Ecopetrol S.A.

Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operational results for the third quarter 2021. All lines have been muted. There will be a Q&A session 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 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 in this conference call. The call will be led by Mr. Felipe Bayón, CEO of Ecopetrol, Alberto Consuegra, COO, and Jaime Caballero, CFO. Thank you for your attention. Mr. Bayón, you may begin your conference.

Good morning, everyone, and welcome to our third quarter 2021 earnings conference call. During this quarter, we continue to deliver record results. As of September, we are now consolidating Interconexión Eléctrica SESA's financial statement. We generated revenues of 23.3 trillion pesos, an EBITDA of 10.4 trillion pesos, a net income of 3.8 trillion pesos. These results highlight our successful commercial strategy, which has allowed us to capture the favorable conditions of international crude oil prices. We achieved important progress in our strategic agenda with the accomplishment of milestones such as the following. The closing of ESA's acquisition and the first consolidation of its financial results into the results of the Ecopetrol Group. materializing this transformational step in our energy transition and decarbonization program. Our first liability management transaction for $2 billion through the issuance of 10-year notes and 30-year bonds to partially prepay the loan disbursed to finance ESA's acquisition. The authorization granted by the Superintendencia Financiera de Colombia to subscribe the program for the issuance and placement of common stocks, enabling Ecopetrol, during five years to execute simultaneous issuance within the local and international markets, providing flexibility and opportunity in our capital structure strategy. And now, more than 86% of our employees have completed their immunization against COVID-19. Let's move on to the next slide. With the acquisition of the controlling stake in ESA, the Ecopetrol Group turns into a leading company in the energy sector of the region. participating across the hydrocarbon value chain, energy transmission, renewable energy self-generation, and infrastructure. After the closing of the transaction, our efforts have been focused on ensuring compliance with legal and regulatory requirements related with accounting consolidation, reporting, and financial planning. We have made progress in matters regarding corporate governance, such as the election of ESA's new Board of Directors, following its AGM held on October 22nd. The new composition of the board will allow Ecopetrol to exercise as controlling party over the company. Also, I would like to highlight that for market reporting purposes, ESA's financial results are now incorporated as a new business line in addition to the existing business segments. ESA will maintain its value promise and independence as we have done with the rest of our subsidiaries. ESA will bring to the table experience and knowledge that will boost new growth opportunities. We are progressing a gradual integration process led by the Transition Management Office, a multidisciplinary team from both companies. This process involves mutual and detailed knowledge between both companies, understanding of both business models, and the construction of a shared vision. After having consolidated an orderly transition, we'll pursue opportunities that allow accelerating the capture of value from our investments. We see potential synergies in opportunities such as energy and fuel storage, development of new and additional renewable energy projects, generation and commercialization of energy in other countries, and growth opportunities in the hydrocarbon business in geographies where ESA already operates. I will now pass on the floor to Alberto Consuegra, who will elaborate on the main operating results for this quarter.

Thank you, Felipe. I will start by highlighting the discovery of hydrocarbons after drilling the exploratory well Lydia YW-12, which confirmed the presence of gas and 49-degree API light oil in a new structure near the Cupiagua's field, a milestone that sets the company exploratory reactivation in Piedemonte, where Ecopetrol is the operator. We also highlight the commerciality of Boranda and Flamenco's WAN discoveries, which are part of the near-field exploration strategy which seeks production and reserves incorporation in a short term. Discoveries are located in Santander department and have produced about 94,000 barrels of crude oil for Ecopetrol's share during the testing stage between January and September of the current year. We continue our international exploratory strategy. During the 17th round of the Brazilian Oil and Gas Agency, the consortium between Ecopetrol Brazil and Shell acquired this SM1709 block located in the Santos Basin, expanding the portfolios among high potential areas with competitive break-evens close to $40 per barrel. Let's move on to the next slide, please. The quarterly production was 683,600 barrels of oil equivalent per day, 22,700 more than the volume achieved in the second quarter. Despite achieving the production stabilization of the fields affected by blockages and also increasing gas sales, milestones of the plan previously announced, there were two climate events during the quarter that limited an additional recovery in the growth of our production. Abroad, the hurricane season in the Gulf of Mexico caused the closure of wells, and in Colombia, the rainy season caused landslides, which affected the Promi-Oriente gas pipeline as well as the flooding of the Karikari Field, causing its temporary closure for 20 days. Other weather impacts were related to increasing power outages. These events impacted production in and around 10,000 barrels of oil equivalent per day. For the fourth quarter, we expect a production around 700,000 barrels of oil equivalent per day, mainly leveraged in the drilling of between 110 and 130 wells, the reactivation of the Promi-Oriente gas pipeline, and the continuity of the operation of the Enare asset, which we received on November 4th after ending the association contract, adding an average of 7,500 barrels of oil equivalent per day. However, some risks associated with climate and public order issues remain and could affect production levels. Gas and LPG contributed 21% to total production. highlighting the signing of the Santiago de las Atalayas gas exploitation and exploration agreement with the National Hydrocarbons Agency, which allowed the beginning of pre-drilling activities in two new wells in the Piedmontes area. Given the effects on gas production due to maintenance and climatic events, a commercial strategy was developed to guarantee gas supply at nationwide, along with the Ministry of Mines and Energy and market agents, through the signing of contingency contracts. On the social front, new gas and LPG connections have been made, allowing near 5,000 new families from Strata 1 and 2 to have this service and improve their quality of life between January and September. Let's move on to the next slide, please. 2021 has been a challenging year in terms of production due to all the factors that we have revealed throughout the year, which have mainly affected the basic curve. Resuming activity on our wells generated higher levels of water versus oil content with a gradual stabilization. The pandemic and public order situations affected our projects in terms of supply chain, delivery deadlines, and execution. This has been partially offset by the implementation of initiatives such as anticipation of 2022 work fronts and strengthening of our commercial gas strategy, with which we expect to restore our growth path. Given all the above, projected production levels for 2021 would be around 680,000 barrels of oil equivalent per day. Let's move on to the next slide, please. On unconventionals, we highlight that on July 8th, the first territorial dialogue was held for the Plateau Comprehensive research pilot project, and on October 29th, an environmental impact study was filed requesting approval of the license for the drilling of Calais. In parallel, progress is being made in the documentation of Platero's environmental study in synergy with what has been filed for Calais. In August, a public survey was carried out by the National Consulting Center in the area of influence of the pilots. evidencing a positive change in perception among communities regarding the industry and the unconventional pilots, Ecopetrol being the oil company that generates the most confidence. In September, Ecopetrol started the operation of a mobile environmental laboratory for the Magdalena Medio region so that communities have a better knowledge of the environmental variables present in their surroundings and that will allow, once the pilot starts, to monitor their behavior. Abroad, Permian reached a gross production level for ecopetrol of 24,400 barrels of oil equivalent per day in the third quarter, evidencing the ramp up of unconventional with a cumulative EBITDA margin of 83%. Let's move on to the next slide, please. The transported volume of refined products increased 63,000 barrels per day compared to the third quarter of 2020 thanks to the recovery of local demand, mainly the Galán-Sebastopol Trench, by supplying the large consumption areas of the country. On the other hand, the volume of crude oil transported decreased by 30,000 barrels per day compared to the same quarter of last year as a result of lower production driven by the previously mentioned causes. In order to secure the evacuation of the Caño Limón field, 11 reversal cycles of the Bicentenario pipeline were carried out. Finally, I want to mention that the conciliation agreement between Frontera, Senate and Bicentenario was approved by the Administrative Tribunal of Cundinamarca to solve the existing disputes regarding the transportation of crude oil in Colombia. As a result of the conciliation, Frontera will recognize to Senate and Bicentenario the outstanding obligations under their agreements as of December 31, 2019. Frontera will transfer to Senate its 43.03% interest in Bicentenario and will transfer to Bicentenario the pending dividends, the funds deposited in a trust as guaranteed for one of the disputes, the advance payments from prior years, and the Bicentenario pipeline line field that they have. As part of the agreement, Frontera will recognize to Bicentenario a portion of Bicentenario's syndicate loan in the amount of $438 billion. Additionally, Senate and Bicentenario signed new ship-for-pay agreements with Frontera, allowing them to receive additional revenues for the payment of obligations included in the conciliation for a value of up to $92 million, subject to adjustment as per the value of the line field. Likewise, ODL, a Senate subsidiary, obtain the execution with Frontera of a new ship-for-pay agreement, which shall allow OTL to receive additional income up to $55.5 million. The financial impacts of the transaction correspond to the total recovery of outstanding debt as of December 31, 2019, for a value of $729 billion. The one-time impact on EBITDA will be approximately $700 billion, which will be reflected in the figures for the fourth quarter of this year. Additionally, financial revenues for approximately 41 billion pesos will be received due to the effect of default interest and returns on trust funds. Let's move on to the next slide, please. We achieved an accumulated EBITDA record result as of September of 2.35 trillion pesos thanks to selling of inventories and benefit from market prices at Barranca Bermeja Refinery, essential commercial strategies, and an inverse cost increase in natural gas sales, which contribute to mitigate impacts derived from operational challenges and keeping the cash cost of the segment under control. Additionally, we are pleased to inform that we achieved the delivery of gasoline at 50 parts per million contemplated by regulation for January 2022. The integrated gross margin of the refineries remain at pre-pandemic levels, despite having a more expensive diet because the recovery of brand price, a challenging scenario for the realization of valuable products, especially in the Cartagena refinery due to the discount on export diesel, and the scheduled maintenance of the petrochemical train and the alkylation unit at the Barranca Bermeja refinery. The consolidated throughput in September was above 365,000 barrels per day, exceeding the throughput restrictions on the refineries affected by public order events at Caño Limón Coveñas oil pipeline, an electrical contingency presented in August, and corrective maintenance planned in the catalytic tracking unit at Cartagena's refinery. These events had an EBITDA impact of 121 billion pesos. A shutdown plan is being implemented with the purpose of improving the reliability of the refineries, which will take the operational availability from 92.5% in 2019 to 94.2% in 2021 and up to international reference levels above the 96% in 2024. Other scheduled maintenance for the flare in Plants 1 and 2 in Essentia will be occurring. Let's move on to the next slide, please. At the end of third quarter, we have delivered efficiencies close to 1.8 trillion pesos, highlighting a reduction of the dilution factor, energy efficiency, and savings obtained with the renewable energies. The total unit cost accrued to September increased $10.3 per barrel as compared to the same period in 2020, mainly due to higher purchase and import costs associated with higher brand prices. On the other hand, the cumulative lifting cost to September increased $0.87 per barrel as compared to the same period in 2020, reaching $8 per barrel. Such anticipated increase is due to greater numbers of well interventions, the execution of process safety and integrity work included in the plan, as well as increasing the cost of oil services due to industry inflation. By the end of the year, we expect to have a lifting cost in the order of $8.5 per barrel. The cost per barrel transported showed a slight decrease as compared to the same period in 2020, reaching $2.9 per barrel, thanks to the control of variable costs given the lower volumes transported. The refining cash costs accumulated to September showed a downward trend as compared to previous years, correlated to gas composition and its supply chain. I will open the floor to Jaime Caballero, who will talk to you about the main financial results of the Ecopetrol Group.

Thanks, Alberto. During the nine months ended in September 2021, Ecopetrol's net income reached 10.6 trillion pesos, exceeding more than nine times the result obtained during the same period of the previous year. This increase is mainly explained by a higher EBITDA generation of 15.5 trillion pesos, where the following factors stand out. A positive net effect of 13 trillion pesos due to realization prices, higher crude oil spreads, and foreign exchange increase for purchases and sales. A positive valuation of inventories for 4.2 trillion pesos related to market prices and increasing ships in transit to India and the U.S., given the new delivery-at-place commercial strategy, and the consolidation of 100% of Isis EBITDA for 0.7 trillion pesos, corresponding to one month of operation after closing the acquisition. The above was partially offset by lower volume of purchases and sales for 1.5 trillion pesos, affected by scheduled and corrected maintenance activities within the refineries, higher operating activity costs for 0.6 trillion pesos, mainly associated to maintenance and higher materials consumption as a result of the economic reactivation, and other effects in the EBITDA for 0.4 trillion pesos, mainly related to the increase in exploratory expenses, recognition of public work provisions and environmental provisions, among other aspects. Likewise, the year-to-date includes the impact of three non-operational items, the non-recurring positive effect, of 0.4 trillion recognized in January for the divestment of Savia, Peru, a negative variation from other non-cash items for 1.8 trillion, including foreign exchange effect, depreciation, taxes, financial expenses, and ISIS non-controlling interest for 0.7 trillion and 1 trillion in other subsidiaries. An increase in the income tax provision as a result of higher financial results and related to the deferred tax restatement for 36 billion pesos after implementing the new rate established by the tax reform in Colombia from 30% to 35%. These results show a clear continuity of the favorable trend in the company's financial results. Please turn to the next slide to see ESA's main financial results. For the third quarter and the nine months ended on September 2021, ESA's EBITDA continues its growth trend, increasing 5.8% and 5.2% respectively as compared to the same periods in 2020. Net income decreased affected by non-recurring events such as costs associated to the liability management transaction at InterChile, which also included the unwind of debt hedging for a total of 273 billion pesos, and a higher deferred tax expense of 146 billion pesos due to the application of the rates from the tax reform in Colombia. In the absence of these impacts, ESA's net income for the quarter would have been 541 billion and 1.6 trillion year-to-date. ESA's consolidation in the Ecopetrol Group is carried out through a business combination of controlled businesses as defined in IFRS 3. A new segment has been established to incorporate ESA's standalone results starting September, and the expenses related to the debt raised to complete the acquisition. ISA's contribution is material for the Co-Patrol Group, and it will be progressively incorporated over the next accounting period. When normalizing the consolidation for the nine months ended in September, ISA's contribution to the EBITDA would have been 5.3 trillion, representing about 19% of the total. The net income contribution would have been 0.6 trillion pesos, and 0.8 trillion excluding the non-recruiting events mentioned above. After consolidation, assets and liabilities of the acopetrol group increased by 82 and 55 trillion pesos, respectively. Total equity increased by 27 trillion pesos, reflecting the concept of non-controlling interest associated to ISA. The values of assets, liabilities, and non-controlling interest, as well as goodwill, are preliminary and will be updated to final amounts by the end of the year. Please turn to the next slide to see the main financial KPIs. Cumulative financial indicators year-to-date reaffirm Ecopetrol's ability to capture the favorable price environment as well as the initial benefits from ESA after consolidating the first month of its operations since the acquisition. In the oil and gas business, it's worth to highlight the EBITDA per barrel that reached record levels of $40.2 per barrel and quarterly results of 40.1. These levels compare very favorably with other industry peers. Net income breakeven continues to improve as compared to the end of 2020 and the same period of the previous year, reaching $34.8 per barrel thanks to the recovery of product spreads and higher throughput in the refineries. Regarding ESA's results, it is worth to highlight the evident margin excluding construction that was 77.7% aligned with 2020. ESA's return on equity for the quarter was affected by the liability management transaction effect that did not impact the group results, due to the extent that it corresponds to an event prior to the acquisition, and therefore, it was registered as equity. Year-to-date, evident margin for the EcoPatrol Group was 46.7%, among the highest levels historically, surpassing pre-pandemic levels. The leverage ratio of the EcoPatrol Group is similar to 2020 levels, when incorporating ISIS debt and one-month EBITDA. Normalizing with ISIS EBITDA for the last 12 months, the indicator would have been 2.4 times. Please turn to the following slide to see the main highlights of the commercial strategy and its contribution to the financial results. The commercial strategy has been fundamental to the successful capture of value in the current environment. The stable quality of our blends, supply reliability, and contractual flexibility are fundamental to the corporate strategy. As of September 2021, the realization price of our crude oil basket increased from representing 76% to 94% as compared to the average rent price for the same period in 2020. It is worth highlighting the increase in barrels delivered to destinations such as South Korea, India, Brunei, Sweden, and the U.S. Gulf of Mexico, going from 17% in 3Q 2020 to 37.5% in 3Q 2021 in volumetric terms. This strategy has allowed a higher commercial margin as compared to shipments sold and delivered at the Covenas port. Likewise, we continue to maximize the value of crude oil and products through asset-backed trading strategies with an incremental benefit of $47 million by the end of September, almost twice the amount achieved during full year 2020. We estimate that so far this year, The commercial effort has contributed around $339 million, equivalent to $1.19 per barrel, to the Ecopetrols Group EBITDA as a result of export strategies, purchase of new crudes from the refineries, benefits from using our crudes, and savings from energy efficiencies, among others. Sales of gas and LPG, a key element of the strategy, contributed almost $15 per barrel to the EBITDA, proving the relevance of this product within the company's results. Let's turn to the next slide, please. Organic investment as of end 3Q amounted to nearly $2.2 billion, showing an important recovery versus the previous year, despite global supply chain disruptions, public unrest in certain areas of our operation, and longer regulatory permitting lead times. The upstream segment accounted for 77% of total organic capex, with a focus on increasing production and reserves, while 23% went to the midstream, downstream, and corporate segments. By the end of the year, we expect to invest between $3.3 and $3.5 billion. CAPEX execution for the fourth quarter will be focused on an increase in drilling rigs directly operated by Ecopetrol, securing the arrival of materials with supply delays, boosting activity in Permian, Ecopetrol, America, and Ocol, and an increase in activity in the refineries. As for ESA's CAPEX, its cumulative execution as of September was $946 million, mainly allocated to the progress in the construction of energy transmission projects in the countries where the company operates. ESA estimates a year-end execution of circa $1.2 billion. Please turn to the next slide to review the company's cash flow. Cash balance for the third quarter was 13.1 trillion pesos, with the operating cash flow adding 11.5 trillion pesos. EISA contributed 6 trillion pesos to the cash balance and 0.5 trillion to the operating cash flow, respectively. The investment component for the year presented an outflow of 8.8 trillion pesos related to CapEx. The financing component, excluding EISA acquisition, registered an outflow of 2.8 trillion pesos for principal and interest payments. During 2021, Dividends for 1.4 trillion have been paid to Ecopetrol shareholders and to non-controlling shareholders of its subsidiaries. Final cash balance considers cash and cash equivalents for 10.1 trillion pesos and a short-term investment portfolio of 3 trillion pesos. The Ecopetrol's group cash composition is 64% dollar-based and 36% Colombian peso-based. This cash balance does not include the account receivable from the Full Price Stabilization Fund , which at the end of 3Q amounts to 7.2 trillion pesos. It is worth mentioning that the recently approved General Budget of the Republic of Colombia includes a specific provision of 2.7 trillion pesos for the recognition of this item, as well as additional budgetary mechanisms to address the remaining amounts. Please turn to the next slide. Finally, we would like to highlight the completion of our first external liability management transaction for $2 billion, by which we partially refinance the $3.7 billion loan associated with the ISA acquisition. This transaction optimizes the debt maturity profile of the Ecopetrol Group with market rates at historically low levels since 2014. The transaction had a robust demand from around 270 investors from different geographies globally, with individual bids of up to $470 million, evidencing the confidence in Ecopetrol's financial strength. This transaction, in addition to the approval of the program to issue common stock in Colombia by the Superintendency of Finance, provides flexibility and access to different sources of debt and equity financing. with the objective to continue optimizing the maturity profile and to fund the energy transition strategy of the company. Now I hand over to the CEO for closing remarks.

Thank you, Jaime. We continue to move forward on each of the pillars of our TESG strategy. On the environmental side, we particularly highlight achievements in our renewable energy projects. With the entry into operation of the San Fernando solar farm that is located in the metal department, We have now an additional installed capacity of 61 megawatts that will supply part of the energy demand for both Ecopetrol and CENIP operations. It will also help us to avoid emissions for more than 508,000 tons of CO2 equivalent during the next 15 years and will contribute to the group's decarbonization plan. All this in addition to over 21,000 tons of CO2 emissions that have already been avoided by the Castilla Solar Farm in its first two years of operation since October 2019. During such period, we have also saved with the Castilla Solar Farm some $2 million in operational costs. With San Fernando, the group's current capacity on renewable energy stands at 112 megawatts. Likewise, Ecopetrolos, who inaugurated the gas-based self-generation plant in Chichimene, that will avoid emissions of some 44,000 tons of CO2 each year, and will supply part of the energy required by the Chichimene, Apiai, CP09, and Castilla fields, all located in the META department. In terms of hydrogen, we highlight the active participation of Ecopetrol as one of the key players in the construction of Colombia's hydrogen roadmap aimed at developing this energy source for the country. On the other hand, We recently joined the group of the Task Force on Nature-Related Financial Disclosures, TNFD, to help develop a reporting framework for nature-related risks and opportunities, as well as mitigating negative impacts on the environment. Last week, we participated in COP26 in Glasgow as one of the organizations representing Colombia. In addition to discussing actions that allow to mitigate climate change impacts, We met with different leading organizations to explore potential alliances in the development of several opportunities on our road to net zero and energy transition roadmaps. Regarding technology, I want to highlight the capture of some $36 million year-to-date of benefits from our digital transformation agenda. Also, the award of the Sustainable Development Goals, Good Practices Led by the Global Compact of the U.N., to our open innovation program 100 times 100. In the social dimension, Ecopetrol achieved the Equipares Silver Seal, a certification with a 98.47% score, which gives us now five companies in the group that have favorable processes for gender equality. Let's move on now to the conclusions. During the quarter, we achieved significant progress towards energy transition, such as the closing of the ESA acquisition, setting a milestone in the history of the country and for both companies, providing the opportunity to consolidate the Ecopetrol Group as a new leading energy company with greater capacity to continue generating sustainable value. We continue delivering strong financial results to our shareholders and our groups of interest. We will keep consolidating our integrated strategy, maintaining the focus on the core business while moving forward in the pillars of energy transition. Thanks to everyone for participating today in the call, and now I will open up for the Q&A session.

Thank you. At this time, I would like to remind everyone, in order to ask a question, simply press star and then one on your telephone keypad. If you would like to withdraw your question, please press the pound key will pause for just a moment to compile the Q amp a roster. We have a question from killer levy from Morgan Stanley.

Hi. Hello, everyone. Thank you for taking my question. I have two questions. The first one is on lifting costs. So I just wanted to understand your expectations for this line going forward when we consider both recovering production and higher oil prices. that are expected to remain into the next quarter. If we should continue to expect lifting costs close to the $8 per BLE range, and if the company is already seeing some level of industry cost inflation. And then the second question is on the production expectations for 2022. I just wanted to pick your brain and try to understand what sort of projects can be anticipated at the current oil price environment, and also how much the shale JV in the U.S. could contribute to the group in this strong oil price environment. Thank you very much.

Guillerme, thanks, and thanks for participating today in the conference call. So I'll give you some context, and then I'll ask Alberto to provide more detail, first around lifting costs and then around production. So the first thing around lifting costs, if you look at where we ended up on 3Q, around $8 per barrel, we're signaling that the year should end up in around or at around $8.50 per barrel. And for next year, the range should be around $9.50 to $10 per barrel. So that's sort of the expectation. So clearly, we see there will be an increment or an increase in terms of the lifting cost. Alberto will provide detail around levels of activity, And also some of the pressures we're seeing from some of the first increases in terms of sector inflation, particularly around some materials and the like. So he'll talk about that. In terms of production, I'll share my view with you. And then again, Alberto will provide some detail. But if you look at what has happened this year, we started at 1Q at 676. We went down to 661 in 2Q and up to 684 in 3Q. So there's a recovery. We're seeing recovery from some of the issues, operational issues that we had in 2Q, especially with the production of water and some other issues and some of the blockages and stoppages and civil arrests in the country. We expect that in 4Q we will be at around 700,000 barrels. The way I would describe it is that we're seeing recovery. There's a clear path of recovery, but it's taking longer than what we had anticipated. So I think that's message number one. We're currently working on the numbers for 2022. We don't have a number yet in terms of where we...

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Here's your question. Investors in the core business. Thank you.

Thanks, Matthew. I'll start with Isa, and then I'll hand over to Walter to talk about the downstream. In terms of ESA, I want to provide a bit of context. We have something called the TMO, the Transition Management Office. It basically comprises of some 80 people, roughly half and half from each of the organizations. It has been working for some months now, and for the last two and a half months since we closed the deal on the 20th of August, a dedicated team has been focused on on the premise, on premises maybe, working on some 10 to 12 streams of work maybe. So there's different things, you know, and we've talked about the legal, the regulatory, the financial consolidation. So we're working now on things like budget and planning purposes. So there's a lot of work, and that's actually going quite well in terms of – Jaime and myself joining the board. That's already happened. So I just wanted to provide sort of the high-level context in terms of where we are. So things that we're looking at. And there's some very tactical, pragmatical things that we're looking at. So, for example, in a lot of the things in which we operate, for example, on a digital, we have a lot of synergies and opportunities because we use the same providers, you know, and we can share some of the conditions and some of the favorable conditions that Equipetrol has on contracting some of the services. Those can be passed through too easily. So that's low-hanging fruit. Very early on, those things have identified. And there's some ongoing work between the teams around things like innovation and technology, very important. So things like, when you mentioned power generation, solar, In Colombia, by the current existing regulation, since we are in transmission, we would not be allowed to enter the power generation market to sell to third parties. So that's the current sort of regulatory framework in Colombia. Having said that, there's opportunities in the other countries where we now have a presence. So that's point number one. But in terms of things like additional renewable, our generation projects from renewable sources, there's a lot of opportunity, both in-country and outside, in terms of energy storage, which is fundamental as we think about the transition and sort of ensuring that there's reliability in terms of the provision of electricity, you know, to the consumers. Even in things like hydrogen, in things like low-emission energy, so The teams are actually working on that. So we're very enthusiastic, I would say, in terms of the new opportunities. And there's a lot of things that are coming up from those conversations. And what we'd like to do, Matthews, is that as soon or as long as we're progressing and advancing, we'll continue to communicate, you know, in terms of where we are, how we've landed some of those opportunities. But I would end up saying here before handing over to Walter, is that I don't think we fully understand the potential that we can unlock, you know, in terms of the transaction that we've done and the opportunities going forward. So, Walter, why don't we move into the downstream to talk a little bit more about the margins and what we see going forward.

Thank you, Felipe. Thank you, Felipe. And thank you, Matthew, for your question on the downtime business. I will start mentioning that, as you saw on the slide, and it was covered by Alberto, that as of September, we have accumulated a record EBITDA of 2.3 billion pesos for the segment. So this is mainly coming from excellent results in the second quarter. Regarding the sales quota, important to mention that we started around July and August plan activities at the Barranca Bermeja refinery, mainly in the alkylation unit and the petrochemical business. Those activities at Barranca will continue. So those have already been completed. Although at the Barranca Bermeja, we are progressing right now maintenance, major maintenance on one of the crew units and on the FCC. In the case of Cartagena, the result of the third quarter were impacted by the blackout event that we had in August. and also a maintenance that we needed to do at the FCC unit in August and finish in the middle of September. So at the Cartagena refinery, those were one-time events, both of them, and, you know, the refinery were recovered for those events and is running close to full rate right now. And at the Cartagena refinery, we are projecting the fourth quarters We are not projecting to have planned turnarounds or big maintenance at the Cartagena refund in the fourth quarter. We see Cartagena for the fourth quarter coming up in terms of margins. At the Barranca, as I mentioned, we are executing the planned turnarounds on the crew unit of the FCC, but margins for the Barranca are planned to be steady for the fourth quarter and very similar to the third quarter. In overall, for the refining, we are projecting to finish 2021. Regarding a crude rate, we have told you that we are planning to be on the 345 to 365 KBD, and we are projecting to be on the high side of that rate. Regarding margin for projection for the 2021, we are projecting to finish the year between both business, Cartagena and Barranca, on the upper side of the one digit, so close to the $10 per barrel for 2021. Regarding 2022, I will say that we see margins coming up, although I have to mention that during the first half of the year, we do have plant maintenance activities at both refineries, at Barranca and Cartagena, mainly on the first half of the year. But in overall, we see margins, there will be some ups and downs because that depends on what type of maintenance activities we do every month. But in overall, we see margins for 2022 on the, I would say, on the low side of the two digits for the refining business. And I think that I would like to mention that 2021 and 2022, are very heavy on turnaround activities or maintenance activities at Bokeh Finance because most of the activities were planned for 2020, but because of COVID-19 and pandemic, we need to move some of those maintenance from 2020 to 2021 and 2022. I hope, Matthew, I was clear and I was able to answer your question.

Thank you. Our next question comes from Vicente Falanga from Bradesco.

Hi, good afternoon, everyone. Thank you for taking my questions. My first one is regarding Brazil. When do you expect the drilling of the first well there and sort of what are the next key milestones? My second question is regarding to unconventional. Do you feel that after we get the licenses for Calais and Platero, that, you know, for other future potential areas, these licenses could come up quicker. And then if I just may, sorry, follow up on the previous question. Do you still see risks of public order in the Caño Limón pipeline this quarter that could, again, affect the refineries or things calmer there? Thank you.

Vicente, good morning. Thanks for the question. With regards to Brazil, what we are doing right now, in terms of exploration, we are in the planning phase to drill our second well in the Saturno block, which basically is what we call the Iapetus prospect. And we expect to drill this well late in 2022 or early 2023. And this will depend very much in our conversations with our partners, in that case, Shell and Chevron. Also, in terms of development, just to recognize that Gato D'Amato is going well and that we have... several milestones to complete them in the next few months. The first one is the award of the FPSO, the Floating Production Storage and Uploading Facility. Initiate fabrication of the FPSO. Also, award the subsea facilities contract. And depending in the advance, in the progress of those activities, we are shooting for an early start at the end of 2025, early 2026. That's the program. If we see opportunities to drill additional wells, that will be depending very much on decisions taken with our partners. So that's times where we are in Brazil. With regards to PPA and unconventions, So we're in the process, as we mentioned in our report, in the process of obtaining the licenses for Calais and Platero. We already delivered the environmental assessment study for Calais, and we are trying to do so for Platero. So in terms of whether this will increase the potential of getting licenses for new areas, I will be very conservative. I think our focus should be in the two areas where we have at this moment the pilots. Once we are successful in getting the licenses, but as well as doing the execution of the wealth, doing the drilling of the wealth, then we can foresee if there are opportunities in other places.

Alberto, I would probably just like to add, and before you come back to Canelimón and the third question is, what we've said, Vicente, with regard to the unconventional pilots in Colombia, is that this is not about doing it quickly. It's about doing it well. And in that sense, and you saw some of the timelines that we produced in the report, we see ourselves driven into wealth in 2023. But we're working to see if we can actually accelerate that really. You know, and can we bring that forward into 2022? But bear in mind that after we have all the results and the data, there is an independent commission that will look at the results of the pilots and determine if the pilots were successful or not in terms of achieving the objectives that were set up with the regulations to the pilot. So we'll need to see what that means. Having said that, Obviously, we've worked on identifying additional areas with potential and thinking about how can we take this to the next level in terms of becoming part of the operation that we do. We now have a lot of expertise from the current we use under our belt. So that's being brought home in terms of planning and ensuring that we can understand how to move to the next phase, which if I understand correctly, to sort of the question. And Bert, in terms of Caño Limón?

Yeah, well, in terms of Caño Limón, we need to recognize that we have the pressure of social unrest and guerrilla activity in both the Catatumbo and the Arauca region. So the risk is there. But we have the contingency means to manage the production impact. If the Caño Limón pipeline is... affected by this sociolumbre, then we have the contingent route of the decentenario pipeline. If this is working, as has been working during the third quarter, where we have 11 reversal cycles, then we shouldn't expect major impact in terms of the loads for the refiners, particularly in Baracaberme, I think.

Thank you. Our next question comes from Frank McGann from Bank of America. Please go ahead.

Okay, thank you very much. Just maybe stepping back to a little bit bigger picture in terms of how you're seeing the CapEx potential in Upstream. After the last four or five years, which you went from having a lot of opportunities and being very aggressive to you know pulling back is is you know right rightfully so to um restore the balance sheet and and and not you know overly get overly aggressive in terms of spending given the less clear environment especially of course over the last 18 24 months i'm just thinking you know wondering now how you how you're thinking about upstream um you've got i would assume a lot of kind of low-hanging fruit that you could potentially exploit you could you know i would think you could um increase CapEx quite a bit and profitably so if, if you wanted to, but I'm just wondering how, how big that portfolio is potentially also one. And secondly, um, are you, are you tempted to get more aggressive over the next couple of years, but given the very favorable environment and I think fairly short payback period that you have for a lot of those investments?

Thanks, Frank. And, um, Great question, and I think I'll provide you some views, and then Jaime can add up, and Alberto as well, and the team can sort of basically complete the views. But the way I would put it, I like your intro to the question in terms of us being explicitly very careful with the management of the balance sheets and the opportunities. And if you look at... how we've ramped up CapEx over the last few years from basically $2.2 billion in 2017 to $2.9 billion in 2018 to $3.5 billion in 2019. We'll be in that range this year. And I was answering a question earlier saying that we see ourselves in the $4 to $5 billion range, organic, excluding ESA. And Historically, 80% to 85% of the capex has gone to the upstream. So we're not going to abandon that. So there will be additional focus in terms of exploration. And this goes from looking at seismic that we already have and doing the reinterpretation of that seismic with new technology and new capabilities. So that's point number one. And I think the news that we gave the market earlier in the week with the media, the AW, the well, which is the discovery of a new field, show that sort of adjusting our view on exploration is paying off. And I think that's very important. This year we'll end up with some 400 wells in our portfolio that we've drilled, development wells. We should probably see an increase in that, and that's the way you need to think about it. If you look at geographically, We have very good activity in the Permian, and it's staying off. It's not only providing molecules or barrels, but it's also producing good EBITDA, you know, and we'll be able to talk about when we close the year and the likes. So a lot of focus in Colombia, but we do have focus in both the Permian, and Alberto was just referring to Gato do Mato in Brazil. That will require some additional CAPEX. But clearly, focusing Colombia where EOR techniques, increasing recovery factors are fundamental. We have to deal with a 15 to 17 decline, natural decline per year in our main fields. Good news, I think tailwinds are healthy. We've done a lot of work over the last four or five years in terms of efficiencies, in terms of becoming much better in terms of producing margins, not the upstream level. So I think that's paying off. Having said that, we had, I think, a good discussion earlier on about sector information and some of the things that we're doing. But again, things like zero-based budgeting and something called Performance Plus, which is an internal program to look at more efficiencies, I think can provide a lot of support in terms of how we see ourselves going forward. We have identified lots of opportunities. We have something called the taxonomy, so we know which each and every opportunity that we have in the pipeline ramps up. But, and I'll stop here, we don't want to get crazy, you know, in terms of spending money just for the sake of spending money. We want to stay very focused and disciplined in terms of how do we deploy the CapEx in the operations. Jaime, if you want to add something else or Alberto, go ahead.

Thank you, Felipe. So, Frank, good to hear you. I'll give you some color, and initially I'm going to give you some broad group numbers that provide context for the conversation, and then some directional numbers associated to the plan which we're working on. I think the biggest headline is that as we look to refresh the plan 22-24 in the context of a higher price environment, And in the context, of course, of the production lag that we've seen this year, clearly our strategic intent is to increase production, right? So directionally, what we want to do with the upstream is to increase production. And the good news is that the result of the portfolio analysis that we've been having over the last few months is one that indicates a stronger portfolio with more prospects, with more possibilities, and therefore with more value, right? To give you an idea, you know, this year's plan compared to last year's plan speaks about maturing around $1.5 billion barrels of resources, of 3P resources, right? That's the extent of the total portfolio. When we were looking at this number 18 months ago, it was more in the 1.1 kind of range. So we've actually seen a bigger portfolio to work with. The second thing that we're seeing is that in the context of the full agenda of performance plus and efficiencies and becoming more competitive and the like, We're also seeing improved rate keepings and therefore more value associated to the portfolio. So directionally, a portfolio that maybe a couple of years ago was worth, and I'm talking about the growth component of the portfolio, around $6 billion in NPV. It's now around $9 billion in NPV. So where I'm trying to go here is, is that there's value to be had, and we want to chase that value. Obviously, in a disciplined way, like Felipe mentioned, and in a structured way, but there's value to be created. When you look at the ramp-up of activity, the ramp-up of activity that we expect to have next year, it's significant. We're talking about directionally around 540 development wells next year, around 600 workovers, around anywhere between 25 and 30 exploration wells, and going back into seismic. So the opportunities are there and they're sufficiently mature. Let me give you a statistic here. All these numbers that I'm quoting, about 67% of the activity said it's already in its third or fourth stage of maturing. So there are things that are reasonably good to go, and it gives us confidence that we're going to be able to execute them next year. So kind of that's where we're going. When you look at that number that Felipe mentioned of between $4 and $5 billion of organic capex, I would say that the upstream, as usual, will represent a big chunk of that. When we look at the next three years, I would expect upstream to be capturing probably anywhere between $10 and $12 billion of capex, upstream alone. That's where direction we're heading. Obviously, this is all subject to some fine-tuning, and we're going to have a more detailed conversation in February, but that's where we're heading right now.

Quentin, I will just add that when you look at our portfolio and years back, our focus was the main mature fields, heavy oil fields. So now, in our plan, you'll see new areas emerging. For example, in terms of exploration, you'll see activity associated with the Caribbean offshore and also a lot of focus in terms of the Piedra Monte foothills, where we have the expectation of finding both light oil and gas. So you'll see that diversification. When you look at other projects that are going to be emerged, you'll see Tañosur close to Rubiales and then Acacias, which will be another focus in our portfolio. So more diversification, I would say. Thank you.

Our next question comes from Christian Audi from Santander.

Thank you. Hello, Felipe, Jaime. Hope you're well. I wanted to get your views on a couple of points. First, capital allocation and then on return on capital employed. In terms of capital allocation, you've already touched on CapEx. I was wondering if you could also touch on deleveraging and dividend payments, how you prioritize those given the very strong results in cash flow generation that you're having, and also touch on the potential need for an equity offering and whether that equity offering, if needed, would be more to supply ESA with capital to pursue inorganic growth, or would it be more driven to just strengthen the overall Ecopetrol financial position? Then in terms of returning capital employed, which is an area where the company always stood out relative to your peers with the addition of ESA that has great margins and greater return on capital employed. I was just wondering if you could talk a little bit about where you see Rossi, maybe X ESA going into 2022, please. Thank you.

Thank you, Christian. I hope you're doing well. So I'm So let's talk about capital allocation and Rocha.

I'd first start with kind of what is our view of the world going forward in terms of price environment? Because it actually does set the stage a lot around how to think about some of the questions you're making, you know, capital allocation, deleveraging, dividends and the like. And one of the things that we've seen is that fundamentals do support a a more optimistic view around prices going forward. You might recall that in the plan, the plan that we're actually executing right now, our price assumption for this year was around $45 per barrel. Next year, we were looking at $50 per barrel. And that's something that we have been reflecting on and that we are gonna update in our plans going forward. So the outlook, in which we are planning ahead is one where next year is at $63 per barrel and 23 and 24 are at 60. This price set is still conservative when you look at the current headline price, but we believe that it kind of positions us well in a place where where we can retain our capital and cost discipline, while at the same time making sure that we don't leave opportunities on the table. The broader conversation around long-term price in this business, we still remain conservative. We believe that all our projects need to fly at $50 per barrel. And that's in a view that when you look at the majority of our projects and the time to market associated with these projects, you're looking at the long run. So that's how we're thinking about this, right? So with that in mind, what are we looking at? What we're looking at, firstly, in terms of your question about our own leverage, that 2.5 times gross debt to EBITDA ceiling that we have been operating It's one that seems reasonable, right? It seems reasonable, and it continues to be reasonable when you look ahead. What is the balance that we want to have? The balance that we want to have is one where we have a bit of space there to encourage that, whether it's for inorganic opportunities that might arise, and also to capture or to reflect in our consolidated balance sheet the leverage that ESA has might have given that their ceiling is 4.5 times gross debt to EBITDA. Why is that important? Leverage is an engine of growth for ESA. ESA has a pipeline of opportunities going forward that is very attractive. The more we look at it, the more excited we are, and we definitely don't want capital to be a constraint for ESA's growth, right? So we are comfortable with that range that they're operating in. It's 3.5 to 4.5 times, and we wouldn't have any problem with ESA going to the very top end of that range. So with that, our range of 2.5 kind of makes sense. That's how we're looking at this. Now, on leverage, we're not going to stay put. We just had this liability management transaction. We put $2 billion in. of our, if you will, of the near term. It was an expiry that we weren't going to have in 2023. Now we kick that off into the future and we intend to do that more. We believe that the fundamentals of the capital markets right now and the results that Ecopetrol are delivering allow us to pursue more transactions like that into the future. So directly, that's how we're thinking about that. With regards to dividend payments, You know our policy remains unchanged, 40% to 60% of net income. And in good years, you should expect and we all should expect to be on the very high end of that range. That's how we're thinking ahead and that's how we're planning our cash and our capex accordingly. Equity offering, where does the equity offering fit in into all of this? It's about optionality. It's about optionality, Christian, absolutely. The idea here is that whilst our standing is robust and we're comfortable with leverage and we're comfortable with our ability to fund these topics for growth, which is our main intent, we want to continue growing the company. We believe that the equity offering offers the optionality to support whether it's an increased portfolio Necessity of capex, you know, that's competitive, whether it's organic or inorganic, or simply to strengthen the balance sheet. Directionally, right now, it would be about strengthening the balance sheet. It would be about reducing the debt that we have to get into a more comfortable level. Finally, with regards to your question around road sheets, you might have seen that we posted a pretty solid road sheet result on District Q, 10.8%, which is great, you know, Going back to double digits, it's a number that puts us in – with very little company in our sector, very, very few companies are up there with us, and we're happy about that. When you include ESA in the equation, ESA is accretive. With ESA, we're actually – And ESA will probably add, once you normalize temporary effects and the like, because obviously the consolidation that you're seeing right now only reflects one month. But once you normalize for, if you will, business as usual with ESA, ESA is going to add probably, you know, four or five points into that. So I would believe that hopefully by year end, we're going to be above 12% in terms of ROGIE, and we can sustain that into the future. Obviously, depending on price, but that's what we believe in right now. Thanks, Christine.

Thank you. We have no further questions at this time. I would like to turn the call over to Mr. Bayon for final remarks.

Thank you so much, and very, very quickly, I'd just like to thank everyone for being here today at the conference call, and Thanks again for following Ecopetrol for the interest that you put into our activities and how we continue to make progress. Very good results for the quarter. Very good results, not only in terms of numbers, but in terms of how strategically we continue to advance. It's great to have now one month of ISA results into our consolidated results. Very, very pleased with the acquisition. It's going very well. We continue to make progress in our TESG agenda. And hopefully we'll be able to sit again with you guys virtually for year-end results and conversations around our plans going forward. So I hope that everybody stays safe. Please stay here. And thanks again for being with us today at this conference call. Bye-bye. Ciao. Gracias.

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