Good morning. My name is Hilda and I will be your operator today. Welcome to the Ecopetrol Group 2nd Investor Day. Today, we will discuss the financial and operational results for the second quarter of 2020 and the 2020 and 2022 business plan update. All lines have been muted. There will be a Q&A session at the end of the presentation. Before we begin, it is important to mention that the comments in this call by Ecopetrol’s senior management include projections of the company’s future performance. These projections do not constitute any commitment as to future results, nor do they take into account risks or uncertainties that could materialize. As a result, Ecopetrol assumes no responsibility in the event future results are different from the projections shared in this conference call. The call will be led by Mr. Felipe Bayón, CEO of Ecopetrol, Alberto Consuegra, COO, and Jaime Caballero, CFO. Thank you for your attention. Mr. Bayón, you may begin your conference.

Good morning everyone. And thank you for joining us during the 2nd Ecopetrol Investor Day 2020, where we will discuss operating and financial results for the second quarter of the year and the 2020, 2022 business plan update. On behalf of Ecopetrol, I hope you and your families are keeping safe during this very difficult time. We reiterate our gratitude for your participation in this conference call and your permanent support in other events hosted by the company, especially under the current circumstances. First of all, I would like to highlight that the life and wellbeing of our employees remain our main priority to cope with the current challenges caused by this pandemic. Currently, about 80% of our employees continue to work remotely thanks to our digital transformation. In order to ensure the wellbeing of our employees and their families, we have decided to maintain the remote working scheme for the rest of 2020, for those employees whose tasks allow. For 2021, we will continue to assess a progressive and safe return of these employees to the workplace. Since March, as part of our contingency plans, we adjusted our operations by reducing our drilling and projects workforce in Colombia from about 300 during the first quarter of the year to 50 work spreads in April. By the end of June, thanks to a progressive increase in activity levels, about 200 workers were active. Activity will continue to increase as we confirm favorable and safe conditions to operate. As part of our commitment to the communities where we operate, we have already announced daily COP8 billion in social investments through our social investment program named Apoyo País with COVID-19 emergency. This program is mainly focused on the delivery of food kits, biosafety elements, medical equipment, strengthening the health system in the country, support technological initiatives, and solidarity with those families who most need it in 21 departments where we operate. This has been possible thanks to strategic alliances with different entities. Please let’s move on to the next slide to discuss market conditions. In line with the guidance we provided in our previous earnings conference call, the second quarter has been the most challenging period of the current crisis, with a reduction of 38% in Brent prices as compared to 2019 year-end. In April, prices reached their lowest level, decreasing 71%. Local demand for our main products such as gasoline, diesel, and jet fuel had a steep drop mainly during April and May. Since June, we have seen a gradual recovery related to the easing of lockdown restrictions. The crude oil basket reported a significant decline during the first semester, reaching $29.8 per barrel, compared to $59.8 per barrel in the same period of 2019. Despite the unprecedented contraction in demand, our commercial strategy successfully positioned our groups in the market and we were able to protect all the production that was profitable. Let's move on to the next slide for a summary of our second quarter results. Despite the gradual improvement in oil prices and local demand for production since mid-May, our operating and financial results were strongly impacted, in line with the negative performance of the global economy and the industry. During the second quarter, Ecopetrol’s Groups production was 677,000 barrels of oil equivalent per day, at the high end of the range announced in the first quarter. This lower production combined with the negative impact of oil prices resulted in a 54% decrease in revenues compared to the same quarter of 2019. Despite the exceptional environmental conditions, the Ecopetrol Group reached an EBITDA of COP2 trillion and a net income of COP25 billion during this quarter. I now give the floor to Alberto Consuegra, who will provide further details of our operational results for the semester.

Thanks, Felipe. On exploration, we completed the drilling of seven wells during the first half of the year, highlighting the successful completion of the Gato do Mato-4. Hocol announced the successful discovery of gas in the Merecumbé-1 well in the Colombian department of Atlántico in July. Additionally, I would like to mention the official approval granted on June 12 by the Brazilian Ministry of Mines and the National Petroleum Agency to Ecopetrol’s 30% interest in the Gato do Mato discovery. On production, despite the volatility in the price of crude and the impact of the pandemic and public order events, we reached 706,000 barrels of oil equivalent per day during the first half of the year. Drilling campaigns were impacted, so that we completed 148 wells during the first half of the year, in contrast to the 311 drilled and completed in the first semester of 2019. The key milestones were the closing of the acquisition by Hocol or 43% of the offshore gas assets in our offshore well, the entry into production of 18 wells in May in the Permian Basin, as well as the upturn of 11,000 barrels of oil equivalent per day in June, which were closed due to sustainability criteria in our Colombian fields. Our current production remains profitable at less than $30 per barrel. Gas remains as a strategic pillar in our energy transition strategy, as well as in our production portfolio. During the quarter, we provided financial relief to end users in the amount of COP160 billion. Additionally, we rapidly reacted to lower demand and the country's energy requirements in order to supply the thermal power sector. With regards to the midstream segment, the transport of crude and refined products decreased, reflecting the effect of lower local production. Midstream companies offered commercial reliefs such as discounts and financing of the transport tariffs for up to six months, and in certain cases, the volume requirements on the ship-or-pay contracts were made more flexible. In the downstream segment, results were affected by the contraction of both domestic and international demand for their main products. Our refineries have been adapting their operational schemes by implementing measures such as adjustments in throughputs and maintenance rescheduling in order to guarantee the integrity and reliability of our operations. Our refineries reached a joint throughput of 255,000 barrels per day during the first quarter and 300,000 barrels per day during the first half of the year, with a growing trend since April's operating minimums. The gross refining margin reached $6.2 per barrel during the quarter; however, we have seen a gradual recovery in demand and margins since mid-May. On the petrochemical side, Esenttia continues to deliver excellent financial and operational performance. Additionally, due to partnerships with companies both from our group and the National plastic industry, it has led initiatives to provide protective equipment during the pandemic. These results were feasible thanks to a proactive commercial strategy that enabled production above the minimum operating buyout of our refineries through agreements with new clients and anticipated sales of crudes and product surpluses within international markets. Let's continue to the next slide to discuss our progress in terms of efficiencies. We have reacted appropriately to reduce costs and expenses to confront this new environment through the capture of significant savings and activity results. The results of these measures were reflected during the second quarter, with May and June being the months with the highest efficiencies. The lifting cost was $7.1 per barrel during the first half of the year, with efforts focused on renegotiation, infrastructure optimization, energy matrix and exchange rate impacts. The cost per transported barrel was $3 during the first half of the year, slightly lower compared to the same period in 2019 mainly due to the optimization of contracts, prioritization of activities and exchange rate effect. The average purchase tariff of the non-regulated energy portfolio was 29% below the market price as a result of the incorporation of bilateral contracts and self-generation optimization during the first half of the year. I now give the floor to Jaime Caballero, who will share the group's main financial results.

Thanks Alberto. The EBITDA margin stood at 31% mainly due to the price juncture and the effects of declining demand. The EBITDA per barrel was $15.3 and was adversely affected by decreasing sale volumes partially offset by lower prices and purchase volumes. Despite the challenging market and operating conditions, production only decreased 3% compared to the first half of 2019. The cash breakeven dropped to $19.9 per barrel, taking into account financing raised during the semester, which increased gross debt to EBITDA ratio to 2.4 times. CapEx remains steady compared to the first half of 2019. 68% of investments were allocated to growth projects within the E&P segment. During the first half of 2020, net income decreased versus 2019, mainly due to a negative impact of COP5.95 trillion from the effect of lower prices. Secondly, a negative variation of COP3 trillion was primarily driven by inventory fluctuations and higher operational expenses that were partially offset by lower costs as a result of austerity measures implemented and the refacing of activities due to diminished operation levels. Financial expenses increased by COP490 billion due to the increase in debt levels and peso devaluation. Tax provisions in 2020 were COP3.1 trillion less than in 2019, prior to non-recurring events. Income before impairment and non-recurring events reached COP80 billion. Non-recurring events for the first half of 2020 represented a positive effect of COP1 trillion. It is important to highlight the income from business combination arising from the acquisition of offshore gases in Brazil, partially offset by the voluntary retirement plan that was initially accepted by 122 employees and the contributions to support the communities during the pandemic. Net income for the first half of 2020 after the impairment of long-term assets recognized during the first quarter amounted to COP158 billion. I will hand over now to Felipe Bayón, who will present the business plan update.

Thank you Jaime. We managed to reassess the business plan that was initially announced to the markets in February, seeking to respond to the new market conditions and the impact of the COVID-19 global pandemic. We have strengthened our street capital discipline, cash protection, and cost efficiency pillars, with no criteria for portfolio opportunities valuation, focus on profitable projects, focus optimization initiatives throughout the company and disciplined debt management. We maintain our strategic commitments to protect our production and reserves, such as all the exploratory activities, increased production within existing fields, development of the comprehensive research pilot projects for unconventional reservoirs in Colombia and the international investments that are strategic to the group. We reaffirm our commitment to making progress on the energy transition, growing our share of returns of gas, and increasing renewable energy in our energy matrix, supported by fundamental enablers, such as social and environmental investments, as well as technology. Let's now move on to the next slide to dig into each of the segments. The upstream remains a key pillar of the Ecopetrol Group. In exploration, we plan to drill more than 30 wells within high materiality basins, mainly in Colombia. Likewise, we will continue the assessment and development of the offshore gas discoveries in the Colombian Caribbean, with investments that we estimate to be around $180 million between 2020 and 2022. In production, we will leverage the production increasing in existing fields to enhance recovery projects. We will also continue to focus on building a portfolio that allows us to preserve our reserves while already taking our positions in any strategic assets. 78% of the investments will be allocated to Colombia, with the remaining 22% to the positioning and development of our international operations, mainly in Brazil and the U.S. Let's move on to the next slide. It is a priority to continue leveraging the future growth of reserves within the Ecopetrol Group. To do so, we have maintained our investments in order to build a strategic portfolio with significant contributions towards ensuring production and research. Among our main projects, I want to highlight the development of the Piedemonte gas trend, drilling activities in Rubiales and in Caño Sur fields in Colombia, and the development of the Gato do Mato discovery in Brazil and the Permian in the U.S. Our enhanced recovery programs remain an essential source to increase reserves and production, supporting a large part of our growth and value generation strategy. I would like to mention water injection projects in the middle Magdalena Valley and the fields in the surrounding areas. Let's now move on to the next slide. In gas, we maintain our investment commitment of about $780 million, with a potential upside of $870 million. That will enable us to grow to new demand, participate in new segments, and be part of the full energy chain integration. Leveraging our competitiveness in pricing, we seek to maximize our efficiency and diversify while accelerating the time to market of gas and LPG. We will focus our efforts on the development of offshore gas discoveries in the Caribbean, the development of the Piedemonte gas trend, and other onshore gas sources mainly in the middle Magdalena Valley and the Sinú-San Jacinto basin. Let's move on to the next slide. We will continue to mature our short-cycle assets. Regarding the development of the comprehensive research pilot projects for unconventional reservoirs, the Ministry of Mines and Energy published the corresponding technical regulation on July 7th. In the coming months, we expect the government to issue the environmental, civil, and contractual regulations that will complete the regulatory framework and allow us to move forward with all the funding activities. We will invest around $127 million and continue defining the preliminary agreement that we announced with Exxon recently, in order to work jointly on those pilots in the middle Magdalena Valley. Regarding our activities in the Permian Basin in Texas, as a result of the recovery of prices, along with our partner Oxy, we have decided to increase operations during the second half of 2020 and start drilling an additional 22 wells. These new wells will add to the 22 wells already producing, which were completed earlier in the year. We estimate that average net production for Ecopetrol will reach 5,500 barrels of oil equivalent per day by the end of 2020, higher than the 4,000 to 5,000 barrels of oil per day announced in the first quarter of the year. Let's move on to the next slide. With regards to the midstream segment, our efforts will focus on ensuring the integrity and reliability of our infrastructure, while simultaneously guaranteeing logistical flexibility and efficiency in the transport of heavy crudes. To this end, we will invest around $780 million to $830 million in maintenance, geotechnics, tank integrity, and operational storage of refined products. We expect that the transported volumes will remain stable during the next few years, ranging from 1.0 to 1.025 million barrels per day, in line with the country's production forecast. Let's move on to the next slide. In the downstream segment, we will allocate between $1.2 billion and $1.3 billion to secure the reliability and sustainability of our operations while generating greater value for the segment. The total refining throughput will be expected to range from 300,000 to 380,000 barrels per day. As for growth opportunities, we have maintained in our plan the investment to interconnect the original crude unit in Cartagena refinery. We have now postponed the first operation and production to 2022, due to the new operational protocols implemented as a result of the pandemic. We are committed to delivering cleaner fuels to the country, prioritizing a plan that maintains diesel quality at low levels of between 10 and 15 parts per million of sulfur and a maximum of 50 parts per million of sulfur for gasoline by 2021. Let's move on to the next slide to discuss further details on the investment plan.

Organic investments for the planned period will be in the range between $11 billion and $13 billion, out of which $3 billion to $3.4 billion will be executed in the current year 2020. Most of the investment will go to the E&P segment. 80% of the investment will be in Colombia, and 20% mainly in Brazil and the U.S. Let’s now move on to the next slide to discuss the cash situation. We will concentrate on generating growing operational revenues adding to more than $11 billion by 2022. Some $4.5 billion of incremental debt are also incorporated into the plan. This already includes the successful financing achieved in 2020. The gross debt-to-EBITDA ratio for 2020 will be close to three and a half times, and we'll have a downward trend to two and a half times in 2022. Let's now move on to the next slide. During 2020, we have captured more than COP3.5 trillion in savings due to growing synergies among the segments, as well as austerity and efficiency measures in each of our activities. Over the next few years, we will pursue some additional savings between COP2.5 trillion and COP3 trillion. Our main challenge will be the total unit cost, but our focus will be on its stability, and even its reduction. To this end, we have formulated aggressive strategies to maximize the value of our existing assets, ensuring safe, reliable, and efficient operations. Let's move on to the next slide to discuss our main targets on TESG. Our commitment to technology, the environment, social and governance (TESG) remains resolute, and we are working mainly around four aspects. In the environmental front, our main goal is to achieve a 20% reduction in greenhouse gas emissions by 2030, emphasizing the capture and reduction of CO2, increasing energy efficiency, and growing our capacity in renewable energy. We will continue working to reduce routine flaring and fugitive emissions and venting. In the social front, around COP1.7 trillion will be allocated by 2024 in social and environmental investments, focusing mainly on closing the social gas gap and promoting the development and wellbeing of the communities in those areas where we operate. The projects in these areas are mainly around infrastructure, services, education, sports, and healthcare, as well as the encouragement of rural development, entrepreneurship, and business development. In terms of governance, we remain determined to improve our information disclosure standards by prioritizing relevant company matters, such as re-entry to the DGSI or Dow Jones Sustainability Index, and fulfilling the projects defined by the Carbon Disclosure Project. To boost our digital transformation, we’ll allocate nearly $158 million towards capturing expected returns related mainly to artificial intelligence, blockchain, and bots, amongst others. Let's now move on to the next slide to outline the plan targets. In addition to the objectives mentioned throughout the presentation, I want to highlight our financial front of having a cash breakeven below $30 per barrel in 2020, and less than $40 per barrel by 2022. The reserve replacement targets are under evaluation and will be subject mainly to the evolution of the planetary situation and the market conditions. On the other hand, aligned with our commitment to maintaining a low carbon operation, we estimate a reduction of some 1.8 million tonnes to 2 million tonnes of CO2 by 2022 according to the target set in the prior plan. Let's move on to the next slide for our final remarks. During the first half of the year, as the rest of the companies worldwide, we have faced tough market conditions that have required swift and timely decisions. We implemented a package of measures focused on optimizing our investment plan and reducing costs and expenses. Seeking rapid adjustments to new market conditions, while ensuring the long-term value and sustainability of the country. We updated our main operational, financial, and key ESG metrics for our 2020, 2022 business plan, which protects the main pillars of our corporate strategy, guaranteeing group sustainability and ratifying our commitment to the energy transition. Thank you again for joining us in the second investor day of the year. We fully appreciate your continued interest and support in the company despite the very difficult current circumstances. Now, I would like to open the floor to Q&A.

Thank you. We have a question from Frank McGann from Bank of America. Please go ahead.

Okay, thank you very much. I was wondering if perhaps you could provide just a little bit more detail on the cash breakeven that you mentioned. What drives the increase from the below $30 this year to the higher range that you're using for the plan? Secondly, in terms of natural gas, how big do you see that getting in terms of as a portion of production over the plan period? And perhaps longer term, what do you see as the possible upside there and as a percentage of EBITDA? And then third, just on renewables, clearly that has been, it's becoming a bigger focus how much upside is there beyond what you have in the current plan if you wanted to become more aggressive in renewable investments? Thank you.

Thanks, Frank, and good morning. Thanks for being here. I'll start with the last one on renewables and then I'll ask Jaime to talk about the cash breakeven and Alberto to talk about the natural gas. So in terms of renewables, what we've said, Frank, is that we want to be in a place by 2022. We'll have 300 megawatts of power generation capacity, that will be used for our own operations. So right now, we have 21 megawatts of our first solar plant. It's been working since October of last year. On both sides of reducing emissions, we're very pleased with that, but also in terms of the economics of the plant, eventually the savings could be at around $1 million per year. So from that point of view, we're very happy with our first entry into using renewables. And as people ask me, so you're using solar energy to produce oil and gas? And the answer is absolutely, yes. We can combine both things and they actually coexist. We're currently in the middle of looking at the second project, which would be around 50 megawatts, and you should be hearing from that soon. We're very enthused with that because if that comes through, it would be the largest solar park for self-generating power in Colombia. We already have many projects in the pipeline, both solar and wind. Jaime, why don't you go ahead and take the breakeven one and then Alberto.

Thanks, Frank. Thanks for your question. So regarding cash breakeven, firstly, I'd start with a couple of brief definitions. The cash breakeven that we refer to both in the KPIs and the plan metrics refers to the all-in price that we need in order to sustain our minimum level of cash. What I mean by the minimum level of cash is according to our analysis of our treasury position and the liquidity that we need. We are ensuring a level that gives us confidence that we can respond to volatility and unexpected conditions; that level currently is somewhere around $800 million at a group level. The other component of this is that typically when we refer to this, we refer to it in the context of annual targets. So, we expect to be under $30 in 2020, and we expect to be in the range of $30 to $40 throughout the plan duration.

Jaime. I think we may have lost Jaime. Alberto, why don't you take the question on natural gas and we will allow Jaime to come back.

Again, going back to the definitions that we see over.

Sorry. Hello.

Lost you for a minute.

Okay, you lost me there. I was explaining that we have growth in that metric from 2020 to 2022 to the next year's in the plan, basically because we have incremental CapEx over the next couple of years. So, CapEx is going to grow in 2021 and 2022. That has an effect on the metric. We also have debt payments through that period. The relative impact from the initial cash position and the financing flow on the metric is reduced in 2021 and 2022. So basically, those are the components of cash breakeven evolution.

Frank, good morning. With regards to gas, gas is indeed absolutely strategic in our agenda. We see gas as the hydrocarbon for energy transition. Right now, in our plan, for 2020 to 2022, gas would represent about 17% of the production share. We’ll see a slight increase in terms of volume from production in 2020 about 120 MMBtu equivalent, going to 135 in 2022. But when you see our strategy, we want gas to represent about 30% to 35%. We will be investing a lot in terms of exploration to ensure that volumes will begin to increase at the expected pace between the period of 2024 to 2030. So gas, in terms of EBITDA when you compare it to our numbers in 2019, it represented about 11% of the upstream EBITDA. However, during the period of April to June this year, it represented about 53% of the EBITDA. So EBITDA will be dependent on oil price behavior, but in the long term we see that gas could represent a very high portion of our upstream EBITDA.

Okay, thank you very much.

Thank you. Our next question comes from Barbara Halberstadt from JPMorgan.

Hi, good morning. So I had like two questions regarding your presentation, the indications for operating cash flow. Considering what's the CapEx plan, it suggests that we might see negative free cash flow for the next year. I just wanted to confirm that and if you could provide additional color from that perspective. On a second point on working capital, like this quarter, you had a build-up in inventory. I just wanted to confirm if we could expect a reversion towards the end of the year? Thank you.

Thanks for the question. Thanks for being here. I’ll ask Jaime to take both your questions.

Thank you, Barbara. Thanks for the question. Regarding cash flow, there are two components. First, where we stand here mid-year. We have seen positive operating cash flow from the business over the first half of the year, but indeed, we have seen negative free cash flow that extends beyond the operational cash flow and includes the CapEx outflows. That's been an outcome associated to the market conditions we had, particularly during the second quarter, and also the delayed effect of the cost optimization measures that we have been taking. By that I mean that we enacted an intervention plan by the end of March and early April, and the full results of that are weighted toward the second half of the year. The outlook that we see for the second half of the year is positive operational cash flow, and free cash flow is actually projected to be positive both in Q3 and Q4. For 2021 and 2022, we will continue that trend. This is highly linked to market conditions that we have, as you know, we have some price assumptions in this plan, going from $38 average this year to $45 next year on to $50 the year after that. It's also linked to the success we have with our cost optimization measures. That's the overall picture with regards to cash. Regarding your second question about inventories, let me set that baseline. We had some movements in inventory around the second quarter. The context for this is that in late Q1, we did make a significant provision around inventory devaluation associated with the drop in prices we were seeing. From an accounting standpoint, we were recognizing in our financial statements that the value of that inventory would likely decrease over time. What we've seen is that with the uptick in prices, we have recovered a significant amount of that. I would say we still have about COP120 billion in accounting provision associated with that. We expect to recover a significant amount; possibly somewhere between COP70 billion to COP90 billion of that 120 should be recovered over the next six months. I hope this answers your questions. Thank you, Barbara.

Thank you.

The next question comes from Picardo from JPMorgan.

Hi Felipe, Jaime, Alberto. Thanks for taking the question. I hope everything is well with you and your families. So a couple of questions on my side. First one is on lifting costs. If you look at the numbers that you guys reported on the second quarter, they were much lower than what you were running before around $6 per barrel. So is that a normalized level going forward? Should we expect some kind of normalization from those $6 per barrel? The second question would be on the realized prices. I know that you were still only a month in on the third quarter, but if you could give us some color on how you're selling and marketing your crude? Should we see a discount narrowing in the third quarter and the fourth quarter compared to what you had in the second quarter? That would be great. Thank you.

Picardo, thanks. I'll ask Alberto to take the first one, and give us his view on forward trends and how we see lifting costs moving on. In terms of the second question, I’ll ask Jaime to provide a bit more color, but I'd like to give you the sense that we are seeing coupled with the increase in the brand we have, as you mentioned, a strengthening of the differentials, and they're looking better, even though we are only beginning or in the middle of Q3.

Thank you, Ricardo. Good morning and I appreciate your question. Our estimate is that lifting costs will be around $7 per barrel by year-end. In fact, we managed to reduce lifting costs to $6. We experienced a significant decrease in activity due to the combined impact of the pandemic and oil prices, which necessitated minimizing operations, postponing well work and surface maintenance, halting production, optimizing energy costs, and adjusting service contracts. Moving forward, we expect lifting costs to rise, as we will need to restore production and resume well and facilities maintenance. However, with the interventions and optimizations we are implementing across several areas, including energy type optimization and contract services, particularly for well work and water treatment, along with the anticipated benefits from our digital projects, we expect lifting costs to increase to a range of $7 to $9 during this period, with hopes of being closer to the lower end of that range.

Thank you, Alberto. And Carlos, thank you for the question. Let me take the one on marketing the crudes and realized price both for this quarter. Our commercial strategy has been very successful at meeting sales and focusing on our long-term customers and market diversification. That's what we've been doing for a while, and actually worked during the second quarter where we have the prices are and the main prices. As opposed to the second quarter, we basically focus on placing everywhere on the market. In the third quarter, while we saw the demand picking up and there was a lot of appetite for our crudes, we have already because we are dissipating sales we have placed all our programs throughout the quarter. That looks pretty strong and that's basically in these lower single digits on average. However, the fourth quarter, this week we are already offering and we're seeing that the demand is weakening a little bit. So, we are expecting that the fourth quarter might be somewhere in between what we saw in the third quarter and the second quarter. That's basically what we're seeing in the market. Thank you.

Our next question comes from Lilyanna Yang from HSBC.

Hi, thank you for taking the call. Hope all is going well with you all. Could you talk a little bit about your CapEx plan? If you had to prioritize or rank deposits or if you had, let's say $6 billion as opposed to $12 billion over the period 2022 to 2032, what would be the one that comes first as a priority? Can you give us an idea of, for instance, how much is maintenance CapEx as well to keep production or to believe that the production had the very half for the near term? If you could give us some idea there.

Lily, thanks. Is that your only question, can we start at it?

No, actually I had a lot but let me put that all together. The other one is on Brazil Deepwater, right? You made the first exploration well Saturno, right? And it came out dry by Oleo e Gas, Brazil. It worked but next steps there for Saturno area, right? And if you can give us an idea of how much was the cost of the well or how much you actually pay for the 10% of the block and what would you need to see before you would consider to write-off such an investment? That’s one also on Brazil, right? On the same, if you can give us an update on the bid process for the FPSO for Gato do Mato which have where you have a 30% stake. There's another one which is part of the bigger one. If you can give other a color about the JV with Oxy. If you can tell us about the breakeven for this to the barrel and what have you been able to learn thus far with the joint venture that you think could be using Columbia on your pilot projects for the unconventional. That'd be one set of question. Thank you, Felipe.

Thanks, Lily. Thanks for being here, thanks for participating. So, I'll provide some context around the first one on the CapEx. First thing is that we actually did when we reassessed the business plan for 2020 to 2022 is precisely do a detailed prioritization of opportunities. Should there be more space going forward and additional inflow into the company in terms of revenues, we'll have the optionality to look at investment in CapEx. I was going to do something else with the debt. We have flexibility from that point-of-view. However, we've been very disciplined in terms of how we deploy capital and execute capital. We have the ability to react very quickly. I would like Alberto to provide to expand a bit on this in a second. As Alberto mentioned, we have prioritized exploration. We want to keep on exploring gas, and it's a very big part of what we do. Enhanced Recovery (EOR) near field, so we've been very successful with near field in the past few years. We want to do that. As you rightly pointed out, we have a presence both in the U.S. and Brazil. And I'll talk about Brazil in a bit and the Oxy deal then I will go back to Alberto for the exploratory CapEx. Regarding Brazil, two things. You talked about Gato do Mato and Saturno. In terms of Saturno, the well from an operations point-of-view, extremely successful, very pleased with the performance in terms of the time and everything else and has provided very significant information around the potential of the area. You would know this, the area in which we are exploring is the size of Rio de Janeiro. So it's a very big area where we see a lot of potential. We will continue the assessment with our partners and jointly decide the best path forward to uncap and assess the potential for other blocks. In terms of Gato do Mato, the FPSO, we are very pleased with having four wells down, four wells that have been successful. The Brazilian authorities have formally granted the entry of Ecopetrol into the joint venture. We're very pleased with that. Based on the results, we're looking at around the first quarter of 2021 going out to tender for the FPSO. We're looking at all the technical data, and we've obviously the operator has been working with the market and providers and everything else. In that sense, we're already making significant progress, so we're very comfortable with that. In terms of the Oxy deal and being this short cycle activities, we were very quick in terms of starting operations last year. It was only a year ago, July 31st that we announced the deal. September we started drilling, November we already had oil in the tanks. So we had production very quickly. Then came the pandemic, then came the price drop around oil. In the middle of the second quarter, we decided to ramp down activities. We had 22 wells already drilled, and we completed those wells, and we fracked those wells, and we are producing those 22 wells, and in June we reached 18,000 barrels of production in the Permian. We’re pleased from the operations. Break-even in the Permian is probably one of the best if not the best in the U.S., well below $40. Every project is economic in itself. In addition, operational cost with everything included for it excludes that its 40 API crude is between $7 and $10 per barrel. Ranking these operations in our portfolio, we would be among the five lowest operating cost. In terms of what we've learnt, we are conducting formal technology and knowledge transfer sessions between our team, as well as the Oxy team. We have people accounted into operations and we provide a lot of remote support. Things around the drilling, completions, and tracking trends and things around logistics, and things around propane. All knowledge is being transferred back to the teams, and as you rightly point out, we will help us in supporting the Proyectos Piloto the unconventional pilot projects in Colombia. Alberto, can you go with the exploration warranties. Can you give us a bit more color? Thanks.

Can you hear me? Lily, good morning. First of all, in terms of upstream CapEx breakdown during the period, we're going to be spending $1.5 billion in exploration. In terms of production growth, it will be about $5.5 billion. Specifically in exploratory CapEx, we will prioritize investment in Colombia, specifically onshore gas and the offshore gas in Colombia. We will also have to fulfill our exploratory commitments in Brazil, which will cover planning to spend in terms of exploration. Thanks, Lily.

Thank you. Our next question comes from Bruno Montanari from Morgan Stanley.

Hi, thanks for taking my question and for being transparent in communicating the changes in strategy on the back of all the market developments; it's very helpful. The first question is about the sale leaseback in the Permian. Are you considering hedging the U.S. sale price by taking advantage of the nice rebound in WTI prices? The second question is about long-term production trends. I need to understand the production trajectory a little bit better. It's understandable that the 725 is lower than the prior year spending, declining the oil price. If we assume that the JV in the U.S. will contribute with growth, we incur that your output in Colombia will actually be declining. Is that a fair assessment? And what could make you revise your domestic production curve higher in the middle to long term? The third question is about asset sales. You have a very strong balance sheet, so different from many other companies, you don’t really need to have a material disposal program. But would it make sense to divest any reasons you had purely from the perspective that they do not contribute to the required return on capital invoice within the current portfolio? Thank you very much.

Thanks for being here, thanks for attending the call, and thanks for your question. I'll take the last one on the assets and then I'll ask Jaime to talk a little bit about the hedging and then Alberto to talk about the production trajectory. We have developed over the last few years the ability to understand in detail the portfolio that we have, which allowed us to recast the plan very quickly, the 2020, 2022 plan. In terms of any potential divestments, we have a very good understanding of our portfolio. We continuously look for opportunities, and should they happen going forward, we will communicate it in due time. As you may remember Bruno that a couple of years back, we talked about potential acquisitions, and we've done well in several avenues in the last 18 to 24 months. In a similar way, should something arise in terms of divestments, we will communicate them promptly. Jaime, can you please respond or answer the first one?

Bruno, hi. Thanks for your question. Regarding hedging, all the decisions around hedging are under the umbrella of our general hedging strategy, which is evolving. Over the course of Q2, we did use hedges with a view to ensure our floor for pricing and give us adequate floors for pricing that could ensure the flow of possible barrels for the organization. Looking forward, at the group level, we are focused on two things. We want to see from a brand standpoint, particularly because that's where we have the largest exposure as a group, if there is a business case to ensure or get some downside protection if there is volatility. The business case includes the cost of the hedges and the protection they offer. The other focus area is around the tactical hedges that we do in support of specific point transactions. We do many of those, and they give us risk protection for changes between the date we negotiate a transaction and the transaction execution date. That’s the umbrella for our number six. The group's exposure to WTI when you see at a group level is relatively low compared to Brent or Diesel. Therefore it is not a priority currently. However, we have begun to look at whether hedges in the Permian transaction would make sense long term, and it's something we need to study in more detail going forward. I hope this addresses your question, Bruno. Thank you.

Sure does, thank you.

Thank you. Our next question comes from Anne Milne from Bank of America.

Thank you very much for the call today. A couple of questions. The first one is I know you had to reduce your refinery output due to lower demand. I was just wondering if you could explain to us how you decide what level each refinery is going to be and what the advantages and disadvantages of each of them are. Second question is I wanted to know if you have any new targets for leverage or liquidity. Ecopetrol's liquidity is still strong and your leverage is still below your peer group. So I was just wondering if you have any new targets since your leverage did go up this quarter. And then, just a quick question. There was a new loan that was dispersed; was it a treasury loan? Is that from the Colombian treasury and was that for a specific project? Thank you.

Anne, thanks for the question. I'll take the first one, and then Jaime can provide a little bit more detail around that and also tackle the leverage or liquidity and the treasury loan. In terms of refinery here is what happened. We started the year with both Barrancabermeja and Cartagena running at capacity. Well, Barranca a little bit less than capacity but mainly around 220,000, and Cartagena at 150,000 to 160,000. In March, the backend of March and April, we saw a dramatic reduction in demand and destruction of local demand. We've talked about it but roughly sales for products in a month would be around 300,000 barrels; that’s the main products: diesel, gasoline, and jet. In April, we were doing around 100,000 barrels. We had to adapt quickly. We have a lot of flexibility in Barranca. We have one of the most advanced refineries in Cartagena. That combination proved to be very appropriate, and we're very pleased that we were able to cope with the needs of reduced demand. So, Barranca out of the 50 plans we had at some stage some eight to nine plans running, and around 5,000 to 6,000 people would see every day in the refinery; we had 600 people. So, we had to adapt quickly to demand and the biosafety protocols to operate.

Thank you Felipe. Thank you Anne for your question. As Felipe said, we ran both refineries at full range by the middle of March. The demand for our Talos dropped significantly. We needed to reduce Barrancabermeja to balance local demand, so that refinery was running around 50% capacity during the second part of March, April, and part of May also. After that, local demand started to grow, and we began increasing the rates of Barrancabermeja according to local demand. Margin has been positive from that point to we didn’t have a problem. The main issue was primarily a local demand for Barrancabermeja and now we're running it on and making KBD which is around 80% of the capacity of that refinery. In terms of Susquehanna, we needed to reduce rates to around 70% of normal capacity. Since then, we have been going up in rates following the local demand but mainly the ability to export. Our commercial group has been doing a great job. We export our product at the Cartagena refinery, and this has allowed us to maintain that refinery running all the units, and currently, we are around 90% of capacity supported mainly by exports. I hope that answered your question.

Walter, thanks. Before handing over to Jaime, I’d just like to add that we were also able to perform some of our key maintenance on both refineries. Despite the pandemic, we managed to adapt and incur them through not only in Q2 but in Q3 as well. Jaime, please go ahead.

Thank you, Anne. Thanks for your question. With regards to leverage, Q2 was a very active quarter. We subscribed about $3.1 billion in loans during this quarter, which involved a combination of three elements: a bond placed in international markets of about $2 billion; a line of credit that we had for about $600 million; and about $400 to $500 million of what we call a treasury lines, which might have a translation issue. These are effectively short-term loans that typically have a duration of 12 to 24 months, actually typically less than 12 months. In Spanish, they are called gratis del tesoro araria which can be loosely translated as treasury loans. These are not loans that are received from the government; they are received from private banks. Regarding leverage targets, as you know, this crisis took us into a very strong position, both liquidity and gearing, compared to our peers. With these lines of credit pulled in Q2, our leverage is increasing towards 3.5 times EBITDA, but we anticipate this ratio will grow as operating cash flow and CapEx requirements exceed dividends in the cloud. However, by 2022 as our operational cash flow improves and we simplify our free cash flow, we see leverage below 2.5 times EBITDA. We feel comfortable with this outlook due to our ability to pull levers such as discretionary CapEx, and as our dividend policy caps at 40% of earnings, this gives us the flexibility to adapt. I hope this answers your question. Thank you.

That's correct. Thank you very much.

Our next question comes from Christian Audi from Santander.

Hi Felipe, hi Jaime. Just two questions, please. The first one on ROACE, the second one on dividends. The ROACE, you have always stood out in terms of generating a very impressive return on capital implied. Could you talk a little bit about the evolution you expect during the length of the plan and any color on the differences you expect in ROACE between upstream, midstream, and downstream? The second question is about dividends. If you could talk a little bit given all the adjustments that you have made to protect the company from market conditions. What should we expect in terms of your dividend payout for this year and during the duration of the plan? Thank you.

Thanks, Christian. And thanks for your question, thanks for being in the call today. I'll ask Jaime to provide more color around the ROACE and how we're looking at it in the plan. I just wanted to say in terms of dividends we have a clear dividend policy. The ultimate dividend decision will be based on the annual general meeting (AGM) decision, with considerations and assessments, and then the final decision of the AGM will take place in the first quarter of next year. That said, it will depend on how we end the year. We've managed to go through a very complicated and tough second quarter. We see a little more support for prices. You've seen how we've adjusted some of the operations. So, it will depend on those assessments, but Jaime, if you want to talk about ROACE and then expand on dividends, please go ahead.

Thank you Felipe. Hey, Christian, thank you, and thanks for your question. With regards to ROACE, our goal in Ecopetrol has been to deliver returns that exceed the cost of capital. Over the last number of years, we’ve had a very good run with regards to creating a growing spread between that cost of capital and the ROACE that we deliver. With this plan, we continue with that aim. It is challenging; it will be extremely difficult to sustain ROACEs of double digits in the current pricing environment. However, we project ourselves in 2022 with ROACEs in the very high single digits, around 8% to 10%, which is competitive with our cost of capital. This outlook will be impacted based on price assumptions of $38, $45, and $50 projected in this plan. The stronger price scenarios would yield improvements in ROACE in the long term. If I were to give you a bit of color with regards to segment behavior, in the near term – especially in 2020 – the upstream and downstream are being challenged while midstream stays stable. However, as we look towards 2021 and 2022, we see a recovery emerging from the downstream particularly as the Cartagena interconnection begins to take effect. That's general color on that. Regarding dividends, as Felipe previously laid out, we want to remain within the 40% to 60% payout range closely linked to actual price environments. Given the 2020 and 2021 price assumptions, we anticipate being at the lower end, but as we enter 2022 and further improve the price situation, we envision moving towards the higher end of the range. Ultimately, this will be determined by shareholders. I hope this answers your questions.

Very helpful, thank you Felipe and Jaime.

Thank you. Our next question comes from Luiz Carvalho from UBS.

Hi everyone, hi Felipe, hi Jaime. Thanks for taking the question. And congratulations to you for being selective by addressing due to the company progression through the crisis. I had three questions. I'd like to come back on the dividend policy. It's clear that the second quarter was very challenging, so just how the CapEx allocation will match with the dividend policy the company currently has; that’s the first one. The second question is about potential acquisitions in M&A. The company has quite active in trying to increase production and keep the reserves in a healthy level but what you’re taking potential acquisitions of junior companies or I don't know, some fields in a more advanced state that could boost your production and reserve life in the short term? The third question is more about the lower activity we are seeing on the U.S. ship bill. I mean when we look at the recount over the last let's say a couple, I'd say 18 months, there's been much lower activity, so just trying to understand what would be the potential benefit that this is bringing to your, I don't know, partnership with Oxy in the USA. These are the questions from my end. Thank you.

Thank you Luiz, and thanks for being here. I'll take the number two and three questions on acquisitions and the U.S. Then I'll ask Jaime to provide a bit more context on dividends. In terms of M&A, we've been quite active, demonstrating our strategy in where we want to go. We've successfully entered Brazil, the Permian in the U.S., and several projects in the Gulf of Mexico. I would say we are assessing opportunities actively; if we see something would fit the strategy, we would consider it in detail. That said, market conditions still present uncertainties, and we exercise caution with everything going on. In terms of the U.S., I provided color on that, but I will repeat some of those numbers. Being short-cycled, we were quick to start operations in the U.S. We announced the deal July 31 last year, started drilling in September, and we had production in November. We completed and fracked 22 wells, and in June we reached 18,000 barrels of production. The Permian is a high-potential area with very favorable break-even economics. The operational costs are below $10 per barrel. Knowledge is being transferred between teams, helping improve operations in Colombia as we develop pilot projects.

Thank you, Luiz. Regarding dividends and how we think about it; firstly, we look at the mix between dividends and CapEx in the context of our overall capital structure. We view our liquidity and gearing ratios relative to our peers to have room to improve. We believe we can honor the dividend commitments based on 2019 performance and maintain a CapEx level similar to previous years. Should the price environment allow for improved capital allocation; we could see more dividends as we expect cash flow improvements. The plan price assumptions are conservative; if they don't materialize, we expect an upside in cash generation. This would create elasticity in our capital allocation when maintaining the dividend policy. I hope this answers your question.

Yes, clear. Thank you very much Jaime and Felipe.

Thank you. We have reached the allotted time for questions. I would now like to turn the call back to Mr. Bayón for any final remarks.

Thank you and thanks everyone for participating. We had over 170 connections; we appreciate your interest and participation in following what we do at Ecopetrol. Your questions are very important to us, providing additional perspectives on our performance and helping us identify areas for adjustment. We also appreciate your feedback on the transparency and frequency of our communications. We expect all of you to remain safe and take care of your families during these trying times. We've faced a tremendous second quarter; you saw the results. We hope the worst is behind us and we believe we have put together a very comprehensive strategy for the remainder of the year and the next couple of years. We will continue to monitor the evolving conditions and communicate them promptly. Thanks again for participating, and I hope everyone has a great rest of the day. Goodbye.

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