Ecopetrol SA (EC) 2017 Q1 法說會逐字稿

Good morning.

My name is Karen, and I will be your conference operator today.

At this time, I would like to welcome everyone to the 1Q 2017 Ecopetrol S.A. Earnings Conference Call.

(Operator Instructions) Maria Catalina Escobar, Head of the Corporate Finance and Investor Relations, will begin the conference today.

Maria, you may begin your conference.

Good morning, everyone, and welcome to Ecopetrol's earnings conference call and webcast, in which we will discuss the main financial and operational results of Ecopetrol for the first quarter of 2017.

Before we begin, it is important to mention that the comments in this call by Ecopetrol's senior management can include projections of the company's future performance.

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

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

The call will be led by Mr. Juan Carlos Echeverry, CEO of Ecopetrol.

Other participants include Felipe Bayón, Executive Vice President; María Fernanda Suárez, Vice President of Strategy and Finance; Max Torres, Exploration Vice President; Héctor Manosalva, Vice President of Development and Production; Pedro Manrique, Commercialization and Marketing Vice President; Luisa Lafaurie, CEO of Cenit; Tomas Hernandez, Vice President of Refining and Processes; Rafael Guzmán, Technical Vice President; and Carlos Alberto Vargas, Vice President of Transformation.

We will begin the presentation with the main achievements of the first quarter of 2017, followed by the highlights by business segments and financial results under international finance reporting standards.

We will close with the outlook for the rest of 2017 and a Q&A session.

I now give the word to Mr. Juan Carlos Echeverry, CEO of Ecopetrol.

Thank you, Maria Catalina.

Welcome to everyone attending our conference on the first quarter 2017 results.

I am pleased to share with you the quarterly results that confirmed the focus of our strategy.

Operationally, we have consolidated an effective and efficient company, financially solid with important exploratory achievements.

This year, we have faced a changing local and international environment.

During the quarter, Brent averaged $55 per barrel, some 54% higher than the first quarter of 2016.

Our commercial strategy helped capture market opportunities for the sale of our crude and products in the international markets.

In the first quarter, the spread of our crude basket versus Brent was $8.30 per barrel, $1.80 per barrel less than the same quarter of 2016.

In Colombia, we called with the tax to the Caño Limón-Coveñas pipeline.

We sorted out these disruptions by having a bidirectional flow to the Bicentenario pipeline, which is a structural alternative to the blowout of the Caño Limón Limón-Coveñas pipeline in the Catatumbo region.

Let's move on to the next slide to review some highlights of the quarter.

The exploratory campaign made 2 significant discoveries with the Purple Angel and Gorgon-1 wells in the southern Colombian Caribbean.

Such results along with the Kronos well discovery drilled in 2015 confirmed a new gas cluster for Colombia and provide a growth opportunity for Ecopetrol.

In addition, we had a discovery at Boranda well in the Middle Magdalena valley.

In the financial front, EBITDA and EBITDA margin rose to the highest levels of the past 2 years with COP 5.8 trillion and 43.5%, respectively.

These results reaffirm our solid operating performance and our ability to respond to changing market conditions.

Operating outcome brought about a solid cash position of COP 17.5 trillion at the end of the quarter.

Throughout the stabilization period, Reficar has shown satisfactory results.

We are committed to advance towards profitable operational Reficar.

I will now hand the floor over to Felipe Bayón, the Executive Vice President, who will speak to you about the quarter's key operational results.

Thank you, Juan Carlos.

Indeed, after dealing successfully with the prices cuts by the low oil prices, we continue to focus on consolidating a new stage of growth in the different businesses at Ecopetrol.

Today, we can proudly say that the first quarter of 2017 ended with a positive balance in our operations.

In our production segment, we reached 712,000 barrels.

This is 3% less than the first quarter of 2016 and despite 31 attacks against our infrastructure, mainly the Caño Limón Coveñas pipeline, which kept it out of operation for 47 days.

In the exploration area, after confirming with the Gorgon-1 well, the discovery of a new natural gas province in the southern part of the Colombian Caribbean, we can now work on defining better with our partner, Anadarko, the potential of the Kronos, Purple Angel and Gorgon cluster.

We will continue to do technical work with the course that we took out from the wells.

The exploration budget for 2017 is $650 million.

This is more than twice the average budget that we spent in 2016 and has allowed us to have already good results in our medium- and long-term exploration strategy.

What comes next?

We will continue to work on 3 walls in the northern part of the Colombian Caribbean next to the Guajira Department.

We will continue to drill in the Warrior-2 well in the U.S. portion of the Gulf of Mexico, and we have 11 onshore wells that we will be drilling this year.

In the Refining segment, we achieved a stable and efficient operation in the Barrancabermeja refinery.

At the new Cartagena Refinery, we have now completed 25 of the 34 tests of the units that comprise the refinery.

Our margin has increased from $5.3 per barrel to $6.8 per barrel, and we have achieved an average refinery load of more than 122,000 barrels per day.

We continue to optimize the Transportation segment to generate better efficiencies and more synergies amongst all of our companies during the period, we successfully conducted tests to transport heavy crude of 600 centistokes.

In the trading area, we have seen a significant improvement in the price of Ecopetrol's basket.

And this was achieved mainly due to the very aggressive commercial approach from our teams.

In refined products, we did our first sale of ultra-low sulfur diesel from the new Cartagena Refinery.

The results in that 1Q were underpinned by safe operations in compliance with our HSE standards and procedures.

We follow strict capital discipline in each of our businesses and we had a very proactive management of each and every one of the environment in which we operate.

Now I turn it to Carlos Vargas, our Vice President of Transformation, who will take us through the results in this area.

Thank you, Felipe.

In the first quarter of the year, we had maintained a strict follow-up to the efficiencies strategy implemented by the company, incorporating in this period, structural optimization for COP 0.15 trillion for a target set COP 0.74 trillion for 2017.

The result of these efficiencies continue with its positive effect on the performance in the operational indicators, which together with the best processes become structural efficiencies.

An example of this is the upstream operating cost indicator, which improvements are between 11% and 29%.

In the CapEx, the cost per foot perforated has been improved by 50% comparing to 2014.

Finally, we are working on the identification of new strategies and initiatives that will allow us not only to ensure the sustainability of efficiencies achieved but also to incorporate additional structural efficiencies that will challenge the goals for 2017 and the next years.

With this, I'll pass to Max Torres, who will comment on the exploration results.

Thank you, Carlos.

In the first quarter of the year, Ecopetrol completed the drilling of the Purple Angel well in the Colombian Caribbean Sea in partnership with Anadarko, the operator of the block.

The well reached a total depth on February 25, and reached a total depth of 4,795 meters, including a water depth of 1,835 meters.

The total gas pay encountered per well is estimated between 21 meters and 34 meters.

The joint ship Bolette Dolphin reentered and continued drilling operations in Gorgon-1 on February 25.

This well is located in the Purple Angel block, 27 kilometers north from Purple Angel-1 well.

By the end of the first quarter, the wall was in drilling operations reached total depth on April 10.

On May 3, reported a presence of gas at depths located between 3,675 and 4,415 meters below sea level.

Preliminary evaluations show that the total gas net they found is estimated to be between 80 and 110 meters.

Gorgon-1 also means for Colombia an operational achievement since it's the first wells to be drilled in more than 2,000 meters of water.

These wells, Purple Angel and Gorgon, prove the existence of gas in the structure located in the same geological trend as the field Kronos, discovered and drilled in 2015.

Thus, the 3 successful wells of the Colombia offshore Kronos, Purple Angel and Gorgon indicate to Ecopetrol the existence of a new gas province in this region in the Colombian Caribbean Sea.

According to the 2017 plan, during the second quarter, 3 offshore Ecopetrol wells will start drilling, 2 in offshore Colombia: Siluro, in the RC-10 block operated by Repsol; and Brahma, in the Tayrona block operated by Petrobras.

A third well, Warrior-2 in the Gulf of Mexico is being operated by Anadarko at the present moment.

For onshore Colombia in March, Ecopetrol reported oil discovery in the Boranda-1 well operated by Parex and located in the Middle Magdalena valley.

The well reached a depth of 3,657 meters and encountering on oil of 20 degrees API.

The discovery is located close to all persistent facilities, Payoa 30 kilometers away and Provincia 40 kilometers away and is 90 kilometers from the Barrancabermeja refinery, which adds value to the discovery.

At the end of the quarter, the well was under production testing.

The affiliate, Hocol is conducting activities to commence drilling of the Lunera well in the block VSM-9 that is expected to start drilling operations by the end of the second quarter.

Now Raphael Guzmán will comment on the production results.

Thank you, Max.

Ecopetrol group's production for the first quarter of 2017 was 712,000 barrels of oil equivalent per day, which represents a decrease of 3% in relation to the same period of 2016.

This production reduction is explained by the Caño Limón Coveñas pipeline attacks, operational disruptions and the natural decline of some fields.

In the case of Ecopetrol S.A., production in first quarter was 654,000 barrels of oil equivalent per day, representing a decrease of 5% in comparison to the same period last year.

These results are mainly explained by the effects of the attacks to the Caño Limón-Coveñas oil pipeline, which forced the suspension of the field from the 27th of February until the 7th of April of this year.

Additionally, production was impacted by operational problems in the Chichimene field and by the natural decline of the Castilla and Guajira fields.

This fault was partially offset by increases in our share in Cusiana and Rubiales field during the second semester of 2016.

Thanks to the investments made during the last 6 months of 2016, there are positive reactions in the upholding or increase of the production of Rubiales, Quifa and La Cira-Infantas fields in relation to the production reported at the end of 2016.

In terms of our subsidiaries, production in the first quarter of 2017 was up nearly 11,000 barrels per day in comparison to the first quarter of 2016.

This represents an increase of 23%, mainly in Hocol and Ecopetrol America.

In the case of Hocol, the growth is explained by the start of operations at the gas plant for the Bonga-Mamey field; the transfer of Espinal field made by Ecopetrol on January 1, 2017, in favor of Hocol; and the normalization of Guarrojo's operations due to lifting of the cautionary measure imposed by the constitutional court in the first quarter of 2016.

For Ecopetrol America, the increase is due to the entry of Gunflint in the second half of 2016.

Savia and Equión presented a fall of about 6,000 barrels of oil equivalent per day, mainly due to the termination of the Tauramena contract in Cusiana in July 2016 in favor of Ecopetrol S.A.

Regarding the increase recovery program, we continue with the activities to develop the potential within the current 28 projects.

In the first quarter of 2017, we successfully sanctioned the expansion of the tertiary recovery project with cross-linked polymers technology in Dina K field, which will be starting investments in the second half of this year.

This project is the first expansion of this type of technology in Colombia.

Likewise, throughout the year, the evaluation of the current technologies will continue through 12 pilots currently in operation, the start of a new pilot and the completion of 11 studies of technology evaluation.

Based on the results, we will continue structuring the expansion of projects, such as the water injection to Chichimene and Castilla field, steam injection in Teca and polymer injection in Palogrande, among others.

These advances in recovery and our resulting production are leveraged by the continuity of efficiencies we have achieved, both in our operating costs and in development costs, as Carlos has previously mentioned.

At the end of the first quarter of the year, we reported efficiencies that exceeded the target set in the transformation program for this segment.

In the same way, in our development cost, we have maintained efficiencies in the drilling time and cost of the last quarter of 2016 in the assets with the highest direct operating activity, such as Castilla and Rubiales.

Finally, we maintained our 2017 production target.

We have planned for this year a level of investment 140% higher than the investments of 2016, represented in activity that exceeds 500 development wells and 400 work hour activities and well services, with the aim of maintaining our production levels.

Now, I pass on to Luisa Lafaurie, who will comment on the results of transportation.

Thank you.

Good morning.

During the first quarter of 2017, we continued the process of operating integration of the midstream business, seeking a more efficient planning process of our operation and maintenance activity.

Once these programs conclude, we should have a more coordinated and integrated segment, which is expected to bring benefits to Ecopetrol and our plants.

On the operating side, during the first quarter of 2017, total transported volumes decreased by 145,000 barrels per day, which represents 11.9% less than during the same period of 2016 for a total of 1,071,000 barrels per day.

Crude oil transportation through oil pipelines decreased 15.4% in the first quarter of 2017 compared to 2016 due mainly to the lower nominations from shippers, reflecting lower production volumes.

From the total volume transported by oil pipelines, approximately 68% corresponds to crude oil owned by Ecopetrol.

The volumes of refined products transported through pipelines during the first quarter of 2017 increased 0.5% compared to the same period of 2016, mainly due to a higher rate of use of the Galán-Sebastopol system to fulfill the demand of product in the central region.

Approximately 20% of the total volume transported through the refined product pipelines belong to Ecopetrol.

Regarding our investment portfolio, I would like to highlight our objective to transport higher viscosity crude all the way to the Coveñas port.

Especially during the first quarter of the year, we performed tests to transport crude oil with viscosity of 600 centistokes in Ocensa and ODC.

In the coming weeks, we expect to finalize all the infrastructure adjustments in order to have a continuous flow of heavy crude to the port.

We also made the progress to build a blending facility in Coveñas.

This is the first step towards adding value by generating new plants that can better adjust to our clients' needs.

We expect these initiatives to start operation in the second quarter of 2017.

On the other hand, progress was made toward the completion of San Fernando pumping station.

We expect to start full operation at the end of the first half of the year.

Finally, I would like to refer to the midstream financial results, which remain positive despite the adverse conditions associated to the reductions in volumes of crude oil transported, reaching the expected EBITDA with COP 1.9 trillion during the first quarter and an EBITDA margin of 78%, mainly, as a result of the continued effort to seek for a cost efficiencies along the segment companies.

With this, I hand over to Tomas Hernandez, who will comment on the downstream results.

Thanks, Luisa.

During the first quarter 2017, the Cartagena Refinery stabilization process and unit performance tests continued.

25 out of 34 units completed their tests, reaching 74% progress.

The alkylation unit reached mechanical completion and it will start operation during the second quarter 2017.

The refinery stabilization process will continue until the third quarter 2017 with the completion of the full refinery performance test.

Throughout 2017, the Cartagena Refinery has increased its throughput compared to 2016, reaching an average of 122,900 barrels per day and 26 days with a throughput higher than 140,000 barrels during the first quarter 2017 versus an average of 117,100 barrels per day in 2016.

Upon completion of stabilization and performance tests, the refinery will have an operation at the optimum throughput level.

In terms of production, the Cartagena Refinery continue to increase its high-value product yields, mainly middle districts going to 49% during the first quarter 2017.

This increase has allowed to reduce diesel imports by taking this product to the domestic market.

In addition, the refinery gross margin has grown around $1.5 per barrel, the average result of 2016, reaching $6.8 per barrel during the first quarter of 2017.

We maintain the expectation at the refinery after the stabilization process will achieve margins in line with market trends for high complexity refineries.

The gross margin of the Barrancabermeja refinery during the first quarter 2017 was $14.6 per barrel better versus $14.1 per barrel during the same quarter of 2016.

This increase was mainly due to the sustained implementation of operational and process improvements made to increase refinery conversion.

The throughput of the Barrancabermeja refinery in the first quarter 2017 was 214,500 barrels per day, decreasing by almost 1,800 barrels per day compared to the same period in 2016 due to a heavier crude slate.

Now, I turn the presentation over to María Fernanda Suárez, who will comment on the financial results for the period.

Thank you, Tomas.

In the first quarter of 2017, Ecopetrol reported outstanding financial results and a solid cash position.

As a result of the capital discipline and the structural efficiencies accomplished in different areas the company.

The group's revenue totaled COP 13.4 trillion in the first quarter of 2017, up 28% from the first quarter of 2016.

This figure is the result of: first, the recovery of Brent prices, which rose 55% versus the first quarter of 2016; second, the effectiveness of the strategy of placing our crude and products in higher-value markets, allowing us to reduce our crude basket spread by $1.8 per barrel.

These positive drivers helped offset the 3% reduction in production volume in the first quarter of 2017 compared to the same quarter the previous year.

Upstream segment revenue rose some 44%, thanks to a lower spread versus Brent and improved international benchmark prices.

In turn, downstream revenue grew 32% in the first quarter of 2017 compared to the first quarter of 2016, due primarily to operational (inaudible) , higher volume sold and better sales prices.

During the first quarter of 2017, midstream revenue contracted some 20% compared with the first quarter of last year.

This decrease is largely due to lower volumes of crude transported in line with the company's lower production and the effect of the appreciation of the exchange rate over the segment's dollar rates.

Let's move on to the next slide to see that business group's EBITDA performance.

In the first quarter, the business group generated EBITDA of COP 5.8 trillion, the highest of the last 8 quarters.

It is also 41% higher than the first quarter of 2016 and 30% over the previous quarter.

EBITDA margin of 43.5% was possible due to structural efficiencies in cost and expenses and improved sales prices for crude and products.

The upstream segment reported EBITDA of COP 3.3 trillion vis-à-vis COP 1 trillion in the first quarter of 2016, driven by better sales prices and moderate cost increase and lower operating expenses.

The downstream segment reported EBITDA of COP 0.6 trillion in the first quarter of 2017.

The midstream segment remained a significant source of cash generation, with EBITDA of COP 1.9 trillion.

Each segment's contribution to group EBITDA varied between the first quarter of 2016 and 2017.

While in the first quarter of 2016, the midstream segment generated over 60% of the group's EBITDA.

In the first quarter of this year, the upstream segment is the greatest generator of EBITDA at 57%, followed by midstream at 33% and downstream contributing 10%.

This confirms Ecopetrol's strength as an integrated company.

Let's move on to the next slide to see the change in net profit between the first quarter of 2016 and the same period in 2017.

In the first quarter of 2017, the net income attributable to owners of Ecopetrol rose 144% versus the first quarter of last year, from COP 363 billion to COP 886 billion.

Excluding depreciation, variable costs rose COP 1.1 trillion from the first quarter of 2016, in line with the price recovery.

This growth was offset by lower transport costs resulting from the optimization in the use of tanker-trucks and less inventory fluctuation.

On the other hand, fixed costs, excluding depreciation went up COP 226 billion over the first quarter of the previous year due primarily to the resume of maintenance activities in Caño Sur, La cira-Infantas, Castilla and Chichimene fields and the receipt of the Rubiales field since mid last year.

Depreciation rose COP 380 billion versus the first quarter of 2016, largely due to the commissioning of old Cartagena Refinery plants and the start-up of Gunflint of field in Ecopetrol America.

Operating expenses declined COP 512 billion versus the first quarter of the previous year, primarily due to the lower wealth tax expense and fewer dry wells accounted for during the period.

The exchange rate difference fluctuated minus COP 1.1 trillion.

The closing exchange rate of the first quarter of 2017 appreciated vis-à-vis the ending exchange rate of 2016.

The mark-to-market valuation of the group's net asset position at COP 2,886 per dollar generated a nonrealized loss of COP 449 billion versus a gain of COP 625 billion in the first quarter of 2016, both with no cash impact.

Finally, net profit attributable to the company's shareholders totaled COP 886 billion.

Let us now review the group's cash flow.

The group maintains a solid cash position, closing out the quarter with a cash balance of COP 17.5 trillion, comprising: First, cash and cash equivalents of COP 8.2 trillion; second, short-term investments less than 1 year by COP 7 trillion; and third, investments with longer maturities amounted to COP 2.3 trillion.

This cash balance is due to the positive results of the transformation plan.

The CapEx savings resulting from the capital discipline and the higher revenue due to the oil price recovery.

Cash flow from operating activities yielded COP 4.5 trillion, thanks to the group's better operating outcome.

Capital investments totaled COP 0.7 trillion, in line with the gradual resumption of investments mainly in exploration and production.

Investment of cash surpluses generated an outflow of COP 2.8 trillion.

The payment of financial interests and dividends to noncontrolling shareholders also consumed COP 0.9 trillion in cash.

The balance of cash and cash equivalents at the close of the quarter together with investments of liquidity, surpluses easily realized yield an ending cash balance of COP 17.5 trillion.

This cash availability gives Ecopetrol a strong and highly flexible position for assessing both organic and inorganic growth options, preserving the efficiencies achieved, the capital discipline and the focus on upstream.

It also provides a cushion for absorbing temporary price shocks.

Our goal in having more conservative debt metrics is reflected in the behavior of the gross debt-to-EBITDA and net-debt-to EBITDA indicators, which reduced substantially.

I will now pass the floor on to our CEO to close out our presentation with prospects for the remainder of the year.

Thank you, Maria Fernanda.

The solid results of the first quarter give us the strength to deal with the current pricing environment.

Our production prospect for the year remains stable at 715,000 barrels per day of equivalent oil.

In the second half of the year, we're projecting the crew transport capacity at viscosities up to 600 centistokes twice as much as last year in several systems connecting our main heavy crude oil fields with the Coveñas port.

In the second quarter, we'll begin drilling the wells of Siluro in the Colombian Caribbean operated by Repsol and Warrior-2 in the U.S. Gulf of Mexico operated by Anadarko.

In the third quarter, we'll plan to execute the global performance test of the Cartagena Refinery.

This milestone will mark the transition from the stabilization phase to the optimization phase of that facility.

Our commitment to profitable growth and value for our shareholders remains intact.

We will remain focused on our 2020 business plan, with capital discipline, cash protection, operational excellence and profitable growth in exploration and production.

I will now open up the session to questions and answers.

Thank you very much.

(Operator Instructions) And we have our first question from Felipe Santos from JP Morgan.

Just 1 -- 2 quick questions.

First one, if you could comment a bit about the discovery results just Boranda-1 well.

What expectations there is, I mean, potential size, oil quality or anything that you could give us?

Second point, in terms of the cost reduction, you mentioned that the company still delivered a lot and expects to do more.

What else can we expect, and if you could break down these comments on the segments?

And third, what's the company's expectation for exploration campaign for the remainder of the year?

If you could dig it a bit saying about the wells and when they should be drilled, this would be helpful.

Felipe, Max Torres here, Vice President of Exploration.

I will elaborate a little bit on Boranda.

You're asking about Boranda and also discovery.

By the end last year, we put that well in production this year.

That is a handsome discovery.

It's a moderate size, I will say, between 10 million, 20 million barrels, very close to facilities.

So it went onstream and online very, very quickly.

It's a good quality oil, about 20 to 25 API.

So it's a good -- it's going to be good and profitable well.

As you know, we are operating that well with our partner, Parex.

So Parex is 50% and the operator of the well.

That well will open up additional drilling, so we are planning maybe to 2018 to drill some appraisal wells near that soon.

So that's as far as Boranda.

You also requested some information about our exploration campaign this year.

The total number of wells we are planning to drill this year is about 17 wells, 6 offshore.

Out of the 6, 2 are already finished, went into TD.

2 are under operations, which are Siluro and Warrior-2 in Gulf of Mexico with our partners Anadarko and Repsol, respectively.

And we have 2 additional wells to be drilled in the offshore Colombia, Brahma with Petrobras and Molusco, our own operated well, in September.

So that's the 6 offshore wells that we're planning to drill this year.

Then we have about 11 wells to be drilled in the onshore; 6 of those wells are Hocol, our subsidiary, and 5 of those wells are ourselves.

That's the trading campaign and as I said, mainly what is remaining are the onshore wells and the 2 offshore wells that I had just mentioned.

Felipe, may name is Carlos Alberto Vargas from transformation.

We have keep our efficiencies strategy, and we are working mainly in 2 directions.

First of all, we want to assure the efficiency that we have been achieved during the last 2 years are going to continue.

And in addition, we are planning to add almost COP 0.7 trillion of efficiencies in all segments.

So we are working very hard to keep that efficiencies and to find new opportunity where we can reduce our cost throughout all our value chains.

So you would say that most of the gains, we already know them?

Yes, that's true.

And we have our next question from Pavel from Raymond James.

You've obviously discovered a very large gas resource base in those deepwater prospects, but is there any timetable at this stage for reaching a development concept and moving forward with commercialization of any of this gas resource?

Pavel, Max Torres, again, Exploration Vice President.

Right now, we are engaged in delineation activities.

Purple Angel, as you know, is a delineation well.

Gorgon is an exploration well in the same trend.

So basically, we have delineated the trend.

We have other prospects nearby.

[Glaucus] probably to be drilled next year.

So I mean, we also took extensive coring on the wells to start preparing them for reservoir studies and understanding deliverability.

And we are planning possibly a DST for next year.

These are long cycles.

These are deepwater offshore, capital intensive.

We probably are thinking 7, 8 years to have these wells on production.

We will probably have to move into development concepts, I will say, by the end of next year or 2019, as soon as we have gathered all this information, DST and all the core studies, basically, I think, being the deepwater these are the time frames that we're talking.

Okay.

And would this be an LNG project?

Or would it be conventional gas for domestic consumption?

Pavel, those are the kinds of things that I cannot -- we cannot answer.

We are engaged intensively with our partners, Anadarko.

These discoveries are significant, are deepwater.

We need to understand the gas market and take this kind of decisions.

Those are the kind of decisions that we will be taking in a couple of years.

If this is going to be domestic, if it's going to be floating LNG, if it is going to be land LNG?

Or what it is going to be?

But, unfortunately, I don't have the answer to that question right now.

And we have our next question from Julia (inaudible) from UBS.

I have 2 quick questions.

The first one in that if you have the impact of the Caño Limón attacks in the first quarter and maybe if you have an estimate of the impact that you had in April for the second quarter, just for us to have an idea of declining on a recurring basis?

And the second question is if you are looking at the Petrobras assets the producing assets that are for sale?

And if you are not, where are the main -- where are you looking at the assets now?

Julia, let me ask you about the first question.

You are asking for the impact of our CapEx in the first quarter?

No, sorry, on the oil production.

The Caño Limón impact on your production.

How much was it?

And how do you expect in the second quarter, in April actually?

Okay.

Julia, this is Rafael Guzmán, Technical Vice President.

For the first question, the impact for the first quarter due to the attacks at the Caño Limón pipeline are close to 8,000 barrels per day for the quarter.

That amounts close to 2,000 barrels per day for the whole year.

And that's the impact of the first quarter.

For the other quarters, of course, we don't have a number for that.

It will depend if and when we have these attacks.

Let me just comment on this, Julia.

Remember last year, we had 45 years -- 45 days with a Caño Limón field affected by these explosions.

What we do is work in compensating that loss so as to maintain the average production for the year near the forecast.

So this year, probably, we are going to aim to same goal, which is obtaining the average production for the year intact.

I am trying to compensate in other activities.

But also, we have stressed that in this quarter, we aim -- we made an intervention in the Bicentenario pipeline, making it bidirectional.

So it can only flow -- not only flow south to north, but now north to South.

So that in the event that we have new [plots], we can extract the oil from the Caño Limón field and send it to the Caribbean.

So that makes it more robust in the future.

And it was at a very reasonable cost, this intervention.

And there are no more further questions at this time.

I would like to turn the call back to Ecopetrol's President, Mr. Echeverry.

Julia, I'm sorry, we didn't ask about the type of assets that we were looking for regarding growth.

Basically, assets that improve our portfolio, we are now too much into heavy oil so light oil will probably be the choice for our inorganic.

But we are open.

We have been discussing -- we created a team dedicated to scan the assets available.

And we have been working with different agencies, and we are scanning the information.

We are not in a hurry.

It will take probably 12 to 18 months for those decisions to be taken.

So, we are not in a hurry.

We just -- we have the liquidity, we have the focus and remember that we are open even that to scan possibilities in Mexico and Brazil or in other countries in the Americas.

So, but it's basically probably balancing more the heavy oil with light oil -- lighter oil and to have a more balanced portfolio for production.

Thank you, and we have Felipe Santos, once again, from JPMorgan.

Just one follow-up question.

You just mentioned about looking at Mexico and Brazil assets.

What is the company's strategy towards the new auctions, the pre-salt auction, the offshore auctions in Brazil and also in Mexico?

I remember the company entered -- registered to participate in the Mexico round last year but the competition was big.

So how is the company considering participating in those auctions?

And how aggressive Ecopetrol could be to get a stake on those potential big assets that is coming?

Max Torres here again.

Yes, our strategy, as you said, is our growth, international growth.

We are actively engaging in the evaluation of the Mexico bid round 2.1, 2.2, 2.3.

We are currently evaluating partners and consortiums.

And our strategy in general will be to stay in shallow waters, onshore, conventional, light oil and maybe gas.

The same will apply for Brazil.

Obviously, Brazil, there are not many shallow water opportunities.

So we'll be kind of maybe staying on deepwaters and maybe not moving into the pre-salt bid rounds.

Basically, this responds to the idea that Ecopetrol is on a learning curve on the offshore deepwater.

I mean, we have engaged in operation in Gulf of Mexico and here in Colombia.

But I think we're already exposed to frontier deepwater in these regions.

So again, in summary, I think we are very interested in the bid rounds in Brazil and Mexico.

And we will probably participate on the Mexico bid round offshore.

But as you saw, we didn't to participate on the ultra-deepwater, on the deepwater bid rounds last year in Mexico.

So we think there's a lot of potential still on the shallow waters and onshore.

We think we can provide better capabilities and enhance our learning curve.

Thank you.

Sure.

This was good color.

So pre-salt is not the -- it will not be the a target, but the onshore -- I’m sorry, the offshore deepwater in like Campos basin in Brazil could be one of the targets?

Mid-shallow water?

Yes.

And also emerging basins like maybe Sergipe-Alagoas or maybe Espirito Santo.

Those are the kinds of things that we will be focusing, maybe areas with already proven plays and discoveries.

We already have a position in frontier basin in Brazil.

But most likely pre-salt is not going to be one of our targets.

Yes.

And we have our next question from David Gamboa from TPH.

Just a couple of quick ones from me.

On the tax, corporate tax side of things.

If I'm not wrong, the effective tax rate for the quarter was around 54%.

Could you give us some color on where to expect tax for this year as prices have stabilized?

Should it be around the 40% mark or shall we expect them going at these levels for the rest of the year and going forward?

And then just one specific on the Dina K field tertiary recovery project.

Could you share some color around the potential impact from this particular project?

If I'm not wrong, you mentioned that CapEx would hit this particular project towards the end of the year.

So just was wondering around the timing and potential impact to production from this particular project?

Okay.

David, thank you very much for your question.

I'm Alberto Vargas, and I'm going to talk about the corporate tax.

Yes, 54% is shown during the first quarter.

Let's remember that the nominal tax rate in Colombia is around 40% and the effective tax rate is increased due to some nondeductible expenses.

And yes, we expect this tariff being stable around the whole year.

David, this is Rafael Guzman, Technical Vice President.

I think the main importance of Dina K field expansion is that it is the first one, the first expansion that we're doing with improved water sweep in the reservoir.

In the same area that is in Avila we have several fields that are adaptable to the same technology, Palogrande (inaudible) and others.

So that's the main importance of it.

It's a technology that will have proved that we can use in that field and oilfields.

So in the near future, we'll also be sanctioning more projects in the same area using the same technology.

Now regarding this field, we expect to drill around 16 wells this year, so that's a CapEx in the order of $100 million.

And reserve vision is in the 2-digit number reserves for this field.

But again, I emphasize it that, that technology will be applicable to several oilfields that will be very significant for Ecopetrol.

And there are no further questions at this time.

I would like to turn the call back to Mr. Echeverry, CEO of Ecopetrol.

Thank you very much to you all for participating in this conference call.

The current environment of the international price of oil is around -- the fluctuations between around $50 and $55 per barrel.

We're very well prepared to weather the situation even if it goes below $50.

It goes along with our projections for this year and for the period 2017 to 2020, as you all know, our numbers have run with $50 flat.

And with that, we were able to -- should be able to deploy $13 billion of CapEx in the next, say, 3 or 4 years and this year, $3.5 billion of investment.

We have a very solid cash holdings right now, which give us a lot of flexibility.

We don't plan to issue any debt in 2017.

And we have a very strong discipline of capital.

So as to guarantee that every dollar that is spent has a proper expected return.

So with this favorable result that we have just showed for the first quarter, we thank you for having participated in this conference call and wish you a very good day.

Thank you for joining today's conference.

If you would like to hear today's conference call, it will be available next week on Ecopetrol's website.

This concludes today's conference call.

You may now disconnect.