Maria Catalina Escobar – Head-Corporate Finance and Investor Relations Juan Carlos Echeverry – Chief Executive Officer Felipe Bayon – Executive Vice President Carlos Alberto Vargas – Vice-President-Transformation Max Torres – Vice President-Exploration Rafael Guzman – Former Technic Vice President Luisa Lafaurie – Chief Executive Officer-Cenit Tomas Hernandez – Vice President-Refining and Industrial Processes Maria Fernanda Suarez – Chief Financial Officer.

Frank McGann – Bank of America Bruno Montanari – Morgan Stanley Pavel Molchanov – Raymond James Lilyanna Yang – HSBC.

Good morning. My name is Karen and I will be your conference operator for today. At this time, I would like to welcome everyone to the Second Quarter 2017 Ecopetrol S.A. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session.

Thank you for your attention. Ms. Maria Catalina Escobar will begin the conference today. Ms. Maria Catalina, you may begin your conference..

Good morning, everyone, and welcome to Ecopetrol's earnings conference call and webcast, in which we will discuss the main financial and operational results of Ecopetrol for the second quarter of 2017.

Before we begin, it is important to mention that the comments in this call by Ecopetrol's senior management can include projections of the company's future performance. These projections do not constitute any commitments as to future results, nor do they take into account the risks or uncertainties that could materialize.

As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Juan Carlos Echeverry, CEO of Ecopetrol.

Other participants include Felipe Bayon, Executive Vice President; Maria Fernanda Suarez, Vice President of Strategy and Finance; Max Torres, Exploration Vice President; Hector Manosalva, Vice President of Development and Production; Pedro Manrique, Commercialization and Marketing Vice President; Luisa Lafaurie, CEO of Cenit; Tomas Hernandez, Vice President of Refining and Processes; Rafael Guzman, Technical Vice President; and Carlos Alberto Vargas, Vice President of Transformation.

We will begin the presentation with the main achievements of the second quarter of 2017, followed by the highlights by business segment and financial results under international finance reporting standards. We will close with the outlook for the rest of 2017 and a Q&A session. I now turn the call to Mr. Juan Carlos Echeverry, CEO of Ecopetrol..

cash protection and cost efficiency, and strict capital discipline. With solid financial metrics and operational efficiency, at the end of 2016 we moved on to profitable growth, good reserves and production. We do know our focus must be on profitable growth based on four pillars. First, increased exploratory activity.

Second, development of infill drilling campaigns and pilots of improved recovery in mature fields. Third, inorganic growth opportunities. And fourth, growth opportunities in unconventionals, which is an emphasis that we have placed during 2017.

Half-year operational and financial results were outstanding, establishing a solid foundation for future growth. At the end of the second quarter, our liquidity position stood at COP 10 trillion.

The robust cash balance allowed us to distribute COP 945 billion in dividends from the fiscal year 2016 and to prepay an international syndicated bank loan for $1.9 billion, equivalent to approximately COP 6 trillion. Our EBITDA margin of 43% is one of the highest of the industry globally.

We closed the second quarter with gross debt-to-EBITDA ratio of 2.2x, in line with the company's target. At the beginning of 2016, you may remember, this indicator was 3.6x. The rating agencies have acknowledged our achievements and maintained our investment grade rating. Standard & Poor's upgraded our stand-alone rating from BB to BB+.

I will now pass the floor on to Felipe Bayon, Executive Vice President, who will speak to you about the quarter's main operating results..

Juan Carlos, thank you. Quarterly operating results were very solid and in line with 2017 targets. These have allowed the Ecopetrol group to continue to leverage the profitable growth stage in all of our segments and businesses. We have achieved stable and safe operations.

This has been possible throughout the use of operational discipline and compliance with all of our HSE policies. Group's average production for the first half has been 715,000 barrels of oil equivalent per day, in line with our production target for 2017.

We have succeeded in maintaining our production rate despite attacks on the infrastructure of the Cano Limon Covenas pipeline and some operational events that have arisen throughout the year. One year after taking control of operations in both Rubialis and Cusiana, we have succeeded in maintaining stable and safe operations in both fields.

With regards to exploration, 2017 has been a very good year. The Gulf of Mexico's Warrior-2 well, announced in July, was declared successful. This was drilled by our partner Anadarko. And thus, we have achieved so far a rate of success of 80%.

I am also pleased to note the award of two offshore blocks in round 2.1 in Mexico, in partnership with Pemex and Petronas. During the second half of 2017, Ecopetrol will drill the Molusco well in the Colombian offshore. This is a very important milestone for the company. It will be the first offshore operated well drilled by the company.

The exploration campaign in the second half of the year will focus in the Colombian offshore with the drilling of 10 additional wells. In the Transportation segment we have seen significant achievements.

We have maintained stable operations, in particular around the Bicentenario oil pipeline, that has allowed us through the bidirectionality screen to extract crude and produce crude from Cano Limon despite all the attacks that the infrastructure has suffered.

As a result, we have been able to perform constant and stable operations and continue with our integrity-focused maintenance program in that pipeline. At the new Cartagena Refinery, we have now completed the performance tests on 28 plants, which equates to 82% progress.

This refinery has posted an increase of 12% in its margin in the first and second quarters of the year, achieving $7.7 per barrel, and the load of the refinery has been 136,000 barrels.

The other refinery, Barrancabermeja, continues to be profitable and has very efficient operations, achieving a margin of $13.1 per barrel for the period to date in 2017. I will now hand over to Carlos Vargas, who will take us through all the achievements of the transformation program..

Thank you, Felipe. During first half of the year, efficiencies are COP 516 billion and cumulative efficiencies since the start of our program are COP 4.9 trillion, based on the strategies of dilution, transport and maintenance, and efficiencies in drilling and well completion.

Additionally, business transformation is focusing on the actions that seek the growth of the company.

During the first half of the year, increased revenues and improved margins continued to develop application as a initiative to include the production of diesel, petrochemicals and gasoline as well as commercial actions to improve the spread between our crude oil and Brent.

Another element to promote growth of the company is to strengthen our technical resources with national and international recruitment.

Business transformation is supporting the growth of the company with the creation of the project maturity center in order to add value and maximize the reserve of Ecopetrol using the E&P process based on optimizing maturity projects, identifying growth opportunities for investment portfolio and develop a stronger leadership.

At the same time, action has been carried out to interactive and integrates management regulations. Now Max Torres is going to talk about exploration..

Thanks, Carlos. After the discoveries during the first quarter, both in the onshore with the well Borando-1 and in the offshore with the wells Purple Angel-1 and Gorgon-1, the exploration campaign continued during the second quarter in the offshore with the drilling of well Siluro-1, in block RC-11.

Although this well did not encounter any evidence of hydrocarbon, the information obtained will contribute to the general understanding of the Guajira offshore basin. Ecopetrol holds 50% equity in this block, which is operated by the company Repsol.

On the other hand, on July 10 the Warrior-2 in the Gulf of Mexico Green Canyon area reached its total depth. The well is operated by Anadarko 70% working interest with Ecopetrol as the only partner with 30% remaining. This well confirmed the presence of hydrocarbons in several zones and is currently being evaluated.

In conclusion, as of the first half of the year we have completed four wells of discoveries, a striking success in all our fronts of activity, both on onshore with the well Boranda-1, as in the Colombia offshore with the wells Purple Angel-1 and Gorgon-1, both operated by Anadarko; and in addition, in the Gulf of Mexico we have made a discovery in the well Warrior-2.

This gives us so far an operation success rate of near 80%. With these discoveries and as a result of a joint integrated effort, Ecopetrol is expecting to incorporate more than 250 million barrels of oil equivalent of contingent resources, above the expected target set for 2017. Let's move to the next slide.

During the second half of the year, the 2017 offshore operations will reach its climax with the drilling of two additional wells, the Brahma-1 and the Molusco-1. And the focus then will be redirected to the projects for the Colombian onshore.

On July 9 commenced the drilling of the prospect Brahma-1 in offshore Colombia, which is estimated to drill until the end of September. This well is operated by Petrobras 40% in partnership with Ecopetrol 30%, Repsol 20% and Statoil 10%.

By the end of July, on the onshore activities, Ecopetrol and affiliate Hocol spudded two wells, the well Bonifacio-1 and the well Lunera-1 in blocks Lla-65 and in block VSM-9 respectively. In parallel, two seismic acquisition campaigns will commence in the blocks SN8 and SN18.

Looking ahead of the rest of 2017, drilling of further nine onshore wells is planned, operated both by Ecopetrol and Hocol. Among others, resuming activities in block CPO-9 with the wells Lorito-1 and Trogon-1 are foreseen for the third quarter of this year.

Finally, in line with further strengthening of our international portfolio, Ecopetrol is evaluating a speculative position in the divestment process of Petrobras and in the bid rounds announced by the MEP. In addition, a 3D [ph] acquisition campaign is planned for the Foz do Amazonas Basin blocks.

I will hand the floor now to Rafael Guzman, who will comment about the production results..

Thank you, Max. Regarding production, in the second quarter of 2017 the group's total production reached 716,000 barrels of oil equivalent a day, which represents an increase of 3% compared to the same period of 2016. In terms of Ecopetrol S.A., the growth is explained due to several factors.

To start, we have the successful operation and increase in our participation in the Cusiana and Rubiales fields that started in the second semester of last year. Additionally, we have reinitiated investment in several fields that have helped mitigate the declined rates. For example, we have La Cira Infantas, Castilla and Rubiales.

Also relevant has been the operational success in Chichimene, where we have had almost no investments for over a year in the field, but we have managed to arrest the decline to close to 0 decline rate, as we see today. This is thanks to many factors.

One, with the water injections that we have carried in the field, in addition to volume conversions and our operational optimizations.

In our subsidiaries, we have increased production mainly in Hocol by the start of the operation of the gas treatment plant in the Bonga-Mamey fields and in Ecopetrol America with the start of the production of the Gunflint field in the Gulf of Mexico during the second semester of 2016.

We have also managed to reduce the deferral production due to the attacks to the Cano Limon pipeline with this bidirectionality of the Bicentenario pipeline. As you can see in the figure to the right, we have managed to reduce the effects significantly.

We have gone from a negative effect of 24,000 barrels per day in February to close to 0 in this phase. It is also worth mentioning that we continue to decrease our drilling days. This is reflected in both production and CapEx efficiency.

As an example, we have Castilla in the figure, bottom right, where we show that we have decreased drilling time from 2016 to 2017. We continue this trend with a 10% decrease.

In Rubiales, overall we have managed to reduce drilling time by 25%, and we have maintained a 6-day drilling time in 2017 despite the drilling of more complex wells in this field. Please let's now move to the next slide, where we see the recovery program update.

The recovery program is now entering the maturation phase of the expansion project of the pilots that have already been finished in previous year, and we continue. Out of the 12 pilots that we have operations this year, eight will be finished and start, and we continue this process.

Of the 12 pilots that we currently have in operation, eight will be completed during this year or next year, and then we'll in turn also start maturation phases for the expansion and application of the technology in the field.

It is important to mention that water injection in two of our main fields, Castilla and Chichimene, has been very successful, so in Chichimene field we expect to sanction the full-field development with water injection this year and also for Castilla in next year.

Also, the knowledge we have obtained from this program has been very useful to reevaluate the potential for our fields and the efficiencies which we can use for their development. We see now higher volumes in our fields, and to be developed at a lower cost as we saw in the past.

Now I pass over to Luisa Lafaurie, who will comment on the results of the transport segment..

Thank you, Rafael. During the second quarter of 2017, we continue with our agenda of consolidating the integration of the midstream business. Financial results of the segment remain strong. From the operational perspective, during the second quarter of 2017 the total volume transported decreased by 2.2% as compared to the same period of 2016.

Crude oil transportation reduced by 4.6% in the second quarter compared to the same period of last year, mainly due to the lower volumes nominated by our shippers. Out of the total volume transported through our pipelines, 66% belonged to Ecopetrol.

With respect to refined products, total volume transported through our pipeline had an increase of 6% when compared to 2016, mainly as a result of our higher availability of our Pozos Colorados-Galan system. Approximately 18% out of the volume of refined products transported belong to Ecopetrol.

Regarding projects currently under execution, I would like to highlight that we continue transporting extra heavy crude from Apiay to Covenas with increased viscosity. As a result, we achieved our first export of crude oil above 500 centistokes. In addition, we start pumping crude oil to start operational stabilization from San Fernando station.

We finish the construction of the diluent connection between San Fernando and Chichimene stations, and we move forward with our commissioning activities and final extended test of the diluent transportation system. We expect to start operation in the third quarter of 2017. At the same time, we put operational the blending facilities in Covenas.

With this, I hand over to Tomas Hernandez, who will comment on downstream's results..

Thanks, Luisa. During the second quarter of 2017, the Cartagena Refinery stabilization process and unit performance tests will continue. 28 of 34 tests were completed, reaching 82% progress.

In the second quarter, both the alkylation and hydrocracking units experienced downtime to perform equipment maintenance, the former to correct defects identified in process equipment and for the hydrocracking unit to address an operational event.

The alkylation unit restarted operations on July 22 and the hydrocracker is expected to restart operations in August. The refinery stabilization process will continue until the fourth quarter of 2017 with the completion of the full refinery performance test.

During the first semester of 2017, the Cartagena Refinery increased its throughput compared to the same semester of 2016, reaching an average of 130,000 barrels per day versus an average of 109,000 barrels per day in 2016.

Upon completion of the stabilization period and the unit performance tests, the refinery will have an operation at an optimum throughput level.

The Barrancabermeja refinery continued with its profitable and efficient performance, increasing middle distillate yields, which reached 37% during the second semester of 2017 versus 30% in the same semester of 2016.

It is important to note that during the second quarter of 2017 there was a scheduled turnaround of the heavy oil train, which impacted throughput and utilization factor of the Barrancabermeja refinery. A heavier than planned crude slate also affected these indicators.

Now I turn the presentation over to Maria Fernanda Suarez, who will comment on the financial results for the period..

Thank you, Tomas. Good morning, and thanks for taking this call. The solid operating and financial results for the first half of 2017 reflect the consolidation of the structural efficiencies achieved.

This period also includes the success of our new commercial strategy, which focuses on maximizing the value of our crude, meaning that while Brent rose 28% the trend of our basket increased 47%. As a result, the business group's revenue rose 19%.

Revenue during the period was negatively affected by the lower volume of sales of third party crudes, the delivery of crude volumes over to the transport system and the seasonal decline in the demand for natural gas by the thermal sector.

The export basket better spread and the international services products had a positive effect on the upstream and downstream segments. Also, a better yield on high-value products in both refinery.

Midstream posted a decline in revenues, due largely to the lower crude volumes transported by other pipelines and the negative effect of the lower average exchange rate on U.S. dollar fees. Let's move on to the next slide to examine the business group and its performance.

The business group increased its EBITDA by 31% versus 2016, roughly COP 11.4 trillion in the first half of 2017, with an EBITDA margin of 43%. With these results, Ecopetrol has one of the highest EBITDA margins among its peer oil and gas companies.

In the first half of 2017, the largest EBITDA contributions came from upstream, leverage on the lower spreads of the crude export basket and fewer dry wells. The cost increase of the segment is associated with the resumption of maintenance activities and we recovered in several fields.

The decline in downstream EBITDA was explained by the higher cost of raw materials and products imported for the refineries and for processes due to the recovery of hydrocarbon prices, the impact of the lower exchange rate on segment revenue and the lower throughput in Barrancabermeja.

Finally, midstream remained an essential generating segment for the group, with EBITDA of COP 3.9 trillion and a stable EBITDA margin despite its drop in revenue.

With the recovery in crude prices in the first half of 2017, each segment's contribution to EBITDA has changed in favor of the larger contributions from upstream versus the first half of 2016, when midstream was the largest contributor. Currently, upstream accounts for 59%.

Let's go to the next slide to see the change in net income between the first half of 2016 the same period in 2017. Net profit in the first half of 2017 was 83% higher than reported for the same period in the previous year, and already beats total profit posted for all 2016 by some 38%.

Cost of sales excluding depreciation grew COP 1.9 trillion as a result of a COP 1.3 trillion increase in variable cost, due largely to higher-value purchases of crude and products, the recovery of international prices and the higher cost of processing materials and electricity due to the return of the Rubiales field to Ecopetrol.

In turn, fixed costs rose by COP 0.6 trillion, with the resumption of activity at several fields and the scheduled maintenance at Reficar and the transport system. These increase are offset by continuation of operational efficiencies.

Depreciation was up COP 0.7 trillion, due largely to the commissioning Ecopetrol America's Gunflint field in August 2016 and the lower incorporation of reserves in 2016 versus 2015.

Operating expenses fell almost COP 0.8 trillion due to a lower cost sustaining, fewer dry wells and book profit of COP 169 billion on the sale of minor fields in the Ronda. The exchange rate differences saw a negative fluctuation of COP 1 trillion.

This movement was due to impact of the 1.7% devaluation over the group's net asset position in the first half of 2017. [indiscernible] appreciation over the net liability in the first half of the previous year, neither of them having any impact on the company's cash.

Net financial income rose by COP 0.4 trillion, given the financial return from the company's large cash position, the lower value in pesos of the foreign currency, debt interest due to a decline in the average exchange rate and the lower interest rate on inflation and decline.

The effective tax rate over the past six months is estimated at 53%, slightly below the 55% posted during the same period last year. Finally, profit attributable to Ecopetrol shareholders in the first half of 2017 totaled COP 2.2 trillion, almost double that of the first half of 2016. Now let's move to the next slide to review the group's cash flow.

The group closed the semester with COP 10.4 trillion in liquidity, including cash and cash equivalents and short- and long-term financial investments. Cash flow from operating activities in the first half generated COP 5.9 trillion, thanks to the group's good operating results, efficiencies and savings achieved and the recovery of hydrocarbon price.

As is typical in the second quarter each year, a large share of this cash we will use to pay taxes, totaling some COP 3.7 trillion, largely income tax and wealth tax. Capital investments totaled COP 2.4 trillion, driven by the resumption of activity in our main field.

We estimate CapEx execution this year will be between $2.6 billion and $2.9 billion, due to the renegotiation of obligation with the Colombian National Hydrocarbons Agency and longer production project maturity time.

The liquidation of financial assets to prepay the international commercial bank loan we secured on June 30 yielded a cash influx of COP 2.9 trillion. Added to that was revenue received from term dividends from the sales of minor fields, generating an additional COP 0.6 trillion.

The quarter includes two other significant cash outlays in line with our objectives of the 2020 business plan. First, prepayment of the international commercial bank loan of $1.9 billion, improving the company's credit metrics.

The gross debt-to-EBITDA indicator fell from 2.6x at the close of March to 2.2x at the end of June, and nominal debt fell by almost 13%. These decisions demonstrate Ecopetrol's commitment to improving its credit rating.

And secondly, the distribution of COP 1.1 trillion in dividends on 2016 earnings, which includes payment to Ecopetrol shareholders and minority partners in affiliated companies [indiscernible] final liquidity position of COP 10.4 trillion allow us to easily be available to follow up projects for organic growth, and seek inorganic growth opportunities that can contribute to improving Ecopetrol's balance of reserves.

I will now pass the floor to the CEO for final conclusions..

the expansion of the expansion phase of the recovery pilot is a priority as well as our recently created center for maturing projects. We continue challenging ourselves to find the best projects to leverage growth, executed on time, within budget and at high quality.

Our commitment to great shareholder value is firm, always based on capital discipline, sound liquidity, operational excellence, care for the environment and a prosperity shared with the communities in which we operate. I will now open our Q&A sessions, and thank you very much..

[Operator Instructions] And we have our first question from Frank McGann from Bank of America. Frank, your line is open..

Sorry, thank you very much. Two questions, if I might. One, in terms of lifting costs, they rose a bit in the quarter. I was wondering what types of outlook for lifting costs and whether you had seeing any pressures or other factors that might influence the trend in lifting costs as we go forward over the next several quarters.

And then, secondly, looking at CapEx, I believe you said $2.6 billion to $2.9 billion for 2017 for the full year as the outlook.

As you look forward in future years, is that a level that, assuming you were going to maintain production, that would be reasonable? Or would that level, do you think, potentially enable you to see growth as well?.

This is Rafael Guzman. I will be answering your first question about lifting cost. What I would like to say first is that during this year we have seen a reactivation of more work in most of our fields. That increases our expenses in the field, but in addition to that increases the production.

For example – and perhaps a good example of that is Chichimene, where we have not done CapEx investment in the field, but through OpEx we have been able to maintain the production level that we had in the past. In terms of projection, one thing we are also doing this year is removing the seasonality of the OpEx.

In previous year, what we had seen is that most of the expenses were found most in the last two quarters of the year, whereas this year we have [indiscernible] initiated all of the operations starting January, so that we will see a more stable OpEx during the year.

In terms of projections, we don't guide the number, but we don't expect any growth from what we have seen in the first semester, and we're in line with our estimated projection for the year, and perhaps a little bit lower. So we don't see for the year any increment.

And for us to finish, the savings we have from – through our transformation program, they have been sustained and they will be continued like that for the years to come..

Frank, this is Juan Carlos Echeverry for answering your second question regarding annual guidance on CapEx. We have announced in the budget $3.5 billion and the new guidance is between $2.6 billion and $2.9 billion.

And as you said, the idea is to maintain the target for this year of 715,000 barrels per day of oil equivalent, and the target for 2020 of 760,000 with the current prices at $50 per barrel average.

If the prices were to rise above that, we should be targeting something about above 800,000 barrels per day, but that's contingent on the evolutional prices.

So what is the nature of this new guidance? The problem we identified at the beginning of this year is that we had projects on one end of the equation and we have the liquidity on the other end, but we didn't have enough mature projects.

So facing that, we created a center for maturing projects, which will dedicate 120 people in 2018 in order to put all these projects ready to deploy capital.

This area – center for maturing projects is starting already in the second half of the year to produce projects ready for deploying capital, and that will be the basis for a substantial part of our growth next year and in 2019.

So we're confident that, since we count already on the liquidity for undertaking these projects, we don't need any new net debt and net borrowing for that. It's basically our internal generation of cash that will finance this. We were just lacking the end of mature projects.

So we are confident that we will be able to meet the targets for this year and for the year 2020..

And we have our next question from Bruno Montanari from Morgan Stanley. Bruno, your line is open..

Thank you very much for taking the question. So just one follow-up from the call in Spanish. I thought that the discussion of unconventionals were – was very interesting.

I just wanted to double-check whether Colombia already has all the regulatory framework for unconventional, for fracking and all those sort of things in place, or if anything needs to be approved or changed before the industry can actually start digging into the shale story in Colombia..

Bruno, yes, Colombia has already a regulatory framework for exploration and the government is working as of now in the regulation for exploiting and development, these oil fields.

As a matter of fact, you have now ConocoPhillips drilling wells for targeting the unconventionals in Cesar, which is in the northern part of the Magdalena Valley, and other companies are waiting for in order to explore in other parts of the Magdalena Valley, Ecopetrol among them.

So we are asking the government for the – to have ready their regulation for exploiting these oil fields. But we see that the next two or three years will be intensive in exploration in order to evaluate and assess and – the amount of resources that we have in unconventionals.

It is apparently clear that we could be the third – have the – our reservoirs to be the third magnitude after U.S. unconventionals and Vaca Muerta. So it's a thing that we take very seriously.

It took, for us, two years to think thoroughly about this, and now we're confident that this will be an important source of growth for Ecopetrol and for Colombia in the oil industry in the years 2020 to 2030..

[Operator Instructions] And we have our next question from Pavel Molchanov from Raymond James..

Thank you for taking the question. We are hearing on a regular basis about large numbers of immigrants leaving Venezuela – fleeing Venezuela and moving into Colombia.

And my question is do you see employees of PDVSA that are looking to perhaps get a job at Ecopetrol, giving you an opportunity to hire some high-skilled personnel for your company out of the Venezuelan population? Is that something that's currently taking place?.

Thank you very much. We have had a flow of Venezuelans and also Colombians working in Venezuela who have been coming to the company at different levels of the managerial and technical capacities.

Not necessarily more in the last six months or year, but definitely in the last six years, eight years, there has been a lot of people who are working in the Venezuelan industry of oil and gas, and now are working in different companies in Colombia, in Ecopetrol definitely.

I will give you the floor to Pedro Manrique, who was working in commercialization, Venezuela, and of course can give you a flavor on this..

Thank you for your question, Raymond. Certainly, we are – over the years a lot of PDVSA employees. But if you recall, when – there was an employee from Venezuela a few years back. Many of the PDVSA employees left the country, and they have been all over the place, and some of them are returning to places like Colombia.

And as our President mentioned, we have some of them here in this organization. And if the situation remains, I can foresee that something similar is going to happen. And I can tell – is that most of the employees from PDVSA – they're very well trained.

PDVSA used to be a very well-known company with a lot of good people, very well trained, and a lot of experienced people that can certainly be of good for a company like Ecopetrol. Thanks..

[Operator Instructions] Lilyanna Yang from HSBC..

Hi and thank you for the opportunity.

Could you please give us a little bit of guidance or try to quantify the upside in resources in – from unconventionals? Another question is do you have within your CapEx spend block of money or separate part of money that would go for acquisitions of reserves resources? And then, third question is you mentioned that you would be looking into the Brazil bids, right, in September-October, and you recently got two blocks in Mexico.

Could you elaborate a bit on the rationale of getting to these out of Colombia instead of focusing more effort and maybe money within Colombia? Thank you..

Thanks, Lilyanna. Thanks for the question. This is Felipe Bayon. In terms of the upside of unconventionals in country, I think it's important to frame what we're seeing going forward.

First thing is that we do believe there's quite a bit of resources that will come from unconventional sources, something that has been assessed in the past, but where there has been limited activity. There's oil companies that have done some activity in the Middle Magdalena Valley, and that's where we think that most of the upside will come from.

As Ecopetrol we have a very good position in terms of the acreage in the area, and that's why we're venturing in saying that the country, going forward, in terms of its own sustainability of resources and having the feed for the refineries and the products that the country will need to continue to grow unconventionals in this sense, will become one of the major sources of crudes and light crudes that we can use in our refining system.

So in that sense, we're in the beginning of the journey. Juan Carlos was mentioning earlier, there is already regulation around exploration. There's regulation that's on the pipeline around production and development of unconventionals. But we think it's clearly something that the country will need to embrace.

It's energy sufficiency and stability, going forward. External sources have quoted anywhere between 2 billion, 4 billion, 5 billion or 6 billion barrels of recoverable resources. It's early stages. We will need to do more assessments in this area.

In terms of your second question and acquisitions of reserves, we've explained earlier that there's four things that we are working on to try to strengthen our position midterm and long-term around reserves and our R-to-P ratios. First thing is exploration.

We're actively conducting activities in that area, both in country and outside and both onshore and offshore. Second thing is all the recovery factors increase on all the pilots that we've done on secondary and tertiary recovery. We're moving forward with sanction and execution of some of those this year.

Thirdly is unconventionals, which I have just talked about. And in terms of acquisitions, what we're doing is we're actively looking at the opportunities. We're looking at opportunities in the Americas. We're basically working in Colombia. We're working in the U.S. Gulf of Mexico [Audio Dip]..

Sorry for the – sorry. It looks like we're having technical difficulties. Please stand by as we reconnect the speaker. And once again, it looks like we have Ms. Maria Catalina Escobar..

Lilyanna, I think we – the call dropped, so I may need to start. And I'm going to take it from the acquisitions, and obviously there's a follow-up in terms of something that's missing for you and that we need to clarify. We'll do so. So in terms of acquisitions focus, I was referring to our focus as a company on being a pan-American company.

We're clearly concentrated in Colombia, both onshore and offshore. We have an increasingly growing presence in the U.S. Gulf of Mexico. We've recently entered into Mexico with two offshore blocks with Pemex and Petronas.

So I think in terms of acquisitions for reserves, we're looking at these areas plus potentially Brazil, which I know is your third question. So we'll be concentrating on the continent, on the Americas, and that's our target areas.

Just want to reframe something that maybe having lost when the call dropped, but I think in terms of reserves there's four avenues that we are progressing. So the first one is exploration, and we've talked about our good result this first semester – 80% success rate, four out of five wells successful, both in Colombia and in the U.S.

So we will continue with that, with exploration. The second one is the increase in the recovery factors, mainly in the onshore Colombia. So this year we will be seeing a lot of the pilots that – in which we've invested throughout the past years. Even through the crisis, we've kept on investing in those pilots which can help us improve recovery.

So secondary, tertiary recoveries will be – we will be seeing more and more of that. And the good news – some of those projects are already in through sanction and we are into the execution phase. The third thing is the unconventionals, which we've talked about, which we clearly are committed to helping develop those resources in country.

It will be good for Ecopetrol. More importantly, it will be good for Colombia as well. And again, in terms of acquisitions, these are going to be targeted. These are going to be very specific things that have a good fit with our portfolio strategy. And as soon as we take them through the finish line, we'll be informing the market.

In terms of Brazil and what we're looking, I'm going to ask Max Torres, our Exploration Vice President, to give you some remarks..

Hi, Lilyanna. Good morning. Thank you for the question. As an overall philosophy, our idea is just to diversify our portfolio. The countries we are focusing in right now are Gulf of Mexico, Mexico and Brazil. The – essentially, through these countries, we are trying to increase the portfolio value.

We are doing an intensive portfolio management, and the overall goal is to create value through exploration. We had a good semester. As Felipe was saying, four wells out of five, which is quite good. And the idea, why to focus abroad, is I think Colombia has a lot of opportunities.

We are focused in Colombia; but I think the key word here is that we need to diversify our portfolio. We need to find other opportunities. We need to find a portfolio with better products – light oil and maybe gas. We need to be more balanced towards gas as well.

So the answer, essentially, is portfolio diversification and creation of value through exploration, and that's our commitment with the company..

Thank you. And there are no further questions at this time. Mr.

Juan Carlos Echeverry, do you have any closing remarks?.

four out of five successful exploratory wells, some of them in the offshore in the Gulf of Mexico and in Colombia, and some of them in the onshore.

And for the second half of the year we have now the possibility of drilling two further wells in what could be probably the most promising onshore oil field available for Ecopetrol, which is the CPO-9 in Meta – in Guamal Meta, near Chichimene and Castilla. We are now building the facilities for the rig to get there in probably one month.

Additionally, we have reduced the margin versus Brent of our crudes from around $12 two years ago, to $6.6 right now, which is a huge achievement for Ecopetrol. There are different elements in – playing in this. Of course, the situation in Venezuela; the situation in Mexico, of the supply in Mexico; the supply of some of the Gulf countries.

But the – what we see is that the demand of Colombian oil has gone up and we're seeing tightening of these margins as a very positive event.

How much of that is permanent and how much of that is transitory is to be seen, but we think also that we have a renewed commercial policy that makes some important part of this margin gain to be permanent, and we'll be fighting for that.

We have created this new center for maturing projects, which makes us confident that we will have many projects with a lot of potential of adding reserves and adding production in the two or three years to come. The center is already in full speed with 120 people, and developing 10 projects, maturing them, and another 10 will be added this month.

We then have reduced the guidance for CapEx but we have not modified – our target for production for this year is at 750,000 barrels per day of oil equivalent; nor the target for 2020 at 760,000. And even if prices go very above of $50 per barrel, we will be targeting more than 800,000 barrels per day.

We're – as we mentioned, the internationalization policy of Ecopetrol to be an all-Americas company, going to have stronger presence in Mexico with the new blocks we gained in the recent round, with a higher production in the Gulf of Mexico and with the new activity – prospect activity in Brazil, and looking at other areas with a lot of attention – we see a lot of attention – a lot of possibilities, depending what happens in Venezuela; in Argentina.

So Ecopetrol is ready and it has the liquidity and the financial muscle to enter in new areas, and that is part also of the diversification of our portfolio. So as you see, we have many fronts of intensive work. We have the team with the capacity to do that work, and we'll see the future with a lot of optimism.

Part of it also, things like the new play of unconventionals in Colombia, which has been dormant so far but is not any more dormant for Ecopetrol; Ecopetrol is embracing this new challenge as a huge possibility of growth for the next decade. So thank you very much for participating in this conference call, and we wish you a very good day..

Thank you. This concludes today's conference call. You may now disconnect..