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Energy - Oil & Gas Integrated - NYSE - CO
$ 7.64
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$ 15.7 B
Market Cap
3.98
P/E
EARNINGS CALL TRANSCRIPT
EARNINGS CALL TRANSCRIPT 2021 - Q4
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Operator

Good morning. My name is Hilda, 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 fourth quarter and full-year of 2021. All lines have been muted. There will be a question-and-answer session at the end of the presentation.

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

As a result, Ecopetrol assumes no responsibility in the event that future results are different from the projections shared on this conference call. The call will be led by Mr. Felipe Pardo, CEO of Ecopetrol. Alberto Granger, COO, and Jaime Caballero, CFO. Thank you for your attention. Mr. Pardo, you may begin your conference..

Felipe Pardo

Good morning, everyone, and welcome to our Fourth Quarter and full year 2021 conference call. This presentation is framed in the context of the new corporate strategy, energy that transforms.

Committed to our culture replaceable life first, I want to begin highlighting that in 2021 we had zero fatalities at our operations, and achieve the lowest average total recordable injury frequency rate for in the company's history.

In 2021, we generated revenues of COP 91.7 trillion, a record EBITDA of COP 42 trillion, as well as the highest net income in the history of our company of COP16.7 trillion. Even excluding the contribution of Interconexion Electrica SA ISA during the last four months of the year, Ecopetrol's results are still the highest in our history.

These remarkable results were leveraged by the recovery of crude oil prices and magnified by our ability to adapt and respond to the challenges in the environment.

The tenacity, efforts, and commitment to keep safe operations of all the employees of the Ecopetrol group, who make the impossible possible, allowed us to achieve a solid and resilient operational performance across all of our business segments, while outstanding commercial strategy materialized into better crude and product spreads.

Let's move on to the next slide, please. The financial results for 2021 exceeded the targets we set for the year, creating value to all the shareholders. We highlight the solid operating cash flow generation, which funded our organic investment plan for the year and the progress in the development of our strategic assets.

On the operational front, we are able to guarantee domestic fuel supply, even with an increase of more than 25% in demand when compared to pre -pandemic levels.

Also, we ensure domestic gas supplies, overcoming the supply prices, climate-related infrastructure impacts, and the public order situation that affected Colombia during the second quarter of year 2021.

Our financial results, in particular, the EBITDA margin, the ROTI, and the annual growth of net income posted an outstanding performance as compared to our peers in the industry.

It demonstrates, once again, the advantages of being a diversified energy group capable of combining the benefits of the integrated hydrocarbon businesses with those of the energy transmission and infrastructure segments. Let's move on to the next slide.

These historic results are aligned with, and propel, our long-term strategy, energy that transforms, which is based on four pillars in self-consolidating the group as an agile, dynamic, resilient, and flexible organization capable of rapidly adapting to constant changes.

During 2021, we made important progress in our strategic agenda with the accomplishment of several milestones, some of which I want to highlight.

We grew with the energy transition, resuming the positive growth path in our core businesses, and diversifying those with the acquisition of ISA, we generated value through TESG, Technology Environmental Social and Governance, setting ambitious de - carbonization targets by 2030 and 2050, with significant progress in water management and contributing to economic reactivation through social investments in more than 287 projects in terms of cutting-edge knowledge, we advancing our digital transformation, with a strategic portfolio that adds value through innovation in different processes.

In 2021, we capture benefits for some $93 in our digital agenda. Finally, in the pillar of competitive returns, we achieved our ROACE that wildly exceeded our cost of capital. Let's go to the next slide, ISA integration to the Ecopetrol group is now a reality. Its results, potential for growth on synergies have proven its value to our shareholders.

In 2021, ISA reported solid operational results and continued its inorganic growth plan. The most important milestone of the year was the awarding to build and operate the Kimal-Lo Aguirre transmission line, a project that comprises more than 1,400 kilometers, and one of the most important electric power transmission projects in the continent.

This will be the first direct current line in Chile that will connect the renewable projects in the North to the center and south of the country, leveraging the de - [Indiscernible] of which energy mix.

I would also like to highlight the acquisition, of the 100% stage in the Brazilian power transmission company, BPTE, on the approval of the first large-scale energy storage projects in Brazilian transmission system which is expected to begin operations in November of the current year.

During the last six months, we have made progress in the integration of the Ecopetrol group.

By year-end, we actually failed with all the milestones sets for the financial consolidation of ISA and for the contractual obligations to establish in the inter-administrative agreement that support to the transaction between Ecopetrol and the Colombian government.

In addition to aligning the strategic KPIs between both companies, we established working groups to identify, prioritize, evaluate, and develop potential synergies in the following areas. New ventures in energy transition, ISA 's entry into the U.S.

market, savings in procurement, optimization of Ecopetrol's electric power infrastructure, linear infrastructure through CENIT, science, technology and innovation, environmental, social and environmental management, information technologies, and cyber security.

ISA’s potential for growth is very relevant and Ecopetrol will contribute to identify and materialize inorganic alternatives as part of which $36 billion capex pipeline already identified until the year 2030. I will now open the floor to Alberto Consuegra, who will tell us about the main operational achievements of the year..

Jaime Caballero Uribe

Thank you, Felipe. In 2021, we drilled 13 exploratory wells, exceeding the initial plan by 4. Eleven were in Colombia, one in the United States, and one in Mexico. By the end of the year, three wells were declared successful. Media-wide W12, located in PLM Mondi, which as of December 31st had a cumulative production of 29,725 barrels of oil.

[Indiscernible] declare commercial on [Indiscernible], about to start its extensive tests. In January 2022, they HELCO subsidiary announced the discovery of the EBA Marca one exploratory well, with 17 degrees Api EOA.

This finding is close to the existing infrastructure in the [Indiscernible] block, which will allow the entry to production from extensive tests in the first half of the year.

As a result of the 2021 round of the National Hydrocarbons Agency, Ecopetrol obtained three technical evaluation areas in the middle Magdalena Valley, and one exploration and production block in the Gernos [ph] Orientales region. In addition, Coca-Cola obtained and exploration and production block in the Sinu San Jacinto basin.

The cumulative production of the exploratory assets in initial test, extensive tests, and wells in [Indiscernible] reached about 1.5 million barrels of oil equivalent at the end of the year, with an average flow of 4,364 barrels per day, out of which 65% of the production corresponded to crude oil and 35% to gas.

According to the 2022/2024 investment plan previously announced to the market, this year we expect to carry out a program that includes 22 onshore wells and 2 offshore wells with an investment of approximately $391 million.

With the drilling of the Gorgon-2 well, we hope to define the development of this discovery and enable other exploratory opportunities identified in the area. Let's move on to the next slide, please.

2021, as we pointed out, was a challenging year in terms of production, given a combination of factors that negatively affected us, including operational restrictions in the Castilla field, public order distress during the second quarter of the year, the rainy season in Colombia, and the hurricane season in the Gulf of Mexico.

In line with every quarry expectations and due to the growing contribution of assets such as Permian, the production for the fourth quarter increased by 11,000 barrels equivalent per day as compared to the third quarter. With these production, we closed the year at 679,000 barrels equivalent per day.

We highlight this chart in our results in terms of reserves in corporation, which registered an additional 462 million barrels as compared to 2020, out of which more than 60% correspond to the company's performance, and the remaining 40% is the product of a favorable price of scenario, closing with a replacement rate ratio of 200%.

For 2022, we expect primary crude oil production to remain predominant, but we will preserve efforts towards secondary recovery expansion with borrowing injection mainly for heavy crude oil assets on tertiary recovery pilots.

On conventionals, we'll continue to increase their contribution to production, and we expect this participation to be 5% out of the company's total production for this year. Thanks to the activities in the Permian. We highlight its research contribution as well, which alongside the Ecopetrol America accounts for 11%.

During 2022, we will focus on overcoming the challenges that may arise due to the logistics and international supply difficulties and the public order situations.

On the other hand, the average production of gas and LPG stood at 150,000 barrels of oil equivalent per day in 2021, which represents a growth of 7% from 2020, driven by the recovery of demand. We expect a similar growth for this year in domestic demand.

Gas and LPG business delivered solid financial results with a combined EBITDA generation close to $807 million and a margin of 53% representing an increase close to 21% compared to the previous year.

The gas supply for the Colombian market was strengthened with an additional potential of around 84, you got BTUs per day, equivalent to 9% of the national demand in 2021. We highlight exploratory success of the media.

Why W12 -well, and the appraisal and development wells and the North Caribbean the work overs into self-consumption optimization and new offer from Campo for Dana, aligned with our TESG pillar in 2021, Ecopetrol promoted the reduction of LPG prices by 30% in benefit of final users and managed to connect more than 6100 low-income households to domestic natural gas networks to improve their live quality.

Bose adding more than 10 thousand connections seems 2019. Let's move on to the next slide, please. Regarding unconventional reservoirs on October 29th, 2021, Kale's environmental impact study was filed, launching the process of evaluation on approval of the environmental license for the execution of the project.

And on February 15th of this year, the same study was filed for the Platero pilot, complying with the milestones of the plan.

An exhaustive field work exercise was carried out independently for approximately nine months for the formulation of each of the environmental impact studies, including monitoring of more than 200 environmental parameters on the analysis of information by interdisciplinary teams of more than a 150 people.

The public environmental hearing regarding the Kale pilot took place, despite the acts of vandalism that sort to prevent its realization. The environmental hearing was held from a satellite point, giving the possibility to the community for more than seven hours to be heard virtually or through telephone calls.

We remain committed to an open dialogue addressing the concerns firm, groups of interest in the forms arranged for these purpose. Regarding our activities on the premium-basin 2021 concluded with 82 new wells in production for a total of a 104 online wells, an average of 19,300 barrels of oil equivalent per day were produced.

For 2022 an increase is expected. Reaching levels between 32000 and 34000 barrels of oil equivalent per day net for Ecopetrol Prior to Royal.

The construction of the water recycling facility was concluded with a capacity to treat 65 thousand barrels per day and storage capacity of 3 million barrels allowing the joint venture to recycle and use around 7.7 million barrels in completion operations.

During the fourth quarter of the year, this plan that allow Permian to reuse a 100% of the water at South Curtis Ranch, continuing with the strengthening of our strategy with cutting edge knowledge, we increased to 25 the number of Ecopetrol employees are signed as second lease in the associations operations.

Similarly, I would like to highlight a few operational milestones achieved by the Permian during 2021, such as optimization in spud-to-rig release, improvements in average drilling time, and a record pumping time, exceeding in some of these parameters our peers performances. Let's move on to the next slide, please.

During 2021, the transported volume of refined products increased by 20% as compared to the previous year. Thanks to the recovery of local demand, mainly in the Galan-Sebastopol corridor. The transported volume of crude oil in 2021 decreased 7% because of our lower production mainly in the Llanos areas.

The fourth quarter presented a similar level to the previous year, highlighting higher volumes have up weighted in the Southern corridor. Eight reversal cycles of the Bicentenario pipeline were carried out during the quarter to ensure the evacuation of the Cano Limón field after the pipelines damage caused by third-parties and by floods emergencies.

After the repair work, the pipeline resumed operations on November 29th.

Along with a reception of the Nare Association fields from Masarovar in November, Cenit implemented a successful action plan to achieve the evacuation on such fields, guaranteeing the safety of the processes and the integrity of the equipment at the Vasconia station, with an added value from their dilution system which we used to guarantee mixtures from naphtha are the qualities dispatchable to the Barrancabermeja refinery and Oleoducto de Colombia to Covenas.

Additionally, transported volume in the Vasconia system through Barrancabermeja refinery increased 10,000 barrels of oil per day. The co-dilution projects in Apiay and Cusiana enabled the use of LPG as a diluent for crude oil. This service allowed the use of a cheaper diluent with a higher dilution power and lower logistic costs.

On December 7th, the delivery of fuels at the API filler came into operation, relieving the flow of heavy load on the road to [Indiscernible] by around 600 time trucks per month, and enabling and alternative supply option to ensure reliability in the supply to the method apartment and to reduce CO2 emissions.

During November and December, CENIT, Oleoducto de Los Llanos and Oleoducto Bicentenario received the carbon neutrality certification granted by the Colombian Institute of Technical Standards, becoming the first companies in the Colombian Oil and Gas sector to receive this certification.

Our target for 2022 is for all the companies of the segment to achieve this certification. Let's move on to the next slide, please. Downstream's operational integrity prevailed, achieving exceptional financial results.

In the same way, the segment ensured the supply of fuels at a local level, satisfactorily addressing the reactivation of the productive sector and reassuring the country's energy security.

The segment achieved an annual record EBITDA of 3.5 trillion pesos and the highest annual EBITDA margin since 2016, reaching 6.9%, leveraged by financial discipline and cost control. During the fourth quarter of 2021, the segment achieved the highest integrated gross margin of refineries in the last three years, standing up $12.5 per barrel.

In Barrancabermeja we highlight this satisfactory execution of the shutdown plan on the petrochemical train and the crude and alkylation units of the refinery.

At Cartagena's refinery, we expect the start of the first shutdown cycle since the beginning of its operations, which will continue during 2022 altogether with the end terms in production of the interconnection project of the original crude unit of the Cartagena refinery with the new refinery.

Plan for the second quarter of this year, along with its corresponding gradual incorporation of benefits. In Essentia, Polypropylene production reached an annual all-time record of around 500,000 tons, thanks to the development of efficiency projects, and its operation break maximization, which started back in 2020.

Let's move to the next slide, please. As of 2021, we achieved efficiencies of 2.9 trillion pesos, out of which 1.4 trillion offset the pressure on OPEX caused by inflation and the reactivation of operations.

These is reflected in the total unit cost of $39.1 per barrel at the end of the year, which represents an increase of 6.5% as compared to 2020 in normalized terms and contrast with a growth of 10.6% if efficiencies have not been implemented.

The efficiency initiatives achieved in capex for COP 833 billion are aligned to the significant reduction achieved in drilling and completion costs. All the cumulative lifting coast of 2021 registers and increased when compared to the previous year.

The strict cost control of the company allowed you to reduce the unit values of cost per barrel transport it because of the lower consumption of materials and also the cost of refining due to the deployment of strategies identified as part of the zero-based budget methodology implemented by the end of 2020, I will open the floor to Jaime Caballero, who will work yield through the main financial results of the Ecopetrol group..

Jaime Caballero Uribe

Financial story, financial results achieved in 2021 were leveraged by a favorable price environment on a highly effective commercial strategy that enabled the capture of distinctive differentials for crude and refined products.

Together with efficiency initiatives and sound capital disciplined practice resulted in a significantly higher ROACE than our weighted cost of capital. It is worth highlighting the contribution to the results of the sustained and reliable production from our Permian operations.

The incremental financial return of the energy transmission and Roche business. And that has a Henner refinery, which this year also paying a record EBITDA generation and gross refining margin. In 2021, the Ecopetrol's group net income was ten times higher than the one recorded in 2020.A record high we sold, closing at 16.7 trillion Pesos.

The following aspects. Standout. First a 21 trillion pesos increase in EBITDA when compared to 2020 in line with higher sales of products and gas, lower labor costs and other expenses which mitigated the impact of cost increases derived from the economic reactivation.

Higher participation you fields such as [Indiscernible], and higher fees in contracts among others. Secondly, a decrease of COP0.5 trillion in the non-operating result related to lower portfolio profitability given market conditions and the increase in interest expenses due to higher leverage levels.

Third, an increase in depreciation charges of COP0.5 trillion associated with a higher level of capital investment and the increase in Permian's production. Fourth, higher income tax provision due to improve results.

And fifth, nonrecurring events of COP 0.5 trillion, with 2021 being a year with a near zero effect for impairment net of taxes compared to an impairment expense in 2020 of COP530 billion and the income obtained in that year from the effect of the business combination due to the additional state in the Wahid asset.

In 2021, the effect of the annual asset in Permian exercise considered better short and medium-term prices outlook for the upstream segment, the decision to expense the remaining balance of the investments associated with our Barrancabermeja refinery modernization plan, which was partly offset by the Cartagena refineries operational and financial consolidation.

Thirdly, a lower volumetric outlook for the Tumaco Port and the TransAndino pipeline in the midstream segment, fourth, the financial effect of the approval of the agreement between Frontera, Cenit, and Bicentenario. Generating the recognition of an income of 0.7 trillion pesos net of taxes.

And finally, the acquisition of ISA that contributed 0.3 trillion pesos to the net income corresponding to Ecopetrol's participation in the results for the four months after its acquisition. Let's please go to the next slide to see the main aspects of the commercial performance and its contribution to the group's results.

The commercial strategy was consolidated as a key lever of Ecopetrol's financial performance. For the capture of benefits on fronts such as asset-backed trading, diversification of export destinations, adoption of DAP practices in our negotiations through different shipments, and contractual flexibility.

The trading margin, contributed $487 million across the group segments, mainly as a result of materialization of benefits in heavy crude exports, purchases of crude for refineries throughput, asphalt sales, and energy efficiencies, especially in the upstream segment.

The higher sales of gas and products were in line with the general recovery of economic activity, demonstrating the strengthening of demand for refined products which reach higher levels than even pre -pandemic.

The crude oil gas and product baskets strengthen during 2021, as a result of the increase in international prices, and the different action France mentioned previously. Please go to the next slide to see the main financial results associated with ISA's consolidation.

Since the consolidation of ISA's financial figures in September 2021, when the acquisition was completed, a significant contribution has been observed from the energy transition on roads business to the group's results, with the following highlights. First revenues of $4.1 trillion pesos, representing 4.5% of the total group's revenues.

Second, an EBITDA of 2.7 trillion pesos, contributing 6.3% of the group's total EBITDA. Third, contribution to net income of $262 billion pesos, corresponding to Ecopetrol's participation.

And fourthly, in addition to the above, the segment reports a net income of a $135 billion pesos, explained by an exchange rate difference and the financial expenses associated with their contracted debt to fulfill the acquisition transaction. ISA added $61.7 trillion pesos to the group's assets and $39.6 trillion pesos to its liabilities.

The gross debt to EBITDA leverage ratio with which ISA is consolidated announced the 4.1 times, in line with a rating of investment-grade and a stable outlook. Additionally, in accordance with IFRS, a total amount of $10.9 trillion COP was recognized as the difference between the fair value and book value of ISA's net assets and its liabilities.

This difference was allocated between the consolidated assets liabilities of this company. These material contributions to the results of the Ecopetrol Group show figures with a more prominent role of the energy chain and the income diversification for which the company striving. Let's please go to the next slide to see the main financial indicators.

Regarding the metrics in the traditional oil and gas business, EBITDA per barrel closed at $42.4 supported by the higher crude oil and products facet sales price previously mentioned, while the net income break even closed at $34 per barrel as a result of [Indiscernible] prices for crude oil and products and higher refinery throughput due to the recovery of demand.

It is important to note that these metrics, being specific to the hydrocarbon industry, do not include the 100 region of ISA. Regarding ISA's indicators, the EBITDA margin excluding construction closed at 76.1%, a result of an efficient and rigorous expense management process.

The 11.6 ROE, return on equity, continued generating value to shareholders despite the impact on net income of the liability management of ISA inter-Chile's debt and the update of the deferred tax due to the modification of the income tax rate in Colombia. Regarding the Ecopetrol Group level indicators, which include ISA, the following stand out.

First, an EBITDA margin of 45.7% mainly explained by [Indiscernible] prices of crude oil and products. It should be noted though, that the four month consolidation of ISA contributed one percentage point to the margin, for which a greater income is expected once the full-year is reflected.

Secondly, return on average capital employed returned to double-digit levels, closing at 13.6% mainly due to higher operating income which was partially offset by higher taxes and the increase in capital employed.

Third, the midstream segment continued to be a major contributor to the group's EBITDA, highlighting as well and in turn, the growing participation of ISA, who’s more stable EBITDA allows the group to be better positioned to face volatility in the hydrocarbon business.

Lastly, the gross debt to EBITDA ratio closed at 2.3 times, below the target level of 2.5 times, maintaining, therefore, our standalone investment grade criteria. This, even incorporating 100% of ISA's debt, the acquired debt for the purchase and only four months of its EBITDA.

Eliminating the effect of ISA's acquisition, the Ecopetrol's group growth debt to EBITDA would have closed the year at 1.3 times. Let's move on to the next slide, please. The execution of investments during 2021, amounted to $8 billion, the highest level in the last six years.

Of this amount, $3.2 billion corresponded to organic investment from Ecopetrol and its subsidiaries of the hydrocarbon business. $1.1 billion to ISA and the remaining $3.7 billion to inorganic investment for the acquisition of the ladder.

Regarding organic capex during 2021, a level close to the $3.5 billion target announced in the third quarter results was executed. This was impacted by efficiencies in migration and execution phases of development and production projects, restrictions related to the public order situation, and the impact of COVID-19 on global supply chains.

Longer terms in administrative procedures, which mainly infected activities in Piedemonte, and some blockades in [Indiscernible] Lasita and Danito fields.

Within the company's plans to increase capital intensity, our -- the focus on projects that drive production and research growth, and the inorganic optionality in the transmission and roads business. Let's move on to the next slide, please.

At the end of 2021, Ecopetrol recorded a consolidated cash position of COP17.5 trillion, with which 2022 will start with a higher cash position than the one ambitioned in the 2022/2024 plan.

Among the most important yearly movements are firstly, the strong operating cash flow generation of COP22.5 trillion, of which ISA contributed with COP1.4 trillion and that excludes the pending balance of COP7.8 trillion associated with the account receivable from the Fuel Price Stabilization Fund, FEPC for its Spanish acronym.

Secondly, the outflow of investment resources for organic activities by COP13.3 trillion and the acquisition of ISA for COP14.2 trillion.

Third, the financing inflow for the acquisition of the controlling interest in ISA and for that service, and lastly, incorporations in cash from the ISA consolidation regarding the FEPC's FX balance, the Ecopetrol Group's expectations contemplate the liquidation and collection of COP3.5 trillion in balance of the third quarter of 2021 in line with what it's foreseen in the national general budget.

Additionally, the company expects to collect the estimated balance of the fourth quarter of 2021 before the end of the year. The final cash balance considers cash and cash equivalents for COP40.6 trillion and a short-term investment portfolio of COP2.9 trillion. I now pass the floor to Felipe for his closing remarks..

Felipe Pardo

Thank you, Jaime. In 2021, we had very important results in our TESG agenda. In the environmental front, we are pleased to announce a reduction of greenhouse gas emissions of more than 293,000 tons of CO2 equivalent, exceeding the target with 125%.

Some of the initiatives that contributed to these reduction in Q -- energy efficiency projects, which have allowed us to optimize our energy mix, reduced fugitive emissions, reduced renting and flaring, as well as projects of self-generation in our solar farms.

In order to meet our long-term goals, we had progress in the natural climax solutions funds by establishing partnerships with the Nature Conservancy, Wildlife Conservation Society, Fundacion Natura, South Pole, and the Conexion Jaguar programs sponsored by ISA.

These programs offer the potential to capture more than 1 million tons of CO2 equivalent per year, which will enable carbon offsets starting in 2030. In addition, we increased our self-generation capacity with renewables to 112.5 megawatts, which now accounts for 8% of the company's energy mix.

In terms of water management, we registered a re-use rate of 74% of the water required to operate, with which we continue to progressing towards our goal of water neutrality.

We invested COP 469 billion, some $120 million in social projects that seek to promote local development to improve life quality of the communities, consolidating high level of trust in the areas of influence, boosting local economies, education, and access to public services.

These projects supported around 1100 rural families, and 463 small and medium-sized enterprises, as well as the construction and improvement of 60 kilometers of roads, and contributing to strengthening educational quality for more than a 190 thousand students.

In terms of governance we made progress in transparency and disclosure of information under the TCFD and SASB standards, becoming the first Colombian company to do so. Also, our scoring new Dow Jones index increased from 66 to 68.

In addition, we joined a 30% club, an initiative that fosters greater participation of women in boards of directors, and senior management positions in the business sector. Furthermore, Ecopetrol achieved the certification a key powder Silver Seal with a 98% score.

With these, we now have five companies in the Ecopetrol group with a favorable processes for gender equality and there this certification program. All these achievements joined those accomplished in the recent years.

We have adopted OECD recommendations regarding the non-participation of public officials in the Board of Directors, the definition and application of independents and technical knowledge criteria for the members of the board. The independence of more than 50% of the members of the board.

The design of a clear succession policy for the members of the board, as well as for the CEO of the company. The strengthening of the approval system for investing in projects based on technical criteria, including controls, segregation of duties, and a decision-making structure that integrates the different governing bodies.

Let's go to the next slide. Ecopetrol is a key player in development of Colombia, the regions where we operate, and our stakeholders.

Ecopetrol's contribution to the Colombian economy in 2021, with some COP26 trillion, including dividends, taxes, royalties to the nation, dividend stakes to minority shareholders, social and environmental investments, employees remuneration, and local procurement.

We also contribute to guaranteed energy security and leading Colombians' decarbonization roadmap. Our efforts generate value to more than 254,000 direct shareholders and more than 18 million Colombians that are affiliated to the pension funds.

With our more than 18,000 employees and over 3,000 local suppliers, we continue working to be energy that transforms. Let's now move to the final slide. The record results achieved in 2021 reflect the competitiveness of Ecopetrol and its evolution in the recent years.

In 2022, we will continue to focus on profitable growth of our core businesses, the protection of the environment in which we operate, the relationship with the communities, we will capture the upside of favorable crude oil prices while we continue to move forward in consolidating the energy transmission and road concession businesses within the Ecopetrol Group.

Once again, thank you for your time and interest in participating today. With this, I now open the floor for Q&A session..

Operator

Thank you. [Operator Instructions]. We'll pause for just a moment to compile the Q&A roster. We have a question from David Souza from UBS. Please go ahead..

David Souza

Hi everyone.

Can you guys hear me?.

Felipe Pardo

Yes we can. We can hear you..

David Souza

Awesome. Great. Thanks for taking my questions and congrats on the reserves. My first question, regarding the plan you just released, the 2022 from -- until 2024 plan. You stated that you expect robust results which [Indiscernible] prices at 63 in 2022.

And so far this year, [Indiscernible] has been quite above their possibly remaining at high levels for longer period.

So our first question would be how flexible is this plan in terms of either accelerating or relocating investments? And still on this, the company generating more gas than initially expected, what will be the main goals in terms of [Indiscernible] allocation? Maybe repay debt, returning capital to shareholders, broader investments as it was the case with ISA.

My second question, what's your view in terms of diversifying the company's portfolio into the energy transition, because we had seen the company benefit in the short-term from [Indiscernible].

So would the company be reading or maybe would that be a possibility to delay investments in other segment in the short term and have a higher focus in the upstream segments seeking to benefit the most from these high grants in the short term? So those will be my two questions. Thank you..

Felipe Pardo

David, thanks a lot and thanks for being here today. I'm going to take the questions and if anybody in the team then wants to add something else, probably Jaime, feel free to do so.

So the first thing is you rightly point out our plan is robust at $63 per barrel and we have some sensitivities in terms of white means to have $1 or $2 or wherever, how many dollars on top of that forecasted or that budgeted value that we've used.

But the first thing I want to say is that we want to remain very disciplined and focused in terms of how we deploy the capital. I think that one of the strengths of Ecopetrol over the years, with the last two crises that we've had in these last five to six years, it's our ability to remain very disciplined.

And in that space, capital discipline is fundamental. So that's point number 1. We won't abandon capital discipline. We won't go do a lot of things that may appear to be appealing because there's more cash in terms of investment. Having said that, we are -- and remember that we are already increasing almost 50% our capex from last year to this year.

If you don't take into account the inorganics, as Jaime was presenting earlier, which will take you to 8 billion plus of capex. So discipline, we're already increasing on being more aggressive in terms of the number of wells, the number of projects, the number of fields that we want to put into -- tie back or put into production in the likes.

So I think that's relevant, keeping the focus and being very disciplined. And said we are -- we do will -- or we will have optionality, when it comes to higher revenues and more cash. So what can we do with that? Can we prepay debt? No.

Can reduce some inorganics? Can we actually accelerate, not necessarily do additional things, but is there opportunity to accelerate projects that could be accelerated? And remember that there's a worldwide contest of disrupted or supply chains and logistics, difficulties that we need to cope with as well.

I think all of the things that you've mentioned are possible. We could repay debt, we could return to shareholders. There could be some additional inorganic opportunities. But I just want to stress, once again, the need to be very disciplined with the capital.

In terms of diversifying the portfolio, and I wanted a framework of the 2040 strategy that we presented to you guys to the market, a couple of weeks back, we have a frame that I think it's very comprehensive and it provides for the growth of the core business within the context of energy transition, so that's what we intend to do.

So I don't see us jumping around and just stalling things to try to do some others, I think it's fundamental that we continue to be as proactive and basically lead in the region in terms of energy transition and that's one thing that you'll be hearing more from us in the coming months and so.

I don't know Jaime or Alberto or anybody there is anything else you guys want to add..

Jaime Caballero Uribe

Well Felipe, we were nodding here because I think you've covered the key points, our philosophy is stated in strategy that we rolled out a few weeks ago and our focus now is on executing that..

Felipe Pardo

Thanks, Jaime. And thanks David and thanks for your interest and thanks for being here today..

Operator

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

Anne Milne

Good morning. Thank you very much for the call and for the presentation. I have two questions this morning. The first one is just to go over a little bit more in detail the 2022 capex plan. You have the great slide, I think it's Slide 20 here of where you've come from 2018 to 2021 to know a little bit more where it's going to be spent in 2022.

You are increasing it as you mentioned to the 4.8 to 5.8, a little bit more information there. And then the second question has to do with Ecopetrol's use of electricity generation.

I know you've been involved with some solar plants, and just wondering, how much more can you do on the renewable side or internally using your own gas production on the -- just on the electricity side a little bit more information? Thank you..

Felipe Pardo

Thank you, Ann. And good to hear you. And I'm going to ask Alberto to take the first part of your question around the capex details. But I'm going to start return to electricity generation. So today, roughly ballpark numbers, 8% of our capacity is mainly solar if you think about renewals.

So we have two solar farms and we're buying a grid as well, and where we've already announced six more solar projects coming through. Some of them will be PPA, mainly Power Purchase Agreements, but eventually, we will have equity-owned solar projects as well. So that's in the works. We should be -- you should be hearing more about that.

So we're very, very happy with what we've seen with the performance on solar, both in terms of reduction of emissions and cost savings. So both things actually work very well. If you remember the context of strategy, we mentioned that by 2040, we want to be between 25% and 40% of our capacity roughly being from renewables.

So the point, and I'm speaking out loud here, can we find a way to further accelerate that? And I think the answer is yes. That's directionally what we've said we want to do, but eventually we want to accelerate that. Renewables also includes things like wind, so we're looking at wind opportunities.

The Caribbean in Colombia is very prolific in terms of wind speed. We're looking at that and we've been measuring the wind for some time, and there's opportunities in that space. We're looking at geothermal energy as well, so we should be doing our first pilot soon in NUMETA and using the energy into subsurface to generate.

And I'll close by saying gas it was -- last year, roughly 60%, 62% of the self-generation was done with gas. Again, can we expand? Probably, yes. Can we be more efficient, can we close cycles? Definitely, there's opportunities in all of those periods.

And at that point, if you can take and to some of the details or through some of the details, sorry, around capex, that would be great..

Jaime Caballero Uribe

Yes, Felipe, thanks and good morning. And as you mentioned, our guidance for capex in 2022 will be in the range of $4.8 to $5.8 billion. In oil and gas, we will be spending anything between $3.7 to $4.7 billion and ISA in days that business, it will be about $1.1 billion.

If you look at the upstream itself, the range will be between $3.4 to $3.8 billion. And if you talk about exploration itself, it's going to be close to $400 million then production, anything in the range of $3 $3.4 billion. And in the investments that we're going to be doing abroad in the upstream, it will be close to $800 to $850 million per year.

When you look at their midstream will be in the range of $350 to $400 million and refining $450 to $500 million in 2022. And finally, in terms of our TESG agenda, will be as spending around $350 million. So that's going to be -- and the figures that we're going to be managing in 2022..

Operator

Thank you. Our next question comes from Lilyanna Yang from HSBC.

Lilyanna Yang

Hi, good afternoon, morning, everyone. Thank you for the opportunity. I actually have generic questions. I would like to see, and sorry if you already addressed these in your initial remarks. But I would like to have a color on implications of [Indiscernible] conflict into the supply chain for Ecopetrol bidding Colombia, or be for your Permian assets.

And how your priorities have change it, or would change for 2222 in view of this unexpected event. And another question is on the midstream assets, if you can just give us an update on the latest and the upcoming lake reviews for the crude and for the fuel pipeline assets. Thank you..

Felipe Pardo

Hello, Lily. Good to hear from you. In terms of the first one, I'm going to ask Pardo to provide more detail around indications, not only in terms of supply chain, Lily, but in terms of commercialization and trading and the likes. So Pardo can give us a view and I'll give you my first impression on that.

And on the midstream, I'm going to ask Elena to help us with the details. So in terms of the conflict, the first thing is that we are deeply saddened about what's going on right now in Ukraine. Lot of people suffering, lot of people suffering, and we hope that there is a resolution very, very soon.

So before the conflict, we were seeing already some disruptions in supply chain. So there's some pressure of some commodities and some of the things that we use in our projects; aluminum and things like steel and things like copper. So there have been some pressures 10% to 15% roughly in some of those areas.

Having said that, we saw almost COP0.5 trillion of inflationary impacts last year, but they were more than compensated by the COP3 trillion that we actually achieved in savings.

I think there's some impacts -- there will be some impacts, but again, it will depend largely on duration, intensity, and disruption of some of those supply chains that we're seeing, but we're not changing priorities. That's I think the other part of your question. We have a plan.

It's aggressive, it has an important increase in terms of capex deployment. We need to be able to execute on time within specs to ensure that the time-to-market of the molecules, hydrocarbons, is achieved. Pedro if you want to jump in and help us with some of the trading aspects of these.

And then Alberto, if you want to -- and thinking of that, Alberto, if you want to chime in there, anything else that I've missed on this supply chain and then we go to Milena.

Pedro?.

Alberto Consuegra

Thank you for Felipe and thank you, Lilly, good morning. And thanks for all of your question.

As Felipe said what we're seeing is a -- the impact we made is that -- is the -- there were remains in place for quite some time, what we're seeing is that we're net exporters of crude, so we're seeing a positive effect on the crude side, on the exports that we do.

And we're seeing it right now because of the level of prices that we're seeing in the market. Also on the diesel side, we have our next net exporters, and -- so, we're seeing a positive effect as well. And also on the fuel oil, because we've foresee that there's going to be some disruption being Russia such an important player on the fuel side.

So we're seeing also a positive impact for our sales. And also on the Asphalt side, we're seeing a positive effect because we're -- we've been increasing exports of Asphalt and Russia it's a very huge play year worldwide. Now on the import side, we are seeing a negative effect on the imports of the crude that we're making for our refinery system.

We are net importers of gasoline, so we're seeing a net effect on that because the gasoline are -- also prices going up. And also on the naphtha diluent that we use for our upstream business we're seeing because again, Russia, is a very important player on the Naphtha side globally.

And also the last impact negative impact that we're seeing is the increase in shipping costs, that we're seeing in the -- we're going to be seeing if again, this event remains in place in time. But at the end of the day when we'd net out at positives and the negatives, we're seeing that it's going to be a net positive effect on our business.

So that's basically with the analysis that we've been doing so far and obviously we are monitoring this on a day-to-day basis. Thank you for your question, Lilly. Felipe, I don't have any further comments, I think you covered everything..

Felipe Pardo

Thanks, Alberto, then. Elena, you can help us with the midstream side. Thanks.

Unidentified Analyst

Yes. Thank you, Felipe. And thank you for your question, Lily. Before I go into the details, maybe a bit of context will help in terms of understanding the impact. When you look at the midstream EBITDA, approximately 20% to 25% is refined product pipeline.

Obviously it moves around depending on the effects as refined products pipelines [Indiscernible] in best. In terms of refined products pipeline, the tariffs that are better basically used today most of them were set around 2003, except for one segment that was done in 2011.

Theoretically, these tariffs get reset every five years, similar to what you see in crude pipelines, but this has not taken place so we are due for a revision. And so this isn't something that is extraordinary. This is part of the periodical changes that need to take place.

This year the CREG, which is the regulatory entity for energy and gas, has published the regulatory agenda, which set for the publication for comments of what the new methodology for refined product pipelines would be in the first semester of this year. And this is published for comments.

Generally, there's a series of meetings and back-and-forth with the regulator. And final publication of what the methodology would be is due in the second half of this year.

Assuming that takes place according to that pipeline, we would be handing in our tariff file, which is basically the document that gives all the inputs in order for the calculation at the beginning of the next year. And would probably have no refined product pipeline tariffs fully operational, probably by the end of next year.

They usually revise the report we send them and take them about 6 to 12 months in order for new tariffs.

So that's the process, it's taking place in terms of refined products, pipelines, which is very much a business as usual and obviously we will know what the changes may or may not be once the initial methodology is published for comments at the beginning of this year and once that takes place, we will be reporting to you.

In terms of there is arrangements of crude pipelines, so oil, what we have is what you've seen every four years there's a reset of tariffs. Tariffs are set to be updated in June of 2023, and that is in the regular course of revisions every four years.

One of the things that is known, is that the Ministry of Mines and Energy which regulates the style has in their regulatory agenda, stated that they may be making some changes to the methodology which they would be publishing in the last quarter of this year.

That is something that we would see end of this year and it would probably incorporate certain things from consultancy projects that they have carried out in terms of revising if there any updates that should be made to the methodology. That's more or less what the timeline looks like.

Any changes, if they were to happen, would only apply once the tariffs reset in June of 2023..

Felipe Pardo

Thanks, Elena, thanks, Lily..

Operator

Thank you. Our next question comes from Christian Audi from Santander..

Christian Audi

Thank you, hello, Felipe, Jaime, Uribe in Ecopetrol team, congratulations on the very impressive results across-the-board. I had three subjects I'd like to ask you about, please.

The first one, going back to capital location, in terms of capex, are you able to anticipate capex projects or even if you wanted to do that, it can't really be done in the short term, it would have to be more of 2023 onwards, dynamic.

In other words, you couldn't really increase capex in 2022 just because when you imagine some of these projects are long dated. And then in terms of dividends within capital allocation, you paid, given your very positive results, an extraordinary dividend.

Now, I was just curious if you're able to do that on a quarterly basis going forward or no, it's something that tends to happen only at the end of the year.

And then in terms of the other use of capital inorganic growth, my understanding was that you were particularly interested in opportunities within ISA, but I was just wondering, given again that prices are so high, oil prices are so high. If that now all of us and opens up a set of opportunities for you to pursue inorganic growth.

Also, in the oil and gas sector, and not just related to ISA. Then the second topic was costs. Very quickly I was just wondering if you could comment on your outlook for lifting and transportation costs given what you were able to achieve in the fourth quarter. And then finally, affiliate be on corporate governance.

You have been a significant amount of work on corporate governance, improving and strengthening your bylaws reports.

But at the same time we're dealing with a very dynamic, fast, changing pre -election environment that generates a lot of noise, right? Candidates saying things that they wish they could do but whether they can be done, it's a separate story.

I was wondering, given your very attractive and solid micro story, what can you tell investors from a macro point of view of how protected Ecopetrol is given its strong bylaws and Board setup? Thank you..

Felipe Pardo

Christian, thanks. Well, there's lots of different lenses in your questions. So what I'd like to do is I'll just give you context. I'll ask Alberto to talk a little bit more about capital allocation, can we anticipate projects? Is it more a thing for 2023? Potentially, yes than this year.

Because we want to remain very disciplined, which was something that I was answering in one of our previous questions. Dividend policy, I'm going to ask Jaime to provide a bit more detail, but good news, we had a amazing, and I think you used a good word that we pass on to the team, impressive.

We had impressive results and I think in that sense, being at the top end of the dividend range within policy is always good, is always good. In organic opportunities, we always have that as we've done in Brazil that you've seen over the years with things like Gato Do Mato or some of the exploration blocks as we did with the Permian.

And the Permian is going to be going on a net basis, north of 30,000 barrels this year for us or 60,000 barrels for the JV. So from 50,000 we're going to go to 60,000 and providing $250 million of EBITDA and an EBITDA margin of more than 80%. So there will be opportunities that will need to be assessed.

But you rightly point out, having higher prices, having more cash inflows will give us more flexibility in terms of fiber M&A or in terms of accelerating some things on the margin, I would say. And then I'll come back to corporate governance.

So Alberto, if you can help us and then Jaime and then pass it back to me and I will talk about corporate governance..

Alberto Consuegra

Thanks Felipe. Good morning, Christian. With regards to capital allocation, I will like to start saying that we already have a challenging year in 2022. We were going to be spending a lot more on EBITDA in 2021, and our guidance for capex in this year 2022 is going to be between $4.8 billion to $5.8 billion.

And when you look at 2023, given the state of maturity of our projects, we're going to be spending more. We're going to be spending more particularly in the upstream.

So, definitely we were going to keep that in system in our capital discipline in 2022, ensuring that we continue maturing our price, so we can deploy the capex we expect to spend in 2023..

Jaime Caballero Uribe

Thank you, Alberto. Sorry, hi, Christian. Thanks for your questions. And dividend this actually tags along on what Alberto mentioned because I think the way that we're thinking about managing and allocating potential excess cash. I would characterize it as a period where the first priority is actually the first pillar of the 20-40 strategy.

And that's growth our first mandate, if you will, is to make sure that growth opportunities are funded. As you've heard from Alberto, the organic component of the brand is pretty firm. We are increasing the intensity of that plan if you think about it from an annual basis.

I would say and quoting Felipe here that any changes to that organic plan are going to be at the margin.

I think where we could have some opportunities could be in the inorganic front, clearly and I'm going to start with a transmission business, the upper -- the pipeline of opportunities that ISA is working on and maturity, and the nature of that market is one that there could be substantial inorganic opportunities in the near-term.

So that's something that's a consideration. We want to keep ISA growing, and the excess cash that we have could give us flexibility in that conversation. And secondly, there could be inorganic opportunities in the hydrocarbon businesses as well.

And obviously, we're not going to put those opportunities in a blog because of their nature, but we continually are looking at them and we're going to be looking at opportunities that are consistent with our strategy. What's that? Things like our presence in fast-growing areas, places where we're seeing the opportunity for short-cycle Hydrocarbons.

Those sort of opportunities are things that we're looking at. And we will continue to look at. So I think that's the first priority.

The second priority is around competitive returns, and in order to deliver the returns that we're delivering, you saw 13.6 ROTI we closed last year, in order to deliver that, we need to have that capital discipline but we also need to make sure that our leverage ratios are very robust.

And while we are comfortable with debt or [Indiscernible] we would clearly have a preference to reduce it to the extent that those excess revenues allow us to. I'd say that that's the second priority.

Once those two elements are covered, growth is secured on very healthy and debt levels are secured, and there are some space where we can improve on that. We could go into a conversation around additional distributions to shareholders. Specific to your question, do I see quarterly distribution by Ecopetrol? No, I don't see that.

It's something -- I'm going to explain why I don't see it. I don't see it because, we don't believe that the price environment that we're seeing right now is systemic. We don't believe that it's necessarily sustainable, and therefore, we need to be very careful about the commitments that we make on that regard. Now, wait.

Is there going to be a conversation about this in the second part of the year if the price environment prevails? Yes. I would say that's something that will be reasonable to expect. I hope this helps Christian. And with this, back to Felipe..

Felipe Pardo

Thank you Jaime, So in terms of corporate governance, I think there's lots of things that we want to -- or we need to think about, Christian, the first one is Ecopetrol has been doing a lot of work around corporate governance for many, many years.

So this is not something that we're just thinking about now, it's something that has taken us many years. I've been already six years in the company, and I've seen very, very positive changes, and I think, first having the ability of testing us and assessing us against international standards and good practices is always good.

I think we continue to make progress in that sense. And throughout the different AGMs in different years, we continue to strengthen our corporate governance. I think the one -- the first thing is that elections are still out there. There's the congressional elections that are very important as well in March.

And then one or eventually two rounds of presidential elections. So the first thing, we need to wait to see who's going to be elected, both in Congress and as president.

And I think Colombia has demonstrated as one of the longest standing democracies in the region, its ability to ensure that through checks and balances, as this would be closing the U.S. There's always good opportunity to ensure that the overall decision-making is respected, and Investments are respected, and the likes.

So from that point of view on talking, as a Colombian I'm not worried. No, I'm not worried about the outcome of what's going to come and what's happening. So in terms of Ecopetrol specifically, I probably going to go into the detail, but I think it's relevant to provide you a bit of the conflicts Christian.

So, things like independents on the board members, the losses that we need to have 50% independent board members. We have eight out of nine, I think it's 83% or whatever the percentages. The tenure of the board members. We're proposing that it's increased from two years to four years.

if you look at international standards, most boards or people will tell you no, board members normally are there 6-7-8 years, you know, and actually in Ecopetrol, we've had Board members on average, 2.5- 3 years.

So we want to ensure that there is more continuity, especially in the context of the strategy, as we laid out strategy for 20 years, it's having that line of sight. The other thing regarding the competencies that are required from board members.

That was also approved last year, so it's very specific to be a board member what you need to be able to comply with in terms of terms.

If you take that level -- one level down, last year, midyear in the summer, we actually approved the succession program or plan or frame for the CEO of the company, be it in the case of emergency or a planned succession. So I think Ecopetrol has been doing a lot of work over the years to ensure that there's stability.

We have a long-term strategy, the results -- again impressive results, using your words, demonstrate that we are resilient, we can very quickly adapt, but we can also lead on things like energy transition and things that are positioning Ecopetrol in a different lead in terms of how we see things.

And even if you go down in the organization, and I was referring to this in the prior call from Spanish, last year, I personally presented to the Board the succession plans for the 30 top executives in the company. So it's something that it's been thought through. We're very organized, we're very disciplined.

So I think from that point of view, the company is well-positioned. I think your question was something around from a micro point, how well is Ecopetrol protected.

And I think being also multi-region, multi-business company that floats in New York that is through the pension funds in Colombia, somehow touches 18 million Colombians through the pension funds.

So there's lots, I think, good elements in that sense to ensure that, I think, corporate governance, which is already very good and strong, will get even stronger. So I hope that helps, Christian. But let me know because I know it's a topic of interest. So let me know if there's anything else you want to touch on..

Operator

Thank you. Our next question comes from Andres Cardona from Citi..

Andres Cardona

Hi, everyone. I have two quick questions.

The first one is, if you can comment about the downstream margins [Indiscernible] margins that we see in the fourth quarter, are there sustainable or is there any new current event maybe, I don't know, boosted by the chemical business? The second question, if you can comment about the quality of this count outlook in the context of the situation that we are seeing in Russia and Ukraine? And the last one, if you can help me to double check a couple of data, is EBITDA for the gas segment in the fourth quarter and what is the dilution factor also as of the fourth quarter? Thank you..

Felipe Pardo

Thanks Andres, and good to hear you as well here in this call. The first thing Alberto, let me start with the dilution factor, first one, then we can go to the gas EBITDA, I think that's the other thing. And Jaime, if you're around please if you can take that one.

And then the EBITDA margin, if I get -- if you want to take that if we -- or we have Walter’s, please go ahead. But Alberto I'll pass it on to you first and then Jaime..

Alberto Consuegra

Thanks Felipe. And HI Andres. With regards to the -- to the EBITDA margin for gas on [Indiscernible] factor. Let me start with dilution factor and fourth quarter specific, we saw an increase in the dilution factor given then that we faced the realities high-year cost of the purchase of the diluent.

So dilution factor was up to $485 per barrel for a total most $4.27 during the year 2021. With respect to keep it under control during 2022, close to the $4 per barrel range. So that's kind of where we are at in terms of dilution.

I'm going to give those that weren't to Jaime, but in EBITDA margin for the gas business, what I can tell use it that we continue maintaining margins above 50%. 3%. We did that back in 2020 and in 2021 and recognizing that we had an increase of about 20% in terms of EBITDA growth in 2021. So that's kind of where we are DAMI, you want to compliment..

Jaime Caballero Uribe

Sure, Alberto. Thank you very much and thanks, Andres, for your question. Yes, our gas business delivered strong results in 2021 growing more than 20% compared with 2020 in terms of EBITDA.

This business generated more than a $100 million EBITDA with a margin of 53%, and it includes, of course, the results in the fourth quarter that were above 55% and it has been -- it has remained stable for the last three years.

So in conclusion, gas has proven to be a resilient and profitable business, which lead us to allocate more than $1.8 billion to that in our 2022-2024 plan. Thank you..

Felipe Pardo

Alberto?.

Alberto Consuegra

In terms of the downstream segment, what I can tell you is that we believe that we can manage operational availability of our two refineries as we have in the plan. And also, we see that we complete the expansion projects in the Cartagena refinery. We are going to be able to maintain levels of EBITDA margin similar to what we have in 2021..

Operator

Thank you. We'll go to the next question. It comes from Bruno Montanari from Morgan Stanley..

Bruno Montanari

Good afternoon. Thanks for taking my questions. I have a couple of follow-ups only from the prior call on this one. Starting with corporate governance.

Indeed, the company has made very strong progress throughout the years, I just had a specific question about the proposals you are making to change the bylaws now, specifically, there weren't increasing the tenure of board members from 2 to 4 years.

If that is approved and like it's going to be approved, does it change the existing tenure of the current board members or does it apply only for the next people getting into the team? And the second question is about the stabilization firms.

I understand that the figures that we're even for expectations to collect third and fourth quarter values, but the question is, demand is improving now, after the worst of the pandemic, oil is close to 110.

Doesn't it mean that the receivables in the firms will actually grow throughout the year and could be even higher than the COP 7.8 trillion that we saw at year-end? Thank you very much..

Felipe Pardo

Thanks, Bruno. And with respect to FEPC and the stabilization fund, I'm going to ask high Jaime to provide a bit more color about the answers. Yes, we know that the fund will eventually increase. Good news, government has always paid us within the 12 months and the receivables increase also the revenues increase.

So we need to look at the overall context and the fact that we ended up last year with COP17.5 trillion and actually that the budget law for Colombia, the national budget law, allows for extraordinary dividends to be used as proceeds to pay for outstanding stabilization funds receivable.

So there's a lot of elements in that and I'm going to ask Jaime to provide more detail. And in terms of the proposal on the tenure of the board, specifically, it will apply as soon as it's approved or not by the General Assembly. And the answer is yeah, it will apply as soon as the AGM approves the changes that we are proposing on the bylaws. Jaime..

Jaime Caballero Uribe

Thank you, Philippe. Hello Bruno. Good to hear you. With regards to stratification fund, as Felipe anticipated, most likely higher prices imply a higher balancing in the fund. And I say most likely, because remember that the formula considers three or four angles to it.

There is an angle around the behavior of the international prices for diesel and gasoline. There is an angle around whether adjustments are made at domestic level, in terms of prices at the pump that affects that balance too.

There is a third angle, very important angle, which is around the FX effect, which can be actually quite substantial in terms of moving the balance of the fund in any direction. Clearly to take out the crystal ball, if you will, and go out there and say exactly what's going to be the evolution of the balances is difficult.

We can't create scenarios and directionally ease up current market conditions prevail the fund is going to grow at a pace that's going to be higher than the one that we saw, say in the first half of last year. It's going to grow more like at the pace of what we saw probably around 4Q of last year. That's the pace in which the fund is growing.

As Felipe mentioned, we are in very close discussions with the government around this. This not a surprise, this is something that actually the government in and by itself monitors regularly. And I think there's two or three things that give us a lot of confidence that this should not be a source of concern.

The first one is that a national general budget has made specific provisions around how this fund can be managed, what are the sources to, if you will, honor the obligations of the fund. And it has a very clear, very, unwavering commitment, if you will, towards honoring those obligations. Do that -- and that is at a legal level.

So that gives us a lot of confidence. The second thing that gives us a lot of confidence is that when we sit down with the government, there is flexibility within their budget as well with regards to how they're managing execution this year and the likes. And thirdly, and it has to be said, and Felipe implied it, but I'm to be specific about it.

Clearly, the way that we make dividend distributions to our shareholders has to -- needs to be compared with how that balance is evolving. That balance needs to be in a tolerable level for us to feel comfortable with the sort of dividend distributions that we are recommending.

All in all, I want to reinforce the message that there is a clear commitment around keeping those finance as within a 12-month period, there are the mechanisms to honor them and that's why we're planning on the basis on which we are planning. I think that covers it.

Do we have any remaining question?.

Operator

Sorry about that. Let me check if you [Indiscernible], I'm sorry. Go ahead..

Bruno Montanari

Yes. I had just a quick follow-up because it is very interesting.

So when you mentioned that the new extraordinary dividends could be used to repay a portion of the [Indiscernible] does that mean that brings to the instead of announcing, say the 9% extra dividends do you -- that those funds would be used to following our [Indiscernible] is that the way to understand it?.

Felipe Pardo

No, Bruno. Let me clarify that. We need to be clear that the conversation around the fund is a conversation with one shareholder, not all shareholders. So this is a conversation about how the majority shareholder wants to receive its dividends. And they have the flexibility to choose how they want to receive their dividends.

It can be done via cash, it can be done via what we call here locally [Indiscernible], which are some form of financial certificate if you will, it can be paid abroad it can be paid locally.

One mechanism could be to make some form of exchange between the dividends and the fund, and that mechanism is something that the government can use, but it's going to be their decision to offer that..

Operator

Thank you. Our next question comes from Andrew McCarthy from Creditcorp. Please go ahead..

Andrew McCarthy

Good day, everyone. Many thanks, Felipe, Jaime, Alberto for the call and the rest of the team for the call and presentation. I think most of my questions have been asked, but maybe just two follow up questions, The first one was just on the production for the upstream business for 2022.

Looking at the level you reached in the fourth quarter, the 695 versus the target for 2022 of 700, 705 and just considering obviously the very favorable macro backdrop with brand, I was just wondering if there's any -- if you are seeing any scope maybe for increasing that -- those production levels during this year, any upside you might be seeing on that front.

And then the follow-up was just on the inorganic opportunities. You mentioned there your interest in transmission business and that that's bringing some opportunities on that front.

Just wondering if you could provide any other color there in terms of what sort of geography we're thinking about and also if you've given any thought as to how that would occur.

Would it be something that would occur at the ISA level, they would do the transaction or given all of the, let's say, surplus cash you have at the Ecopetrol level, would you be looking to do the transactions at that level? Those will be my follow-ups. Many thanks..

Felipe Pardo

Thanks, Andrew and good to hear from you. I'm going to start with the inorganic one and then I'll hand it over to Alberto to provide a bit more detail on production and what we're seeing as we ended up 695 ongoing into this year.

So in terms of the inorganic opportunities and one of the things that we've mentioned specifically is that we're looking at transmission opportunities in the U.S. And it's a market that we know, I mean, from the oil and gas lens, if you will, we've been there for some time, Ecopetrol, our recent entry into the Permian as well.

But having that foot already in the U.S., I think it provides us the opportunity to think what's next. And if you look at the continent which we're focused in as a group, the U.S. I think it's a natural place to look at.

And there's opportunities provided there is future deals coming out of Congress in terms of [Indiscernible] of infrastructure investments across the U.S. We'll see where that goes, but definitely there is opportunity in the U.S.

And I think there's a need to ensure that reliability of transmission, at least providing energy to people is something that can happen. So there will be opportunities there, and we'll be looking at that. And, yeah, if that's the case and we decide that's the right thing to do, it will be done for [Indiscernible].

Remember, and Jaime has mentioned this in the past, our leveraging ratios in ISA and as a group are a bit different. ISA, having the cash flows that it has on the line-of-sight of businesses, has the opportunity of having a gross debt to EBITDA ratio that's higher than ours. So eventually that -- if it happens, it will be done by ISA.

But we will continue to look at some other geographies.

And the other thing that I want to mention, Andrew, is that if you think about the next 10 years f or this decade, ISA has commitments of roughly $7.5 billion of investment, has probably going to be in the $12 billion to $13 billion range, but we have a pipeline of $36 billion already identified. So there's opportunity.

That to talk about specifically the transmission. So Alberto, if we can go to -- it doesn't mean we won't look at other things, Andrew. Just don't get me wrong. But we will continue and Jaime was addressing this earlier in one of his responses. So Alberto, if we can talk about production, that'd be great..

Jaime Caballero Uribe

Yes, Felipe, thanks. Hi, Andrew. With regards to production, let me recognize first that we need to stabilize production levels and basically we're working in different areas. The first one is getting gas demand back at pre -pandemic levels. That's number 1.

Second, on our subsidiaries, we have some production hiccups in both Hocol and Ecopetrol America in the Gulf of Mexico, so we need to recover the production levels that we were experiencing even before 2021.

And certainly, particularly in Colombia in our mature fields is how we recover production because we -- after we have experienced [Indiscernible] because of several things. For example, social unrest, third-party events, also because of the electrical and operational hiccups.

And thirdly, because of higher water content in our major fields in the case of our Chichimene and Akacias, that means that we have to put all our efforts in satellite. Secondly, recognizing that we also have to replace production about 100,000 barrels per year because of the decline in production in our main fields.

And remember that our declining factories about 14% to 17%, so we need to recover that. And thirdly, definitely we have investment plans associated with incremental production. All in all to say that we are -- we keep our production guidance in the order of 700 to 705,000 barrels oil equivalent per day..

Felipe Pardo

Do we have any more questions?.

Operator

Thank you. We do have a follow-up question from Lilyanna Yang from HSBC. Please go ahead..

Felipe Pardo

Okay..

Operator

Ms. Yang, your line is open, please go ahead. Perhaps you're on mute..

Felipe Pardo

Yes Lily,.

Operator

Vivian, can you confirm your line is not muted? I'm sorry, I think she may be muted on her end..

Felipe Pardo

[Indiscernible]. Sorry go ahead..

Operator

We don't have other questions in queue. Sorry..

Felipe Pardo

Okay, I would offer Lily or anybody else, there's always the opportunity to follow up with the teams and we'll be glad to get whatever information is required.

So I just wanted to thank everyone for being here today for the interest in Ecopetrol, for the feedback that you provide for the opportunity that through your questions you give us on understanding what are some of the things that we constantly need to think about, and have a deeper understanding.

Especially the ability to relay and communicate those aspects to yourselves. So thank you for being here we appreciate it, historic results, and we're very proud of the team of the 18 thousand people in Colombia and in the different geographies where we operate, in the U.S. in Brazil, in Chile, in Peru, and in some other countries.

So thanks again for being here today. Please stay safe and hopefully we'll be able to talk to you soon. Have a great day..

Operator

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

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