Ecopetrol S.A.

Good morning, my name is Hilda 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 first quarter 2022. 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 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 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 conference call of the results for the first quarter of 2022. I am proud to announce that during this quarter, we continue to deliver historical financial results underpinned by some of the following issues. First, positive industry conditions with an average rent of $98 per barrel in the quarter, which is 60% higher than the price we observe in the first quarter of 2021. Second, the company's efforts to capture efficiencies and savings that helped us mitigate inflationary pressures. And third, a focus on sustainable value generation for our stakeholders with a clear commitment with our TESG goals. Additionally, I would like to highlight the recent approval in the AGM of a dividend of 11.5 trillion pesos, equivalent to 280 pesos per share, which represented a dividend yield of 10.4% for our shareholders and a payout of 69% of the net income of year 2021. In the same meeting, the AGM, some changes were approved in the company's bylaws aimed at strengthening our corporate governance and at giving continuity to the 2040 strategy announced a few months ago, which we have named Energy That Transformed. The changes introduced to the bylaws included, amongst others, the extension of the board's members' period from two to four years. In terms of production, and after some operational and public order challenges, Faced at the beginning of the current year, we continued to take decisive steps on the recovery path. The production for the first quarter of the year was 692,000 barrels of oil equivalent per day, whilst in March we reached an average production of 705,000 barrels and in April 708,000 barrels equivalent per day. All this aligned with the production target for the year between 700,000 and 705,000 barrels of oil equivalent per day. Although we are facing challenges in terms of higher cost and working capital requirements associated with the increase in the account receivable related to the Fuel Prices Stabilization Fund, or FEPEC in Spanish, whose evolution and impacts will be explained in detail by Jaime later on this call, It is important to note that none of this compromises the fulfillment of our business and investment plans for 2022. Let's go on to the next slide. We started the year with important milestones in the four pillars of our 2040 strategy. In the strategic pillar of growing with the energy transition, I want to highlight the following. First, the success declaration of the El Niño II exploratory well located in the Boquerón Block in Tolima, Colombia. Second, we were awarded six new exploratory blocks located in the Santos Basin in Brazil, in line with our exploratory efforts in high potential basins. Third, the authorization by the Board of Directors for the divestment of 51.8% of our participation in Ibercolsa as part of our active portfolio management with the objective of reallocating capital within our strategy of energy transition. In the pillar of value generation through TESG, technology, environmental, social, and governance, I want to highlight the following. First, we joined the One Trillion Trees Initiative by the World Economic Forum to contribute to the protection of biodiversity and the fight against climate change, committed to protect 30,000 hectares of forest, compensate 2 million tons of CO2 equivalent, and grow 12 million trees by 2030. Second, we were included for the second consecutive year in the S&P Global Sustainability Yearbook 2022, standing out from peers on our commitment to advancing ESG issues. Third, in line with our commitment to the disclosure of sustainability information and anticipating what will be required both locally and internationally, we released our integrated sustainable management report and the second SASB report. In the latter, we significantly increased the number of reported metrics from 156 in 2020 to 514 in the 2021 report. Fourth, the consolidation of our low emissions portfolio aligned with the delivery of value and the objectives of the energy transition. I would like to highlight the operational startup of the first green hydrogen production pilot in Colombia, located in the Cartagena refinery with a 50 kilowatt electrolyzer with the capacity to produce some 7,300 kilograms of hydrogen per year. The energy for that equipment coming from 270 solar panels. This will allow us to assess the technical environmental feasibility and performance of this green hydrogen generation technology. The hydrogen produced in the pilot is being used and will continue to be used to improve the quality of the fuels produced at the refinery for which today we use gray hydrogen. Finally, in March, we announced our pledge to be water neutral by year 2045 by reducing 66% of the capture of fresh water that we use in our operations, the elimination of discharges into water bodies, and the compensation of 34% of the remaining water capture. In the cutting-edge knowledge pillar, we mainly highlight, first, the alliance with Accenture and Amazon Web Services with whom we are developing an open data platform for an efficient water use and management in the oil and gas industry. with the support of UNIRED, the launch of the seventh version of the innovative program that seeks to use technology and innovation to strengthen the social, economic, environmental, and governance efforts in the territories in which we operate. Third, the start of a project to create the Innovation and Technology Center of the Caribbean in Cartagena, which will approach solutions to the challenges of the energy transition and the pet chem industry, with hydrogen as one of the key elements. items in such a center. Fourth, we make progress in the consolidation of the energy tech ecosystem with the signing of an MOU with Tecnalia, Europe's flagship research and technological development center. Finally, in the competitive returns pillar, I would like to highlight a few things. First, the financial results obtained in our operations in the Permian with an EBITDA amounting to $111 million in the first quarter and an EBITDA margin of 87%. Second, the first commercial operations closed by Ecopetrol Trading Asia, located in Singapore, for 1.09 million barrels of crude oil. Third, the efficiencies of 358 billion pesos resulting from initiatives in workovers, maintenance, improvement in product and pet chem margins, dilution strategies, optimizations of the lifting cost, amongst others. And I want to take the opportunity to thank each and every employee in the Ecopetrol for achieving these outstanding milestones in terms of efficiencies. Let us now move to the next slide where I want to discuss the challenges and opportunities that we currently see in the market environment and what these represent to Ecopetrol. Although the higher international prices of crude oil have contributed to our results, The price scenario has also generated pressures in terms of inflation, increase of energy costs, and challenges in international logistic chains, which generate pressures on our operating costs and some delays in the execution times of our projects. We have actively worked to mitigate the impacts of the situation, focusing our efforts aside from efficiencies, mainly on the following measures. The continuous strengthening of our commercial strategy, seeking to maintain our realization prices at attractive levels, even under a competitive price scenario. The consolidation of our operations in the Asian market through the consolidation of new relationships with clients in the region, strengthening commercial relationships in that continent, as well as developing the crude trading strategy for third parties. The systematic monitoring to supply prices indexes and their impact on the projections of our different segments, guaranteeing the required inventories level for critical OPEX and CAPEX operations. And lastly, the adoption of new contractual structures seeking to mitigate volatility with long-term contracts, limiting the indexation to factors such as inflation. Having said all of this, there was an increase in the imports volume associated with a higher domestic demand for fuels and a decrease in the national supply of safe products due to scheduled refineries maintenance both in Barranca and Cartagena. This represented a decrease in the volume of exported products in order to supply domestic demand. As for the performance of gas, its increase compared to the previous quarter was due to higher economic growth reflected in the increase in gas consumption in the regulated market, mainly in households and small businesses. I want to now give the floor to Alberto Consuegra, who will talk about the main operational results for the quarter.

Thank you, Felipe. During the first quarter of 2022, along with our partners, we drilled seven exploratory wells in Colombia. The success of the appraisal well El Niño II, located in the Bocaron Block, Department of Tolima, operated by Perenco, confirmed the extension of the discovery El Niño I in the Guadalupe Formation by finding 27-degree API crude oil. On the other hand, the Pilorenda I well was sealed and abandoned. The cumulative production from exploratory wells in initial and extensive tests reached 220,000 barrels of oil equivalent at the end of first quarter 2022, 2,453 barrels of oil equivalent per day on average, 33% of the production of the quarter corresponded to oil and 67% to gas. On March 11th, the Cupiagua XD-45 well operated by Ecopetrol and located in the Piedra Montellanero was spotted. This is the second exploratory well in the area to search for gas and light crude in the vicinity of the Cupiagua field. We highlight the reactivation of the Caribbean offshore exploration in Colombia, with two wells being drilled simultaneously. Gorgon II, where we seek to verify the extent of the gas sands discovered in Gorgon 1 back in 2017, and Uchuva 1 at an approximate world depth of 837 meters and located 32 kilometers from the coast of the municipality of Palomino in the department of La Guajira. Concerning the international exploratory activity, on March 28, Ecopetrol Brazil formalized the concession contract of the SM-1709 block, which represents the first step of a positioning strategy in the southern region of the Santos Basin. Additionally, in this same basin, during the third permanent offer cycle of the ANP, Held on April 13th, six offshore blocks were awarded to Ecopetrol Brazil. Our subsidiary will have a 30% stake and Shell, the operator, will have the remaining 70%. With this new participation, Ecopetrol is now a partner in 12 blocks in Brazil. Can we please move on to the next slide? In order to meet the 2040 Ecopetrol Group Strategy, a new operating model for the upstream segment, exploration, production, projects and drilling, including the creation of the Upstream Vice Presidency, which seeks to guarantee an integrated vision for the segment, greater regional autonomy, more synergy with the subsidiaries, higher efficiency in the CAPEX execution, and reduce time to market from exploratory finding to first commercial hydrocarbons. On production, we had some challenges at the beginning of the year due to the maintenance of the Cupiagua gas plant and the impacts associated to some blockades, mainly in the Yarigui, Capachos, and CPI Sur Oriente fields. By March and April, production has been stabilized at over 700,000 barrels of oil equivalent per day. As Felipe said, we are now in line with the goals set out for the year. It is important to highlight that the organic investments in the segment for the quarter amounted $603 million, and these are in line with the plan and in accordance with the project activity set. The gas and LPG business is progressing in the fulfillment of the announced plan, with a significant contribution to the total production of the Ecopetrol Group, reaching 22% during the first quarter. with an average production of 152,000 barrels of oil equivalent per day. Let's go to the next slide, please. In the Permian Basin, results were achieved in line with the year's activity plan. We reached a total gross production of more than 60,000 barrels of oil equivalent per day, and more than 30,000 barrels of oil equivalent per day, net to Ecopetrol before Rojavtis. From an environmental perspective, 2.1 million barrels of water were recycled in completion operations, and up to 35% of the diesel used in the activity was replaced for compressed natural gas, reducing the greenhouse emissions of the project. With regards to unconventional reservoirs in Colombia, the ANLA granted the environmental license for the Calais project on March 25. The license is expected to be enforced by the second half of the year, once the environmental authority has reviewed the claims presented by the third parties involved. With respect to the ruling of the First Court of Barranca Bermeja that suspended the license, Ecopetrol filed an appeal within the corresponding legal term. Concerning the Platero project, we are waiting for the dates of the hearings in relation with the environmental impact study which was presented back in February of this year. In Ecopetrol, we are convinced of the importance of unconventional reservoirs in terms of energy security for the country. That is why we will advance in the activities related to the pilot projects, including the communication scenarios with the communities and other stakeholders to disclose the progress and resolve the doubts and concerns regarding the projects. Please move on to the next slide. The volume of crude oil transported increased by 24,000 barrels per day as compared to the first quarter of the previous year, mainly associated with the entry of crude oils from the Nare Association into the Vasconia Barranca Bermeja Refinery System and the capture of additional barrels that are entering from the Llanos Pipeline. On the other hand, the transported volume of refined products of the first quarter increased by 9,000 barrels per day as compared to the same quarter of 2021. To increase the operational storage capacity at the Pozos Colorados terminal, the construction of a tank with a nominal capacity of 260,000 barrels was completed in March of this year. This tank built by using the hoist ring system, has a geodesic roof of 61 meters in diameter and 13 meters high, being the largest geodesic tank built in Colombia. The construction of the tank involved the active participation of 62 women, representing 42% of the workforce. With the transport of refined products through the Oriente pipeline and the construction of the API truck gathering station, the goal of transporting 3,300 barrels of fuels per day to Almeta Department was exceeded, with the possibility of reaching up to 5,500 barrels per day due to the increasing demand in the area. Finally, the co-dilution projects in Apiay and Cusiana enabled the use of LPG as a diluent for crude oils through facilities assembled within the plants. This service generated significant economic benefits to Ecopetrol Group and clients, representing savings in dilution costs during first quarter 2022. Let's move to the next slide, please. The downstream segment reached record results on its quarterly EBITDA of 1.6 trillion pesos, the highest EBITDA margin since 2016, reaching 9.6%, and the highest integrated gross margin of the refineries in the last five years at $13.9 per barrel. These results were leveraged on a stronger product basket versus Brent, inventory optimization, an efficient commercial strategy, integrated planning of the logistics chain, financial discipline, and cost control. During the first quarter of the year, scheduled shutdowns were performed in both refineries to ensure operational availability and increase the reliability of the assets, along with an outstanding HSE performance. We currently reach the successful execution of 60% of the 2022 maintenance plan. This intensive shutdown cycle had an anticipated impact on the throughput level for the first quarter as well as for the current quarter. The Cartagena Refinery recorded historical quarterly EBITDA records, reaching 745 billion pesos with a gross margin of $18.6 per barrel. On February 18th, we celebrated the 100th anniversary of the Barranca Bermeja Refinery, a strategic state asset which has been supplying the demand for clean fuels within the country, supplying the production of petrochemicals for the national industry and acting as a leading force of the national economy. In Essentia, the positive trend in results continues due to the realization of margins between polypropylene and refinery-grade propylene, the increase in the level of raw material deliveries by the refineries, and the distribution of final products in regions where value is higher. Let's move to the next slide, please. During the first quarter of the year, efficiencies of 358 billion pesos were achieved within a comprehensive strategy focused on mitigating the inflationary effects that the global economy is experiencing, as previously mentioned by Felipe. Inflation has mainly impacted the purchase of materials, oil services, infrastructure maintenance, and the cost of energy. The group's competitiveness and efficiency strategies have managed to mitigate the impact of inflation on EBITDA by more than 70%. At the end of the first quarter of 2022, we have achieved savings with a positive effect on EBITDA for 318 billion pesos, as compared to an impact of 440 billion pesos associated to inflation. The lifting cost experienced an increase of 15%, mainly associated with increasing operations after the release of restrictions related to the COVID-19 pandemic, and increasing energy tariff, which grew by 18%. In relation to the cost per barrel transported, the increases in prices were offset by a lower unitary cost due to the higher volume transported, as well as the effect of a higher exchange rate by re-expressing costs in pesos to dollars. Our total unit cost naturally reflects the effect of higher brand prices on crude oil and product imports. It also reflects the effect of the increased activity on the fixed component of our costs. I now give the floor to Jaime Caballero, who will talk about the main financial results of the Ecopetrol Group. Thanks, Alberto.