategically important acquisitions.

We have already surpassed the dollar amount we expected to spend on acquisitions.

Let's review over our strategic objectives by segment and the progress achieved in the first quarter of 2009.

Exploration, we are focused on expanding and diversifying our domestic and international exploratory portfolio, as well as progressing with our seismic and exploratory drilling campaigns over 1,000 kilometers of 2D equivalent has been acquired in Colombia and exploration blocks were obtained in Peru and the US Gulf of Mexico.

Production, our emphasis is on developing heavy crude oil fields and improving recovery rates by investing in sound fields.

During the first quarter of 2009 we participated in the drilling of 142 development wells, of which 33 were drilled by Ecopetrol and 109 were drilled jointly with our partners.

Refining -- our projects include the expansion and modernization of the Cartagena Refinery, the modernization of Barrancabermeja refinery and the hydro-treatment facility in the Barrancabermeja refinery to reduce the sulfur content of our products.

Transportation, we are making investments in pipeline infrastructure to transport heavy crude to domestic refineries and ports.

The Apiay-Porvenir pipeline began operation earlier than expected in the first quarter of 2009.

And the Rubiales-Monterrey pipeline is currently under construction and expected to begin initial operations by fourth quarter of 2009.

One of the major elements of our investment plan is the expansion of our exploration activities.

As shown on slide 11, we continue to grow our portfolio in Colombia and have added new areas internationally in Peru and the US Golf of Mexico.

Domestically, in addition to the exploratory blocks in the Hocol transaction, we increased our interest in the offshore blocks of Fuerte Norte and Fuerte Sur via partnering with BHP Billiton, reaching a 50% interest in the blocks, which exceeded 1 million acres each.

These two blocks hold significant exploration potential and are located in the offshore Caribbean basin, one of our focused areas in Colombia in one of the few areas with the potential to contain significant hydrocarbon fields.

In terms of exploration drilling, Guriyana (inaudible) well resulted in the discovery of hydrocarbons from the Caballos Formation in the Putumayo Basin.

Discovery is under evaluation and proximity to existing infrastructure will allow for almost immediate production.

In the transportation segment, Ecopetrol increased its interest in Ocensa to 60%, strengthening our position in the most important oil transport system in Colombia.

Internationally, in addition to the exploratory blocks of offshore international group acquisitions, Ecopetrol was most active in Peru and the US Gulf of Mexico.

We acquired two additional blocks in Peru through an agreement with Petrobras and [Energia de Peru].

And in March we were notified that Ecopetrol had submitted the most competitive bids in 26 blocks in the Gulf of Mexico US.

We have 100% interest in 15 of the blocks and between 40% and 60% in the other 11 blocks through a joint participation with Repsol E&P USA.

Exploration potential for both Hocol and Ecopetrol will be reviewed later.

Slide 12 is a snapshot of several first quarter 2009 transactions and agreements by segment.

We are investing $1.3 billion in exploration and production with the acquisitions of 50% of Offshore International Group and 100% of Hocol in Colombia.

$549 million will be paid for the acquisition of the Glencore's 51% interest in the Cartagena Refinery, which will bring our ownership to 100%.

In the transportation segment we bought the Enbridge ownership in Ocensa, increasing our share to 60%.

We will review each of these transactions in detail in the next slides.

To purchase Offshore International Group, we partnered with the Korean National Oil company, KNOC, each acquiring a 50% interest.

Petro-Tech Peruana is the most important asset with an excellent strategic position in Peru's E&P market and known for its expertise in offshore operations, particularly in shallow waters.

The exploratory blocks cover 9.5 million hectares along the entire coast of Peru.

We believe we can double the daily current production from 2,000 barrels by the end of 2009, considering the current production areas.

Petro-tech Peruana has estimated proven and probable reserves for more than 100 million barrels.

This acquisition closed in February.

Another important E&P transaction announced during the quarter was the acquisition of Hocol Colombia, which strengthened our domestic portfolio.

Their currently daily production of 22,000 barrels per day could double from here to 2015.

Proven and probable reserves are 61 million barrels of oil equivalent of upside.

There is a significant exploratory potential, especially in the Niscota and Tangara blocks located in the Eastern [Janus foothills] where the Cusiana and Cupiagua big fields are located.

Again, this geological province is considered to have the potential to contain one of the largest resources in Colombia.

This transaction is expected to close shortly.

Moving on the refining segment, here on slide on 14, we are in the final stages of completing the acquisition of Glencore's 51% interest in the Cartagena Refinery, which will bring our ownership to 100%.

The additional refining capacity is in line with our objective of 650,000 barrels of processing capacity by 2015.

We also expect this transaction to provide synergies as we move ahead with our refinery expansion plans in both refineries, Cartagena and Barrancabermeja.

Finally, in the transportation segment we increased our ownership interest from 35% to 60% in Ocensa, the largest pipeline in Colombia.

The Ocensa acquisition strengthens Ecopetrol's leading position in the production and transportation of hydrocarbons, increasing our option to transport fully all crudes as well as crudes from other companies, generating new business opportunities.

Controlling Ocensa is a key piece considering future interconnection projects, for example, with the Rubiales field as the pipeline that will export up to 650,000 barrels per day of crudes from the eastern plains to the international markets.

And to Cartagena Refinery and Barrancabermeja refinery, Ocensa is an important strategic asset in Colombia.

The third 2009 objective is creating value for our shareholders.

Slide 16 gives a graphic look at the trends in oil prices over the last five quarters.

As you can see, crude oil prices continued to decline in the 2009 first quarter.

The WTI, which is Ecopetrol's reference price averaged $43.1 per barrel in the year's first quarter, down 56% from $97.9 per barrel in the last year's first quarter.

The average price for our basket of exported products decreased to $33.1 per barrel for the first quarter of 2009, down from $67.44 per barrel in the first quarter of 2008.

The average price of our basket of crude decreased to $29 per barrel from the first quarter of 2009, down from $83.82 per barrel in the first quarter of 2008.

Moving to slide 17, you can see that, on the positive side, our sales volume increased by 16% in the first quarter 2009, as compared to the same period in 2008.

Domestic volume was up modestly but international sales volumes increased substantially by 46% and represented a record 44% of our total sales volume.

International sales volume was driven by increased exports of natural gas to Venezuela, which began in January of last year.

Our main international markets for crudes and products were the US accounting for 75% of total exports, Cyprus with 13%, Switzerland with 7% and Singapore with 5%.

Here on slide 18 is a summary of operating results, showing first quarter 2009 performance compared to the comparable period in 2008.

Higher sales volume could not offset the impact of pricing on our reported results.

Increased operating expenses reflect both the lag time in getting service costs aligned with the new season realities as well as additional costs related to the rapid growth of our investment portfolios and the higher levels of activity.

As a result, operating income was COP1 trillion from the 2009 first quarter, down from COP3.77 trillion in the last year's first quarter.

Continuing on slide 19, you can see that probably half of our first quarter 2009 net income was derived from operating income, with the other half reflecting the contribution of non-operating income, resulting primarily from foreign currency translation gains.

EBITDA on a non-consolidated basis was COP1.63 trillion.

It was COP1.76 trillion on a consolidated basis, representing EBITDA margins of 32% and 34%, respectively.

Here on slide 20 is the first quarter 2009 revenue per month, broken down by domestic sales and service and export sales Total revenues were down to COP5.24 trillion in the first quarter of 2009 from COP7.23 trillion in the first quarter of 2008.

Exports accounted for 34.7% of revenues.

Slide 21 shows the year-over-year cost comparisons.

Variable costs comprised a high percentage of the total costs of sales.

For the first quarter, variable costs accounted for 70.4% for non-consolidated numbers and 68.9% for consolidated figures.

The next slide, number 22, shows certain key industry metrics.

Lifting costs declined slightly in the first quarter 2009 to $5.44 per barrel from $5.51 per barrel in 2008.

Higher production activity and higher costs on work cover joint operation services were offset by a higher exchange rate.

Refining costs increased to $4.41 per barrel in the first quarter of 2009, up from $3.69 per barrel, resulting from lower brands, higher costs of labor and natural gas, also benefiting from a higher exchange rate.

Transportation costs increased to $0.29 per barrel per kilometer, up from $0.25, as a result of higher labor and maintenance costs and capitalization of projects.

The charts on slide 23 show that operating costs increased by 32.3% in the 2009 first quarter compared to 2008 first quarter, mainly due to amortization expenses associated with acquisitions like Propilco.

Slide 24 details our non-operating results from the quarter.

Non-operating income increased by 287% on a non-consolidated basis, mainly due to exchange rate gains in the mark-to-market valuation of portfolios.

Here on slide 25 some of Ecopetrol's results for the segments for the 2009 first quarter.

You can see that we posted profits in our key activities of exploration and production, refining and transportation.

We see these as an important evidence of providing value to shareholders during a very difficult operating period.

The loss in the sales and marketing segment was mainly due to a higher cost of sales coming from inventories and higher discounts in prices of exports.

Ecopetrol continues to have a very strong balance sheet, as detailed on slide 26, ending the 2009 first quarter with a net strong cash position and no debt.

At our annual meeting general assembly in March we declared dividends of COP220 per share, divided in COP150 of ordinary dividends and COP105 of extraordinary dividends per share for a total of COP8,903 billion.

It's worth noting that the Company finished the quarter with cash, cash equivalents and investments totaling [COP11.56 trillion] compared to year-end 2008 levels.

Importantly, we have a consolidated balance that will allow Ecopetrol to complete our strategic growth plan.

This will put us in an excellent position to grow our business and achieve above average returns once the world economic situation improves.

In summary, moving to slide 27, this has been a very active first quarter in which we executed activity on our growth plan, increasing production, move ahead with an aggressive exploration program, announce several key acquisitions and succeeded in reporting positive results.

The Company will continue to execute on our investment plan of $6.2 billion and carry out our financing plan in the capital markets.

Production growth continues to be a priority in order to meet our year and production target of 500,000 barrels of oil equivalent per day.

And we expect to further expand our domestic international exploratory portfolios.

We will also make important progress towards achieving our strategic goals in the Downstream segment.

Fortunately, we move forward with an experienced management team, dedicated organization and with the financial capacity to be able to accomplish our ambitious objectives.

Right now we will open the call for questions.

Thank you very much.

(Operator Instructions)

Your first question comes from the line of Frank McGann of Merrill Lynch.

Hi, good afternoon, just a couple questions.

One, in terms of your production growth, the target for 500,000 barrels of oil equivalent per day by December of this year, I was wondering if you could perhaps comment on what are the key areas where you expect to see additional production that will be arriving to that number.

And then secondly on the refining side, perhaps you could just give a little bit more information on what the time line is for the Cartagena Refinery now.

Frank, how are you?

Can you repeat the second question please?

Yes.

On the Cartagena Refinery, what is the time line now?

I mean, what is your plan for moving forward with the expansion and upgrading of that refinery?

Okay thank you, Frank.

Our production goal for the end of the year is 500,000 barrels per day, considering our production in Colombia, not including the new transactions.

And I ask to Nelson Navarrete, our exploration and production VP, to explain in detail how are the programs to get these goals.

Please, Nelson?

Okay, in order to get the 500,000 barrels per day in December we are expecting to put on stream the Rubiales field to go up to 100,000 barrels per day.

We are currently constructing the pipeline that will be finished by the end of the year.

So in that scenario we will add an additional 40,000 barrels per day at the end of the year.

But there are some other fields in the eastern part of Colombia, like heavy oil Apiay and Castilla, which will -- we are increasing production.

So we expect to add an additional volume (inaudible) around 15,000 barrels per day.

That will allow us to end the year reaching the 500,000 barrels per day.

And as Mr.

Gutierrez said, this is just considering production in Colombia from [Korean] fields.

And in riat, the perspective production in the new acquisitions maybe we're going to be in a figure around 530,000 barrels per day.

Pedro Rosales, our Downstream Chief Officer, is going to take the answer to the refinery question.

Please, Pedro?

Yes thank you very much.

Well now we are closing the transaction with Glencore to acquire the 51% of the shares of that company in Reficar.

We expect to close the business in the next day.

In parallel, we are running the project, now we are developing the fields, the basic engineering with CB&I and [Technic] and we expect to finish that work by the middle of the year, by the end of June or the beginning of July.

And we are running some works in Cartagena to establish the area for the refinery.

In the second semester we expect to define some, I don't know, some synergies that we can do with the two projects of the expansion of the refineries of Barrancabermeja and Cartagena.

And we expect to begin the work on site, develop the project of Cartagena Refinery.

The final goal now is to end the construction of the refinery by the end of 2012 or the beginning of 2013.

And what is the total budget now that you have allocated for both refineries for those expansions?

Total Budget.

Now we are reviewing that budget because we are doing some studies to find some synergies.

But on a stand-alone basis we have a budget of $4,000 million in Cartagena and in Barrancabermeja of $2,100 million stand alone.

But we are running some studies to review if we can achieve some synergies from the integration of both the refinery.

And then we expect to review that budget in an integrated basis.

Okay very good, thank you very much.

Frank, it's important to mention that those projects are in line with our objectives and our strategic plan.

Maybe if you remember the number which we have rebuilt to the market in terms of the level of processing capacity of refinery for 2015 is 650,000 barrels per day.

And, additionally, if you remember our strategic investment plan, we consider a number around $10 billion for the future investments in the refinery business.

Okay.

Would you likely include acquisitions, perhaps, in the international market?

Oh no, no, just refineries.

Okay, thank you.

Your next question comes from the line of Neil McCann with RBC Capital Markets.

Hi, good morning.

I was just wondering if you could comment a little bit further on your longer-term expansion plans and some of the types of regions that you think you might focus on and if those will branch out from where you currently are.

Excuse me, can you repeat the question, please?

Sure.

I was just wondering if you could comment on your longer-term expansion and, I guess, specifically upstream and your growth plans and what regions you think you might focus on and if, for example, that will concentrate on where you currently are.

Okay.

Nelson Navarrete is going to take the answer in terms of the production and exploratory activity for long-term subjects.

So as you may remember, our long-term objective is to reach 1 million barrels per day of equivalent oil by 2015.

And so we're doing that focusing mainly in Colombia, but we have decided to diversify our portfolio.

So that's why we are currently exploring and producing in some additional countries like Gulf of Mexico in USA, Peru and Brazil.

But we have taken another step and we decided to look for additional opportunities in four additional countries.

So we are going to be looking for opportunities in Egypt, Indonesia, Norway and Venezuela.

So that's the way we think we will achieve an important portfolio that gives us the opportunity to have an important exploration activity around Colombia.

But in terms of strategies, maybe you can complement the answer please?

Okay I was just referring to additional regions.

But in terms of the strategy, as you may know, there are like three main sources from which we will add reserves.

The first one is to increase recovery factor from current fields, both from heavy oil and Brownfield.

And this is the first one.

The second one is through organic growth from exploration, and that's the second one I was referring to at the beginning of this answer.

And the third one is through acquisition.

And that's when we announced we have acquired Petro-Tech and Hocol.

So this is going to be focused on that part of the activity that will add reserves by 2015.

And in gross numbers, very gross, very gross, we brought our local production is going to be around 75% and international 25%.

And in terms of oil, 80% and gas 20%.

These are the gross numbers.

Yes.

Okay, thank you.

Okay.

(Operator Instructions)

Your next question comes from the line of Juan Camilo Duarder with Interbolsa.

Good morning, everyone, I have two questions.

The first one is about the $3.7 billion you're planning to take in debt.

How much of this debt will be contracted in syndicated loans and how much will be contracted by an issue of bonds?

The other question is according to the acquisition of the 51% Glencore interest in Cartagena refinery.

With this acquisition, will you reduce the resources or the CapEx of the master plan that currently is expected in $4 billion?

And how much will you reduce that, if you can answer me?

Thank you very much.

Thank you, Juan Camilo.

Adriana is going to answer your question in relation with the $2.7 billion debt.

Juan Camilo, our plans for this year include, of course, syndicated loans and capital markets funding rating, of course.

But we are also trying to access other different sources like export trade agencies as well as the local markets through syndicated facilities in this last case.

The amount of the syndicated loans in the international markets will depend on two things; first, how the market will be by the moment that we try to access it and, second, what is really the amount that we can raise in those two markets.

So in the first line what we are trying to do right now is to sound the market of how it is in terms of availability of funds and direct lending to Ecopetrol.

For a syndicated loan that will be at least $500 million.

And however, the margin reality will come from capital markets, the bond fixed-income issues that we intend to make for at least $1 billion in the first half.

And after that we will see how the market goes and how we can go with the other sources that I already mentioned.

Okay.

Okay and the question in relation with the refinery is going to be taken by Pedro Rosales, our Downstream Chief Officer.

Okay yes, now we have three main opportunities to review the CapEx for the project.

The first is that we are now running the field that is expected with value improvement practices.

That is expected to end by July and will allow us to reduce some investment in the refinery because we will take into account some modifications in the configuration of the refinery.

In the second case, the market gives us now the opportunity to reduce some costs because the cost of the equipment and some contractors are reduced in this time, because we have little demand for that kind of project.

And the third phase that we are running is to integrate the two refineries, Barrancabermeja and Cartagena, that will allow us to reduce some plant needs in both refineries because the integrations.

Then we have three main ways to reduce that budget.

Now we don't have at this time an estimate, we will have that by the middle of the year.

Okay, thank you very much.

Your next question comes from the line of Sergio Torres with JP Morgan.

Good morning, everybody, thanks for taking my questions, I have a couple.

One is regarding your overall CapEx number, it looks like you're sticking to the $6.2 billion for 2009, while I would have assumed that, by included Cartagena, that number would have come up.

And I wonder whether that is a possibility or you are planning on cutting some other capital projects throughout the year.

And the second question has to do with the price stabilization fund.

I wonder whether any of the cash that you are disclosing is reflecting the monies from that fund.

And if so, how much is that?

And I'll stay there, thank you.

Thank you, Sergio.

In relation with the first question, it's important to remember that in our investment for refineries business and our budget we included $250 million that at that time was the provision for the capital investments that we were considering as partnership of the Reficar.

And then the additional money that we need to allocate for this purpose is around $300 billion.

But our financial projections and our budget, considering the $3.7 billion of financial resources that we have to consider that was presented to our Board of Directors and that was announced to the market, we're already considering those numbers.

And our current analysis shows us that up to now we don't have to introduce any adjustments in terms of our plans.

And we have the capacity to complete all the investment plans, including these additional resources for acquisition the Glencore 51 participation in Reficar.

And in relation with the second answer, Adriana is going to take it.

Sergio, excuse me, can you repeat the second question in relation with the capitalization fund?

Sure, certainly.

I understand from your press release that there is some sort of a reserve for a price stabilization fund that reflects the premium of our export parity of both diesel and gasoline prices.

And I wonder, Ecopetrol collects that money and I wonder whether the cash balance that is reflected in your balance sheet includes that or not.

And if so, what is that amount?

Thanks.

Yes, now we understand okay.

Adriana, yes?

Hi, Sergio.

Yes, that price stabilization fund was created by the government in order to try to stabilize future prices for diesel consumption in the future.

In the retail side.

In the retail, right.

So the producers of the liquid fuels, such as Ecopetrol and Cartagena Refinery, collect the monies corresponding to these prices.

And monthly the Ministry of Mines makes the calculation of the corresponding months.

And just in case there is an excess that we have to pay to the government, we kind of accrue account stable to the Ministry of Mines that is paid to them every three months.

So for the quarter that was finished last March, we paid last week close to COP400,000 million to the Ministry of Mines.

But basically, we are transparent in that kind of transaction.

We don't have an impact on our numbers, in our financial statement.

Right.

We just collect the monies that belong to the government and then every three months we just pay to them.

Yes, with no effect on our financial statements.

Right.

But has Ecopetrol collected in full the other side of the coin, which was when that calculation indicated the subsidy.

I remember by year-end there was a substantial amount for Ecopetrol to collect from the government and I wonder whether that money is already in.

Oh, okay so that's the other side of the coin, as you mentioned.

So when we collect the monies that are positive for the government, we pay quarterly.

But the government is, for this year, just paying the subsidies that were accrued in 2008.

So that means that this year every date of the dividends payment, that will be April, July and then October, we were kind of crossing the accounts.

And we are paying them the dividends and they are paying us the accruals that were made for the subsidies of 2008.

That amount is a little bit more than COP3.8 billion or something like that.

Great, thank you very much.

Thank you, Sergio.

(Operator Instructions)

Your next question comes from the line of Andres Jimenez with Interbolsa.

Yes, good morning.

Basically I have two questions, the first one in reference with the refinery operations of Cartagena.

I see that in the presentation you provided us with breakdowns of utilization, the margins and a product breakdown of Barranca.

Is there a possibility that you could give us some light on how this actually works out in Cartagena?

That would be my first question.

My second question is, can you please clarify what's the investment that you can actually do in the refinery in Cartagena?

Are you budgeted?

Frank actually asked, of Merrill Lynch, asked you guys a question and we're a little bit confused here.

Could you please give us the specific numbers of what you plan?

And the last question is basically, right now know the trend that actual price of oil is taking place in the last couple of days and seeing in your presentation the actual sale of $28 and $29, are you guys actually selling the future?

And if you are, how much are you selling of the total sales?

And that would be all for the moment, thank you.

Andres, I'm going to pass the answer to Pedro Rosales.

But it's important to remember that right now Cartagena continues being a completely separated society of which we are the minor shareholder.

And until we close the transactions, we are not authorized to give detailed information in relation with the Cartagena operation and Reficar.

But anyway, Pedro, do you have some details that you can share please?

Yes.

Let's just say that basically, with the right of being wrong, more or less what you guys think that could be the breakdown to actually project with the operations of Cartagena.

They don't have to be totally accurate, but if you could provide us with some light we'd really appreciate it for our models.

Well first of all about the numbers of Cartagena, the investment that we are doing now in a concrete way in the refinery is in the society in Reficar is for this year around $3 million for engineering in two main contracts with CB&I and Tanik.

And at the end of this phase of engineering we are doing the definitions about the investment in the second half of the year and in the next year to develop the project.

But now the decisions are depending on the parties that are running.

In the second phase the other investment is to buy the shares of Glencore.

As you know, we established the amount is $449 million and we expect to close in the next day.

That is the information that I can give you at this moment.

Andres, anyway, God willing, for the next release at the end of the second quarter maybe we have additional information.

In relation with the projection prices, basically, what we can mention is that we are considering WTI price for the projections of $50 per barrel is the number.

We have been considering and are not thinking to change that number up to now.

And the evolution of the prices up to now have been in accordance with our projections.

But are you guys currently hedging in the future with closing futures with the price of oil or no?

What we call tactical hedging, yes, we are making for the export in some of the international sales.

You are hedging part of your sales going forward, right?

We are what?

You are actually hedging, you're selling futures in the exchange, actually, to hedge your sale price in the future?

Right, that's what we call tactical hedging.

Okay.

And the question was, how much is that in representation to what you export?

You hedge 20%, 30%?

No, it depends on how the prices are.

So we have a kind of value at risk of 6% of value according to a model.

So it depends.

Some of the exports are not hedged and depend on where the prices are by the moment we sell.

Okay, thank you.

It is not determined that the percentage of export is, that's what you want to know.

It's what, sorry?

It is not determined on any percentage of the export.

That's not the driver that we are using to hedge.

Okay, thank you.

Okay.

(Operator Instructions)

Your next question next question is a follow-up question from the line of Sergio Torres with JP Morgan.

Hi -- hello again.

Yes, just a follow-up question about exactly the price realizations.

We're seeing it in two fronts in your numbers that you disclosed, one is that it looks like the spread to WTI widened from 22% to 30%.

And the other one that you mentioned in the release is, when mentioning the operating losses of the marketing segment, it indicates in your release that that was the division that takes the hit from lower margins.

And I wonder if you could guide us through the math of that mechanism and whether any of those lower realizations or lower spreads were affected by the hedging during the quarter.

Yes, the spreads widened, if we compare that to WTI, because our basket was kind of recomposed.

I don't know if I can say that.

What would be the -- yes, the mix changed.

But if you observe, last year we were exporting Vasconia crude oil, which is a light crude oil with much better prices in the international market.

So what we're doing right now is to use Vasconia for local purposes and we are exporting more.

The volumes have rised, but we're exporting another quality of crude oil, which the most important one is Castilla Blend and that's a heavy crude oil.

So even if we are now exporting more in volume, we are exporting volumes that are less in quality just in terms of that.

So the spreads compared to WTI for Castilla Blend are, let's say, less beneficial to Ecopetrol, given that the quality of the crude oil is not the same as we were exporting last year.

And how we are hedging that, what we are trying to do is to hedge on a price base.

And for the future what we see is that we are opening new markets for heavy crude oils.

And we are trying to place those crude oils in a market at less discount.

And the hedging is depending on what we already told Andres, not volume driven but price driven on each one of the sales.

Great, thank you.

And another follow up, if I may, is about the plans for large petrochemical complex that you discuss in your five-year business plan.

I wonder if you guys have defined already the feedstock for it.

It looks like, from the target for production of polyethylene, at least it looks like it would require at least 1 million tons of ethylene of capacity.

And that's, of course, a very large cracker and I wonder if you guys have defined the feedstock and more or less the timing for this project.

Thanks.

Okay we have made some adjustments in that sense and Pedro Rosales can comment about it.

Okay in the petrochemical area now we are defining the projects that we will run in the next year.

We finished a study with the Standard Research Institute, SRI, by the end of the last year that gives us some information about the main sources, markets and raw materials that we can use to continue in that project.

This year we are working in two main phases.

The one is to give all the raw materials to Propilco, that is a polypropylene producer.

Now we are giving to Propilco more or less 30% of his raw material.

And we expect to grow that up to accomplish 100%.

The expansion project of Propilco increases his capacity up to 500,000 tons by year by 2012.

And the other segments that we are looking are in the ethylene and aromatics.

In this year we will develop the basic engineering.

We are now contracting that to see the market and to see the different kinds of possibilities that we will have.

Now we don't have the definitions, but we have only some specific initial work to develop in the future.

Then in the way we define that kind of project we will reveal that information to you.

Great.

Thank you very much, Pedro.

Okay, the last year our petrochemical numbers, considering Propilco, was around 430,000 tons.

And maybe this year we're going to be around 650,000.

This is more or less the number right now, considering mainly with Propilco and our own production.

Maybe the largest increase this year is going to be the polyethylene plants that were in Barrancabermeja that were expanded last year.

We have two [polythene] plants in Barrancabermeja.

Thank you.

(Operator Instructions)

And at this moment I am showing you have no further questions.

Now I'd like to turn the call over to Mr.

Gutierrez for closing remarks.

Okay, thank you.

Thank you, everybody, for joining us today.

We look forward to speaking with you at the next quarter.

And our Investor Relations office is available to answer any questions, any additional information you require.

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This concludes your presentation and you may now disconnect.

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