Ecopetrol SA (EC) 2020 Q3 法說會逐字稿

Good morning. My name is Hilda, and I'll be your operator for today. Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operational results for the third quarter 2020. (Operator Instructions)

Before we begin, it is important to mention that the comments in this call by Ecopetrol's senior management 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 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. Felipe Bayon, CEO of Ecopetrol; Alberto Consuegra, COO; and Jaime Caballero, CFO.

Thank you for your attention. Mr. Bayon, you may begin your conference.

Good morning, everyone, and welcome to this conference call where we will discuss our operating and financial results for the third quarter of the year. We hope you and your families continue to be safe. Personal and social awareness continue to be key elements to overcome the health emergency that we have experienced during 2020.

The third quarter of the year was characterized by a better operating and financial performance, associated with the gradual increase in our operations and aligned with demand recovery. This ramp-up has been reflected in higher operational activity levels, for example in Ecopetrol S.A., where we've had an increase of active drilling rigs from 2 rigs in April to 10 rigs by the end of September.

Likewise, in order to preserve our employees' health and safety, our field personnel have progressively returned to their on-site work since June under strict biosafety protocols. To date, thanks to our digital transformation program, about 75% of our employees continue to work remotely. Although we will remain working remotely during 2020 to preserve social distancing measures, a pilot plan was launched in October that will allow us to be prepared for a safe and stable return of our office employees to the company's facilities in 2021 as part of our adaptation process to the new normal. This pilot considers a flexible scheme of staff and infrastructure, which will allow operational optimizations and will generate efficiencies to the Ecopetrol Group. Within this process, we highlight the crucial role that an increased digitalized operation during the year has played through the use, amongst others, of artificial intelligence and the implementation of analytical and self-management tools.

Regarding the health emergency caused by COVID-19, through our social investment program, Apollo Pais, we have executed 59% of the approved investment, in line with the Ecopetrol Group commitment to the well-being of Colombians as well as the recovery and reactivation and strengthening of the local economies.

Let's move on to the next slide to discuss market conditions. After coping with one of the most difficult quarters in recent years, during the third quarter, we witnessed a gradual recovery of the market, reflecting in a 30% increase in Brent prices, which rose from $33 per barrel at the end of the second quarter to $43 per barrel by the end of the third quarter. Local demand for our main products improved when compared to the trend observed in the first half of the year, highlighting our recovery in sales volumes of around 110% by the end of September compared to the lowest levels observed in April. This demand recovery allowed us to return to the sales level observed in early March and is a consequence of the easing of lockdown restrictions that have resulted in the activation of the economic activity.

On the other hand, we also highlight the significant recovery to $38 per barrel of our crude sales basket compared to the second quarter when the basket stood around $20 per barrel. However, we still continue with price levels similar to those observed in the crisis of 2016.

Let's move on to the next slide for a summary of our third quarter results. Our operating and financial results performed better when compared to the second quarter, in line with the recovery in prices and better demand conditions. Ecopetrol Group production reached 681,000 barrels of oil equivalent per day. That is 3,000 barrels more when compared to the second quarter. A higher production, along with price recovery, resulted in a 46% increase in revenues as compared to the second quarter of 2020.

Despite some difficult security events that have impacted our operations during the year, Ecopetrol reached an EBITDA of COP 5.3 trillion and a net income of COP 855 billion in the third quarter.

I now give the floor to Alberto Consuegra, who will provide further details of our operational results for the quarter.

Thank you, Felipe. During the third quarter, we saw a gradual recovery of our operating results, aligned with domestic demand recovery and the higher price levels.

On exploration, we drilled 3 wells, totaling 10 wells over the year. We expect to exceed our 2020 targets with 17 wells drilled, 4 more than originally planned due to the inclusion of 3 wells through joint operating agreements and the appraisal of the Chuchupa-3 well.

An extensive field test was carried out in the Arrecife-1 sidetrack well, a gas discovery drilled by Hocol in 2018. Sales began on October 1 with a production of 3.5 million cubic feet of gas per day.

I would like to highlight the commercial agreements achieved by Hocol and Lewis Energy for the exploration of natural gas in a frontier play in the Perdices Block located in the (inaudible). Currently, the assignment of Hocol's interest to Lewis Energy is subject to the ANH approval.

Abroad, we continue our progress in completing the appraisal phase of the Gato do Mato project. Ecopetrol Group's production reached a cumulative average of 699,000 barrels of oil equivalent per day. We expect the production near to 700,000 barrels of oil equivalent per day by year-end line up with our target for the year.

Additionally, the Ecopetrol Group launched Ronda Campos 2020, an initiative to offer its entire stake in 9 development and production assets, 6 of them owned by Hocol and 3 by Ecopetrol. This asset divestment process is part of the company's portfolio turnover and supports the Ecopetrol Group's strategic pillars.

During the quarter, we tested transporting heavy crude of 650 centistokes in some of our main pipeline systems, which will allow us to have greater dilution efficiencies. Currently, we are analyzing the economic feasibility of the scheme.

The downstream segment presented operational stability along its business units. The refineries reached the combined gross margin of $7.4 per barrel and a consolidated throughput of 324,000 barrels per day. Looking into these figures, it is worth noting that as of September, the refineries reported a 50% recovery of the throughput levels versus April, our most critical month in 2020. For year-end, we expect the consolidated throughput within the range set for 2020 between 300,000 and 320,000 barrels per day.

The Cartagena refinery achieved 2 monthly records during this quarter: a full capacity throughput exclusively with domestic crudes in September, and an average distillate yield of over 65% in July.

In our petrochemical business, Accenture continues to exceed a remarkable operational performance. During the quarter, it reported historical polypropylene production highs and sales volume records.

Please continue to the next slide to review our gas initiatives. Our gas operations posted an EBITDA margin of 55% and contributed close to 34% of the upstream segment's EBITDA. Gas and NGL production reached 141,000 barrels of oil equivalent, an increase when compared to the same period of the previous year, mainly due to the effect of the acquisition of Chevron's interest in the Guajira fields and the commercial management for gas surpluses due to the decrease in demand.

Ecopetrol maintains its social investment in natural gas, aiming to connect at least 18,000 new users by 2024. Through this initiative, 692 new users have connected as of September this year.

During the third quarter, we completed the 2020 natural gas commercialization process from major fields. Our commercial strategy allowed us to contract 100% of the clients' needs in contracts with the duration ranging from 1 to 7 years.

Please, let's move on to the next slide. In Colombia, the regulatory framework to develop the comprehensive research pilot projects is in place, so we may move forward with the ANH contractor selection process for the assignment of the special research projects contracts setting. If we are awarded with the contract, we would begin the process of obtaining environmental licensing before the authorities.

Regarding our business in the Permian Basin in Texas. As you may recall, we resume activities in late July with 2 rigs currently in operation, together with our partner, Oxy. During the third quarter, we drilled 5 new wells. By the end of 2020, we expect to have 22 wells in production, 22 wells drilled to be completed during the first quarter of 2021 and an estimated average net production for Ecopetrol in a range of 5,000 to 5,500 barrels of equivalent per day before rollout.

Let's move on to the next slide in order to discuss our efforts in terms of costs. For 2020, we have incorporated COP 3.5 trillion in savings into our annual plan, which have been gradually reflected in the company's financial results. During the third quarter, the total unit cost was $24.5 per barrel, a significant decrease compared to the same period in 2019. This is explained by a 28% reduction in costs, mainly in purchases and imports, as well as a 10% reduction in fixed costs. The lifting cost was $7.1 per barrel for the year, a decrease of 19% versus the same period of the previous year, explained mainly by the renegotiation of tariffs, decrease and shift of activities and the exchange rate effect. For the fourth quarter, we foresee an increase in costs associated with the reopening of wells, which will enable profitable production. Notwithstanding the above, I wish to reiterate our commitment to achieving greater efficiencies in order to reach a more profitable and sustainable operation over time.

I now give the floor to Jaime Caballero, who will share information on the group's financial results.

Thank you, Alberto. EBITDA for the quarter was COP 5.3 trillion, reverting to the level reached in the first quarter of this year despite lower Brent reference levels, lower production and sales, thanks to improved realization prices, operating performance and OpEx optimizations, which contributed towards an EBITDA margin of 43% comparable to 2019 levels. I'd like to highlight the turnaround in EBITDA generation across the upstream and downstream segments, which are once again showing positive results, some even higher than those experienced in the first quarter and generating an EBITDA per barrel of $22.5, the best year-to-date.

Cash indicators exhibited a major improvement during the quarter. The business reached a positive free cash flow, reversing the trend of the first semester. Cash breakeven, which is the Brent price necessary to fulfill the commitments of the period considering all inflows and outflows, was $26.6 per barrel.

Thanks to the increasing cash flow from operational activities, we prepaid short-term obligations for the amount of COP 1.6 trillion equivalent. If current market conditions remain, we anticipate a strengthened gross debt-to-EBITDA year-end closing position versus our previous estimates.

Net income breakeven was $38 per barrel, the lowest year-to-date, demonstrating the increasing impact of the interventions carried out to guarantee the Group's resilience to the new market conditions.

Please, let's move on to the next slide to discuss the income for the quarter. Net income for the third quarter of 2020 increased compared to the second quarter mainly due to a COP 1.9 trillion increase in revenues due to a higher sales basket price, which grew 23% more than the Brent reference, supported by a commercial strategy that captured the improvement in demand conditions for both crude oil and products.

Second, the positive effect associated to the increase in sold gas and products. Third, improving operating costs and expenses, thanks to the austerity plan and higher valuation of inventories, which were partially offset by higher expenses associated to the reactivation of operations and wells reopened.

Fourth, the net financial expense showed an increase of COP 420 billion, mainly due to a lower mark-to-market valuation of the securities portfolio, linked to volatility as well as the premium paid in the makeup of the Ocensa bond, which allowed the extension of its maturity profile from 2021 to 2027.

Fifth, during this quarter, we did not recognize material nonrecurring events as those observed in the previous quarter, the most relevant being the business combination revenue of COP 1.2 trillion associated with the acquisition of offshore gas assets in Guajira fields.

Finally, the income tax provision for the third quarter was higher as a result of income increase during the period with an effective tax rate for the quarter of 33.3%. Net income reached COP 855 billion, the highest year-to-date.

Let's please continue to the next slide. Operating cash flow, including variations in working capital, amounted to COP 3.5 trillion. CapEx outflows during the quarter reached COP 2.1 trillion, underpinning a positive free cash flow for the quarter. During the period, the dividend outflow amounted to COP 2.9 trillion, of which COP 2.4 trillion were paid to the nation as majority shareholder and the balance to noncontrolling shareholders of our transport subsidiaries and Intercolsa. During the fourth quarter, we expect to pay the remaining balance due of COP 3.2 trillion to the majority shareholder.

Net debt-related disbursements for the quarter totaled COP 1.9 trillion, highlighting among these, the repayment and refinancing operation of Ocensa's 2021 bond as well as the prepayment of Ecopetrol's short-term obligations.

Our cash position closed at COP 12 trillion, reflecting the Group's ability to deliver the business plan while maintaining cash management discipline.

Let's please continue to the next slide to view the execution of our investment plan. CapEx execution as of September totaled $1.8 billion, with 71% directed towards growth opportunities, mainly to the drilling campaigns carried out in the Permian, Castilla, Rubiales and Llanito fields, among others. The execution rate has been lower than expected due to, firstly, measures implemented to decrease the spread of COVID-19 cases, which required the postponement of activities, mainly in Rubiales and Cano Sur fields and the Cartagena and Barrancabermeja refineries; secondly, community blockades resulting from the current situation in certain territories; and thirdly, operational factors that affected execution schedules and extended project maturity time lines.

On the other hand, efficiencies have been achieved due to lower project costs in Castilla, Rubiales and Tibu fields, among others. Although execution challenges remain, we expect a strong acceleration in terms of CapEx execution during the fourth quarter as compared to the previous 2 quarters, maintaining growth trend observed in September.

The CapEx execution increase in the fourth quarter is underpinned by the reactivation of facilities investments, an increase in workovers, drilling and completion in the main fields and the operational continuity projects in all segments, leaving the total execution for 2020 in a range of $2.5 million and $3 billion.

I now give the floor to our President, Mr. Felipe Bayon, for his closing remarks.

Thank you, Jaime. During the third quarter, we continued to move forward in our commitment to technology, environment, social and governance, TESG. In our social front, by the end of September, Ecopetrol has allocated some COP 192 billion to social and environmental investment compared to an investment of COP 60 billion for the first 9 months of the past year. As a milestone, for the quarter, we joined The Valuable 500, a global movement made up of companies committed with the inclusion of people with disabilities within their operations.

In terms of governance, the company will report again to the Dow Jones Sustainability Index and to the carbon disclosure project and it formalized its adhering to the International Petroleum Industry Environmental Conservation Association, IPICEA, to promote environmental and social improvements within the performance of oil and gas industry. Likewise, we continue to make progress in evaluating the adoption of the Sustainability Accounting Standards, SASB, as and the Task Force on climate-related Financial Disclosure, TCFD, recommendations.

On the environmental front, we highlight achievements in 4 axis of our strategy. First, we increased our water reuse percentage from 62% in 3Q 2019 to 64% at the end of the third quarter 2020.

Secondly, regarding our strategy in fugitive emissions, around 20% of the total facilities of the production vice presidency have been monitored, identifying 752 leaks. As of September, we have already repaired and closed 66% of them, that equates to some 496 leaks, and we have a plan for the definitive closure of the remaining leaks.

Thirdly, leveraged on technology, progress is being made in the analysis of satellite images from the European Space Agency, performing in order to identify the areas with the highest methane concentrations in our operations in Colombia. We expect this analysis to be concluded by December 2020.

Finally, in August, we signed a contract for the construction of the San Fernando Solar Park with a capacity of 59 megawatts, which will be the largest self-generation solar park in Colombia, and this construction scheduled to begin in November 2020. To meet our target of 300 megawatts of generation capacity from renewable sources by 2022, we have launched the competitive processes of a new wave of projects for a total of 112 megawatts in different regions in Colombia.

Let's move on to the next slide. Ecopetrol has demonstrated its resilience, adaptability and the commitment of its employees to an efficient operation that is safe, ethical and responsible. For the year-end, we remain committed to our main operational, financial and technological, environmental, social and governance, TESG, metrics, of our new 2020-2022 business plan presented to you in the last quarter, which protects the main pillars of our corporate strategy, guaranteeing the Group's sustainability and ratifying our commitment to climate change action, energy transmission and social development in the regions where we operate.

Before moving on to the Q&A session, I invite you to download the TESG dashboard from our website. This is a new report designed for you, includes historical data on the main environmental, social and governance indicators as well as the Ecopetrol's targets to move towards a sustainable future.

Thank you all, again, for joining us in this conference call. Now I would like to open the call to the Q&A session.

(Operator Instructions) We have a question from Gabriel Barra from UBS.

I have two questions from my end here, the first regarding the development of the unconventionals in Colombia. With this new platform, the country has now the guidelines required to advance towards the execution of those pilot tests, right? Do you have mentioned or showed interest in these new development opportunity?

And my question is after the result of the sat launched by the National Hydrocarbon Agency select their contract next month, what would be the next steps here? And how should we think about the time line of the unconventionals development in Colombia? And I mean when should we expect the first unconventional coming from these developments? And how the company sees this side of this new market?

On lifting costs, looking for the figures that the company has reported year-to-date, they are much lower than what the company were running in 2019 around $8.50 per barrel. And my question here is if this is the normalized level going forward, and if we should expect any effect from the maintenance delays in 2020 to 2021 lifting costs or in the fourth quarter results?

If I may, I have just one more here on the domestic demand. And we saw during the presentation that the company expectation regarding improvement in fuel sales for the last quarter, but this is still below the levels pre-COVID, right? And my question is regarding the company's estimates in relation to the return of this demand to the next year. And how do you see the base case for 2021? So that's our questions here.

Thank you, Gabriel. I'm going to take the first part on unconventionals, talk a little bit about demand, and I will ask Alberto Consuegra to talk about lifting cost.

In terms of the unconventionals, again, the regulation, the norms around how the development of the pilot projects will be conducted is out, has been presented by government. And we hope that by the end of November, we will sign the contracts with the ANH. As you know, Ecopetrol has been prequalified already, and we've stated publicly that we want to be operators in this area.

So what comes next? We want -- or we need to conduct all the work related to the environmental impact assessment studies that will inform the request for the licenses of the pilot projects. So that's some work that will start by year-end this year, big, big people work around the licensing and the support for the license request.

In parallel, we will start all the preparation work to do the study works, construction works for the well pads, all the proprietary work for the contracting of bricks and logistics and everything else. And once we have the licenses in place, we will be able to start construction and then operations. So I wouldn't put a specific date on when that activity will start, specifically drilling and then completing of the wells and tracking of the wells, because it's largely dependent on the licenses themselves.

In terms of the time line for the development, as you know, we're concentrated right now as a country on doing the (foreign language), the pilot projects. And once the pilot projects give the result, we can, as a country, decide based on the science and the technical data on the potential impacts of the activity and how to mitigate those impacts, we will have clarity on the timings.

But one thing I would stress, though, is that if you look at the -- again, it's probably a proxy for this, if you look at the experience we've had in the Permian, in Midland, in Texas, from November when we started production in that area of operations, we've ramped up quickly to close to 18,000 barrels by the end of June. So in short cycles, it's activity that you can very quickly deploy and very quickly bring into production and into the market. But again, the final answer will depend on how the pilot projects advance and the results of those.

In terms of domestic demand, if you look at gasoline and diesel mainly and ballpark numbers, pre-COVID, we were at 120,000 barrels per day for each one of those, so diesel and gasoline, and gas was at 30,000, roughly. What we're seeing right now, in ballpark numbers, are 110,000 for diesel and gasoline. Gas is still below. And you can imagine that as flights have resumed, but very limited in terms of the numbers of flights and planes, that would probably take a bit more time in terms of recovery of demand. But we do expect diesel and gasolines to come back to pre-COVID, prepandemic numbers. Gas, I think, will have some uncertainty.

Alberto, please go ahead with the question around lifting cost.

Gabriel, thanks for your question. With regard to listing cost, and we have to remind that during this -- during the second quarter, we had to stop activities and basically operate with the minimum value. That took out us, the lifting cost almost $7 per barrel.

As we have been reopening fields and reopening wells, the lifting cost has slightly increased. When you see the third Q, you look at a lifting cost of $7.2. And what we see by year-end is a slight increase, and we'll be ending the year, probably in the range of $7.4 to $8 per barrel. And that will be because of ensuring that we reopen or close production because of our price and also because we have been able to cope with some operating closedowns associated with social unrest.

Our next question comes from Bruno Montanari from Morgan Stanley.

I have two questions. Felipe, if I may, a follow-up from the Spanish call. I believe you mentioned that reserves could potentially decline between 15% to 20% to the information available to date. I just wanted to check that this is purely based on the oil price movement only, or if it also accounts on any other technical aspects that the company might have revised in the process of start building up the reserve report?

And my second question is about gas. And first, thanks very much for providing more granularity on the gas results. It's very useful for us. And you show that your gas margins are actually quite attractive, especially while oil prices remain depressed. So with that in mind, would it make sense perhaps to increase investments in gas versus oil in the coming years?

Bruno, thanks for the question. In terms of reserves, I'll take the last question, and I'm going to ask Yeimy Baez, Gas Vice President, to take the second one, but I'll provide some context.

So in terms of the guidance that we see right now, the 15% to 20% decline in reserves, is a number that we see factoring everything in. So it does have a view on prices. It does have a view of our level of activity, our level of investment, some of the difficulties that were mentioned in the call in terms of the ability to go back to higher levels of activity. So even though we've gone back to over 350 work fronts around the country, those -- that guidance, so it does reflect our view on how the fields are performing, how the price will look and our level and our ability to do activity.

And it also has a view on the next 5 years plus, as we see investment. Remember that we've revised our CapEx down from close to COP 17 billion in the next 3 years. This is when we talk about the line in early March to later when we came back and said that we see ourselves investing between -- somewhere between $11 million and $13 billion in the next 3 years.

So it's a combination of everything. And it takes into account the things that we will need to debook, but also takes into account the additions that we make to the books. And one of the comments I was making this morning was the fact that we debook reserves properly in that they don't exist anymore. So we're just pushing them out into a different category. I think that the challenge for us is how do we get back quickly to a reserve replacement ratio of over 100%, and that will depend largely on -- again, our ability to deploy CapEx, our understanding of the fields, the use of technology. So it's, again, I think, a very, very holistic view of things.

In terms of gas, we signaled, in the next 3 years, $780 million of investment to $870 million. Clearly, a big focus in our strategy. And I do believe there's opportunity for us to accelerate some of these investments.

So Jaime, if you can go ahead and give us a bit more detail and color around our gas outlook, please go ahead.

Sure. Bruno, thank you very much for your questions. First, I would like to emphasize that gas has a strategic priority position within the Ecopetrol business plan, being an essential fuel in the energy and economy transition.

As we have said and Felipe just mentioned that, we will invest about $800 million in the 2020-2022 period in projects related to exploit potential in the Colombian foothills, Caribbean onshore and offshore and unconventional basins. Of course, to be consistent with our strategic intent, we are actively looking for opportunities to create optionality and deliver growth. In particular, I would like to highlight resources of opportunities to increase our investment outlook.

First, in the foothills, we are in the process to mature debottlenecking projects to maximize the production and deliver the full potential of that basin.

Second, if we are successful in exploring the foothills and Caribbean place, the investment will significantly increase to develop those resources. Also, we continue pursuing new exploration opportunities by matching new prospects within our current portfolio.

And finally, I would say that we are committed also with a sustainable business, and therefore, we are planning also to increase investments in social projects to provide access to gas and LPG to the most vulnerable communities in Colombia. And from an environmental perspective, we are striving to increase users of gas in transportation and to become the supporting beam for electricity generation.

I hope I answered your question, Bruno.

(Operator Instructions) We have a question from Lilyanna Yang from HSBC.

This is Lily here. Just a quick question, please. I wonder why the midstream business was weak quarter-over-quarter. I don't know if you addressed that in the beginning, but volumes came up, right, in the third quarter versus second quarter. And I think that the tariff discounts that you are giving to the producers, they also were already lifted. So can you explain how I could see the business going forward?

Lily, thanks for being on the call, again. Appreciate your question. I'm going to ask Milena Lopez from the Midstream segment to take your question around the performance in the quarter. Milena, please go ahead.

Thank you, Felipe. Lily, thank you for your question. When you look at second quarter numbers versus third quarter numbers, at the midstream level, you basically have 3 sources of revenue. You We have refined product pipelines where volume was up and, consequently, revenues were up. Basically, we go from approximately COP 438 million to COP 529 million, so you have COP 91 billion increase in terms of the refined product pipeline.

However, at the same time, when you look at production and volumes that are transported to a crude oil pipeline, there's an impact in the change of the way volumes are routed. The big difference between second quarter and third quarter, if you remember the results from the refining segment, is that when we look at the volume that was being used at Barrancabermeja refinery, this was up by approximately 40,000 barrels when you compare second quarter to third quarter.

So when you look at the impact of this in the transportation segment, as we are giving approximately 40,000 barrels per day more in volume through the Barranca refinery, these are volumes that no longer continue through the rest of the path that takes them to Covenas port.

So these 40,000 barrels are part of our total volume because they are delivered to the refineries, but they no longer go to a segment, and they don't pay the export fees at port, or they no longer go to the Ayacucho Covenas segment and don't pay export fees at port.

So basically, what you see is while evacuated volumes are the same, there are 40,000 barrels that are no longer making a support because they go to the refineries, hence, they pay a total overall tariff in the system that is lower when you compare second quarter to third quarter.

Going forward, you should continue to expect to see this behavior as we continue providing transportation services to Barranca and these barrels no longer make it to ports because they're used by the refinery. And that in the end compensates for the increase in refined product pipeline.

We have a follow-up question from Bruno Montanari from Morgan Stanley.

I joined again for two more questions. First one on the oil price basket. It was very interesting to see that you returned basically back to the same level of discounts before the crisis at around $5 a barrel. Should we expect this to remain stable at those levels? Or do you see an opportunity to capture even better realizations going forward on the back of your oil slate?

And then the second question is about the CapEx range for the fourth quarter. I fully understand that you had the budget for the year with a variance of $500 million, but it strikes me a little bit odd that we're already in November and there's still such a big variance of $500 million. So are you more inclined to be on the bottom end of the range, or the top end of the range for the CapEx in the year?

Thanks, Bruno. And I'll give you some context, and I'll ask then Pedro on the oil price for base crudes and Jaime and Alberto add any comments on Capex.

So in terms of the basket from our -- for our exports, please bear in mind that normally, we sell our crude 2 months in advance. So crude for November, December have been placed to varying markets, and we are actually seeing a good behavior in that sense. And again, we estimate the year should finish in good shape.

And as you know, we saw a very dramatic drop in 2Q, very, very difficult. But our crudes are considered part of the base run or the base load for the -- some refineries in China, and you saw that we've expanded some of our destinations to India and Korea.

So I think that's part of how we should view the question. Obviously, there's still uncertainty around the top line, which is the price for Brent.

In terms of CapEx, as I said, I'm going to ask Alberto And Yeimy to comment. So Pedro, if you can give us some more color around the discounted price basket, that would be great. And then, Alberto or Jaime, on the CapEx?

Pedro?

Yes. Thank you, Felipe, and thank you, Bruno, for your question. Yes, certainly, because of the market conditions in the third quarter, what we are seeing is the demand is recovering. And as demand recovered, our discounts were much lower compared to the second quarter. And -- but they're coming back to levels that we had in the first quarter and the average discounts that we saw last year. And this is basically due to the commercial strategy that we have been working on for quite some time because, as Felipe mentioned, most of our crude has been able to be placed in customers that use it in the base runs of the refineries. And most of the crude is going into end users.

And the other thing is that we're very active in looking for the best markets to place our barrels. And then we have been able to sign long-term contracts with end users, refineries in specific markets like Asia, the U.S. Gulf region, the Eastern part of the United States as well and Europe. So what we're doing commercially is that we basically place our barrels, whatever we can have the best realization for the barrels.

And basically, our business combined to the focus that we've been giving to our crudes for exports regarding quality because quality has been very stable, and we are -- we have a very competitive edge with our Castilla because of the low sulfur and the stability and the quality and also because we deliver barrels on time. So there's a lot of reliability from our side, and that's why we've been recognized by the market and our customers as one of the best crudes -- heavy crudes from Latin America.

So what we foresee also is that we already -- we're done for the year. Our production program has already been placed in the market. And actually, next week, we're going to start selling barrels in key markets for the beginning of the year.

So we already -- we're seeing that because of all these conditions together, the discounts are very good and realization will be optimized and maximized over time going forward. Thank you.

Bruno, with regards to CapEx, we feel very comfortable with the CapEx deployment in terms of the midstream and the refining segments as well as in exploration. But the uncertainty comes with CapEx associated with development. And specifically because we are going to -- although we are ramping up activity and we feel that October has been kind of a good month, I have to remind you that we still are facing the pandemic. And there is uncertainty in the degree of the pandemic during the months of November and December, how that is going to affect our operations, specifically in regions like Llanos and Magdalena, the middle Magdalena. So that's why we still maintain the range. Hopefully, in November, we can have a better view on how the CapEx will go.

(Operator Instructions) We have no further questions at this time. Now I will turn the call back to Mr. Bayon for final remarks.

Thank you. And thanks, again, everyone, for being here today for participating in the 3Q conference call for Ecopetrol. We value your insight, we value your questions, we value that you follow the company. And we will continue and strive to work to ensure that we can provide timely, transparent and relevant information that can help your analysis.

3Q shows signs of recovery after a very, very tough, very difficult second quarter. We're seeing different aspects of the operational side of the business that are improving, that are showing resilience of the company and that are then transferred into the financial side of the business and the results that we've shared with you today.

Thanks, again, for your participation. We hope that you stay safe. And hopefully, we'll be able to chat again very soon in the near future. Have a great day.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.