Ecopetrol S.A.

Good morning, my name is Sylvia 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 first quarter 2021. All lines have been muted. There will be a question and answer session at the end of the presentation. 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 the 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 the future results are different from the projections shared on this conference call. The call will be led by Mr. Felipe Bayon, 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 first quarter 2021 results conference call. I am pleased to share with you an outstanding set of results for the Ecopetrol Group, which demonstrate the strength of our integrated business and our ability to generate value throughout market cycles. After more than a year since the COVID-19 pandemic began, we continue to operate under challenging conditions and very strict biosafety protocols, while ensuring the continuity of our operations and the well-being of our employees as our top priority. This year, Ecopetrol is celebrating its first 70 years. and the results for the first quarter provide us with a very strong beginning. The Ecopetrol Group generated the best financial figures for a first quarter since the year 2016, with a consolidated revenue of 17.2 trillion pesos, an EBITDA of 0.2 trillion pesos, an EBITDA margin of 48%, and a net income of 3.1 trillion pesos. The EBITDA for the quarter was half the EBITDA for the full year 2020, and the net income was 1.8 times the net income of the 12 months of last year. These financial results were achieved even in the midst of operating conditions that will continue to affect production levels. Alberto Consuegra, Chief Operating Officer, will expand on this later. As relevant milestones of the quarter, I want to highlight the following. First, the threatening of the realization price for the crude export basket by a 43% compared to the first quarter of 2020, evidencing our successful commercial strategy. Second, the advance of our gas strategy with a production increase of 12% as compared to the first quarter of 2020. The positive performance of our refineries with an integrated margin per barrel achieving double digits. And fourth, the announcement of our net zero carbon emissions targets for 2050 whose details I will further comment. On other matters, we highlight a successful general shareholders meeting in a fully virtual setting for the second time, where a dividend of 17 pesos per share was approved equivalent to 0.7 trillion pesos, ratifying our ability to generate profits even in very difficult conditions. We began to work in the due diligence process for the EISA acquisition and established a special committee of the board of directors of Ecopetrol to assess the valuation and the price of that potential transaction. In the Ecopetrol group, we continue to learn from crisis and to overcome them in an agile, safe, and efficient manner. Although there are still some risks constantly monitored, the results presented today are proof that we are moving in the right track. Let's move on to the next slide. Ecopetrol is committed to mitigate climate change. Thus, seeking to advance on the energy transition on our TESG agenda, we became the first oil and gas company in Latin America to commit to a net zero carbon emission target by 2050 for emissions in scope one and two, ratifying our commitment with both the sustainable development goals and the Paris Agreement. According to a decarbonization plan, by 2030, Ecopetrol seeks to reduce its CO2 emissions by 25% in scopes one and two, compared to the 2019 baseline. This reduction represents between five and six million tons equivalent of CO2, less by year 2030, equivalent to the restoration of an area 13 times that of a city like Bogota in Colombia. In addition, Ecopetrol seeks to reduce 50% of its total emissions in scopes 1, 2, and 3 by 2050 compared to the 2019 baseline. Mature technologies that are currently available as well as emerging technologies were considered when setting the targets. In the short and medium term, that is 2025 and 2030 respectively, we will focus on the maturation of solar, wind, and geothermal energy projects, as well as in energy efficiency, reduction of routine flaring in our operations, and methane emissions reduction projects. These will be complemented by a natural climate solutions portfolio under the highest standards. By 2050, we plan to develop initiatives that might include hydrogen, carbon capture use and sequestration, and energy storage through batteries, ensuring both the competitiveness and value potential generation of each of these alternatives. It is important to emphasize that in the 2021-2023 business plan, we have included already more than $600 million of investments for the decarbonization agenda, mainly destined to fund renewable energy projects, as well as energy efficiency and fuels quality projects, amongst others. The short and long-term initiatives and technologies included in this roadmap will always be evaluated and implemented under strict capital discipline criteria, essential pillar of our corporate strategy. Let's move on to the next slide. The decarbonization agenda just mentioned is part of the four pillars defined in our energy transition roadmap. During the first quarter of 2021, we made progress in all of them. In the competitiveness pillar in the oil and gas business, our core business, and our main focus, we continue to make efforts and put forth strategies to achieve a more efficient operation, which resulted in efficiencies of some 264 billion pesos derived from actions focused on strengthening the EBITDA margin in CAPEX efficiencies. Additionally, we've captured benefits of $12 million in the digital agenda thanks to the progress in projects such as the digital investments management tool, human talent, gross refining margin, and integrated fields. In the diversification pillar, we continue to advance in the due diligence process in support of the potential acquisition of a controlling stake in ESA, a company that will contribute to the Ecopetrol Group with stable and predictable sources of income, solid alternatives of profitable growth, and a unique positioning within the energy transmission sector in Colombia and in some Latin American countries. Likewise, a hydrogen task has been created dedicated to carry out this initiative. We started a research process to determine the potential for green hydrogen production. We continue to advance in the construction of the San Fernando solar farm, which is expected to start operations in the second half of this year. Finally, I want to highlight a 52% reduction in routine gas flaring in our operations between 2017 and 2020. In the TESG pillar, aligned with our strong corporate governance standards, I want to highlight the appointment of Cecilia Maria Velez White as the newest member of the Board of Directors of Ecopetrol. Also, I want to mention the establishment of a special committee for the valuation of the ESAC transaction. In line with our commitment to full and transparent disclosure of our sustainability and climate-related information, we have begun the incorporation of the following. The Sustainability Accounting Standards Board, SASB, in our Integrated Sustainable Management Report as well as in a standalone report. The Stakeholder Capitalism Metrics of the World Economic Forum in the Integrated Sustainable Management Report. and the recommendations of the Task Force on Climate-Related Financial Disclosures, TCFD, in our 20F report. I will now turn the floor to Alberto Consuegra, who will explain the main operating results for the quarter. Thank you, Felipe.

In line with your remarks, most of the operational results in the first quarter continue to show a positive trend in the recovery of the activities towards pre-pandemic levels. Regarding the exploration, In 2021, the exploratory campaign kicked off with the success of Flamencos II and El Niño I, two of the wells drilled in 2020. During this quarter, we completed the drilling of five wells. The Lidia YW-12 and the Boranda Sur II wells are in the evaluation phase. The EFT SN8 well allowed further knowledge of the block's geology. The Buranda South 1 well was sealed and abandoned since it did not reach the geological target due to the technical problems, and the Moyote 1 well in the Gulf of Mexico was declared dry hole. In Brazil, we continue to make progress in commercial viability studies and other deliverables as part of the defining phase of the development plan for the Gato-Domato discovery in the Brazilian results. Finally, production from the exploration activity reached an average volume of 5,309 barrels of oil equivalent per day, representing an increase of 39% compared to the volume registered in the same period of the previous year. Let's move on to the next slide, please. During the first three months of the year, Ecopetrol Group's production was 675,700 barrels of oil equivalent per day. Compared to the same period of the previous year, production decreased 8.1% and 2.7% compared to the fourth quarter of 2020. In the first quarter, the good results in the Piedemonte gas assets and in the mid-Magdalena oil assets stand out. During this period, production was affected due to operational restrictions in the Castilla field, increasing BSW, basic sediment and water, in heavy oil fields as a consequence of the activity deceleration during 2020, divestments in Peru, and operational and public order issues. Given these impacts, we estimate a production range for the year between 690 and 700,000 barrels of oil equivalent per day, and we maintain a plan that aims to resume the growth path towards the production volumes goal announced for 2021. Despite lower production volumes, EBITDA for the upstream segment in the first quarter was 5 trillion pesos, which is the 80% of the total EBITDA generated in 2020. Additionally, the segment reached an EBITDA margin of 40%, doubling the previous year's results. Let's go to the next slide to talk about the progress of the gas and hydrogen initiatives. In this quarter, the gas and LPG business had a combined EBITDA margin of 53% and contributed about 11% of the EBITDA of the upstream segment. Gas and LPG production had a 12% increase compared to the same period of the previous year, mainly due to the higher production of Pied de Monte, Permian, and the strong results derived from the acquisition of Chevron's participation in the Guajira asset by Hochul. Gas and LPG production corresponded to 23% of the business group's production during the quarter. The first Q2021 closed with a level of third-party total demand recovery of close to 100%, led mainly by the industrial sector. Regarding the development of our gas portfolio, Jocol is making progress in Arrecife III with the start of extensive testing in second Q. Also, Jocol is progressing the delimitation of the Bullerenga Porquero discovery and the extensive testing of Merecumbe Field. In Piedemonte, progress was made in the pre-rigged works of three new wells, as in the maturation of seven more wells. Regarding exploration, we are at the completion phase of the Liria YW-12 well and in the maturation and pre-rigged works of the Cupiahua XD-45 well. Also, during first quarter, The work plan for the exploratory and development phase of the coal pipe block moved forward together with our partner Shell with the aim of drilling a delimitation well as part of the Gorgon appraisal phase. It should be noted that thanks to the operational initiatives and synergies between the segments, a reduction of 88,980 metric tons of carbon dioxide equivalent was achieved during 1Q2021. We're moving along in the design of our HydroGene strategy based on five points, pilots, regulation and public policy, suppliers and allies, third-party commercialization, and the groups and countries roadmaps. Let's go to the next slide to talk about the progress in nonconventional. On the unconventional reservoirs in Colombia, we made progress on activities related to our Calais pilot project. During this quarter, we carried out the first territorial dialogue in Puerto Wilches, led by the Ministry of Mines and Energy and the Hydrocarbons National Agency, ANH for its acronym in Spanish, and we started the baseline monitoring work for the Environmental Impact Assessment, EIA, which is expected to be filed by the end of the third quarter. The estimated time for the issuance of the environmental license is eight months after filing of the EIA. Regarding the Permian Basin in the United States, the results of our activities with our partner Oxy reflect the materialization of efficiencies despite some effects on the operation due to the strong winter at the beginning of the year. Net production after royalties for Ecopetrol was 5.1 thousand barrels of oil equivalent per day, almost the same production achieved during 2020. The Rodeo joint venture drilled 20 wells and completed 28 wells, including the 22 wells not completed in 2020. Therefore, 44 wells were on production at the end of the quarter. For 2021, a peak production of approximately 18,000 barrels of oil equivalent per day net to Ecopetrol after royalties is expected to be achieved by the end of the year. Next slide, please. The transported volume of refined products increased due to a demand recovery. The transported volume of crude oil decreased compared to the first quarter of 2020 as a result of lower production levels in the country. In this period, no reversal cycles of the bicentennial pipeline were conducted, completing 16 consecutive months in which the contingent alternative is not used. I would like to highlight that since February 1st, the total transition to the new operating model of the segment was completed. As a result, Senate is now solely responsible for the operation of its hydrocarbon transportation systems and consolidates its position as leader of the Ecopetrol Group's transportation segment. On the other hand, on March 24th, the General's Attorney Office issued a favorable concept of the agreement between Senate, Bicentenario, and Frontera. To date, The approval of the Cundinamarca Superior Administrative Court is pending, which will be the last instance in this case. The trend of transported crude oil volumes will be aligned with the results of production levels in the country. Let's please move on to the next slide. The downstream segments' good results were supported by the demand recovery with gasoline and diesel sales standing out. The levels of integrated gross margin owners stand out. compared to results presented during 2020, which evidence the segment recovery, mainly explained by the strengthening of the product basket despite a more expensive diet due to the incremental trend of brand price. The first quarter EBITDA results for the downstream segment is the best of the last five consecutive quarters. thanks to the efficiencies achieved during 2020 aimed at keeping costs and expenses under control despite the increase in operations and thanks to the strong margins and throughputs of our businesses. The petrochemical business had a substantial contribution to the EBITDA of the Barranca Bermeja Refinery due to higher yields, supply of light crude, and higher availability of the plants. During the quarter, we also successfully started the first maintenance cycle of our refineries, which will last until the third quarter of this year. Let's move on to the next slide, please. Total operating costs and expenses reflect a decrease of 7% compared to the first quarter of 2020, demonstrating adjustment to the new operational activity levels and commitment to efficiency. The lifting cost was $7.5 per barrel, showing a decrease of 8.6% versus the same period of 2020, mainly explained by the efficiencies in the energy matrix, where the use of self-generated energy increased, the optimization in the execution time for interventions and well services, and the lower production during the quarter. The unitary dilution cost for the first quarter decreased by $0.18 per barrel, versus the same period of the previous year, mainly explained by the lower purchase of NAFTA barrels due to the lower production of heavy oil. Then again, the cost per transported barrel for this quarter was $3 per barrel, an increase of 2% compared to the first quarter of the previous year, mainly explained by the lower volumes transported. The operating cash costs in the downstream segment presented a decrease of 4% versus the first quarter of 2020, which responds to the control of operational activities through drivers that develop sustainable savings under the premise of maintaining the integrity and efficiency in the processes. The total unit cost was $32.6 per barrel, slightly lower than in the same period of 2020, explained by the reduction of costs and expenses and the higher exchange rate partially offset by increasing the component of purchases and imports due to the higher brand price. I will pass the floor to Jaime Caballero, who will talk about the main financial results of the Alcopetrol Group.