Ecopetrol SA (EC) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Ecopetrol SA first quarter of 2015 earnings conference call. At this time, all participants are in a listen-only mode. We will have a question and answer session later on, and instructions will follow at that time. (Operator instructions.) As a reminder, this conference is being recorded.

Now I would like to welcome our host for today's conference, Ms. Maria Catalina Escobar, head of Corporate Finance and Investor Relations.

Good morning, everyone, and welcome to Ecopetrol's first quarter earnings conference call and webcast.

Before we begin, it is important to mention that the comments by Ecopetrol's senior management in this call can 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 shared on the conference call.

The call will be led by Mr. Juan Carlos Echeverry, CEO of Ecopetrol, and other participants include Hector Manosalva, Vice President of Development and Production; Pedro Rosales, Vice President of Refining and Processes; Adriana Echeverri, Vice President of Growth and Strategy; Magda Manosalva, CFO; Max Torres, Vice President of Exploration; Rafael Guzman, Technical Vice President; Bernardo Castro, Interim Vice President of Commercial and Marketing; Alberto Vargas, Financial Controller; and Thomas Rueda, CEO of Cenit.

We will begin the presentation with the main achievements of the first quarter, followed by the highlights by business segment and the financial results on a consolidated basis under International Finance Reporting Standards, or IFRS. We will close with the outlook for the second quarter of the year 2015.

I will now turn the call to Mr. Juan Carlos Echeverry, CEO of Ecopetrol.

Thank you, Maria Catalina. Good afternoon to you all.

As you know, I became CEO of Ecopetrol on April 6th, so I've been in charge of the Company for a little over a month. I would like to begin this session by mentioning two elements that had a profound impact on our results in the first quarter of 2015; on the one hand, the price of crude oil and, on the other one, the behavior of the exchange rate.

The price of crude oil was particularly low as a result of the structural imbalances between the global supply and demand and OPEC's decision not to reduce its production levels, as you all know. In fact, Brent and Maya crudes, the main export benchmarks for Ecopetrol, fell around 50%, affecting the Company's revenues.

Coupled with this, the Colombian peso underwent a sharper devaluation against the US dollar since the end of 2014, from approximately COP2,180 per dollar in the last quarter of 2014 to COP2,480 in the first quarter of 2015.

This depreciation of the exchange rate had two different effects on the Company's financial statements. One, a positive effect, given that most of our operational revenue is dollar denominated while many of our operational expenditures are peso denominated; and two, an adverse effect in the nonoperational line due to our net liability position in the balance sheet, meaning the difference between our liabilities and assets in dollars.

Let's go to the next slide to see the Company's main achievements in the first quarter of 2015. Despite the weakening of crude oil prices in the first quarter of 2015, the Group showed positive financial results thanks to solid operating performance and a significant improvement in the environment for operations.

Production levels grew during four consecutive quarters, obtaining an average of 773,000 barrels of oil equivalent per day. This is 1% more production compared to the first quarter and the fourth quarter of 2014.

This increase was possible because of the startup of facilities and new wells in the fields Castilla and Chichimene, both of which set production records of 124,000 and 85,000 barrels per day respectively.

Our 2015 offshore exploration campaign was launched with the Kronos and Calasu wells located in the southern part of the Colombian Caribbean, operated in partnership by Anadarko with a 15% stake for Ecopetrol. Additionally, we reported our first geological success this year in the Bullerengue 1 well located in the lower Magdalena Valley in Colombia.

Amid the current low oil pricing era, the gross refining margin of the Barrancabermeja refinery continued performing well in the first quarter of 2015, reaching $18.20 per barrel, an improvement of 12% compared with the first quarter of 2014 and of 16% compared with the fourth quarter of 2014.

We are now finalizing the modernization of the Cartagena refinery. By the first quarter of 2015, we reached 97% of the progress in this project. And in the pre-commissioning and commissioning activities, we achieved close to 30% advancement.

In transport, volumes moved by the different pipelines increased by 6% between the first quarter of 2015 and the same quarter of 2014, and 3.3% compared to the last quarter of last year.

This was the result of enhanced security conditions due to lower number of attacks on our pipelines. There were two in the first quarter of 2015 versus 35 in the first quarter of last year. That allowed for normal operations throughout nearly the entire quarter.

The Group's revenues were substantially affected by the low crude oil prices. Brent crude traded at $46.60 per barrel on January 13th, a level not seen since March in 2009. Revenues went from COP17.9 trillion to COP12.3 trillion, a reduction of COP5.6 trillion.

This decrease was partially offset by an increase in the value of international sales of COP2 trillion due to the devaluation of the exchange rate and, second, a rise in volume sold, which contributed to an additional COP0.2 trillion.

Cost of goods sold declined by 21%, from COP10.8 trillion in the first quarter of 2014 to COP8.6 trillion in the same period of 2015, mainly due to a decrease in the cost of purchases of oil, gas, and products resulting from the lower oil prices and, second, the optimization of maintenance plans and contracted services carried out during the first quarter of 2015.

Other significant impacts in the quarter came from the registration of the wealth tax applicable in 2015 amounting to COP0.6 trillion, which accounts for a large part of the increase in operating expenses; and two, the result of the devaluation of the exchange rate on the Group's financial expenses due to Ecopetrol's net liability position. This led to an expense of COP1.4 trillion in the first quarter of 2015.

In the first quarter of 2015, the Group reported net income of COP0.16 trillion after recording losses in the fourth quarter of 2014. It is important to highlight that, despite this downward price environment, Standard and Poor's maintained Ecopetrol's rating of BBB with a stable outlook in its February review.

Another demonstration of the market's confidence in the Company was the $1.9 billion commercial loan obtained last February from eight banks, a five year facility with a rate of LIBOR plus 140 basis points.

In the first quarter of 2015, we began reporting our consolidated financial statements under International Financial Reporting Standards, which we believe will support the analysis and comparisons of the Group's financial statements.

I would like to turn over the presentation to Rafael Guzman, who will comment on the main production results.

Thank you, Mr. Echeverry. Looking into our development and production results of the quarter, we have a 1% increase in production compared to the first quarter of 2014.

The 773,000 barrels of oil equivalent per day reached during the period is made up of a 0.7% increase in the production of Ecopetrol SA and a 5.8% increase for the subsidiaries. The growth corresponds similarly to an increase of 2.4% if it is compared to the average annual production of the previous year.

The growth in production is a response to the production records in our directly operated fields, Chichimene and Castilla. In the case of the first one, an increase of 69% was achieved during the trimester of this year compared to last year's same period, and again reaching an average production above 80,000 barrels of oil equivalent per day.

Likewise, in the Castilla field, an important increase of 14% over the first quarter of 2014 was achieved; that is, reaching an average production of 118,000 barrels of oil equivalent per day.

We would like to also highlight the production reached on the 6th of March by the field La Cira Infantas. This field produced 40,500 barrels of oil per day, a level not seen since the year 1945 when the field was operated by the Tropical Oil Company.

On behalf of the subsidiaries, the increase was due mainly to the increases reached by Ecopetrol America with the offshore developments in the Gulf of Mexico of the US, and by Equion in Colombia.

Now with regards to the enhanced recovery pilots, during this quarter we started a cyclic solvent nitrogen pilot in the Llanito field. Additionally, we achieved a progress of 73% in the facilities for the air injection pilot in the Chichimene field.

Finally, we would like to highlight that during this period the Board of Directors approved the Integral Electric Energy Plan for the Llanos. This project will allow us to secure the availability of energy for all the fields in the Meta Department and at a more competitive cost than the current ones.

Now Max Torres will comment on the results of exploration.

Thanks, Rafael. During first quarter 2015, one wildcat exploration well was drilled in Colombia by our subsidiary, Hocol, called the Bullerengue 1, located in Sinu-San Jacinto 1 block, and was successfully completed as a gas discovery.

An important highlight, operator Anadarko spudded two wildcat wells in the Colombia Caribbean deep waters, known as Kronos and Calasu in blocks Fuerte Norte and Fuerte Sur. Ecopetrol is a partner with a 50% working interest.

Ecopetrol confirmed the discovery of hydrocarbons in the Nueva Esperanza prospect located in CPO-09 block in the Llanos Basin with the wells Nueva Esperanza 2 and Nueva Esperanza 3.

The significance and volume of this discovery will be confirmed with the drilling of Nueva Esperanza Sur well, where Ecopetrol holds a 55% working interest and Talisman 45%.

Additionally, four appraisal and one stratigraphic wells were drilled.

Now I will leave you with Thomas Rueda, who will comment on the results for midstream.

Thank you, Max. During the first quarter, the transported volumes increased by 73,000 barrels per day, equivalent to 6.1% versus the same period of 2014, reaching 1,274,000 barrels per day.

Crude oil pipe and transportation increased by 7.1% compared to the same period of 2014, mainly due to the increase in the volumes transported through the Cano Limon-Covenas and Transandino pipelines as a result of the lower impact of the attacks against the transportation infrastructure.

Transportation of refined products increased by 2.2% versus the first quarter of 2014, mainly due to the increase in the naphtha volumes transported in the [Process Colores] Galan-Apiay system for heavy crude oil dilution and the increase of the volumes transported through the Cartagena-Barranquilla system, due to product imports through the Cartagena port intended to cover local demand.

Regarding our projects under execution, during the first quarter we continued with the construction of the crude oil storage tanks in Covenas in order to increase the total storage capacity by 1,200,000 barrels, and we have advanced in the San Fernando Monterrey project in order to increase the system capacity to 300,000 barrels per day during the second quarter of 2015.

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

Thanks, Thomas. During the first quarter of 2015, the throughput of the Barrancabermeja refinery increased by 1,600 barrels per day compared with the same period of 2014, due to the availability and operational stability of the process units.

The gross margin of this refinery was $18.20 per barrel, $1.90 higher than the figure of 2014 as a result of higher yields of middle distillates due to the operational stability of the units and process improvements. Additionally, there was a positive effect caused by a higher oil price reduction compared to the decrease in product prices.

At the end of the first quarter of 2015, the expansion and modernization of the Cartagena refinery reached 97.1% progress. Construction activities are focused on closing pending works and reached 97.4% progress.

Regarding pre-commissioning and commissioning activities, with an advance of 29%, nine out of 30 milestones have been completed. In consequence, we expect to have the refinery in full operation during the second half of this year.

Now I turn the presentation to Magda Manosalva, who will comment on the financial results for the period.

Thank you, Pedro. Please go to the next slide to see the financial results for the first quarter.

This quarter, for the first time we reported under IFRS. For the sake of comparison, the financial results of the first quarter of 2014 are also presented under that standard.

As ruled by Law 1314 of 2009, it will be possible to make adjustments until December 31st, 2015, which is the date of full application of the new standard.

Looking at our financial statements, in the first quarter the revenues declined COP8.2 trillion due to the fall of more than 50% in the crude oil prices. This drop was offset by the positive effect of the 23% devaluation of the Colombia peso against the dollar over the value in pesos of both the exports and the transportation services provided to third parties.

In the first quarter of this year, we produced 8,000 barrels more than in the same quarter of 2014. This led to a 1% rise in the volume sold, mainly from gasoline, fuel oil, and crude oil. Thus, we closed the quarter with revenues of COP12.3 trillion, minus 32% in comparison with the first quarter last year.

On the other side, the cost of sales decreased 21%, from COP10.8 trillion to COP8.5 trillion. Variable costs, which represent 75% of the total cost of sales, declined 26%, mainly due to the lower purchase price of crude oil, gas, and products.

This fact compensated the increased cost in this very item by the higher exchange rate over the value of imports and purchases, and by the higher amount of crude oil and gasoline acquired.

Fixed costs went down 1.5%, mainly because of the optimizations achieved in the maintenance plans and contracted services, in line with the initiatives aimed to reduce costs and expenses. As a result of these efforts, we saw a $0.63 per barrel reduction of the lifting cost in the first quarter of the year versus the same quarter one year ago.

The operational expenses show a 53% increase, mainly due to the recording in January of the wealth tax corresponding to year 2015. Even though this tax was applicable in 2014 too, because of the adoption of IFRS that year it was registered in the line adoption for the first time on the opening balance.

Also, exploratory expenses were reduced compared with the first quarter 2014, reflecting our reduced seismic activity and a lower number of dry wells registered.

The financial expenses increased COP1.4 trillion between the first quarter of 2015 and the same period last year, mainly driven by the foreign exchange loss caused primarily by the net liability position of Ecopetrol and by the increase of COP186 billion of interest paid due to the additional debt issued in 2014.

Please go now to the next slide. All of the aforementioned items led to a pre-tax net consolidated income of COP0.8 trillion.

Effective tax rate rose due to the estimation of the current income tax provision based on the presumptive revenue instead of the ordinary liquid revenue. This situation is expected to reverse through the year.

The net income assigned to Ecopetrol's shareholders in the first quarter was COP0.2 trillion. The EBITDA reached COP3.1 trillion, equivalent to an EBITDA margin of 26%.

In the next slide, we will present the savings achieved in the first quarter. Since year 2009, Ecopetrol has been working to make its cost structure more efficient in three key aspects; dilution, fluid treatment, and surface and subsoil maintenance.

We have reported so far savings via contract renegotiations for COP549 billion vis-a-vis COP1 trillion expected for the year 2015. Ecopetrol is engaged in obtaining a structural and sustained savings, supported by world-class efficiency standards. We expect to have our long term savings target set by this second half of 2015.

Pass now to the next slide to see our segment results. The upstream segment reduced its net income by COP3.4 trillion, mainly as a consequence of the plunge in its revenues caused by the decline of crude oil prices. The net income of the segment was negative and amounted to minus COP166 billion in the first quarter of 2015.

On the other hand, despite the improvement in the gross margin, the refining and petrochemical segment exceeded a deterioration of its operational results, due mainly to its proportional part of the wealth tax.

Also, the financial results were injured due to a foreign exchange loss. Finally, the segment reports a COP0.42 billion decline in net income between the first quarter of 2014 and the same period of 2015.

Lastly, the transportation segment increased its revenues due to the higher volumes moved and the positive effect of the peso devaluation over the transport area. The operational results were negatively impacted by the wealth tax, while financial output was positive due to the net asset position of the segment.

The net income remained relatively stable between the first quarter of 2014 and the same quarter this year.

I'll pass now the word to Mr. Juan Carlos Echeverry to present the outlook for the second quarter of 2015.

Thank you, Magda. In this second quarter of 2015, we are focusing our efforts on maintaining profitable, clean, and safe production levels, as seen in the first quarter by the implementation of the planned development campaign of our main fields.

On May 5th, we were granted the development license for the Akacias field in the CPO-9 block, which has a production potential between 30,000 and 50,000 barrels per day.

Also, we expect a water management concession to be granted to Proagrollanos, which will allow us to mitigate the current water handling restrictions of the Rubiales field.

Key exploration initiatives include the drilling of the Sea Eagle well located in the US Gulf of Mexico operated by Murphy, and achieving the results of the Kronos well.

In refining, our priority is to move forward with the modernization of the Cartagena refinery, with the startup of operations of the project's gas powered units.

Once the energy cogeneration unit begins operating in the Barrancabermeja refinery, we will have completed the industrial services master plan, increasing reliability and efficiency levels in that facility.

In transport, we will complete the mechanical works required to increase the Castilla?Monterrey system capacity to 300,000 barrels per day and broaden the hydrostatic testing.

We will continue reporting under International Financial Reporting Standards, making the necessary adjustments in preparation for the final implementation of these standards by December 31st, 2015.

Finally, in this quarter we obtained approvals of our corporate strategy in order to begin implementation.

Thank you all for participating in this conference call. Now I would like to open up the session for the Q&A portion of this conference call.

Thank you. (Operator instructions.) Frank McGann, Bank of America.

I was just wondering if you could discuss the cost trends that you expect to see as you go through the second quarter and the rest of the year. Obviously, with lifting costs particularly, you had a tremendously positive effect from the devaluation. I was wondering how much of that is sustainable and how much you may see begin to be diluted by adjustments to contract prices.

Thank you very much, Frank. There are two types of trends in terms of cost. One is based on interventions that we are undertaking right now, namely changing contracts. We are entering a round of renegotiations of big contracts at Ecopetrol that the subsidiaries have, and that will advance in the upcoming months.

Precise reductions in costs that we have already achieved, I will give Adriana Echeverri the floor to comment on what cost reductions are already in place.

Hi, Frank. We have undergone a series of different initiatives that we have to take into account for this year, given the new oil price.

For the upstream segment, our principal initiatives are dilution of crude oil, you know that is our principal cost; then we have the transportation costs through different initiatives over maintenance and some other services of that segment. Also, we are undergoing certain subsoil and subsurface maintenance initiatives that have, let's say, moderate results.

In addition to that, you know that we are undergoing different other initiatives in other segments such as chemicals and catalyzers for the refineries, energy, which is used for not only upstream but also downstream operations, and then, taking into account all that as well, the renegotiation of contracts, that pressing information, before we expect to have some savings of around at least $500 million for this year for the whole Company.

We have been very successful in these different initiatives, as you see in the variable costs that dropped very, very sharp in this exercise. So, at the end, these cost initiatives and the savings will depend on many different aspects. But, that is more or less the target that we have.

There are also many other initiatives such as drilling and construction of facilities. But, those are not so important in this moment since they depend on the negotiation of future or some other petroleum services and other companies that have not finished the negotiation of the contracts. So, that's what so far we have for now.

Frank, half of that target has already been achieved. So, we are -- and of course we have more than COP6 trillion in contracts this year, so there is still a lot of room to go. But, just -- half of that has been already secured. Thank you.

Okay, that's great. If I could just follow up maybe just on the Rubiales field itself and the process between now and the middle of next year as you move towards taking over the operation of the field, how you see that process going and what trends you would expect to see in production as you move between now and the middle of next year from that field, which is important to you.

We're currently -- first, in the decision making process, this is a decision by the Board of Directors. It's not anything assumed by the administration.

What we have to provide the Board with is the guarantee that we can operate the field. The field is producing over 150,000 barrels per day, and the idea is that we can operate it. We, of course, very close -- well, in the same area we are managing -- we are operating two fields that produce more than 200,000 barrels per day.

So, we have the capacity to do it, but the decision of who will operate -- at the end of the day who operates Rubiales will be a decision by the Board of Directors. Maybe I'll ask Rafael Guzman to comment on this in detail.

Yes. In addition to that, Frank, we are currently working with our partner to secure that all of the operation would go smoothly, that transferring the field would go smoothly.

In addition to that, we have long term plans for investments in this field, both with activities that will be performed with our current partner until the midyear in 2016, and the investments that will continue on after the close up of the current contract. This will allow us to maintain the production at the current levels and continue on with the investments to increase the recovery factor of the field.

Okay. Thank you very much.

Paula Kovarsky, Itau BBA.

I would like to touch on CapEx and try and get a better understanding on what exactly are the plans for 2015 in view of a forced scenario of lower profitability caused by lower oil prices. So, I know there's no formal guidance yet, but perhaps you could point to the direction the company is willing to take for us to understand how exactly the cash position will be and possibly what are the plans regarding dividends.

Paula, thank you for your question. Of course our focus for this year is basically securing the cash flow for our operation and for the cash level already in our 2015 budget.

As you may understand, we are heading towards hopefully higher CapEx for next year. But, for this year, of course it was a defensive year in terms of our strategy.

Let me give the word to Adriana Echeverri to give you the details on how are we doing this year.

Hello, Paula. We have already had our communication to the market last year on how the CapEx plan was going to be deployed. That plan is going on, so far so good. We had no problem until now.

In terms of what the distribution of that plan and what the principal affectations were, you know they were the exploration plans. We really only included the contractual commitments that we already had with different agencies in Colombia but also in the United States. And that was the most part of the cut of the CapEx that we performed last year.

And the other point was regarding the actual projects that are being developed as well, the different plans that we were already taking care of. We have now affectations for the main fields. That is Castilla, Chichimene, all that.

However, what we have seen in these first months of the year is that certain of our principal joint venture partners is that they have performed additional CapEx cuts, which have of course affected the production of certain fields, which is the case of Rubiales and the case of La Cira Infantas. So, our CapEx plan is undergoing, but our partners have cut their CapEx plans also.

And if I may follow up, then do you still feel -- including those CapEx cuts, do you still feel comfortable about your production targets for this year, or shall we take a more conservative approach to that?

We are currently trying to offset the different effects that we are having with our partners with the direct production fields. So, we expect to be, or in the case of Ecopetrol, under the 710,000 barrels per day as we announced at the beginning of the year for Ecopetrol.

And for our subsidiaries it's the same case. So, the net group production will be 760,000 barrels per day.

And Paula, recall that the target of 760,000 barrels per day is now below what we have already achieved so far. With the CapEx we have this year for production, we can secure the 760,000, and even we can also fight to surpass that.

But, our target is just that number, 760,000. So, we don't need additional CapEx for that. We're just having a compensatory effect depending on the CapEx of our partners.

Okay. And can you possibly comment on dividend policy for the year, or what's the idea?

The dividend, you mean?

Yes.

Well, no. We have to produce income first, and then the Board of Directors decides what to do in terms of dividend. So, that's not our concern.

We already distributed -- they already distributed what said pertaining to last year. So, this year we're not -- we're really focusing on the production and producing income for this year. And there will be a decision by the Board of Directors at the beginning of next year.

Okay. Thank you.

Pavel Molchanov, Raymond James.

Obviously, given the current out spending of cash flow, leverage metrics are on the rise almost 50%. That's the cap as of Q1. What does management view as the highest level of leverage that can be sustained safely?

Thank you, Pavel. I will turn the floor to Magda Manosalva for that first.

In terms of leverage, what we have up to now is we see throughout 2015 as a year of transition, that we are going to have a lower EBITDA than we have been having in the last years.

Concerning the absolute number of leverage we have at this point, we consider it is like more than level of leverage for a company like Ecopetrol. Remember that in the last years we have been under leveraged.

So, at this point we've kind of been like in a normal level, but we don't have the intention to increase this level more such that the investment rating agencies change our investment grade qualification.

Okay. And if I can also ask about the middle Magdalena, I remember a year ago the objective was to begin commercial development in 2016. Given the commodity landscape in present conditions, is that still realistic?

Precisely to what assets are you referring in middle Magdalena?

Oh, sure, the unconventional, the shale acreage.

Okay. Rafael Guzman will talk about that.

Okay. Yes, we have continued looking at the potential and doing studies and stratigraphic wells in mid Magdalena to again assess the potential. However, now any decision on development will have to be reviewed given the current oil prices, and will be part of the strategy that will be announced shortly.

However, what I can say is that we do not see any significant contribution of unconventionals before year 2020.

Okay, very clear. Thank you very much.

Anish Kapadia, TPH.

I had a question just around your cash flow for this year. I was wondering if you could give some expectation in terms of where you see free cash flow in 2015. And kind of related to that, is there a particular level of gearing or however you look at it, net debt to EBITDA, that you get to where you think that you'll need to raise equity to shore up the balance sheet?

Okay. Thank you, Anish. In terms of equity decisions, those pertain to the Board of Directors and actually to the owners, to the shareholders. So, we as an administration cannot comment on that and have to have a view on that.

So, that won't be a source of cash flow for us in any case. But, I want Magda Manosalva to elaborate on this.

Yes, Anish. For the year 2015, what we have is that we still have full access to the capital markets. So, probably what we are going to do is, if we need more financing, we probably are going to go to the markets in the second part of the year.

In terms of how much we are going to need, it is going to depend on the prices falling. But, we think that we are going to be needing the same -- around the same amount we got in the year 2014.

Okay. And then, just to follow up on that, I think the issue at the moment, if oil prices stay where they are, you're clearly cash flow negative in this current scenario. So, you've cut back CapEx. You're not growing production. So, how long do you think you can kind of sustain this scenario of funding the business through debt?

Thank you, Anish. With respect to the oil price, in our budget we have just reviewed it with the Board of Directors. And we are considering, for the provision for 2015, a price of $53.00.

We have run, of course, the sensitivity analysis between $60.00 -- between $45.00 and $60.00 because as of now there's high uncertainty on what the price level -- the average price level for this year will be. But, I think that, yes, to have a robust position in terms of our cash flow vis-a-vis the price fluctuation.

And concerning cash flow, you remember that we have a high sensitivity to oil prices. As Dr. Echeverry already mentioned, the budget was made to $60.00 per barrel, and it was announced during the month of December of 2014.

Our sensitivity to prices in the cash flow is that, for every $1.00 the oil price goes up or down, we got $200 million more in available cash. So, this current scenario of prices is helping the situation of the cash flow of the Company.

Okay. And then, just one other question that I had was, in terms of your secondary recovery projects, they're clearly higher CapEx, higher OpEx projects. I'm just wondering what kind of oil price do you need for those to make economic sense, so to generate a positive return. Because it seems to me that at kind of $50.00, $60.00 per barrel, the secondary recovery projects seem to be uneconomic. Thank you.

Okay, Anish. As we have announced before, we have a very comprehensive program to increase recovery factor in our fields. That includes primary recovery, which is basically drilling more wells, reducing the space between the wells.

We also have water injection that we have done in the past and we continue to do. And then, we move on to other techniques like enhanced water, adding polymers and things like that to water, and then thermal recovery.

But, the main focus that we have now and for the near term, foreseeable future in five, six years, is mostly infill and water injection. And those projects we have done and can be done even at the low pricing scenario that we currently have. The other things like thermal recovery that might require higher CapEx are looked for the future, longer term future.

Okay. Thank you very much.

Is that clear, or did you want some clarification?

No, it -- the only that would be helpful, I think you've given some numbers in the past in terms of kind of the costs associated with some of the water injection, kind of the -- and the more kind of secondary, tertiary recoveries. I was just wondering if you had any updates of those costs.

No, no. No, we do not have an update on those costs. And actually, we are currently working in an efficiency program to reduce the costs.

And we have seen efficiencies, for example, in drilling. We have been able to reduce the time of drilling and therefore the associated costs in several, if not all of our projects. And in addition, we also have made reductions in OpEx, operating costs, that we believe will be sustainable and will help also to launch these other projects that we have for production maintenance.

So, we have not changed to increase those numbers. That's what I'm saying. What we're looking at is the program to actually reduce and become more efficient in developing these fields.

Felipe Dos Santos, J.P. Morgan.

I have actually three questions. The first one is about a possible divestment plan, what the Company is targeting to divest to go throughout this low Brent price scenario and raise cash to match with its needs.

The second one is about the dividends. Is the Company considering reducing the dividends? And Paula has asked this before. But, how is the equation of the dividends considering that the government also needs the dividends from the Company?

And the third, is there a -- are you planning anything coming up to reduce your costs, your fixed costs and variable costs? And what would be the target to reduce that and increase the Company's margins? Thank you.

Thank you, Felipe. First, let me start with costs. We have been working since the beginning of the year, actually, with targets, as Adriana Echeverri mentioned, of for the whole year close to COP1 trillion.

As of now, we have achieved half of that target. And we keep advancing in terms of renegotiating contracts and achieving efficiencies in the different segments of our businesses. And we'll continue doing that for the rest of the year.

In terms of the divestment, there are two different strategies. One is divesting nonstrategic assets like we're doing with the ISA equity. We already got from the ministerial cabinet the goal for that. And in the next 12 to 18 months we'll be divesting that asset as well as other nonstrategic assets of the Company.

And I will ask Adriana Echeverri to comment on that. But, there is another divestment which I would like you know which pertains to the declaration, which maybe I'll ask Max Torres, the Vice President of Exploration, to tell you about, because that's interesting and it's a completely different front.

And in terms of dividends, as we said, this is basically a decision by the Board of Directors. What we have now is the full support of the Board of Directors in terms of that the goal for the Company is to have a very solid cash position for this year and next year.

They have discussed that in a purely annual scenario. Of course, there are no -- definitely there are numerical targets on this. But, let me assure you that we have full support from the Board of Directors in terms of keeping the Company on a very solid cash position.

So, I will ask Adriana and Max to give you some detail on the divestment front of assets and of exploration.

Okay. So, pertaining to the nonstrategic assets, we have undergone a process to sell the EEB participation that we have. It's around 7% of the Company. So, we already have all the approvals that we needed to go under the first stage that we'll initiate hopefully the second quarter of 2015. By the end of the third quarter, we expect to received the proceeds coming from this divestment.

And the second divestment is ISA. Our participation there is around -- it's less than 5%, around 5%. And we are estimating the initiation of this project for the third quarter of this year. So, the proceeds of that particular divestment will not come before the last quarter of this year.

Between these two, what we are estimating of the proceeds coming from there are around $700 million with that specific point of time that I already mentioned. That will contribute to the financing of the cash flow of the Company for this year, 2015, and maybe for year 2016.

On the strategic divestments for exploration, Max will tell you about that.

Hi, Felipe. Max Torres here. On the exploration front, the plan is to essentially optimize our portfolio. And in order to do that, we have designed a campaign of divestments in different phases, what we call [Round] Ecopetrol.

And we have recently launched our first round about two weeks ago, which was a great success. About 20 companies attended the opening of this divestment program. We are currently divesting about eight blocks, five onshore and three offshore, and we are expecting to have some offers by the end of June.

In July, we are planning to launch our second round. And there's going about another 10 blocks, mainly onshore blocks. And by the end of the year, we are planning to launch of third round.

So, what are we trying to achieve? We are trying to -- besides raising some cash, we are planning to lower our risk profile, lower our exposure to some onshore assets and, at the end of the day, optimize our portfolio and see if we can go into other risk profile exploration ventures.

Felipe, let me stress on this last issue, because we know that one of the preoccupations of the market is regarding the eventual success on exploration.

I think the message from Max is we have been very active optimizing our portfolio. And the idea is that we get as much as we can from every dollar of exploration spent. So, this optimization of our assets, basically onshore Colombia and offshore Colombia, is directed to that.

And we have got a very strong appetite from prospective partners to work with us in developing many assets. So, that per dollar spent will give us probably higher points, because it's not that much that that's a source of cash. It's just an optimization strategy to our exploration portfolio. So, that strategy is crucial for us.

That's really great, just one follow up then. Of course, then you would be selling prospective assets and assets that have been developed. But, would it be fair to assume that these proceeds from these assets sales would be used to engage in other regions like Mexico?

As many other companies, we are well aware of what is happening in Mexico. We are prequalified in Mexico.

For the time being, our focus is of course in Colombian territory. Offshore Colombia is a critical focus. Gulf of Mexico is also a critical focus. And we are open for new developments, of course Mexico and maybe also Brazil.

But, for the time being and with the exploration budget we have right now, it is basically what Max commented. It's onshore Colombia, offshore Colombia, Gulf of Mexico, and optimization of all our asset portfolio.

Okay. Thanks so much.

Thank you.

Jose Kliksberg, Morgan Stanley.

I do have a question more regarding the refinery segment. What is your expectation in terms of refined product prices towards the future in the Colombian market, given that you have a beneficiary -- the benefit that essentially oil prices declined adjusted, but however refined products haven't adjusted as much? What's your expectation at least for the next two quarters in terms of local prices of gasoline, diesel, and other products?

Pedro Rosales will answer this one.

Hi, Jose. What we are expecting is that the actual rules continuing applying. Then our costs are referred to the market costs, and the international prices are our reference. We don't expect any change in that price policy.

In closing -- and the answer to Felipe was not complete. Felipe asked what would be the use of the proceeds from the sale of nonstrategic assets.

The number of that is of course variable, but could be up to $1 billion. Of course, that will -- of course, it will be along the next 12 to 18 months probably. And the use of that will follow the priorities of our whole investment strategy, so not only exploration. But, of course exploration will have a very important place in the use of the proceeds of those sales.

But, basically when you look at our portfolio, the distribution between production, exploration, and other uses will be maintained. The main -- the most important thing for next year is that we will have finalized the Cartagena refinery. So, that will allow us to focus more on the upstream of the business.

With this, I think we come to an end. We thank you all for having participated in this conference call, and we give the floor back to our coordinator. Thank you.

I was just going to say that if you have any further questions, do not hesitate to contact our Investor Relations office. Thank you again.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may all disconnect. Have a wonderful day.