Welcome to Ecopetrol's Second Quarter 2018 Results Conference Call. My name is Silvia, and I will be your operator for today's call. [Operator Instructions]. Please note that this conference is being recorded. I will now turn the call over to Ms. Maria Catalina Escobar. Ms. Escobar, you may begin.

Good morning, everyone, and welcome to Ecopetrol's earnings conference call and webcast in which we will discuss the main financial and operational results of Ecopetrol for the second quarter of 2018. Before we begin, it is important to mention that the comments in this call by Ecopetrol's Senior Management can 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. Felipe Bayón, CEO of Ecopetrol. Other participants include: Jaime Caballero, CFO; Alberto Consuegra, Acting CEO of Cenit; Jorge Calvache, Acting Exploration Vice President; Rafael Guzman, Technical Vice President and Tomas Hernandez, Vice President of Refining and Industrial Processes. We will begin the presentation with the main achievements of the quarter followed by the highlights by business segments and financial results under International Finance Reporting Standards. We will close with a Q&A session. I will now hand over the presentation to Ecopetrol's CEO, Felipe Bayón. Felipe Bayón: Thank you, Maria Catalina. Welcome everyone to our second quarter 2018 results conference call. I am pleased to share with you the results of the quarter with considerable operational and financial achievements for Ecopetrol. During the quarter, we achieved an EBITDA margin of 51%, the highest in the history of the group. Likewise, we have the highest production of the last seven quarters, reaching 721,000 barrels of oil equivalent per day. Our commercial strategy continues to yield good results. Realizations from an export baskets were $7.7 per barrel lower than Brent. At a similar level of that obtained in the first half of 2017,…

Thank you, Felipe. After the discovery of Jaspe-6D during the Q1, situated in the Eastern Llanos Basin and which is separated by Frontera in association with the Ecopetrol, we continued in [indiscernible] during Q2 with the discovery of Búfalo-1. These well situated in the Medio del Magdalena Valle and operated by Ecopetrol in association with CPVEN, proved presence of dry gas and light oil. It has [indiscernible] the advantage of being located in Ecopetrol transportation structure, which will facilitate its production. Furthermore, we finalized drilling of appraisal wells for Coyote-2 and Coyote-3 operated by Parex in association with Ecopetrol and which are situated in the Medio del Magdalena Valle. The first well reached total depth on the 2nd of April and its currently undergoing initial testing. While the second well, Coyote-3, reached total depth on the third of May and its currently temporarily suspended, awaiting test results in Coyote-2. In addition, on April 18, we finalized building of the appraisal well Capachos Sur-2 operated by Parex in association with Ecopetrol. The well is situated in the Capachos blocks, which is currently under evaluation. At the same time, we continue evaluating well drilled by Hocol during the 2017, in particular, Godric Norte-1, Pollera-1 and Bonifacio-1. On the other hand, at the end of May, we declared commerciality of the Infantas Oriente field which is situated in Barrancabermeja area, Santander. This allowed to incorporate in record time the reserves associated with the discovery of the well in Infantas Oriente-1 and which was evaluated at the beginning of this year. In continuation with 2018 exploration campaign in the Colombian onshore during June, we began drilling of the exploration well Andina-1 operated by Parex and Pulpo-1 operated by OXY [ph], both in association with Ecopetrol and situated in the Eastern Llanos Basin. The National…

Thank you, Jorge. In the second quarter of 2018, the average production of Ecopetrol's Group reached 721,000 barrels of oil equivalent per day. This is .6% above the second quarter 2017 production. The production results are aligned with the 2018 target of 715,000 to 725,000 barrels of oil equivalent per day. The results are supported by the drilling campaign in La Cira, Rubiales, Caño Sur, Dina, Quifa and Castilla fields. The affiliates contributed with 10,000 barrels of oil equivalent per day which represents 8% of the total volume. During the second quarter, we reached 33 drilling rigs in operations. For the end of the year, we are planning to have up to 41 rigs. Aside for the drilling campaigns already mentioned, activities in six fields were restarted, namely Arrayan, Tibú, Yarigui, Akacias, Area Sur in Putumayo and Chichimene. The contribution to production derived from secondary and tertiary recovery is estimated to be about 20%. The consolidated activity direct and partnered operation will ensure the year's end production. The contribution to production from fields which production mechanism is mainly secondary and tertiary recovery is close to 23% or 164,000 barrels of oil equivalent per day. Amongst the main field that contribute are the Cira Infantas, Casabe, Yarigui with water injection and Cusiana, Cupiagua and Piedemonte with gas injection. Additionally, the pilots and the execution contribute 16,000 barrels of oil equivalent per day mostly from water injection in Chichimene and Castilla. The recovery pilot under execution have shown positive results, both in injection efficiency and reservoir performance as well as recovery factor increase. The graph illustrate the efficiency of water injection pilot in Castilla, polymer injection in Chichimene and steam injection in Teca [ph]. The graphs show that during the last year we have increased crude production substantially. Additionally, the possibility of…

Thank you, Rafael. By the end of the first half of 2018, the segment continued achieving positive financial results with an EBITDA close to COP4.4 trillion and an increase of 14% compared to last year's. This variation is explained by higher revenues associated with the beginning of operations at San Fernando-Apiay system and reversals of the Bicentenario pipeline. During the first half of 2018, the Midstream segment transported a total of 1,092,000 barrels of oil and refined products per day. This volume is very similar to the one transported in the first half of 2017. The damage caused by third parties to the Caño Limón-Coveñas pipeline did not have a material impact on the wall aim of crude transported during the first half of 2018. The contingent operation of Oleoducto Bicentenario which included a total of 30 reversal cycles during this period allow the segment to maintain a volume similar to the one transported during the first half of 2017. Approximately 70% of the crude oil transported was property of Ecopetrol and its subsidiaries. On the 29th of June, we began the process of putting the line field back into the Caño Limón-Coveñas pipeline, beginning with the Banadia-Samore segment. The Caño Limón-Coveñas pipeline is now operating normal. During July, we received a notification from Frontera, Canacol and Vetra alleging the termination of their ship or pay contracts associated with the Bicentenario and Caño Limón-Coveñas pipelines. We do not agree with the circumstances behind the allegation to terminate this contracts. Therefore, we consider that they are still valid and we will evaluate the actions required to safeguard Cenit's rights under these contracts. Regarding the transportation of a refined products, there was an increasing volume of 1.1% compared to last year. This positive evolution reflects the impact of the operating scheme improvements, namely availability of times that allowed higher product availability in high consumption areas. On top of that, during this period, the Cartagena-Baranoa system operated continuously whereas last year the system was out of service for maintenance during 21 days in the first semester. Approximately 32% of a refined products transported belong to Ecopetrol. With this, I hand over the call to Tomas, who will comment on the Downstream segment results.

Thanks, Alberto. In the second quarter of 2018, the Cartagena Refinery increased its gross margin to $11.1 per barrel, which represents a 44% increase compared to the same period in 2017. The refinery has continued to perform well during its optimization process with an increase in domestic crudes in the feed slate and has maintained a double-digit gross margin for 10 consecutive months starting in September 2017. The throughput also increased reaching an average of 153,000 barrels per day in the second quarter versus an average of 136,000 barrels in the same period in 2017. The Barrancabermeja refinery continues its stable operation. The throughput increased reaching an average of 221,000 barrels per day in the second quarter compared to 203,000 barrels per day in the first quarter of 2017 as a result of the effective implementation of light crude segregation initiatives that increased their availability. The margin for the second quarter weakened, reaching $10.5 per barrel versus $13.1 per barrels in the second quarter of the previous year. The reduction was mainly due to lower gasoline and fuel oil price differentials, in line with the behavior of international markets in an increase in local crudes light prices. On the biofuels front, Bioenergy continues in the stabilization phase of its agricultural and industrial operation, currently general maintenance of the entire industrial plans been executed while we prepare for the 2018, 2019 harvest season which begins in mid to late September 2018. Now I turn the presentation over to Jaime Caballero who will comment on the financial results for the period.

Thank you, Tomas. The solid financial results we present today reflect the quarter-to-quarter growth in production. The operational consolidation with the refineries and the commercial strategy to maximize revenues, all in the midst of a more favorable price environment. That EBITDA margin of 50% in the first half of 2018 represent a new record for the business group, and it's one of the highest in the oil and gas industry. This result reflects the growing competitiveness of the portfolio. The strict capital discipline, the commitment to a reliable efficient and profitable operation. We generated an EBITDA of COP15.8 trillion, 13% more than in the first half of 2017. Thanks to the good operational performance of all the segments. When comparing the first semester of 2017 to the same period of 2018, the Upstream segment increased its EBITDA by 53% going from COP6.7 trillion to COP10.3 trillion, equivalent to an EBITDA per barrel of $43. Downstream by 23% from COP829 billion to COP1 trillion and Midstream by 14% from COP3.9 trillion to COP4.4 trillion. We achieved a net profit of COP6.1 trillion in the first half of 2018, a higher net result for the year when compared to the result without the effect of impairments reported in 2017. Let's move onto the next slide to talk about the evolution of net profit. Ecopetrol's net profit in the first half 2018 amounted to COP6.1 trillion, almost 3x the profit recorded in the first half of 2017. The income of the business group increased COP 5.1 trillion, mainly due to the increase of $18.3 per barrel in the average price of the crude basket. This is despite a reduction of 62,000 barrels per day in sales volume, mainly due to the destination of own crudes as feedstock for the Cartagena refinery. This strategy…

Thank you. [Operator Instructions] And our first question comes from Andres Duarte. Corporacion Financiera Colombiana S.A.

Hey, hello. Thank you for taking my questions and congratulations for the results. I have two questions. One related to debt and the other one related to the refinery segment. So the first question is, as it's been prepaying debt during the year and it shows an excellent cash generating position for the company. I want to know if you have a target capital structure for Ecopetrol? And given the fact that you are -- that there is a possible area of growing inorganic clearly as well. That’s first question. And the question related to refinery segment is that I want to understand what explains financial expense for the period of the refinery segment? And finally, if possible, I also want to understand why is this EBITDA like diminishing from quarter-to-quarter? Thank you. That's it.

Thank you, Andres. Thanks for the questions. This is Jaime Caballero. Let me start with where we are on debt. As you have seen over the last years we have been executing a strategy that actually has strengthened our balance sheet substantially. When you look at the KPIs that we have, we believe that we have reached a stage where we are in a position that we can have a lot of flexibility to support the growth agenda that the company has. And when you look at our comparables, we probably have some legroom I think now where we can actually expand our debt position into -- in the future to a point of maybe a multiple of 2 to 2.5, if its needed. It doesn't mean that we are going go ahead and do that. At this stage, we’re in a good place right now in the debt position that we have actually allows the financial performance that we’re seeing. But in line with the growth strategy, which has also an element of inorganic, we want to be in a position where we can expand if we need to. So in terms of guidance, what I would say is we are in a place where we feel that we reach a point where we are mean and lean. If we need to acquire some debt, we can do that and we are going to be moving in a range of 2 to 2.5 of those sort of multiples. And if we move to the refining segment, and I think the broader comment on refining is that we are seeing some actually excellent operational performance in the refinery and financial performance when you look at the EBITDA generation which is growing year to year EBITDA contribution of Cartagena is very…

[Operator Instructions] And we have a question from Lily Yang from HSBC.

Hi. It's Lily here. Thank you for the opportunity and sorry if I make this question -- if somebody else already did it, but my question is on Midstream. How do you believe or what do you expect from the regulatory work and the rate review which is set for next year?

Good morning, Lily. Thank you for your question. At this stage, we don't expect major changes in terms of tariffs for next year. So we expect to see the tariffs remain in flat.

Perfect. Great. Thank you.

[Operator Instructions] A following question comes from Christian Audi from Santander.

Thank you. I have three questions. The first, can you comment a little bit on your expectation of your -- of the spreads between your basket and Brent? You have been able to maintain and as you pointed out on your comments, good levels in the $7 to $8 from last year into this year. But given business conditions right now as we look to the second half of the year, what’s your outlook you think it's conceivable to maintain the levels to increase them or could they come under pressure? The second is if you could just provide a quick update on your cash breakeven which was around 40, if anything has changed there? And lastly on that refining front, you continue to generate these impressive high margins. And again I had similar question about the outlook, given what you see from a maintenance business condition dynamic. Do you see you having reached maybe a feeling on this area of high margins or there's more upside or downside to them as we go into the second half of the year and into next year? Thank you. Felipe Bayón: This is Felipe. In terms of the spread between our basket and Brent, rightly as you were mentioning, we’ve managed to stay in the $7 to $8 range which is -- which I think is very, very good. There's volatility in terms of ability or potential volatility market in terms of ability of some -- the producers to basically deliver on the -- on production volumes. So from that point of view I think what we have done, at Ecopetrol, is very proactively be in tune with the market to understand our clients, change some of the relationships and just building stronger long-term relationships with our clients. And to that extent,…

And so with regards to the cash position, I think the headline statement is that our cash position continues to strengthen over time, I think what you're seeing with regards to the breakeven which moved and I think we disclose that it moved from $49 to about $65 per barrel, it's really a function of three things. The first -- well, first on a positive side, clearly we are having a increased cash generation from operations and that's -- what's happening is that it's -- that’s offset by three things. The first thing is we’ve released a number of TDs [ph], a substantial TD [ph] position that we have last year which we’ve changed -- that has an impact in terms of the breakeven position. Secondly, we also had some specific investments that we got -- that we got rid of in our portfolio. And thirdly, we paid dividends. If you look at the effect of those three things, it accounts for about some $16 per barrel, which explains the difference that we’re seeing in that breakeven position. Having said that, we are very comfortable with where we are. When you look at the fundamentals of the cash position, we have nearly $16 billion in kind of short-term positions that we can that we can use, we are managing that in a very disciplined way if you look at the fundamentals of cash management everything is underpinned by a kind of technical points. So we feel comfortable with where we are and with the flexibility that we have to respond to any requirement that the business has in terms of growth, whether it's organic, or inorganic.

Yes, Andres (sic) [Christian], this is Tomas Hernandez in Refining. To answer the question around refining margins for the second half, I just want to mention that we see them in line with international margins for cooking [ph] refinery in the Gulf Coast and a cracking refinery in the Gulf Coast for Barranca and Cartagena, which are much in line. We have no major turnarounds in the second half of the year and we expect continued operational -- good operational performance in the second half. No major turnarounds and we see an uptick -- depressed price in -- excuse me, an increase in diesel prices due to the [indiscernible] effect. And in gasoline, we do typically see a depressed price for gasoline in the second half, but the net effect we see in line with the margins for Gulf Coast refineries.

[Operator Instructions] And we have a question from Lily Yang from HSBC.

Hi. Just a follow-up on the refinery margins. They're actually good on the gross side at above $10 per barrel, but you OpEx, in my view was actually too high, it was higher than what I had in my model. So your EBITDA came out to be only $4 per barrel. So where can you actually do give OpEx going forward or was there any non-recurring expense this quarter? And another question, if I may follow-up is, now that the cash flow generation is very strong above budget and looks like it's going to exceed the expectations in the second half as well. So how is your appetite now for acquisitions? Thank you. Felipe Bayón: Lily, this is Felipe. And I will take the second question first and then I will ask Tomas and probably Jaime to comment on your first one. So, I mean, clearly we continue to have a very, very healthy cash flow generation which is good. We -- regardless of where prices go, if they go up a bit, there is still a lot of uncertainty. We want to make sure that we stay robust, we stay focused and we stay very disciplined. We continue to assess quite a few opportunities. We’ve said before that we want to stay operating in the continent, so we want to clearly remain focused in Colombia. We are looking at some opportunities in Colombia, but clearly we are looking outside. So we have already operations in the U.S or equity in offshore operations in the U.S. We have our presence in Mexico, in Brazil and smaller presence in Peru. So we will continue to look at the continent with a focus of inorganic and clearly we now have a much more stronger financial position, especially balance sheet strength and Jaime was talking about this, about optionality and flexibility being able to, if we need to leverage or we can generate a lot of cash, so that's good. But clearly something -- if we acquire something and when we acquire something, it's going to be a matter of how do we actually see a fit, a very good fit with strategy. So in due course we will be talking about those things when they actually materialize, when we actually go across the finish line on any of those opportunities that we are looking. So now I'm going to pass on to Tomas, to talk about refining margins.

Yes. Well specifically -- thank you, Lily. Specifically with your question on OpEx, we see cash OpEx in control in both refineries. We have had an impact on raw material cost. As we mentioned earlier, the diet has increased, so the raw material cost have increased and that’s the effect that you see. We continue to focus on optimization of our costs and efficiency in both refineries. The synergies are going to continue to help us in that area as well. But we see them much in control as far as the cash OpEx, it's really the effect of the increased raw material cost.

Our following question comes from René Burgos from CarVal. René Burgos Díaz: Hi. Good morning guys and thank you very much for the time. I really do appreciate it and good luck with the -- sorry, good job with the numbers. I just have one question and I understand that the Caño Limón pipeline continue to get attacked and it's probably not working today. So on your comments on the Bicentenario pipeline, my question is, I’m assuming that you will continue to operate on the reversal basis. I don’t know how long or sustainable that is. I wanted to get your thoughts on the impact on your EBITDA because I understood that the EBITDA for the segment was maybe $200 million for this one pipeline, the Bicentenario and Caño Limón. And lastly, how are you guys thinking about solutions since some of these contracts tended to be canceled, so now it becomes more of a legal discussion. I just wanted to really understand how you’re framing this discussion because I understood that this pipeline was somewhat important within the Midstream business. Thank you very much. Felipe Bayón: Absolute, Rene. So this is Felipe, and I will start and then I will pass it on Alberto, so he can talk about some of the specifics. But in terms of Caño Limón, the first thing I want to say is that there is -- the full commitment from Ecopetrol and the companies in the group to ensure that we can -- every time the pipeline the Caño Limón pipeline goes down, or is put out of service to restart it as soon as we can. It's a fundamental part of our operation and that's the main driver to ensure that we can keep it operational. And the first six months of the…

Yes, again, we’re not seeing many, but in this year in terms of EBITDA and we’re analyzing, evaluating what will be the impact for next years, but again I reiterate that we have a strong legal position and we will defend our case.

Our next question comes from Christian Audi from Santander.

Hi. Just a follow-up, please. On a consolidated basis, could you just comment on how you see your evolution of return on capital employed, looking at the first quarter and second quarter? How have you seen that evolution and going into the second half of the year, do you expect an improvement in this return on capital employed or more kind of a flattening? So any color on that front would be very helpful. Thank you.

Hey, Christian, thanks for your question. I think in terms of returns on capital employed, if we look at it from a broad -- from like 100,000 feet we are coming from last year where we probably where in 2017, in the 8% to 9% range, given the performance that we’re seeing this year clearly the trend that we are seeing is one of being well above last year's number. I think our view is that we probably are going to fall somewhere between 12% and 14% in line with everything that we’ve indicated in the results and in terms of the projections that we are seeing of both production level of CapEx investment and that cost kind of projection that we're seeing. So in summary, I would say that somewhere between 12% and 14% is probably where we are going to fall.

We have no further questions at this time. I will turn the call over to Felipe Bayón, President of Ecopetrol for final remarks. Felipe Bayón: Thank you very much and thanks to everyone who has participated in today's call for our 2Q 2018 results. We appreciate following on the company, your interest in the company, what we're doing. As we’ve mentioned, we are very pleased with what we have seen in the first half of the year, some very good operational results, we continue to abide by standards and operational excellence. There is still a lot of room to go in the year. We continue to focus on increasing our activity, deploying more capital ensuring that we can be in our guidance range for production. We will continue to look at additional opportunities in exploration and we will ensure that we can benefit from being an integrated company. So once again, thanks everyone for participating in the call today and we will probably be talking to you in the next conference call. Thank you very much and have a great day.

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