Good morning, everyone, and welcome to Ecopetrol's earnings conference call and webcast in which we will discuss the main operational and financial results after of Ecopetrol for the fourth quarter and full year 2019. Before we begin, it is important to mention that the comments in this call by Ecopetrol senior management and 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 digital results are different from the projections shared on this conference call. The call will be led by Mr. Felipe Bayón, CEO of Ecopetrol and other participants include Alberto Consuegra, Executive Vice President; and Jaime Caballero, CFO. We will begin this presentation with the main achievements of the year 2019, followed by the business highlights and financial results under international Financial reporting standards. We will then close with the main targets of the 2020, 2022 plan in a Q&A session. I will now hand over the presentation to Ecopetrol's CEO, Felipe Bayón.

Juan Pablo, many tanks, welcome, everyone, to this conference call for the 2019 fourth quarter and full year results. I am pleased to share with you the outstanding operational and financial results for the Ecopetrol group. In the reserves and production side, we highlight our entry into the Midland and the Permian Basin in Texas through a joint venture with Occidental. In order to participate in the exploitation and production of unconventional reservoirs. This JV allowed us to incorporate 164 million barrels of reserves into 2019 numbers. Another important milestone was the acquisition of 30% of shelf stake in Gato do Mato discovery in the Santos Basin in the Brazilian pre-salt, where we expect to drill an appraisal well in 2020. Likewise, we highlight the successful drilling of the Esox-1 well in the Gulf of Mexico that is currently in production and the progress of the viability of the research pilot projects of unconventionals in Colombia, also known as [indiscernible]. We continue positioning Ecopetrol towards energy transition in 2 major fronts. The first one, by strengthening our presence in gas, the transition fuel we had two major achievements. The preliminary agreement between our subsidiary, Hocol and Chevron to acquire its stake in the Chuchupa and Ballena subject to approval of Colombian superintendents of industry and commerce. And the commercial agreement signed between Ecopetrol and Shell in the Colombian offshore gas province. We recently announced the creation of a vice presidency of gas led by a petroleum engineer women with more than 20 years of experience in our industry. The second front is our decarbonization plan. Having stated our target of reducing 20% of CO2 emissions by 2030, in line with our commitment to reduce the operations, vulnerability to climate change and contribute towards protecting the environment. Furthermore, in January 2020,…

Thank you, Felipe. I would like to begin by presenting our local and international exploration activity results, where we participated in 14 new areas, consolidating our strategy focused on the inclusion of assets through acquisitions, farmings and participation in exploratory rounds. Through the deployment of exploration activities, near 150 million barrels of oil equivalent were incorporated by these covered resources, contributing to the future increase of the group's reserves. The successful results of the exploration strategy in the near-field exploration areas allowed us to add through production extended test over $1 million of accumulative equivalent oil to Ecopetrol's production. We are currently assessing the commercial viability on the Jasper Andina and Cosecha discovery wells. Likewise, Wierenga 3, Flamingos 1 and Boranda wells are in appraisal phase, with the drilling of 4 appraisal wells foreseen for 2020. It is important to mention that the National hydrocarbon agency, assigned to the Ecopetrol group through its subsidiary, Hocol, 7 exploratory blocks as part of the permanent process of area allocation. Furthermore, Ecopetrol was awarded with 1 offshore block and 2 onshore blocks located in the Piedemonte area, which will strengthen Ecopetrol's presence in that area of the country. I also want to highlight the acquisition of 2,000 square kilometers of 3D deepwater marine seismic in the COL5 block. This information will allow Ecopetrol to expand and strengthen the exploration portfolio of the Southern Colombia Caribbean. Additionally, as part of the exploratory areas, license rounds in the United States, the MC-904 block located in the Mississippi Canyon area was allocated to Ecopetrol America. Let's move on with the next slide to discuss production results. The growth in the annual production is attributable to the positive results seen in the Akacias, Yarigi, Cono Sur and Chichimene fields as well as to an increase in the…

Thanks, Alberto. During the fourth quarter of 2019, Ecopetrol delivered stable financial results as compared to 2018, mainly due to an improvement in the crude and products basket spread, higher sales of crude oil and a greater devaluation of the exchange rate This, even with a lower Brent price at $7 per barrel. EBITDA margin stood at 38.6%, at the same level of the last quarter of 2018, mainly explained by the increase in revenues, which reached COP 18.6 trillion, the highest figure in the last 8 quarters. It is important to highlight that this quarter typically exhibits a high cost and expenses seasonality, which negatively impacts the EBITDA margin. Net income increased by 54%, and closed at COP 4 trillion, in line with a better EBITDA, savings in terms of financial expenses and a lower effective tax rate. Likewise, there are 3 nonrecurring events reflected in net income, which I will explain shortly in detail. Let's move on to the next slide to discuss 2019 full year results. During 2019, Ecopetrol delivered the best results for the last 6 years and reached a historic EBITDA record of COP 31.1 trillion. The result was obtained with a $7.50 per barrel decrease in the Brent price as compared to 2018 as well as a more challenging products price environment for the downstream during 2019 due to high products price volatility. Growth continued to be profitable, evidenced in a ROACE of 14.3%, higher than the 2019, 2021 target of a ROE greater than 11%. The main leverage ratio debt-to-EBITDA remained unchanged when compared to 2018, reaching 1.2x within the lower range of the target for 2019, 2021. A rollover of the 2020 debt maturities is expected in the amount of $434 million. And if the company's growth strategy requires the execution of…

Thank you, Jaime. For Ecopetrol, it is a top priority to continue advancing our ESG agenda. On the environmental front, decarbonization is one of our priorities. Between 2010, 2019, we reduced CO2 emissions in more than 6.6 million tons and endorse the climate and clean air coalition, which has provided a strategy for reducing fugitive emissions and faring aligned to international standards. With regards to the social front, we increased our investments to COP 245 billion in 2018. And now for the period of the 2020, 2022 years, we have increased our social and environmental investments to COP 1.7 trillion. On the governance front, we completed an orderly transition in our Board of Directors. We also created the Innovation and Technology Committee that reports to the board. This will help us further promote the progress towards digital transformation, as in prior years, we ratified the anti-corruption and transparency pact, which reaffirms our commitments to strict compliance with the code of ethics and business conduct. The company ethical principles, zero tolerance for corruption and the total willingness to support government initiatives on this matter. Please move on to the next slide to present the main objectives of our 2020, 2022 business plan. The 2020, 2022 business plan fixed for the company to continue its path of profitable and sustainable growth, focusing on activities in Colombia in a highly prospective international basins. Organic investments are estimated to reach between $13 billion and $17 billion. This plan maintains the focus on capital discipline, cash flow protection and cost efficiencies, which will generate a solid operation cash flow estimated to be between $21 billion and $22 billion and a ROCE greater than 11%, all this with Brent prices of $57 per barrel. The gross debt-to-EBITDA ratio will remain below 1.5%. The carbon footprint reduction…

[Operator Instructions]. And our first question comes from Daniel Guardiola from BTG Pactual.

So basically my questions are basically focused on better understanding the 2020, 2022 business plan. Okay. And my first question is regarding the expected production. I would like to know if you could share with us more details on what are the expected sources of growth that would allow the company to bring production up to 780,000 to 800,000 barrels per day by 2022? That'll be very good if you could provide some details on that expected growth. My second question is regarding also the business plan, where you basically mentioned that you're planning to install 300 megawatts of generation capacity, basically, renewable energy? And I would like to know what is the expected EBITDA or cost efficiencies related to this investment? Also regarding the same plan, I would like to know what portion of the expected CapEx is expected to be allocated into inorganic growth? And if you could provide more details on the M&A strategy of the company? And then last question, just very brief. And regarding -- taking into consideration to this plan is a 3-year plan, I would like to know if you have considered if -- have you ever considered to eventually mitigate the volatility of results by hedging a portion of your expected production in the future?

Felipe here. So in terms of the 2022 business plan, as you saw from the material, we've signaled a few things in terms of production growth, and I'll ask Alberto to comment a bit more in terms of the detail. But basically, what we're saying is we want to see our production -- basically moving from where we are today, if you think about where we ended up last year, 725,000 barrels to a range between 750,000 and 800,000 thousand barrels. So there's a significant increase in production levels. And it's a combination of things. So it's a combination of some of the fields that are coming back to Ecopetrol that are coming to Ecopetrol. So for example, we have -- this weekend, we will be receiving the operation of Florena and Pauto, what we call the Piedemonte assets. So that's an important source of additional production. So that's coming in. We also see, in particular, some new projects coming on stream, not only in the Piedemonte area, but in Cono Sur, Akacías in El Meta that will be coming in, some additional production coming on from Rubiales. And remember that, Daniel, we don't give specific guidance on a field basis. But I do want to provide a bit of color, additional color around some of these levels. Secondary and tertiary recovery continued to be fundamental to what we're doing. So a lot of investment going into that. There is a -- an addition, which is great, and we've given some guidance on that, which is the Permian JV, Rodeo JV, which will give us this year some 7,000 to 9,000 barrels, and we'll be increasing, increasing over the course of the next few years. You saw that or basically -- I'll share with you, we will be seeing some…

Daniel, so starting with the hedging point. In the business plan, we don't incorporate any specific assumption around hedge volumes. That's the first thing that I would say. So our business plan is produced under an assumption that we are capturing kind of market prices. And having said that, we are prepared to perform hedges where we think there's a business case. As Felipe discussed, we've done a number of tactical hedges over the last year that have worked very well, and we continue to monitor kind of fundamentals, if you will, to see if there's a case for a business case -- a case for hedging, strategic hedging. What I would say in that regard is that our biggest exposure, of course, is Brent followed by diesel. That's where we are focusing our attention. And probably thirdly, I'd say WTI, given our increased exposure to Permian volumes. That's where we're focusing our attention right now. Currently, we don't see a robust business case to perform any material hedging on any of the three to give you an indicative amount. Hedging 50% of our Brent exposure would cost us around $350 million, $380 million currently, and we believe that with our current plan and its resilience in the $50 to $60 kind of price range, there's not a clear business case to do that. We continue to monitor this. It could change in time, but that's where we are right now. Lastly, I would like to refer briefly to the -- to your question around CapEx. And I would just like to confirm that in the $13 billion to $17 billion range that we provide for CapEx execution going to 2022, there is no inorganic CapEx assumption. So the totality of that range is organic, right? It's underpinned by our existing plans. The way that we think about inorganic, from our financial standpoint, is that we have extra capacity, given our cash generation and given our current gearing ratio, to fund transactions that could go anywhere between $2 billion to $4 billion, if there was a solid case to do so. That is not included in the business plan at this stage simply because we are not committing to specific M&A transactions. We look at those on a case-by-case basis and always with a view of ensuring value accretion as we did last year.

Our following question comes from Pavel Molchanov from Raymond James.

This is Muhammed Ghulam from on behalf of Pavel Molchanov. So you guys have mentioned that there is regulatory approval from the Council of State to begin some small-scale shale activity. Are you concerned that this -- are you concerned about the risk that this activity will create more tension with the public and perhaps more social disruptions, even beyond what you guys have experienced in recent years?

That's it, Mohammed? Do you have any other questions? Do you want to put them to us and then we'll take them? Or...

Yes, sure. And the other one on the offshore partnership with Shell. What would you need to see before approving development of any of the offshore discoveries? Is it a matter of just higher prices or is there something else?

Okay. Good. So Muhammed, thanks for being here. Thanks for being in the call. So I think it's good to provide a bit of context around the unconventional development in Colombia. So the first thing is that efforts to develop the unconventional resources or potential that we think or in our view, exist in-country, have been going on for more than 10 years. So there is a lot of, in this sense, work that has been done, lots of discussions that have happened in support of doing a potential development for unconventionals in-country. So the second thing of context is that the government issued a strategy in which there is something called proyectos piloto investigación integral. So these are pilot projects of comprehensive investigation. And I'm sort of liberally translating a bit the meaning in Spanish. And this recommendation to do the initial approach to the assessment on the potential and the feasibility from a socio-environmental point of view is the result of a commission of experts that was appointed by government, a lot of them from social sciences, from environmental sciences that did some work almost a year ago. So this group of experts, 13, some of them international experts, basically came out with a recommendation that said the right way to do this and to assess from a scientific point of view, the feasibility of doing unconventionals in Colombia is through these pilot projects. So that's where we are. And following that, there were some demands, legal demands against unconventional development in Colombia and the Council of State or Consejo de Estado, which is the highest administrative court in country, ruled out that said, yes, we cannot do full-scale or full-blown unconventional development in-country, but you know what, we can do the pilot projects. So that's where we…

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

Two questions, if I could. One, just in terms of diluent. I was just wondering how low you think the usage can get if you have substantial or material downside from where you are today? And secondly, in terms of the tax rate in the fourth quarter, I know there was a lot going on in the quarter. But -- and a lot of adjustments related to the write-off and the acquisition and such. But just -- what drove the tax rate to be positive?

Frank, thanks for the question. In terms of diluents, what we are seeing starting in 2019 is a reduction in terms of the dilution factor. We went from 4.8% to 4.2%. And what we are seeing in the future starting in 2020 is new projects being implemented in terms of co-dilution using LPGs instead of naphtha and then also implementing some heating projects in the Ocensa pipeline. So at the end, by 2021, we are expecting to see a dilution factor under 4%.

Frank, this is Jaime. I'm going to talk briefly about the tax effect -- the effective tax rate. I think there's two angles on it. There's a full year angle, and there's the 4Q angle. When you look at it from a 4Q perspective, if you're trying to compare 4Q 2018 versus 4Q 2019, you did have a number of extraordinary items. 4Q 2018, the tax effective -- the effective tax rate was 28.4%. We actually ended up in 4Q '19 with a negative effective tax rate of minus 20%. The bulk of that is the deferred tax rate that we introduced for the U.S. business on occasion of the Permian transaction. That's about -- that has an impact of about 41%. There's also another impact associated to recognizing the fair value of Invercolsa, which is the distribution -- the gas distribution business that we're now treating as a subsidiary within our financial statements. Those are the 2 big items. When you look at it from a full year standpoint, we go from an effective tax rate of 36.9% in 2018 to 24.1% for 2019 on a full year basis. And the way to bridge that movement, you would have the activation of the deferred tax in the U.S. representing about 9% of the delta. You have a 4% associated to the reduction in the nominal tax rate here in Colombia due to the financing law. You have about 2% related to the recognition of Invercolsa's fair value and you have another about 10% associated to stronger results in Reficar, but you may recall that because Reficar has an advantaged tax structure, it actually helps and contributes to the tax effective rate -- to the effective tax rate of the group to the extent that it has better results. Those are kind of like the big 4 components of the bridge.

The following question comes from Julia Park from UBS.

I have two questions here. First is in terms of capital allocation. We see the company with a solid cash position but with a strong CapEx guidance for 2020, a 53% increase from 2019. How can I see dividends going forward? Also in terms of reserves growth going forward, most of the investments are placed in Colombia. However, we're wondering if we could expect significant increases coming from inorganic growth. Also, will the company be able to replace 100% of its production through organic growth? And the second question is in the downstream segment. Last year, we have seen use of the government trying to lower the deficit in the fuel stabilization fund. While we haven't seen any recent news on that, we think this is a potential risk for the refining margins. How do you see this matter going forward? I mean, how could the government lower the deficits of the fund without hurting produces margins? Do you think changing the price policy from the export parity to import parity would be a potential solution?

Thanks, Julia. I'll take the first one and then I'll ask Tomás and Jaime to comment on the second one. So the first thing I'll start with is some of the things that we did last year or the things that we did last year that were inorganic. So the Rodeo JV in the Permian and some of the things that we did in Brazil to enter the Pre-Salt will now be treated as organic. So I think that's the first thing. So some of those efforts that we did inorganically will become organic as we move forward. If you think about forward CapEx and bear in mind, we've done everything at $57 per barrel, but we need to be cognizant and acknowledge the uncertainty. I don't think it's still to a massive volatility, but clearly, uncertainty that we're seeing in the last few days around prices, and we'll see where we end up. But at $57, we've poured into the plan, the 2020, 2022 plan some $14 billion -- or $13 billion to $17 billion. All of that's organic. So I just want to highlight that and $10 billion to $13 billion will be invested in-country, in Colombia, and $3 billion to $4 billion will be in the U.S. So that's basically the split in terms of how we see the CapEx. In terms of the dividend going forward, which is the other bit in your question, we have an existing dividend policy that basically talks about distributing 40% and 60% of the adjusted net income of the company in a specific fiscal year. But I'd like to add a bit of color here to some of the questions that we've heard before, even in the prior call. So in order for us to move forward with a recommendation…

Julia, just to add a bit of color to the frame that Felipe has provided. Clearly, any change associated to formulas or at least that the changes that have been discussed with the government and that the government has shared with us that they're contemplating, are changes that have a positive impact on our business. Basically, the 2 -- the proposals that are being discussed. There's one associated to moving to flat pricing in products like diesel and jet. There is another proposal around moving to import parity around gasoline. In both cases, they actually improve the remuneration that is recognized to the producer. There are no scenarios contemplated at this stage that actually affect negatively the compensation that is provided to producers. So this would be an upside to our business plan. Directionally, and I would like to emphasize the word directional, the relative impact that this could have on our margins could be between $1 and $1.50 per barrel, depending on the product, and depending on the formula and how that formula is designed. So -- and obviously, to the extent that this occurs, in time, this will certainly -- probably enable further investments in the downstream segment. And for sure, and I think this is the [indiscernible] but the primary motivation that the government has on this, it would also stimulate competition, particularly in certain geographical areas where there are supply challenges.

Our next question comes from Camilo Roldan Davivienda Corredores.

Just one question. Regarding the imports of oil and products, basically, knowing that in 2019, it was a typical year where we saw that an increase of these imports due to the refineries maintenance. And for the 2020, are we expecting to continue having the same behavior that we saw in the third and the fourth quarter? Or are we expecting to increase due to, as you mentioned, in the Spanish conference that we are going to have a small stop in one of the refineries?

Thank you, Camilo. Yes, as we mentioned, I'll expand a little bit on what we talked about in the Spanish call, yes. We were impacted in 2019 by 2 major turnarounds that we had in refining. We had -- in each refinery, we had a major turnaround in hydrocracking in Cartagena and diesel hydrotreater in Barrancabermeja. These were all diesel -- the major diesel producers in the country and obviously would have an impact on the import balance. Looking ahead to 2020, as you know, we have plans for first quarter and fourth quarter turnarounds, which is normal in refining. We have a, as I mentioned in the Spanish call, we have a diesel hydrotreater turnaround going on in the first quarter -- that will be going on in the first quarter, that will have the an impact slightly on that import balance. But it's all being done in preparation for the fuel quality improvements that we're looking at for end of year and continuing with that fuel quality improvements in line with discussions with the government. So we're pretty much have a standard turnaround schedule for 2020. We have a cluster turnaround in the fourth quarter that's not related to diesel, and we do have an impact in the first quarter of this year due to some turnarounds that we have. Probably a good time to mention that we have -- in the first quarter, we have had an outage in one of our hydrogen plants that has impacted diesel production in the first quarter as well because we've had to have our hydrocracker down. So basically, hydrogen is a critical input, obviously, to hydrocracking, and we had a downtime in one. So we're mentioning that, that this will be an impact in the first quarter that will impact diesel. But it's not related to a major turnaround in Cartagena. It's related to another plant that went out and is having an effect on the hydrocracker.

Our following question comes from Juan Pablo Diaz from Porvenir.

I have two questions. My first question is regarding the differential in the crude basket. After the reduction shown in 2019, what do you expect the evolution of this differential to be throughout this year? And what would be the strategy to maintain or reduce it? And my second question is regarding the EBITDA margin, which has been showing increases in the last 3 years. And in last year, it presented a reduction. How do you expect it to show growth again, if you do, with new strategies to implement new efficiencies or improve existing ones and considering that enhanced recovery expenses will continue to be present?

Juan Pablo, yes, I'll take the first one, and I'll ask Jaime to talk about the second one. So I think it's always important to remember, in last year, as we reported, we had the record of in terms of the lowest differential for our crude basket. So it's important to remember that we have positioned ourselves as a reliable source of heavy crudes in terms of, obviously, the volumes, the quality and the timing of how we actually provide these crudes to the market. We have adjusted in line with strategy. We have adjusted the destinations of some of those crudes. So in average, last year, I think it was 48% of our crudes went to Asia. And over the last 3 months of the year, it was 53%, 54%. So we've been very good at very quickly adjusting. Having said all of that, and especially in light of what's going on with the coronavirus, there's already a reduction in some of the runs of refineries in China, particularly. But again, this is something we'll need to monitor. We'll need to understand where it's going to go, potential impacts. I was mentioning earlier in one of the other questions that as I was building on what was -- I was saying that we are a reliable source of crudes. Our crudes have become part of the base runs in the refineries. So even though refineries in China have reduced their runs, we have not seen an impact in our exports. We have direct relationship with those buyers with the refineries themselves, and we will continue to strengthen and work through that relationship. But I think it's early days. I think that the world's just every day and every hour sort of getting a lot more information awareness of what's going on, how this eventually will spread? How deep geographically and where and what's the impact? So we'll keep our radar sweeping. We'll ensure that we are quick to react. But I just wanted to say and that's why we're not providing any guidance, directionally, I think the spreads will soften, the differentials will grow a bit. But we see ourselves as an advantaged supplier of heavy crudes, in particular to that part of the world. Jaime, if you can take the second one.

Juan Pablo, yes, effectively, EBITDA margin dropped slightly, probably year-on-year. We did have a drop of around 1.5% when you compare both years. There are 5 factors that explain that drop in the percentage margin. The first factor is that -- is actually when you see a bit the composition of the incremental production that we're bringing online, as you know, we are growing production in the E&P segment. However, the makeup of the field is changing in time. And those fields at times have either different royalty regimes, in some cases, and in other cases, they actually have different margins associated to their operation. As that mix is changing in time, it is having some effect in the relative margins of the incremental barrels that are added. I'm going to go in a minute, how do we see that going forward to 2022? The second point that affected EBITDA margin last year was around the diesel imports that we made. I think Tomás has explained that in a lot of detail today. It's due to program maintenances that we performed last year and that's something that we don't see as something that will sustain over time. What occurs there is to the extent that we are importing diesel as opposed to using ours, it weakens the relative margins that we see around that. And it increases costs, variable costs, in particular. The third component that affected EBITDA margin was, I would say, generally, the difficult environment experience in the downstream. As you know, particularly the second half of the year saw weakened differentials around gasoline and naphtha, in particular, and a bit of fuel oil, and that is reflected there, too. Those -- I think those three components are the biggest contributors to that. There are two other specific…

This concludes today's Q&A session. I will now turn the call over to Mr. Felipe Bayón for final remarks.

Well again, thanks, everyone, for participating today in this conference call for 4Q and 2019. We are very pleased with the results that we've provided the market. I'd like to take the opportunity to thank the 13,000 direct employees that work in the group, say, everybody that helps us through the contracting side of things. In particular, I want to thank you for being on the call, for your questions, for following on Ecopetrol, and providing feedback that helps us better communicate, better improve how we actually relate to yourselves, understanding what are the points of interest and some of the things that we need to further do deep dives and provide more color around. So thanks again for being on the call. We're very pleased with the close of the year and we're also satisfied that we could provide guidance and a frame for the 2020, 2022 business plan. Thanks and have a great day.

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