Ecopetrol SA (EC) 2021 Q4 法說會逐字稿

Good morning. My name is Gilda and I will be your operator today. Welcome to Ecopetrol's Earnings Conference Call, in which we will discuss the main financial and operational results for the Fourth Quarter and Full-Year of 2021. All lines have been muted. There will be a question-and-answer question at the end of the presentation. Before we begin, it is important to mention that the comments in this call by Ecopetrol 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 risk 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 our fourth quarter and full-year 2021 conference call. This presentation explained in the context of the new corporate strategy, energy that transforms. Committed to our culture of principle, life first, I want to begin highlighting that in 2021, we had 0 fatalities in our operations and achieved the lowest ever total recordable injury frequency rate dipped in the company's history.

In 2021, we generated revenues of COP 91.7 trillion, a record EBITDA of COP 42 trillion as well as the highest net income in the history of our company of COP 16.7 trillion. Even excluding the contribution of Interconexión Eléctrica ISA, during the last 4 months of the year, Ecopetrol's results are still the highest in our history. These remarkable results were levered by the recovery of crude oil prices and magnified by our ability to adapt and respond to the challenges in the environment. The tenacity, efforts and commitment to keep safe operations of all the employees of the Ecopetrol Group who make impossible possible, allow us to achieve a solid and resilient operational performance across all of our business segments, while outstanding commercial strategy materialize into better crude and product spreads.

Let's move on to the next slide, please. The financial results for 2021 exceeded the targets we set for the year, creating value to all the shareholders. We highlight the solid operating cash flow generation, which funded our organic investment plan for the year and the coverage in the development of our strategic assets. On the operational front, we're able to guarantee domestic fuel supply, even with an increase of more than 25% in demand when compared to pre-pandemic levels. Also we ensure domestic gas supplies overcoming the supply prices, climate-related infrastructure impacts and the public order situation that affected Colombia during the second quarter of year 2021.

Our financial results in particular, the EBITDA margin, the ROCE and the annual growth of net income posted an outstanding performance as compared to our peers in industry. It demonstrates once again the advantages of being a diversified energy group capable of combining the benefits of the integrated hydrocarbon businesses with those of the energy transmission and infrastructure segments.

Let's move on to the next slide. This historic results are aligned with and propel our long-term strategy, energy that transforms, which is paid from 4 pillars ends at consolidating the group as an agile, dynamic, resilient and flexible organization capable of rapidly adapting to constant changes. During 2021, we made important progress in our strategic agenda, with the accomplishment of several milestones, some of which I want to highlight.

We grew the energy transition resuming the positive growth path in our core businesses and diversifying those with the acquisition of ISA. We generated bodies through TESG, technology, environmental, social and governance setting ambitious decarbonization target by 2030 and 2050, with significant progress in water management and contributing to economic reactivation through social investments in more than 287 projects. In terms of cutting-edge knowledge, we advance in our digital transformation with a strategic portfolio that adds value through innovation in different processes.

In 2021, we captured benefits for some USD 93 million in our digital agenda. Finally, in the figure of competitive returns, we achieved a ROCE of (inaudible) our cost of capital. Let's go to the next slide.

ISA integration through the Ecopetrol Group is now a reality. It's results potential for growth and synergies have proven its value to our shareholders. In 2021, ISA reported solid operational results and continued its inorganic growth plan. The most important milestone of the year was the awarding to build and operate the Kimal-Lo Aguirre transmission line, a project that comprises more than 1,400 kilometers and one of the most important electric power transmission projects in the continent. This will be the first direct current line in Chile that will connect the renewable project in the north to the center and south of the country, leveraging the decarbonization of its energy mix.

I would also like to highlight the acquisition of the 100% stake in the Brazilian Power Transmission Company, PBTE and the approval of the first large-scale energy storage project in the Brazilian transmission system, which is expected to begin operations in November of the current year. During the last 6 months, we have made progress in the integration of ISA to the Ecopetrol Group. By year-end, the actual sales with all the milestones set for the financial consolidation of ISA and for the contractual obligations established in the Inter-administrative agreement that supported the transaction between Ecopetrol and the Colombian government.

In addition to aligning the strategic KPIs between both companies, we established working groups to identify, prioritize, evaluate and develop potential synergies in the following areas. New ventures in energy transition, ISA's entry into the US market, savings in procurement, optimization of Ecopetrol's electric power infrastructure, linear infrastructure through CENIT, size, technology and innovation, environmental, social and environmental management, information, technologies and cybersecurity.

ISA's potential for growth is very relevant and Ecopetrol will contribute to identify and materialize inorganic alternatives as part of its USD 36 billion CapEx pipeline already identified until year 2030. I will now open the floor to Alberto Consuegra, who will tell us about the main operational achievements of the year.

Thank you, Felipe. In 2021, we drilled 13 exploratory wells exceeding the initial plan by 4, 11 were in Colombia, one in the United States and one in Mexico. By the end of the year, 3 wells were declared successful, LIRIA YW-12 located in Piedemonte, which as of December 31st had a cumulative production of 29,725 barrels of oil. Boranda Sur-2 declared commercial and Flamencos-3 about to start its extensive tests. In January 2022, the Hocol subsidiary announced the discovery of the Ibamaca-1 exploratory well with 17 degrees API oil. This finding is close to the existing infrastructure in the Tolima block, which will allow the entry to production from extensive tests in the first half of the year.

As a result of the 2021 round of the National Hydrocarbon's Agency, Ecopetrol obtained 3 technical evaluation areas in the middle Magdalena Valley and one exploration and production block in the Llanos Orientales region. In addition, Hocol obtained an exploration and production block in the Sinú-San Jacinto basin. The cumulative production of the exploratory assets in initial tests, extensive tests and wells in post commerciality reached about 1.5 million barrels of oil equivalent at the end of the year, with an average flow of 4,364 barrels per day, out of which 65% of the production corresponded to crude oil and 35% to gas.

According to the 2022-2024 investment plan, previously announced to the market, this year we expect to carry out a program that includes 22 onshore wells and 2 offshore wells with an investment of approximately USD 391 million. With the tuning of the Gorgon-2 well, we hope to define the development of this discovery and enable other exploratory opportunities identified in the area.

Let's move on to the next slide please. 2021, as we pointed out, was a challenging year in terms of production, given a combination of factors that negatively affected us, including operational restrictions in the Cupiagua field, public order distress during the second quarter of the year, the rainy season in Colombia and the hurricane season in the Gulf of Mexico, in line with the recovery expectations and due to the growing contribution of assets such as Permian, the production for the fourth quarter increased by 11,000 barrels equivalent per day as compared to the third quarter. With this production, we closed the year at 679,000 barrels equivalent per day.

We highlight the extraordinary results in terms of reserves in corporation, which registered an additional 462 million barrels as compared to 2020, out of which more than 60% correspond to the company's performance and the remaining 40% is of course of a favorable price scenario, closing with a replacement ratio of 200%. For 2022, we expect primary crude oil production to remain predominant, but we will preserve efforts towards secondary recovery expansion with water injection, mainly for heavy crude oil assets and tertiary recovery pilots.

On conventionals, we'll continue to increase their contribution to production and we expect this participation to be 5% out of the company's total production for this year. Thanks to the activities in the Permian. We highlight its research contribution as well, which allow inside Ecopetrol America accounts for 11%. During 2022, we will focus on overcoming the challenges that may arise due to the logistics and international supply difficulties and the public order situations.

On the other hand, the average production of gas and LPG stood at 150,000 barrels of oil equivalent per day in 2021, which represents a growth of 7% from 2020, driven by the recovery of demand. We expect a similar growth for this year in domestic demand. Gas and LPG business delivered solid financial results, with a combined EBITDA generation close to USD 807 million and a margin of 53%, representing an increase close to 21% compared to the previous year.

The gas supply to the Colombian market was strengthened with an additional potential of around 84 giga BTUs per day, equivalent to 9% of the national demand in 2021. We highlight the exploratory success of the LIRIA YW-12 well and the appraisal and development wells in the North Caribbean by Hocol. The work covers into 2.0 power, self-consumption optimizations and new offer from (inaudible), aligned with our TESG pillar in 2021 Ecopetrol promoted the reduction of LPG prices by 30% in benefit of final users and managed to connect more than 6,100 lower-income households to domestic natural gas networks to improve their life quality, those adding more than 10,000 connections since 2019.

Let's move on to the next slide please. Regarding unconventional reservoirs, on October 29th, 2021, Kale's environmental impact study was filed, launching the process of evaluation and approval of the environmental license for the execution of the project. And on February 15th of this year, the same story was filed for the Platero pilot complying with the milestones of the plan. An exhaustive work exercise was carried out independently for approximately 9 months for the formulation of each of the environmental impact studies, including monitoring of more than 200 environmental parameters and the analysis of information by interdisciplinary teams of more than 150 people.

The public environmental hearing regarding the Kale's pilot took place despite the acts of vandalism that sought to prevent its realization. The environmental hearing was held from a satellite point given the possibility to the community for more than 7 hours to be heard virtually all through telephone calls. We remain committed to an open dialogue addressing the concerns from groups of interest in the phones arranged for this purpose.

Regarding our activities in the Permian Basin, 2021 concluded with 82 new wells in production for a total of 104 or 9 wells, an average of 19,300 barrels of oil equivalent per day were produced. And for 2022, an increase is expected, reaching levels between 32,000 and 34,000 barrels of oil equivalent per day net for Ecopetrol prior to royalties. The construction of the water recycling facility was concluded with the capacity to treat 65,000 barrels per day and a storage capacity of 3 million barrels, allowing the joint venture to recycle and use around 7.7 million barrels in completion operations.

During the fourth quarter of the year, this plant allowed Permian to reuse a 100% of the water at South [Curtis] Ranch. Continuing with the strengthening of our strategy with cutting edge knowledge, we increased to 25 the number of Ecopetrol employees have signed a second lease in the association's operations. Similarly, I would like to highlight a few operational milestones achieved by the Permian during 2021, such as optimizations and spot to rig relief, improvements in average drilling time and a record pumping time exceeding in some of these parameters, our peers' performance.

Let's move on to the next slide please. During 2021, the transported volume of refined products increased by 20% as compared to the previous year, thanks to the recovery of local demand, mainly in the Galan-Vasconia corridor. The transported volume of crude oil in 2021 decreased 7% because of a lower production mainly in the Llanos areas. The fourth quarter presented a similar level to the previous year, highlighting higher volumes evacuated in the southern corridor. 8 reversal cycles of the Bicentenario pipeline were carried out during the quarter to ensure the evacuation of the Cano Limon field after the pipeline's damage caused by third parties and by clots emergencies.

After the repair work, the pipeline resumed operations on November 29th. Along with the reception of the Nare Association fields from Mansarovar in November, CENIT implemented a successful action plan to achieve the evacuation of such fields, guaranteeing the safety of the processes and the integrity of the equipment at the Vasconia station, with another value from the dilution system, which we use to guarantee mixes from NAFTA at the queries dispatchable to the Barrancabermeja refinery and alkylation unit Colombia to Coveñas.

Additionally, transported volume in the Vasconia system through Barrancabermeja refinery increased 10,000 barrels of oil per day. The codilution projects in Apiay and Cusiana enabled the use of LPG as a diluent for crude oil. This service allows the use of a cheaper diluent with a higher dilution power and lower logistic costs.

On December 7, the delivery of fuels at the Apiay pillar came into operation, relieving the flow of heavy load on the road to [Lejana] by around 600 time trucks per month and enabling an alternative supply option to ensure liability and the supply to the matter requirements and to reduce CO2 emissions.

During November and December, CENIT Oleoducto de los Llanos and Oleoducto Bicentenario received the carbon neutrality certification granted by the Colombian Institute of technical standards becoming the first companies in the Colombian oil and gas sector to receive this certification. Our target for 2022 is for all the companies of the segment to achieve this certification.

Let's move on then to the next slide, please. Downstream's operational integrity prevailed achieving exceptional financial results. In the same way, the segment ensured a supplier fuels at a local level, satisfactorily addressing the reactivation of the productive sector and reassuring the country's energy security. The segment achieved an annual record EBITDA of COP 3.5 trillion and the highest annual EBITDA margin since 2016 reaching 6.9%, leveraged by financial discipline and cost control.

During the fourth quarter of 2021, the segment achieved the highest integrated gross margin of refineries in the last 3 years, standing at USD 12.5 per barrel. In Barrancabermeja, we highlight the satisfactory execution of the shutdown plan at the petrochemical train and the crude and alkylation units of the refinery. At Cartagena's refinery, we expect the start of the first shutdown cycle since the beginning of its operation, which will continue during 2022 altogether with the entrants in production of the interconnection project of the original crude unit of the Cartagena refinery, with the new refinery planned for the second quarter of this year, along with the corresponding gradual incorporation of benefits.

In Ascentia, polypropylene production reached an annual all-time record of around 500,000 tons, thanks to the development of efficiency projects and its operation rate maximization, which started back in 2020.

Let's move to the next slide, please. So 2021, we achieved efficiencies for COP 2.9 trillion, out of which COP 1.4 trillion offset the pressure on OpEx caused by inflation and the reactivation of operations. This is protected in the total unit cost of USD 39.1 per barrel at the end of the year, which represents an increase of 6.5% as compared to 2020 in normalized terms and contrast with a growth of 10.6% if efficiencies have not been implemented.

The efficiency initiatives achieved in CapEx for COP 833 billion are aligned to the significant reduction achieved in drilling and completion costs. Although, cumulative lifting cost of 2021 registers an increase when compared to the previous year, the strict cost control of the company allowed it to reduce the unit values of cost per barrel transported because of the lower consumption of materials and also the cost of refining due to the deployment of strategies identified as part of the zero-based budget methodology implemented by the end of 2020.

I will open the floor to Jaime Caballero, who will walk you through the main financial results of the Ecopetrol Group.

Thank you, Alberto. The historic financial results achieved in 2021 were leveraged by a favorable type environment and a highly effective commercial strategy that enabled the capture of distinctive differentials for crude and refined products. This together with efficiency initiatives and a sound capital discipline practice resulted in a significantly higher ROCE than our weighted cost of capital. It is worth highlighting the contribution to the results of the sustained and reliable production from our Permian operation, the incremental financial return of the Energy Transmission and Roads business and the Cartagena refinery, which this year also obtained a record EBITDA generation and gross refining margin.

In 2021, Ecopetrol group's net income was 10x higher than the one recorded in 2020, a record high result, closing at COP 16.7 trillion. The following aspects stand out. First, a COP 21.6 trillion increase in EBITDA when compared to 2020 in line with higher sales of products and gas, lower labor cost and other expenses which mitigated the impact of cost increases derived from the economic reactivation, higher participation in fields such as Nare and Piedemonte and higher fees and contracts among others.

Secondly, a decrease of COP 0.5 trillion in the nonoperating results related to lower portfolio profitability, given market conditions and the increase in interest expenses due to higher leverage levels. Third, an increase in depreciation charges of COP 0.5 trillion associated with a higher level of capital investment and the increase in Permian's production. Fourth, higher income tax provision due to improved results and fifth, nonrecurring events of COP 0.5 trillion with 2021 being a year with a near 0 effect for impairment net taxes, compared to an impairment expense in 2020 of COP 530 billion and income of taking that year from the effect of the business combination due to the additional state in the Guajira asset.

In 2021, the effect of the annual asset impairment exercise considered better short and medium-term crisis outlook for the upstream segment, the decision to expense the remaining balance of investment associated with Barrancabermeja refinery modernization plan, which was partly offset by the Cartagena refinery's operational and financial consolidation. Thirdly, a lower bottleneck outlook for the Tumaco Port and the Transandino pipeline in the midstream segment.

Fourth, the financial effect of the approval of the agreement between Frontera, CENIT and Bicentenario, generating the recognition of an income of COP 0.7 trillion net of taxes. And finally, the acquisition of ISA that contributed COP 0.3 trillion to the net income corresponding to Ecopetrol's participation in the result for the 4 months after its acquisition.

Let's please go to the next slide to see the main aspects of the commercial performance and its contribution to the group's results. The commercial strategy is consolidated as a key lever of Ecopetrol's financial performance to the capture of benefits on fronts such as asset-backed trading, diversification of export destinations, adoption of VAP practices in our negotiations for different shipments and contractual flexibility. The trading margin contributed USD 487 million across the group segments, mainly as a result of the materialization of benefits in heavy crude exports, purchases of crude for refiners throughput, asphalt sales and energy efficiencies, especially in the upstream segment.

The higher sales of gas and products were in line with the general recovery of economic activity, demonstrating the strengthening of demand for refined products, which reached higher levels than even pre-pandemic. The crude oil, gas and product baskets strengthened during 2021 as a result of the increase in international prices and the different action fronts mentioned previously.

Please go to the next slide to see the main financial results associated with ISA's consolidation. Since the consolidation of ISA's financial figures in September 2021 when the acquisition was completed, a significant contribution has been observed from the energy transmission and roads business to the group's results with the following highlights. First, revenues of COP 4.1 trillion, representing 4.5% of the total group's revenues. Second, an EBITDA of COP 2.7 trillion, contributing 6.3% of the group's total EBITDA. Third, contribution to net income of COP 252 billion, corresponding to Ecopetrol's participation. And fourthly, in addition to the above, the segment reports a net income of COP 125 billion, explained by an exchange rate difference and the financial expenses associated with the contracted debt to fulfill the acquisition transaction.

ISA added COP 61.7 billion to the group's assets and COP 39.6 trillion to its liabilities. The gross debt-to-EBITDA leverage ratio with which ISA consolidated amounts to 4.1x, in line with the rating of investment grade and a stable outlook. Additionally, in accordance with IFRS, a total amount of COP 10.9 trillion was recognized as the difference between the fair value and book value of ISA's net assets and it's liabilities. This difference was allocated between the consolidated assets and liabilities of this company. These material contributions to the results of the Ecopetrol Group show figures with a more prominent role of the energy chain and the income diversification for which the company is driving.

Let's please go to the next slide to see the main financial indicators. Regarding the metrics of a traditional oil and gas business, EBITDA per barrel closed at USD 42.4, supported by the higher crude oil and product basket sales price previously mentioned, while the net income breakeven closed at USD 34 per barrel as a result of better vacation prices for crude oil and products and higher refinery throughput due to the recovery of demand. It is important to note that these metrics being specific to the hydrocarbon industry do not include the contribution.

Regarding ISA's indicators, the EBITDA margin excluding construction closed at 76.1%, a result of an efficient and rigorous expense management process. The 11.6% ROE return on equity continue generating value to shareholders despite the impact on net income of the liability management of ISA to achieve its debt and the update as the deferred tax due to the modification of the income tax rate in Colombia.

Regarding the Ecopetrol group level indicators, which include ISA, the following standout: first, an EBITDA margin of 45.7%, mainly explained by better action prices of crude oil and products. It should be noted though that the 4-month consolidation of ISA contributed 1 percentage point to the margin for which a greater impact is expected once the full year is reflected. Secondly, return on average capital employed returned to double-digit levels, closing at 13.6%, mainly due to higher operating income, which was partially offset by higher taxes and the increase in capital employed.

Third, the midstream segment continued to be a major contributor to the group's EBITDA, highlighting as well and in turn the growing participation of ISA, whose more stable EBITDA allows the group to be better positioned to face volatility in the hydrocarbon business. Lastly, the gross debt-to-EBITDA ratio closed at 2.3x, below the target level of 2.5x, maintaining therefore our stand-alone investment-grade criteria. This even incorporating 100% of ISA's debt, the acquired debt for the purchase and only 4 months of its EBITDA, eliminating the effect of ISA's acquisition, Ecopetrol group's gross debt-to-EBITDA would have closed the year at 1.3x.

Let's move on to the next slide please. The execution of investments during 2021 amounted to USD 8 billion, the highest level in the last 6 years. Of this amount, USD 3.2 billion corresponded to organic investment from Ecopetrol and its subsidiaries of the hydrocarbon business, USD 1.1 billion to ISA and the remaining USD 3.7 billion to inorganic investment for the acquisition of the latter.

Regarding organic CapEx, during 2021, a level close to the USD 3.5 billion target announced in the third quarter results was executed. This was impacted by efficiencies in migration and execution phases of development and production projects, restrictions related to the public order situation and the impact of COVID-19 on global supply chains, longer terms in administrative procedures, which may impact activity in Piedemonte and some blockades in the Rubiales Cano Sur, La Cira, and Llanito fields. Within the company's plans to increase capital intensity are the focus on projects that drive production and research growth and the inorganic optionality in the transmission and roads business. Let's move on to the next slide, please.

At the end of 2021, Ecopetrol recorded a consolidated cash position of COP 17.5 trillion, with which 2022 will start with a higher cash position than the one envisioned in the 2022, 2024 plan. Among the most important yearly movements are, firstly, strong operating cash flow generation of COP 22.5 trillion, of which ISA contributed with COP 1.4 trillion and that excludes the pending balance of COP 7.8 trillion associated with the account receivable from the fuel price stabilization fund effect for its Spanish acronym.

Secondly, the outflow of investment resources for organic activities by COP 13.3 trillion and the acquisition of ISA for COP 14.2 trillion. Third, the financing inflow for the acquisition of the controlling interest in ISA and for debt service and lastly, incorporated free cash from the ISA consolidation, regarding the FX balance, Ecopetrol group's expectations contemplate the liquidation and collection of COP 3.5 trillion in balance of the third quarter of 2021, in line with what is foreseen in the national general budget.

Additionally, the company expects to collect the estimated balance of the fourth quarter of 2021 before the end of the year. The final cash balance considers cash and cash equivalents for COP 14.6 trillion and a short-term investment portfolio of COP 2.9 trillion.

I now pass the floor to Felipe for his closing remarks.

Thank you, Jaime. In 2021, we had very important results in our key ESG agenda. In the environmental front, we are pleased to announce a reduction of greenhouse gas emissions of more than 293,000 tons of CO2 equivalent, exceeding the target in 125%. Some of the initiatives that contributed to this reduction include energy efficiency projects, which have allowed us to optimize our energy mix, reduce fugitive emissions, reduce venting and flaring, as well as projects of cell generation in our solar farms.

In order to meet our long-term goals, we made progress in the natural climate solutions front by establishing partnerships with nature conservancy, Wildlife Conservation Society, Fundacion Natura, South Pole and the Conexion program sponsored by ISA. These programs offer the potential to capture more than 1 million tonnes of CO2 equivalent per year, which will enable carbon offset starting in 2030.

In addition, we increased our self-generation capacity with renewables to 112.5 megawatts, which now accounts for 8% of the company's energy mix. In terms of water management, we registered a reuse rate of 74% of the water required to operate with which we continue progressing towards our goal of water neutrality. We invested COP 469 billion and USD 120 million in social projects that seek to promote local development to improve life quality of the community, consolidating high level of trust in the areas of influence, boosting lock autonomy, education and access to public services.

These projects supported around 1,100 rural families and 463 small and medium-sized enterprises, as well as the construction and improvement of 60 kilometers of roads and contributing to strengthening educational quality for more than 190,000 students. In terms of governance, we made progress in transparency and disclosure of information under the TCFD and FASB standards becoming the first Colombian company to do so.

Also, as quarterly Dow Jones Index increased from 66% to 68%. In addition, we joined the 30% Club, an initiative that fosters greater participation of women in boards of directors and senior management positions in the business sector. Furthermore, Ecopetrol achieved a certification at Equipares Silver Seal with a 98% score. With this, we now have 5 companies in the Ecopetrol Group with a favorable processes for gender equality under these certification program. All these achievements join those accomplished in the recent years.

We have adopted OECD recommendations regarding the nonparticipation of public officials and the Board of Directors, a definition and application of independent and technical knowledge criteria for the members of the Board, the independence of more than 50% of the members of the Board. Design of a clear succession policy for the members of the Board, as well as for the CEO of the company. The strengthening of the approval system for investing in projects based on technical criteria, including controlled segregation of duties and a decision-making structure that integrates different governing bodies.

Let's go to the next slide. Ecopetrol is a key player in the development of Colombia, the regions where we operate and our stakeholders. Ecopetrol's contribution to the Colombian economy in 2021 with some COP 26 trillion, including dividends, taxes, royalty (inaudible), dividends paid to minority shareholders, social and environmental investments, employees' remuneration and local procurement.

We also contribute to guarantee energy security, a leading Colombian's decarbonization road map. Our efforts generate value to more than 254,000 direct shareholders and more than 18 million Colombian that are affiliated to the pension funds. With more than 18,000 employees and over 3,000 local suppliers, we continue working to be energy that transforms.

Let's now move to the final slide. The record results achieved in 2021 reflect the competitiveness of Ecopetrol and its evolution in the recent years. In 2022, we will continue to focus on profitable growth of our core businesses, the protection of the environment in which we operate, the relationship with the communities, we will capture the upsides of favorable crude oil prices, while we continue to move forward in consolidating the energy transmission and road concession businesses within the Ecopetrol group.

Once again, thank you for your time and interest in participating today. With this, I now open the floor for Q&A session.

(Operator Instructions) We have a question from [David Soto] from UBS.

Can you guys hear me?

Yes we can, we can hear you.

Okay. Awesome. Great. Congrats on the results. My first question regarding the plan you just released 2022 from continue 2024 plan. You stated that you expect robust results with Brent prices at 63% in 2022. And so far this year, Brent has been quite above that possibly remaining at high levels for a longer period. So first question would be how flexible is this plan in terms of either accelerating or reallocating investments? And still on this, the company is generating more cash than initially expected. What would be the main role in terms of capital allocation maybe we could pay debt, return capital to shareholders, broader investments as it was the case with you. My second question, what's your view in terms of refining the company's portfolio into the energy transition because we have seen the company benefit in the short-term from high lines of Brent. So would the company be reading or maybe would that be a possibility to delay investments in other segments in the short term and have a high pulp focus in the option segment, seeking to benefit the most from the high in the short terms. So those will be my 2 questions.

David, thanks a lot and thanks for being here today. I'm going to take the questions and if anybody in the team wants to add something else, probably highly, feel free to do so. So the first thing is, you rightly point out, our plan is robust at USD 63 per barrel and we have some sensitivities in terms of what means to have a one or 2 whatever, how many dollars on top of that, that forecasted or the budgeted value that we've used.

But the first thing I want to say is that we want to remain very disciplined and focused in terms of how we deploy the capital. I think that one of the strengths of Ecopetrol over the years, with the last 2 crisis that we've had in these last 5 to 6 years is our ability to remain very disciplined. And in that space, capital discipline is fundamental. So that's point number one.

We won't abandon capital discipline. We won't go do a lot of things that may appear to be appealing because there's more cash in terms of investment. Having said that, we are -- and remember that we are already increasing almost 50% our CapEx from last year to this year. If you're taking to account the inorganics time I was presenting earlier, we're taking to USD 8 billion plus of CapEx. So discipline, we're already increasing or being more aggressive in terms of the number of growth, the number of projects, the number of fields that we want to put into tieback or put into production and the like.

So I think that, that's relevant, keeping the focus and being very, very disciplined. In certain deal, we do or we will have optionality when it comes to higher revenues and more cash. So what can we do with that? And we prepay debt, we don't have interest on inorganics. Can we actually accelerate, not necessarily do additional things, but is there opportunity to accelerate, projects that could be accelerated? You know and remember that there's a worldwide content of a disrupted or a supply chain and logistics difficulties that we need to cope with as well.

So I think all of the things that you've mentioned are possible. We could repay debt, we could return to shareholders. There could be some additional inorganic opportunities, but I just want to stress that, once again, the need to be very disciplined with the capital.

In terms of diversifying the portfolio and I wanted the framework of the 2040 strategy that we presented to you guys to the market a couple of weeks back. We have a [de-grain] that I think is very sort of -- it's very comprehensive and it provides for the growth of the core business within the context of energy transition. So that's what we will try to do. So I don't see us jumping around and just stalling things to try to do some others. I think it's fundamental that we continue to be as proactive and as basically leading the region in terms of energy transition and that's one thing that we'll be hearing more from us in the coming months and so.

I don't know high level or identical or anybody if there's anything helps you guys want to add?

No, Felipe. We're not in here because I think you've covered the key points. Our philosophy is stated in the strategy that we rolled out a few weeks ago and our focus now is on executing that.

Thanks, Jaime and thanks, David, and thanks for your interest and thanks for being here today.

Our next question comes from Anne Milne from Bank of America.

I have 2 questions this morning. The first one is just to go over a little bit more in detail this 2022 CapEx plan. You have the great slide, I think it's Slide 20 here of where you've come from 2018 to 2021 to now a little bit more where it's going to be spent in 2022. You will -- you are increasing it as you mentioned the 4.8% to 5.8%, a little bit more information there? And then the second question has to do with Ecopetrol's use of electricity generation. I know you've been involved with some solar plants. I'm just wondering, how much more can you do on the renewable side or internally using your own gas production on the (inaudible) a little bit more information.

Thank you, Anne and good to hear you. And I'm going to ask Alberto to take the first part of your question around the CapEx details. I'm going to start return to electricity generation. So today, roughly no ballpark numbers, the 8% of our capacity is mainly solar, if you think about renewables. So we have 2 smaller farms and we're buying between as we announce. And where we've already announced is more sort of projects coming through.

Some of them will be PPA, mainly power purchase agreements, but eventually we'll have equity-owned solar projects as well. So that's in the works, you should be hearing more about that. So we're very, very happy with what we've seen with the performance of solar, both in terms of reduction of emissions and the cost savings. So both things actually work very well.

If you remember the context of strategy, we mentioned that by 2040, we want to be between 25% and 40% of our capacity roughly gain from renewals. So the point and I'm speaking out out here, can we find a way to further accelerate that? And I think the answer is yes. So that's directionally what we said we want to do, but eventually, we want to accelerate that.

Renewables also took things like in. So we're looking at wind opportunities. You know the Caribbean in Colombia is very prolific in terms of wind speed. So we're looking at that and we've been measuring the wind for some time and there's opportunities in that space. We're looking at geothermal energy as well. So we should be doing our first pilot soon in meta in all just in the energy and the subsurface to generate. And I'll close by saying gas, it was last year roughly 50%, 52% of the self-generation was done with gas.

So again, can we expand that, probably, yes, we'd be more efficient can we close cycles. So definitely, there's opportunities in all of that -- all of those areas. And Alberto, if you can take and to some of the details or through some of the details, sorry, around CapEx, that'd be great. Alberto?

Yes. Felipe, thanks. And as you mentioned, our guidance for CapEx in 2022 will be in the range of COP 4.8 billion to COP 5.8 billion. In oil and gas, we will be spending anything between COP 3.7 billion to COP 4.7 billion. And ISA in the ISA's business, it will be about COP 1.1 billion. If you look at the upstream itself, the range will be between COP 3.4 billion to COP 3.8 billion. And if you talk about exploration itself, it's going to be close to COP 400 million, then production, anything in the range of COP 3 billion to COP 3.4 billion.

And in the investments that we're going to be doing in that road in the upstream, it will be close to USD 800 million to USD 850 million per year. When you look at the midstream, we'll be in the range of USD 350 million to USD 400 million and refining USD 450 million to USD 500 million in 2022. And finally, in terms of our ESG agenda, we'll be spending around COP 350 million. So that's going to be -- and the figure that we're going to be managing in 2022.

Thank you. Our next question comes from Lilyanna Yang from HSBC.

I actually have a generic question. I would like to see -- I'm sorry if you already addressed this in your initial remarks, but I would like to have a color on implications of Russia Ukraine conflict into the supply chain for Ecopetrol be it in Colombia or be for your Permian assets? And how your priorities have changed or would change for 2022 in view of this unexpected event? Another question is on the midstream asset. If you can just give us an update on the latest and the upcoming rate reviews for the crude and for the fuel pipeline assets.

Hello, Lily, good to hear from you. In terms of the first one, I'm going to ask Pedro to provide more detail around implications not only in terms of supply chain really, but in terms of commercialization and trading and the like. So Pedro can give us a view and it is my first impression on that. And on the midstream, I'm going to ask Milena to help us with this detail. So in terms of the contract, 3 things be, we deeply stand, but what's going on right now in Ukraine. Lot of people suffering, lot of people suffering and we hope that there is a resolution very, very soon, very, very soon.

So before the conflict, we were seeing already some disruptions in supply chain. So there is some pressure of some commodities and some of the things that we use in our projects, aluminum and things like steel and things like copper. So there have been some pressures 10% to 15% roughly in some of those areas. Having said that, we saw almost have COP 1 trillion of inflationary impacts last year, but they were more than compensated that by the COP 3 trillion that we actually achieved in savings.

So I think there's some impact, there will be some impacts, but again it will depend largely on duration, intensity and direction of some of those supply chains that we're seeing, but we do not change in priorities. That's I think the other part of your question. We're -- we have a plan. It's aggressive, it had an important increase in terms of CapEx deployment. We need to be able to execute on time within specs to ensure that the time to market of the molecules and hydrocarbons is achieved.

So Pedro, if you want to jump in and help us with some of the trading aspects of this. And then Alberto, if want to taking another address this one -- chime in anything else that I've made on the supply chain, and then we'll go to Milena. Pedro?

Yes. Thank you, Felipe, and thank you, Lily. Thanks for your question. Yes, as Felipe said, what we're seeing is the impact remains -- if that -- if the work remains in place for quite some time, what we're seeing is that we are net exporters of crude, so we're seeing a positive effect on the crude side on the exports that we do. And we are seeing right now because of the level of prices that we're seeing in the market.

Also on the diesel side, we are net exporters and so we're seeing a positive impact as well. And also on the fuel oil because we foresee that there's going to be some disruption being Russia such an important play on the fuel oil side. So we're seeing also a positive impact for our self. And also on the asphalt side, we've seen a positive trade because we have been increasing exports of asphalt in Russia, it's a very huge familiar worldwide.

Now on the import side, we're seeing a negative effect on the imports of the crude that we're making for our refinery system. We're net importers of gasoline. So we're seeing net effect on that because gas lubes are also -- prices going up. And also on the naphtha billing that we use for our upstream business, we're seeing because, again, Russia is a very important player on the naphtha side globally.

And also the last impact, negative impact that we're seeing is the increase in shipping costs that we're seeing and we're going to be seeing if, again, this event remains in place in time. But at the end of the day, when we net out the positives from the negative, we're seeing that it's going to be a net positive effect on our business. So that basically with the analysis that we've been doing so far. And obviously, we're monitoring this on a day-to-day basis. Thank you for your question, Lily.

Felipe, I don't have any further comments, I think you covered everything.

Thanks, Alberto. And then Milena, you can help us with the midstream side. Thanks.

Yes. Thank you, Felipe and thank you for your question, Lily. Before I go into the details, maybe a bit of context will help in terms of understanding the impact. When you look at the midstream EBITDA, approximately 20% to 25% is refined product pipeline. Obviously, it moves around depending on the FX as we find product pipeline, have tariffs that are set in place.

In terms of refined product pipeline, the tariffs that are basically used today, most of them were set around 2003, except for one segment that was done in 2011. Theoretically, these tariffs get reset every 5 years, similar to what you see in crude pipeline, but this has not taken place. So we are through for a revision. And so this isn't something that is extraordinary. This is sort of part of the periodical changes take place. This year, the [CRED] which is the regulatory entity for Energy and Gas has published their regulatory agenda, which sets for the publication or comments of what the new methodology for refined product pipelines would be in the first semester of this year.

This is published for common, generally, there is a series of meetings and back and forth with the regulator and final publication of what the methodology would be is due in the second half of this year. Assuming that takes place according to that pipeline, we would be handing in our tariff file, which is basically the document that gives all the input in order for the calculation of tariffs at the beginning of next year and would probably have no refined product pipeline tariff is fully operational probably by the end of next year. They usually revise the report (inaudible) 6 to 12 months in order to frame with ours. So that's -- this process is taking place in terms of refined product cycle, which is very much a business as usual.

And obviously, we will know what the changes may or may not be once the initial methodology is published for comments at the beginning of this year. And once that takes place, we will be reporting to you.

In terms of refined -- sorry, in terms of crude pipeline, so oil, what we have is what you've seen every 4 years, there's a reset of tariff. Tariffs are set to be updated in June of 2023 and that is in the regular course of revisions every 4 years. One of the things that is new is that the Ministry of Mines and Energy, which regulates this tariff has in their regulatory agenda stated that they may be making some changes to the methodology, which they would be publishing in the last quarter of this year. So that is something that we would see end of this year and it would probably incorporate certain things from consultative projects that they have tied out in terms of providing any updates that should be made to the methodology. So that's more or less what the time line looks like. Any changes if they were to happen, would only apply once the tariff reset in June of 2023.

Our next question comes from Christian Audi from Santander.

Congratulations on the very impressive results across the board. I had 3 subjects I'd like to ask about, please. The first one, going back to capital allocation. In terms of CapEx, are you able to anticipate CapEx projects? Or even if you wanted to do that, it can really be done in the short term, it would have to be more in 2023 onwards dynamic. In other words, you can really increase CapEx in 2022 just because we imagine some of these projects are long dated and then in terms of dividends within capital allocation, you paid, given your very positive results, an extraordinary dividend. Now I was just curious if you were able to do that on a quarterly basis going forward? Or it's something that tends to happen only at the end of the year. And then in terms of the other use of capital, inorganic growth, my understanding was that you were particularly interested in opportunities within ISA but I was just wondering, given again that prices are so high, oil prices are so high, if that now all of us opens up a set of opportunities for you to pursue inorganic growth also in the oil and gas sector, not just related to ISA.

Then the second topic was costs very quickly. I was just wondering if you could comment on your outlook for lifting and transportation costs given what you were able to achieve in the fourth quarter? And then finally, Felipe, on corporate governance, you have done a significant amount of work on corporate governance, improving and strengthening your bylaws [on board]. But at the same time, we're dealing with a very dynamic, fast-changing pre-election environment that generates a lot of noise about candidates saying things that they wish to do but whether they can be done is a separate story. So I was wondering, given you're very attractive and solid micro story, what can you tell investors from a macro point of view of how protected Ecopetrol is given its strong bylaws and board setup.

Lots of different laces in your questions. So what I'd like to do is I'll just give you a context, I will ask Alberto to talk a little bit more about capital allocation and we anticipate projects. This is more of a thing for 2023, potentially, yes, than this year because we are being very disciplined, which was something that I was answering in one of our previous questions. I am going to ask (inaudible) to provide a bit more detail, but good news we had amazing and I think you use the good work as we pass on to the team, impressive. So we had impressive results. And I think in that sense, being at the top end of the range within policy is good, it's always good.

In organic opportunities we always have as we've done in Brazil that you've seen over the years, we think not up to the mark as some of the exploration blocks with Permian. Permian is going to be going on a net basis north of 30,000 barrels this year for us or 60,000 barrels for diesel, we're going to go to 60 and providing USD 250 million of EBITDA and an EBITDA margin of more than 80%. So there will be opportunities that will need to be assessed. But you rightly point out that having higher prices, having more cash inflows will give us more flexibility in terms of M&A or in terms of accelerating some things on the margin, I would say, and then I'll come back to corporate governance. So Alberto, you can help us and then Jaime and then pass it back to me, and I'll talk about corporate governance.

With regards to capital allocation, I would like to start saying that we already have a challenging year in 2022. We were spending a lot more in 2021. Our guidance for CapEx in this year 2022 is going to be between USD 4.8 billion to USD 5.8 billion. And when you look at 2023, given the state of maturity of our projects, we're going to be spending more -- we're going to be spending more particularly in the upstream. So definitely, we were going to keep insisting in our capital discipline in 2022, ensuring that we continue maturing our projects so we can deploy the CapEx that we expect to spend in 2023.

Dividend, this actually tags along well on what Alberto mentioned, because I think the way that we're thinking about managing and allocating potential excess cash, I would characterize it as a pyramid where the first priority is actually the first pillar of the 2040 strategy, and that's growth, right? So our first mandate, if you will, is to make sure that growth opportunities are funded. And as you've heard from Alberto, the organic component of the brand is pretty firm, right? We are increasing the intensity of that plan, if you think about it from an annual basis. So I would say, I'm quoting Felipe here that any changes in that organic plan are going to be at the margin. I think where we could have -- where we could have some opportunities could be in the inorganic front.

Clearly, and I'm going to actually start with the transmission business, the pipeline of opportunities that ISA is working on and maturing and the nature of that market is one that there could be substantial inorganic opportunities in the near term. So that's something that a consideration. We want to keep growing and the excess cash that we have could be -- could give us flexibility in that conversation. And secondly, there could be opportunity inorganic opportunities in the hydrocarbon business as well. And obviously, we're not going to put those opportunities abroad because of their nature, but we continually are looking at them, and we're going to be looking at opportunities that are consistent with our strategy. What's that, things like our presence in fast-growing areas, places where we are seeing the opportunity for short-cycle hydrocarbons. Those sort of opportunities are things that we're looking at, and we will continue to look at. So I think that's the first priority.

The second priority is around competitive returns in order to deliver the sort of returns that we're delivering as you saw 13.6% ROCE we closed last year in order to deliver that, we need to have that capital discipline but we also need to make sure that our leverage ratios are very robust. And whilst we are comfortable with that [where it is], we would clearly have a preference to reduce it to the extent that goes excess revenues allow us to do. So I'd say that that's the second priority. Once those 2 elements are covered, growth is secured and very healthy debt levels are secured, and there are some spaces where we can improve on that, we could go into a conversation around an additional distributions to shareholders. Specific to your question, do I see kind of quality distribution by Ecopetrol. No, I don't see that. I don't see that. It's something I'm going to explain why I don't see it. I don't see it because we don't believe that the price environment that we're seeing right now is systemic. We don't believe that it's necessarily sustainable. And therefore, we need to be very careful about the sort of commitments that we make on that regard.

Now is there going to be a conversation about this in the second part of the year if the price environment prevails. Yes, I would say that's something that will be reasonable to expect. I hope this helps, Christian. And with this, back to Felipe.

In terms of corporate governance, I think there's lots of things that we want to -- or we need to think about Christian. The first one, Ecopetrol has been doing a lot of work around corporate governance for many, many years. So this is not something that we're just thinking about now is something that has taken us many years, been already 6 years in the company, and have seen very, very positive changes and I think first the ability of testing us and setting us against international standards and good practices is always good. So I think we continue to make progress in that trend and throughout the different AGMs in different years, we continue to strengthen our corporate governance. So I think the first one, the first thing is that the elections are still out there. There's compression on the elections that are very important as well in March and then 1 or eventually 2 rounds of presidential elections.

So the first thing, we need to wait to see who's going to be elected both in Congress and as President. And I think Colombia has demonstrated as one of the (inaudible) operations in the region, ability to assure that through tax and balance this this would recall in the US, a good opportunity to ensure that the overall decision-making is respected and investments are respected and so from that point of view, I'm talking as a Colombian, I'm not worried. I'm not worried about the outcome of what's going to come and what's happening. So in terms of Ecopetrol specifically, I'm probably going to go into the perpetual and actually it is relevant to provide a little bit of context to business. So things like independence on the board members. The law says that we need to have 50% independent board members. We have 8 out of 9, I think 83% or whatever the percentage is.

The tenure of the board members we are proposing that it's increased from 2 years to 4 years. If you look at international standards, most words people will tell you, no, Board members normally are there 6, 7 years. And actually, in Ecopetrol, we've had board members in average 2.5 to 3 years. So we want to ensure that there is more continuity, especially in the context of the strategy, as we laid out strategy for 20 years, it's having that line of sight. The other thing is competencies are required from Board members, that was also approved last year. So it's very specific to be a Board member what we need to be able to comply with in terms of terms. If you take that level 1 level down last year in the summer, we actually approved the succession program or plan to train for the CEO of the company.

Albeit in the case of emergency or a planned succession, so I think Ecopetrol has been doing a lot of work over the years to ensure that there is stability. We have a long-term strategy, the results -- impressive results, demonstrate that we are receiving, we can very quickly adapt, but we can also lead on things like energy transition and things that are positioning Ecopetrol inefficient lead in terms of how we do this. And even we go down in the organization, and I was referring to this in the prior call in Spanish, last year, I personally presented to the Board the succession plans for the 30 top strategies in the company. So it's something that -- it's been thought through. We're very organized. We're very disciplined. I think from that point of view, the company is well positioned. I think your question was something around -- from a macro point, how well is Ecopetrol protected. And I think being also a multi-region, multi-business company that flows in New York that is through the pension funds in Colombia somehow touches 18 million Colombians to the pension funds. So there is not, I think, a good element in that sense to ensure that the corporate governance, which is already very good and strong will get even stronger. So I hope that helps, Christian. But let me know because I know it's a topic of interest. So let me know if there's anything else you want to touch on.

Our next question comes from Andres Cardona from Citi.

Everyone I have 2 quick questions. The first one is, if you can comment about the downstream margins, EBITDA margins that we see in the fourth quarter. Are they sustainable? Or is there any new recurring events, maybe, I don't know, boosted by the chemical business? The second question, if you can comment about the quality risk outlook in the context of the situation that we are seeing in Russia and Ukraine. And the last one, if you can help me to do check a couple of data is EBITDA margin for the gas segment in the fourth quarter? And what is the dilution factor also for the fourth quarter.

So thanks, Andres, and good to hear you as well here in this call. So the first thing Alberto [when compared] with the dilution factor. First one, then we can go to the gas EBITDA, I think that's the other thing and Jaime is year around things you can take that one. And then the EBITDA margin, if Alberto you want to take that or we have Walter, Please go ahead. Alberto happy to hand it to you first, and then Jaime.

Andres, with regards to the EBITDA margin for gas and EBITDA a factor. Let me start with the dilution part and fourth quarter specifically. We saw an increase in the dilution factor given that we think the reality is higher, cost of the purchase of the diluent. So the dilution factor was up to USD 85 per barrel for a total of USD 4.27 during the year 2021. We expect to fit it under control during 2022, close to USD 4 per barrel of the range. So that's time what we are in terms of dilution. I'm going to give the word to Jaime, but in EBITDA margin for the gas business what I can tell you is that we continue maintaining margins above [50%] with EBITDA back in 2020 and again in 2021 and recognizing that we had an increase of about 20% in terms of EBITDA growth in 2021. So that's kind of where we are, Jaime, you want to complement?

Yes, our gas business delivered results in 2021, growing more than 20% compared with 2020 in terms of EBITDA. This business generated more than USD 800 million EBITDA with a margin of 53%, and it includes, of course, new results in the fourth quarter that were above 55%. And it has been -- has remained stable for the last 3 years. So in conclusion, gas has proven to be a resilient and profitable business, which led us to allocate more than USD 1.8 billion to gas in our 2022 to 2024 plan.

In terms of the downstream segment, what I can tell you is that we -- we believe that if we can manage operational availability of our 2 refineries as we have in the plan. And also, we see that we complete the expansion project in the Cartagena refinery. We are going to be able to maintain a level of EBITDA margin similar to what we had in 2021.

We'll go to the next question. It comes from Bruno Montanari from Morgan Stanley.

I have a couple of follow-ups only from the prior call on this one. Starting with corporate governance. Indeed, the company has made a very strong progress throughout the years. I just had a specific question about the proposals you are making to change the bylaws now, specifically the one increasing the tenure of board members from 2 to 4 years. If that is approved and like it's going to be approved. Does it change the 15 tenure of the current board members? Or does it apply only for the next people getting into the team? And the second question is about the stabilization fund. I understand the figures that were given for expectations to collect third and fourth quarter values. But the question is demand is improving now after the work of the pandemic. Oil is close to 110. So it doesn't mean that the receivables in the fund will actually grow throughout the year and could be even higher than the (inaudible) that we saw at year-end.

And with respect to the stabilization fund, I'm going to ask Jaime to provide a bit more color. But the answer is, yes, you know the fund will eventually increase. Good news. Government has always paid us within the 12 months. And the receivables increased also the revenues. So it's -- we need to look at the overall context. On the fact that we ended up last year with COP 17.5 trillion, and actually, that the budget loss for Colombia, the national budget law allows for extraordinary dividends to be used as proceeds to pay for outstanding restabilization funds and receivables. So there's a lot of elements in that. I'm going to ask Jaime to provide more detail. And in terms of the proposal on the tenure of the Board, specifically, it will apply as soon as it's approved or not by the general assembly. And the answer is, it will apply as soon as the AGM approves to the changes on the bylaws.

Good to hear you. With regards to the digitalization fund, as Felipe anticipated, most likely higher prices imply a higher balance in the fund. And I say most likely because remember that the (inaudible) considers 3 or 4 angles to it, right? There is an angle around the behavior of the international prices for diesel and gasoline. There is an angle around whether adjustments are made at a domestic level in terms of prices at the pump that affects that balance too. There is a third angle, very important angle, which is around the FX effect, which only actually quite substantial in terms of moving the balance of the fund in any direction. So clearly, to take out the crystal ball, if you will, and go out there and say exactly what's going to be the evolution of the balance is difficult. We can create scenarios and directionally if that current market conditions prevail, the fund is going to grow at a pace that's going to be higher than the one that we saw, say, in the first half of last year. It's going to grow more like at the pace of what we saw probably around 4Q of last year. That's the pace in which the fund is growing. As Felipe mentioned, we are in very close discussions with the government around this. It's not a surprise. This is something that actually the government in and by itself monitors regularly. And I think there's 2 or 3 things that give us a lot of confidence that this should not be a source of concern.

The first one is that a national general budget has made specific provisions around how the fund can be managed. What are the sources to if you will, and honor the obligations of the fund, and it has a very clear, very, very unwavering commitment, if you will, towards honoring this obligations. So that's at a legal level. So that gives us a lot of confidence. The second thing that gives us confidence that when we sit down with the government, there is flexibility within their budget as well with regards to how they're managing execution this year and the like. And thirdly, and it has to be said and (inaudible) I am going to be specific about it clearly the way make dividend distributions to our shareholders need to be compared with how that balance is evolving.

And that balance needs to be in a tolerable level for us to feel comfortable with the sort of payment distributions that we are recommending. So all in all, I want to reinforce the message that there is a clear commitment around keeping those finances within a 12-month period. There are the mechanisms to honor them and that's why we're planning on the basis on which we're planning. I think that covers it. Do we have any remaining question.

I had just a quick follow-up that is very interesting. So when you mentioned that the extraordinary dividends could be used to repay a portion of the fund, does that mean that, for instance, instead of announcing say, the 9% extradition that those funds will be used to form a part of the fund. Is that the way to understand it?

No, Bruno, let me clarify that. So we need to be clear that the conversation around the fund is a conversation with one shareholder, not with all shareholders. So this is a conversation about how the majority shareholder wants to receive its dividends, and they have the flexibility to choose how they want to receive their dividends. It can be done via cash, it can be done via what we call their local tests, which are some formal financial certificates, if you will. It can be paid abroad. It can you paid locally. One mechanism -- one mechanism could be to make some form of an exchange between the dividends and the fund. And that mechanism is something that the government can use. But it's going to be their decision to offer that.

Our next question comes from Andrew McCarthy from CrediCorp.

Many thanks, Felipe, Jaime, Alberto for the call and the rest of the team for the call and the presentation. I think most of my questions have been asked, but maybe just 2 follow-up questions. The first one was just on the production for the upstream business for 2022. Looking at the level you reached in the fourth quarter, the 695 versus the target for 2022 of 705 million just considering, obviously, the very favorable macro backdrop I was just wondering if there's any to be seen in scope maybe for increasing that the production levels during this year. Any upside you might be seeing in that front? And then the other follow-up was just on the inorganic opportunities. You mentioned there your interest in transmission business and perhaps being some opportunities on that front, just wonder if you could provide any other color there in terms of what sort of geographies you're thinking about? And also, you've given any thought as to how that would occur? Would it be something that would occur at the (inaudible) level that they would do the transaction? Or given all of the, let's say, surplus cash you have at the Ecopetrol level, would you be looking to do the transactions at that level? Those would be my follow-ups.

Thanks, Andrew, and good to hear from you. I'm going to start with one of them and then I'll hand it over to Alberto to provide a bit more detail on production and what we're seeing as we ended up 695 going into this year. So in terms of the organic opportunities and one of the things that we've mentioned specifically is that we're looking at transmission opportunities in the US. And it's a market that we know. I mean, from the oil and gas, the lens, if you will, we've been there for some time as (inaudible) recent into the Permian as well. But having that put already in the US, I think provides us the opportunity to think of what is next. And if you look at the continent, which we're focused in as a group, the US, I think it's a natural place to look at and there's opportunities provided there's future deals coming out of hundreds in terms of infrastructure investments across the US. We'll see where that goes.

But definitely, there is opportunity in the US and I think there's a need to ensure that reliability of transmission at least providing energy to people is something that can happen. So there will be opportunities there, and we'll be looking at that. And yes, we've got the case and we decide that's the right thing to move beyond from ISA. Remember and Jaime has mentioned this in the past, our leveraging ratios in ISA and as a group are a bit different. The ISA is having the cash flows that it has and the line of sight of businesses have the opportunity of having a gross debt-to-EBITDA ratio that's higher than ours. So eventually, if it happens, it will be [done], but we'll continue to look at some other geographies. And the other thing I want to mention, Andrew, is that if you think about the next 10 years or this decade, ISA has commitment of roughly USD 7.5 million of investment as probably into 12 billion to 13 billion range. We have a pipeline of USD 36 billion already identified. So there's an opportunity not to talk about specifically the transmission. So if we can go to definitely we won't look at other things, Andrew, just don't get me wrong. But we will continue (inaudible) in one of his responses. So Alberto if you can talk about production, that would be great.

With regards to production, let me recognize first that we need to stabilize production levels. And basically, we're working in different areas. The first one is getting gas demand back at pre-pandemic levels. That's number one. Second, on our subsidiaries, we had some production hiccups in [Ecopetrol America] in the Gulf of Mexico. So we need to recover the production levels that we were experiencing even before 2021. And thirdly, particularly in Colombia in our mature fields is how we recover production because after we have experienced well-shared teams because of several things, for example, social unrest, third-party events also because of electrical operation hiccups and thirdly, because of higher water content in our mature fields and in the case of [Chichimene] that means that we have to put all our efforts in (inaudible). Secondly, recognizing that we also have to replace production about 100,000 barrels per year because of the declining production in our main fields. Remember that our defining factor is about 14% to 17%. So we need to recover that. And thirdly, definitely, we have investment plans associated with incremental production. All in all, to say that we are -- we keep our production guidance in the order of [700,000 to 705,000] oil equivalent per day.

We do not have other questions. Thank you, sir.

There's always the opportunity to follow up with the tools, and we'll be glad to get whatever information is required. So I just want to thank everyone for being here today for the interest in Ecopetrol for the feedback that you provide for the opportunity that to your questions you give us on understanding what are some of the things that we constantly need to think about and have a deeper understanding and especially the ability to relay and communicate those aspects to yourselves. So thank you. Thank you for being here. We appreciate the historic results, and we're very proud of the team of the 18,000 people in Colombia and in the different geographies where we operate in the US, in Brazil, in Chile, Peru, and in some other countries. [Hesitant] for being here today, please stay safe, and hopefully, we'll be able to talk to you soon. Have a great day.

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