Ecopetrol - Q4 2023

Transcript

Operator (participant)

Good morning. My name is Natalia, and I will be your operator today. Welcome to Ecopetrol's earnings conference call, in which we will discuss the main financial and operational results for the fourth quarter and year-end 2023. There will be a questions-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 future results, nor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol; Alberto Consuegra, COO; David Riaño, Vice President of Low Emission Solutions; and Milena López, CFO.

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

Ricardo Roa Barragán (CEO)

Good morning, everyone. With regards to the 2022 results call, a year of significant achievements would find goals and progress in energy transition projects. We have marked numerous operational records and value generation overcoming a challenging market environment. In 2023, we strengthened the traditional hydrocarbon business across all its segments. In 2022, we strengthened the traditional hydrocarbon business across all its segments. We closed the year with a production of 757,000 barrels of oil equivalent per day, a figure not seen in eight years supported by our fields in Colombia and the Permian subsidiary contributing 9% to the total production. We transport 1,113,000 barrels per day with 306,000 barrels per day through pipelines, the highest in the group's history. In refining, we achieved an unprecedented financial performance with over COP 73.3 trillion in EBITDA, the highest refining load in history of 420 barrels per day.

Thanks to high operational availability, continuous goods supply, and operation of the Cartagena refinery plant interconnection, IPCP, we achieved an exploratory success rate of 50% above the industry standard, highlighting milestones like Glaucus-1 announced earlier and ORCA North-1, the first deep-water well 100% drilled by Ecopetrol, which confirmed the presence of straw gas accumulations in reservoirs different from the ORCA-1 discovery. This spanned our offshore gas potential, reaffirming our commitment to the country's energy security. In the commercial front, in October 2023, we announced the opening of the trading office in Houston to be closer to global markets and obtain better results. Thanks to this ongoing effort to diversify customers and markets, we currently sell more than 50% of our crude oil exports to the Asian markets. In transmission, roads, and telecommunications segments, ISA secured contracts in 2023, representing investment of COP 10 trillion for the coming years.

Let's move to the next slide. We made significant progress in the commitment to decarbonization and to consolidate energy transition projects, achieving a cumulative reduction of greenhouse gas emissions of nearly 1.5 million tons of CO2 equivalent by the end of the year, aligning with the path to net-zero emissions. 2,000 of these emissions relate to methane, where Ecopetrol extended its ambition to achieve zero methane emission initiative of the Oil and Gas Climate Initiative. The commitment to action on climate change is evident, showcased by our adherence to the Global Sector Agreement to accelerate the decarbonization of oil and gas during COP28 alongside 49 other oil companies. In 2023, we reused 152 million cubic meters of water, avoiding capturing and discharging this volume, representing 79% of the total water required for operations.

This achievement was recognized by CDP Water Security, giving us an A- leadership rating for outstanding water management practices, making us one of the best companies in the oil and gas sector in these practices. In addition, in 2023, Ecopetrol was certified by ICONTEC in the calculation of water footprint in net production fields and the two refineries, being the only oil and gas company in Latin America that have reached this achievement. Ecopetrol Group reported an energy saving of 3.89 petajoules at the end of 2023, the highest figure since 2018 when measuring began, and 250% higher than that presented in 2022. Moreover, we added 472 megawatts of renewable energy to optimize our energy matrix and decarbonize our operations. In terms of sustainability, we invest COP 1.9 trillion.

In the social dimension, we allocate COP 520 million to education, public services, and regional economic diversification, making a 17% increase from 2022. We promote the energy transition by expanding the coverage of social gas service through networks, benefiting more than 20,000 new homes in Colombia with physical connections. Regarding our human talent, it's noteworthy that we successfully negotiated the 2023-2026 Collective Labor Convention with nine labor organizations. Also, we highlight our recognition in 2023 Merco Ranking as the Colombian company with the greatest capacity to attract and retain talent. We also emphasize low accident levels, with a total recordable injury frequency of 0.26 injuries per million hours worked. We rank among the top high global oil and gas companies in this aspect, according to the International Association of Oil and Gas Producers' Data for 2023. Let's move to the next slide.

We highlight the commitment to the country with historical transfer to the nation in 2023, represented in COP 23 trillion dividends, COP 26 trillion in taxes, and COP 10 trillion in royalties. Additionally, in 2023, Ecopetrol Group allocated resources for the execution of the Sustainable Territorial Development Portfolio, worth COP 594 billion, which includes social, strategic, and mandatory environmental investments. Through these investments, Ecopetrol Group contributes to the economic and social development of the country, implementing projects with local authorities and the community, alongside national partners and international cooperation to generate well-being and contribute to closing social gaps. Key social investment milestones of Ecopetrol during the year include 150,203 students benefited from projects and programs aimed at improving the quality increase in school retention and expanding coverage in higher education. 8,670 entrepreneurs, SMEs, and youth benefited from programs for capacity development in entrepreneurship and innovation.

15,019 people with improved access to clean water, 197.93 kilometers of road network intervened, contributing to dynamics of regions, better terrestrial mobility, and local job creation. I want to thank the firm commitment of all our workers, allies, and communities where we operate, who, with their dedication, make Ecopetrol the leading force in transforming Colombia's energy. Let's move to the next slide. These results demonstrate that the roadmap outlined in the strategy reaffirmed in September 2023 during the celebration of Ecopetrol's 15 years of the New York Stock Exchange is clear and guides our step toward the plan proposed. 2023, we obtained the second-best results in the history of the Ecopetrol Group, surpassing the previous year when the average Brent price approached $100 per barrel.

In 2023, crude price dropped to $82 per barrel, combined with inflationary pressures and high energy costs, creating a very challenging environment for the company's cost structure. However, we exceptionally overcame this, generating revenues of COP 143.1 trillion, equivalent to 9% of the national GDP, an EBITDA of COP 60.7 trillion, and a net profit of COP 19.1 trillion. The profit was impacted by a 10% income tax surcharge and impairment that reduced the net income by COP 0.9 trillion for the period. We closed the year with the highest record of transfers to the nation in Ecopetrol's history, COP 58 trillion. Also, I emphasize that we ended the year with an account receivable from the Fuel Price Stabilization Fund with an accumulation 44% lower than 2022.

Relieving cash pressures and highlighting the active management of the Ecopetrol teams as well as the commitment of the nation allowed us the highest execution level of 97% of the investment plan, with the highest level in the last 8 years equivalent to COP 27 trillion. It is worth mentioning that, as a result of these dynamics, as well as the market environment, Ecopetrol generated a total local return for its shareholders of 26% for the year and 46% for ADR investors, which adds to the confidence shown by the market in our issues and ratings. With this excellent result, we prepare for a challenging 2024, not only in terms of international prices and inflation, but also the impact of the El Niño phenomenon and the balance of the natural gas market.

We will face these challenges by strengthening our operating capacity in the traditional business with the highest safety standards, maintaining capital discipline, and with a clear focus on competitive returns. I will give the floor to Alberto Consuegra, who will talk in more detail about the 2023 operating performance. Go ahead, Alberto. Thank you, Ricardo. By year-end 2023, the net proven reserves of the Ecopetrol Group amounted to 1,883 million barrels of oil equivalent, maintaining average levels of the last nine years, even under challenging market conditions. Proved developed reserves increased by 4% versus 2022, showing an improvement in our CAPEX execution.

Organically, 307 million barrels of oil equivalent were incorporated, but at the same time, 188 million barrels of oil equivalent were debooked, mainly impacted by external factors associated with a lower Brent price, inflationary effects, as well as decline in water breakthrough in gas fields such as Ballena, Cupiaguci, and Recetor, for a net incorporation of 119 million barrels of oil equivalent. Going forward, the main future sources of reserve additions are concentrated in fields such as Castilla-Rubiales, Caños Sur CPO-09, La Cira-Infantas, Piedemonte, development of Colombian Caribbean gas discoveries, and tertiary recovery in heavy oil fields. Contingent gas resources grew 79% as compared to 2022, from 1.9 to 3.4 tera cubic feet, leveraged mainly on the Uchua and Gorgon offshore developments. Let's move on to the next slide, please. In 2023, Ecopetrol and its partners drilled 23 exploratory wells in line with the plan.

Three wells drilled in 2022 were declared successful in 2023, totaling 11 last year, with an estimated potential between 100 and 150 million barrels of oil equivalent of resources, of which 70% is gas. Regarding offshore exploration, I would like to highlight the exploratory success of Glaucus One in the COL-5 block operated by Shell, which confirmed the presence of a gas reservoir. The Orca Norte One well, drilled in 2023 and completed in 2024, confirmed two gas accumulations in reservoirs different from the Orca One discovery, triggering a reevaluation of the original project while expanding the gas potential of La Guajira offshore. Orca Norte One was the first deep-water well operated 100% by Ecopetrol S.A., which was completed without any operational incidents and with the highest industry standards.

The appraisal campaign of the Uchuba discovery, located in the Tayrona block, starting with the Uchuba II well, to be spotted in the second quarter of 2024. On the onshore front, I would highlight the following: appraisal of the frontier between the Castilla and Chichimena fields in block CPOO9 as a result of the Tinamú Magnus and Quimera One discoveries in partnership with Repsol. And the Arauca VIII well drilled in 2023, which was completed in 2024, confirmed the presence of light crude in a new reservoir, extending the potential of the Arauca field in the Llanos Basin. Let's move on to the next slide, please. As Ricardo mentioned, in 2023, the Ecopetrol Group reached a production of 737,000 barrels of oil equivalent per day, increasing by 27,000 barrels of oil equivalent per day when compared to 2022.

I would like to highlight the startup of the first fluid treatment train at Caños Sur field, bringing fields' production to 41,000 barrels of oil in December 2023, as well as Permian's incremental production and increased water management capacity in the Rubiales field. The aforementioned enabled an incremental production of 70,000 barrels of oil equivalent per day, an 18% increase versus 2022. By year-end, fields with secondary and enhanced recovery programs contributed nearly 41% of Ecopetrol Group's daily production. It is worth highlighting the greater execution capacity in the facilities front, supported by the construction initiation of Orotoy station at CPOO9 and the commissioning of the fluid expansion of the Centauro station at Caños Sur and the water management facilities at Rubiales. The growth in production was achieved in a sustainable manner by reducing 486,000 tons of CO2 equivalent, 84% of the total emission reduction of the Ecopetrol Group.

These results were leveraged by energy efficiency initiatives, elimination of venting and methane lakes, reduction of flaring, and incorporation of renewable energy into the operation. In 2024, we expect production between 725,000 and 730,000 barrels of oil equivalent per day, driven mainly by drilling campaigns at Rubiales, Caños Sur, and Permian, the continuation of secondary recovery projects with water injection in heavy oil fields, and the production coming from new gas projects in Piedemonte. These target volumes incorporate challenges that are being managed, such as El Niño phenomenon, security and social unrest situations, and ongoing environmental permits. Let's go to the next slide, please.

With regards to our activities in the Permian Basin, 120 new wells were drilled in 2023 for a total of 318 wells on production since 2019, reaching a production of 66,400 barrels of oil equivalent per day for Ecopetrol before royalties, which represent 9% of the group's production. We also highlight the strong financial results of Ecopetrol Permian. By year-end, we achieved an EBITDA of $799 million and an EBITDA margin of 88%. In addition, the following achievements of the Ecopetrol Oxy Association are noteworthy. After four years, the association achieved a record in production of 163,000 barrels of oil equivalent per day before royalties in early December, of which 103,000 barrels of oil equivalent per day belongs to Ecopetrol, recording drilling and completion of a well with the longest lateral length of 18,000 feet.

In line with our TESG strategy, we highlight the progress in the decarbonization of our Permian operation, with a low emission intensity of 7-8 kilograms of CO2 per barrel of oil equivalent. Likewise, the association is committed to the reduction of diesel consumption and managed to replace an average of 36% of the diesel used in drilling and completion operations by compressed natural gas CNG. For 2024, the association is expected to drill more than 110 wells, and Ecopetrol expects an average production between 80,000-83,000 barrels of oil equivalent per day before royalties. Next slide, please. Transported volumes increased by more than 42,000 barrels per day in 2023, primarily due to an increase in crude oil transportation, thanks to higher production, particularly in the Llanos region.

In 2023, we achieved significant milestones, including a historical record in refined product evacuation of 306,000 barrels per day, leveraged mainly by increased product availability at both refineries and operational optimizations in transportation systems. In oil pipelines, we reached a record with dilution of Rubiales crude at the Monterrey station. A total of 163,000 barrels of nafta were received, and around 858,000 barrels of Rubiales crude were diluted, achieving a quality of 21.2 degrees API crude. This leverages the midstream strategy to become an integrated logistics service provider. We ensured the evacuation of oil from the Caño Limón field, thanks to the execution of 13 reversal cycles of the Bicentenario pipeline. The segment maintained a carbon-neutral operation certified by ICONTEC since 2022 and achieved a reduction of over 15,000 tons of CO2 emissions.

Lastly, we highlight the segment's financial results, generating revenues of nearly COP 16 trillion and an EBITDA of COP 11.8 trillion, contributing with 19% of the Ecopetrol Group's EBITDA. With regards to regulation, on December 20 of 2023, the Minister of Mines and Energy issued Resolution 4745, which regulated the activity of transportation by multi-phase pipeline. This regulatory framework allows the midstream segment to continue evaluating projects that would increase transport levels and use of current infrastructure. Let's move on to the next slide, please. In the downstream segment, we achieved outstanding financial and operational results, with historical records in refining throughput and operational availability, thanks to the rigorous execution of scheduled major maintenance activities, operational efficiencies, as well as a favorable pricing scenario. This resulted in an EBITDA of COP 7.3 trillion, the second highest in the segment's history.

In 4Q 2023, the combined refining throughput reached 429,000 barrels per day, 84,000 barrels per day higher than in the same period of the previous year. The integrated refining gross margin was $13.1 per barrel, mainly affected by weaker diesel, jet, and gasoline spreads. In 2023, we accomplished multiple milestones, of which we highlight these: operational availability of refining plants above 95%, the highest in the last five years. Successful execution of the pyrolytic oil test from post-consumer plastic waste at the Barrancabermeja refinery, enabling the production of around 19 tons of polypropylene in Esenttia, contributing to the Ecopetrol Group's circular economy strategy. 95% progress in the construction of the mechanical recycling plant in Esenttia, which is expected to start operations during the first quarter of 2024. Finally, Ecodiesel received the ICONTEC carbon-neutral certification, becoming the first biodiesel company in Colombia to receive this certification.

Let's move on to the next slide, please. In 2023, the Ecopetrol Group managed to incorporate efficiencies of COP 4.5 trillion, leveraging outstanding operational performance and partially mitigating inflationary pressures, increases in energy costs, which, combined with greater operating activity, raised the cost structure of our operations and investments. The total unit cost reached $47.6 per barrel, largely due to the effect of lower prices on crude and product purchases and imports. The incorporation of efficiencies of $0.68 per barrel allowed to partially offset the aforementioned effects. The lifting cost increased by 18.45%, reaching $10.91 per barrel, mainly impacted by external factors such as the El Niño phenomenon, inflationary effects, and the exchange rate, representing a $1.41 per barrel increase in 2023. However, the efficiency plan mitigated the increase in lifting costs by $0.33 per barrel.

Likewise, the cost per barrel transported and the refining cash cost increased by 8.8% and 1.6%, respectively, mainly due to inflationary effects and higher activity in both segments. This year, we continue to focus on incorporating efficiencies to maintain business competitiveness and sustainability. Now, I will turn it over to David Riaño, who will discuss the main milestones of the low-emission solutions business line. Thanks, Alberto. Our low-emission solution business continues to move forward on the road of decarbonization, energy security, and contribution to society. In 2023, we highlighted the outstanding performance of our energy efficiency program, which, between 2018 and 2023, achieved an optimization of the energy demand of 10.9 petajoules. This is equivalent to $262 billion in savings, with an impact of approximately 708,000 tons of CO2 equivalent.

Only in 2023, we achieved a reduction of 3.9 petajoules and 274,000 tons of CO2 equivalent in our operations, thanks to the incorporation of new technologies for energy optimization. These are the best results since the beginning of the measurement in 2018, 250% higher than those reported in 2022, and, in orders of magnitude, is an optimization similar to the annual consumption of all households in the Colombian cities of Cartagena, Ibagué, and Cúcuta. In alignment with our commitment to the decarbonization of our operations, we ended 2023 with the incorporation to our energy matrix of 472 megawatts in operation, construction, and execution of non-conventional renewable energy sources. The operation of renewable energy sources in 2023 allowed us to reduce close to 19,000 tons of CO2 equivalent and capture savings of more than $28 billion.

The above reinstated our goals within the framework of our strategy of incorporating 900 megawatts by 2025, growing with sustainability and generating value for our stakeholders. On the social front, we highlight two important initiatives with positive impact on the welfare of the community. The social gas program, which so far in 2023 connected to the natural gas service more than 20,000 families in rural areas of Arauca, Guajira, and Atlántico, and the successful completion of the micro LNG agreement in Buenaventura, giving support and reliability to the gas supply for 37,000 families in this area of the country. During 2023, gas and LPG production reached 162,000 barrels equivalent per day, representing 22% of the group's production mix, 75% of the country market share, and approximately $3.5 trillion EBITDA.

2023 reaffirms our commitment to the energy transition, prioritizing the country's energy security while holding firm in the search of opportunities to meet our objectives. Now, I will pass the floor to Milena López, who will tell us about the main results of the transmission, roads, and telecommunications segment. Over to you, Milena. Thank you, David. The transmission and roads business generated positive operational and financial results, accompanied by significant awards throughout 2023, which will translate into investments of COP 9.8 trillion in the coming years, reinforcing our subsidiary's growth trajectory across various geographies. In 2023, we sustained a growing trend in financial outcomes, with revenues reaching COP 14.2 trillion and an EBITDA of COP 9.1 trillion, representing nearly a 6% growth in these two areas compared to 2022. Net profit attributable to Ecopetrol remained relatively stable at COP 675 billion.

As of the close of 2023, it has achieved a committed investment balance of approximately $30 trillion for the coming years. Approximately 93% of the total of these investments correspond to bids and tenders that have been awarded to the company. Among the most notable milestones for the fourth quarter are the following: in Peru, the award to ISA in consortium with the Grupo Energía de Bogotá for the construction, operation, and maintenance of two projects encompassing over 1,000 kilometers of electrical transmission grids and with a referential CAPEX of approximately $3.2 trillion. In Chile, ISA Intervial was awarded the Southern Orbital Santiago concession for the design, construction, and operation of 25 kilometers of a new urban highway. This project will have a reference CAPEX of approximately $1.9 trillion. In Brazil, the award through ISA CTEEP of 40 enhancements, which collectively will amount to a CAPEX of around $181 billion.

The commencement of operations for the following projects: Guayepo Solar Park connection in Colombia; electrical interconnection Itaúnas and Triángulo Minero by ISA CTEEP in Brazil; three substations; and the approval of integration into the national electrical system of the private project Puerto Chancay in Peru. ISA continues to progress in the construction of 34 energy transmission projects in countries where it operates, which, upon completion, would add over 5,500 kilometers to the grid and generate approximately $1.7 trillion in revenue between 2024 and 2030. Finally, progress continues in the execution of the Ruta El Loa project and works in the concessionaires Ruta de la Araucanía and Ruta de los Ríos in Chile, which will generate new income and extensions of the terms of these concessions. Please, let's move to the following slide.

Our financial results reflect the excellent operating performance of the Ecopetrol Group, allowing us to achieve, in 2023, the second best results in the company's history. Throughout the year, we achieved financial results that exceeded the targets set forth in our financial plan, with superior results across key indicators. Our EBITDA margin reached 42%, with a return on average capital invested of 11.5%. We also achieved an EBITDA of COP 60.7 trillion, with efficiency gains reaching COP 4.5 trillion, representing a 25% annual growth. Our investment execution capacity reached its highest level in eight years, totaling approximately COP 27 trillion in line with our annual target. Of these investments, 63% were concentrated in Colombia, with the remaining 37% executed in the United States, Chile, and Peru, among others.

Approximately 70% of total investments were allocated to exploration and production activities in our primary assets, such as Rubiales, Caño Sur, and Castilla in Colombia, as well as in Permian in the United States. This category also includes investments in natural gas, totaling around $3 trillion, focused on assets like Floreña and Cupiagua in the Piedemonte Llanero and offshore blocks Tayrona and Col5. Investments in the transportation and refining business accounted for a combined 13%, focusing on intervention, maintenance, and asset reliability improvements, supporting increased activity levels throughout the year. The transmission and toll road businesses represent 17% of the CapEx for Grupo Ecopetrol. These investments were prominently directed towards power transmission, which accounts for approximately 87% of the investments, advancing projects in electrical transmission in Colombia and reinforcements and network improvements in Brazil. Traditional business lines, including natural gas, contributed to approximately 85% of EBITDA in 2023.

Additionally, our transmission and toll roads businesses made a significant contribution of 15%, contributing to the stability of the group's income and operating cash. The gross debt-to-EBITDA ratio stood at 1.7x, aligned with our long-term guidance to remain below 2.5x gross debt-to-EBITDA. As part of our financing strategy, we successfully issued a $1.85 billion bond in the international markets in January 2024. This bond was 3.2x oversubscribed, confirming investment appetite for our paper. This issuance was accompanied by the repurchase of a bond maturing in 2025, reflecting a proactive debt management strategy of our future maturities. These operations allowed us to optimize short-term liquidity management while maintaining debt costs at competitive levels. For 2024 maturities, we're in the process of renewing a committed line for $1.2 billion and will be covering the remaining amortizations with the resources from the aforementioned bond.

Let's move on to the next slide, please. Regarding our liquidity position, the Ecopetrol Group closed 2023 with a robust cash position of COP 14.3 trillion. Our operating cash flow was COP 19.8 trillion, which ascends to COP 41.4 trillion when including the Fuel Price Stabilization Fund compensation. Additionally, there were significant cash disbursements for CAPEX, and the net movements of debt and interest totaled COP 5.8 trillion. In terms of the Fuel Price Stabilization Fund, we ended 2023 with positive news. The outstanding balance from 2022 was fully settled through dividend payments to the nation, totaling COP 21.6 trillion and COP 4.7 trillion that were received in cash. In addition, due to the gradual increase in gasoline prices in the country by approximately COP 4,800 per gallon over 2023, we experienced a lower accumulation in the account receivable when compared to 2022, closing 2023 with a FEPEC balance of COP 20.5 trillion.

Regarding taxes, the effective tax rate for 2023 was 36.6% compared to 31.4% in 2022, mainly due to the windfall tax established by the recent tax reform. For the fourth quarter of 2023, two tax adjustments were made. The first one regarding the income tax provision in accordance to the constitutional court ruling in November of 2023 that enabled the tax deductibility of royalty payments. The second associated to the income tax surcharge, which ended the year at 10% due to the average price of Brent throughout 2023. Let's move to the next slide, please. As part of the 2040 strategy, our investment plan for 2024 maintains high levels of investment, reflecting our commitment to the country's energy security and transition.

We expect to execute investments between $23-$27 trillion, with approximately 45% of these directed towards energy transition initiatives, including low-emission solutions, natural gas supply, TESG investments, decarbonization, electric transmission, and roads. The remaining 55% will focus on energy security and long-term cash protection in line with strengthening our traditional business. These investment levels allow us to plan for profitable production between 725-730 thousand barrels per day, maintain transported volumes around 1 million barrels per day, and throughput at our refineries between 420-430 thousand barrels per day. Considering an average Brent price scenario of $75 per barrel for the year, we expect to maintain competitive returns with a return on average capital invested of around 9% and an EBITDA margin of 38%, as well as transfers to the nation exceeding $38 trillion.

Furthermore, with a focus on cost control and mitigation between 2024 and 2026, we will incorporate targets for commercial and operational efficiencies, expense control, and austerity, totaling over $7 trillion. I now hand over to Ricardo for closing remarks. We closed a challenging 2023 marked by lower oil prices and higher inflationary pressures. However, we achieved the group's second best year ever with exceptional operational results in terms of production in the throughput of the refinery and volumes transported through our pipeline system and progress on energy transition projects. Today, the Ecopetrol Group aspires to be the leader in energy diversification in Latin America, in line with our 2040 strategy, Energy That Transforms. I want to express special thanks to the subsidiaries of the Ecopetrol Group, which, alongside us, have contributed to making history.

I express my gratitude to Ecopetrol Permian, which contributed to the production with exceptional performance, as well as to Cenit connecting the entire country and achieving an unprecedented annual production evacuation of pipelines. I thank the refineries for reaching a historic low with the highest operational availability in the last five years. I also highlight the performance of Hocol, contributing to the 11 successful wells in the Ecopetrol Group during the year, affirming our commitment to the preservation of the traditional business. In ISA, I highlight the transmission awards worth COP 10 trillion that we will see in the coming years, as well as its contribution to the EBITDA of the business group. We remain committed to generate value for our shareholders, investors, and our country and those countries where we have a presence, always maintaining responsible and sustainable operations that accelerate steps towards the energy transition.

Thank you all for your participation. With this, we open the question-and-answer session. Thank you very much.

Operator (participant)

We'll start with our Q&A session. Ricardo Sandoval from Bancolombia is online with a question. Mr. Sandoval, you can ask.

Ricardo Sandoval (Senior Financial Expert)

Good morning, everyone. Thank you for this space and for the explanations. If it is possible to know a little bit more information about the reservoirs, when you mentioned that the organic growth, I would like to know if you can tell me how much was it because of better forecast, because of new projects, because of extensions and findings, and for 180 million barrels, how much was due to the price effect or in general by each of these items you mentioned in the report?

Ricardo Roa Barragán (CEO)

Good morning, Ricardo. Thank you for your question. It is Alberto Consuegra. Yes, we can give you these details.

I'm going to start mentioning around the 307 million barrels. Let's talk about that. So in the report, we are very clear about the impact of 31 million barrels. If you add the maturity process of the projects, which is normal, in five years' views, it's 103 million barrels. Others that are associated to new findings is two million barrels, and 109 million are related with better behavior of the production basic curve. That gives you 307. On the other hand, in terms of impacts, when you talked about external effects, we're talking about 58 million barrels, of which 30 are associated with price and 28 with the inflation. So what this does is that when we remove the cash flows of each field, that tail will be affected by that impact, both of price as well as the inflation.

In second place, due to conditions or technical revisions, 130 million barrels, the largest impact is in gas due to water and decline of our mature fields, particularly in Ballenas, Cupiagua, and Recetor. But besides that, we had around 30 million, which are related with regular technical revisions in the plan in the Magdalena Medio and Huila.

Ricardo Sandoval (Senior Financial Expert)

Thank you very much.

Operator (participant)

The next question is from Andrés Duarte from Corficolombiana. Mr. Duarte, you can ask now. Andrés Duarte, please. You can ask your question now.

Andrés Duarte (Director of Equity Strategy)

Thank you. I have three questions. I think they're short. The first one is, please, can you explain how you can justify the impairment devolution in the downstream, considering that the price differentials between the products of oil have annual and quarterly decreases, and annually they have annually decreases?

So I would like to understand, why are you showing an improvement of $1.4 million there? The other question is related with the production, and congratulations, sorry for not saying this before, but congratulations for the production data of this quarter. The production that you're showing the fourth quarter, it's only overcome by the 2015 fourth quarter. But if you considered the Permian from outside of Colombia, well, basically, without the increase in the Permian production that we've had, this wouldn't be a case. So you have a participation of 11.7% in the fourth quarter of 2023. This is not bad. Well, you are in different countries. So I would like, basically, to understand what are your expectations in terms of production of Permian in the US, considering that, well, as far as I understand, the Oxy will go down faster.

And the last question, if it's possible, otherwise, I understand because they asked me to ask just two questions. But considering the increase, for example, in the cost of that lifting cost, that it's above $13 in the fourth quarter, and considering the decrease of over 6% of the reservoirs, how do you justify that decrease of a 90% decrease in the exploration and production CAPEX for 2024 if you don't take the average numbers of 2024, 2026 that you published last December? So these are my three questions, and thank you for allowing me to ask questions, and good luck for 2024. Ricardo Roa, this is Andrés.

Ricardo Roa Barragán (CEO)

Thank you for your acknowledgment to our results for the fourth quarter production of the year we just finalized. First of all, to explain that, yes, the impairment of our assets has an impact on the results close to COP 0.9 trillion.

Second, about the details, I'll give the floor related to these elements of cost increases, our expectations of the Permian production in the next years. I'll give the floor to Alberto Consuegra. He will share details. Andrés, good morning. About the Permian, well, I would like to first give you a number that I think it's relevant. Permian effectively pushes the production in the last quarter, but it's not less what Caños Sur and Rubiales provide. Because, as you already know, every year, we replace around 100,000 barrels per year due to the natural decline of the fields. So those three assets did great. They did the job. About the Permian, well, the goal is to keep growing our production.

The plan for 2024 is to bring the production to close to 83,000 barrels per day, and for 2025, it should be around 100,000 barrels because it is important for the contribution of the last acquisition, which is the Delaware area. So, Permian, very well. The important thing is to sustain the production within the country, and this is the effort that we're going to do in terms of that CAPEX for 2024 all the way to 2026. The fall in the CAPEX is not as you are presenting it. When you look at 2024, the investment level that we will have in the upstream is of $300 million-$900 million, which is very similar to what we did in 2023. We were in $4,200 million. It's lower, but the greatest investment we had in 2023 was in the Permian.

Our expectation is to continue with investment levels similar to what in Colombia, similar to the two previous years, 2022 and 2023. Hi, Andrés. I would like to clarify that when I was talking about 2024 CAPEX, I'm considering the annual average of the maximum and minimum range that you published, and I am comparing both the plan that you published in the previous year as well as what was executed this year. And the other thing, well, if you didn't hear me well, in the impairment, I asked specifically about the downstream. That's all I wanted to clarify, and excuse me for interrupting. Let me mention something before giving the floor to Milena about impairment. She will talk about impairment.

Andrés, when you look at the CapEx distribution in 2024, the second part of the year is going to be affected due to the exploration investments, particularly on the offshore. So these could make a difference. Hi, Andrés. This is Milena López talking about downstream impairment. Maybe to illustrate a little bit more the impairment topic, there are two components that I believe are important to consider. The first one is that when we are making the impairment analysis of our assets, these analyses are value exercises in the medium and long and short term. So they cannot be compared to a picture of a particular quarter. So when we look at the projection of the performance of the downstream, we see two specific things. First, an improvement in the availability of the refineries would allow us to have greater loads when we are making projections, forecasts.

And the second one, which is more significant, is that when we look at the refining management in the mid- and long-term, and we compare those, what we see in the future with what we saw a year ago, we have better refinery margins. This leads to a recovery of around $370 million at the downstream. Now, another important topic that you have to consider when you compare these two mid- and long-term impairment comparisons is that, well, generally, the differentials of the products are cyclic during the year, particularly gas. So when we look at the numbers of the differentials of the fourth quarter, these don't reflect the annual average nor the perspectives on the mid- and long-term. So maybe that could explain the differential between what we see in the fourth quarter and what we see on the impairment exercise on the long-term.

Andrés Duarte (Director of Equity Strategy)

Thank you very much.

Operator (participant)

Juan José Muñoz is online, and he's going to ask a question. Mr. Muñoz, you can ask.

Juan José Muñoz (Equity Research Associate Director)

Good morning, Juan José Muñoz from BTG Pactual. Thank you for the time. And just a quick question about the sales cost in this quarter. Why did you have a strong increase in the sales cost that led the net margin very below what we saw in the first quarters? Was there something specific, and what are you going to do in the next quarters in order to recover that net margin that you previously had?

Ana Milena López Rocha (CFO)

Thank you. Milena López is answering Juan. So two components that I believe are important: understanding the quarterly cost. Historically, in Ecopetrol, in the fourth quarter, you see costs that are above the other quarters because of greater evacuation as well as accruals.

So if you look at the fourth quarter of last year, it was around 14% above the costs versus the third quarter. This year is even higher. We are seeing an increase of around 19% in cost when we compare with the previous quarter. So let me make a comparison of the fourth quarter of this year and the fourth quarter of last year to eliminate the cycles that will provide us a better perspective of what happens in the costs. So when we look at the variable costs, and then I'll tell you the fixed. When we look at the variables, there are two components that impact variable costs when we make this comparison. Basically, we have, first, an inventory, which is significant.

Comparing the fourth quarter versus third quarter, the inventory has a cost of $1.7 billion, and this is due to a decrease in the cost or value of the inventory. This has several components: a volumetric component because we had more sales, and a very important valuation because when we evaluate, we give up versus how we evaluate them, we have an exchange rate that is below $740, around that. So we have a large decrease of the exchange rate. We also went from $86-$82 per semester, and a decrease in the product differentials. There's a large decrease in the diesel differentials around above $20 and a fall of $7 in the gasoline differentials.

So this impact is $1.7 trillion, and it is important that as we don't have large numbers in the exchange rate differentials and the rent, this is not a cost that should be repeated. So this has just happened. In this quarter, it won't repeat itself. Second impact in variable cost is the increase in power cost. Power cost increased in $300 billion. So this is something that happened because in the third quarter of this year, we see an increase in this energy cost due to our exposure to the stock market, an increase in the electric cost due to the El Niño, which is something that will have an impact in the first quarter of this year because we still have high power cost due to the El Niño. But at the end of this year, this should be corrected.

This is in terms of the variables that have important situations. Now, fixed costs. Fixed costs do have structural challenges that are larger. Basically, in services hired for the operation, we see an increase of COP 300 billion. And in maintenance, in this quarter, we see greater maintenance and an increase in the inflation of this cost and an increase of COP 400 billion. These two components that add around an increase of COP 700 billion when we compare with the previous quarter last year, the same quarter last year. Yes, we have the inflationary aspects and cost challenges that with our efficiency plans, we are seeing how to adjust them. So yes, this is a temporary component and a long-term inflationary component that makes a distinction between both.

Juan José Muñoz (Equity Research Associate Director)

Thank you, Milena.

Operator (participant)

The next question comes fro Mr. Cardona, you can ask now.

Andrés Cardona (Director)

Thank you. Good morning to everyone.

I have two questions. The first one is related with the production guide of 2024, 730,000 barrels. So how could you connect it with the 758,000 barrels of the fourth quarter? When are you going to explain this decline? And about the reservoirs, can you please explain in terms of the inflation, which are the components that varied the most and which was the magnitude? The certification of reservoirs of the previous year, understanding the price effect. There's a price fall, and the price is relatively high historically, and I understand that. Why? Why do you have this revision due to price effect from $82 per barrel?

Alberto Consuegra (COO)

Andrés, Alberto Consuegra, thank you for your questions. So I will begin with the production guide. And first, I'll make reference to the Permian. The behavior of Permian is historical. At the end of the year, the production is always higher.

Then we have to live with two things. One, the normal decrease of the wells that are already in production, and then next, perforation campaign. So the production of the Permian, which was a peak of 113,000 barrels per day of oil, when you see this in the production average for 2024, it's between 80,000 and 83,000 barrels. So that's the first impact. The second is with our liability management or risk management that we can attribute to the phenomenon of El Niño that is related with the closure of, for example, or specifically, Rubiales and Castilla fields. When we have long droughts, these will be affected. And what the environmental corporations do is they close the waterfalls gradually. This is what we are seeing right now.

We also need to know the physical safety situation, and if you look at the history, usually during January to March, we see this in the previous years as well. So this risk management is also in our production vision. That is why we have that vision between 725,000-730,000 barrels on one hand. In terms of the reserves, we need to mention something. I was mentioning in our previous intervention that, yes, we do have an impact due to price and inflation. When we run our cash flows to the economic limit of the fields, we have an impact on that SEC price that is $15.5 per barrel, plus the inflation. So that's the reason that we have to make a technical revision. It's not related with the fact that right now, we are talking about higher breakevens in each of our fields.

Nevertheless, it is true that the fact that we have a price that it's unfavorable compared to 2022 and the inflation, well, it does affect the development plans of some fields that I already mentioned. Those fields will be outside of the norm of the five years, and they won't fit in terms of reservoirs. They lose reservoirs compared to the previous year. So these are the effects that we see right now, Andrés. And thank you for your questions.

Operator (participant)

Catherine Ortiz from Corredores Davivienda is going to ask a question. Ms. Ortiz, you can ask.

Katherine Ortiz (Head of Equities)

Good morning, everyone. I hope you can hear me well. Good morning. Thank you for providing me the space. I have a question related with the price stabilization fund of the fuels.

We learned about the dividend proposal for 2024, and we have heard the minister talking that this year, Ecopetrol dividends will not cross with the price stabilization fund. So I would like to know if you are clear about how you're going to pay this amount, especially because when we look at the budget availability and the government's financial plan, we cannot see that the Ecopetrol payment is going to be incorporated or if we decided that at least in 2024, they are not going to pay this money. And in that sense, well, which leverage indicators are you expecting in order to close this year without considering the payment and including what you already mentioned with the government talked about with the government? Thank you very much.

Ricardo Roa Barragán (CEO)

Thank you, Catherine. Good morning. This is Ricardo Roa.

Yes, effectively, one of the aspects that we have acknowledged about the national government support is the appropriation and the payment of the FEPEC resources with the amount after the closure of 2022, COP 36.7 million. These have been made, and that's why we have the execution level of 97% in around COP 27 trillion in 2023. For this year, this fund closes in 20.5% of what was cost of that subsidy delivered to the demand of 2023 in gasoline and diesel and resources that this time don't come under the previous methodology of 2023 due to the payment of dividends to the nation, but because now they have a different methodology that I thank Milena López to explain.

Ana Milena López Rocha (CFO)

Hi, Catherine. This is Milena López. So right, during 2024, we must receive COP 20.7 trillion as a payment of FEPEC by the national government.

According to what has happened before and what is agreed with the government, each quarter, we cost the subsidies, and they must be paid during the next 12 months. So we are going to receive quarterly payments from the government, which is what is the difference this year? In the past, we've done what we denominate crossing the dividends, which is an accounting movement. We just exchange the invoice that the government is going to pay us with the one that we need to pay for dividends. So we don't give or receive anything. But this year, we're going to receive a quarterly payment from the government. And we, on our side, on the dates that we must pay the dividends, we will be paying the dividends to the nation. So that's why it means that we are not going to cross accounts.

It's important to highlight that these, well, we need an approval from the board meeting. This is going to be submitted to voting. This includes dividends to the nation of COP 11.3 trillion, less than that COP 20.3 trillion that we are going to receive from FEPEC. So the net amount is going to be received in cash payments that improve the liquidity position of our company.

Operator (participant)

Thank you very much. Let's begin with questions in English. Bruno Montanari from Morgan Stanley has a question. Mr. Montanari, you can ask now.

Bruno Montanari (Executive Director and Senior Equity Research Analyst)

Hi, hello, everyone. Thank you for taking my questions. I have two questions and a follow-up. The first question is about the lifting costs. So we saw some increases in lifting costs in the second half of the year, now finishing the year at $13 per barrel.

I remember previously, the company used to talk about a short to medium-term level of lifting costs between $9-$10 per barrel. So I was wondering if we should think of lifting costs staying at the current level, so around $12-$13 per barrel in 2024, or if we should expect costs can still go back to lower levels between $9-$10 per barrel. My second question is about the refining margin. So I just wanted to understand why the realized margins of the company were so much lower than the international crack spreads and get an idea of what to expect in the next few quarters if margins can go back to more healthy levels.

And then just wanted to confirm on the production if the reason for the spike in production in the fourth quarter was only because of the Permian and if we should expect now production to decline more pronounced in the first quarter of the year. Thank you very much.

Alberto Consuegra (COO)

Bruno, Alberto Consuegra, thank you for your questions. Good morning for you. About the lifting cost, what did we see in the last quarter of 2023? Well, yes, there was an increase in the cost. The average was around $13 per barrel, so an average cost of $10.91 for the whole year. These plus the greater power cost plus general services, services that if you look at if you disaggregate the net cost, 70%-75% is in pesos and 25% is in dollars.

The effect in pesos was impacted by inflation accumulated by 2022 and 2023, which for Colombia, we're talking about 30%. And this, we see the impact in 2023 and, of course, in part of 2024. The energy power cost, we are also having an impact because of the El Niño phenomenon. You will see this on the first quarter of this year as well with a greater stock market cost price. So what is our expectation? Yes, in 2024, we must be around $13 per barrel and with the idea of starting to renegotiate services that helped by our efficiency plans to make the interventions in order to have a more competitive lifting cost. But yes, we see the impacts both of the inflation as of the power costs in this first quarter of 2024.

Also, about the downstream, and I'll give the floor to Walter so he can add. But I would say that when we look at 2023, we had three quarters with very positive margins due to the behavior of the product prices, both diesel as gasoline. And in the fourth quarter, these margins of the product, the spread of the product, falls to around 10%, especially during December. These affected the result in terms of margins. What is the expectation for 2024? Well, what we've seen during January, February are margins a little bit above of our plan. We're talking about $13-$14 per barrel. So we have a very positive outlook. Walter, I don't know if you would like to add something

Walter Canova (VP of Refining and Industrial Processes)

Walter Canova from the vice presidency. Just to add, in 2023, in its context, was an excellent year.

Andrés Cardona (Director)

We had the best EBITDA historical with a margin close to $18 per barrel, the second best historical after 2022. We had a good amount of barrels. We had never achieved these amounts thanks to overcoming that 95% historical record in the load of Cartagena very close to 200,000 barrels a day thanks to the implementation of the IPCC project that added 50,000-60,000 capacity barrels to that refinery at the end of 2022. Barranca finished. We had 241 barrels a day there in Barranca, so the greatest in the last 16 years. So these, in the fourth quarter, we had the greatest historical for our refineries. And even though we had these good operational results and the fourth quarter, we see a decrease in the refinery margins associated to a fall of gasoline price.

Gasoline in the fourth quarter, especially in December due to seasonal, has a lower price. But in the fourth quarter, that price, it fell; we saw it even since starting in October with the gasoline was in prices in one digit of around $7, $8 per barrel, and we saw a fall in the price of diesel and jet fuel. So, this weekend, the refinery margins in the fourth quarter compared to the third quarter and in our EBITDA in the fourth quarter, it decreased even though it was the second best historical year consolidated for 2023. What we see in 2024, as Alberto mentioned, we see that the margins, we are projecting two-digit margins on the low side, maybe for average of 2024.

But saying this, what we've seen in January and February is that the margins are stronger compared to what we forecasted originally, and maybe they'll be closer to $15 per barrel plus or minus $2 per barrel. And in refinery load, well, we're also considering that we're going to be above 450,000 barrels a day average for both refineries, so in a range of 450-425, which it's our forecast, our projection for 2024. So Bruno, thanks for your question, and I hope I gave you the answer. Bruno, about production. About the first quarter of this year, 2024, the outlook, I cannot share it or can tell gave it to you, but I will let you know what is happening in the production compared to the last quarter of the previous year.

First of all, there was a decrease that was expected in the Permian while we make the next perforation activity. Please recall that we have over 300 wells in production, so that decline, that behavior is given particularly in this first quarter. Second, the impact of the maintenance of the Cupiagua plant that we had at the beginning of the year also has an effect on gas production. Third, the blockages, strikes that have particularly in Rubiales and in Arauca Capachos, assets that we have with our associate Parex. So in total, we're saying that due to this impact, we have around 400,000 barrels that we have deferred in terms of production. The other impact mentioned is the closure due to the droughts that also impact our production. Thank you, Bruno.

Ana Milena López Rocha (CFO)

And here, Milena, about the lifting cost that can give you some clarity of the impact of the different components. The lifting of Ecopetrol is similar to what I mentioned in the cost, where we have a greater lifting at the end of the year, the fourth quarter, due to greater cost execution. So that's why comparing the lifting of the fourth quarter of last year and this year, we see a significant increase of 45%. And I believe this is important to see the different components. When you look at these, the largest component is the impact of the exchange rate. Around 75% of the lifting costs are in COP. And of the 45% increase, 23% corresponds to an exchange rate that is COP 900 below what we had on the third quarter of last year.

So this is a very important component to understand the lifting cost. The second, the power energy cost of that 45.9% are energy costs. And as I mentioned before, both this quarter as in the first quarter of 2024, we will have some power costs that are going to be above of what we expected due to the impact of the El Niño phenomenon. These should be transitory and should be corrected by the end of the year. And the other impacts are the inflation. If you look at these three components and you quantify them, it's easier to understand what's happening with the lifting cost and how we see it in the future that we should see a range between $12-$13, assuming that we don't have large movements in the exchange rate.

Operator (participant)

Rodrigo Almeida from Banco Santander is online with a question. Mr.

Almeida, you can ask now.

Rodrigo Almeida (Equity Research VP)

Hi, Ricardo, Milena, and the whole Ecopetrol team. I have a couple of follow-up questions, actually, and then one actual question. I think I'll just go back to the discussion we're having just now on the upstream side. In understanding there are three main components to the short-term production outlook. We mentioned the Permian, the maintenance, and then the strikes. I just wanted to understand here because we have a, I would say, a big difference in lifting costs from the Permian to the rest of the production in Colombia. So I wanted to understand out of these three components, how much is the Permian waiting on the impact for the first quarter? So I can better try to understand here the lifting cost outlook for the short term as well. I think it would be helpful.

The second follow-up that I have is regarding refining, the downstream margins, just to understand a little bit better. If I did understand correctly, you had some impacts from inventory turnover or something like this. So if you could just confirm that. I think we might have got something lost in translation throughout the way, but I just wanted to understand that a little bit better. Then the actual question that I have, which is the third point, is related to the U.S. operation, right? The permit, now you resumed production in the Gulf of Mexico through the JV as well. I wanted to see, I mean, you're doing, it seems like you're doing more stuff outside Colombia, right? Does this show any shift in strategy there in terms of mindset regarding potentially investing more outside of Colombia for upstream projects? I think those are the questions.

Ricardo Roa Barragán (CEO)

Thank you. Thank you, Rodrigo, for your questions. Ricardo Roa, President, yes, we have had, as I mentioned before in detail, the differences in the short term and in the mid-term related with the permit. This was a very profitable, very efficient asset from Ecopetrol. Yes, we are evaluating the expectations of a greater production in that area. Where that evaluation will allow us to see those expectations will come true? So I'll give the floor to Alberto Consuegra so he can also talk about the margin in the streaming, how it affects the strategy of investing more outside of Colombia. Well, I do want to answer that. We are focused in our projects of increasing our exploration, and we have important resources invested there. We are focused in the greater recovery through the improved recharging in our fields, better perforation and maintenance of our wells right now.

That's where we have focused our investments. Yes, we have important investments outside, but they're not done by Ecopetrol. They're done by ISA. Last year, almost COP 10 trillion in assets to invest in Panama, the development of roads and assets for transmission in Peru, Brazil, and roads in Chile. So this is what has been managed from the budget, and these are made by ISA. Rodrigo, good morning. Thank you for your questions about the impact of, let's say, the inflation in the Permian cost and how the Permian lifting cost, well, I can tell you this. When you look in dollars, the inflation we had in the Permian assets that also impact the upstream CAPEX, we're talking about 17% from one year to the next one. This affects 2022 and 2023.

So the lifting cost goes from $4 per barrel in 2022 in the fourth quarter to more than $5 per barrel in the fourth quarter of last year. That trend is going to be between $4.5 and $5.5 for this 2024 while we reverse the impact of inflation product of two things, the efficiency interventions as well as the growth in production. It is important to highlight that since this is an asset that has a primary recovery, it's not compared with the mature because we have secondary recovery. So this marks a difference. So this, just to clarify about downstream, I'm going to just mention two things, which were key in the margin deterioration. First of all, in the spreads, in the product differentials, diesel and gasoline, and the other related with greater costs that we saw in the fourth quarter of last year.

So these two variables affect the net margin we had in the fourth quarter of last year, and I'm sure that they will also have an impact this year. But as we mentioned before, we see margin expectations with the behavior of January and February of this year that are more favorable than what we had in our plan.

Rodrigo Almeida (Equity Research VP)

Perfect. Thank you.

Next question from Alejandra Andrade from JP Morgan.

Alejandra Andrade (Executive Director of Latam Corporates Research)

Hi. Thanks for taking the question. I think my first question was already answered, was related to the downstream margins, which you explained was both spreads and costs. And then I just wanted to ask you in terms of opportunities to acquire any assets for Colombia, particularly on the gas side, if there's anything that you are looking at or if you're more focused simply on the exploration at this point. Thank you.

Good morning, Alejandra.

Nicolás Azcuénaga (Corporate VP of Strategy and New Business)

Nicolás Azcuénaga, Vice Strategy and New Business Vice President answering. In terms of inorganic options, we're, yes, looking as always and part of our systematic procedure, growth options both for gas as for oil in Colombia and other geographies. This is part of the exercise we are permanently making. As those opportunities mature our approval process, we will make them public to the market. That's all I could say about that. Thank you very much.

Operator (participant)

Thank you. Luis Carvalho with a question. Mr. Carvalho, you can ask now.

Luiz Carvalho (Senior Equity Analyst)

Yes, yes, we can hear you. Impact not with dividends. So I'm just trying to reconcile and understand what will be the management approach in terms of proposal, in terms of dividends for 2024. Thank you.

Ricardo Roa Barragán (CEO)

Ricardo Roa, President of Ecopetrol, thank you, Luis, for your questions, some of which we had already mentioned before, answered before.

So yes, of course, the production level in the fourth quarter of 2023 is one of the highest records of the previous 8 years and second. It's a consequence of the effort we made to recover with income and greater production, the lack we had due to the fall of oil price and to the excellent performance we had in our fields, particularly at Magdalena Medio and at Llanos. The expectation for production in 2024 is, you have as a reference, a decrease in the price first, which doesn't make it viable, the extraction of all the fields that we are commercially exploring right now and exploiting right now. This is not the window of the mid and long term, the maximum peak that Ecopetrol could have. We see it towards the 2029-2030 with 800-830 barrels production day.

That's the analysis we've done internally in the analysis of our strategy, in the macro numbers for this strategy. And of course, in about the dividends, yes, we already mentioned that this year it's not going we are not going to apply what we did last year. We are not going to make an accounting, crossing accounts between the debt we had with the subsidies of 2022 with the government, crossing with the risk of what the nation paid. So, because the previous time we could leverage our investment plan and the cost related with operation. But we are not going to do that this year. And the last point, I'll give the floor to Milena so she can clarify, but I think that she already mentioned the methodology. As we said before, dividends is a payout of 67% corresponding to a dividend of COP 12.8 trillion.

11.3 are to the majority shareholder, which is the nation, and 1.5 to the minority shareholders. Dividends for the nation, they can be paid up to December the 31st. We will pay the nation after paying the FEPEC payments that we will receive quarterly. We have no more questions live. Chat questions, Estefanía Mosquera from Credicorp Capital asks, can we give more details about the tax movements in the upstream before impairment, which is the effective rate that you expect for 2024 in that segment? Hi, Estefanía. This is Milena López. Important to highlight a couple of topics in terms of taxes. First, November, we had the Constitutional Court said that, yes, the cost of royalties are deductible from taxes. Otherwise, this would have an increment payment of COP 1.6 million in taxes throughout 2023.

Since this is given in the third quarter, that quarter we need to remove the savings of taxes we had during the year. So we have favorable taxes, to say it somehow, of COP 1.3 trillion because we reversed it in the fourth quarter. So this is something that we see in the fourth quarter that affects the specific rate of the quarter. Additionally, through the year, we were making provisions assuming an overrate of 15%. Now we have the decree that ends the applicable overrate. And during 2023, due to the average of the price of the price spread, we are in the quarter that implies an overrate of 10%. So yes, we need to make a reverse the taxes that we had cost during the year of COP 800 billion, something that you can see on the fourth Q.

So the effective rate that you see, if you calculated every quarter in the fourth quarter, it is impacted by these two topics. When we see the numbers on the whole year, Ecopetrol has an effective tax rate of 36.6%, which differentiates from what we had in 2022 of 31%. The main impact here is the effect of the tax reform that impacts for the first time in 2023. I don't know if this makes the fourth quarter tax clear.

Operator (participant)

Bruno from Goldman Sachs asks, where is the local diesel and gasoline price compared to the international?

Ana Milena López Rocha (CFO)

Hi, Bruno. Milena López. So when we see the diesel prices, and I'm going to talk specifically about the average of February to provide more updated information, we have a diesel price of around COP 9,500. When we look at the parity price, it is closer to COP 15,000.

So we have an effective subsidy of 63%. Nevertheless, when we look at the gasoline prices in February, we see a price of around COP 15,700, and the parity price is a little below this. So in reality, what we see right now is a subsidy of around COP 2,000 of gasoline facing what we are lacking in diesel. So on one side, diesel, we have a subsidy, and on gasoline, we are a little bit above, which helps us to improve our deficit. And with the FEPEC questions, well, it is important here to highlight not only that we are going to have a lower monthly accumulation of FEPEC due to the increase of gasoline price that the national government did last year, but that this reduction in the market prices will lead us to that.

If we project what the deficit of the prices for 2024, it gives us something around COP 3-4 trillion. Of course, these changes according to the exchange rate and the differentials. But in effect, we see that if there are no movements in diesel price, which is not the base scenario, we hope that we have some adjustments. We see at the end of the year a deficit due to FEPEC that will be inferior to what we've seen in the last two years, which is great news for the company and for the position of Ecopetrol.

Operator (participant)

Bader has two questions. First one, do you have an update or expectation about the no deductibility of royalties for March due to the Supreme Court? And second, could we see an extraordinary dividend greater than what we this year to help the tax deficit?

Ana Milena López Rocha (CFO)

Thank you, Bader, for your questions.

Milena López again, yes. So about the Constitutional Court, in November, we had the ruling that says that the royalty prices are tax deductible. At the beginning of the year, the ministry said an incidence of tax impact. And the Ministry of Treasury has a time that would be like this week or next week to ratify in the court the substantiation of such tax impact. Once the court receives this, they will accept the incidence, discuss it, and during that period of time, they will have an answer. So the important thing here is that at the time the court decides to revise and accept that tax impact incidence, we will suspend that. We will have to wait for a final ruling, and in Ecopetrol, we will accept what the court says. So right now, we don't have additional information. Second question about extraordinary dividend.

Now, up until the date, we haven't discussed with the treasury ministry about this, except the payout of 67% of payout, which is taken to the shareholders' meeting.

Operator (participant)

Congratulations for the results and milestones. About the possibility of making businesses with PDVSA, how much have you advanced in that option?

Ricardo Roa Barragán (CEO)

Thank you, José Daniel. Ricardo Roa, President. The evaluations that we're doing internally, the possibility of making businesses with PDVSA in the short term, are focused on the contract that has been constantly reactivated since 2007 until 2027 between PDVSA and Ecopetrol, where we say that we can transfer.

So the interaction that we've had in the last months with Promigas as owner of the gas transportation is to work hand in hand inspecting and revising the conditions of maintaining the commitment that we have to activate actions to support any emergency in the context of the production exploration. So this is one of the options. Between four or five more that we are talking about in order to attend the demand that we will have, we have a deficit of 169 gigajoules. So basically, we are, among many options, evaluating the opportunity of working with this legal project. And this will occur as we don't have any restrictions from OFAC that would avoid this transaction.

Operator (participant)

Manuela Rueda from Standard & Poor's asks, for 2024, what is the capacity you consider for the refineries and how this affects the gasoline imports to Colombia? Manuela, good day, Alberto Consuegra.

Ricardo Roa Barragán (CEO)

Thank you for your question. What are we seeing from the load's point of view in 2024? An average between 415,000 and 425,000 barrels. Particularly in the case of imports, well, what is the correlation in gasoline? Well, the production capacity of both refineries is between 80,000 and 90,000 barrels, depending on the maintenance we have through the year. And the imports are going to be between 40,000 and 50,000 barrels, around that. So what do we see in the first months of this year? Well, a fall in imports below that range of 45,000 barrels. This is good news. And nevertheless, we need to await for a reactivation of the demand. And this will depend on the behavior of the international gasoline prices. So this is the variable we're managing right now. And from the production point of view, we are safe with our plan.

Operator (participant)

No more questions. So we give the floor to the president for the final message. Thank you.

Ricardo Roa Barragán (CEO)

Thank you again for your participation. Please keep firm confidence in our company and our subsidiaries with this great team that's working with us, that has shown a very important leadership. Ecopetrol, in the margin of the critical conditions of the market situations, will keep working and will keep being responsible to consolidate and to continue making Ecopetrol the great company it is, not only in Colombia, but with an important participation in each of the economies of the countries we are present at. Thank you very much for your participation. Thank you.