Welcome to Ecopetrol's Third Quarter 2018 Conference Call. My name is Hilda 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.

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 third 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 risk or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Felipe Bayón, CEO of Ecopetrol. 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 segment 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.

Thank you, Maria Catalina, and welcome everyone to our 3Q 2018 results conference call. I am pleased to share with you the best financial results of the last 4 years for the period of the first 9 months of each year. Net income amounted to COP 8.9 trillion, EBITDA reached COP 23.8 trillion and EBITDA margin was 48%. These excellent financial results were obtained, amongst others, thanks to the operational stability of all of our segments, basis for the increasing oil and gas production, better oil prices, stability in the exchange rate and lower imports of crude oil for our refineries on products for the local market. Now let's go to the next slide to talk about the excellent operational performance of the group. Our business strategy continues to yield good results. The flexibility we have today has allowed us to take advantage of increased demand for crude from refiners in Asia and thus generate greater value for the group. Factor this and other initiatives, the discount of our crude export basket with respect to the brand remain at circa 11%. This allowed us to capture the benefit of the increase in price. In exploration, I'm glad to highlight that Ecopetrol entered one of the most prolific oil basins in the world. In partnership with BP Energy and CNOOC Petroleum, we won the Pau-Brasil block located in the central region of the Santos basin in the Brazilian pre-salt. This milestone is part of the company's growth strategy and demonstrates Ecopetrol's ability to develop strategic alliances with leading companies in the industry in order to perform world-class projects. During the third quarter of 2018, we continued along the growth path in production, reaching 724,000 barrels of oil equivalent per day, the highest of the last 10 quarters. This increase in production…

Thank you, Felipe. The highlight of the perimeter was winning the exploratory block Pau-Brasil in a consortium together with CNOOC Petroleum, with a 30% participating interest and BP Energy with a 50% participating interest, the latter being the designated operator. This block is situated in the central area of the Santos basin, one of the most prolific basins offshore Brazil. The block has a size of 1,184 square kilometers and lies in an average water depth of 2,200 meters. With this result, we achieved our strategic objective to increase our reserves and production through exploration. Additionally, we extended our portfolio into one of the most attractive basins hand in hand with the strategic partners, getting a vast space in the offshore at a world-class level. Let us please move to the next slide to review the results of our exploration activity. 5 wells were drilled during the quarter in the Colombian onshore, a total of 9 during 2018 so far. This brings us closer to our goal of 3D 12 exploration wells for this year. The well Andina-1 operated by Parex and located in the municipality of Tame, Arauca confirmed the presence of hydrocarbons in the area. The well reached a depth of 30,500 feet with hydrocarbons being found in both the Guadalupe and Gacheta/Une formations. Initial tests confirmed the presence of light crude oil of 42 degrees API and gas in the Gacheta/Une formation. Additionally, the presence of crude oil of 35 degrees API and gas were confirmed in the Guadalupe formation. Currently, we are clearing up the appraisal well, Andina-2, to confirm the extension of the discovery. Furthermore, in the well Rex NE-02 operated by OXY in association with Ecopetrol, our well production test conducted in September confirmed the presence of high-quality light oil of 35 degrees API.…

Thank you, Jorge. In the third quarter of 2018, Ecopetrol's group reached an average production of 724,000 barrels of oil equivalent per day. This current production level is leading us towards our goal between 715,000 and 725,000 barrels of oil equivalent per day. We highlight the results of the drilling campaign in the fields, La Cira, Rubiales, Quifa and Castilla, which contributed significantly to the increase in the quarter's production. The increase in production is also explained by higher production and sales of gas in the subsidiary, Hocol. In September, 41 drilling rigs were operating, which represents 64% more than those reported at the end of 2017. The intensification of the drilling campaign in the last quarter of 2018 will allow us to get production towards the established goal and to take advantage of favorable market prices. The recovery program contributes about 23% of Ecopetrol's group average production. Most relevant fields are La Cira Infantas, Casabe and Yarigui with water injection; and Cusiana, Cupiagua and Piedemonte with gas injection. Improved recovery prices are consolidated as a stable operation that continues to leverage the production and reserve growth strategy. Positive results in both efficiency and reservoir response made the recovery program a more reliable source of resource replacement. Now I turn to Alberto Consuegra, who will comment on the results of the transport segment.

Thank you, Rafael. By the end of September 2018, the segment continued achieving positive financial results with an EBITDA close to COP 6.4 trillion, which represented a 7% increase when compared to last year's. This variation is explained due to higher revenues associated with the full operation of the San Fernando PI system and reversals of the Bicentenario oil pipeline. By the end of September, the midstream segment transported 1,103,000 barrels of crude and refined products per day. This represented 1.6% volume growth when compared to last year's same period. The damages caused by third parties to the Caño Limón-Coveñas pipeline did not have a material impact on the volume of crude transported during the 2018. The Bicentenario oil pipeline reversal operation played a vital role and helped the segment to maintain adequate service and volume availability to the shippers. By the end of September, a total of 35 reversion cycles were executed and coordinated by the midstream. Approximately 75% of the crude oil transported was property of Ecopetrol and its subsidiaries. With regards to refined products transportation, there was an increase in volume of 2.5% when compared to the same period last year. This increase reflected the impact of the optimizations made to the operating schemes in several systems that allowed us to have greater product availability in high consumption areas. In that same sense, the higher availability of products coming out of the Barrancabermeja refinery contributed to maximize the use of Cenit's evacuation systems. Approximately 33% of the volume transported by pipelines corresponded to Ecopetrol products. With this, I hand over the call to Tomas Hernandez, who will comment on the refining segment results.

Thanks, Alberto. We are pleased to report the solid results of the refining segment in a year in which the integrated and stable operation of our refineries has generated value for the business group. During the quarter, a combined average record throughput of 380,000 barrels per day was established between the 2 refineries. In the third quarter of 2018, the Cartagena refinery had a gross margin of $12.10 per barrel, the highest quarterly margin reached during the year. This result reflects the good performance of the refinery during its optimization process and the increase in domestic crudes in the crude slate reaching 80% this quarter. In August, a test run was performed with 100% domestic crude feed slate for 9 days, reaching 164,000 barrels per day, consistent with the optimization process for the crude slate of the refinery. Throughput continued to show a growing trend, achieving an average of 158,000 barrels per day in the third quarter, the highest quarterly average throughput for the year. In September, the highest throughput was reached since the refiners started operation with an average of 161,000 barrels per day. The Barrancabermeja refinery continues its stable operation. The throughput increased to an average of 223,000 barrels per day in the third quarter, the highest quarterly average throughput for the year. This result is due to the effective implementation of light crude segregation initiatives that allowed the refinery to increase its throughput. The gross margin was higher in the third quarter than the prior quarter, reaching $13.09 per barrel, the highest reported during the year. This improved performance is explained by higher product price differentials versus Brent, mainly in fuel oil as well as in the price differential of the crude slate. In the petrochemicals area, Esenttia continues its stable operation and good financial results, although affected by higher raw material costs partially offset by its commercial strategy. On the biofuels front, Bioenergy completed the general maintenance of the entire industrial plant and in September restarted its operation for the 2018, 2019 harvest season. Now I turn the presentation over to Jaime Caballero, who will comment on the financial results for the period.

Thanks, Tomas. The solid financial results we're presenting today are the outcome of the excellent performance across the company's business segments. They reflect capital discipline and the permanent quest for greater efficiency and profitability, key pillars of our strategy. Between January and September 2018, we achieved an EBITDA of COP 23.8 trillion, exceeding the result reported on 2017. We also gained additional 6% of EBITDA margin for an accumulated 48% as of September 2018. The group's EBITDA per barrel continues to grow. We generated $47.30 per barrel in the first 9 months of 2018, 58% more than in 2017 and higher than the 33% increase in Brent price during the same period. The higher EBITDA generation is reached as a consequence of the higher price of the crude oil basket, leveraged by our commercial strategy, the lower imports of crude and products and cost control and higher efficiencies achieved through our transformation plan. These results allowed us to offset the accounting impact of higher exploration expenses in the third quarter totaling COP 767 billion. Excluding this effect, EBITDA margin had reached 49% and EBITDA per barrel $48.70. When comparing EBITDA by business segment for the January September periods of 2017 and 2018, the exploration and production segment increased its EBITDA by 60%, Refining by 13% and transport by 7%, in line with higher oil prices and greater activity. It is worth highlighting that by the end of the quarter, Reficar exceeded its target of generating at least COP 500 billion of EBITDA this year. This result demonstrates the progress in the stabilization and the consolidation of Reficar's operation. Operational cash flow totaled COP 17.9 trillion between January and September 2018, explained by sound operating results and the COP 2.3 trillion received from the stabilization fund for fuel prices. As a…

Thank you, Jaime. I am pleased with our financial and operational results for the quarter. We have shown operational stability, growth in production and a solid financial strength. We are committed to achieve the production target for the year, which is maintained in the 715,000 to 725,000 barrels of oil equivalent per day. The increase in activity has been successfully deployed and is aligned with our investment plan. Care for the environment, social responsibility and having high standards of corporate governance are all pillars of our corporate responsibility culture. Amongst the many activities we carry out in this area, I would like to highlight the increase in generation with renewable energy. Recently, we announced the construction of a solar farm to provide the energy required by the Castilla field, and this adds to the already installed capacity in generation with renewable energy that we have through the use of biomass. We continue to accomplish financial milestones marked by a solid performance of all of our 3 business segments. We have captured approximately 90% of the benefit from the increase in Brent price, proving the strength and benefits of being an integrated group. I will now open the floor for questions and answers. Thank you very much.

[Operator Instructions]. The first question we have is from Bruno Montanari with Morgan Stanley.

So first question is about the company's shale pilot. If you could give us some additional color on when you expect to drill. And assuming the results are favorable, how does the company see this initiative development -- developing? What is the timeline for more activity on conventional resources? And if you can also address what has been the reaction of communities and your discussion with the regulator in regards to shale, that would be fantastic. The second question is about the transportation tariffs. I understand that the decline in the tariff reported in Q3 was driven by the restructuring of the Ocensa contract. Just wondering if this type of tariff reduction can be seen in other pipeline contracts as well. And if I could add a third question, it's great to see you're going to achieve the production target for the year. Can you give us any idea of what to expect for production into 2019? Should we expect stability? Or can you continue to expand production in the same rate we observed during 2018?

Thanks, Bruno, and good morning. Thanks for joining the call. In terms of the shale pilot and the possibility of Colombia entering into the unconventional, production of unconventionals, right now, we have formally submitted a request for a permit to the environmental authority the ANLA, and it's being under the their consideration. And there's other companies as well that have done the same. So as we view it, and if I may, I'm going to provide a bit of color as you were referring to in your question. The discussion in country around the possibility of doing unconventionals has been an ongoing conversation for the last 10 years or so. So there's a very stringent, very strict regulation around exploration of unconventionals. But I think that largely due to the crisis 3 or 4 years ago and some other factors, no additional activity has been done. What we've done is we continue to assess the potential in the near Barrancabermeja in that area of the country. We've said that we want to do a pilot which has the intention of allowing the authorities, the communities, the regulators, the unions, the NGOs, everybody to look into this ring-fenced area that the pilot would have to ensure that people are comfortable in how we are conducting the operations. Having said that, there's a lot of ongoing debate. If I -- and this is my personal view. If I looked at the last 6 to 9 months, I think the debate is becoming more and more rooted in science. It's been conducted within a frame of absolute respect in terms of the ones that believe that this is an opportunity that the country needs to assess in detail and very responsibly and those who are worried and apprehensive because of some of the…

Good morning, Bruno. Thanks for the question. Let me start with some context. P135 was the project executed by Ocensa to increase volume capacity mainly in segment two, which allows the entrance of heavy oil coming from the Llanos oil basin. As a result of the agreement between Ocensa and the shippers for this particular project, there was a tariff reduction seen only in this segment. So we have not seen any tariff reduction in other Ocensa segments and we don't expect to see at this time any tariff reduction in any other systems.

Our next question comes from Frank McGann from Bank of America Merrill Lynch.

Two questions if I could. One is just in terms of looking out towards 2019. This year, you've been -- you've had a target that you seem very capable of reaching for the year. I was just wondering if you had any early thoughts on where you think -- what could drive production in 2019 areas that could add to growth or areas that potentially could limit growth and how you see the overall outlook for production next year. The other question is in terms of the tax law changes that were commented. I was just wondering what your thoughts are on the effects that would have on the company.

Thanks, Frank, and I'll take the first part of the question, and I'll ask Jaime Caballero to take the second one on the tax law that was presented yesterday at Congress. So in terms of 2019, a couple of things. One, our main fields, La Cira, Rubiales, Quifa, Castilla, Chichimene, are all showing very good response to several things: one, the fact that we did not stop the EOR, the enhanced oil recovery, pilots during the crisis, and I think that strategically, that was one of the best decisions that we took as a company. So we're seeing that water injection, polymer injection, they're working well and we're moving into actually extending steam injection in one of our fields. So EOR is working very well. So that's the first thing I would say. In terms of the level of activity, we're drilling more wells. Quarter-on-quarter, we've increased the number of rigs and these are rigs that are the latest technology that we know how to operate. We have good partnerships with the drilling companies and we've managed to be more and more efficient as we continue to drill. So I think key factors looking forward are in the ability to continue to implement the increase in activity. So we see that in rigs and workovers and wells. So I think that's working well, and that's talking from the organic point of view. So clearly, we are seeing that the fields are responding well. And even if you look at it from the outside, it seems like the tax that we've seen on Caño Limón this year, which have been 76, a tax more than last year, have not led us to a deferred production from Caño Limón. And I think we continue to demonstrate that even if it's more costly to bring the barrels through the reversion route of the pipelines, the flexibility has allowed us to prevent deferred production, which I think is very good news from -- for the transportation systems, for the refineries and for the international customers. So I think that's good. And we're currently, Frank, looking at budget for 2019. So we will come with a number when we talk about the budget, but we do see the ability to continue to grow. There will be some -- maybe some unforeseeable things, and this year, we had some social unrest in February that impacted production in 1Q. But I think the point, again, is that we're able to react very quickly even if things are not foreseen and we can actually get back on track very, very quickly in terms of our -- that pathway that we see to increase production. On the tax law, I'll ask Jaime to comment on how we're seeing things.

Frank, thanks for the question. And the financing law project was presented yesterday. We see it as a positive development actually from a group standpoint. It has a 3 or 4 elements that could be of material positive impact for the group. Firstly, there's a proposal around corporate tax rate, reducing that over time gradually, going from where we are today, which is in effect, around 37% to something that in the space of 2 to 3 years, will end up being at 30%, and that has a significant impact in terms of the bottom line. The second, I think, positive component is around a presumptive tax rate, which would be lowered. This is particularly relevant for some of our subsidiaries, where currently, they might not be having net income results and they're actually paying over a higher presumptive rate. To the extent that this presumptive rate comes down, actually, that will have a straight-line effect on their bottom line. And what they're proposing is actually substantial. It's going from 3.5% to something that ultimately would end up being around 1.5% and ultimately 0%. So that's good. Thirdly, I'd say the other important component is around the VAT for capital goods. This is also potentially material, in our operation, particularly with regards to the capital investment programs. And to the extent that that VAT is lowered and also deductible, it improves cash flow. And actually, when you think about the effect that that has over time, it actually has an economic effect on the quality of the projects. So I think the bottom line that we're seeing there is that it's all moving in the right direction, right? It's moving in the right direction and it should make the group more competitive from a tax standpoint.

[Operator Instructions]. The next question comes from Gabriel Ibarra from UBS.

Regarding the previous PSE auction in Brazil. I would like to know how Ecopetrol approached Brazilian PSE auction could be seen in a more broader perspective. And could we expect that the company will continue focusing Brazil pre-salt options? And in doing the E&P business, I would like to know what could we expect on the exploratory front for 2019. Thanks again, and congratulations for the results.

Well, thank you, Gabriel. Thanks for joining the call and thanks for your remarks on the good results. We appreciate it. So in terms of Brazil, and I'd like to highlight the following. A couple of years back, we shared with the markets our strategy, and we said several things. We said we want to see a company that operates in the Americas, and so we have a presence in the U.S., a small presence in Peru and in Colombia. And we said that we wanted to enter both Mexico and Brazil. And fast forward, I think we've delivered on that strategy and on what we have signaled to the market. So we are in Mexico, and I think the recent news in Pau-Brasil are very, very good. In several ways it's, I mean, a world-class very prolific basin. It has exploration risks, obviously, but it's an area that we had wanted to be able to enter for some time. So being successful in the recent auction with the quality of companies, both CNOOC and BP that we're partnering with, is one very good news. I think having 20% stake or equity is also very good news in terms of exposure. And it allow us -- allows us to plan in terms of world-class operators in a very good basin and helps us sort of continue to build on strategy in Brazil. In terms of the future, we had tried before to be in some of these auctions, and the latest one, demonstrates that we have the ability to be part of that select -- very select group of companies that have entered. So we're very, very pleased. Clearly, we now need to go and do the detailed homework and work with our partners to plan the activity, and hopefully, have some good results, and we will continue to work in Brazil. And the second one, Gabriel, if you don't mind, can you just repeat the question? I think there was a break in the line, just to ensure that we capture everything that you want us to answer, if you are kind enough.

Sure. Sure. What could we expect on the exploratory front for 2019?

Yes. I think I got you. If you're hearing us well, Gabriel, what are we expecting in terms of exploration. So several things. Over the last 2 or 3 years, we did some work around the offshore. This year, we've done a lot of work on the onshore of Colombia. So going forward in 2019 and beyond, one, we want to increase the number of square kilometers of seismic that we do. I think that's the first thing. We need to better understand some of the basins in which we operate and some of the basins that have recently opened in terms of access and security situations and the like. Second thing I would say, the agency, the regulator, the A&H, is proactively looking at having more and more opportunities for companies that want to enter those areas. And we will use some of '19 to continue to plan some additional wells, especially in the offshore. So I would see -- I would say I would characterize this as an uptick or an increase in terms of the activity and clearly, we want to do more, not only again onshore and offshore, there's a lot of Near Field Exploration we're doing. And as we just talked about, Brazil, we're looking at opportunities in Colombia and outside of additional acreage that we can enter into. So thanks for your questions, Gabriel.

The next question comes from Pavel Molchanov from Raymond James.

You mentioned that the 76 Caño Limón pipeline attacks have not had any effect on the production at the field. Is there a point at which you will have to restart the Caño Limón pipeline? Or can you keep it essentially nonoperating for the foreseeable future?

Okay, Pavel. Thanks for joining the call, and thanks for the questions. So I think the first thing is -- and we've said this repeatedly and constantly, it's our intent and our commitment to conduct the repair work on Caño Limón and restart the pipeline. It's a pipeline that has been operated for several decades that works very, very well, that our teams operate very well. So that I think would be number one in terms of our commitment to repair and restart the pipeline. But as you would probably very well understand, some of the security conditions in that area close to the border are challenging. I think the good news, and to your point, yes, clearly, there's a point where we want to restart the pipeline, so I would make that very clear. And the second thing that if you go back a few years, if we were impacted in Caño Limón, there would be a point that we would need to basically start shutting down the field because there's a limit to the storage capacity that we have for oil production in Caño Limón, in the field itself. I think the good news, and I think the -- what is just absolute ingenuity for our -- from our operations and engineering teams are that we were able to put the Bicentenario pipeline to work it in reverse and make it flow from north to south. And from that point of view, and this is why I was making the point comparing it to a few years back, we don't have an impact, and you were referring to this in your question, in terms of deferred production, which is good. We said something also that whenever Caño Limón pipeline is attacked, we see that the biggest impact is on the communities that live around the pipeline, in terms of water intakes and aqueducts and things like that or their fields for the crops but also in terms of the environment, and impacting the environment in that area. So I would say we've done a very, very good job in terms of being flexible from an operation point of view, minimizing, almost avoiding any deferred production, I would say. But I would reinforce that absolutely. Absolutely, we want to restart the Caño Limón. And the other thing is that there's an impact in terms of the transportation costs of using a different route. But remember that Caño Limón is very light crude with very, very good margins. So even though there's an impact on the transportation costs, we're very pleased to see the Caño Limón barrels day in and day out, making it to our Barranca refinery and making it to the markets. Thanks, Pavel.

The next question comes from Sebastián Gallego from CreditCorp Capital. Sebastián Gallego: I have two questions. The first one on the cash position that the company currently has. We have seen COP 18 trillion. You also mentioned that that ratio the company has right now which makes leverage not a concern right now. What's the plan of Ecopetrol? Or can you provide an update on what potential investments are you looking for given this cash position? And the second question is related to the throughput on the Cartagena refinery. We have seen the composition changing dramatically over the past years. Can you comment on what to expect on the composition and, more importantly, if there are any additional possibilities to see lower costs coming from the refineries?

Thanks for your question. This is Jaime. And so let's talk about the cash position. I'd like to say first kind of where we are. As you said, we have COP 18 billion in cash right now, a combination of our accounts that are kind of very short-term and equivalents as well. If I would have to frame that, we have about COP 6.8 billion and $3.7 billion. Roughly 80% to 85% of that is in Ecopetrol, 15% of that is among its subsidiaries. I think when we think about how we're going to manage that cash point going forward, I think there's essentially 4 key elements in that decision process. The first one, of course, is covering the operational requirements that the company has. As you can see from the trends over the last 2 quarters, it's fairly predictable what that operating cash flow is. Secondly, we need to cover the financing flow and investment flow. That's essentially debt, amortizations and dividend flow. And debt amortizations, we have a big one next year which is about $1.5 billion. That is in the frame and we need to cover that. And the investment frame is the CapEx guidance that Felipe spoke about in a previous question which is we're currently $350.5 billion of CapEx and we expect that frame to grow a bit over 2019. So we need to consider that as well. Thirdly, we need to think about being ready for funding the inorganic opportunities that we're pursuing. This is a bit unpredictable. As Felipe has stated in the past, we're being very selective about the inorganic opportunities that we want to pursue. We need to make sure that these are value-accretive, and to that regard, these may arise or not in the near future. We do need to make sure from a financial standpoint that we're ready when those arise so that we have full flexibility should a deal need to be made. Lastly, but importantly, we also need to consider the price scenarios. As you know, we are sensitive to pricing going forward. There is an uncertainty in that regard. Our planning price is of around $65 per barrel. There is a broad range of forecasts in that regard and we need to be prepared for the full spectrum of prices that might arise. I want to just clarify something that I mentioned earlier on in terms of talking about billions and trillions combining pesos and dollars. The cash position in pesos is trillions, okay?

Thanks for your question on Cartagena. Yes. We have been focusing -- as you know, we're in an optimization phase in Cartagena, and what that means is we've had a strong focus on operating the plants well, improving the reliability and also on OpEx. There's been a continuing opportunity to reduce operating costs for the refinery as we learn more. And a third focus is around looking at debottlenecking opportunities in the plants in the optimization phase. A strong focus on that on -- on the crude slate, we've been working on maximizing the national codes. As you know, what we look for is the best crudes to -- the brand of greatest product margins to the refinery. That could be a combination of imported crudes and national crudes. We have found 80% right now to be sort of a sweet spot, but that can vary based on crude prices and how the market -- the market is -- international market on crudes are for those imported crudes that we're using in Cartagena. However, the -- another focus is a very strong focus on costs and OpEx at both refineries. So we've been really focused on looking at maintenance costs and opportunities and comparing the on -- was our benchmark to see how we relate to other refineries and that has been very, very favorable. 2017 at both refineries has been very, very positive comparing to benchmarks in -- not only in Latin America but around the world.

The next question comes from Daniel Guardiola of BTG Pactual.

I have a couple of questions here. First of all, the first is regarding the current scenario of oil prices. And I would like to know your thoughts on how sensitive could be the CapEx going forward for Ecopetrol and its production to the current scenario of prices that are above $70. And my second question is regarding the tax law that was introduced yesterday or the tax bill that was introduced yesterday to Congress that basically implies the creation of a form to stabilize the revenues -- the oil revenues for the government. And I would like to know in that sense what is the role that Ecopetrol is going to play, and if at the Ecopetrol level you guys are considering to put in place a hedging strategy to benefit from the current environment of high oil prices.

Thanks, Daniel, and again, thanks for joining the call. In terms of current scenario of oil prices, we've seen over the last few days or so that Brent has seen a decrease in price. There's still uncertainty and volatility in terms of the price. I think the good news, as Jaime was referring to earlier during the presentation, the good news, the breakevens have reduced dramatically over the last 4 to 5 years. So we are a company that's much more efficient. We're a company that can thrive, as you heard from my remarks, to 90% of the increase in price. So we're well positioned. We're ready, and the transformation program has helped us be more efficient and basically benefit from the increase in price. In terms of strategy dollars, we're currently doing our internal review of all the perimeters and all the variables, one of them being oil price. You know that historically it would have been -- I would say conservative in all the terms of having a price or using a price that ensures that we have a very robust capital discipline with more CapEx into the field. So we think that should prices remain at around this level or $70 or $65 to $75, we will most likely see a level of investment that is $3 billion to $3.5 billion largely in line with what we've done in '18. You're seeing that quarter-on-quarter, we're increasing the number of rigs. We're drilling more wells. We're doing more workovers. So I think that will continue. So we expect in the very near future, be able to share with yourselves and the markets our view on '19 and budgets and some of the assumptions that we're seeing. In terms of the tax law, I would ask Jaime to comment on that.

Daniel, thanks for your question. The tax law and its potential relationship to us hedging, what we've seen in the project is we see some positive developments in tax. But particularly from a company standpoint, around 3 topics, there is a reduction in the corporate tax rate there. Is a reduction in the presumptive tax rate, and there's the changes in VAT in terms -- for capital goods and in terms of making a deductible. Those are the three things that we can identify as clear developments that have an impact -- a positive impact on the company. That, and its relation to hedging, there's two different conversations. There's the conversation that the government has with regards to hedging, its exposure to Brent and there's that conversation that we have as a company. As a company, we review that on a periodic basis, and the conclusion that we had from those reviews is twofold. Firstly, we have a -- large natural hedges that occur because of our integrated position, our structure of being an integrated company, reduces exposure to Brent in a significant way. That's the first conclusion. And secondly, we also need to consider the cost-benefit of engaging in hedging. To that regard, that conclusion that we reached and that we kept -- the policy that we kept over the last few years is that we don't engage in structural strategic hedging. We review that on a regular basis, right? We will continue to review that as we see development in the outlook of the pricing outlook and our different exposure, and that might change. But as of now, this is the policy that we have. We understand that the government might want to and actually wants to explore ways of stabilizing its income over time, and that can be done as a shareholder and there are financial instruments to do that. This is not related and we don't have any role, indirect role, in that strategy.

The next question comes from Erica Lucasi from HBC [ph].

I'd like to make two questions. The first one is regarding inorganic growth. So we recently saw Ecopetrol successfully bidding in the offshore segment in Brazil. We would like to better understand why the company made the association with BP and CNOOC and why not with Petrobras given its better track record on the region and if going forward the company is studying other partnerships with Petrobras. And my second question is on refining margin. Despite the lower gross margin given the higher feedstock prices, we are seeing better margins on both refineries. I would like to better understand if there is a ceiling or if the company is expecting a downturn in the next quarter.

Thanks, Erica. And I'll take the first one. Yes. Clearly, we're very, very, very pleased with the results in the pre-salt, in Santos, in Pau. And I think if you look at what actually transpired from the auction itself, we think that with CNOOC and BP -- and we're actually competing against Petrobras, and if we look at the results themselves, the number one and number two bidders came in very, very closely. So that -- from that point of view, we're very, very pleased. We did, I think, a very serious, responsible analysis of the opportunity. Now we need to go and do the planning of the activity and drill the wells. So I think that's good. In terms of our relationship with Petrobras, we have had a very long-term relationship with Petrobras in Brazil and outside Brazil. We're partners with them here in Colombia. We have some recent discoveries in the offshore and we are in continuous dialogue with Petrobras looking at opportunities both in Colombia and in Brazil. So you're absolutely right. We would like to do more with Petrobras. It's a company that we respect. It's a company that is recognized worldwide in terms of its ability to do complex developments from a technical point of view, from an operational point of view, and has an outstanding track record in terms of developing those opportunities and the operations themselves. So we're open to alliances, not only with them but the players that are in the oil and gas industry, both in Colombia and outside. And so clearly, and hopefully, more to come in that space. In terms of refining margins, Tomas, I'm going to ask you to take that one.

Thanks for the question Erica. Yes. The refinery margins, as you know, we don't like to speculate about refining margins, it's highly dependent on prices as you know. We've enjoyed the third quarter. The third quarter margins have been good, impacted by lower cost of Barrancabermeja. A lot of the fourth quarter and what will come next year will depend on what happens on the bump on diesel due to MARPOL -- getting closer to MARPOL and the impact of gasoline. We've seen very, very depressed prices on gasoline, much lower than last year. A lot of it will depend on what happens in the market, the prices. We see very stable operations in the fourth quarter. It's just -- will be the impact on prices, international prices and price differentials.

And with this, we have no further questions. I would like to turn the call back to Mr. Felipe Bayón for final remarks.

Thank you, and thanks, everyone, for participating in the call. We appreciate, one, you following the company, your interest in the company, your deep understanding of the opportunities, some of the issues that we face. And we really appreciate your questions as well. 3Q was a very good Q for Ecopetrol. We continued to deliver on our strategy as we've shared that with the markets. We are now focused on continuing to have safe operations, reliable operations and operations that continue to produce value for shareholders. So once again, appreciate your participation. And hopefully, we can talk to yourselves in the very near future. Thank you, and have a great day.

Ladies and gentlemen, this concludes today's conference call. We thank you for participating. You may now disconnect.