Ecopetrol SA (EC) 2009 Q2 法說會逐字稿

Good morning, and welcome to the conference call that will review operational and financial results of Ecopetrol for the second 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 performance.

Such statements do not constitute any guarantee of performance, 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.

Today's call (inaudible) Javier Gutierrez, Chief Executive Officer of Ecopetrol.

He is joined by several members of the Company's senior management team, Adriana Echeverri, Chief Financial Officer, Nelson Navarrete, Executive Vice President of Exploration and Production, Camilo Marulanda, Vice President of Supply and Marketing, Alvaro Vargas, Vice President of Strategic Planning.

I would now like to turn the call to Mr.

Javier Gutierrez, CEO of Ecopetrol.

Thank you, and good morning, everyone.

Thank you for joining us this morning.

I will summarize the highlights of the second quarter, review the progress made on executing on our strategic plan, go over the financial results for the period, and briefly discuss the outlook for the rest of the year.

Let's begin with summary of the significant developments in the second quarter.

Let's start with slide six.

The business environment was more favorable than in the prior quarter.

The first signs of an economic recovery resulted in improved prices for crude.

Within this environment, company management looked forward with execution of the strategic plan and achieved significant progress.

Notably, we increased average production of crude and gas by 9.7% over the same quarter in 2008.

Production in June came to 504,000 barrels of oil equivalent per day, which is a major milestone toward our previously stated goal of 1 million barrels of production by 2015, considering that we've reached the production goal for December 2009 six months before projected.

Sales volume increased by 16.4%, led by greater production in purchases of crude.

This figure does not include results for subsidiary companies.

Operating income was double that of the previous quarter and bridged COP2.1 trillion.

In addition, we completed the acquisitions of Hocol, Reficar, and OCENSA, which were announced in the first quarter of this year.

Finally, we secured substantial resources for financing our investment plan through two transactions -- as indicated, loans for COP2.2 trillion with local banking institutions and a US$1.5 billion bond offering a favorable interest rate and conditions.

The credit ratings obtained were BB-plus Standard & Poor's, BB-plus Fitch ratings, and Baa2 Moody's.

Now let's move on the progress we have made on our strategic plan in the first half of 2009.

Let's move onto slide eight.

As you know, Ecopetrol has been executing on a strategic growth plan that we developed in 2007, which will more than double the size of the Company's upstream and downstream operations by 2015, as well as the program to improve our organizational framework.

In the first eight months of execution, we have made significant progress toward achieving the goals established for 2015.

I would highlight the following items in the various segments.

In terms of our upstream operations, we reached daily production of 504,000 barrels of oil equivalent per day in June, driven by the higher output of heavy oil fields and higher production for mature fields.

We will be maintaining production growth at rate of 12%, which will enable us to reach 1 million barrels in 2015.

In exploration, we have also significantly diversified our portfolio with larger domestic and international prospects.

In downstream, we are moving ahead with modernization projects at the Barrancabermeja refinery as well as with a master plan at the Refineria de Cartagena.

There has also been major progress at the hydrotreatment plant in Barrancabermeja, which will allow us to continue to deliver fuel that meets the required quality standards.

In addition, we are expanding the transportation infrastructure for hydrocarbons, especially for heavy crudes.

In petrochemicals, we achieved a significant position in the polypropylene market with the acquisition of Propilco in April of last year.

And in biofuels, we are moving forward with biodiesel and ethanol projects.

Additionally, we have moved into new markets to our crudes and refined products, focusing on Asia and more recently on Africa.

Strategic acquisitions have been made that will enable us to accelerate the pace of growth, while establishing control over operations that are key to reaching our goals.

As far as organizational consolidation is concerned, we have made considerable progress in attracting talented human resources and supporting them with the required technology resources.

We have also strengthened our relation with each of our stakeholder groups and are working toward getting Ecopetrol listed on the Dow Jones Sustainability Index.

Finally, we have raised more than $2.5 billion in debt financing, which we will use to form our 2009 investment plan.

On slide nine, you will see the progress achieved the upstream segment.

In the upstream segment, we signed major agreements, which continue our international diversification in Brazil, Peru, the US Gulf of Mexico, where we submitted the most competitive bids for the 26 blocks, out of which 21 have been awarded to Ecopetrol and five are yet to be awarded.

We reported an oil discovery in the Quriyana-1 well located in the Putumayo department in Colombia, which show and initial natural flow of 300 barrels per day.

In the first half of the year, there was 54% increase seismic kilometers acquired compared to the first half of 2008.

As I noted previously, we reached the production goal of 500,000 barrels of oil equivalent per day six months earlier than expected.

The greatest contribution was made by the production of heavy crudes, which increased 26.5% with respect to the second quarter of the previous year, chiefly owing the increases in production of Castilla and Rubiales crudes.

The K2 field had a significant production increase in the month of June.

And Ecopetrol's chart reached 1,380 barrels per day, up from average for the first semester of 440 equivalent barrels per day.

Also noteworthy for this quarter was the contribution made by the new acquisitions whose production is not included in Ecopetrol's 500,000 barrels of oil equivalent per day.

Production by Hocol came to 24,000 barrels of oil equivalent per day, while Ecopetrol's share in production for Petro-Tech rose 6,200 barrels per day.

In slide ten, you can see that growing production plant has been accelerating at a rate above our initial estimates, led by higher production of heavy crudes.

As far as production on a monthly basis is concerned, ours increased every month for this quarter, both for crude as well as gas.

In June, crude accounted for 81% of the production, while 19% was natural gas.

Lifting costs for the first half of 2009 were $5.8 per barrel compared to $6.9 per barrel for the first half of 2008.

These reductions resulted from higher production levels and the positive impact of a higher exchange rate in cost.

These effects offset higher cost of maintenance services due to the expansion of production facilities and related operating services.

In slide 11, you can see our progress in downstream operations.

We completed the purchase of Refineria de Cartagena and are analyzing synergies between the master plan for this refinery and the modernization plan for the Barrancabermeja refinery with view to our implementing both projects as soon as possible and staying on schedule.

In transportation, we became operators of the Oleoducto Central de Colombia OCENSA pipeline in May of this year, which improves our efficiency in managing transport operations and in managing our production.

Along the same lines, the Apiay-Porvenir pipeline started up operations with a capacity of 160,000 barrels per day.

And our subsidiary Oleoducto de los Llanos moved forward with the construction of the Rubiales-Monterrey line to get heavy crudes out of the southern part of the country.

We are also implementing growth plans for the biofuels project as well as for the production of petrochemicals.

The second quarter, we made our first exports of asphalt to Nigeria and of crude to India, demonstrating our ability to open new markets.

In slide 12, we see downstream results for the second quarter of 2009.

214,000 barrels of crude per day were loaded at the Barrancabermeja refinery, compared to 233,000 barrels in the last year second quarter.

The lower volume was due to the scheduled repairs in May of 2009.

For the first half of 2009, the load for the Barrancabermeja refinery was 214,000 barrels per day compared to 229,000 for the first six months of 2008.

Gross margin for refined products at the Barrancabermeja refinery for the first half of 2009 was $3.4 per barrel, compared to the $8 per barrel for the first six months of 2008.

The drop was due to the lower average prices per basket of products sold, which fell proportionally more than the average purchase price per basket of raw materials, as well as lower runs due to the maintenance stoppages.

Refining costs for the first half of 2009 were $4.5 per barrel, compared to the $5.9 per barrel for the first half of 2008.

The improvement was due to lower costs for natural gas, materials and maintenance, as well as the positive impact of the higher exchange rate on costs in the first half of 2009.

Transportation costs for the first half of 2009 were $0.37 per barrel kilometer, compared to $0.33 per barrel kilometer for the last half of 2008.

These higher costs were primarily due to higher cost of contracted services and maintenance related to increased amounts of crude oil shipped.

Let's move on now to slide 13.

For Ecopetrol, the organizational consolidation of the Company is very important.

And this is why it has focused its efforts in a number of areas, such as human resources management, improvements in the supply chain, achieving operational excellence, efficient project management, levering technology and information, and achieving socially responsible growth.

Among the most significant advances for this quarter, we can highlight the preparation of plants for the development of technical competencies of all of our employees, prevented cost derived from the implementation of supply strategies totaling COP0.2 trillion equivalent to 5.2% of total value managed of COP4.9 trillion, and an accident frequency of one accident per million man hours worked, which is below the 1.26 limit set for 2009 as well as the 1.73 reported in 2008.

On the other hand, we have in general achieved implementation of Sarbanes-Oxley COBIT controls and carried out 83% of what was planned.

This would appear to fully comply with Sarbanes-Oxley Act standard schedule for 2009.

We're proud of having achieved first place for the second straight year in the business reputation ranking conducted by Merco.

In the first quarter, we submitted our applications for Ecopetrol to become part of the Dow Jones sustainability index, made up of companies whose strategic orientation complies with the parameters established for economic, social, and environmental sustainability.

Slide 14 summarizes implementation of the investment plan for the first six months of 2009.

We made investments of $3.8 billion, of which 62% related to the acquisition of Offshore International Group in Peru, OCENSA, Hocol, and Refineria de Cartagena, and 38% to organic investments.

Investment in the first half of 2009 was 167% higher than it was for the first six months of 2008, which was $950 billion in organic investments and $650 million for the acquisition of Propilco.

To conclude this section, let's move on slide 15 and review the advances made in financing for the investment plan.

The strength of our financial statements made it possible to obtain resources from two major financing transactions, which reflects the confidence of local bankers as well national and international institutional investors.

In May, Ecopetrol signed a syndicated loan granted by 11 local banks in the amount of COP2.2 trillion.

The period for the loan is seven years, including an initial capital grace period of two years with floating reference interest rate of DTF plus 400 basis points based quarterly.

After that, in July, funds totally $1.5 million were secured through the international issue of ten-year bonds under Rule 144A, Regulation S with registration rights with the SEC and a coupon yield of 7.625%.

That issue was more than six times over subscribed.

Ecopetrol's corporate debt was rated BB-plus with a stable outlook by Standard & Poor's and Fitch rating agencies, while Moody's gave us the corporate graded risk rating of Baa2 in foreign currency and with a stable outlook, placing the Company at investment grade.

Let's take a look at our second quarter and first financial results.

Slide 17, we see how in the second quarter of 2009 total sales volume went up 16.4% compared to the same period in 2008 with an increase of 86,000 barrels of oil equivalent per day in exports.

The higher levels of growth occurred in the export of Castilla crude at 120% and natural gas at 36%.

In cumulative results for the first six months of 2009 compared to the same period in 2008, the increase comes to 16.1% due to a growth of 41% in exports.

For the second quarter of 2009, domestic sales were slightly up by 3,700 barrels of oil equivalent per day, resulting mainly from an increase of 1,800 barrels of oil equivalent per day in sales of natural gas due greater consumption by the terminal sector, and 4,400 barrels of oil per day in sales of crude at the Refineria de Cartagena, which help offset the drop of 5,000 barrels of oil per day in sales of gasoline and medium distillates products.

For the first half of 2009 versus the first half of 2008, the increase in domestic sales came to 0.9%, attributable to higher sales of crude at the Refineria de Cartagena.

Now in slide 18, we can see that although international prices improved in the second quarter of 2009, they remain below last year's levels.

The price of crude per basket declined from $112 per barrel in the second quarter of 2008 to $53.7 per barrel in second quarter of 2009.

And the price for the export baskets of refined product went from $88.9 per barrel in the second quarter 2008 to $52.2 per barrel in the second quarter 2009.

In the first six months of 2009, the crude export basket had an average price of $42.7 per barrel, while the export basket of refined products was $42.8 per barrel, compared to $98.4 per barrel for the crude basket and $79 per barrel for the products basket for the same period in 2008.

The lower prices resulted in a 29% decline in total sales for the second quarter of 2009 to COP6.7 trillion, compared to COP9.4 trillion in last year's second quarter.

In cumulative results, total sales for the first six months were COP11.8 trillion, 29% less than in the same period in 2008, COP16.6 trillion.

Cost and operating expenses declined 9.7%, due mainly to a reduction in variable cost resulting from the lower value of crude purchases whose average price went from $98.5 per barrel in the second quarter of 2008, $49.7 per barrel in the second quarter of 2009 and to a reduction in the value of imports whose purchase price went from $185.9 per barrel in the second quarter of 2008 to $68.1 per barrel in the second quarter of 2009.

The slide 19 provides the sales breakdown of sales, which fell 29% over the same quarter of 2008.

It is important to note that exports increased to 31.5% of total sales from 35.7%.

Cost of sales declined 15% compared to second quarter 2008, a reduction in variable cost, which offset an increase in fixed cost.

As anticipated, and in keeping with our growth plan, operating expenditures on exploration projects increased from 24.2% in the second quarter of 2008 to 43.6% in the same period in 2009.

Total operating expenses went up 67%.

Slide 20 provides a summary of results by segment for the second quarter of 2009 compared to the first quarter this year.

The exploration and production segment accounted for 91.8% of net earnings for the first half totaling to COP0.1 trillion, supported by a production increase in heavy crudes for export.

The corporate segment registered a net loss of COP0.2 trillion primarily due to other non-operating expenses, notably equity tax and retirement expenses.

In slide 21, you can see that Ecopetrol's balance sheet is very strong with a significant cash position.

The June 30, 2009, balance sheet reflects financial debt of COP1.7 trillion, which had already been disbursed under the syndicated loan with local banks.

The cash position rose to COP5.7 trillion.

The balance sheet shown does not include loan amount that has not yet been disbursed from local banks, nor the bond issue that took place in July.

As on June 30, 2009, Ecopetrol had assets with a total value of COP50 trillion as compared to COP53 trillion at the end of the first quarter of 2009.

The decline occurred in current assets due to the liquidation of assets from portfolios to make dividend payments and cover the cost of the acquisition of Hocol.

Liabilities at close at June 2009 stood at COP21.9 trillion as compared to COP25.6 trillion at the close of the first quarter of 2009.

The decline was due to the payment of the first dividend installment in April for COP3 billion, and the second and third income tax installment for 2008 of COP2.2 trillion.

Equity increased from COP27.7 trillion in March of 2009 to COP28.1 trillion in June 2009 due to an increase in net earnings of COP0.7 trillion and evaluation surplus of COP0.1 trillion.

These, however, were offset by currency exchange loss of COP0.4 trillion, resulting from a front in capital investments.

Finally, let's wrap things up with a brief look at our prospects for the last six months of this year.

I believe it is clear that we have succeeded in achieving the goals set for the first half of 2009.

We have moved ahead in efficient manner pursuing our growth plan recurring positive results and creating value for our shareholders.

Along the same lines, bearing in mind that growing in production is one of our priorities, we will continue with the pursuit of these objectives to surpass the goal that was already reached in the second quarter.

In September, we will fully comply with all Sarbanes-Oxley requirements for international security issuers.

The board and the Company management are committed to moving ahead with implementation of the strategic plan that is in place.

To this end, in the second half of this year, we will be focusing on expansion in our prospect portfolio for local and international exploration along with the execution of our investment plan and all of its companies.

With this, we conclude with our presentation on the results for the second quarter of 2009, and now we begin the question and answer session.

Thank you very much.

(Operator Instructions)

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

Yes, good morning, gentlemen.

My question was basically more on the production side.

I see that very successfully you guys have already completed your goal to actually achieve the increase of capacity of 2009 in the first half.

Actually, also knowing that Pacific Rubiales, which you guys have a joint venture with, 65% being of Ecopetrol, comes in with a new pipeline in the month of October, which increases capacity to 100,000 barrels per day, that's going to provide 30,000 additional barrels for Ecopetrol, which would be more or less around currently around 10% of your additional capacity.

Do you have any type of projections where you'll consider that 2009 will actually close in the production capacity?

And if you could actually provide us with some guidance on that number for 2010 also, that would be very good.

Thank you very much.

Thank you, Andres.

Thank you for your question.

I'm going to first comment.

And Nelson Navarrete is going to complement me.

First place, as you mentioned, the pipeline facility from Rubiales to Monterrey is going to be completed in September in a first-step operation, giving us the possibility to increase that production in the Rubiales facilities at around 75,000 barrels per day.

Right now, we are at the level of around 62,000, 63,000 barrels per day.

And maybe we consider that we're going to be at around 100,000 barrels per day at the end of the year.

And I think it's important to clarify that our participation is not 55%.

Our participation is 57.6%.

We don't have right now projections.

And we don't right now have additional numbers for 2010.

We don't have any official information in relation with other materials in relation with Rubiales.

I don't know if Nelson wants to complement that information.

Thank you.

Yes, as Gutierrez mentioned, we haven't any numbers for the relation for the end of the year.

But while we are expecting is to maintain a growth in production during these coming years, both from heavy oil fields and mature fields.

As a follow-up question, could that growth actually be the same growth that you're actually seeing during 2009?

Or, do you actually consider that you're going to have a reduction in that growth?

Basically, what is our goal is to maintain and grow to at least of 12% per year.

This is our commitment, yes.

This is basically our guidance.

Great.

Thank you very much.

Have a great day.

Thank you very much.

Your next question comes from the line of [Chris Sayo] with MetLife.

Hi, everybody.

Thanks for the call.

My question is more on the exploration and reserve replacement side.

Just given the fast ramp up of production in the last year or so, just wanted to see if you could comment a little on what your expectations for reserve replacement was given it's been sort of under 100% in the last years, couple years.

And wondering given the fast growth in production what level of sort of reserve life you expect to maintain.

And within the context of the exploration, given we haven't seen a--we had one successful well in the quarter, just wondering what you expected for the rest of the year in terms of organic reserve replacement.

And then also in overall reserve replacement what kind of inorganic or acquisitions of reserves do you expect for 2009?

Thank you.

Thank you.

Nelson Navarrete is going to take -- our expert in exploration and production is going to take the answer.

Okay.

I think in terms of reserves replacement, what we want to achieve this year is to be above 100% of reserve replacement.

And, we don't have a specific number, but definitely, we are going toward that goal.

But I think it's important mention that there are three sources for adding reserves -- one, of course, through exploration activity.

The other one is through acquisition, as was mentioned.

But the other one that has been very important in the last year is through additional reserves from current fields.

So considering those three sources, we are expecting to have at least 100% of reserve replacement during this year.

Maybe in addition, as we have informed to the market previously in the terms of the replacement of reserves in the current fields, we have a growth number of around 100 million barrels per year.

And in terms of the acquisitions, our goal is approximately 8,000--

80.

--80 million barrels per year.

And for this year, we have already completed the goal if we consider our acquisitions from -- our participations in the reserves from Hocol and from Petro-Tech.

Just to follow up, you -- what kind of expectations for reserve life do you see going forward?

Do you try to kind of maintain it at the same level, given the production is increasing?

You'd have to increase your reserves sort of in line with that in order to retain your reserve life.

Do you have any comments on that?

Are you asking in terms of the next coming years, or--?

Well, this year specifically, but also you going forward as part of your strategic plan to reach 1 million barrels a day production, just in that context if you have a target or you hope to maintain a reserve life at a certain level.

Okay.

I'm not sure.

But I would say that according to our strategic plan, in order to reach the 1 million barrel by 2015, we need to increase the replacement ratio above 100% in the next coming years in order to achieve the 1 million barrel by 2015.

So definitely, we're going to be growing in production.

But we'll be replacing those reserves annually.

Okay.

Thank you.

Your next question comes from the line of Ruth Mazzoni with Standard Bank.

Yes, hi, gentlemen.

I just have a couple questions.

One is if you could please comment -- and you may have done so earlier in the call.

It took a long time for me to get in -- on Venezuela, the situation there, and what your outlook is for the rest of the year and sales to that market?

And then could you also just remind us about your--what you think the appropriate level of leverage is for Ecopetrol and when you think you will be at that level?

Thank you very much.

Excuse me.

Can you repeat the first question?

My first question is about sales to Venezuela.

Sales to Venezuela.

Okay.

Yes.

Okay.

Camilo Marulanda, our Vice President of Sales and Marketing, is going to take the answer in relation with Venezuela costs -- sales.

And Adriana is going to take the question in relation with the financial target.

Okay.

Good morning.

I think the first thing to say is that the contract has been complied since the beginning of 2008 without regard of the political situation between Colombia and Venezuela.

This year, we have been selling over 140 gbtu per day.

We expect to maintain those sales to that market.

In the other side, the payments, we have had not had any trouble with the payments from Venezuela in this year.

So we expect to maintain that situation.

Okay.

Okay.

Regarding the level of leverage of Ecopetrol, in general trends, what we are trying to do when leveraging the Company is to attain and be very careful with the ratios that we have to observe to keep our rating with the rating agencies.

So we are keeping an eye on four specific indicators or indexes.

The first one is debt to EBITDA, which would not be more than two times.

The second one is EBIT to interest expenses, which has to be no more than five times.

The next one could be the total debt to--

No less than five times, right?

No less than five.

Yes.

No less than five, right.

Yes, yes.

No less than five.

No less than five, yes, you're right.

The other one that is maybe the most used in the trend and in general in the market is the total debt to total equity, which should be something between 20% and 40%.

And we also for the industry are observing the total debt over total proved reserves, which would have to be at least -- or no more, sorry -- than $4.5 per barrel.

That's in terms of what percentage of your proved reserves should be there to serve your debt.

So, that's pretty much the outlook for us to be keeping an eye on these indicators to not exceed them.

So we have to all the time be careful of the rating agencies.

And the point is to be on the industry average not exceeding what they are expecting from us.

Okay.

Thank you very much.

And additionally, in terms of our strategic plans, we observe a leverage limit of around 20%, 25%.

Okay.

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

Good afternoon, everybody.

I have a couple of questions.

I want to make sure I understand correctly the information you're providing on your exploration progress.

And for instance, you said that you explored up -- in the first half of the year five wells.

And in the first quarter, there have been three.

So that suggests that in the second quarter there were two wells, one in Colombia and one in the US Gulf of Mexico.

Also, looking at your results, it looks like you made a provision of an exploration expense for about $100 million.

So that tells me that the well you're drilling in Colombia in the second quarter of the year was actually dry.

And that $100 million, if that is just for that one well, looks to me as an expensive well.

So I guess my question is whether my interpretation is correct and, number two, if you could elaborate and share with us where was that well drilled and whether my appreciation of it being an expensive well is correct or not.

And what are your exploration plans for the second half of the year?

Where -- in which basins or which areas do you expect to continue your exploration efforts?

Thanks.

Thank you, Sergio.

Nelson is going to take the answer, Nelson Navarrete, our Exploration and Production Vice President.

Okay.

Good morning, Sergio.

Okay.

I think there -- in terms of the exploration during the first semester of the year, we have drilled five years; four in Colombia, one out of Colombia.

That international well is under evaluation currently.

And we have [succeeded] one out of four in Colombia.

This is the Quriyana well that was drilled in the Putumayo that was announced (inaudible) that it produces 300 barrels of oil per day.

That's in terms of the wells.

In terms of the exploration cost, I think the $100 million includes the wells and seismic that has been acquired.

But as you mentioned, there is one well -- but there's one well that we announced early this year.

It's a Gibraltar well that was dry that was around like $17 million.

So this is part of those exploration costs, but there are some additional exploration costs in terms of seismic and some other wells.

And for the second half of the year, we will continue with the drilling campaign.

We're going to be drilling additional wells in Colombia.

We are expecting to be at around 20 wells during this year.

And there are some more we will plan to start [up road] in the second semester.

I don't know if I answered your question with this.

Maybe it's important to consider that part of these wells begin in the second semester will continue during the first part of 2010.

Yes, thanks.

If I just may follow up, with just the count of 20 plus the first four, so that's 24 in Colombia in the -- for the whole of the year, right?

And now in--are these 20 -- can you give us a breakdown?

How many of those are directed by or operated by Ecopetrol alone, and how many of those are drilled by partners?

Yes.

The 20 wells that I mentioned already include the four that have already been drilled.

And I mean, for the -- I think by the end of this year, we will be at around like 13 wells drilled by Ecopetrol in Colombia, six additional in Colombia in which we participate in the exploration risk.

And, there are two additional up road.

This is around -- these are the 21.

Great.

Thank you, Nelson.

Thank you, everybody.

Welcome.

However, before you retire, Sergio, I would say that regarding your question of if Gibraltar was the only dry hole that we had, no, we -- on the accumulated results for the half the year we have run up to now, we have six.

So, Gibraltar is the main portion, but there are others, like (inaudible) and some others.

So got it.

Thank you, Adriana.

Okay.

(Operator Instructions)

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

Okay.

Good morning, everybody.

I want to ask two more questions.

The first one is in relation to the number of CapEx you provided us of $6.2 billion.

You have mentioned before to press -- to local press, that maybe with the Cartagena refinery acquisition this CapEx will increase to $7 billion.

Is that right, or is that just press comments?

And the other one is in relation of how much do you expect to reduce your imports on refined products with the initiation of operation of Barrancabermeja hydrotreatment plant?

Thank you very much.

Juan, can you repeat the second part, the second question in relation with the hydrotreatment project?

Okay.

How much do you expect to reduce your imports of refined products when this plant starts operation?

Okay.

Okay.

Right now, we are finishing the studies for the new estimation of Cartagena master plant CapEx.

We expect to have the final figures for the end of this month.

So -- and about the importations of diesel, we think we start the hydrotreatment plant in Barranca, we're going to decrease -- our importation will decrease in the future at nearly 20,000 barrels per day.

Okay.

But in relation with the money you will pay for the interest of (inaudible), how does that amount of money increase the total CapEx for the year?

It really -- really isn't going to have an impact in the Ecopetrol CapEx because, if you remember, our CapEx in the refinery expenditures in relation with the acquisition were considering $250 million.

And we need $250 million additional.

But in relation with the expenditures of Reficar itself in the rest of the year, it is important to mention that Reficar has an important amount of capital of around $300 million organic that was part of the resources that was in the funds of the Company when we complete the acquisitions.

And we don't expect that we need to proportion additional money to the Cartagena Refinery itself to develop the operation, neither the expenditure of the rest of this year.

And in relation with your first question, in relation with the $7 billion CapEx, really, we don't have a precise number in terms of our final expenditures in terms of CapEx.

We right now maintain our number of $6.2 billion.

But our final number is going to depend on the renew of the investment in our organic projects, mainly in the production projects.

But it is important to take into account, as Nelson previously mentioned in the previous question, maybe we are not going to complete all of the exploration investment if we consider that part of the wells are going to continue activity in the 2010 year.

But we right now are planning to complete all our announced investments in terms of the refinery projects, in terms of the transport projects, but also in terms of the production projects.

But we don't have any precise numbers in terms of the final number for the CapEx 2006.

But, we consider we are going to be at least in our original number of $6.2 billion.

Okay.

Thank you very much.

(Operator Instructions)

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

Okay.

Hello, again.

Just a couple of housekeeping questions -- could you share with us the gross refining margin of Cartagena in the second quarter or maybe in the two quarters of the year?

And secondly, I'd like to understand whether your E&P numbers that you are reporting in the segment analysis are already including the revenue and cost and financial results of Hocol.

I know in your production numbers you do not include them.

But I wanted to make sure whether they're in the financial results that you report.

Thanks.

Sure.

We don't include Hocol and Petro-Tech numbers -- production numbers, in our 500,000 barrels per day production -- we do not include.

And, Adriana is going to report to the financial information.

But it's important to consider that it doesn't correspond to totally developed consolidation properties, like a kind of a gross estimation that is developed by our people.

And in terms of the production numbers, operation numbers, margins, right now, we are not including in the slide in the presentation the numbers of the subsidiaries.

Maybe in the future we're going to include additional explanation, maybe some additional numbers -- information of Ecopetrol plus our subsidiaries.

Adriana, please, in relation with the financial statements?

Okay.

Sergio, in terms of the result by segment that you have in the press release, these results do not include our subsidiaries.

If you remember, it is not a requirement under Colombian law to consolidate the results with the subsidiaries during the year but only once a year by the end of the period.

So what we did was first present the results by segment that you find on page seven of the press release.

And those are Ecopetrol only.

The second part is that, like in annex in the final part of the press release, from page 15, you find, for example, our income statement that says Ecopetrol is a--meaning Ecopetrol is itself, wherein the next page, on page 17 -- 16, sorry -- you find Ecopetrol and subsidiaries so that you can make the comparison between Ecopetrol and their subsidiaries as an administration analysis that we make because this is not exactly the full consolidation that we make for the end of the year.

However, we are observing the same methodology in making line by line consolidation with all of our subsidiaries so it's better for you to identify the full impact of all the subsidiaries on page 16, comparing that with page 15, where you find Ecopetrol itself.

Okay.

Sergio, in relation with the production, you add the Hocol production, 24,000 barrels per day, and Petro-Tech 6,200 barrels per day, you have 30 additional barrels per day.

And the total number for Ecopetrol as a group would be 530,000 barrels per day in June.

Right.

34 -- excuse me -- 534,000 barrels per day in June--in June, not August.

Right.

Understood.

Thanks.

And what about the refining margin for Cartagena in the second quarter?

Yes, wait a moment.

It seems to be we don't have the precise information.

We can--

We can follow up offline.

It's okay.

-- after.

Okay?

Okay.

Sure.

And if I can follow up with one more comment on Cartagena, I remember reading maybe a couple of months ago the possibility that Ecopetrol may sell a minority stake of Cartagena into the -- just lease the -- do an IPO of the Cartagena refinery.

And is that a serious alternative that you're considering?

And what would be the advantages of that?

Or, which other alternatives are you considering for financing the expansion and of the refinery?

Thanks.

Okay.

First, if you allow me, regarding Cartagena margins, the gross margin is $0.70 for the whole period January to June -- $0.70.

Okay.

That's the whole period.

I don't have for the second quarter only.

Yes, this is --.

Have a follow-up call -- in relation with the possibility of the democratization process for the Cartagena refinery as a financing alternative, but it's important to mention that it was a suggestion that was made by our Board of Directors in terms of analyzing -- it was a possibility, but just as a possibility.

We were developing several opinions in relation with it.

And basically, what analysts consider is that this possibility could be considered only when the projects must be completed.

But it couldn't be part of this financial process as part of the financial package during the construction process due to the risks of the projects, and due to the difficulties to get like a kind of excuse of democratization process from (inaudible) what is under construction.

That way, right now, we are not considering that possibility as part of the package from the financing of Cartagena refinery.

And I don't know if maybe in the future when the project has been already completed or maybe when it's almost to the completion maybe when the risks are very low could this possibility consider.

But right now as a part of the financing package, it is not considered.

All right.

Thank you very much, everybody, for your answers.

Sergio, the margin of $0.70 per barrel for the margin of Reficar is that the net margin.

So, the gross margin is $5.22 per barrel.

For the six months?

For the six months, right.

Got it.

Great.

Thank you very much.

Your next question comes from the line of Juan Kreutz with Barclays Capital.

Hello, everyone.

Just a follow-up question -- with regards to unconsolidated subsidiaries, are there any financial obligations that Ecopetrol is -- has provided a guarantee for at the subsidiary level?

And also, if you can comment about the timing of the equity sale, I know you mentioned that on the road show.

But I don't know if you have any updates when it comes to that.

Excuse me, Juan.

Can you repeat the second part of the question?

Yes, the first question is with regards to the unconsolidated subsidiaries that you guys don't have on the consolidated results.

Are there any financial obligations at that level, at the unconsolidated subsidiary that Ecopetrol has agreed to guarantee?

And the second question is when it comes to the equity sale that was mentioned on the road show, do you guys have any update with regards to timing for that?

Okay.

Adriana's going to take the first part of the question.

Thank you.

Okay.

Regarding financial obligations, you'll find on page 18 of the press release, you'll find Ecopetrol's [sales] whereas Ecopetrol and subsidiaries with a consolidate line-by-line financial obligations as we'll have assets and everything.

But when you find here that the financial obligations of Ecopetrol and the consolidated or the exercise that we made to consolidate is changed, it reflects the position of indebtedness of each one of those subsidiaries.

However, it's to clarify that we are not guaranteeing at the moment any indebtedness of any of the subsidiaries.

So it is clean debt of them, the majority of this being Propilco and Hocol.

And our debt's clean also, no guarantee.

Excellent.

Thank you very much.

In relation with the second part of your question, if you remember there are regional approval of the Colombian congress for the capitalization process of Ecopetrol the end of 2006 considered up to 20% of the capital of the Company.

We launched the market in August 2007 with 10.1%.

We still have 9.9% additional.

And as we haven't mentioned previously on different occasions, we are not going to make use of this additional capitalization until we don't need it by extreme need of capital considering our capital structure in terms of equity and debt.

And right now, we haven't already established a possible date for that new offer.

Okay.

Thank you very much.

And if I can follow up, can you please tell us if you have already an expectation as to how much in dividends you expect to pay for the rest of this year, considering the CapEx program and everything else?

In relation with that point, as we previously mentioned in different occasions, what we are trying is to going step by step to extend compliance of the politics that is specified in our government code that is basically the compliance of the commerce code rule in Colombia considering the definition of the corporate code.

In that sense, basically, code of commerce considers if we have already covered your capital needs, you must present to the general assembly proposals to distribute at least 70% of the net income.

But if you haven't covered the capital needs, you must present a proposal to distribute at least 50% of the net income.

If you remember during 2008, we distributed 89% in the kind of process going to compliance.

The last year it was 20 -- it was 76%.

And we expect that we can continue in this descending process to go year by year to the compliance of the (inaudible).

Okay.

Thank you.

Your next question is a follow-up question from the line of Chris Sayo with MetLife.

Hi.

I just had a quick follow-up question about the additional shares.

You mentioned the 9.9% remaining that you had.

I just read in or saw in the news there's a possibility that that money could be used or the government could sell its stake as opposed to being diluted and use that for other public needs, like highways or other structures.

Wondering if you had any comment on that.

There are two complete different topics.

One is -- one I referred previously in relation with the additional capitalization process, 9.9% that was originally considered in the law approved by the Congress are resources for Ecopetrol needs.

And in relation with the comments in the press recently, the Board of Directors, Ecopetrol Board of Directors, and the administration doesn't have any official information in that matter.

And we haven't been informed by any official of the government of any decision in that terms.

Okay.

Thank you.

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

Yes, I have an additional question.

It's basically on the increasing capacity of actually Ecopetrol.

Recently, I read in the news -- but there was actually nothing official.

I've actually been traveling.

So I haven't been able to read local press.

But they were saying that the wells of actually Pacific Rubiales in which you actually have, as you mentioned a 65% (inaudible) participation, increased their proven reserved fivefold.

They actually had 100 million barrels in reserves.

And the news came out saying that they actually had 500 million barrels.

Knowing your participation there, is that actually accurate?

Could we actually plug into our numbers that that's going to be an additional source of revenue, which was not expected by the Company?

And that would be my question.

Thank you.

Thank you, Andres.

As we officially report to the market the last Monday, right now, Ecopetrol is in the process to analyze some additional information with some developments in the fields.

But we haven't yet or already finished them.

And right now, we can't express in relation with this new information.

And first, we need to submit to the revision of the agencies in charge of the certifications.

Previously, we can't express in relation with those announcements.

Okay.

Thank you.

This concludes your question and answer session.

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

Thank you very much.

Alejandro has taken--

Okay.

So we have finalized today's second quarter 2009 results conference call, and we want to thank all the participants.

The recording of the call is available in our website.

For additional questions, you can contact us in our Investor Relations Department.

Thank you very much.

Goodbye.

Thank you for your participation in today's conference.

This concludes the presentation.

And you may now disconnect.

Have a great day.