Ecopetrol SA (EC) 2013 Q3 法說會逐字稿

Welcome to the Third Quarter 2013 Ecopetrol SA Earnings Conference Call.

My name is Hilda, 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 note 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 third 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 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.

Today's call will be led by Mr. Gutierrez, CEO of Ecopetrol.

And also participating will be Mr. Hector Manosalva, Executive VP of Exploration and Production, Mr. Pedro Rosales, Executive VP for Downstream, Adriana Echeverri, VP of Growth and Strategy, Diana Calixto, Interim CFO, Rafael Guzman, E&P Technical and Development Vice President, Enrique Velasquez, VP of Exploration, Alberto Vargas, Financial Comptroller, and Thomas Rueda, CFO of Cenit.

I will now turn the call to Mr. Gutierrez.

Thanks, Alejandro.

Good morning to all the participants in today's conference call.

Initially, we will present the milestones of the third quarter of 2013, followed by the highlights by business segment.

Then we will review our financial results and the key internal consolidation initiatives.

After that, we will present the outlook for the fourth quarter of 2013, followed by a Q&A session.

So, let's start with slide five to review our milestones in the third quarter of 2013.

Financial and operational results of the third quarter were very positive and were driven by the increase in production and positive effect of the devaluation of the Colombian peso versus the dollar.

However, we continued facing a challenging environment, mainly due to the restrictions in transportation and blockades affecting the operation of some fields.

I highlight the following results.

In production, we achieved a new record averaging 800,000 barrels equivalent per day, 7.7% higher than in the third quarter of 2012, mainly due to the growth in the Janos region.

Year-to-date production was 791,000 barrels per day.

In exploration, we had one hydrocarbon discovery in the well Guaniniz 1, the fifth in Colombia year-to-date.

With this discovery, the exploratory success in Colombia of the corporate group is 83%.

Regarding transport, we completed the line field of Oleoducto Bicentenario.

And continued working in increasing capacity of other pipelines.

In refining, we have bonds in the modernization projects of Cartagena and Barrancabermeja.

The financial results were the best of the past six quarters, with an increase in net income and EBITDA, driven by the rise in production and the devaluation of the exchange rate, along with stable hydrocarbon prices.

Other important events were the bond offerings by which we raised close to COP5.6 trillion.

These offerings took place in the local and international markets in favorable terms in spite of the volatility of the market, high remark the over-subscription and the 30-year channels both locally and abroad.

Furthermore, for a third straight year we have been included in the Dow Jones Sustainability World Index.

And we are one of the top 10% companies with the best sustainability performance in the index.

To conclude, I want to emphasizes my satisfaction with the results of the quarter and the commitment with our shareholders to carry out the strategic plan up to year 2020.

Please move to slide seven to review our CapEx in the first nine months of 2013.

CapEx for the first nine months of 2013 amounted to $4.96 billion.

In production resources were allocated mainly for drilling activities and workovers.

In subsidiaries, funds were mainly allocated to the modernization project of the Cartagena refinery and in transport, primarily to the San Fernando-Monterrey Pipeline.

Now I turn the conference to Enrique Velasquez who will comment about the main results of our exploration and production segment.

Please let's move on the next slide which summarizes the highlights of exploration.

In the third quarter, we reported one hydrocarbon discovery at the Guainiz 1 well located on block CPO-10, in which Ecopetrol has 100% interest.

This well is the third discovery in the CPO-10 block, and Ecopetrol's fourth in Colombia in the year 2013.

These four finds, plus the well, Canario South 1 from Hocol, brought Ecopetrol's Group success rate of 83% in Colombia during the year 2013.

In the third quarter, Ecopetrol drilled two wide cuts, five stratigraphic wells, and eight appraisal wells.

At the end of the quarter, the exploratory well, Goliat 1 and the strat test Estracasu-3 and Iwana 1 were being drilled.

Hocol drilled two strat tests and one appraisal well during the third quarter.

In the US Gulf of Mexico, the well, Odd Job, operated by ENI, and in which Ecopetrol has a 20% of interest, was completed and is under evaluation.

On the other hand, by the end of the quarter, the following exploratory wells were being drilled.

Deep Nansen operated by Anadarko and Madagascar operated by Marathon Oil.

Furthermore, in Peru exploratory well Colan 2X was being drilled by Savia.

Now, let's move to the next slide which summarizes the highlights for production.

In the third quarter of the year 2013, the corporate Ecopetrol production reached a new record of 800,000 barrels of Equion oil per day.

This is a 7.7% increase compared with the same period by of the year 2012.

For the nine first months of the year 2013, the corporate group achieved a gross production of close to 791,000 barrels of oil equivalent per day.

The production growth was led mainly by the increase in Chichimene and Apiay fields operated by Ecopetrol, as well as Rubiales and Quifa fields operated by partners.

Now, in the next slide, we will review the main results for the midstream segment.

Thank you.

In the third quarter of 2013, the transported volumes increased by 3.2% versus the same quarter in 2012, reaching 1,138,000 barrels per day.

Oil pipeline transportation increased by 4% versus the same quarter in 2012, mainly due to volumes in the Ayacucho-Covenas system and the increased capacity in Oleoducto Colombia from 195,000 to 236,000 barrels per day.

Out of the total volumes transported, approximately 78% belonged to Ecopetrol.

Transportation of refined products remain stable versus the same period last year.

Out of the total volumes transported, approximately 44% belonged to Ecopetrol.

Also during the third quarter, the line field of Oleoducto Bicentenario was completed.

And this system is now ready to start operations.

Additionally, in line with our growth plans, we highlight the capacity increase in Oleoducto Transandino by 25,000 barrels per day, which brings its total capacity to 85,000 barrels per day.

Finally, we would like to mention the fact that since the third quarter, it is possible to move products from Pozos Colorado to [Sevastopol without the need to enter the Barrancabermeja refinery.

With this, I hand over to Pedro Rosales who will comment on the downstream results.

Please go to slide 11.

In the third quarter of 2013, the throughput of Barrancabermeja refinery was 18,600 barrels per day, less than in the same period of 2012.

Around 10,000 barrels per day by lower availability of light crudes as a result of some restrictions in the pipeline network.

Additionally, in September 16 began the revamp of crude unit 250, which reduces the throughput to 185,000 barrels per day during the time of the turnaround.

The throughput of Cartagena refinery decreased by 17,600 barrels per day.

Nine thousand were due to lower availability of crude with the quality required by the refinery and the balance as the result of the maintenance of the crude unit made in August.

In Barrancabermeja refinery, gross margin for the third quarter of 2013 was $3.70 per barrel lower than the figure for the same period of 2012 due to lower international crack spreads.

Because of the higher amount of heavy crudes, the yields of gasoline and diesel were reduced.

Gross margin of Cartagena refinery also declined $6.10 per barrel due to the shutdown of cracking and (inaudible) breaking units since August 30 in order to perform the revamp of the cracking unit, which will be part of the new refinery.

Regarding our major projects.

At the end of the third quarter of 2013, the modernization of the Barrancabermeja refinery reached 17% progress.

The National Environmental Licensing Authority approved the environmental plan for the project on September 18, which allows us to update the (inaudible) case.

On September 16, we began the revamp of the crude unit 250 and scheduled turnaround plan for 84 days.

Meanwhile, the utilities master plan completed 75% progress.

The expansion and modernization of Cartagena refinery reached 83% progress, where the construction, which began in October 2011, has an advance of 57.6%.

Let's see slide 12 to review the results of the supplier marketing area.

Our sales increased by 71,000 barrels per day between the third quarter of 2012 and the same period in 2013, due mainly to higher availability of crude oil and gas for both domestic and export sales.

The increase in domestic sales was also driven by higher demand of fuels.

Our crude oil exports grew by 29,000 barrels per day.

And gas exports in 10,000 equivalent barrels per day as the result of increased production.

Fuel oil exports gross in 7,000 barrels per day because a higher production at Barrancabermeja refinery due to the processing of heavier crude oil.

Also international price of heavy crudes strengthened during this quarter.

The price of our crude basket was stable due to lower crude prices for the local sales whose share has increased this year.

That behavior reflects the weakening of the international index of fuel oil, which is the index for crudes sold in the local market.

During this quarter, the reference for our international sales was Brent with 68% followed by Maya index with 32%.

The main destination of our crude exports was the US Gulf Coast.

However, the sales to Asia increased by delivering 34% of the exports of crude oil and 41% of products, mainly fuel oil.

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

Thanks, Pedro.

Please, let's turn to slide 14.

The financial results of the third quarter were the best of the past six quarters.

Our total revenues rose 14% when compared with the third quarter of 2012, mainly due to a higher sales volume and the positive effect of the devaluation of the exchange rate.

Sales price remained relatively stable, with a slight drop in the average crude oil basket price as a result of a higher volume sold in the local market linked to fuel oil index that weakened in the third quarter.

Now, let's turn to slide 15 to review the main financial results in the third quarter of 2013.

As you can see, our operational income, net income and EBITDA increased compared with the second quarter of this year and the third quarter of 2012 as the result of a solid growth in revenues and stabilization in the growth of the cost of sales.

In spite of this, there was a reduction in our returns owing to first, the increasing cash coming from the bond placement that will support future investments.

And the second, the close in the equity due to a higher surplus which start under the equity effort on standard investment.

Now, let's turn to the next slide to review in detail the profit and loss statement of Ecopetrol.

As previously mentioned, our revenues grew 14% during the third quarter, thanks to a larger volume sold and the favorable impact of the devaluation of the exchange rate on exports.

Regarding costs, variable costs rose by 19% compared with the same quarter of 2012, mainly due to first, the implementation of the new profit model in the transportation segment.

Second, increasing [tropped] volumes of diluent and heavy crude.

Third, greater imports of fuels to supply the local market during the turnarounds of the refineries and to replenish the strategic storage levels.

And fourth, higher costs or amortization and depletion due to higher petroleum investment in Rubiales, Chichime, Castilla and Quifa fields.

On the other hand, fixed costs rose 8% due to the increase in first, leasing technology and surveillance contracted services.

Second, services in association contracts, primarily in Quifa and Rubiales fields because of greater subsoil activity, increasing staff and the leasing of injection and environmental monitoring equipment.

Third, labor costs due to the growth of staff for operations and the regular increase in wages in force since July 2013.

Fourth, the charge coming from the recent tax reform starting January 2013, by which the value-added tax paid on the production of gasoline and diesel is no longer deductible and is now booked as a higher cost.

Regarding the operating expenses, there was a decrease compared with the third quarter of 2012 due to lower expenses in provisions and the withdrawal of the provision accrued for the Aguazul Tauramena lawsuit giving the favorable ruling for the Company.

Operating income amount to COP5.5 trillion in the third quarter of this year, equivalent to an operating margin of 34%.

The non-operating results recorded a gain of COP527 billion, mainly due to the recovery of provisions related with healthcare for retirees and the recognition of surplus on fixed assets inventory and write-offs of previous years.

The increase in income tax expenditure in third quarter 2013, compared to the same quarter of 2012, is mainly due to the increase in the operational income and to the effect of the credit tax.

Thus, the tax provision was registered at a rate of 34% in the third quarter of this year, compared with 31% in the third quarter of 2012.

The accumulated effective tax rate as of September of 2013 was 35%.

Finally, the net income amounted to COP3.97 trillion, equivalent to a net margin of 25%.

EBITDA was COP8.2 trillion, equivalent to an EBITDA margin of 50.4%.

On the next slide, number 17, we present Ecopetrol's cash flow and balance sheet as of September 30, 2013.

The initial cash balance of the third quarter was COP4.2 trillion.

Internal cash generation and other sources added COP22.6 trillion that funded the operation, the CapEx and the payment of the second installment of ordinary dividends to the Colombian government.

The ending balance of cash and cash investment was COP10.4 trillion.

Regarding our indebtedness, during the third quarter we raised funds by means of bonds offerings, both in the local and in the international markets.

With these operations, the ratio of debt to 12-month EBITDA reached 0.42.

On the next slide, number 18, we summarize the results of the bond offerings of the third quarter.

Ecopetrol carried out two successful bond offerings amounting to close to COP5.6 trillion.

In Colombia, we issued COP900 billion denominated CPI index bonds with 5, 10, 15 and 30 years tranches.

Oversubscription amounted to COP1.92 trillion.

Internationally, we issued bonds for $2.5 billion in tranches of 5, 10, and 30 years, with an oversubscription of $11.98 billion.

These offerings are a strong evidence on the investor confidence in Ecopetrol's performance and strategy.

Now, let's move to the next slide to see the main financial results of the corporate group in the third quarter of 2013.

Revenues of the corporate group amounted to COP18.1 trillion, with a net income of COP3.9 trillion.

EBITDA was COP8 trillion and EBITDA margin was 44%.

Subsidiaries of the transport segment improved, in particular Ocensa and ODC that operated as profit centers for the entire third quarter.

In refining, Reficar raised the losses owing to decreased sales costs by the shutdown at the crude and viscosity reduction plant in the month of August.

And of the cracker unit in the month of September.

In exploration and production, Hocol and Equion reduced its net income in the third quarter due the declining of their production.

The higher revenues, without eliminations, came from Reficar, followed by Cenit and Ocensa.

The higher EBITDA net of non-controlling interest came from Ocensa, followed by Cenit and Hocol.

The higher net income was reported by Ocensa, Cenit and Equion.

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

Thank you.

Please go to the next slide.

The accident frequency rate in the third quarter of 2013 was 0.50 accidents per million working hours, 23% lower than in the same quarter of last year, an unaccumulated of 0.75.

Despite this reduction, we sadly recall the death on August 30 of Mr. Tobias Franco, a worker at Cartagena refinery.

Finally, during the third quarter of 2013, we received two patents for refining process.

One in Colombia and one in China, and a total of seven patents in year 2013.

Now, we will present the outlook for the fourth quarter of 2013.

Please go the next slide.

In exploration, 14 exploratory wells will be drilled, 8 from Ecopetrol and 4 from Hocol, all of them in Colombia and 2 in the US Gulf of Mexico, as well as 5 strat tests.

We also expect to announce the commerciality in the Cano Sur and Akacias blocks.

Regarding production, we will have additional treatment facilities in Castilla and Chichimene fields.

And will receive the approval of the Environmental Management Plan in Mid-Magdalena.

Furthermore, we will start testing polymers injection at the San Francisco fields and will begin the construction of facilities.

And receive first deliveries of equipment for the air injection pilot at the Chichimene field.

In refining, we expect to achieve approximately 70% progress in the construction phase of the modernization project of Cartagena and complete the revamping of the U-250 unit crude in the Barrancabermeja refinery.

Regarding transportation, the capacity of the Apiay-Monterrey pipeline will increase by 60,000 barrels per day.

Additionally, we will launch an integrity program for Cano Limon-Covenas pipeline in order to enhance its operational reliability.

In summary, in spite of difficulties, we expect to move forward at a good pace in order to accomplish the goals of this year.

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

Thank you.

(Operator instructions).

The first question comes from Frank McGann from Bank of America.

Hello.

Good day.

Thank you.

Just two questions.

One on the transportation, the costs, I was wondering if you had more trucking in the third quarter with the OBC pipeline coming on stream, should that lead to, potentially, a reduction in your overall costs in the fourth quarter and through 2014?

And then looking out in terms of production for 2014 and 2015, I was wondering if you could go through the key areas that you think will be driving production growth there and help you get to the goals that you've set?

Thank you.

Good morning, Frank.

Can you repeat the first question, please?

Yes.

In terms of -- just with the OBC pipeline coming on stream, I was just wondering, would it have any -- help you reduce costs versus what you were seeing in the third quarter or earlier, as a result of potentially lower cost pipeline capacity versus trucking?

Okay.

Thank you.

Thomas Rueda taking the answer.

Thomas from Cenit.

Please, Thomas.

Frank, good morning.

That's a very good question.

The outlook in the short term is that costs are not going to go down as a result of additional capacity in Bicentenario, as you know, the line still has been completed.

However, we're facing some challenges, operational challenges to start up the operation.

In the longer term, the trend will be to use more of our transportation systems and less of the trucking, which is one of the things we're trying to achieve.

This is going to take a while as different users of capacity start using our systems and start using less of the trucking capacity in the country.

Can I just ask what types of operational issues that you've encountered?

We're having more than operational issues.

I'll rephrase that.

It's security reasons that we're facing right now.

The pipeline, the Bicentenario pipeline, as such, is ready to start.

The line fill is ready.

All the project deliverables that should be in place are now in place.

However, we're facing some issues regarding the connection to the Cano Limon-Covenas line.

We're working at the highest levels of the government in order to ensure that we're going to get all the support to fix that.

But of course, that's something that is the highest priority on our agenda right now.

I would like to complement Thomas' comments about the whole strategy we are structuring, not only including the security aspects but different strategies trying to practically assure the reliability of the Cano Limon-Covenas pipeline, trying to reduce the impacts of the attacks to the infrastructure.

This is our first priority.

But as Thomas mentioned, we are not only working with the authorities, the army force, but also how different things in the social, also in terms of communications, in terms of the relations, in terms of other conditions that create like a special environment to have the best conditions for the operations of the Cano Limon-Covenas pipeline.

This is what we can comment in relation with the Bicentenario and its connection with the Cano Limon-Covenas.

The main drivers to the production 2015 -- Rafael Guzman -- is taking the answer, Frank.

Yes.

Good morning, Frank.

We have several options to increase our production from now until 2015.

The most important ones are Castilla and Chichimene.

Castilla, we plan to take that from our current level of production of 120,000 to 170,000 200,000 barrels a day.

Chichimene, which is currently close to 60,000, will go up to 100,000 by 2015.

In addition to that, we have up to 25 enhanced oil recovery project, which are mostly water injection with polymers also.

And to give you a number, we have seven pilots that will be completed this year.

In addition to that, we also have two fields that will go into commerciality.

We're currently reviewing that commerciality.

And we have development also for 2015, which are Cano-Sur and Akacias.

An additional field, which is operated by a partner, is Quifa.

Again, we will see significant production increase in that field.

So those are the main key options to increase our production.

Okay.

Have you determined what the potential peek production could potentially be at Akacias and Cano-Sur.

No.

That's something we're currently reviewing.

And will be deciding on the commerciality and development plan.

But both fields will be close to 25,000 barrels each of production.

Okay.

Thank you very much.

Thank you.

Our next question comes from Paula Kovarsky from Itau.

Please go ahead.

Hi, guys.

Good afternoon.

I have two questions.

The first one, we read in the local press that there was a debate about the structure for the full prices pass through whereby the executive would no longer be responsible for that.

And the policy or the decision, the process would all be transferred to Congress.

Could you perhaps comment on what's going on and if there's any issue regarding delays in pass through, or anything that could offer any risk to Ecopetrol?

So this would be my first question.

And the second question about the, if you could, perhaps, give us some view on the recovery projects?

How much do you expect,for example, the injection pilot in San Francisco, to add in terms production?

And, most importantly, out of the guidance that you mentioned for production growth in Chichimene, how much of this is primary and how much of this is secondary production, secondary recovery?

Sorry.

Okay.

Thank you, Paula.

In relation with fuels policy, Pedro Rosales is going to refer to the issue.

Okay.

Hi, Paula.

Currently, there is a project in the Congress that establish a new initiatives to define the price policy.

As you know, that policy is ruled by the government.

And what is currently in discussion is that a project that says that the fuel prices shall depend on production costs without taking into account the cost opportunity for Ecopetrol to sell at volumes of crude or refined products.

The current cost of gasoline and diesel production here in Ecopetrol with the available infrastructure and refineries is very similar to the price that Ecopetrol receives from the current price policy.

That is export parity applying a production cost methodology to establish that price.

Ecopetrol will now have an incentive to develop initiatives for having a more efficient refining business.

But at the respect, the government has a position to maintain the actual policies.

And Ecopetrol has been providing the information analyses to the national government for the purpose of building a better understanding of the subject and a better assessment of impact, not only in Ecopetrol but through the nation.

Then we expect that the debates goes in the Congress.

But our expectation is that the actual policy is maintained in the future.

And what about the approval process?

Is there any change?

I mean for the mechanism that you have today, is there a risk that the mechanism also has to every quarter be approved?

Any such change?

Any risk on a change in the process itself assuming the policy is maintained?

No.

Not any change.

And this is an initiative that comes from the Congress, but does not necessarily means that it's going to be approved implied changes.

Up to now, we haven't had any changes.

Okay.

Okay.

Perfect.

Thank you.

Rafael Guzman is going to refer to the recovery projects.

Please.

Yes.

For year 2015, we plan to add 34,000 barrels of oil equivalent due to enhanced recovery project.

For the specific case of Chichimene, we're currently developing our pilot.

We have initiated construction of facilities to do the pilot.

However, for 2015, the project will not contribute to production increase.

The production increase will come mostly from water injection and vapor injection.

The main fields for which we have increases, Casabe around 10,000 barrels, La Cira Infantas another 5,000, and Provencia [Renata], these two fields in the middle Magdalena valley will add another 5,000.

In specific, the ones in San Francisco, the polymer product will add close to 3,000 barrels per day.

The remaining 11,000 barrels per day to reach our 34,000 goal will come from vapor injection in the middle Magdalena Valley in several fields we have.

Okay.

And do you include any gain from Star in your 2015 target?

Or if you could perhaps comment on how do you see the debate about the implementation of that technology in the Rubiales field regarding eventual negotiations that you might be having with the operator?

Okay.

There are several issues there.

Several points.

We're currently doing the pilot project in Star in the Quifa field.

We do not expect significant production in 2015 from this pilot either.

Production from air injection, both in Chichimene and possibly Quifa, are far down the road in 2017, 2018.

Now, the status of the Quifa Star project we're currently deciding together with our partner how long will it take for us to gather sufficient data to make analysis and make a decision on it.

And no decision has been made at the moment.

The same for Rubiales.

At the moment, there is no decision on any EOR project for Rubiales.

Okay.

Thank you.

Thank you.

Our next question comes from Colin Smith from VTB Capital.

Thank you for taking my questions.

I've got two.

If you look at the disclosed segment reporting, the E&P earnings actually fell sequentially despite about a 3% increase in production, and a pretty significant increase in the oil price.

And I wondered if you could just comment on that and what that may mean for the sort of margin structure going forward?

And my second question is just on the CapEx numbers.

At the start of the year, you had a CapEx plan of just over $9.5 billion.

And you spent just under $5 billion at the name on the stage.

So you're a long way short of the CapEx plan.

And I just wonder if you could comment about why that's been happening and what a realistic year-end number might look like?

Thank you.

Okay.

Colin, in relation with the exploration and productions earnings and segment information, Alberto Vargas is taking the answer.

Hello, Colin.

Thanks for the question.

Yes.

Indeed, despite our production increase, we experimented a failing in earnings 3%.

And that's two factors mainly led to these results.

First, we got increase in maintenance costs.

And this is related to our integrity program.

And second, the tax reform hit us in terms of the VAT.

Let's recall that now, the VAT that is paid when producing gasoline and other products are not longer deductible.

And that is causing us that hit, mainly.

And does the VAT problem actually manifest itself back in the E&P division?

I thought that was something that affected refining and petrochemicals.

All the products.

You know, not only gasolines but all the petrochemicals, most of them.

The VAT paid is not longer deductible now.

But that wouldn't affect crude sales, would it?

Or does it?

Crude sales?

No.

Not affecting crude sales, but increasing costs, you know.

Okay.

I mean it sounds like that's going to be sort of ongoing pressure on the margin.

Is that fair?

That's very common, yes.

Sure.

Okay.

And on the CapEx question?

Yes.

And about the CapEx, Adriana, please, your comments.

Thank you, Colin.

The thing is that we have certain technicalities in our CapEx execution every year.

If you take a look to history, you will find that the first quarters of the year are, let's say, a little bit lower than the latest two of every year.

Particularly in the fourth quarter, you see all the concentration of CapEx execution.

However, as you can see on slide seven of the presentation, there's been kind of a gain of speed in terms of execution for us, with respect to what happened in the previous years.

It is important to notice, anyway, that you are comparing the numbers maybe that are not in the correct way.

Because the base for the CapEx expenditures is $8 billion, which is the portion corresponding to Ecopetrol, not over the $9.5 billion, which includes all the corporate group, which is a different number.

Okay.

So the CapEx breakdown is just for Ecopetrol SA.

It's not for the consolidated group?

Correct.

The one that you find over there on slide number seven, it's only Ecopetrol.

And in the figures of Ecopetrol, it is also important to mention that it includes our own investments in our own projects.

But also our contributions to the projects of the affiliates.

For example, maybe the most important is our contribution to the Cartagena modernization project developed by Reficar that is really significant.

Okay.

Thank you.

Okay.

Thank you, Colin.

Thank you.

Our next question comes from Gustavo Gattass from BTG.

Please go ahead.

Hi guys.

I had a couple of questions.

The first one is would it be possible to talk a little bit about how you're seeing the possibility of having the Akacias and Cano Sur declaration of commerciality this year?

From some of the things that were said during this call, I got the impression that that was being revised in some way.

Just wanted to make sure that there is a chance to have it in 2013 still.

The second thing that I would love to hear a little bit more on is is it possible for you to talk about how the startup of Bicentenario might impact the EBITDA generation of the logistics business?

Just to give us a little bit of a ball park figure of what the rates there imply for EBITDA in your own mindsets?

Thank you, Gustavo.

In relation with the commercialities of Akacias and Cano Sur, Enrique Velasquez is going to refer to the issue.

Please.

Hi, Gustavo.

Good morning.

Regarding the Akacias and Cano Sur commercialities, the plan is ongoing and we plan to declare commerciality for both fields by maybe the next three weeks.

So we are in pretty good shape.

We feel pretty comfortable with the numbers.

And so we are completing our internal revisions.

But for sure, both will be declared this year.

Okay.

And as you expect, we are in the process to complete all the documents for the approval of the commercialities.

Thomas Rueda is going to refer to the EBITDA and the Bicentenario impact.

Gustavo, thank you for your question.

As of the impact of Bicentenario, there's certain things we can comment about.

First thing is it's going to be an impact on a positive way for Ecopetrol as it provides additional capacity to the Group.

It's going to be 120,000 barrels, and Ecopetrol has an important stake of that.

As you know and as we said before, we're facing some issues regarding the connection of the system to the Cano Limon-Covenas system.

We are connected operationally.

We're fine.

But we're facing some security issues that we're working on and it's very high up in our agenda.

As for your question regarding EBITDA, you know, I would prefer not to go into details in terms of what impact it's going to have in 2013.

And that relates to the previous point I made where we're facing vast uncertainties regarding startup of that project.

It's going to be income for Cenit.

And that income is going to be distributed back to Ecopetrol as an affiliate, 100% affiliate ownership in Cenit.

Again, it is an important EBITDA generator.

The reason why I'm not commenting on a number is because the uncertainty is so high.

The system is ready to operate.

And it's very high up in our numbers for 2014 and the expectation is very high.

I hope that answers your question.

Yes.

Thomas, if it's not uncomfortable for you guys or if it's not strategic, would it be possible to give us an idea of how much that asset can produce just on a 12-month basis, independent on when it starts or not?

If it was running for a full year, how much would it be?

I can't --

If I could just ask a follow-up as well for (inaudible).

If you submit the documents in three weeks, can you still make them into reserves for year-end, or is that too late?

That would be just the two follow-ups.

Sorry about that, guys.

That's fine, Gustavo.

The impact is on a full-year basis.

You could say for the transportation segment, it has an impact of 6% on the EBITDA.

You know, it goes from 34% to 40%, if this project was to run the entire year.

So it is important, and, hence, why we're having it so up in our agenda.

Perfect.

Thank you, Gustavo.

Gustavo, on this question, yes we will add reserves coming from Akacias and Cano Sur commerciality.

By the way, in the Africas for next year, as we already are current with the numbers, okay?

Perfect.

Thank you very much.

Okay.

Thank you.

Thank you.

Our next question comes from Ken Carvajal from JP Morgan.

Hi.

Good morning.

I have two questions here.

One of them is [running] to first exploration.

We can see that there was two exploratory wells drilled this quarter.

And we can see year-to-date it's six on Ecopetrol with additional two in Hocol.

Total eight.

It seems to me a kind of a little exploration activity.

My question on that sense would be what are the reasoning [Perry] a more aggressive drilling company.

Are it related to environmental permits or is it related to lack of confirmed proof where the well (inaudible) has already been taken?

The second question would be on the Bicentenario again.

I think we've already touched on this topic.

But I would like to understand how are levels attacked this quarter in the Cano Limon?

And is there any strategy the Company can do to avoid having this same problems in the OBC pipeline?

And that's more a qualitative side question.

I'm sorry if you've already answered that today.

Thank you.

In Exploration, Enrique, please.

Hi, Kenny.

Good morning.

You're right.

The total number of wells drilled so far actually is nine, not eight.

Two of Hocol, six from Ecopetrol and one for Ecopetrol America Inc.

Also, as you are aware, we have already five discoveries in the year.

You know, it's not really a delay in drilling.

It's a couple of factors.

One is, you are aware, in the Janos area there is a seasonal component.

I mean we drill in the summertime.

And is why we expect to drill in the fourth quarter another 15 wells in order to complete a total of 24 wells in the year.

On the other hand, some of our [metal] license with our water.

But we cannot be able to drill the wells with those license.

But, in general, you're right.

We are, let's say, a little delayed, a little behind our goals.

Having in mind that the goal for the year was 33.

And we will complete 24.

Do you need more information, [Kayo]?

(Inaudible).

The main reason for these delay are the permits?

Or any type of operational issue, equipment or something?

No, no, no.

As I mentioned, at the beginning of the year, we were waiting for some of our metal license, but we got them already, but anyway these delay a little.

Other factors, as I mentioned before, is because seasonal activities in the Janos mainly.

And we have to drill during the summertime, which is right now is starting.

So we feel comfortable to drill at least 50 wells as a group in the rest of the year.

Okay.

Thank you.

[Kayo], in terms of the Bicentenario, your question regarding the Bicentenario pipeline and the number of attacks and finally how we are mitigating this impact, I would like to comment that the number this year has been quite high.

We calculate around 58 attacks on the Cano Limon system.

What are we doing about it?

We have, as Dr. Gutierrez was saying before, an entire strategy which covers the Army and all social aspects that we can think about that will help us mitigate this impact.

On the other side, we also have several operational options that we're looking at that we had on the table before, starting with operation Bicentenario because, certainly, we knew that it was not going to be an easy task.

Those operational options are several.

We have the option of going, using different routes.

Of course, it's not the optimum thing to do.

But we are not going to keep our hands in our pockets.

And we will develop as time goes by more and more options.

Finally, the option to very quickly try to recover production is also something we're focusing on.

So all these things put together are minimizing, as much as we can, the impact of these attacks.

And additionally, maybe what is maybe more important to understand is if you observe how much has been up to now impact in the production of the attacks to the Cano Limon-Covenas is around 8,300 barrels per day.

If you compare with our total production, 8,200 per day, it represents 1%.

This is basically the impact that we have been having in terms of the production.

And additionally, it is important to mention that in terms of the Bicentenario pipeline itself, as part of our experience, we have implemented several mechanisms in terms of the construction and in terms of the security of the pipeline, trying to avoid and make more difficult the impact of the attacks in the infrastructure.

And additionally, in terms of the tranche of Cano Limon-Covenas through the Arauca and Catatumbo region, as we mentioned before, and as also Thomas referred, we are implementing several other strategies with the Army force, with the government, with the authorities, including several aspects.

And we are reliable that those strategies would allow us to give a good level of reliability in terms of the operations of the Cano Limon-Covenas.

Okay, great.

Many thanks.

Thank you.

At this moment, we will close our question-and-answer session.

I would like to turn the meeting back over to Mr. Giraldo for any closing remarks.

Okay.

Well, thank you all for your participation.

For any follow-up calls, you can contact us at Investor Relations.

And have a good day.

Bye.

Ladies and gentlemen, this concludes today's conference.

We thank you for participating.

You may now disconnect.