Ecopetrol SA (EC) 2013 Q1 法說會逐字稿

Welcome to the Q1 2013 Ecopetrol SA Earnings Conference Call.

My name is [Sandra] and I will be your operator for today's call.

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

Later we will conduct a question-and-answer session.

Please not that this conference is being recorded.

I will now turn the call over to Mr. Alejandro Giraldo, Investor Relations Officer.

Mr. Giraldo, you may begin.

Good morning, everyone and welcome to Ecopetrol's First Quarter 2013 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 the 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 made by Mr. Javier Gutierrez, CEO of Ecopetrol.

Also participating will be Hector Manosalva, Executive VP of Exploration and Production, Pedro Rosales, Executive VP for Downstream, Adriana Echeverri, CFO, Jaime Bocanegra, acting VP of Transportation and Logistics and Enrique Velasquez, Vice President of Exploration.

I will now turn the call to Mr. Gutierrez.

Thanks, Alejandro.

Good morning to all our participants today.

Initially, we will see the many results of the first quarter followed by the highlights by business segment and a summary of our financial results and internal initiatives.

Finally, we will present the outlook for the second quarter of 2013.

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

So, let's turn to slide five to review our milestones in the first quarter of 2013.

Our performance in the first quarter was in line with our plans.

The group reached a new record in production, averaging 791,000 barrels per day, 6% more than in the first quarter of 2012.

The growth came mainly from Rubiales, Chichimene, Castilla and Quifa fields.

We carried out our exploration activities as planned, resulting in three discoveries in Colombia.

Two from Ecopetrol and one from Hocol.

Also, our US affiliate Ecopetrol America, Inc.

placed the most competitive bids for six blocks in the central planning area Lease Sale 227 in the US Gulf of Mexico.

Regarding our main transport initiatives, the construction of the Oleoducto Bicentenario reported 66% progress.

It is worth to highlight that Ecopetrol completed the transfer of the hydrocarbon transport and logistics assets to its wholly owned subsidiary, Cenit in our main refining projects, Cartagena ended the first quarter with a 79.4% progress, while Barrancabermeja reached a 50% progress.

Regarding our shareholders, on March 21st, we hosted our annual meeting with an attendance of more than 13,000 people.

Moving to HSE, the accident frequency index, in the first quarter of 2013 was lower than in the same quarter of last year.

Finally, Fitch upgraded the outlook of our credit rating from stable to positive.

Please move on to slide Seven to review our CapEx in the first quarter of 2013.

CapEx deployed in the first quarter of 2013 amounted to $1.5 billion, allocated as follows, 48% to production due to the approval of more environmental licenses, mainly in Castilla and Rubiales fields, 34% to affiliates and subsidiaries as a result of the approval of resources for the modernization project of the Cartagena refinery, 10% to transport to be used for the Oleoductor Bicentenario and San Fernando Monterrey projects, 4% to exploration, 3% to refining and petrochemical and 1% to others.

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

Let's start by exploration results.

In the first quarter, we had three discoveries in Colombia, [Belus, Pasaniqua and Canadiaseur].

The first two drilled by Ecopetrol and the third one drilled by Hocol.

In addition, two struck oils drilled by Ecopetrol had [a recovering shales, Segua and Siersa].

These findings are located in the (inaudible) region.

We also continue building our international exploration portfolio.

Our subsidiary Ecopetrol America Inc.

submitted the most competitive bid for six blocks in the lease sale, 227 in the Gulf of Mexico.

Ecopetrol America, Inc.

partnered with Murphy Exploration in two blocks with Anadarko, MCX and JX Nippon Oil Restoration in two blocks and in the remaining two blocks with 100% interest.

Now, please turn to slide number nine to review production results.

In the first quarter of the year 2015, gross average production of Ecopetrol as a group had up a new record for 791,000 barrels of oil equivalent per day.

The rise was driven primarily by the increase in the following fields, 21,000 barrels in Rubiales, 12,000 barrels in Chichimene, 11,000 barrels in Castilla and 5,000 barrels per day in Quifa.

Lets more now to the financial results of the EMP segment.

In the first quarter of the year 2015, the revenues of the segment decreased 11% compared with the first quarter of the year 2012.

Due to the reduction of the international crude oil prices, [counting] a drop of [13%] in the exported crude oil [batka] price.

On the other hand, operating costs increased mainly due to larger volumes of water to be treated, especially in Rubiales field and higher costs of steam injection in the middle Magdalena oil fields.

Therefore, for this quarter, the net income amounted to COP3.5 trillion and the EBITDA 6.5 trillion pesos.

Now, Jaime Bocanegra will comment on midstream results.

Thanks, Enrique.

First, the review our operational results.

In the first quarter of 2013, total transfer volume rose to 1.25 million barrels per day, a 2.5% increase compared with the first quarter of 2012 as a result of a higher volume of heavy oil moved through the pipelines mainly from the Llanos region.

We carry out many expansion project, including the increase of 40,000 barrels per day in [API] Monterrey and of 30,000 barrels per day in [bosconia covenia's] pipeline.

Also, capacity of the [Troglory] facility at Ayacucho increased by 10,000 barrels per day.

The construction of the phase one of Oleoducto Bicentenario reached a 66% progress at the end of the first quarter and we expect to start [buying] fuel by next June.

As of April 1st, 2013, Ecopetrol completed the transfer of hydrocarbon transfer and logistic assets to Cenit.

The total assets transfer are valued at COP13.6 trillion.

Additionally, starting April 1st, Cenit began its operation under the new business model by which Ecopetrol will continue to operate the transport infrastructure and Cenit will allocate and plan capacity requirements to the oil companies in Colombia.

Please move now to slide 12 to provide more detail on Cenit.

As mentioned, Cenit will perform hydrocarbon transport activities pursuant to transport agreements with oil producer and distributor in Colombia, including Ecopetrol.

Ecopetrol will be responsible for the operation, maintenance, emergency response and risk management, as well as project management.

Cenit will provide Ecopetrol with comparative service for the transport, storage, loading and unloading of hydrocarbons assuring the capacity to meet each transportation needs.

With the incorporation of Cenit, we will assure clear rules and transparency to the market by separating Ecopetrol's role as owner, planner, operating and new set of transportation systems.

Cenit will operate with an open model, allowing third parties access to transportation infrastructure.

Fee for the use of the infrastructure are established by the ministry of mines and energy to all users.

With the new scheme, Ecopetrol has shift from a cost sharing model to a profit center model.

Now, let's review the financial results of the segment.

During the first quarters of 2013, an increase in the earnings of the segment was generated due to the growth in the production of crude in the Llanos region compared to the same period in 2012.

Also, the variable costs were reduced mainly due to the lower charges in the consumption of crudes in the third parties stations.

The activities [address] to assure the integrity of the transportation systems to prevent damage to the infrastructure generate an increased in the fixed costs particularly in maintenance and contract services.

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

Thanks, Jaime.

Please go to slide 14.

In the first quarter of 2013, there was an increase in Barrancabermeja refinery throughput due to a higher operational availability because of lower maintenance activity than those carried out during first quarter last year.

Cartagena throughput also increased when compared with the first quarter of 2012 when there was less availability of light crude oil.

Gross margin in Barrancabermeja in the first quarter of 2013 increased significantly compared with the same period of 2012, due to the lower costs of crude oil and better international prices for gasoline and diesel which were 65% of the total production of the refinery?

Similar behavior was observed in Cartagena, but in lower proportion, taking into account its configuration, less flexible than that of Barrancabermeja refinery.

Regarding the main refining projects at the end of the first quarter of 2013, the modernization of the Barrancabermeja refinery reached 15% progress and the utilities master plan 67%.

In addition, the Cartagena refinery modernization and expansion plan reached 79.4% progress as follows.

Detail engineering 99.9%.

Procurement 97.9%, module fabrication 100% and construction which began in October 2011, 44.7%.

It is worth mentioning that the construction weekly progress in 2013 has doubled when compared to 2012.

Let's move onto the financial results of the refining segment.

In the first quarter, the segment had an EBITDA of COP261 billion, higher than in the same period last year, and in line with a higher gross refining margin observed.

Despite good operational results, we generated a net loss of COP157 billion, due mainly to losses in verticals.

Now please turn to slide 16 to review the sales and marketing results.

Total sales volume increased in 14,000 barrels per day between the first quarter of 2013 and 2012, mainly due to higher sales to the free trade zone and more local sales of crude oil for branding of bunkers.

Our exports fell 2.6% due to less availability of [Cania Lemon], Magdalena and Bosconia crude oil and a reduction in deliveries of natural gas due to the increased demand from power generators in Colombia.

The prices of the export basket of crude and produces decreased compared with the first quarter of 2012, in line with the international market trends, driven by the uncertainty on the economic recovery of Europe and lower demand of crude oil from US refineries.

The main destination of our crude oil exports was US, followed by the Far East and Central America.

In the last 12 months, the share of the Far East rose from 20% to 36% becoming an increasingly important market of our heavy crudes.

Regarding crude pricing, during the first quarter of 2013, oil export basket was preferenced 62% to Brent, 37% to [Maia] and 1% to other benchmarks.

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

Thanks, Pedro.

Please, let's turn to slide 18.

Despite of the higher volumes sold, total sales went down 4% in the first quarter of 2013 when compared with that same period of 2012, mainly due to the lower average prices of crude oil and products of 5.7%.

At the end of the first quarter of this year, close to 2 million barrels of crude oil exported to India were in transit and around 1 million barrels were being loaded in our export port.

All those will be worked in our sales for the second quarter of this year.

Let's turn to slide 19, where we will review the main financial results in the first quarter of this year.

As mentioned, our revenues were lower than those in the first quarter of 2012, mainly due to the decrease in sale prices.

Regarding costs, variable charges rose mainly due to the following factors.

First, we had a higher cost of transportation services as a result of the implementation of the tariffs set by the ministry of mines and energy for [Sensa] pipeline, given the new profit center model for transportation.

Second, the rising volumes of imported products, mainly diesel and gasoline.

And third, we had a larger cost of amortization and depletion due to higher capitalizations in production.

Fixed costs also increased due to the following activities from our operations, first we had higher maintenance of the transportation infrastructure as part of the integrated plans that began in 2012 and that will continue until year 2016, as well as the maintenance of the (inaudible) artificial lifting systems in Chichimene and Castilla fields.

Second, in the last quarters we have been a rising contract of services because of grades to soil activity, water volumes management in higher volume sediment and water, primarily at the Rubiales and Quifa fields.

Third, there was an additional negative effect coming from the recent tax reform in Colombia, by which gathering diesel and asphalt and now exempt from value added tax, causing that VAT paid of those fuels not to be deductible for income tax as before and now therefore has to be accounted at the higher costs.

And fourth, higher labor costs due to the increase in headcount retaining for re-merchants and the regular increase of salary, effective from July the 1st of 2012.

Regarding the operating expenses, there was a decrease when compared with the first quarter of 2012.

This was due mainly to allow provision for pension liabilities and less exploration and product expenses.

This offset the higher cost of agreements for infrastructure protection ad surveillance.

Consequently, operating income amounted to COP5.7 trillion in the first quarter of this year, equivalent to an operating margin of 38.5%.

The non operating result improved mainly due to a reduction of COP409 billion in the exchange rate loss in the first quarter of 2013.

This effect was partially offset by first, the lower result of the subsidiary accounted under the equity metric amounted to COP154 billion in the first quarter of 2013, compared to 444 billion in the first quarter of the last year.

And second, a decline in the net financial income due to lower returns on back deposits and higher interest expenses, compared to the first quarter of last year.

The lower tax expense is explained mainly by the decline in the net income in the first quarter of this year, compared with the first quarter of 2012.

Accordingly, net income amounted to COP3.5 trillion, accrual into a net margin of 24%.

EBITDA was COP6.9 trillion, equivalent to an EBITDA margin of 47%.

Let's move to slide number 20.

Here we present the company's cash flow in balance sheet as of the end of March of this year.

The initial cash balance was COP10.7 trillion, internal cash generation and other sources debt COP15 trillion that funded the operation, the CapEx and the payment of the third installment of the 2011 ordinary dividend and the extraordinary dividend to [a nation].

So the ending balance of cash and cash investments was COP8.6 trillion.

The indebtedness during this year remains low with a 12 month debt to EBITDA ratio of 0.21.

As previously mentioned, in the first quarter of the year, Fitch ratings confirmed our local and international ratings at triple B and triple B minus respectively, and improved the outlook of Ecopetrol from stable to positive, after the upgrading the outlook of the republic of Colombia.

In addition, Moody's confirmed our BBA2 rating with outlook stable.

On slide number 21, we find an overview of the financial results of the corporate group.

In the first quarter of 2013, group's net income amounted to COP3.4 trillion and EBITDA was COP7.4 trillion, while EBITDA margin was 44%.

EBITDA decreased mainly as a result of lower revenues of the group in the first quarter of 2013.

In general terms, affiliate turned subsidiaries from the MPM refining reduced their net results.

Among transportation companies (inaudible) have begun to operate it under the new profit center model, starting the first quarter of this year.

The higher revenues without eliminations came from Reficar with COP1,938 billion pesos, followed by Hocol with COP771 billion and Ocensa with COP467 billion.

The higher EBITDA native non controlling interest came from Ocensa with COP270 billion, followed by Hocol with COP200 billion and Equion with COP94 billion.

The higher net income, net of non controlling interest came from Ocensa with COP174 billion, Hocol with COP91 billion and ODL with COP37 billion.

On the other hand, the higher losses were reported by Reficar with COP118 billion and Ecopetrol America Inc.

with COP51 billion.

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, Adrianna.

Please go to slide 23.

The accident frequency rate in the first quarter of 2013 was 0.98 accidents per million working hours compared with 1.03 in the first quarter of 2012.

We also reduced the number of environmental incidents from operational causes, falling from six in the first quarter of 2012, to four in the same quarter of 2013.

Regarding our shareholders, on March 21st we hosted our annual meeting with an attendance of more than 13,000 people.

The key decisions of the meeting were, first, the approval of a dividend of COP291 per share, which was paid in one installment to the minority shareholders starting on April 15th.

Second, the approval of the 2012 unconsolidated and consolidated financial statements.

Third, Price Waterhouse Coopers was appointed as external auditor for our 12 month period.

And fourth, the members of the board of directors were reelected for a new 12 month period.

Now, please go to slide 25 to present the outlook for the second quarter of 2013.

In exploration, our activities are summarized as follows.

First, we are going to drill four A3 wells, three of them by Ecopetrol and one by Hocol.

Second, we are going to drill three A1 wells, two of them in Colombia and one in the United States Gulf Coast.

And third, we are going to drill four estratigraphic wells, two of them by Ecopetrol and the reminder by Hocol.

In production, we plan to keep up the pace of growth led by Castilla, Chichimene, Rubiales, Quifa, [Perimonte] and [Lacida Infantas] fields.

In addition, we're going to increase the capacity of the fluids treatment facilities in Chichimene in 40 million barrels.

Finally, we're going to request the licenses to dispose 1.2 million barrels per day in Castilla and to inject 1 million barrels per day in Rubiales.

In refining, we plan to keep up the construction pace in the Cartagena refinery achieved during the first quarter.

Meanwhile that Barrancabermeja refinery, we are insuring the proper preparation for the revamping of the -- you 250 crude unit scale the third quarter and we're going to implement a technology to reduce carbon emissions.

In transportation, we expect to start line field in (inaudible) in June and begin its operations by July.

In summary, we will keep up the dynamic of the first quarter, reaching key milestones and moving forward at a good pace in our key projects in order to accomplish the goals set for the year.

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

Thank you.

(Operator Instructions).

And the first question is from Paula Kovarsky from Itau BBA, please go ahead.

Hi guys, good morning.

I have two questions.

The first one regarding production and indeed this quarter you guys managed to post a significant increase over last quarter and over the first quarter of 2012.

So, I would like to understand how does that feed into the target for this year?

Are you -- I mean are you confident that the targets for this year is achievable.

What would be the main milestones?

And still regarding the main fields, Castilla, Chichimene, Rubiales, Quifa, Perimonte and Lacida, especially here, perhaps concentrating more on the ones that are 100% operated by Ecopetrol.

If you would provide us a little bit of an update on what's going on with the initiatives to improve recoveries factors in those field and how do you expect those initiatives to affect both production and reserves additions this year?

Thank you Paula.

I would like to make a comment in relations with the production target.

We keep our level of 798,000 barrels per day as our goal for this year and Enrique is going to refer in detail to the participation of the main fiends in addition, what are we looking in terms of the reserve addition.

Please, Enrique?

Hi, Paula.

Good morning.

We feel pretty confident that we'll be able to achieve production in the [italia] during the rest of the year.

So, we really not expect any changed.

Regarding your question about the in fields, how they will behave, I can give you some numbers which explain in detail the main goals that we expect to achieve by the end of year.

Okay.

For instance Rubiales, we expect to reach an amount of 210,000 barrels gross production, okay?

And Castilla, 140,000, Chichimene 60,000, Quifa 55,000, [Casabe] 28,000 Lacida Infantas 38,000.

So, you can see, we expect to keep running the oil fields as we expected.

So, I mentioned before, not any big changes we expected for the rest of the year, okay?

Okay, but regarding the second part of the question, which relates to Ecopetrol's initiatives to improve recovery factors in the main fields, could you perhaps gives us a bit of an update on how things are evolving in -- especially in Castilla, Chichimene, and then Perimonte and Lacida.

So, what's the current recovery factor in those fields and what are Ecopetrol expectations in terms of how much more can you get in terms of recovery factors from those fields?

Okay, Paula, let's put it in this way.

We continue running some piles.

For instance, we will run chemicals in San Francisco, [Dina Ontario].

As you are aware, we are running, at this moment, in [C2] combustion pilot in Chichimene and Quifa.

For water injection we will run some pilots in Chichimene, [Janito, Apiaye, Bonanca and Provincia].

So, in other words, we continue ...

This is steam, right?

This last one is steam?

(Inaudible) in the short to midterm and the long term, and of course the (inaudible) that I mentioned before.

Also, I would like to give you an update while going on in the some [POR] pilots.

For instance, in Chichimene, the status we are -- we expect to inject air by December of this year.

Okay?

And in Quifa, as you are aware, on February of this year, we started the air injection.

We expect results for these activities maybe in the next let's say 12 months.

And in order -- another task to increase our recovery factor is to continue our infield drilling in -- which will complete around 742 wells this year.

Okay, and -- okay, but you don't have a price yet?

Or perhaps going to share with us what's the -- the level of recovery that you have today and how much do you expect to achieve?

The number, Paula, by the end of the year is about 18%, 1.0%.

Okay.

This is today, right?

Yes.

And is there a target for the future?

Paula, as a general guidance, we are considering in our strategic plan going from 18%, the current number to 34% in 2020.

This is the ...

Okay.

The general guidance of the recovery factor for -- the different initiatives we are undertaking right now.

Okay.

Going from 18% to 34%.

Okay, thank you so much.

Thank you.

And the next question is from Bruno Montanari from Morgan Stanley.

Please go ahead.

Hi, good morning.

Thanks for taking the questions.

So, looking at your crude basket, the Brent reference had been on a consistent average of 75% but decline out to 62% in the first quarter.

What was the driver of this step change and what would be the trend for the basket going forward?

And also, if you would comment on the expectation for crude differential levels of [Vasconia] versus Brent or WTI in the near term future, it would be great.

Thank you.

Thank you, Bruno.

Pedro Rosales is referring to your question.

Okay Bruno good morning.

About our basket, we are -- we are seeing a movement in our destinations moving to Asia, the Brent is about 62% of our total basket, and what we expect is to continue moving to the exports for Asia.

We are seeing that in -- in the US there are more production and less space for our crudes and what we expect is the similar trend about the differential between our basket and Brent around $8 or $9 of discount of our baskets about Brent benchmark.

All right thank you.

Just so -- just to confirm you do not expect branch to go above 7% in the future again?

No, it could be but really we are moving about the market trend and the -- what we expect is to continue moving around the number that we have now, but is not a definite position because it consider the situation of the market in the -- for our experts.

Okay, perfect.

Thank you very much.

Thank you.

The next question is from Gustavo Gattass from BTG.

Please go ahead.

Hi, guys.

I have a couple questions.

The first one was I think much more for Adriana, I just wanted to have a view on CapEx.

If I'm not mistaken, the guidance for CapEx this year was for about COP9.6 billion.

First quarter was COP1.5 billion.

I just wanted to have an understanding from you guys if you are seeing the possibility of spending less during 2013 than before?

So that's the first one.

The second one, as well for Adriana, very quick one, I just wanted to understand on the VAT change, the $27 million hit that you had because of -- because of the rules, I just wanted to understand if that's already a full quarter figure and whether or not let's say that increases in pace in the future.

And if I could, just the last one, we saw the refining results being stronger this quarter, but you also changed a little bit of the accounting, moving the sales and marketing into refining and into ENP.

I just want to have an understanding, should we be expecting because of this move of sales and marketing, a stronger base for refining results for the future or is that going to be somewhat erratic?

Thank you.

Thank you Gustavo.

Adriana's taking the answer.

Thank you, Gustavo.

Regarding the CapEx.

What you see here is the result for the first quarter of the year.

But if you take a look to the -- the general behavior of CapEx of Ecopetrol throughout the years, you find that the first quarter of the year is usually the one that presents the less of the execution.

Why?

Because this is the first quarter when we are making the contracts and elaborating all the things to be put the contracting strategy in place.

No?

But you know here is annually that we have to do that.

So, that's why.

Anyway, what you see in this case is that we are improving our CapEx execution year by year, and in this quarter, we executed COP1.4 billion, almost [COP1.5 billion] while last year it was COP1.1 billion only.

So, that's more or less the general behavior in what happened this special quarter.

On your second question, which is the VAT.

Let's remember that I guess it was December 28th of last year that Congress issued a new tax reform that happens very frequently in Colombia, almost yearly.

So, one of the most important things that happened to us was the VAT change for gasoline and diesel.

But remember that there's been kind of a discussion on the composition of the price internally of crude oil, of gasoline and diesel, and people is kind of making [show ups] and things like that.

So, that's why they decided to make gasoline and diesel VAT exempt.

But for us, that are the producers, it has a different effect.

Why?

Because when you have a VAT in the production of certain items, whatever it is, in this case, gasoline and diesel, you then can discount that from your income tax.

So in this case, if they make that exempt, that means that you have not that discount.

The total effect that we are forecasting for the full year is COP157 billion, which means for -- that for each one of the quarters, if we make kind of a normalization it could be around COP40 billion per quarter.

So, in our case, that's material but not that material as we expected at the very beginning when they were going to make exempt many other products and not only gasoline and diesel.

So that's for the part of the VAT explanation.

And in terms of the segment and refining result, because of the elimination of the trading and commercialization segment, what we did was trying to make some changes in the last year or year and half in the company, trying to make that more -- look like more this kind of companies that are integrated where the conversation trading activities are addressed to make that a service for the production in the refining segment.

So, in this case, for the particular case of refining it has o effect.

I can send you the effect of the -- before the elimination of the segment and right after, we can post it in our website for you to have the difference.

So, it's mainly nothing in terms of -- in terms of margins or anything like that.

The effect will be see -- will be seen -- or is now seen in the production segment.

Since they are now taking the account of certain things that we're not let's say allocated to that segment when the commercialization segment existed, so, that's why you find a decrease in the EBITDA margin for productions.

But in the case of refining, there is no effect.

Okay, perfect.

Thank you Adriana.

Thank you.

The next question is from [Aniche Caparilla] from TPH.

Please go ahead.

Hi, good afternoon.

I'd -- question is first of all on your improved recovery plan.

It seems to me in 20F that your plan is to spend $35 billion to increase your reserves by 3.5 -- 3.4 billion barrels.

So implies CapEx per barrel of only $10 for the improved recovery.

I was wondering if you could give some details about the cost to barrel that you expect for the different improved recovery techniques.

So, in field drilling, water injection, the insitu combustion.

If you could just kind of break that down.

And then, related to that.

I was just wondering if you could give what your base decline is on your existing assets and then out of your 2015 production target, how much of that target comes from EOR projects or exploration?

Thank you.

(Inaudible) the answers.

Hi, Aniche.

Let me explain one by one.

The first one, you will like to know the cost per barrel and these varying methods hat we are using in our recovery factor.

Let me give you let's say in [a lumbers] for instance in field drilling, the cost is around $8 to $10.

For well injection, it's around $10 to $12.

And [special] recovery is about $25, more or less.

Okay?

This is your first question.

Second question, is a (inaudible) your question Aniche?

Yes so the second question was if you could give, what's the underlying decline rate of your existing assets?

So of your proved reserve base, what would you say the underlying decline rates are?

And then, within your -- within your 2015 production target, how much of that target comes from exploration and how much of that comes from improved recovery.

Okay, for our existing assets, base decline is around 25%.

Okay?

On a -- for the -- for the goal for the year 2015, let me give you some also ranges in which we expect to meet the goal.

For instance, let's start by production and let's start it by current fields.

For instance, Castilla, we expect to between 150 to 170.

Rubiales, 110 to 125.

Chichimene, 55 to 75.

[Casave] 25 to 35.

[Lacida], 25 to 30.

In exploration as a second part of the -- of the breakdown of the figures, let's put it this way, at [Casias] field, we expected between 10 to 20,000.

At [Canyoseur] 10 to 20 and Quifa, 5 to 10.

On conventional we still work, you know, dealing with the numbers.

We can say 5 to 10, but as you know, we are adjusting up our assets in stages.

Okay?

Also, a contribution for the subsidiaries, it could be something between Ecopetrol America Inc., between 5 to 10, Hocol, 30 to 35, Equion, 20 to 25 and [Savia], let's say 7,000 to 12,000 barrels equivalent per day.

I mean, so I don't know you - I mean let's say -- you see that the numbers is around 1 million, which is our goal for 2015.

I don't know that these numbers, Aniche, you feel comfortable with that.

Yes, so just -- just thinking about those numbers so your kind of current number in 2013 is about 800,000 barrels a day.

I'm just --I'm struggling to see where -- where the kind of 200,000 barrels a day of incremental production comes from.

Most of -- there's a bit of growth in the big fields, but it doesn't seem to add up to anywhere near -- to 200,000 barrels a day.

Yes, you're right.

The main fields, Castilla, Chichimene, and Rubiales would be the responsible for the lets say the big numbers.

And so there's a lots of growth that's kind of implied for new exploration.

Is that what it suggests?

Yes, I mean the -- as I mentioned before, the number is 60 to 70 and in those numbers are include not just Quifa and Castillas, but also discoveries completed by the Ecopetrol as well as Hocol, subsidiary.

Right.

Okay.

Thank you.

Just one so -- very quick follow up question.

On Cenit, is there any plans to sell down a stake in that IPO or bring it public?

Aniche, right now our plans is to continue with 100% of the charge in the hands of Ecopetrol.

Right, thank you.

Thank you, the next question is from Colin Smith from VTB Capital.

Please, go ahead.

Hi, good afternoon, thanks for taking my question.

Just on the balance sheet, on my numbers, your debt to total cap went to just under 11%, which was about a 3% deterioration from the end of the year.

We're obviously got all prices down.

I think you said you were planning to push CapEx up.

I mean, what's your feeling about the way the balance sheets developing?

It's clearly underleveraged by the moment, but its actually the gearing is growing quite rapidly?

That's my question.

Colin, thank you.

Excuse me, can you repeat the question, Colin, please?

Yes, on my -- on my calculations for the consolidated group, net debt total capital went to 10.8%, and that's up about 3% from the beginning of the year.

So from the end of last year.

And you were running quite heavily -- quite heavily cash flow negative in the quarter and obviously while that's not the big number, it's a number that has been growing -- that is the level of gearing has been growing fairly consistently through the course of last year and I just wondered how you felt about that.

Hello, Colin.

Yes.

Just remember that what you have here in the presentation on slide number 20, that's the general balance sheet of Ecopetrol.

Right?

So it doesn't have the consolidated debt for that total -- it's a corporate group.

In addition to Ecopetrol's debt, that it's already remarking in the -- in the press release, you'll find our indebtedness that is going to be increased this year heavily as you can see.

We expect to initiate the withdrawals from Eximbank facility and -- but when we take that into account and also we are expecting to go to a local market for bonds in that -- some other internal financing for our local requirements.

In terms of the consolidated debt of the group.

The most important debt is coming from Reficar.

Let's remember that they have at least $3.5 billion coming from a US acting back financing also that was granted last year and that which is -- was granted in 2011 and which is worth in the main portion last year in 2012.

This year there is a little withdrawal from that, Eximbank financing over Reficar, but that's the big number.

The second number comes from Bicentenario pipeline.

They have a debt of around $600 million also.

Those are the big numbers that are consolidating currently with the debt of Ecopetrol.

Okay, on a quick follow on is -- should we expect to see the quarterly contribution from Cenit look pretty like the number that we are seeing in transport, or is that going to change?

It would be a change that you will see next quarter, because ending the first quarter March 31st, you see there the transportation segment which is still being held by that time by Ecopetrol.

But since Cenit started operating from last April the 1st, it means that by the end of June the 3rd, the next quarter, you will see the consolidated results for transportation segment, which will be Cenit in fact, that Cenit.

The cash coming from Cenit will be in the form of dividends that are going to be declared if everything goes well next year and will be paid next year in a proportion that goes along with how the investments are going and the cash flow needs that we have and etc.

So, we currently do not have a number for dividends of Cenit for year 2014, but for this year, what you will see starting June 30th of this year, in terms of the transportation segment will be the operation of Cenit.

So you'll fully consolidate the financials for Cenit, but the cash flow will represent the dividends to be paid and you get those next year?

Is that right?

They have the result as a company, the final result, the net income, I believe and [day] after that, as every company does, secured the dividend for next year.

Okay, thank you.

In addition, maybe it is important to mention that Cenit is conform not only with Ecopetrol's transportation assets, but maybe more important are the participation of Ecopetrol groups in companies like Ocensa, (inaudible) Colombia.

Cenit has concentrated all of our participation in the transportation assets, not only the assets, but also as capital participations and as Adriana mentioned it is important to remember that Cenit began its commercial operation in the first April recently and just we are having the results of the first month of its commercial operation.

Thank you.

I will now turn the call over to Alejandro Giraldo for closing remarks.

Thank you all for your participation.

For any additional questions, you can contact us at investor relations and have a good day.

Bye.

Thank you ladies and gentlemen, this concludes today's conference.

Thank you for participating, you may now disconnect.