Ecopetrol SA (EC) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2012 Ecopetrol SA earnings conference call.

My name is [Claire], and I'll be your operator for today.

(Operator instructions.)

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host for today, Mr. Alejandro Giraldo.

Please proceed, sir.

Good afternoon, everyone, and welcome to Ecopetrol's second quarter of 2012 financial and operational results conference call.

Before we begin, it is important to mention that the comments by Ecopetrol's senior management could include projections of the Company's future performance.

These projections do not constitute any commitment as to future results, nor they take into account risks or uncertainties that could develop.

As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections on the conference call.

The call will be led by Mr. Javier Gutierrez, CEO of Ecopetrol.

Also participating will be [Tiana Calisto], acting CFO, Hector Manosalva, EVP for Exploration and Production, Pedro Rosales, EVP for Downstream, Alvaro Castaneva, VP of Transportation and Logistics, Enrique Velasquez, VP of Exploration, Camilo Muralanda, VP of Growth and Strategy, and Alberto Vargas, Financial Controller of Ecopetrol.

I will now turn the call to Mr. Gutierrez.

Thank you, Alejandro.

Good afternoon.

Thank you all for participating in this conference call.

Initially, we will present the highlights of the second quarter, followed by summary of our key financial results, the main figures of the business segments, and the milestones of internal consolidation.

Then, we will review the outlook for the third quarter of 2012, and finally, we will close our presentation with a Q&A session.

So let's start with slide five to review our milestone in the second quarter.

Though Ecopetrol faced challenging events and difficult international economic conditions in the second quarter of 2012, it continued its progress in its growth strategies, increasing its production and achieving strong financial results.

The Corporate group reached, in the second quarter, a production of 762,000 barrels of oil equivalent per day, mainly due to the increase in production of Chichimene, Piedemonte, Gibraltar, and Casabe fields versus the second quarter of 2011.

Total sales volume of Ecopetrol grew 9% compared with the second quarter of 2011 as a result of the rise in the exports of crude oil and natural gas.

The export sales prices decreased in line with the decline in the international prices.

However, our strategy of diversifying benchmarks and destinations for our crudes supported our margins.

With regards to exploration, Ecopetrol America Inc.

and its partners submitted the most competitive bids for six new blocks in the lease-sale 222.

Additionally, we continue advancing in our modernization projects of our refineries and expansion of our transportation infrastructure.

The higher production offset the lower oil prices during the second quarter of 2012.

Thus, Ecopetrol reported a 7% growth in revenues and a 9% increase in net income, while EBITDA rose 3%.

Finally, two milestones for the midstream were accomplished in the second quarter of 2012.

First, the incorporation of CENIT, our new subsidiary, who will supply the transportation and logistical needs of the oil industry in Colombia.

And second, the financial closing of the phase one of [the] Bicentenario pipeline with a syndicated loan amounting to COP2.1 trillion.

And now, I will turn the presentation to Alberto Vargas, who will comment on the financial results.

Thank you, Mr. Gutierrez.

Good afternoon, everyone.

Let's turn to slide seven.

Financial results in the second quarter of 2012 were affected by the decrease in the oil prices.

Notwithstanding, Ecopetrol managed to improve its financial results in comparison to the second quarter of 2011, mainly due to increase in production.

Starting on the left side of the slide, you can see how, in the second quarter, total sales rose compared to the same quarter in 2011, driven by higher exports.

Total cost of sales plus operating expenses grew 6% mainly due to the increase of 11% in fixed cost as a result of higher maintenance activities, contracted services related to larger production, and higher labor costs.

Also, the variable costs increased mainly due to, first, larger imports at higher prices of naphtha to be used as diluent, and low sulfur diesel to supply the local market.

And second, higher transformation costs as a consequence of greater volumes exported.

It is worth mentioning that those transformation fees for exporting previously recorded as a commercial expense are now accrued as variable costs.

The operational expenses grew mainly as a result of agreements with the police force to protect our operations.

Consequently, operating income amounted to COP 6 trillion in the second quarter of 2012, equivalent to an operating margin of 41%.

In the non-operating results, the loss of COP.5 trillion was mainly due to the impact of provisions made as a result of the lower returns of the fund which covers the pension liabilities.

Net loss from the Group subsidiaries under the equity method in the second quarter of 2012 amounted to COP33 billion as follows - refining and petrochemical subsidiaries accounted for a loss of COP159 billion, upstream subsidiaries added an income of COP64 billion, transportation subsidiaries, COP32 billion, and corporate subsidiaries, COP30 billion.

Finally, net income amounted to COP3.7 trillion in the second quarter of 2012, which is 9% higher than in the same quarter of 2011.

EBITDA grew 3%, amounting to COP7.1 trillion.

EBITDA margin was 48%.

On the next slide, number eight, we find another view of the Company's cash flow and balance sheet as of the end of June.

The initial cash balance was COP17.4 trillion, and cash generation from operations during the second quarter of 2012 amounted to (inaudible) [COP15] trillion.

COP16.3 trillion of the Company's total cash flow were deployed to fund operations during the quarter, COP4.9 trillion for the payment of dividends, and COP2.2 trillion for capital expenditures.

The ending balance of cash and investment was COP9.3 trillion.

Regarding the balance sheet, total assets amounted to COP86.7 trillion, and total liabilities COP36.2 trillion.

The liabilities decreased due to the payment of dividends in April and the first installment of equity tax and surcharge.

Financial debt was equivalent to 15.7% of total liabilities, while debt to EBITDA ratio for the last 12 months was .19.

During the quarter, there was no additional indebtedness.

Finally, the equity increased mainly as a result of the net income reported in the second quarter of 2012.

Now, let's turn to the main aspects of the results of the Corporate group, shown on slide nine.

In the second quarter of 2012, the Corporate group reached solid financial results.

Total sales for the Corporate group amounted to COP 16.5 trillion compared with COP16.3 trillion in the same quarter of 2011.

Group's net income amounted to COP3.7 trillion, and [indeed] there was COP7.5 trillion, while EBITDA margin was 45%.

Now, let's move on to slide 10 and review the main figure of our subsidiaries.

In the second quarter of the year, the highest revenue before accounting eliminations came from Reficar, with COP2 trillion, Hocol with COP921 billion, and Equion with COP511 billion.

Highest net income came from Equion, with COP182 billion, followed by Hocol with COP76 billion, and Ocensa with COP43 billion.

Subsidiaries with the highest EBITDA in the second quarter were Equion with COP170 billion, Hocol with COP160 billion, and Ocensa with COP147 billion.

Now I turn the conference to Enrique Velasquez, who will comment about the main results of our E&P segment.

Please let's move on slide 12, which summarizes the highlights of the E&P segment.

Let's start with our production results.

In second quarter, the Corporate group achieved a gross production of 762,000 barrels of oil equivalent per day, a 5% increase compared with the same quarter of the year 2011 and 3% higher than in the first quarter of this year.

Production was affected due mainly to restrictions on the availability oil [exportation] infrastructure.

The growth in production between the second quarters of 2011 and 2012 was led mainly by the increase of 16,000 barrels per day in Chichimene, 6,500 barrels equivalent in Piedemonte fields, 4,000 barrels equivalent in Gibraltar, and 4,000 barrels equivalent per day in Casabe.

Well exploration in second quarter of 2012, Ecopetrol completed (inaudible) well Caronte, which results remain under evaluation and five [in strat case], of which one, Akacias EST-1, show hydrocarbon presence, and four were dry.

Hocol drill one [strat-30] well, (inaudible), which was dry, and five (inaudible) wells.

As the Caribbean of [short] activity so far, weather conditions have not allowed to start drilling Mapale-1 well.

This well has been rescheduled for the third quarter of this year.

Internationally, the drilling of the strat-30 well, [Farmer], in the US Gulf Coast began in June.

Also, during second quarter, Savia drilled the Colan-1 oil, which results are being evaluated.

Originally in June, Ecopetrol America Inc., together with its partner, Repsol USA, Inc., Murphy, Apache Corporation and (inaudible) Offshore submitted the most competitive bids for six blocks in the Gulf of Mexico during the lease sale 222.

The Bureau of Ocean Energy Management will award the blocks in the coming months.

Our 2012 drilling plans remain unchanged, that is to drill a total of 42 exploratory wells, 37 of them in Colombia, three in the US Gulf Coast, and two in Brazil.

Finally, let's review the financial results of the upstream segment.

Net income for the segment in second quarter was COP3.8 trillion.

Overall results were driven by the higher production.

EBITDA amounted to COP6.5 trillion, equivalent to an EBITDA margin of [69%].

Now I will turn the call over to Mr. Gutierrez, who will comment on the incorporation of CENIT.

Please turn to slide 13.

One of the milestone of the quarter in the midstream strategy was the incorporation of CENIT, a wholly owned subsidiary company specialized in hydrocarbon transport and logistics in Colombia.

This new company will supply the strategic transportation and logistical needs of Colombian's oil industry, resulting from the increase in hydrocarbon production and higher sales of crudes and refined products, both in Colombia and international markets.

The new hydrocarbon transportation scheme generates important advantages for Ecopetrol by allowing the Company to have a strategic focus on its business, allocate higher investment to other key segments, and ensure the profitability of the transportation activities.

CENIT also will guarantee Ecopetrol the capacity for transportation and handling of its hydrocarbons.

The new subsidiary will receive all of Ecopetrol transportation assets, including the interest held in Ocensa, Los Llanos pipeline, Bicentenario pipeline, and the Colombia pipeline.

As a result of these process, CENIT will be responsible for marketing, planning and development of the transportation system, formulating new business opportunities.

Ecopetrol remains as the operator of the system, responsible for preventive and corrective maintenance, loss control, contingency plans, and project execution.

With this, I will turn the call over to Alvaro Castaneva, who will provide an update of the results of the midstream segment.

Thank you, Mr. Gutierrez.

Let's review the results of the segment in the second quarter of the (inaudible).

Net income amounted to COP99 Billion.

[Volumes] transported barrels of crude oil decreased in the second quarter.

Revenues went up as a result of higher transportation fees in the year and higher volumes of (inaudible) transported.

Costs on maintenance projects and depreciation increased due to higher activity.

Also, net income was reduced due to the accrual of equity tax in the second quarter of 2012.

EBITDA amounted to COP290 million.

Regarding our main project, the phase one of Bicentenario pipeline between Araguaney and Banadia, reached a 55% progress as of June 30.

About the contingency program, during the quarter, important progress was achieved at the plants worldwide communicated to communities and local entities, as well as in the international benchmarking of the [emergency] action plans.

Finally, on [utility] program, we can highlight progress in infrastructure [monetary].

[Greece] analysis are finalized and (inaudible).

With this, I will turn the presentation over to Pedro Rosales, who will comment on downstream results, starting with refining.

Good afternoon, everyone.

Let's move onto slide 14.

In terms of our operation, the refinery throughput in Barrancabermeja decreased in the second quarter of 2012 compared with the same quarter of 2011, mainly due to the scheduled maintenance of one crude unit in April.

In Cartagena, the refinery throughputs were reduced due to less availability of Cano Limon crude oil cost by lower deliveries of the pipeline.

In spite of the lower throughput, gross margin in Barrancabermeja increased in the second quarter of 2012 compared to the same quarter of 2011 due to higher yields of medium distillates and a better valuation of products, especially fuel oil.

Otherwise, gross margin of Cartagena refinery fell due to the reduction in gasoline output as a result of the maintenance of the cracking unit and the lack of Cano Limon crude, causing a production increase of fuel oil and naphtha instead of diesel.

Given the improved output of valuable products and better realization prices in Barrancabermeja, financial operation results of refining and petrochemical segment improved in the second quarter of 2012 compared to the second quarter of 2011, reaching an EBITDA of COP252 billion.

However, the segment reported a negative non-operation result due to the loss reported by Reficar and the impact of the exchange rates.

Then, net result was minus COP202 billion.

Regarding the mine refining projects, in the first half of 2012, the expansion and modernization of the Cartagena refinery reported 68% progress, and the upgrading of the Barrancabermeja refinery, 11% advance.

Finally, the master plan of utilities in Barrancabermeja reported 46% progress as of June 30.

Now, please turn on to slide 15 to review the sales and marketing results.

Total sales volume grew 9% between the second quarters of 2011 and 2012 due to the rise of crude oil exports.

Exports growth was driven by higher availability of Magdalena blend and Vasconia crudes.

During the second quarter, we continue with the strategies of diversifying markets and referencing our crudes to benchmarks that generate more value to exports.

Regarding the destination of our exports, in the second quarter of 2012, there was an increase in the sale of our crudes to the US Gulf Coast and Europe, as well as higher volume of products delivered to Far East and the Caribbean.

Finally, the sales and marketing segment presented in the second quarter of 2012 a drop in revenues due to the lower sale prices.

In spite of this, net income was COP5 billion compared to a net loss of COP37 [billion] in the second quarter of 2011.

This loss in 2011 was due to a higher peso revaluation and the result of the hedging operations.

I now will turn the presentation back to Mr. Gutierrez, who will comment on the milestones of the internal consolidation initiatives and the corporate social responsibility in the second quarter of this year.

Thank you, Pedro.

Let's start by our results in HSE.

The accumulated accident frequency rate in the first half of 2012 was .97 accidents per million working hours compared with 1.14 in the first half of 2011.

Those encouraging results strengthen our commitment of a safe and reliable operation.

Regarding science and technology, our research institute was granted with two new patents in Colombia in the second quarter of 2012.

Additionally, economic benefits amounted to $141 million as a result of the implementation of technical solutions developed by our research institute together with different teams along the Company.

Finally, as part of our commitments with communities, Ecopetrol invested in the first half of 2012 COP46 billion in corporate social responsibility initiatives focused on education and culture, citizenship and democracy, and local competitiveness.

Finally, let's review the outlook for the third quarter of 2012.

Please move on to slide 19.

Ecopetrol will continue on its path to achieve all of our strategic goals for 2012.

Regarding exploration, Equion, our subsidiary, will start drilling at Mapale-1 well in the Colombian Caribbean offshore.

In production, we are forecasting the production of the Corporate group to average around 780,000 barrels of oil equivalent per day in 2012.

In transportation, we will continue achieving progress in our infrastructure projects and strengthen the initiatives aimed to improve the integrity of the transportation systems and their contingency plans.

Regarding the Bicentenario pipeline, Ecopetrol and its partners expect to start line fill at the end of this year.

We will also continue consolidating our new subsidiary, CENIT, to assure the beginning of its operation in 2013.

In refining, we will continue with our progress in the modernization of both Cartagena and Barrancabermeja refineries.

Also, thanks to the scheduled maintenance made in the first half of this year, we will be able to achieve the operational reliability and the throughput of the refineries.

We also shall continue our efforts to maintain the improvement of our HSE performance, as well as the safety and reliability of our operations.

Regarding our commercial strategy, we will continue searching for market opportunities in order to reach the best realization prices for the increasing amount of crude oil exports.

Now, I open the session to questions from our participants.

Okay.

For the Q&A session.

We will take questions for the first three participants, then we will provide the answers to those questions, and we will then move again to questions from the next three participants.

So, Claire, we will now take questions.

(Operator instructions.) Frank McGann.

Good afternoon.

Yes, just a couple things, if I could.

One is, in terms of transportation costs, I was just wondering, in Colombian pesos or in dollars, in millions or billions, however you prefer to give it, the total cost that you identified that were related to the security issues in the quarter and whether you see those as continuing at that level, or a higher level perhaps in the future.

Second, from a production standpoint, maybe you could quantify the effects of the pipeline interruptions in terms of how much that affected the quarter, and just have a little bit better idea on how much effect that had.

And then, thirdly, in terms of production growth from here, what are the key fields that will be driving the growth in the third and fourth quarter that will help you get to your production target for the full year?

Thanks.

Nathan Piper.

I guess my key question for me is the approval process in Colombia.

And clearly, some of your fields have not progressed in terms of production increases due to not getting the water handling facilities.

And that, from what I understand, is getting the approvals in place.

And so I would be interested in your comments on how the approval process is working currently, what influence you could have on increasing, or making the process move more smoothly.

And then, lastly, despite cutting your 2012 production to 780,000 barrels a day from 800,000, and this still appears to me to be quite an aspirational target.

How confident are you of that number?

And really, should we be thinking about production range that you hope to get to where this is perhaps a top end?

But the key thing for me is how is the approval process working in Colombia.

Okay, Nathan, just to clarify the questions, the first one is basically on the approval process and environmental licenses for the fields.

Nathan?

Nathan, please?

Nathan?

Nathan, please press star-one.

Okay, we will take the next question, then, from the next participant.

Christian Audi.

Hi, actually this is [Vicente] from Santander also.

I have a few questions.

First of all, you said that your target for Ecopetrol with subsidiaries is 780,000 barrels.

What about for Ecopetrol SA only?

Do you have that number?

Also, regarding the startup of the Bicentenario pipeline, you said that you expect that for the end of 2012.

Do you guys have specifically what month?

Are we talking about December?

And one last question.

I thought I heard in the Spanish call that you said that the environmental issues that you had during this quarter, they hurt your production in about 8.5 thousand barrels per day.

Is that it?

Thank you.

Okay, so we'll now start with the questions (inaudible) answered by Enrique Velasquez.

We will start with the first question.

Hi, Frank, this is Enrique Velasquez.

Frank, regarding your second question, what is the main effect for the interruptions in the (inaudible) line.

We quantified the amount in 10.7 thousand barrels per day, okay, (inaudible) other.

Other for the (inaudible).

Right.

Your third question--.

--But maybe it's important to mention that -- maybe you remember, during the first quarter, it was 17,000, 1-7, and during the second quarter it has been around 6,000 in average.

We have right now 10.7 thousand (inaudible).

Okay.

(Inaudible) clarification, Frank.

Your third question regarding which fields -- or better, in which fields we will put a lot of effort in order to fulfill the goal.

Let me tell you that, actually, the fields are Castilla, in which we are working in facilities, then Chichimene, also working in facilities.

We are waiting for the approval of the environmental license in the Rubiales and Qifa fields, to get the commerciality in the Cano Sur, to drill more discovery wells in Casabe, and finally, to get commerciality from the Akacias discovery.

Okay.

Nathan, regarding your question how the approval process of the environmental license is affecting our current production, yes, there are some delays obtaining the environmental license, but we (inaudible) some of these delays, so we -- in the fourth [count], in the timeline, those issues are already accounted, okay?

Okay.

Nathan, your question regarding how confident we are regarding to get the 780,000 it was the answer that I just gave to Frank McGann, in which fields we put a lot of work in order to get that number.

And a question for Vicente?

Okay, Vicente, what is the target for Ecopetrol itself.

Let me tell you, the target is 730,000 barrels equivalent of oil per day.

With this, we have covered the questions on E&P.

Now we'll move into transportation to answer the questions on ODC and transportation costs.

It's Pedro Rosales who will answer the questions.

Okay.

About the transportation costs, our costs are in Colombian pesos.

The costs associated to security are under the budget that we planned in our plan, and then we don't expect an increase in that cost in this year.

About the schedule of Bicentenario pipelines, our written update of the project maintained the target to begin the line fill of the pipeline by the end of this year if our plans for construction are developed as we expect with the support of the (inaudible).

And when we refer to the end of the year, we're [telling] the end of December.

Yes, the end of December of 2012.

Okay, so now we'll take questions from the next three participants.

(Operator instructions.) Gustavo Gattass.

Hi, guys.

I had two questions here.

The first one has to do with the cash costs that you had in the quarter for the E&P unit, okay, so this is Ecopetrol SA E&P.

And if we just divide the cost number by the number of barrels that you had, you saw something like a $4.50 increase in costs in the quarter in spite of having a higher production number.

I just wanted to understand if there was something extraordinary on those costs, or if there was something extraordinarily low in the first quarter costs for comparison purposes.

So that's the first question.

The second question, just with regards to the production side of things, I don't know if it would be possible for Enrique to just touch on the important milestones that are necessary, and when do you think they'd play out for those fields that were mentioned as contributing for the growth, especially the facilities at Castilla and Chichimene, which, as I understand, might be the biggest part of the contribution here.

Okay, those are my two questions.

Thank you.

Okay, so now we'll take a question from the next participant.

[Fernando Weige.]

Hi, good afternoon, guys.

Just two quick questions.

The first one is on the CapEx.

I think you said on the Spanish call that your CapEx is as you planned, but I see that it's actually around 25% to 30% below your expectations for the year.

I just wanted to understand if that's by design, or if there's any impacts from the delayed environmental licenses, et cetera, and what we can expect for the end of the year.

The second question is on the transportation side.

I just wanted to understand, you said you have a 10.1 thousand barrels per day impact on production.

What's the timing on getting that back online, and what are the costs associated with bringing that back?

That's it.

Thank you.

Okay, Fernando.

Fernando?

Can you repeat the second question, please?

Okay, we'll go ahead with the question from the next participant and then come back to clarify Fernando's question.

Anish Kapadia.

Hi, good evening.

I've got three questions, please.

Firstly, given your lower production for 2012, and also high-impact exploration wells coming in dry on CP-2 and CP-8, are you considering as yet bringing down your 2015 production guidance?

The second question is on Akacias.

When do you expect to test the second and third well, and how confident are you in the 90,000 barrels per day production number that you provided at the Analyst Day?

And my final question is can you give what the gross production was on Castilla, Chichimene, Rubiales and Qifa, please?

Okay, so we will start with the answers for the questions on E&P, answered by Enrique Velasquez.

Hi, Gustavo.

Your question regarding the important milestones in order to get the goal, the growth goal, let me tell you, we are working in the facilities for Akacias, and we expect by middle August to get that facilities in place, okay?

Second important milestones is to start the installation of the [SDAP] station also in order to get that field, Castilla in, to get the -- we expect produce 16,000 barrels [originally].

Also, we are working in a portable facility, approximately 10,000 barrels in Chichimene we expect to complete by middle August.

Another milestone is to get the environmental license for Rubiales, which ships 400,000 barrels maybe between August and October, and finally, also to get the environmental license in order to handle a million barrels in Rubiales in order to get a -- like 20 wells.

We expect to get it by November of this year, okay?

So those are the most important milestones to assure the growth in these fields.

This is for Gustavo.

The answer for Anish -- okay, Anish, let me clarify something.

You mentioned that, according to the results of the CPA-2 and CPA-4, why do -- think, in order to reach the goal in 2020, let me tell you, those wells are a strat test.

That means those wells are in order to get some knowledge and information in the area.

So those wells are really not counted for these goals, so in summary, we still feel pretty comfortable and confident to get the goal in 2020, okay?

Your second question is regarding when we test the Akacias 2 and 3. Those wells are already in the Minister of Mines waiting for approval to be tested.

You are aware we got the environmental license.

So in, let's say, I don't know -- in a few weeks, we take it (inaudible).

Okay.

Regarding the production for second quarter of Castilla, we produced 113.5K, and in Rubiales plus Qifa, we produced 120,000 barrels per day.

And basically, the questions, they address Anish.

So with that, we'll stop with the questions of E&P.

Now we'll move into transportation and the effect on the 10,000 barrels and when will we be on track in terms of transportation.

Pedro?

Yes, hi.

No, in terms of the transportation, the effect is due to the interruption of the production during the period we take to recover the infrastructure.

But once again, the infrastructure is recuperated.

We soon return to the current levels of production.

This is -- in that way, this is transitory effect, and (inaudible) in the first quarter.

This is mainly due to the time during which the pipeline was out of service in January, and in part of February.

But it was the two main periods in which we were affected, because basically, during the second quarter, we didn't have a tax, neither May, neither April, and we haven't had a tax recently, but we haven't had a -- really an important effect of the tax to the pipe land.

But mainly, we are affected only if the [short] capacity is not enough to reserve the production during the time we take to recuperate the infrastructure.

But, as soon as we recuperate, we return to the current level in production.

But originally, it's very important to take into account that we have installed capacity to control the production during [several days] to recuperate infrastructure.

Okay.

Now we'll go on to the questions on financials, on the cash cost in E&P, and also the question on the lower CapEx execution for exploration and any possible effects on environmental licenses.

Alberto Vargas will take the question on financials.

Okay.

Good afternoon.

This is for Gustavo.

Your question, in terms of Cap costs, yes, in the second quarter we had some reasons that included the cap cost per barrel, those reasons being mainly that we had to buy to increase our importations of naphtha to be used as diluent for our crude.

Also, we got higher maintenance costs to attend our security issues in some of our pipelines.

Plus, we increased our costs coming from (inaudible) in which we are non-operators.

Now, for Fernando, on your question on CapEx decrease, main reason being a delay on our exploration campaign in the Cano Sur field.

Okay.

Now we'll take questions from the next three participants.

(Operator instructions.) Daniel Sensel.

Yes, hi, good afternoon.

I just have a quick question regarding debt.

I see that total debt went up by around $400 million.

Can you tell us, do you got any new facilities, and what were the terms of those?

Thank you very much.

Excuse me, can you repeat the question?

Daniel, please press star-one.

Hear me now?

You may proceed, Daniel.

Okay, thank you.

Yes, my question is that I see that gross debt went up by $400 million.

If you can provide some details about the terms of the new facilities that you received?

Okay, [Daniel], we understood your question.

Now we'll move to the next participant and come back to you with the answer.

Matt Portillo.

Good afternoon, just three quick questions from me.

The first one has to deal with the gas production.

Could you talk about what has led to an increase in gas demand in-country and how sustainable you think your production numbers are from the second quarter going forward through the rest of the year?

And then, I just want to clarify, on the Rubiales field from a production perspective, I think you said 120,000 barrels a day gross from Rubiales and Qifa combined.

Looking back on last quarter, that looks like it's been relatively flat, quarter-over-quarter.

I just wanted to clarify that.

And if you could give any other color around what permits you are waiting for specifically on for the water handling.

And then, finally, I think just wanted to see if you could give us the gross production numbers for the Chichimene field for the second quarter.

Thank you.

Juan Pineros.

Hi, good afternoon, just two questions from me.

Can you provide more details about the results you had on Akacias' stratographic-1 and how it compares the results you had on the first exploratory well in this block?

And which were the results of the Itauna-2, and why did you record a loss of COP115 billion in the (inaudible) Brazil?

Second question, are there going to be more maintenance or stoppages at the refineries this year?

And third question is regarding the Bicentenario pipeline.

It will be connected to the Cano Limon pipeline, and we have seen an increase in the frequency of attacks to this pipeline.

So how this will affect future operations?

How critical it would be, an eventual disruption in the Bicentenario?

How much would you rely on this Bicentenario in 2013?

Thank you.

We'll start answering the questions on E&P.

Enrique Velasquez will take the first question.

Yes.

Okay, Juan.

Regarding your first question -- actually, you had two questions.

The results of the Akacias is strat-1.

As you will know, if an exploration well in which we have some hydrocarbon presence, and this is the information that we can release, when we test a well, we happen in a short period of time we can reporting (inaudible).

Second, your second question regarding Itauna-2, why Itauna-2 was accounted in the books.

Well, actually, Itauna-2 was drilled in order to prove the extension of discovery of Itauna-1.

These main targets was find dry, but we find we have hydrocarbon presence in oil formations.

So this information is being used in order to define the geological [oil], and in that way, we can propose the Itauna-[third] next year.

Okay, this is for Juan Pineros -- no, for Matt Portillo.

For Matt, Matt, let's start from the question number two, number three, and then I go back to the number one.

Number two, you asked specifically what kind of permit we are waiting in order to continue -- to increase the production.

You're right, the permit is water handling.

On your question regarding Chichimene, Chichimene production, okay, the figure for Chichimene for the second quarter is 44,000 barrels of oil equivalent per day.

And a final one, your first question regarding gas production, it's increasing gas demand of the country, (inaudible).

Let me tell you, total gas production equivalent was in the second quarter just for Ecopetrol was 112,000 barrels equivalent oil per day.

Gas production, okay.

Pedro Rosales about the gas production.

What you say in the report is that, in December, we are affected with any decrease that allows the producer to sell the gas royalties.

As a consequence of that, Ecopetrol have a lower amount of natural gas to trade in the domestic markets during the first semester of this year, the difference is approximately 10,000 equivalent oil barrels per day that's in the same period of 2011.

However, this amount only represents 1% of the local sales income and doesn't have any material impact in our results.

And maybe, additionally, it is important to mention that it basically corresponds to the royalties that we have been acquiring to the national hydrocarbon agency.

And really, our role in that case is mainly like a trader, but it's not really in terms of the size of our economic basis, because, in terms of our base, really, we have been [attended] it with our own production.

And we're waiting right now.

If the production [mass] continue increasing, mainly considering that, in the next month, we're going to have some additional production from the [Cutiava], a new project that maybe is going to be --is going to be in operation in two months?

Two months production.

And in terms of the demand in the country, the country has been register an increase of around 7% annually.

But additionally, it's important, considering that we are looking for increasing our export.

And additionally, recently the Minister have announce new plans to connect new areas to the gas service in different parts of the country.

And [that said], we consider -- we have a stable increase in terms of the gas demand in the country and the opportunities outside.

Okay, how about the next question, if we expect to have [tough] budgets in the refineries in the second half of the year, we only have one scheduled maintenance during the second semester in one of our cracking plants in Barrancabermeja, the (inaudible) plant.

But the output from this unit will be replaced by the production of other cracking units in the refinery, which will have higher fees.

Then we don't expect a real impact in our production of gasoline for this case.

Then in general, we don't expect any part from [top areas] for plant turnarounds in our plants in the refineries.

And finally, about Bicentenario pipeline, what can we expect?

As we talked before, our projection is that we will begin the line fill of the pipeline at the end of this year, then we don't have any impact this year in our production or in our transportation number in this year.

If there would be any impact, it can be the next year when the pipeline will be in use.

But at this time, we are working with the different authorities to provide the [barrier] protection to that infrastructure to avoid that we have impact in the operation in the future.

Okay, and now we'll take the final question.

It's a financial, and Tiana Calisto will take the answer.

Hi, Daniel.

In regards to increase of the consolidated debt of Ecopetrol, that amount, it's related to the disbursement that has been done on the Reficar transaction with the US EXIM Bank.

As you know, we closed the facility on late 2011, but disbursement has been done throughout this year.

It is the same that is going to happen in the Bicentenario [pipeline] as long as the disbursement are done throughout the remaining of this year.

So you will see increases in that from now on.

Okay.

So, unfortunately, we have run out of time.

This is the last answer.

If you have additional questions, you can contact us at IR.

Thank you all for participation, and we will remind you that we will be hosting our Investor Day in New York and London in the month of September.

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.