Ecopetrol SA (EC) 2012 Q4 法說會逐字稿

Ladies and gentlemen, we like to welcome you to the fourth quarter and full year 2012 Ecopetrol SA earnings conference all.

Good afternoon, everyone, and welcome to Ecopetrol's Fourth Quarter and Year 2012 Earnings Conference Call and Webcast.

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 do 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 Hector Manosalva Executive Vice President for E&P, Pedro Rosales, Executive Vice President for Downstream, Alvaro Castaneda, Vice President of Transportation and Logistics and Enrique Velasquez, Vice President of Exploration and Alberto Vargas, Financial Comptroller.

I will now turn the call to Mr. Gutierrez.

Thanks, Alejandro.

Good afternoon to all our participants today.

Initially, we will point out the key results of last year followed by the highlights by business segment, a brief of our financial results and of our internal consolidation initiatives.

Then, we will review the outputs of the strategic plain launched in 2008, and finally, we will present the outlook for 2013.

After the remarks, we will have a Q&A session.

So, let's start with slide five to review our milestones in the year 2012.

2012 was a challenging year for the oil and gas companies in Colombia.

In spite of these, Ecopetrol achieved a profitable growth and a safe operation in line with the guidelines of its strategic plan.

Starting with our operational results, in 2012, the Ecopetrol's production including interest in subsidiaries and affiliates reached 754,000 barrels of oil equivalent per day, led by the increase in production at Chichimene, Quifa and Piedemonte fields as well as by our affiliate Equion.

We continued with strong exploratory activity in Colombia and abroad.

It is worth highlighting the 11 successful exploratory wells in 2012 out of which nine were located in Colombia and two in the US Gulf of Mexico.

In addition, the corporate group was awarded 16 exploratory blocks in that 2012 Colombian round including three in the Caribbean offshore and three with potential on and conventional resources in partnership with the ExxonMobil.

As mentioned, Ecopetrol strengthened its exploration portfolio in the Caribbean offshore with three blocks granted in the 2012 round, one in partnership with Repsol Exploration and the other two with Anadarko.

On the other hand, Anadarko joined Ecopetrol in the offshore blocks, Fuerte Norte and Fuerte Sur as operator with the 50% stake and the remaining 50% held by Ecopetrol.

Regarding the proven reserves balance, as of the end of 2012, it's worth highlighting that 109% reserves replacement index and an ending balance of 1,877 million equivalent barrels.

As in previous years most of the increase came from additions and extensions of commercial area.

The production increased 4% and the reserves balance rose by 1%.

In transportation, our subsidiary, CENIT, is making progress in the implementation of that new profit business scheme for the segment and it is expected to start up in the first quarter of 2013.

Also, the construction of the Oleoducto Bicentenario continued as planned reporting a 61% progress.

On our sales and marketing activity in 2012, we achieved a new record in exports amounting to 521,000 barrels per day, driven by sales of crudes and products to the Far East and began to deliver very low sulfur diesel in all of Colombia.

In refining, both refineries made progress in the execution of that modernization projects that will bring significant improvement in the profitability of the segment.

When we review the financial results, we can see that our net income grew 14% in the last quarter of 2012 compared with the third quarter of the same year.

For the year 2012, even though we had higher revenues due to the price of the exports and the rise in production the net income and the EBITDA decreased given higher costs of sales.

In spite of these financial results in 2012 where the second best in history of Ecopetrol.

Additionally, in 2012 the Standard & Poor's rating agency upgrade its outlook from stable to positive.

Our social investment went up 42% and came to COP305 billion.

On top of that, I want to recall two relevant achievements accomplished in 2012 that reaffirm our commitment to a sustainable operations.

First, the lowest accident frequency index in history for Ecopetrol and second, to the part of the Dow Jones sustainability world index for two years in a row.

In summary, we achieved a significant progress in different areas, despite the difficulties and challenges and we are confident on accomplishing our goals in 2013.

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

Please, move onto slide seven, which summarizes the highlights of the E&P segment.

Let's begin with our production results.

In the last quarter of last year, gross production of Ecopetrol including its interest in subsidiaries and affiliates reached a total of 762,000 barrels of oil equivalent per day.

Annual average production reached 754,000 barrels per day, a 4% growth versus the one in the year 2011.

The rise was driven mainly by the increase of 12,000 barrels per day in Chichimene field, 6,000 barrels in Piedemonte fields and 6,000 in the Quifa field.

Additionally, our subsidiary Equion complete a successful development campaign leading a production growth of 25% in the year 2012.

In exploration, we reported hydrocarbon presence in 11 exploratory wells, nine drilled in Colombia and two in the US Gulf of Mexico.

Mapale-1 wildcat was drilled in the Caribbean offshore and the wells Parmer and Dalmatian in the US Gulf of Mexico.

In addition, oil shales were found in 24 strat tests.

Ecopetrol was also pretty active in bid rounds during the year 2012.

Three out of four blocks offer for unconventional resources, were granted to Ecopetrol in the Colombia bid round.

Last year the strat tests Coyote and La Luna reached total debt and three oil wells are scheduled to evaluation unconventional resources during the present year

In addition, in the lease sale 216/222, Ecopetrol was granted with six new blocks in the US Gulf of Mexico, increasing our participation in this highly prospective hydrocarbon basis.

Regarding the financial results of the upswing segment, EBITDA of the segment rose 2.7% between the year 2011 and 2012, due mainly to a high production and barrel sales prices.

However, higher maintenance, water management and service costs reduced the margin of the segment.

Please go now to slide eight to review the result balance as of December 31st of the year 2012.

Proving the sales balance, at the end of the year 2012, amounted to 1,877 million barrels of oil equivalent after royalties.

There was an increase of 252 million barrels of proven reserves and the net production came to 232 million barrels, then the reserve replacement ratio was 109%

Form the year 2010 to 2012 Ecopetrol has added 981 million barrels and have produced 643 million barrels.

Increase in proven results was mainly due to extensions of the proven area of existing fields, enhanced recovery and the revisions of previous estimates in some fields.

Is important to mention that our proven reserves have been estimated according to Securities and Exchange Commission, technical standards and methodology and 99% regulated by three specialized independent firms.

Now, Alvaro Castaneda will comment on transportation results.

Thanks, Enrique.

First, let's review our operational results due to the optimal use of the infrastructure and the utilization of alternative transports in 2012, transported volumes of crude oil remained almost flat in spite of some attacks on the pipelines.

In the last quarter, a slightly increase was seen due to larger volumes transported mainly in the Llanos region.

In line with the plans to develop the infrastructure, we completed mainly expansion projects raising crude oil transportation capacity by 91,000 barrels.

Also, expansion in line for diluents and natural gas and truck load the facilities for heavy crude oil were finished.

The cost structure of the phase one of Bicentenario pipeline at the end of this year reported a 51% progress.

We expect to start line field in the first half of 2013.

With regards to CENIT, Ecopetrol sales in ODL, Ocensa, ODC, OBC and Serviport were already transferred to the new subsidiary.

With the new scheme, Ecopetrol is making a transition from a cost sharing model to a profit unit model supporting the future developments with other investors.

Since last year we have been implementing world class practice and incentives to reinforce the integrity of our infrastructures.

With this we were able to reduce the risks of the transportation infrastructure by 50% for high and very high risk levels and by 56% for medium risk levels.

We also carried out activities in the last number of communities to reduce the potential impact of any incident of the transportation infrastructures.

To conclude, let's review the financial results of the segment in 2012.

Our renewed increase in 2012 due to fifth largest transported volumes of imported NAPHTHA and gasoline as well as crude oil from [tier Paris].

Second, higher fees due to the new methodology for tariffs approved.

And three, the contract signed for providing service to Oleoducto Bicentenario.

However, the higher maintenance costs and the development of the integrity program led to a reduction of the net income and the EBITDA.

With this, I will turn the presentation over to Pedro Rosales, who will present downstream results.

Thanks, Alvaro.

Please go to slide 10.

In the last quarter of 2012, there was an increase in both refinery throughput and utilization factor in Barrancabermeja factory, thanks to higher operational availability.

For the whole year, 2012, the throughput of the refinery decreased 3%, mainly as a consequence of the maintenance made in the first quarter of the year.

The gross margin of both refineries decreased 6% in 2012, mainly due to the higher cost of crude oil.

In the base of Barrancabermeja as a consequence of the better crude oil export prices of Ecopetrol.

In Cartagena, it was necessary to process import crude oil to deal with the lower availability of local light crudes, causing a minor output of valuable products.

For these reasons, net income in 2012 was lower than in 2011, however EBITDA remained positive, amounting to COP131 billion in 2012.

Regarding the main refining projects at the end of 2012, the modernization of the Barrancabermeja refinery reached 14% progress and the utilities master plan 61%.

On addition, the Cartagena refinery modernization and expansion plan reached 74% progress as follows.

Detail engineering 99.7%, procurement 95.8%, models fabrication 100%, and construction which began in October 2011, 35.8%.

An important milestone for 2012 was the start of operations of the central operational control room in Barrancabermeja refinery.

This center with leading edge technology integrates all the control protection monitoring and communication systems of the processing unit in one single location within the refinery.

Now, please turn to slide 11 to review the sales and marketing results.

Total sales volume increased 2.7% between 2012 and 2011, mainly due to higher crude exports of 31,000 barrels per day.

Additionally, in 2012, our exports reached a new record of 521,000 barrels per day.

In the last quarter of 2012, we reached exports of 531,000 barrels per day with a growth in sales to the Far East.

In addition, we delivered ultra low sulfur diesel with less than 50 ppm in all of Colombia.

Total reduction in sulfur content has been around 98% during the last three years.

Lastly, although revenues of the sales and marketing segment rose, we reported a reduction in the net income and EBITDA in 2012 compared with 2011, due to higher cost of transportation of purchased crude oil and import diluents.

Now, I turn the presentation to Alberto Vargas, who will comment on the financial results of Ecopetrol.

Thanks, Pedro.

Please, let's turn to slide 13.

Revenues, operating income and net income in the last quarter of 2012 improved compared with those of the previous quarter of the same year, but were lower than the fourth quarter of 2011.

In this last quarter, prices and volumes saw luckily were higher than in the fourth quarter of 2012.

Reviewing our annual results, in 2012, we benefitted from higher prices and exports, offsetting lower sales to the Colombian market and the free trade zone.

However, the financial margins decreased due to a growth in our sales lower than that on the operational costs.

Fixed costs rose due to higher maintenance activities, greater costs to increase the integrity and reliability of our facilities as well as larger cost linked to the management of higher waters cuts and sediments required to maintain the production mainly in the Rubiales and Quifa fields.

Labor costs increased due to the updating of actuarial assumptions of actual workers.

Viable costs rose mainly due to a higher cost of amortization and depletion and greater cost of transportation services.

On the operating expenses, there was a 21% increase, mainly caused by the devaluation of COP160 billion as a result of the technical valuation of fixed assets that have to be run every three years and also abandonment costs of COP95 billion.

As a result, operating income amounted to COP22.9 trillion in 2012, equivalent to an operating margin of 38%.

In the nonoperating part, the loss of COP1.3 trillion was mainly due to the updating of actuarial assumption for health services of retired workers amounting to COP946 billion and an exchange rate loss of COP438 billion.

The group's subsidiaries under the equity method reported an income COP477 billion in 2012 compared to COP552 billion in 2011, mainly due to higher exploration expenses of E&P subsidiaries.

Accordingly, net income amounted to COP15 trillion, equivalent to a net margin of 25% and an EBITDA margin of 46%.

The return on assets amounted to 15% and the return on equity, 23%.

On the next slide, number 14, we find an overview of the Company's cash flow and balance sheet as of the end of December 2012.

The initial cash balance in 2012 was COP9.2 trillion.

Internal cash generation and other sources added COP61 trillion that funded the operation, the CapEx and the payment of dividends to minority shareholders and the first and second installments to the government.

The ending balance of cash and investment was COP10.7 trillion, of which COP3.9 trillion were earmarked for the payment of deferred ordinary installment and the extraordinary dividend to the government, which were paid in January.

The indebtedness during this period remained low with a 12-month debt to EBITDA ratio of 0.2.

As previously mentioned, the positive financial results of Ecopetrol as well as the upgrade in the outlook of the republic of Colombia let the rating agency Standard & Poor's to improve the outlook of Ecopetrol from stable to positive in the third quarter of 2012.

Now, let's turn to the main results of the affiliate and subsidiary companies showed on slide 15.

In 2012 group's net income amounted to COP14.8 trillion and EBITDA was COP29 trillion while EBITDA margin was 43%.

In general terms, affiliates and subsidiaries from segment different from E&P improved their results in 2012.

EMP subsidiaries results were negatively impacted by the expenses for dry and abandoned wells, especially in the last quarter of 2012.

The higher net income, net of non controlling interest came from Hocol with COP455 billion and from Equion with COP367 billion.

In line with this higher EBITDA, net of non controlling interest came from Hocol with COP858 billion and from Equion with COP589 billion.

The bigger losses were reported by the companies still in exploration stage, such as Ecopetrol America Inc with COP265.4 billion and Ecopetrol Oleo e Gas do Brasil with COP276.1 billion.

Reficar recorded a negative results of COP150 billion, due to the lower refining margins during the period, but this loss was slightly lower than in 2011.

Now, I turn the presentation back to Mr. Gutierrez, who will comment on the milestones in the internal consolidation and the corporate social responsibility.

Thanks, Albert.

Please go to slide 17.

Let's start by the remarkable results in HSE.

The accident frequency rate in 2012 decreased to 0.79 accidents per 1 million working hours, a new record in Ecopetrol.

In the last quarter of 2012, the index reached 0.67.

We feel very proud of the continuous improvement trend on the last years.

We also reduced the number of environmental incidents from operational causes, falling from 41 in 2011 to 27 in 2012.

Regarding science and technology, during the last quarter we were granted six patents in Colombia and one in Peru, totaling 21 new patents in 2012.

It is worth mentioning that Ecopetrol was the first Colombian country recognized by its knowledge transfer practices with the making Americas most admired knowledge enterprises price.

To conclude this part, I'd like to emphasize that in 2012 for second year in a row Ecopetrol was part of the Dow Jones Sustainability World Index.

Now, let's review the results of the strategic plan of Ecopetrol since 2008 and the outlook for 2013.

Please go to slide 19.

During the last five years, Ecopetrol has undergone a significant transformation which has led to achieve significant growth in the scale of its operation.

The growth has been driven by historically higher CapEx investment, primarily to E&P.

That's we focused in increasing the heavy crude oil production, the recovery factor and mature fields and the natural gas supplier.

In refining, our main goal was modernizing existing facilities to increase conversion factors and adapting to the new qualities of crudes and deliver clean fuels.

In transportation, we undertook the expansion of pipelines, ports and facilities to support the expected growth in production.

After four years of execution, we can say the Company accomplished most of the targets settled, delivering on its promises to all stakeholders.

Production had a 14% composed growth between 2008 and 2012.

And we increased our reserves year over year with reserves, replacement ratios higher than 100%.

Now, we have a better understanding of the size of our fields.

Transported volumes went up in line with the rising production and new expansion projects are in the pipe to insure capacity for the additional production in the coming years.

In spite of the significant growth of our operations, we managed to reduce the accident frequency index to the lower level in our history.

And we made significant progress for having a safer and cleaner operation.

This performance plus a positive price environment has been reflected very strong financial results and value for our shareholders.

Thus Ecopetrol remains as one of the most attractive companies among the group of peers and intends to become one of the bigger players in the oil and gas industry.

Now, move on to the next slide to review the CapEx plan for 2013.

CapEx allocation this year is according with our objectives of increasing production, upgrading the refineries and expanding transportation and logistics infrastructure.

95% of the CapEx will be allocated in Colombia and 62% will be deployed in exploration and production.

Now, please go to slide 21 to present the outlook for 2013.

In exploration, the group will drill 33 A3 exploratory wells, 11 appraisal wells and 12 strat test.

Also, Ecopetrol will service 8,500 kilometers of new seismic in Colombia.

In production we target and average of 798,000 barrels per day mainly from fields in the Llanos Orientales region and middle Magdalena.

About refining, we will continue carving out the modernization plans in Barrancabermeja and Cartagena and in transportation, we will close the year 2013 with additional 170,000 barrels of capacity.

We will also continue with our investments in research and development in internal consolidation.

With these Ecopetrol, remains in line with the medium and long term goals of producing 1 million clean barrels in 2015 and 1.3 million by 2020.

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

Thank you.

(Operator Instructions).

The first question comes from Nathan Piper from RBC Capital Markets.

Hi, good afternoon.

Two quick questions from me, please.

First of all, your production target for 2013, and in particular, the 750,000 barrels a day coming from Ecopetrol, does that assume that the approval process in Colombia improves or are you taking into account the relatively slow approval process in Colombia, and therefore your ambitions for your production are reduced as a result?

Nathan, this is your first question?

Yes, that's my first question and then the second question just in --.

Okay, no, it's okay.

In terms of the first questions, what is important to mention is that I also have already mentioned in the Spanish version that we practically have the approval of all the permits to allow us to reach the goal for 2013.

And in terms of the exportation, we have right now several permits awarded and some of them under profit.

But in terms of the production, could have say that we are practically ready.

Would you say the approval process has now improved?

Have you seen a material improvement in the --?

Yes, yes.

And the speed of approvals and being able to progress?

Yes, definitely believe that we are getting a better answer in terms of the times and also of the discussions and the process with the national environmental authority.

So, you have water handling approval for Castilla for instance?

You can increase the water handling there?

Yes, yes.

We have the approval for the Castilla also.

Okay, thank you.

And then, just quickly onto the second question if I may very quickly --..

But anyway, its -- I want to be absolutely clear, we have the approvals for production, but we still have some of the permits under process for the exploration activity.

We have some ready, but some of them are still under processing.

Crystal clear, thank you.

And second quick question, given the relatively limited reserves growth this year, and also your relatively low reserves life index compared to other majors, are you considering acquisitions to accelerate your reserves growth position?

Hi, Nathan.

This is Enrique Velasquez.

Hi.

I would like to complement the answer from Mr. Gutierrez regarding the Castilla, that's in approval, it was awarded last year December 2012.

Regarding your second question, as you are aware in our [C] plan, inorganic growth is considered.

So, maybe not in the short term, but it is considered in the medium term depending on the results in the organic operations.

See the space as too expensive?

Or do you see better opportunity than your own portfolio?

I would say both.

I mean we are monitoring any new business opportunity and inorganic arenas.

Okay, and then maybe an absolutely final question, it should be a quick one.

In terms of equity financing and whether you go back to the international markets to I guess broaden your shareholder base.

What approximately timing would there be on that and should we assume that it's not going to happen in 2013?

In terms of going to the shareholders?

Yes.

Definitely no.

That's clear.

Thank you very much.

Thank you.

We have Paula Kovarsky from Itau BBA.

Please, go ahead.

It seems that we're having audio difficulties, Paula, can you please state your question?

Yes, I would like to go back to the question on the reserves addition.

You mentioned the achievements of growing reserve since 2007, but if we think about the target of adding 6 billion barrels in 2020, which are required to support the production growth targets, the Company is, I'd say lagging a little bit behind, so I would like to understand how comfortable you are with that target of 6 billion and -- where do you think those reserves may come from, are you comfortable with the current level of reserves addition?

If you could give us a little bit more color on that?

And the second question relates to the extraordinary dividend paid to the government.

Is this supposed to be a practice?

Do you expect this to continue happening?

Is there any additional dividend to be paid this year or next year that we should expect?

Hi, Paula.

Let me begin with the last -- with your last question.

What is important to mention that up to now, our board of directors haven't discussed about the proposal to the general assembly.

It's going to be decided in the next board of directors.

And in addition -- what excuse me, what is important to precise is that the extra dividend is not only to the government, it's for all shareholders, but the difference is that it was paid to the rest of the shareholders in one payment in one installment in April this year.

But of the government has been paid through several installments.

Okay?

So, it's important to mention and we haven't had yet a proposal, we have a board of director [regents] in the next days that is going to take the decision about the proposal to the general assembly and the times you are going to know about what is the proposal.

Thank you.

Enrique is taking the question about the reserves.

Hi, Paula, regarding your question how confident is Ecopetrol regarding to achieve the goal.

I would like to make some comments.

First of all, the 252 million barrels added during the year 2012 are calculating using fake rules, which means that that does not include royalties.

Okay?

Second comment that I would like to do is that reserve addition for the period 2011 to 2020 of 6.2 billion includes royalties.

So, the reserve addition, including royalties for the year 2012 was 330 million barrels.

Okay?

And for the period of say for 2011 was 408 million.

That means that in total we have added about 740 million barrels out of the 6.2 billion.

So, in that sense, you can see why Ecopetrol is still are very confident to reach the goal.

And by the way, the goal for that period of time has not been changed.

Does that answer your question, Paula?

Yes, thank you.

Thank you.

We have Christian Audi from Santander online with a question.

Please, go ahead.

Hi, good afternoon, guys.

This is actually [Vicente].

I have basically two questions here, first we saw that some costs increased during this quarter.

You were wondering what is recurring level of EBITDA margin we can expect looking forward.

What were the nonrecurring costs during this quarter and should we see them repeating themselves in the next quarter?

And then, the second question is after the modernization of Reficar is concluded and how much doe the Company expect to increase its levels of profitability?

Thank you.

Alberto Vargas is taking the question about the cost increase.

Hello, Christian.

Well, let's -- yes, let's get this way.

The total increasing costs for this year were like [circa] COP4 billion.

Now from those COP4 billion, almost 70% are related to viable costs.

Meaning that are driven by higher volume and higher price.

Now, if we go to the fixed costs, which is the oil part of this increase, which is circa COP1.5 billion, main reasons are higher maintenance costs due to higher sediment and water that we found for the Rubiales and Quifa fields.

Then oil points are our integrity plan that we are developing during 2012 and that we are going to continue developing during 2013 and 2014.

Additionally, we got a kind of a cyclical overhaul cost in our refineries and our facilities for production.

Now, in terms of what is recurring and what is non recurring.

We expected to still maintain our integrity plans for at least two additional years and in terms of maintenance, we are depending on the order or the public order situation.

Okay, Christian, about the second question, with respect to Reficar and its profitability after the project, it's important to mention that the modernization projects will improve the margin in the refinery base mainly in a more economical crude, increasing the conversion factor and the production of high quality products.

Those factors on the weak international cracks would improve the margins in more than $10 per barrel, but is important to have in mind that these numbers depend largely on the behavior of price differentials in the international market, but we expect gross margins increased in more than $10 in the refinery.

Additional these -- that number converted into EBITDA will be more than $800 million per year for that refinery.

(Inaudible - foreign language) Gustavo Gattass from BTG.

Please go ahead.

Thanks, guys.

I have two questions.

I'm actually going to follow up on one of the reserves questions as well.

If I could, I would start just with the dividend as well and the sustainability.

I just wanted to understand, and I understand that the dividend hasn't been set yet for this year, but if we look at 2012, paying the COP300 has effectively led to an increase in the net debt of about $4 billion.

I just wanted to understand are you guys comfortable with letting the net debt increase a lot just to have a stronger dividend, or is cash flow neutrality on the dividend something that matters to Ecopetrol?

That's question number one.

Question number two, I just really wanted to t touch base on the reserve additions with a particular focus on improved recovery.

The impression we get is that improved recovery had a big contribution -- well, 2009 and 2010, and it is a very, very large part of what you guys have to 2020 and there really hasn't been that much.

So, I just wanted to understand, is there anything missing here or is some concept that still has to be proved?

Is there reason for such a sluggish, I would say, increase on the improved recovery part of things?

[Felipe] (inaudible) is taking the answer in relations with the dividends sustainability.

Good afternoon, Gustavo.

Regarding to your first question, it is important to clarify that the indebtedness of Ecopetrol didn't raise during 2012.

The indebtedness that the [Group Impersarial] got last year was to our affiliate Reficar.

And regarding to the second part of the question, we are confident -- not only confident, but comfortable with our level -- our levels of indebtedness, our indicators of the indebtedness against EBITDA.

Still are among the strongest in the -- among the peers in the market.

Is that good to your question?

Gustavo?

Hello?

Did you hear the question, Gustavo?

Yes, no I did, for some reason I was cut off for a little while.

But even when I look at Ecopetrol SA, if I adjusted for the unpaid dividends at the end of the year.

So if I think balance sheet in January, I would have had an increase.

I just want to understand if you guys are comfortable with that - letting that increase happen every year?

In any cast, Gustavo, the levels of the indebtedness that Ecopetrol maintains are still the limits.

We have calculated and estimated.

We haven't envisaged any risk of problems ahead.

We have our financial plan very well designed.

We have a lot of sources, not only in Colombia, but a growth to grow the cash we have.

Still we still maintain a strong cash generation within the Company.

So, we are confident with that.

Okay.

But simply complementing Juan Felipe.

It is important to clarify that we didn't have any increase of indebtedness during 2012.

No, not at all.

We didn't -- and we didn't go to the market for new -- yes, Ecopetrol SA.

Yes, importantly to clarify properly, the figure you have seen is the reserve we have at the end of each year of a particular 2012 in order to pay the last installment to our main shareholder, which is the state of Colombia, which is around COP4 billion.

Okay.

Gustavo, regarding your first question, I would like to explain to you that where injection plays an important role in the reserve edition, what happens is you are aware where the injection is in a medium term results, so we will see the results in the medium term.

But also, I would like to mention that there's some EOR pilots which we are conducting currently for instance, chemicals in San Francisco, Dina [Kay Ontario Fields], located in the upper Magdalena Valley.

Also the in situ combustion which we are running pilots in the [Chichimene] and Quifa fields and maybe just for your reference, when I mentioned the right injection, maybe the most outstanding projects are Chichimene and -- in a PI in Llanos and [Janito], Bonanza, and Provincia oils fields located in the middle Magdalena Valley.

Are those already being implemented?

The real question here is, if those are being implemented, why aren't we seeing some kind of an impact on the reserves already?

That's the issue.

Yes.

Since we mentioned that that pilots, so we are in the process to see the results.

For instance, let's talk about the Chichimene and Quifa, in spite of we are, at this moment, in the air injection and maybe very close to ignite their formation.

The results we have seen in -- before the next 12, 14 month.

Okay, so it takes time.

Yes, yes, Gustavo.

Thank you, guys.

The next question comes from Fernando Valle from Citi.

Please, go ahead.

Hi, guys.

Good afternoon.

Thanks for the call.

My first question was on CENIT.

Just wanted to understand what we can expect from cost increases after you consolidate the -- all the transportation properties into CENIT.

How will that impact your costs on transportation?

And the second question was on CapEx.

I noticed that over the past two years you've had a much higher CapEx in the fourth quarter than in the remaining quarters.

So I just wanted to understand what's the phenomena that leads to that higher CapEx.

And that's it.

Thank you.

Good afternoon, Fernando.

This is Alberto Vargas.

Let's take first our question about CENIT.

What can we expect in cost in transportation after the consolidation?

Well, in general, after their consolidation, just because of this transaction, the impact on cost is going to be neutral.

Nevertheless, we have to take into consideration that by doing to these new scheme, transportation tariffs are going to be increased because we're going to enter into the [ministerial] transported tariffs, which is -- which are a little bit -- ministerial [minas] sorry.

Ministerial minas tariffs, which are a little bit higher than that we are quoting now.

But the clarification here is that just because of the transaction impact on P&L is neutral.

Okay, now, why higher CapEx in the fourth quarter versus the rest of the year.

Mainly the reason is that during the fourth quarter we -- basically we had two issues here, we got higher capitalizations on the Janos areas, I mean the Castilla and Chichimene area in terms of production facilities.

But also, we have to take into consideration the issue that during fourth quarter, basically during December we had to recall the valuation study that we received form technical expertise on the market value of our assets.

Is that clear, Fernando?

Yes, thank you.

Thank you.

The next question comes from Matt Portillo from Tudor Pickering.

Please, go ahead.

Good afternoon.

Just a few questions from me on production.

I was wondering if you could provide us an update on where current production is for your bigger fields, including Castilla, Chichimene, and Rubiales on a gross basis, and where you expect that production to average in 2013.

And then I have a second follow up question.

Okay.

Hi Matt, this is Enrique Velasquez.

The current production from our bigger fields are as follows.

Chichimene is around 65,000 barrels, Piedemonte, 22,000 -- I'm rounding the numbers, okay?

Quifa 22,000 barrels per day, Rubiales 115,000 barrels.

San Francisco is 9.7.

Casabe, 28,000 barrels per day.

[Hivaltar] equivalent is around 6,300 barrels per day and finally, Castilla is around 128,000 barrels of oil per day.

Okay, it's important to mention that these figures are Ecopetrol networking interest.

Chichimene and Rubiales, where do you think those will average for 2013?

Is around the numbers that I had already gave you, Chichimene, 65,000 and Rubiales 115,000.

Okay, so you don't see much growth in those fields from here?

Okay, the number is the average year end production and yes, basically the number.

Okay, great.

And then just on the gas side of the story, I was just curious if you could comment at all on how you guys see gas production volumes increasing in 2013?

Yes, Matt.

The gas production from the different fields including Chuchupa in the [norcalls] will increase and also gas coming from [CNX Capoeira] fields, the net increase is around 60 standard cubic feet of gas per day -- 60 million -- 60 million standard cubic feet per day.

It is important to remember that the Capoeira project was completed -- was enter in operation around December 18 with total capacity of 210 cubic -- thousand cubic feet per date and in its initial stage is going to be run at 140,000 cubic feet per day, that is an important increase in terms of debt capacity.

Matt, does that answer your question?

Yes, thank you.

Thank you and now I would like to turn the call back over to Mr. Giraldo for any closing remarks.

Okay, well thank you all for your participation.

For any additional questions, you can contact us at investor relations.

Have a good afternoon.

Bye.

Thank you, ladies and gentlemen, for your participation.

You may now disconnect.