Bruno Montanari: Hi, hello everyone. Thank you for taking my questions. I have two questions and a follow-up. The first question is about the lifting costs. So we saw some increases in lifting costs in the second half of the year, now finishing the year at $13 per barrel. I remember previously, the company used to talk about a short to medium-term level of lifting costs between $9 and $10 per barrel. So I was wondering if we should think of lifting costs staying at the current level, so around $12 to $13 per barrel in 2024? Or if we should expect costs can still go back to lower levels between $9 and $10 per barrel? My second question is about the refining margin. So I just wanted to understand why the realized margins of the company were so much lower than the international frac spreads and get an idea of what we expect in the next few quarters, if margins can go back to more healthy levels.
And then I just wanted to confirm on the production. Is the reason for the spike in production in the fourth quarter was only because the Permian? And if we should expect now production to decline more pronounced in the first quarter of the year. Thank you very much.
Alberto Consuegra: Bruno, Alberto Consuegra. Thank you for your questions. About the lifting cost. What did we see in the last quarter of 2023? Well, yes, there was an increase in the cost. We — the average was around $13 per barrel, so an average cost of $10.91 for the whole year. These plus the great power cost, plus of general services, services that if you look at — if you disaggregate the net cost, 70%, 75% is in pesos and 25% is in dollars. And the effect in pesos was impacted by inflation accumulated by 2022 and 2023, which for Colombia, we’re talking about 30%. And this, we see the impact in 2023 and, of course, in part of 2024. The energy power cost, we are also having an impact because of the El Nino phenomenon. You will see this on the first quarter of this year as well with a greater stock market cost price.
So what is our expectation? Yes. In 2024, we must be around $13 per barrel. And with the ITL starting to renegotiate services that — helped by our efficiency plans to make the interventions in order to have a more competitive lifting cost. But yes, we see the impact both of the inflation as of the power costs in this first quarter of 2024. Also, about the downstream. And I’ll give the floor to Walter so he can add. But I would say that when we look at 2023, we had three quarters with very positive margins due to the behavior of the product prices, both diesel as gasoline. And in the fourth quarter, the margins of the product, the spread of the product, falls to around 10%, especially during December. This affected the result in terms of margins.
What is the expectation for 2024? Well, what we’ve seen during January, February, our margins a little bit above of our plan. We’re talking about $13 and $14 per barrel. So we have a very positive outlook. Walter, I don’t know if you would like to add something.
Unidentified Company Representative: [indiscernible]. Just to add, in 2023, in its context, was an excellent year. We had the best EBITDA historical with a margin close to $18 per barrel, the second best historical after 2022. We had a good amount of barrels with some — we have never achieved these amounts, thanks to a high — overcoming that 95%, a historical record. In the load of Cartagena, we closed 200,000 barrels a day, thanks to the implementation of the EPCC project that added 50,000, 60,000 capacity barrels to that refinery at the end of 2022. Barranca finished — we had 241 barrels a day there in Barranca. So the greatest in the last 16 years. So these in the fourth Q, we had the greatest historical for our refineries.
And even though we had these good operational results and the fourth Q, we see a decrease in our refinery margins associated to a fall of gasoline price — gasoline in the fourth quarter, especially in December, due to seasonal has a lower price. But in the fourth Q, that price had fall, we saw it even since — starting in October with the gasoline was in prices in 1 digit of around $7, $8 per barrel, and we saw a fall in the price of diesel and said fuel. So these weakened the refinery margins in the fourth Q compared to the third quarter. And in our EBITDA in the fourth Q, it decreased even though it was the second best historical year consolidated for 2023. What we see in 2024, as I — as Alberto mentioned, we see that the margins — we are projecting two digit margins on the low side, maybe for project — average of 2024.
But saying this, what we’ve seen in January and February is that the margins are stronger compared to what we forecasted originally, and maybe they’ll be closer to $15 per barrel, plus or minus $2 per barrel. And the refinery loan, we were so considering that we’re going to be above 415,000 barrels a day average for both refineries. So in a range of 415,000, 425,000 which is our forecast, our projection for 2024. So Bruno, thanks for your question, and I hope I gave you the answer with — Bruno, about production. About the first quarter of this year 2024, the outlook, I cannot share it, but — or can tell and give it to you, but I will let you know what is happening in the production compared to the last quarter of the previous year. First of all, there was a decrease that was expected in the Permian while we make the next perforation activity.
Please recall that we have over 300 wells in production. So that decline, that behavior is given particularly in this first quarter. Second, the impact of the maintenance of the Cupiagua plant that we had at the beginning of the year, that also has an effect on gas production. And third, the blockages, strikes that have — particularly in Rubiales and in Arauca, Capachos, assets that we have with our associate parks. So in total, we’re saying that due to this impact, we have around 400,000 barrels that we have deferred in terms of production. And the other impact mentioned is the closure due to the droughts that also impact our production.
Milena Lopez: Thank you, Bruno. And here, Milena. About the lifting cost that can give you some clarity of the impact of the different components. That lifting of — in Ecopetrol is similar to what I mentioned in the cost, where we have a greater lifting at the end of the year, the fourth quarter, due to greater cost execution. So that’s why comparing the lifting in the fourth quarter of last year and this year, we see a significant increase of 45%. And I believe it is important to see the different components. When you look at these, the most — the largest component is the impact of the exchange rate. Around 75% of costs — of the lifting costs are in pesos. And of the 45% increase, 23% corresponds to an exchange rate that is COP900 below what we had on the third quarter of last year.
So this is a very important component to understand the lifting cost. The second are the power energy cost. Of that 45%, 9% are energy cost. And as I mentioned before, both this quarter as in the first quarter of 2024, we will have some power costs that are going to be above of what we expected due to the impact of the El Nino phenomenon. These should be transitory and should be corrected by the end of the year. And the impact are — the other impacts are the inflation. If you look at those three components and you quantify them, it’s easier to understand what’s happening with the lifting cost and how we see it in the future, that we should see a range between 12 and 13, assuming that we don’t have large movements in the exchange rate.
Operator: Rodrigo Almeida from Banco Santander is online with a question. You can ask now.
Rodrigo Almeida: Hi, Ricardo, Milena and the whole Ecopetrol team. I have a couple of follow-up questions, actually, and then one actual question. I think I will just go back to the discussion we’re having just now on the upstream side. And I understand there are three main components to the short-term production outlook. We mentioned the Permian, the maintenance and then the strikes. I just wanted to understand here because we have, I would say, a big difference in lifting costs from the Permian to the rest of the production in Colombia. So I wanted to understand out of these three components, how much is the Permian weighing on the impact for the first quarter? So I can better try to understand here the lifting cost outlook for the short term as well, I think, would be helpful.
The second follow-up that I had is regarding refining. The downstream margin, just to understand a little bit better. If I did understand correctly, you had some impacts from inventory turnover or something like this. So if you could just confirm that. And I think we might have got something lost in translation throughout the way, but I just wanted to understand that a little bit better. And then the actual question that I have with the third point is related to the US operation, right? The Permian, and now you resumed production in the Gulf of Mexico through the JV as well. I wanted to see — I mean, you’re doing — it seems like you’re doing more stuff outside Colombia, right? Does this show any shifting strategy there in terms of mindset regarding potentially investing more outside the Colombia for upstream projects?
I think those are the questions. Thank you.
Ricardo Roa: Thank you, Rodrigo, for your questions. Ricardo Roa, President. Yes, we have had, as I mentioned before in detail, that differences in the short term and in the midterm related with the Permian. This was a very profitable, more very efficient asset from Ecopetrol. And yes, we are evaluating the expectations of our greater production in that area, where that evaluation will allow us to see those expectations will come true. So I’ll give the floor to Alberto Consuegra so he can also talk about the streaming — the margin in the streaming, how it affects the strategy of investing more outside of Colombia. Well, I do want to answer that. We are focused in our projects of increasing our exploration. And we have important resources invested there.
We are focused in the greater recovery through the improved recharging in our fields, better perforation and maintenance of our wells right now. That’s where we have focused our investments. Yes, we have important investments outside, but they are not done by Ecopetrol. They are done by ISA. Last year, almost COP10 trillion in assets to invest in Panama, the development of roads and assets for transmission in Peru, Brazil and roads in Chile. So this is what has been managed from the budget, and these are made by ISA.
Alberto Consuegra: Rodrigo, thank you for your questions. About the impact of let’s say, the inflation in the Permian cost and how the premium lifting cost, well, I can tell you this. When you look at dollars, the inflation we had in the Permian assets, that also impact the inverter CapEx, we’re talking about 17% from one year to the next one. These affects 2022 and 2023. So the lifting cost goes from $4 per barrel in 2022 in the fourth Q to more than $5 per barrel in the fourth Q of last year. That trend is going to be between $4.5 and $5.5 for these, 2024, while we reverse the impact of inflation, product of two things, the efficiency interventions as well as the growth in production. It is important to highlight that since this is an asset that has a primary charging, it’s not compared with the mature because we have secondary recharging.
So these marks are different. So these just to clarify. About downstream, I’m going to just ask — I mentioned two things, which were [queuing] (ph) the margin deterioration. First of all, in the spreads in the product differentials, diesel and gasoline and the other related with greater costs that we saw in the fourth Q of last year. So these two variables affect the net margin we had in the fourth Q of last year, and I’m sure that they will also have an impact this year. But as we mentioned before, we see a margin expectations with the behavior of January and February of this year that are more favorable than what we had in our plan.
Rodrigo Almeida: Perfect. Thank you.
Operator: Next question from Alejandra Andrade from JPMorgan.
Alejandra Andrade: Hi, I think my previous — my first question was already answered, was related to the downstream margins, which you explained was both spreads and cost. And then I just wanted to ask you in terms of opportunities to acquire any assets for Colombia, particularly on the gas side, if there’s anything that you’re looking at or if you’re more focused simply on the exploration at this point? Thank you.
Unidentified Company Representative: Good morning, Alejandra. Nicolas Azcuenaga, Vice President, Strategy and New Business, Vice President, answering. In terms of inorganic options were, yes, looking as always, and part of our systematic procedure growth options both for gas as for oil in Colombia and other geographies. This is part of the exercise we are permanently making. As those opportunities mature our approval process, we will publicly — make them public to the market. That’s all I could say about that. Thank you very much.
Alejandra Andrade: Thank you.
Operator: Luiz Carvalho with a question.
Operator: [Technical Difficulty] with dividends. So I’m just trying to reconciliate and understand what will be the management approach in terms of proposal in terms of dividends for 2024.
Ricardo Roa: Ricardo Roa, President of Ecopetrol. Thank you, Luiz, for your questions. Some of which we had already mentioned before, answered before. So yes, of course, the production level in the fourth quarter of 2023 is one of the highest records of the previous eight years. And second, it’s a consequence of the effort we made to recover with income and grade production, the — lack we had due to the fall of oil price and to the excellent performance we had in our fields, particularly in — at Magdalena, Medio and at [indiscernible]. But the expectation for production in 2024 is you have the reference, a decrease in the price first, which does it make it viable, the extraction of all the fields that we are exploring — commercially exploring right now, and exploiting right now.
And this is not the window of the mid and long term, the maximum peak that Ecopetrol could have. We see it towards the [29, 30] (ph) with 800, 830 barrels production day. That’s the analysis we’ve done internally in the analysis of our strategy in the macro numbers for this strategy. And of course, in what you — in about the dividends, yes, we already mentioned that this year, it’s not going — we are not going to apply what we did last year. We are not going to make an accounting — crossing accounts between the debt that we had with the subsidies of 2022 with the government across — crossing with the risk of what that nation paid so — because the previous time, we could leverage our investment plan and the cost related with the operation.
But we are not going to do that this year. And the last point, I’ll give the floor to Milena so she can clarify, but I think that she already mentioned the methodology.
Milena Lopez: As we said before, dividends is a payout of 67% corresponding to a dividend of COP12.8 trillion, COP11.3 trillion are to the majority shareholder, which is the nation, and COP1.5 trillion to the minority shareholders. So dividends for the nation, they can be paid up to December 31. So we will paying the nation after paying the FEPC payments that we will receive quarterly.
Operator: So we have no more questions live. Chat questions, Stefania Moskia from Credicorp Capital asks. Can we give more details about the tax movement in the upstream before impairment? Which is the effective rate that you expect for 2024 in that segment?
Milena Lopez: Hi, Stefania. This is Milena Lopez. Important to highlight, a couple of topics in terms of taxes. First, November, we had the Constitutional Court said that, yes, the cost of royalties are deductible from taxes. Otherwise, this would have an increment payment of COP1.6 million in taxes throughout that 2023. Since the — this is given in the third quarter, that quarter we need to remove the savings of taxes we had during the year. So we have a favorable taxes to save somehow of COP1.3 trillion because we reversed it in the fourth quarter. So this is — this is something that we think fourth quarter that affects are the specific rate of the quarter. Additionally through the year, we were making provisions assuming an over rate of 15%.
Now we have the decree that ends the applicable over rate. And in 2023 due to the average of the price of the price spread, we are in the quarter that implies an overrate of 10%. So yes, we need to make a reverse the taxes that we had cost during the year of $800 billion, something that you can see on the fourth Q. So the effective rate that you see, if you calculate it every quarter in the fourth Q, it is impacted by these two topics. When we see the numbers on the whole year, Ecopetrol has an effective tax rate of 36.6%, which differentiates from what we had in 2022 of 31%. And that main impact here is the effect of the tax reform that impacts for the first time in 2023. I don’t know if this makes the fourth Q tax clear.
