M&A Announcement

Aug 12, 2021

Tatiana Uribe, Head of Corporate Capital Markets for Ecopetrol. We welcome all participants to Ecopetrol's conference call in which we will discuss matters related to the process that led to the signing of the SBA with the Ministry of Finance to acquire its controlling stake in ESA. Before we begin, it is important to mention that this call or presentation might 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 de Leon, CEO of Ecopetrol. Other participants include Juan Manuel Rojas, VP of Strategy and Business Development Jaime Caballero, Chief Financial Officer and Nicolasas Cuenaga, Head of Mergers and Acquisitions. We will wrap it up with a round of questions and answers. If you have any questions, please send them via the link provided by the company in our press release. I will now hand over the presentation to Ecopetrol's Chief Executive Officer, Mr. Felipe Bayon. Mr. Bayon, you may begin. Welcome, everyone, to this conference call. Following the signature of the agreement to acquire 51.4 percent of ESA that was announced yesterday evening to the markets. If we can go to the next slide, this to the first slide. Just want to go back and provide some context in terms of why this is transformational for Ecopetrol, for ESA and we believe overall for our shareholders and for Colombians as well. And we have a unique opportunity to become and a leader in terms of energy transition in the Americas. On the right, you have a map of the areas where following the acquisition that was announced yesterday, we would have presence and operations, which is quite relevant in terms of becoming a leader through the hemisphere. In terms of energy transition, And we've talked about this before since we presented a non binding offer back in January, and that was a little bit over 6 months ago. The first thing is that ESA is a leading network infrastructure player in LatAm. The second thing, transmission of electricity and the use of networks will play, undoubtedly, without any doubt, a key role in the future as we think of energy transition. And we've seen some of the circumstances that have happened throughout the last or the last few months in terms of the need to have reliable and efficient and well located, well placed electricity transmission infrastructure. There is a commitment to sustainability that is shared by both companies, And that's fundamental in terms for example, as we look at our businesses and as we look at our footprints, if you think about CO2. And through this transaction, we're doing something that compares very favorably and is much, much more accretive in terms of value than doing things, for example, locally, if we looked at the renewable portfolio. I want to stress that we continue, as Ecopetrol, committed to our own auto or self power generating capacity in terms of renewable energy. And we've already mentioned or signaled to the market that we want to be at 400 megawatts of installed capacity by year 2023. The second lens is growth, and there's a very successful track record and a very good outlook, very attractive outlook as we look at the plans that the company has and we've had the opportunity and Juan Manuel will take us through the process of doing a very detailed due diligence analysis and assessment that has confirmed our views in terms of the growth opportunity. In terms of scale, ESA, It represents around 25% of both companies. If you look at the combination of Ecopetrol and ESA, using the Q1 2021 results. ESA has not yet posted results, so that should be updated. But it provides a growth opportunity in terms of EBITDA, for example, if you look at that or even if you look at the growth in terms of EBITDA that ESA has had 18% over the last 5 years. So it's a very, very attractive business proposition that hopefully will take to a good port when we do the closing of the deal. And we are we firmly believe that the transaction in terms of earnings per share is accretive from year 1. In terms of our risk profile and pandemic and the crisis last year showed us that we depend, Although we are an integrated company and we have a lot of possibility to better withstand the changes and volatility in prices, We depend on the prices of commodities. And from that point of view, the acquisition will provide us what we believe are stable and as important, predictable cash flow generation due to this business being regulated and being long term in terms of their concessions and the duration of those businesses. We will have increased and improved resilience to oil price volatility. We will have a diversified platform in the region as per as I was describing in the map in terms of the asset classes and the geographies. And this is good because we are having or we would have a lower concentration of risk. Very important, very important as we see some of the things happening in the hemisphere. And in terms of the last point on the improved risk profile. It will or it enhances some of the characteristics that we already have to our midstream transportation systems as we think about energy transition in terms of how do we actually align these linear transportation systems, both in Ecopetrol and Iso. Let's go to the next slide, please. Transmission plays a key role and will continue to play a very important role. Two things, I think, have been accelerated through the crisis. The first one is decarbonization and the need of the world. And if you look, for example, at the IPCC report that came out a couple of days ago, decarbonization is fundamental in terms of the megatrend and electrification is the other trend that we need to address. And we need to be not only Cognizant, but we need to act upon. And the role that the companies that do transmission and the role that they play in energy transition, We can look at it through some different lenses. The first one, it's the integration between where the energy is produced, this renewable energy. And you know that Colombia has done some very or has taken some very important steps To become or to basically grow at exponential rates its capacity from renewables, how do we actually connect those sites where power is generated to where power needs to be consumed. And there is additional regional integration plans not too long ago. The plans between Colombia and Panama were announced in terms of how that continues to progress. The 2nd lens, in terms of electrification, we do believe that The economy will continue to be electrified and will bring this will bring additional opportunities in terms of the need to support with reliable infrastructure that expansion. The systems may be decentralized, and that's something that we will need to look into. And due to the aging of some infrastructure, higher investments will be required not only in maintenance, but also in upgrading some of the systems. Climate risks, weather events have significantly affected hydroelectric power plants, for example, And how do we actually ensure that we provide reliable and systems that have not only good reliability, but are dependable. In terms of the global investment outlook, and this is some numbers that we've taken from McKinsey, there is, at least in their view, a factor of 2x when you think about the investment that will be done in energy transmission around the world and energy transmission investments that will be backbone of energy transition That will require more investments. As I said, how do you replace infrastructure that's aging? How do you increase the levels of performance? Back to the point of reliability, we take for granted that we turn off the switch and there will be light as soon as we do that. And There's opportunity as we digitize and we automize or make automized taste automatization, sorry, with some of these investments and some of the grids going forward. Next one, please. In terms of the process, I will Just say that it's been a very, very rigorous process for more than 2 years, and I'll ask Juan Manuel to share some of the context around that. Juan Manuel? Thank you, Felipe. In the past, we have mentioned that Ecopetrolo has intended to show the markets how disciplined we are in our approach to our investments in the oil and gas arena. That approach, we also apply it 2 acquisitions in other areas. And we have always said that we are prepared to move wisely rather than quickly in order to respond to the challenges posed by the marketplace. Having said that, that is why we We believe that the 2 years that we have spent on evaluating this transaction have presented meaningful. Specifically, We began this process 2 years ago when we started studying the trends of the energy transition. And Once we began that process, we identified that transmission and the other infrastructure alternatives could be one of the paths that Ecopetrol could undertake in the process of energy transition. It then implied comparing this alternative with other diversification options, and I want to be very I want to double click on this aspect. Specifically, we evaluated how the purchase of a transmission company like Giza would allow Ecopetrol to take a unique step that not no other what the oil company has taken previously, mainly because it allows Ecopetrol to position itself a solider in an activity of the electricity business in just one single step. And that was in that process resulted to be very meaningful. Acquiring a leadership position in the transmission business, we thought of it as more valuable than becoming our subscale operator in other businesses in the electricity value chain. Just to mention some of some examples that we Evaluated in Latin America, if you take the enterprise value of ESA and compare it with the size in size to the combined enterprise value of the 5 major renewable energy generation companies in Latin America, you will find out that ISAS is greater. Having said that, this is a decision strategy, followed by Ecopetrol, we believe, had an advantage over taking an incremental trajectory, mainly because when you take incremental paths, you have more uncertainty, and it will require undertaking significant execution risk and the risk of developing complex capabilities. The difference in this case when we thought of ESA as an opportunity was that from day 1, we would have the capabilities at home and with a great with diminishing rate execution risk. The process took 2 years, and we then having evaluated the strategic fit of the transmission business and Ovisa. We value we carried out the due diligence process with public information and presented a non binding offer in the month of January. After that, the due diligence process entailed a facilitation of information from the seller, and we were able to sharpen our pencils, bring down the value of the numbers and conclude with a binding offer that was presented on the 30th July that was accepted yesterday, as you know. If we move to the next slide. The next question will be specifically, why ESA and not other energy companies or transmission companies. And as Felipe mentioned, we From day 1, we initially thought that ISA could provide original energy infrastructure platform without precedent in the whole Western Hemisphere, not only in South America, but also Central and North America. And when you take a look to ESA's statistics, numbers and operational capabilities, you find out that the company is the best positioned to materialize growth in the transmission networks of LATAM. It's the market leader in Colombia and Peru, concentrating more than 70 part 70% of market share is the 2nd player in Brazil with approximately 20% of market share, is the 3rd operator in Chile and is the company with the greatest capacities and the best track record in transmission development in the continent. How do we measure that? Well, we see that ESA is first positioned in tenders, 1 in Colombia and in Peru, 2nd position in tenders, 1 in Brazil and its 3rd in Chile. If we move to the right hand side of the slide, I would like to highlight the financial advantages of ESA, including the stability of its earnings and its strong returns on capital employed. Jaime will go into the detail in some slides ahead. But the company has consistently delivered above 60% EBITDA margins in the past years. This stability is a feature of the electricity transmission segment that we highly appreciate, specifically when we are in an oil and gas business upstream business in a very volatile market. And ESA has also delivered a return on capital employed in the range of 15% and over in the past 5 years. The Q1 of this year, it was 17%. And the stability and absolute levels of these returns are highly attractive from a financial viewpoint. If we go to the next one, And as we have mentioned throughout the presentation, well, this acquisition provides an unprecedented platform to convert the Ecopetrol ANISA in a one of a kind infrastructure energy player in the continent. We widened our strategic canvas, having both companies working together, widening growth prospects. For Ista, for example, we do believe that Ecopetrol can facilitate its penetration to the North American business segment. While we do believe that we can leverage is as capacity only is as capacities in Brazil, for example. So we do see that in terms of growth prospects, it provides a great possibility. It provides a resilient operational model. I think we will End up with an integrated energy company with a strong midstream segment, greater diversification and stability of earnings and cash flows that we have mentioned previously. And we do believe that the strong balance sheet of the group as a whole, which We'll provide lower cost of capital supported by stable and predictable long term cash flows. We see That we can share best practices, particularly in the midstream segment with those of ESA. And shared knowledge, ESA, we do believe, Has advanced substantially evaluating different lines of business in energy transition like batteries and energy gathering aspects. And as Philippe mentioned previously, the strong competitiveness of this platform is unique in the Western Hemisphere. I will hand now the microphone to Jaime Kargil. Thank you, Juan Manuel. So acquiring ESA really goes beyond this strategic merits, and The numbers that you're going to see in this slide and in the next slide actually go serve as proof points of that The bottom line is that the primary conclusion of our review is That this makes strong financial sense as it provides scale, it provides profitable growth and clearly improves the risk profile Of the Ecopetrol group in a world where TESG is increasingly a priority. So I'm going to cover 4 or 5 key points around the data that you've seen in this slide. If you look at the top left corner, What you can see there clearly is that with ESA, an important part of the group's income will now come from non hydrocarbon sources within actually a broader energy chain. You can see that clearly in the contribution to revenues, and you can see it clearly in the contribution to EBITDA. This, of course, will vary over time as you see the different kind of price cycles of the hydrocarbon business. But we believe that the sort of percentages The numbers that you're seeing here, which are reflective of the last 12 months, are actually provide a good illustration of what you can expect from ESA in the context of the broader Ecopetrol group. The second, I think, Key data point to look at here is when you look at that piece of competitive profitability. The contribution from ESA is of a high quality. If you look at the margins and returns that ESA has been delivering over the last 4, 5 years, they're actually, in fact, superior To the margins and returns that you actually see in oil and gas, right? And that's I think that's an important point to make As perhaps in the past and if you look at the broader diversification agenda in the industry, It has been viewed that diversification into power is at the expense of margins and at the expense of returns. In the case of ESA, that's not the case. We're actually looking at incremental margins to what we have nowadays. The third point that I think is a highlight of this slide is if you look at the top right hand corner of it, which gives you a view of the contribution of each the line of business of Ecopetrol and ESA. And what you can see from this is that with ESA, The Ecopetrol group will now have a stable backdrop of earnings. If you look at the pie chart on the right, Essentially, what you'll see is that between 50% 60% of our future EBITDA is actually going to come from regulated, predictable businesses and actually not only regulated predictable, but actually high margin businesses because those are the that's the nature of both the ESA transmission business and the midstream business that we currently own. On the other hand, we are obtaining this without sacrificing the exposure that we have to Brent and to the price upside that we expect Brent to provide at least over the next decade. So here's the balance between that predictability of the regulated business and the price upside that we're going to get from the brand. Importantly, This material growth comes with a marginal carbon footprint, and it's what you're seeing there at the bottom. The bulk of ESA's business is carbon neutral, and we can go into this in more detail later on. But fundamentally, the total footprint associated to Ecopetrol Group's earnings will now be substantially lower. We think this is fully consistent with the group's TSG agenda and its net zero ambition. And importantly, We think that this will actually have a benefit with regards to access to financing over the coming years and actually a lower cost of capital for the group in the bottom line. If we move on to the next slide, please, I want to speak a little bit more about how we see this transaction being value accretive to all shareholders. As you know, we have agreed on a price of ARS 25,000 per share, which ultimately, we believe, fairly captures the proven business performance of ESA as well as its growth prospects. This valuation is supported by 3 independent exercises commissioned by Ecopetrol separately from the seller. These valuations were all anchored on DCF methodology with a view to best reflect the longer term value proposition of the business. Contract methodologies such as multiples and precedent transactions were also considered, And we believe that the EBITDA multiple of about 8x enterprise value to EBITDA is competitive with transactions in the sector. If you look to the right where we speak about the solid investment case, the forward value creation is clearly solid, and we believe it's accretive to shareholders. In line with Ecopetrol's capital discipline strategy, We have taken a prudent and risk view of ESA's growth prospects and believe that historical margins can be sustained over time and that double digit returns on allocated capital can be expected. As a result, EPS accretion to existing shareholders can be expected in all scenarios. As we have previously announced, Ecopetrol intends to fund 100 percent of the acquisition costs via debt. To this effect, we have secured terms and conditions for a syndicate bank loan, which will be repaid within the next 2 years. Through a combination of available options, including: firstly, a longer term bond placement alternatively or in a complementary fashion, an equity offering under the program set forth by Law 11 18 of 2,006 and thirdly, through excess cash from our organic activities. It is important to highlight that in all scenarios that I've mentioned, including those where we retain 100 percent of the debt, projected leverage ratios remain well within the 2.5 times debt to EBITDA ratio establishing our group's business plan. With that, I hand over to Felipe for his comments on next steps. Thanks, Jaime. If we go to the last slide before we open up for Q and A. A few things that I want to share with everybody in the call in terms of how will this continue to go forward. So as we've mentioned, there is a plan to secure that the value proposition that's already in motion is secured. We've negotiated and executed the contracto inter administrativo or the inter administrative contract, which is the SPA. The signature was done yesterday evening. Now we will continue, as Jaime was explaining, and we can go into more detail in terms of the loan agreement that will be signed, and we have a time frame to do the closing before December 6. Having said that, we're targeting in the order of 3 to 4 weeks to do the closing, and we'll continue to work in that sense. And In terms of transition, because I know that's one of the points that many of you have in mind and want to ask us about, we will assume having this controlling equity or controlling percentage, and we will exercise what's granted by the acquisition of the 51.4%. I want to say that the first thing, and I've mentioned this before in some of the news conferences, ESA will continue to be ESA. That's very important. It doesn't mean that we will be a passive investment. We will have as we've mentioned, we do believe this It's a transformational transaction. And in line with that, we will do everything that we can do, as I was saying, with the faculties that are granted to us by gaining this controlling equity or percentage. Both companies have very, very strong corporate governance, and we will continue to build on that. And in that sense, I think there's opportunity for both organizations to continue to learn from each other. We've been working with ESA on this front of corporate governance for many, many years and now obviously will continue to do so. And I just want to highlight that in Ecopetrol, Having different companies throughout the group, we have what we believe is a very robust an very flexible corporate governance framework that will allow us to move into this integration. Ecopetrol will be the controlling entity to ESA. We will need to consolidate all the financial statements. And obviously, when we do that Will depend on the closing, and I've provided some views on the potential time frame for that. We're very excited, very, very excited with this transaction. We still have some yards to get to the finish line. We need to do the closing, as I've said, hopefully, within the time frame, not take all the time until December 6, but in 3 to 4 weeks. But we're very excited. We're very thrilled with the opportunities that this present, not only for Ecopetrol, but for its shareholders, for ESA's shareholders and for Colombians as well. So with that, I'll open up for Q and A. Thank you. Thank you, Felipe. I will now read the questions that analysts and other interest parties have provided via the link that we sent out with the press release. The first question is with regards to the capital structure. When do you expect to make the decision on the equity issue and its size? And what is the rationale considering ESA decisions should likely be financed via banknotes. So let's start, and I was going to do something here. I was going to do question number 2 as well, as it's related. And it says, Is Ecopetrol funding the acquisition through debt? If yes, how much in the local or international market? What yield are you expecting for the debt to be issued soon? So I'll provide some opening comments, and last time, to go much deeper into some of the details. So the first thing that we've announced to the market is that we have very, very robust financial situation in the company that was shared with most of you in the call at last week's results conference call. And we do believe that going through the mechanism of debt and using debt, short term debt To close, this acquisition provides us a lot of flexibility and a lot of speed, Which is something that's important. I just want to remind everybody that the consideration in terms of the price is very important, And both Jaime and Fernando explained what was done together. And I think the timing of the process is very important. It's not only the amount, but also when we are able to close the deal. And that's a very important fact. And in terms of the equity issue, That continues to be worked by the teams, and we'll eventually use that in the future Should the windows in the market and the conditions in the market are such that an equity issue makes sense. Jaime, please go ahead and provide a bit more detail. Thank you, Felipe. Perhaps The additional color that I could provide, Felipe had been very clear. There's a short term conversation and then there's a structural financing conversation, right? The short term conversation is about this bank loan, which, as Felipe has said, it's expedient, it's pragmatic, And it's something that is well within our reach. The color that I could provide on that, I'd say, revolves around 3 things. The first one is We have decided that we want to tap the international market for that because It's more competitive compared to the local market. And by means of competition, I mean the access to the amounts that we need for this transaction and the cost associated. To give you an idea, the other thing that we've Seeing is that the terms of this loan are very competitive at this stage. We are at a good time in terms of markets for this. And as an indication, you saw that Last week or a couple of weeks ago, we announced the terms of our committed line facility, and we are expecting this loan to deliver an improvement on those conditions. We recognize that these are different loans and they have different sizes and the like, but directionally, We are actually expecting better conditions than the ones that we have received for the committed line. And that's actually a lot to say because that committed line is probably our historical best. So we are very confident that this short term financing kind of makes sense. The second component then is the longer term financing, which is how do we go about repaying that loan. And as you heard in my remarks before in the presentation, we expect to do that over the next couple of years. That's the horizon That we are anticipating, a 2 year horizon. We believe that 2 years is a good frame because it provides a sufficiently a long window to accommodate to different market circumstances, whilst at the same time, keeping it to a manageable and predictable planning horizon. In that light, you also heard me say that we have 3 options, and they all remain on the table at this stage. One option and I mean options to translate that short term financing into some form of longer term repayment. The first option is bonds. At this time, markets Are very favorable for that. The appetite for Ecopetrol's bonds remains very robust. We've seen that, And I know that you guys are conscious of that. The second alternative is around the equity offering. The equity offering, and I know there's a lot of curiosity and interest in terms of the sizing and the timing and the conditions. You've heard Felipe speak about that. We cannot disclose much around that. The general box that I'd say where we're operating in is the box that's set by 11.18 by the law and basically that gives us a ceiling. And that ceiling is that the Ministry of Finance cannot go below 80% of property in Ecopetrol. That's the ceiling. Anything below that is open for discussion and will be dictated by market circumstances and the terms and conditions that we believe we can obtain for our shareholders in that equity offering. And the 3rd component is cash because You we were speaking last week with many of you around the results. And as you've seen, we are delivering unprecedented results. That's giving us a solid cash position. And depending on how things evolve, we may have some flexibility to use cash for some of this. That's how we're thinking about this. Thank you. Thank you, Jaime and Felipe. The next question is with regards the business model that Ecopetrol wants to have after he gains control of Visa. Basically, the question suggests that management of Ecopetrol has previously mentioned that we would not change the current business management of ESA. Is this still the plan? Can we view this more of a path as a passive investments for Ecopetrol? And what are your plans for the new acquired business? Thank you for the question, and I'll just step back for a second. So the first thing is that we still need to get through the finish line. We still need to ensure that we get to the closing. And as I've said, we have some time to do that. I've said and I will repeat it today, ESA will remain as ESA. That's very important. It's a very our successful business that has a very robust strategy that has delivered consistently over the years and that has a world class team that operates in their businesses. So that's very, very important. That's very important. Having said that, and I was referring or alluding to this in my prior answer, we will not be a passive investment. We will not be a passive investor For this will not be a passive investment. That means that we will certainly, should we get to the closing, exercise our rights that are provided through us by acquiring the controlling interest or controlling equity, which We'll include things like being very active at the Board of Directors, and we will be doing some things in that space. But I think we need to be very conscious that there's things that we need to go through. There's milestones that need to be achieved before we moved into that space. So we like the strategy. We like the business plan. And I'll just link it to something that Jaime I was mentioning earlier, both Jaime and Juan Manuel, in terms of the valuation and the offer that we made and that was accepted, That value or that price per share includes not only the value of the business today, but a very detailed understanding and assessment of the growth opportunities that we see going forward. So again, we're very enthused. We're very, very happy with this. We need to get across the finish line. And certainly, Believe you me, we will not be a passive investor in terms of ESA. Again, I mentioned this before, We will need to do consolidation of all the financial statements, and there will need to be participation from our side very actively in terms of how capital is allocated. And that's, I think, also very important for shareholders. Thanks for the question. Thank you, Felipe. The next question discusses a topic with regards to dividends. How much in dividends is Ecopetrol expecting to receive from ESA? Would this start to be this year or the next? What should be an optimal dividend payout level after ESA is consolidated? Thanks, Tatiana. I'll take this one. Within our models, we have assumed that during the next 5 years, ISAM will keep its policy in terms of dividend distribution, and therefore, we have assumed between 40% The next question is the following: What regulatory approvals are necessary for the closing? Does Ecopetrol need to seek bondholders or other creditors' approval to conclude the transaction? Tatiana, there are no we do not need to seek bondholders or the creditors' approval to complete the transaction And all the other regulatory approvals that we needed within Colombia have been achieved. So Thank you. Next question. How Ecopetrol could add value to ESA? And if there are any synergies that could enhance potential returns to the Ecopetrol shareholders. What synergies do you identify today and in the future by acquiring Thanks, Atiana. And I think there's and Juan Manuel was alluding to this earlier. In terms of the different geographies, We can leverage on each other. For example, in the U. S, Ecopetrol has already a very good presence, both in the Gulf of Mexico and in the Permian Basin in Texas. So we can build on from that. And even though we have, as Ecopetrol a good presence in Brazil? That's growing presence in Brazil. ESA has a lot to offer in that space. So I think The first lens would be that of the markets, of the geographies. How do we actually learn from each other? We've talked about, for example, potential financing that is sustainable, about grid financing or those type of things where ESA has done very interesting things, not only in Colombia, in Peru and in other geographies as well. We can build on each other's, for example, network of relationships, supply chain. We can build in terms of one very one thing that has us very excited is the research and innovation and development of technology or application of technology and use of technology. And I think that's an area where we can do a lot of things. And Juan Manuel, I think, was mentioning energy storage and some other things. For example, Ecopetrol is a leader in hydrogen right now in production of hydrogen, both with gray hydrogen. We're looking at blue hydrogen, green hydrogen. And I think in terms of research and technology and the application of innovation, there's quite a few things that We can do. So it's around markets, it's around relationships, it's around supply chains. Things like the digital world as well, we've both done a very detailed digital transformation. I'll share something with you. I had the opportunity to visit is more than 3 years ago. And I was introduced to their security operations center in cybersecurity. And that experience for me is something that we brought back into Ecopetrol. And since then, we've built on that, and I think we now have a very robust It's cybersecurity program and capability inside of Ecopetrol. So some things that have already happened in terms of corporate governance, and we've learned from other some things going forward. I don't know, Juan Manuel, if there's anything else that you want to add? I think you've mentioned those. Next. Thank you, Felipe and Juan Manuel. The next question is with regards to XM. Does the acquisition of ESA include XM? Thanks for the question. And I want to be very clear, the acquisition of ESA those include XM. XM is included in the acquisition. And as part of the negotiation that we did with Ministry of Finance and the Ministry of Energy that has responsibility for Exane. Ecopetrol has signaled a very strong commitment to continue to enhance the corporate governance at Exane. And some of the issues, historical issues that had to be resolved are being resolved through the transaction. So should we get to closure, And there's some language that we've included in the contract. That's a public document around Exane. And I think that's very clear. And it also encompasses some of the recommendations from the latest group of experts or wise men, for lack of a better word in English that came and provided some recommendations to the government. So there is a very, very strong commitment From Ecopetrol to ensure that Exim maintains its independence and its corporate governance is enhanced through this acquisition. Thanks for the question. Thank you, Felipe. The next question is with regards to the use of proceeds of the potential equity issuance. Does this include inorganic growth or only organic CapEx? I'll take that one, Tatiana. The way that we're thinking about the acquisitions is that it's in service of Ecopetrol's energy transition strategy. That's the umbrella. And when you look at the energy transition strategy of Ecopetrol, there are 3 key elements around it. There is an element of organic growth, which is adjusting and adapting our existing business to the needs and opportunities of the energy transition. There is an element of inorganic growth, such as the transaction that we're talking today, Which is all about the energy transition. And there is a third element, which is about strengthening the balance sheet, which includes managing debt, right, and keeping debt to levels that we feel are best for our shareholders. So those are the 3 axes by which we're thinking about the equity issuance. So in that context, The use of proceeds of equity issuance can fit into any of these three categories. If we did an equity issuance In the short term, in the foreseeable future, I'd say that a priority would clearly be about reducing the leverage associated to this particular transaction. Thank you. Thank you, Jaime. The next question touches upon the strategy for ESA, and it is the following: What will be the new strategy for ESA? Continuity, diversification, consolidation and specifically with regards to Brazil. Any changes to the strategy there? Thank you, Tatiana. I will take that one. The company has been very vocal and publicized this strategy towards 2,030, and it has been very consistent achievement goals set out in that strategy. As Felipe mentioned, we will respect that, and that strategy involves the different aspects, consolidation, diversification and continuity in those markets where it's currently where it currently is. So we believe it's consistent and sound. Thank you so much. The next question discusses tagalongs. Why not grant the tagalongs to ESA minority shareholders. Tatiana, thanks. And I'd like to go back to the framework that supports a transaction like the one that was announced yesterday. The first thing is that the contracto inter administrativo, which is done within the framework of Law 226 from 1995 and explicitly with Article 20 that allows for exceptions when such deals are made between 2 government agencies or 2 government organizations. And that frames that frame, sorry, allows for a contracto inter administratio. So that's point number 1. The other thing is that being Ecopetrol Society of Mixed Economies Sociede Economia Mixed We have been certified by the financial superintendent that ourselves and the ministry of both ourselves and the ministry have the same beneficiario real, which means that the owner, majority owner of both companies is the same one, Which is the government. And in terms of the OPAP or the IPO, if you look at decreed 2,555 from year 2010, it allows that there's an exception where shares are being transacted or there's a transaction within or between individuals that have the same beneficiarial or that have the same owner. All that means and you're saying, well, this is giving as a long detail of why we're doing what we're doing. It allows us to do the transaction without the need to do a tag along, and that's what we're doing. And I just want to highlight something that I mentioned earlier. The first thing, And I alluded to this is that it's very important in terms of the consideration, the amount of funds that would be available for the seller, but it's as important in terms of the timing that has or has allowed us to do this very, very quickly. And even though we've spent 2 years in a very detailed assessment of all the aspects of such a deal. We since we presented the binding offer July 30, We're able to very quickly, very quickly come to an agreement and to sign the deal. And I just want to stress a couple more things, if I may. The first thing is that with this transaction, The majority owner of Ecopetrol and Ben Jaime was talking about some of the equity issuance considerations. So the owner of Ecopetrol and through Ecopetrol, the owner of ESA remains 1 and only and remains the same, and that's very important. And that's Colombia Inc. So the nation will continue to be the majority owner of Ecopetrol and through Ecopetrol of ESA. And from a strategic point of views, being this critical infrastructure, we do believe that's very important. And I'll just highlight what we've discussed during the presentation. We're very enthused with the opportunity in terms of value creation that this opportunity presents. Thanks, Tatiana. Thank you, Felipe. The next question is with regards to Taissa, where ESA has a 14.9% stake. The question says that CEMIG, which has a 21.7% stake is for sale. Is ISA interested in acquiring full control of Taiesa? Would that trigger Tagalong in Tai 11? Alternatively, if someone else offers a good price for CEMEX stake, Do you have a drag along rights? Would you exercise them? Tatiana, thank you. We are of the believe that we should not make comments until closing of the transaction regarding ESA's M and A strategy. So we will pass on that. Thank you for that. The next question is with regards to tariff revisions. When can we expect the key tariff provisions for ESA throughout the next 5 years? Tatiana will also take that one. I think the our valuation, and this is very important, has taking into account the potential tariff revisions that we could have in full size in the next 5 years. We particularly evaluated the potential tariff provision that will take place in Colombia and In which the regulator has issued some drafts of that tariff revision, which includes a changing the methodology of remunerating the assets in the long term and also a potential change in the work. We have taken that into account, and we do believe that could take place in before 2022. Thank you. The next question. Eva has made public significant investments in LATAM. Would these investments be impacted? Where does Ecopetron stand on hydrogen after the acquisition of ESA? Are you planning to invest in green or blue hydrogen in Colombia? Patria, I'll take the first part, and I'll start with hydrogen. And the first thing is that Ecopetrol currently produces, I think, 99.99 percent of the hydrogen in Colombia. And we do that through The reforming of methane gas. What we're doing right now is that we believe We believe Ecopetrol has the opportunity to lead in this effort. We're working with the Ministry of Mines and Energy. And recently, the road map for hydrogen in the context of energy transition It was issued and it provides, I think, a very sound robust opportunity for the country, particularly as we think that we have this range with the presence in different parts of the continent. In terms of what we're doing today, we're looking at blue hydrogen, And we have some opportunities by extracting the CO2 from the methane gas, using the hydrogen to improve the quality of our fuels, both diesel and gasoline and use that CO2 either for upstream, re injecting the CO2 and recovery or to actually provide it to customers that can, For example, do bottling of beverages and things like that. So directionally, that's what we're looking. And in terms of the green hydrogen, We're bringing an electrolyzer into the country that's been purchased already. It's a small one that we will Put into a pilot project in the Cartagena refinery and we will later take on to Bucaramanga. So there is a clear, clear, I think, road map in terms of hydrogen. And two more things, And I'll ask Juan to talk about the investments in LatAm, but I don't see any impact. There's already some commitments in terms of the investments that will be honored. Those will be honored. And in terms of hydrogen, I was saying that as we've made public our intention to lead in this effort in countries. 1, we have more than 90 companies and organizations knocking on our door. So we're in the process of selecting our partnerships. And By adding ESA into the fold, should we get to closer, we will definitely strengthen, think the opportunity, as I was mentioning earlier, with their research and creation of technology and everything else. Juan, anything else on regarding the first part of the question, as I mentioned earlier, ESA has a very thoughtful plan and strategy towards 2,030, in which they have devised investments in different geographies and in different sectors. And we have included some of those plans within our valuation, and we do believe that they have been successful executing that plan. That's why we believe it should be respected. And if I may add to these comments, when we look at the investment optionality that ESA has for the next decade. And we have through the due diligence process, we achieved a lot of visibility of that. We I would share 2 significant conclusions. The first one is we believe that, that optionality and compete very well for capital allocation. You already heard my comments around the sort of returns that they offer. So it's not a source of concern for us. And the second, I think, important conclusion is that we believe that, that a cash generation that ESA has as a stand alone business has ample wiggle room to increase capital allocation in service of that business. Where I'm going with this is that we don't see ESA's expansions plans as a threat to the organic plans that we have in the oil and gas business At all. On the contrary, it's an upside investment proposition. Thank you. The next question discusses the M and A strategy of Ecopetrol with regards to the energy transition will Ecopetrol consider divestments after this acquisition of noncore assets? Thank you, Tatiana. We have been very vocal on our energy transition strategy. Felipe has always mentioned to the markets that it entails 4 different levers. One is improving the competitiveness of our portfolio, mainly to avoid stronger assets the second one makes emphasis on TESG The third one is the carbonization and the 4th one is diversification. This transaction goes within that last one, diversification. Within diversification, we have evaluated different issues associated to, for example, as Felipe mentioned earlier, hydrogen. We have evaluated opportunities in transmission like this one. We are evaluating renewable energy projects outside of Colombia outside of those markets that do not have regulatory restrictions. So it's part of the strategy of Ecopetron. And We currently do not see divestments, and we reserve the right to evaluate those on a permanent basis. Thank you, Juan Del Real. Do you have any plans to enter into Renewable Energy Generation Business? And if So can you provide some more details in terms of geographies or technologies? Thank you, Tatiana. As you know, Colombia has a regulatory restriction as well as Chile. So in terms of that, those companies that are in transmission and that were not fully integrated before Lofotwo, 142, could not operate in other lines of business in the value change of energy unless you are soft generator. In Colombia, we do not have plans terms of renewable energy to be operators in the wholesale electricity market. We do have plans to be self generators, not as members of the wholesale electricity market as generators. However, Brazil, Peru and other geographies do not have that restriction, and it's something that we're open to evaluate. Thank you. And the next question, Jaime, you discussed during the presentation. How do you expect your EBITDA mix to evolve in the next 10 years? And how important will the expected contribution of the known oil and gas assets this would be. Thank you. Basically, when you look at the EBITDA mix, I Speak about 2 or 3 kind of key principles. The first principle is that we think in terms of scenarios. When we look at the strategy for the company for the next 20 years, we look at scenarios and scenarios can take you to slightly different places. However, one key conclusion of all the scenarios that we've worked is that oil and gas will continue to be the primary engine of EBITDA for the company. So we expect that EBITDA mix, the participation of oil and gas in that EBITDA mix to be at around 70%, 75% within the next 10 years clearly. Perhaps following that, a decade after that, you might See some gradual changes, but in any case, oil and gas is going to be highly product on it. The second thing that I'd say around this Is that when you look at this transaction in particular, we see that, that EBITDA contribution that we showed you remains Largely constant over time, which is one of the things that make the transaction particularly attractive to us, Right. You can actually rely on that 15% to 25% contribution regardless of the price cycle. So That, I'd say, is a second key component. And the 3rd component that I would tell you about these scenarios that we've been looking at is that emerging businesses such as hydrogen, such as some of the nature based solution businesses that possibly we could see in the future will start to be represented in the bid the mix by the end of this decade. But bottom line, oil and gas continues to be a key factor. We will continue to invest in a sustained fashion in oil and gas with a view to reduce emissions, but with a view to sustain that contribution that it's making to the business. Thank you, Heine. The next question suggest the following. Are you considering to eventually spin up the energy transportation businesses of Ecopetrol? The answer is no, and that's a very clear and very straightforward no. Thanks for the question. Thank you, Felipe. The next question. Does the different DCF exercises incorporate already the potential corporate tax trade change? Yes. We looked at the existing project, and we ran a thorough sensitivity around that and how could it affect valuation. And in the valuation, That risk and sensitivity is already captured. Thank you, Jaime. Can I ask the team to go to the next page, please? And I think we're done with the questions and answers. So I will return the call to back to Mr. Felipe Ragon for any final remarks. Tatiana, thanks, and thanks, everyone, for participating today in this conference call. By the numbers of participation, It's clear that there is a lot of interest. I hope that we've been able to provide additional color and detail around your questions, your concerns, some of the reflections that you've shared with us, and we value that. As I was mentioning at the beginning, we're very, very happy with the opportunity that's provided by bringing ESA Into the Ecopetrol group, there is a lot that we can learn from ESA. It's a company that, as I've said before, we respect very much. We have a lot to learn. And I do believe that both companies will benefit and strengthen not only in corporate governance in terms of technology, in terms of lots of different things. And at the end of the day, this will mean that there is additional value for Ecopetrol's shareholders. And I think that's very, very important. So we value your participation eventually as we come to closure before December 6. We will be announcing that to the market, should that be the case, through the appropriate channels. So appreciate it. Thanks, and please stay safe. Thank you all for participating. You may now disconnect.