Earnings Call Transcript - EC Q3 2023

Operator, Operator

Good morning, my name is Natalia and I will be your operator today. Welcome to Ecopetrol's earnings conference call in which we will discuss the main financial and operational results for the third quarter of 2023. There will be a questions-and-answers 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 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 in this conference call. The call will be led by Mr. Ricardo Roa, CEO of Ecopetrol, Milena Lopez, CFO, Alberto Consuegra, COO, and David Riano, Vice President of Low-Emissions Solutions. Thank you for your attention. Mr. Roa, you may begin your conference.

Ricardo Roa, CEO

Good morning, everyone, and welcome to Ecopetrol's third quarter 2023 results presentation. Before we begin today, please allow me to introduce you to some of the new members of Ecopetrol's management team. First, in the Vice Presidency of Finance and Sustainable Value, we welcome Milena Lopez, who has been the CFO of Cenit, a transportation company of the Ecopetrol Group for the past five years. Milena has held senior roles, including General Director of Public Credit and National Treasury at the Ministry of Finance and Public Credit, and various positions at J.P. Morgan. In the Vice President of Low-Emissions Solutions, we welcome David Riano. David has more than 28 years of experience in the energy sector and has held positions in various companies in the energy market, such as Transportadora de Gas Internacional TGI, Empresa de Energía de Cundinamarca, Gas Natural Penoza, Red de Energía del Peru, Filial ISA, and government entities, making him a key leader to drive our low-emission solution business line and advance the energy transition in a responsible and profitable manner. I thank David, Milena, and the other senior managers for their commitment to bring new knowledge and experience. I would like to take this opportunity to thank each of our employees because it is you who make these results possible. Let's move on to the next slide, please. I want to start by highlighting the excellent operating performance achieved during the quarter. We achieved an average of 741,000 barrels of oil equivalent per day, a figure we had not seen since the last quarter of 2015, and volumes transported and cargoes higher than the same quarter of the previous year. This reaffirms our commitment to the Company's core business. Besides, in recent months, we have achieved significant milestones that we wish to highlight. In early October, we confirmed the presence of natural gas in deep waters in the South Caribbean of Colombia in the Glaucus I, while emphasizing the importance of the gas province in the region and our active exploration portfolio. This achievement joins a major exploration campaign with 10 wells declared successful so far in 2023. Our accounts receivable from the Fuel Price Stabilization Fund continue to decrease, COP 16.4 trillion offset by dividends to the nation so far this year, a cash payment of COP 1.9 trillion, and the smallest difference between the export parity gas line price and the local price, highlighting Ecopetrol's active management and the nation's commitment. This has resulted in a 34% lower accumulation than in the same period last year. Also, I want to emphasize the commemoration of our 15 years on the New York Stock Exchange with an Investor Day, reaffirming our strategy for 2040 energy that transforms. We highlight the launch of operations of our new trading subsidiary, Ecopetrol U.S. Trading, in Houston, Texas, in October. The commercial and operating strategy seeks to strengthen and enhance relationships with our clients through a local support team, through fluent communication with consumers and suppliers, and providing first-hand access to market information. Additionally, on the commercial front, we emphasize the performance of our subsidiary, Ecopetrol Trading Asia, which has managed to market more than 100 million barrels of crude oil in the Asian market today and strengthen the strategy of diversifying customers and countries, reaching new destinations such as Malaysia, Thailand, and Japan. Finally, up to the end of the quarter, we have made transfers to the nation of more than COP 45 trillion through taxes, royalties, and dividends, reaffirming our commitment to the country's development. Let's move on to the next slide, please. Here to date, up to the third quarter, we have recorded revenues of COP 108 trillion, an EBITDA of COP 48.5 trillion, and a net profit of COP 15 trillion, all aligned with our 2023 financial plan and achieving efficiencies of COP 2.9 trillion. We look optimistically toward the coming months, although we will face challenges. In preparation for the Fenómeno del Niño and in response to potential additional requirements for liquid fuels to support the country's electricity generation, the operational supply chain has prepared itself by building inventories in coordination with the Ministry of Mines and Energy, fuel cells, and generators. Priority is given to the available volume of excess diesel from the Cartagena refinery to match the potential needs of thermal power plants. Additionally, logistical operations have been planned to ensure the supply of the additional required fuel and supply contracts for diesel to fuel cell distributors for thermal power plant operations have been structured. Similarly, all contingency operational scenarios in the areas of production, transportation, refining, and marketing ensure the country's normal supply, supported by our operational excellence and commitment to the energy transition. Thank you, everyone, for being part of this journey and for your continued support of Ecopetrol. Let me invite Milena López for the key financial and management figures.

Milena Lopez, CFO

Thank you, Ricardo. It is an honor to address you on my first earnings call as CFO of the Ecopetrol Group. I am deeply grateful for the opportunity to join the Ecopetrol team and want to take the opportunity to emphasize that our financial successes as a company result from the collective effort, which I look forward to being a part of, as I am committed to further strengthening our market position and generating value for all our stakeholders. Ecopetrol Group's organic investments amounted to COP 19.2 trillion year-to-date, the highest quarterly figure in the past seven years, representing 20% year-on-year growth versus September 2022, and in line with investment guidance for 2023. The hydrocarbon business line closed the third quarter with executed investments totaling COP 13.3 trillion, representing approximately 70% of the group's total. These resources were mainly allocated to drilling and upstream completion activities in the Rubiales, Caño Sur, Castilla, Chichimene, and Florena fields, along with exploration activities in the Llanos, Piedemonte, and Lower Magdalena Valley. International investments for the quarter concentrated on development activities in the Permian Basin. In the low-emission solutions business line, the enabler of our energy transition investments, resources totaling COP 2.4 trillion were invested, including COP 2 trillion allocated to natural gas projects in assets primarily located in the Piedemonte region and exploratory blocks, mainly offshore. Additionally, investments in the transmission and toll roads businesses amounted to COP 3.5 trillion and corresponded to the projects executed by ESA in energy transmission, toll roads, and telecommunications. These investments allowed for advances in the construction of the electric transmission lines and improvements aimed at increasing the reliability of the existing network, as well as in the toll road projects of Ruta del Loa, Ruta del Araucanía, and Ruta de los Ríos in Chile. At the same time, EBITDA amounted to approximately COP 48 trillion up to September 2023, contributing to the second-best financial results in this period in the Company's history. The hydrocarbons line of business continues to be the most significant EBITDA contributor as we progress with a gradual diversification of our business lines. The Ecopetrol Group continues to implement its comprehensive strategy for energy efficiency and competitiveness. As of September 2023, we have achieved approximately COP 2.9 trillion in efficiencies through initiatives that have reduced costs and expenses, increased revenues, and optimized investments. Please continue to the next slide. As of September 2023, the Company's consolidated cash balance was COP 14.1 trillion, with business operations as the primary source of cash generation. Main cash outflows that stand out were CAPEX disbursements and dividend payments to minority shareholders. Additionally, during the period, COP 16.4 trillion of the FEPEC accounts receivable have been offset against the payment of dividends due to the Republic of Colombia. As of September 2023, there is a notable decrease in the accumulation of the fuel price stabilization fund when compared to 2022. This is primarily due to ongoing increases in gasoline prices throughout the country. During the third quarter, COP 8 trillion of FEPEC receivables were offset against the payment of dividends payable to the Republic of Colombia, and a COP 1.9 trillion payment was received in cash, resulting in a FEPEC accounts receivable balance of COP 25.7 trillion at the end of the quarter. Furthermore, it is worth noting that thanks to the refinancing efforts undertaken throughout the year, the gross debt to EBITDA indicator at the end of the third quarter was 1.7 times. At the same time, debt maturities for 2023 have been fully refinanced, and we continue progress in refinancing the 2024 maturities. With this, we continue to maintain a gross debt to EBITDA ratio below the 2.5 times long-term level. I want to highlight that rating agencies have maintained Ecopetrol's rating, corroborating the Company's solid financial profile, excellent operating performance across all segments and business lines, and proven access to the global capital markets. Please continue to the next slide. Our commitment to TESG creates value for the Company and enables our energy business in the long run. With regards to the environment, and specifically in terms of our holistic approach to responsible water management, leading up to the third quarter of this year, we reused 114 million cubic meters of water in our operations, which means that the Company avoided the capture and or discharge of this water volume, thus reducing pressure on water resources. This amount equals to 79% of the total water required to operate. The results were achieved thanks to the implementation of best practices in the reuse and recirculation of water at the Barrancabermeja and Cartagena refineries, as well as our production fields. In line with our ambition to achieve net zero emissions by 2050, as of the third quarter of this year, and using 2020 as our benchmark, we achieved a cumulative greenhouse gas emissions reduction of 1.33 million tons of CO2 equivalent in our direct emissions, scope one and two, mainly in the upstream and downstream segments. This result was achieved through initiatives focused on reducing flaring and venting, improving energy efficiency, and through the use of renewable energies. With regards to our ambition to generate more renewable energy for self-consumption and to promote the use of cleaner energies, our goal is to incorporate 900 megawatts by 2025. Currently, we have 208 megawatts in operation. We successfully completed the construction of seven megawatts at the Cartagena solar farm and currently have an additional 94 megawatts under construction. Regarding social development, we highlight the creation of 4,442 non-oil jobs and a TESG-related investment of COP 1.33 trillion by the end of the third quarter, mainly through investments in items just mentioned, as well as in energy efficiency, better fuel quality, and investments in biodiversity. By the third quarter of the year, 36% of Ecopetrol's investments were allocated to energy transition initiatives, with 51% of these resources invested in the transmission and toll roads business line, 30% invested in natural gas, and 19% allocated to TESG initiatives. I now give the floor to Alberto Consuegra, who will lead you through our most significant milestones in the hydrocarbons business line.

Alberto Consuegra, COO

Thank you, Milena. At the end of the third quarter, the 2023 exploration campaign was 60% complete, with the drilling of 15 exploratory wells, one of them located in the Caribbean offshore, two in the Piedmont Basin, and two in northern Colombia, all with gas potential. Also, 10 wells were drilled in the Llanos Orientales Basin with liquid hydrocarbons potential. In 2023, we achieved 10 exploratory successes, of which I would like to highlight the following. The Glaucus 1 well, located in the southern Colombian Caribbean in the Coal 5 block, operated by Shell, in which Ecopetrol has a 50% interest, confirmed the presence of natural gas in a new accumulation in Block Coal 5, where the Kronos 1, Purple Angel 1, and Gorgon 2 wells are located. Also, four crude oil successes in the Llanos Orientales Basin, three operated by Geopark, partner of our subsidiary, Hocol. Those are Zorzal 1, Saltador 1, and Toritos 1, and the Kimera 1 well, operated by Ecopetrol in partnership with Repsol. On the offshore front, we continue the evaluation and appraisal plan for the Uchuba 1 discovery, which is expected to be executed in 2024. We also expect to start drilling the Orca Norte 1 well, operated by Ecopetrol, in November of this year. To date, the 2023 exploratory campaign has a success rate of 45%, which is above the industry average. Let's move on to the next slide, please. During the third quarter of the year, we achieved the production of 741,000 barrels of oil equivalent per day, an increase of 20,000 barrels of oil equivalent per day compared to the same period of the previous year. These results are driven by the incremental production from Caño Sur, Rubiales, and the Permian Basin, as well as the solid performance of secondary recovery fields, such as Castilla and Chichimene. In particular, I would like to highlight that production via secondary and tertiary recovery technologies contributed around 40% of the Ecopetrol group's production from 23 assets, including water injection at Chichimene and Castilla fields. We are also maintaining our focus on efficiency. As of September 2023, the upstream segment achieved COP 1.8 trillion in efficiencies, accounting for 61% of the Ecopetrol group total efficiencies, thanks to the execution of initiatives that have allowed us to reduce drilling completion and dilution costs. The lifting cost increased around $2.72 per barrel versus the third quarter of 2022, mainly explained by higher inflation reflected in the increase in electricity tariffs and contracted services, partially offset by efficiencies totaling $0.24 per barrel. Finally, on the decarbonization front, the upstream segment reduced 351,000 tons of CO2 equivalent above the expected target for the year, contributing to 83% of the group's greenhouse gas emission reduction. These results were achieved thanks to energy efficiency initiatives in the Piedmont fields and the reduction of methane emissions in fields such as Dina Cretaceous, Jasmin, and Provincia, among others. By year-end, we expect production in the range of 720 to 731,000 barrels of oil equivalent per day. Let's move on to the next slide, please. In the Permian Basin, 33 new wells were drilled during the quarter for a total of 312 cumulative wells since 2019, reaching an average production of 66,300 barrels of oil equivalent per day, net to Ecopetrol before royalties. By the end of September, a record production of 120,000 barrels of oil equivalent per day was achieved in our Permian assets, of which 74,000 barrels of oil equivalent per day are Ecopetrol net. In line with our TESG strategy, our assets maintain a low carbon intensity between seven and eight kilograms of CO2 per barrel. Also, progress has been made in the initiative to replace diesel with compressed natural gas in drilling and completion generation operations, achieving an average cumulative substitution of 30%. By year-end, we expect an average production between 62 to 64,000 barrels of oil equivalent per day before royalties and the drilling of more than 110 wells. Let's move on to the next slide, please. In the midstream segment, transported volumes increased by approximately 52,000 barrels per day as compared to the third quarter of the previous year, mainly due to the higher production in the Llanos region and additional barrels from third parties that were outside of our pipeline network. We highlight that in September 2023, a 42-month crude oil evacuation record was achieved, reaching 850,000 barrels per day, showing pre-pandemic levels. In the product pipeline transport, we highlight the performance of the Pozos Colorado's Galan system, which reached a pumping rate of 160,000 barrels per day, achieving a system transportation record with direct pumping to the Barrancabermeja refinery. During the third quarter of the year, a successful dilution test of Rubiales crude oil was performed at the Monterrey station, where 88,500 barrels of naphtha were received for dilution, and in total, 562,000 barrels of Rubiales crude were diluted from approximately 15 degrees to 21 degrees API quality, which leverages the midstream strategy of becoming an integrated logistics service provider by offering solutions that reduce transportation costs for shippers. Finally, during the quarter, the cost per barrel transported decreased by 43 cents per barrel compared to the same period of the previous year, mainly explained by higher maintenance and contracted service costs, as well as higher volumes of crude oil and products transported. Let's move on to the next slide, please. In the downstream segment, during the third quarter, scheduled maintenance were executed in line with the annual plan to guarantee the operational availability and reliability of the assets. As of the end of September, 90% of the annual shutdown plan was completed, and in October, the maintenance of the crude oil unit U-001 in the Cartagena refinery was also concluded. The refineries achieved a consolidated throughput of 410,000 barrels per day and an integrated gross margin of $20.6 per barrel, supported by the continuous operation of the interconnection of the Cartagena crude plants, IPCC by its acronym in Spanish, the removal of bottlenecks while achieving 95.1% operational availability. This resulted in an EBITDA of COP 2.5 trillion, mainly explained by the incorporation of efficiencies, feedstock optimization, higher polypropylene prices, as well as favorable gasoline, diesel, and jet fuel prices. During the quarter, we made progress in achieving milestones, including the production of premium gasoline with less than 15 parts per million of sulfur at both refineries, paving with recycled plastic asphalt in roads at the Barrancabermeja refinery. Essentia, a subsidiary of the Ecopetrol Group, announced the start of the first advanced chemical recycling project in South America, which in its first stage will recover around 500 tons of plastic waste that is difficult to recycle and transform into raw material for new plastic elements. With the first delivery of pyrolytic oil from post-consumer plastic waste to the Barrancabermeja refinery, this project officially begins in Colombia and opens the door to producing 100% circular polypropylene from post-consumer plastic. Finally, during the third quarter, the refining cash cost increased by $1.24 per barrel compared to the 3Q 2022, primarily due to the rescheduling of activities from previous months, higher cost execution, increased operational activity, and inflation. I will now hand over the floor to David Riano, who will comment on the main milestones of the low-emission solution business.

David Riano, VP of Low-Emissions Solutions

Thank you, Alberto and Ricardo, for introducing me. It is a true honor to address all of you in this new role within the Company that serves all Colombians. I'd like to begin by expressing my gratitude for the trust the Company has placed in me and reaffirming my commitment to continue contributing to a more sustainable world while delivering value to our investors. As of September 2023, the natural gas and LPG production reached 161,000 barrels equivalent per day, representing about 23% of the group's production mix, with a generated EBITDA of COP 2.5 trillion and an EBITDA margin of 40%, reinforcing our commitment to positioning natural gas as the energy transition fuel. During the third quarter of 2023, we launched different commercial processes that seek to contribute to the group's strategic objectives. Among them, we highlighted the completion of the long-term gas commercialization process of the Gibraltar, Capachos, Cusiana, and Cupiagua fields, in addition to the public offering of LPG quantities for the period between September 2023 and February 2024, volumes that will supply approximately 77% of the domestic market. On the other hand, the operation of our Brisas, Castilla, and San Fernando solar parks, in addition to the Cantayus small hydroelectric plant, has allowed us to reduce close to 19,000 tons of CO2 equivalent and capture savings of more than COP 28 billion so far this year. Likewise, we made progress in the construction of the solar parks of Captagena, La Sera, Copay, Ayacucho, and Basconia of our subsidiary, CENIT, in addition to the park of the subsidiary ODC in Caucasia. This, as part of our efforts to incorporate non-conventional energy sources to our energy matrix, contributing to our goal of 900 megawatts operating and in construction by 2025. Additionally, the energy efficiency program has achieved the optimization of 3.4 megawatts and more than 2.5 thousand gigawatt hours, resulting in an emission reduction of 198,000 tons of CO2 equivalent and an energy cost efficiency of about COP 38 billion. The equivalent of an electric energy optimization of 5.9% accumulated from 2018 to date allows us to continue progressing towards the target of 6.3% by the close of 2023. Also on this front, we highlight ongoing initiatives for the inclusion of technological tools throughout the operation, such as artificial intelligence applied to energy planning and optimization of power resources. It's important to mention that Ecopetrol, in response to the El Niño event, has prepared to meet the increased need of diesel required for thermal power generation. At the same time, we have been managing the entry of new renewable self-generation projects that contribute to reducing the energy requirements of national electric systems. Finally, we highlight two important initiatives to improve the welfare of the community. The social gas program, which in 2023 has connected more than 14,000 families to natural gas service in rural areas of Arauca and Guajira, and the extension of the micro LNG agreement in Buenaventura until November this year, giving support and reliability to the gas supply for 37,000 families in this area of the country. I now pass the floor to our president, Ricardo Roa.

Ricardo Roa, CEO

Thank you, David. The transmission and growth business generated positive operational and financial results in the third quarter of the year. These results are leveraging the energy business in Brazil and Colombia and growth in Chile. This was reflected in a 10% contribution to the group's revenue, 14% to EBITDA, and 5% to net profit over the nine months of the year. Some of the most relevant milestones for the quarter include, first, the award through ISA CTEEP of Lote 1 in Brazil and three extensions with a referential capex of approximately COP 2.9 trillion, which will be invested gradually until the initiative of operations in 2029. Second, in Peru, the award of three projects through the Consorcio Transmantaro and the commissioning of the connections of the Nabucimache solar project and the connection to the Parque Portón del Sol, collectively adding 2,020 megawatts to the Colombian electrical system. ISA continues to advance in the construction of 39 energy transmission projects in the countries where it has a presence representing over 7,190 kilometers of additional circuit to the network, which when operational will generate approximately $372 million in revenue. Finally, progress continues in the execution of the Ruta del Loa project and the works in the concessions Ruta de la Araucanía and Ruta de los Ríos, which will generate new income and extensions of the concession terms. Let's move on to the next slide for the closing message. I want to close by recognizing the commitment of Ecopetrol employees to operational excellence and the transition to a more sustainable future as reflected in these positive results. I want to remind all our shareholders, investors, and stakeholders of our commitment to the investment plan outlined in the 2040 strategy. This leads us to have a solid hydrocarbon business that supports the energy transition. With a strong routine and a clear vision for 2024, we are prepared to overcome the challenge. Ecopetrol continues to be a driving force for Colombia's development, contributing to economic growth and the well-being of communities. Thank you everyone for being part of this journey. Finally, I open the Q&A section.

Operator, Operator

Thank you very much. We will start the session for Q&A. Andres Duarte is online with a question. Mr. Duarte, go ahead with your question. Mr. Duarte, you can go ahead with your question. While Mr. Andres is able to ask his question, we will have a question from Goldman Sachs.

Unidentified Analyst, Analyst

When do you expect the accumulation for CPC accounts to reach zero?

Ricardo Roa, CEO

Good morning. We will hear from Milena López shortly. I can share that we have made significant progress in closing the gap we had at the start of January, which was COP 33.4 billion. The stabilization of oil gaps has resulted in gains exceeding COP 16 billion, aided by COP 1.9 billion allocated to operations at the Cartagena refinery for liquid oil production. Now, I will turn it over to Ms. Milena López, our CFO. Thank you, Ricardo. Thank you, Joao, for your question. I’d like to provide some context on the benefits of FETEC and our outlook. We have seen a steady decrease in the third quarter, largely due to increased oil prices set by the national government. In 2022, we ended with a balance of COP 37 billion, and for 2023 we anticipate closing with between COP 20 billion and COP 21 billion. This indicates consistent improvement every quarter. We’ve experienced several increases in oil prices, the first one being in November at COP 600, with two more anticipated. These increases will align oil prices with market levels, and by next year, the national government plans to gradually increase diesel prices, aiming for market alignment by the end of the year. This suggests we will not have any further FETEC accumulations after December 2024. All FETEC balances need to be settled within the following 12 months of accumulation. We have an agreement with the government to maintain this approach. We have COP 8 billion to be settled by the end of the year, which we expect to receive. We are anticipating dividends of around 5 million and an additional COP 2.9 billion to be paid in cash. By year-end, we expect to have between COP 20 billion and COP 21 billion. Thank you.

Operator, Operator

Next question comes from Andres Duarte from Corfi Colombiana. Mr. Duarte, you can ask your question. Mr. Duarte, we are listening to you. You can ask your question.

Andres Duarte, Analyst

I'm having some trouble with the communication, so I will send you my questions. Thank you for taking my questions into consideration. I wish great luck to everyone for the rest of the year. Regarding the investment in the infrastructure for offshore gas that we expect, will we achieve these objectives? Also, can you provide the estimates you gave at the end of the year? I'm afraid the sound is not good. I have several questions. I'm not sure if you want to address the first one related to the conditions for offshore production and if you are planning to invest in transportation infrastructure. The second question is about the production estimates for 2024, especially the expected evolution of production costs. Lastly, could you remind me of the details regarding investments related to hydrogen production, specifically if you have considered investments for transporting the liquid and for enhancing renewable energy capabilities? I apologize for the connection issues I've been experiencing. Thank you very much.

Ricardo Roa, CEO

Thank you, Andres, for your questions. First, we want to highlight that our investments in the development and maturity of the projected resources in the offshore Caribbean began this year with the assignment of resources, including drilling well ORCA 1, which will continue into 2024 along with the drilling campaign for COL 1 at the COMOD 1 exploratory well. Alberto will provide details regarding our production expectations and goals for next year. We aim to secure significant resources to sustain our operations by the end of 2023. Maintaining our production levels from 2023 is a priority for us. The third question will be addressed by David Riano, who will discuss hydrogen production and the transportation infrastructure for incorporating liquids, as well as our updated capabilities for the 2040 strategy in the New York stock market.

Alberto Consuegra, COO

Thank you for your question, Andres. Regarding the next steps in the offshore, I would like to add to what Ricardo mentioned. In Caribe Norte, we anticipate progress in defining and confirming our potential in Uchua. This includes starting appraisal wells in 2024-25. We have received positive news from the mines ministry regarding the expedition of normality of abandonment, which means the appraisal wells can also serve as development wells. We will also move forward with environmental licensing, which is crucial. Additionally, we are exploring whether we can utilize the existing infrastructure in Chuchupa-Vallena to transport gas from Uchua and other prospects in the Caribe Norte and Caribe Sur areas, such as Kronos, Glaucus, and Corgon. All activities are defined within the Coal 5 block. We have a long-term perspective for gas and are working on a development scheme that would facilitate the evacuation of this gas aimed at the domestic market. For the offshore area, we project production to exceed 730 barrels this last quarter. We anticipate challenges, such as the potential impact of Fenomeno del Niño, particularly affecting Rubiales and Castilla. Although we haven't encountered it yet, we've observed higher production than expected in October. Regarding costs, we expect an inflationary impact, resulting in lifting costs for the last quarter being close to what we experienced in the third quarter this year, around $11.9. This places the costs in the range of $11 to $12 per barrel by the end of 2023. The outlook for 2024 will be part of our upcoming discussions as we finalize the business plan.

Ricardo Roa, CEO

For the third question, we will now hear from David Reaño, Vice President of Low Emissions. In line with the recent update of our 2040 agenda announced in New York a few months ago, we have set a goal for 2030 to incorporate approximately 900 megawatts of newly generated non-conventional renewable energies. We have established this target for 2025, with an expectation of achieving 1,900 megawatts from these renewable sources in La Guajira by 2030. For more details, I will now pass it over to Mr. Reaño. Thank you, President.

David Riano, VP of Low-Emissions Solutions

As you mentioned, we have been preparing for the delivery of renewable energy related to hydrogen projects. We are advancing several initiatives that were announced for the period between 2023 and 2030. We view this as a phase for learning and scaling in order to lead in the hydrogen sector in the country post-2030. Specifically, we are advancing two projects, one at each refinery for green hydrogen. These projects are currently under assessment, and we aim to maximize their value in these conditions. This new technology presents challenges related to the supply chain and the execution and construction of the projects. Additionally, on a pilot scale, operations will begin by the end of this year or in the first quarter of next year in Cartagena and Bogotá, which will lead us into a new phase of testing and opportunities that I just described. Thank you.

Operator, Operator

Ricardo Sandoval from Colombia has a question for you, Mr. Sandoval. Please go ahead.

Ricardo Sandoval, Analyst

Good morning, everyone. Thank you very much, Ricardo, Milena, Alberto, and David, for this opportunity. I have two questions. The first is straightforward. Could you provide more details about Minister Bonilla's statement regarding Ecopetrol's entry into solar and wind energy? Are these initiatives aimed at expanding self-consumption programs, or are they part of a strategy for generating energy for commercial purposes? The second question relates to production. I heard Alberto mention some restrictions on linear phenomena that could impact certain fields in 2024. I would appreciate any guidance on production expectations, particularly concerning production in 740, which has been very positive for 3T. What can we anticipate for 2024? Thank you very much.

Ricardo Roa, CEO

Thank you very much, Ricardo, for your questions. The first question concerns Ecopetrol's role in producing clean energy from solar, wind, and geothermal sources. This is already part of our strategy that we announced a few months ago. There are no new plans beyond what we have already communicated regarding non-conventional energies. Our focus remains on ensuring that Ecopetrol can meet its own demand while also developing natural resources for wind and solar projects in Guajira, which are expected to be a cost-effective resource. This aligns with our ambition to become a significant low-emission hydrogen producer for our refineries and to explore opportunities for exports as part of our 2024 roadmap. We have analyzed this aspect, and the expected CAPEX for each project is specific. For instance, we could partner with allies for these generation projects, or we might choose to develop them independently, as well as consider long-term energy contracts that wouldn't necessitate additional CAPEX. We will evaluate this further and make investment decisions related to these crucial aspects of the energy transition roadmap we have outlined. Now, for the second question, I will turn it over to Alberto, who can provide details on the potential impacts of the El Niño phenomenon that we've been assessing. We understand that the situation is predicted to be moderate, but it may pose challenges for hydrological and energy products towards the end of next year.

Alberto Consuegra, COO

Thank you, Ricardo. The impact on the viremts will only become evident at the beginning of next year, specifically from January to March. As for our guidance for next year, we need to be very cautious. We have made investments and have resources available for FEDPEX to determine our production range, but the vice president has emphasized that we should aim to maintain at least the same production level as in 2023. This is the information we are currently working with, and we anticipate further discussions at the board of directors' level to communicate to the market. Thank you very much.

Operator, Operator

Thank you. Next question comes from Alejandra Andrade in JP Morgan. Miss Andrade, you can ask your question.

Alejandra Andrade, Analyst

Hello, thank you for taking my questions. I have two questions. First, could you please explain the working capital that affected the cash flow this year in the first quarter?

Operator, Operator

Yes. Please select the interpretation mode so that we can hear you.

Alejandra Andrade, Analyst

Can you hear me? Thank you very much. I have two questions. The first one is about the working capital for the quarter that affected cash flow. Could you provide more details on what occurred? The second question pertains to the refinancing efforts you are undertaking this year and next year, particularly regarding the level of Ecopetrol. Do you have a syndicated loan, and have you managed to extend this loan? Additionally, do you have any short-term debt? I would like to understand what has been refinanced, what still needs to be completed, and what steps you are taking in this regard. Thank you very much.

Ricardo Roa, CEO

Thank you, Alejandra, for these questions. Regarding these, I give the floor to Milena Lopez our CFO.

Milena Lopez, CFO

Thank you, Ricardo. Thank you, Alejandra. First, there was a change in working capital of about COP 8.9 billion. The first component is the net effect from FEBEC movement, which is around COP 2.8 billion. The largest part is the rent, amounting to about 0.4 to 0.5 billion, which impacted working capital, and the third factor is the change in stock, as we have about 5 million barrels that contribute to this figure. This outlines the impact on working capital. Regarding the maturities for 2023, they have been refinanced and managed, and this process has concluded. We are currently working on the maturities for 2024, totaling about 1800 million dollars. This involves a club deal of 1200 million dollars and a remaining 600 million. It’s important to note that in January 2025, there is a bond of 1500 million dollars, all of which we will be refinancing next year. It’s significant to highlight that this credit will be refinanced primarily with the same banks. We have been in discussions about this and have submitted all necessary documents from the Ministry of Finance, which is also essential to emphasize. Additionally, regarding the adjustment for oil prices, I believe we have already addressed that question. Thank you very much.

Unidentified Analyst, Analyst

Thank you very much. We do not have any more live questions, so we will read from UBS. We have expectations regarding adjustments in oil prices, particularly diesel, due to its disparity with international prices and increased participation in FIPEG. As the year concludes, there is also attention on dividend expectations. Should we anticipate something closer to the lower or higher end of the 40 to 60% range, considering the higher income tax but the government's efforts to compensate the EFP and IFP?

Ricardo Roa, CEO

Thank you, Tasso, for the question. Regarding the expectations for adjustments in oil prices this year and next year, Milena has already shared our discussions with the Ministry of Finance. These discussions indicate that prices for oil and diesel will continue to rise, even though we don't have specific figures on the expected increases. The finance ministry assessments suggest there will be a price deliberation for diesel. We will maintain our focus on achieving consistent prices for oil for the end consumer. We have outlined the figures we would negotiate, and Ecopetrol will be guided by the national government's policy for subsidy liberation on oil and diesel prices to stabilize costs. Now, I’ll turn it over to Milena to provide insights on what the Ministry of Finance is observing regarding medium-term figures and the potential approval and distribution of dividends next year.

Milena Lopez, CFO

I'm going to break down the answer into two parts: first, I'll clarify what applies for this year and then I'll discuss expectations for next year. To complete the FIPEG payments by December 31st, there's a chance of an extraordinary dividend to cover the 0.9 billion deficit for this year. However, we will receive this amount, meaning there won't be any extraordinary dividends this year. Our dividend policy typically allows for a payout between 40% and 60%, and in special circumstances, we have provided higher payouts. We cannot provide a range for next year's payments yet, as that will be decided in March during the General Shareholders Assembly, and we will share any updates as soon as we have them.

Alejandro, Analyst

Thank you. Alejandro from HLS at NASA asks about our expected cash flow for the next quarter and what level is sustainable for Ecopetrol.

Ricardo Roa, CEO

Thank you, Alejandro, for the question. One part of it was already answered by Milena, but I will let her respond regarding the expected cash flow for the upcoming quarters.

Milena Lopez, CFO

I think that when we examine the free cash flow for Ecopetrol, the key factor influencing this cash flow is the FIPEG account, which consists of payable and receivable accounts. This account represents the highest limit in our cash flow. As I mentioned earlier, this balance has been decreasing gradually each quarter. This year, the accumulation figure for FIPEG reached approximately COP 7.9 billion, while in the third quarter, it was around 0.6 to 0.7 billion, specifically 4.7 billion. Looking ahead to the end of the year, we anticipate this figure will decline further due to rising gas prices. The most significant decrease we expect next year will be linked to this account, alongside an increase in diesel prices, which will lead to a reduction in cash flows for Ecopetrol by the end of next year. I have reaffirmed several times that we consider a dividend policy in the range of 40 to 60 as ideal for ensuring the company has sufficient cash for our investment plans and cash flow. Given some exceptional circumstances, we have paid out higher dividends, as was the case last year, to balance with FIPEG. It's essential to emphasize that this has been feasible due to elevated crude prices, which align with what other oil companies have done, such as stock buybacks. However, this is not an option for us, so regarding dividends, this is how I envision our medium-term policy. Thank you.

Leonardo, Analyst

Leonardo from Bank of America inquired about the expected production levels for the fourth quarter and the sources of any anticipated increases. He also noted that capital investments this quarter are significantly high, suggesting a rise in company investments over the past seven years, primarily in upstream activities. He asked if this indicates a substantial production increase in the fourth quarter.

Ricardo Roa, CEO

Thank you, Leonardo. One of the questions is about our production expectations for the remainder of this year and the anticipated growth for next year. We expect to finish the year producing around 730 barrels per day; this call initially projected 735 barrels per day. Additionally, we reported significant investments in the upstream sector and in low-emission energy efforts during this third quarter. For more details on both topics, I’ll hand it over to Alberto Consuegra. Thank you.

Alberto Consuegra, COO

To answer your question, I would say that the highest investment would be on Rubiales and Caño Sur. These have the greatest investment and also the best expectation for production. Of course, the investments for capital this quarter have been very high for capital execution, which means that the number of wells we planned and the interventions or treatments of those wells have been executed as expected. We have 732 wells already drilled by the end of the year. So, in fact, this investment is directed towards upstream. As the president mentioned, we are anticipating an increase in production that will take us above 730 barrels by the end of the year. Thank you very much.

Agustin Bonasora, Analyst

Agustin Bonasora from Pembridge is asking about the alternatives you considered to refinance the $1.6 billion in consolidated FT debt that increased to $4 billion.

Ricardo Roa, CEO

Thank you, Agustin, for your question. Milena, please go ahead.

Milena Lopez, CFO

Thank you, Agustin. We have a syndicated credit of $1.2 billion, and the other amortizations are short-term credits. We plan to refinance the syndicated credit mainly with the same banks involved. This has been agreed upon and is currently in process. For the maturities of the 400 million, we will likely work with a local bank, as these are short-term credits that are maturing. When we consider our consolidated debt, we need to keep in mind that we have loans in ESA. Regarding the debt that we need to pay next year in Ecopetrol, we are referring to the $1.8 billion. The remainder consists of credits we have in the Filial, and ISA continues to present a significant challenge for us, along with our interests in Peru, Chile, and Brazil, which are being consolidated.

Santiago Durao, Analyst

Santiago Durao from KCORI is inquiring about the implications for the Company's investment plan regarding Ecopetrol's role in energy generation in Colombia.

Ricardo Roa, CEO

Thank you, Santiago. As we've mentioned in response to similar questions, Ecopetrol's strategy for integrating renewable energy production focuses on enhancing its own energy supply to meet its internal demands. We have significant resources for adopting non-conventional energy sources, with 1,600 megawatts in projects currently being assessed. The approach to integrating these energy sources is still under consideration, with options including partnerships with third parties for project development or full ownership of energy generation assets. Additionally, we are exploring long-term Power Purchase Agreements that would require minimal initial investment, potentially funded through project emissions. We anticipate significant investments will be necessary, whether through our own efforts or in collaboration with third parties. Thank you.

Lily Young, Analyst

Lily Young from HAPT asked, could you please mention the investment plan for 2024 and 2025?

Ricardo Roa, CEO

Thank you, Lily, for the question. We have a construction roadmap for 2024, 2025, and 2026, which is part of our tri-annual plan, and we are currently discussing our investment goals for 2024 with the board of directors. We anticipate maintaining our production levels from this year, and based on these levels, we are assessing the investment opportunities to present to the board for next year's expenses and investments. Milena, please provide more details.

Milena Lopez, CFO

Thank you, Ricardo. Hi, Lily. I just want to add to what Ricardo mentioned. We are currently developing our plan, and by the beginning of December, we should be able to provide insight into our investment and production targets. It’s important to ensure our investment plan aligns with production, which we estimate to be between 6 and 7 billion, and I believe we will stay within that range. We will share more details in December. Thank you.

Catherine Ortiz, Analyst

Catherine Ortiz from Davivienda. Stakeholders take into account the strategic plan of Ecopetrol that we just knew and its energy is focused on gas. Is there the possibility to import the gas from Venezuela? And also, if the government has increased the price of oil to close the FETEC gap, how much corresponds to oil and how much to diesel? And when will the increase begin in the FETEC?

Ricardo Roa, CEO

Thank you, Catherine. We are currently assessing the availability of natural gas in the country at both medium and high levels. We are looking into various supply options from Colombia's natural gas imports, particularly to manage the tight supply and demand due to phenomena like El Niño that increase the demand for thermal production in industries, commerce, and residential use. Given these forecasts, we anticipate potential gas shortages next year, with a deficit ranging from 31 GTWA for 2026 to 250 GBT per day. We are exploring different strategies to address this shortfall in these medium-term scenarios. Now, I'll turn it over to David Reaño.

David Riano, VP of Low-Emissions Solutions

In response to the second question, we have already detailed Ecopetrol's expectations for addressing the gap that started this year due to reduced FIPEG resources resulting from government policies that have liberated prices and aimed for parity pricing. By the middle of next year, specifically in the third quarter, we anticipate reaching this parity cost, which will be reflected in user pricing. Regarding the second part of your question, Milena will discuss how the participation of gas and diesel will contribute to closing the FIPEG gap and how this will increase demand for these products in the country.

Milena Lopez, CFO

Yes, Mr. President. We are making significant efforts to ensure the energy security for oil, meeting the anticipated demand without any issues. We are exploring various options to determine which portfolio will provide the best efficiency in addressing this demand. As the President mentioned, in the third quarter of 2023, we imported approximately 2.3 GBTVA per day, which could satisfy a portion of the national consumption. The gas imports in Colombia have helped guarantee the supply within the country, and it is important to note that we need to consider various energy sources, as there are multiple import possibilities. Our team is evaluating several alternatives to our current supply, always aiming for the best efficiency to meet demand and ensure supply in the short, medium, and long term. Regarding your question about the differences in feedback for oil and diesel, the total accumulated deficit is primarily related to oil, gas, or petrol in monetary values. For the third quarter, the deficit amounted to COP 2.7 billion, with 8700 attributed to gas and the remainder to diesel. Therefore, next year we anticipate achieving parity with gas, and the upcoming deficit will primarily be due to diesel.

Daniel Guadalupe, Analyst

Thank you very much, Daniel Guadalupe VTC. Awesome. What would the gas oil prices need to be in order to cover the costs of offshore infrastructure investments?

Milena Lopez, CFO

Thank you for the question. We are currently evaluating all the factors that could lead to a viable price for offshore gas exploitation, including the significant volume of reserves and the infrastructure required for each export. Once we complete our analyses, we will have a clearer understanding. While we don't have definitive figures at this time, we can refer to market prices as a benchmark. However, these prices do not provide us with the reference value necessary for determining the feasibility of gas exploitation or commercialization in the system. Thank you.

Diego Sanchez, Analyst

Diego Sanchez from Alianza Valores inquired about the possibility of selling 50% of stocks to ensure that the market does not exceed certain limits.

Ricardo Roa, CEO

Thank you. This is one of the options, but currently, there is no proposal like this on the agenda of Ecopetrol's administration or the board of directors. There are elements we will study in our strategy that the country could consider. However, at this moment, our focus is on strengthening traditional lines to generate more wealth rather than thinking about placing additional stocks in the market. This will be one of the actions we will evaluate with the board of directors, but today, this topic is not on Ecopetrol's agenda. With regard to the Laudo, we have been working with the Board of Directors at the Cartagena Refinery to secure all necessary funds for these resources. We anticipated a judicial decision from a New York court by the end of last month, but it has taken some time due to limited activity in the CBI market. We're discussing a substantial amount, around a billion dollars, which involves resources from the United Kingdom and Holland. We are actively pursuing these resources. To facilitate the CBI's market negotiations or passive reviews, we have engaged top attorneys and are following the correct procedures for this penalty, which will be addressed in the New York court. The judiciary may allow this renegotiation from the passive side, which is why we continue to evaluate the future of the Cartagena Refinery. Thank you.

Janice Caceres, Analyst

Can we expect an increase in the level of debt in 2024?

Milena Lopez, CFO

Milena here. Regarding the debt for next year, we are refinancing a series of credits. The main question revolves around the incremental debt. We do not anticipate a significant increase in debt next year, depending on the dividend payments and the pace of diesel price increases. There may be some marginal debt for our additional investments, but it will be very low compared to previous years. Ecopetrol might contribute a little, but nothing substantial.

Operator, Operator

We do not have more questions at this moment. We will give the floor to Mr. President for a final closing word.

Ricardo Roa, CEO

I want to thank the entire Ecopetrol team and all of you for participating in this third-quarter results call. Wishing everyone a great end of the day. Thank you very much, and we will conclude our conference now.