Ecopetrol S.A. (NYSE:EC) Q3 2022 Earnings Call Transcript

Felipe Bayon : Hi, Luiz. Good to hear you and hope you are doing well. So I’m going to take the first question and Alberto is going to take your second question around the contracts outlook. And you know basically what you’re asking is how has the tax reform evolved? And I think we need to recognize that this latest version that is — that was approved by the Chambers of Congress last week is a very different version from the ones that were previously discussed. I think directionally you can almost speak about this is version 3.0, and there was a kind of version 1.0 and a version 2.0. Version 1.0 spoke about things like export taxes and export levies and things like that. Version 2.0 spoke about a very aggressive if you will taxation to a — or treatment to royalties, right.

All of that has gone away. All of that has gone away. And what we have now that is relevant to the oil and gas sector is fundamentally three effects, three fundamental effects. The first one is this surcharge that is linked to prices. There are some bands and basically if you are below 60, I don’t have the exact numbers here with me, but it’s, I think, it’s $63 or so. You have the same corporate tax that everybody else has. Above $63 and going from $63 to $72 and I’m going to give you the exact numbers in a moment. You basically have a 5% then from $72 to $83, you have a 10% and $83 and above we have 15%. And when you look at those tax bands, they are — they actually quite reflect our understanding of the international price environment. We can agree, if you think about our plan prices, they do reflect when you are in a positive price environment, when you are in an exceptional price environment.

And that’s how this has been designed. The other component which is our own royalties, effectively the change is that the cost of production which has been a deductible item in the Colombian tax regime will no longer become a deductible item. So and I think that in the discretion of the tax authority and what this reform is doing is essentially taking a stand where this cost of production is no longer going to be tax deductible. In the context of the overall reform, the impact of that is not that significant. We believe it represents somewhere between two to five points of incremental taxation for the industry. But in the end of the day we don’t believe that’s a deal breaker in terms of the economics of a given project. The third big topic of conversation throughout this whole tax reform debate was around the continuity of a duty-free zones, right?

And the version 1.0 and version 2.0 again had a very a strong stance around the continuity of them. They were going to go away in some shape or form. Basically, the project that is in place right now and that was already approved by the chambers, it basically maintains the tax status of the existing duty-free zones that the Ecopetrol Group has in place. So therefore, there is not going to be any negative impact associated to that. That’s kind of where we are on this list. Over to Alberto.