Good morning. My name is Natalia, and I will be your operator today. Welcome to Ecopetrol's conference call regarding the acquisition of Brava Energia. During today's presentation, management will discuss the strategic rationale, key transaction highlights, expected synergies, and long-term value creation opportunities resulting from this transformative transaction. There will be a questions- and- answer session at the end of the presentation.
Before we begin, it is important to mention that the comments made during this call by Ecopetrol senior management may include forward-looking statements regarding the company's future performance, expectations, and the anticipated impact of the transaction. These statements do not constitute any commitment as to future results and are subject to risks and uncertainties that could cause actual outcomes to differ materially. As a result, Ecopetrol assumes no responsibility in the event that future results differ from the projections shared during this conference call. Participating in today's call are Mr. Julián Lemos, Corporate Vice President of Strategy and New Businesses, and Mr. Camilo Barco, Chief Financial Officer.
Good morning, everyone, and thank you for joining us today to discuss on Brava acquisition. I am Julián Lemos, Strategy and Business Development Corporate Vice President at Ecopetrol. The acquisition of a 51% controlling stake in Brava Energia represents a significant milestone in the execution of our long-term strategy. More than an acquisition, it establishes a meaningful operating platform in Brazil and certainly strengthens Ecopetrol position in an integrated regional energy company with more diversified and resilient portfolio.
To understand the strategic rationale behind this transaction and contribution to Ecopetrol, it is important to start showcasing Brazil's potential. Brazil is one of the leading energy markets worldwide, combining scale, resource quality, investment attractiveness, and highly developed energy ecosystem. Today, the country is the eighth-largest oil producer and the eighth-largest oil consumer, and home of the ninth-largest refining park globally. For Ecopetrol, Brazil offers much more than a geographical diversification.
It provides access to world-class hydrocarbon resources, prolific offshore basins, and a mature regulatory framework, and a deep pool of technical talent. These attributes create a compelling environment for long-term value creation and disciplined investment. All of this summarizes our view on Brazil as a strategic growth market. Our investment thesis is straightforward, expanding our exposure to high-quality reserves and production, strengthening our EBITDA and cash flow generation potential, and creating additional avenues for profitable growth while maintaining financial discipline.
The acquisition of Brava provides an immediate platform to advance on that strategy and positions Ecopetrol to participate more actively in one of the most attractive energy markets worldwide. Next slide, please. After covering why Brazil is a strategic market for Ecopetrol, the next question is: Why Brava? Brava stands out as a diversified independent oil and gas company in Brazil and the second largest independent player in the country in terms of production and reserves. What makes Brava particularly attractive is the quality and diversity of its oil asset portfolio.
The company combines onshore and offshore producing assets, exploration opportunities, and a strategic infrastructure across the energy value chain, especially in the upstream segment, but also midstream and downstream. Production is oil-based mainly and supported by a strong offshore position complemented by gas and onshore asset that enhance portfolio diversification and resilience. During the first half of 2026, Brava produced approximately 79,000 barrels of oil equivalent per day, of which 79% was oil and 21% gas, on a diversified operation footprint across some of Brazil's most relevant producing basins.
For Ecopetrol Group, this means immediate scale in Brazil, an increased footprint in the platform that is already operating today, while preserving significant upside through reserves development, production growth, and operational improvement over time. Ultimately, Brava provides the combination we look for in strategic acquisitions, a solid consolidated business, meaningful cash generation, and high-quality reserves.
This precisely is what makes it the right platform to support Ecopetrol's long-term growth ambition in Brazil, incorporating actual production and material reserves after 20 years of presence in this country. Next slide, please. Let me now briefly walk you through the execution of this transaction. From the outset, our objective was not simply to acquire an asset, but to establish a controlling position in a disciplined manner, maintaining transparency, governance, and alignment with market regulations.
The acquisition was completed through Ecopetrol Investimentos do Brasil, our special purpose vehicle created for this transaction following a structured two-step process. In April 2026, we signed a share purchase agreement with key shareholders, securing an initial 26% interest in Brava. We then launched a public tender offer in the Brazilian market to acquire an additional 25%, providing all shareholders with an equal opportunity to participate on the tender under the same economic conditions.
Following the successful completion of the tender offer and the settlement process, on August 17th, we acquired 51% controlling stake in Brava, representing total investment of approximately $1.2 billion. More importantly, this transaction reflects the principles that guide our capital allocation decisions. We pursued this opportunity because it met our strategic objective, offered a compelling value proposition, and provides a clear path to long-term value creation for Ecopetrol shareholders, and complies with our capital discipline criteria.
The acquisition also marks the beginning of a governance integration process. With the appointment of three Ecopetrol representatives to Brava Board of Directors, we have established the foundation for effective control, alignment of strategic priorities, and a disciplined integration process. As controlling shareholder, our focus is to support Brava continued growth while preserving strong corporate governance standards, and operational excellence, and value creation for all shareholders. Next slide, please.
After establishing control, our focus moves from acquisition by building a threefold roadmap focused on the following. In the near term, our focus is on ensuring governance, alignment on the business plan, capital allocation, and reporting standards to ensure a smooth integration process. In the short to medium term, our priority is to optimize operational performance, improve reliability, enhance capital efficiency, as well as strengthen cash flow generation and debt management.
On the medium to long term, we expect focusing on developing Brava's reserves base, converting growth opportunities into cash flow, and pursuing value accretive opportunities with a strict capital discipline. Success will be measured through the metrics that matter most to the shareholders: operational performance, reserves growth, EBITDA, free cash flow, returns on capital, and disciplined leverage management. Brava provides us with immediate production, reserves, and operating capabilities in Brazil. Our objective now is straightforward: leverage those assets to deliver sustainable value creation for both Ecopetrol and Brava shareholders. Now I will hand over to Camilo , who will walk you through the transaction's financial contribution.
Thank you, Julián. This pro forma view illustrates the financial and strategic contribution that Brava brings to Ecopetrol. Based on first half 2026 results, Brava would have increased the group consolidated revenue by 7% and EBITDA by 8% approximately, while maintaining profitability levels consistent with Ecopetrol's performance. Net income attributable to Ecopetrol shareholders would have increased by approximately 2%, reflecting our 51% ownership interest and excluding the debt-related cost associated with the transaction.
It is noteworthy that the impact on Ecopetrol third quarter 2026 results will be partial due to the consolidation of Brava's operations starting from September. From the fourth quarter of 2026 onwards, investors will see the full effect of three complete months of financial performance. Julián, let me hand it back to you to cover the operating contribution.
From an operating standpoint, Brava adds approximately 79,000 barrels of oil equivalent per day, corresponding to 11% of Ecopetrol production. While its 1P reserves represent nearly 24% of Ecopetrol reserve base at 2025 closing report. This meaningfully strengthens both the scale and longevity of our upstream portfolio. The acquisition of Brava was completed with attractive valuation metrics, approximately $8.4/bbl of 1P reserves, and $6.3/bbl of 2P reserves, reinforcing the value proposition of this transaction. With that, I will hand it back to Camilo to discuss the financing structure supporting the transaction.
Regarding financing, our objective was clear: to fund this acquisition in a consistent manner with our capital discipline criteria, while preserving the financial strength and flexibility of the Ecopetrol Group. To ensure a timely closing, we initially secured a bridge facility of about $1.2 billion for a period of approximately one year, including the transaction value, as well as estimated 2026 financing costs, fees, and interest.
This structure provides full funding certainty and enabled the successful closing of the transaction on August 17th. The financing was arranged through Ecopetrol Capital AG, our international financing subsidiary, which subsequently channeled the funds to Ecopetrol Investimentos do Brasil, the entity that completed the acquisition. Looking ahead, our focus is on implementing a long-term funding solution that further strengthens our liquidity position and optimizes the transaction financial profile.
We are evaluating a range of alternatives, including long-term debt, portfolio management initiatives, and internal funding sources. The final structure will be determined based on four key principles: cost efficiency, maturity profile, funding diversification, and liquidity preservation. The financing alternatives available to us provide flexibility to select the most efficient and sustainable solution. This refinancing process will not create obligations or guarantees at Brava operating company level.
Brava's capital structure, cash flow generation, and operating activities will remain independent from the financing structure used to acquire control. As a part of this process, we will continue evaluating market conditions and obtaining the required approvals to execute the long-term financing strategy under the most attractive cost and risk conditions. This transaction remains fully aligned with our commitment to financial discipline.
Even after consolidating Brava, we estimate that the group's gross debt to EBITDA ratio will remain below our strategic threshold of 2.5x , supported by Brava's EBITDA generation, cash flow potential, as well as future dividend contribution. In summary, we structured this acquisition with a clear objective: secure execution in the short term while preserving financial flexibility and sustainable capital structure over the long term.
The success of this investment will be measured not only by reserves and production we have acquired, but by our ability to translate those assets into cash flow, returns, and long-term shareholders' value. Please turn onto the next slide. Now, let me conclude with three key messages. First, Brava provides Ecopetrol with an immediate operating platform in Brazil, adding meaningful production, reserves, EBITDA contribution, and future development opportunities.
Second, the transaction brings a highly complementary asset base, expanding our exposure across onshore, shallow water, and deep water operations, and strengthening the resilience of our portfolio. Third, it significantly enhances our geographic diversification, increasing our presence in one of the most attractive energy markets in Latin America. Most importantly, this transaction has been executed with discipline, supported by a strong governance framework and a clear focus on long-term value creation. We may now move to the Q&A session. Operator, please go ahead.
Thank you. We will now begin with the Q&A session. We recommend asking a maximum of three questions to allow time for all participants. Please note that the session will be conducted entirely in English, and simultaneous translation will not be available. Daniel Guardiola from BTG is online with a question. Mr. Guardiola, you may ask.
Hi, good morning, and thank you for your presentation. Hi, Camilo and Julián. I have a couple of topics I would like to touch on. One is on governance of Brava. It would be great if you can give us some thoughts or some additional information whether or not Ecopetrol has formally requested that Brava call for a shareholder meeting to appoint a new Board. If so, what is the expected timeline, and how many seats is Ecopetrol planning to secure? In line with that question of governance, I would also like to know if Ecopetrol is considering to review or to modify the management structure of Brava.
Perhaps if you can share with us which functions do you see as most important to strengthen and perhaps better align with Ecopetrol's broad strategy. That's on governance. Just a small one on the future of Brava, perhaps. It would be great to know your thoughts on the independence of Brava, and if Brava is going to maintain its own capital allocation framework and hurdle rates, or will investment decisions be assessed using Ecopetrol's return thresholds. Those are my questions, guys. Thank you.
Julián and Camilo, please unmute your microphone. We can't hear you. Please give us a few minutes. We're resolving some difficulties. Just a second. Hola. We can hear you. Please close all other microphones.
Sorry for the technical trouble. Daniel, thanks for your question. This is Julián Lemos, Corporate Vice President for Strategy and Business Development. Regarding your question about governance, let's start saying that this is one of the key and most important things for Ecopetrol, recognizing that Brava is a listed company in which we, as a major shareholder, have an obligation also to respect Brazilian rules and, of course, the minority shareholders.
We are conducting all the necessary analysis, considering the current structure of management in Brava to define which are those positions that need to be secured to have more alignment with Ecopetrol. This is the business that we have in our mind, and this is our day-to-day business as well. I would say that the first step for us was to appoint three Board members last week.
So far, we haven't requested a shareholders meeting, and once we do that, the market will know, and that would be the proper timing to inform additional changes that are under discussion nowadays in Ecopetrol. For your second question regarding the degree of independence, of course, and in line with what I mentioned just in the last question, we start to recognize that this is a company under the Brazilian regulation.
The capital allocation that Brava will require for future, of course, needs to compete or have some alignment with the investment plan that Ecopetrol has for the upstream and in general for the businesses. I would say that we will keep the proper independence and the proper control, considering that this is an ongoing business outside of Colombia, but in a type of business in which Ecopetrol is expert and a part of the core of the strategy. Thank you very much, Daniel.
The next question comes from Thiago Casqueiro from Morgan Stanley. Mr. Casqueiro, you may ask your question.
Hey, good morning. Thank you for taking my questions. The first one is also related to capital allocation. Over the past few quarters, we have seen that Brava placed greater emphasis on growing the production on offshore assets, while in the onshore, the approach was more on a capital light approach, with lower CapEx and more of a focus on IOR initiatives.
Now as Ecopetrol comes in as a shareholder, and also given your extensive experience in onshore operations, how do you view Brava's onshore portfolio? Should we expect a continuation of the current capital light strategy in the onshore, or do you see scope for greater investments in those type of assets? The second one is more on a modeling view. How do you plan to report Brava in your financial disclosures? Will you consolidate it within the existing upstream segment, or are you considering reporting Brava as a separate segment? Thank you.
Thank you, Thiago. This is Julián Lemos. I will take your first question regarding the strategy, and I would say that we recognize so far that Brava has a mid-term strategy in which both onshore and offshore activities as a key role. Of course, from Ecopetrol's side, we consider that the contribution we can put to the company is important and relevant in the offshore, considering our good track record in Colombia. Any type of changes or adjustments at the strategy of the company should be discussed at the Board level and in a consensus with the rest of the shareholders, define what would be the next step for that.
Most important, as we mentioned in the presentation, Ecopetrol is a long-term investor, and the criteria for us with this acquisition is to complement our portfolio and strengthen the capabilities of the company by adding the expertise that Ecopetrol has, but also to incorporate the good knowledge and the good practices that Brava has shown so far in the offshore operation in Brazil.
Good morning, Thiago. Camilo Barco , CFO, and I will refer to your second question about the way that we are expecting to, or that we are planning to consolidate in the financial statements, the different segments. Important to say that we're still finalizing our assessment, the rules of IFRS. Typically, IFRS 8, so we will determine very soon which will be the most appropriate segment, reporting approach for Brava. At this stage, what we could say is that we will probably consolidate that on our upstream segment.
But important to take into account that Brava make a difference between the two subsegments, upstream and downstream. So there is also a probability that at the end, we will reflect those accounts separately in each subsegments that, as you know, we also have them, both of them, some assets at the upstream and some others at the downstream. We will find the best way to report the segment very soon. And we will do it, of course, in line with what the Rule 8 of IFRS determine.
Thank you.
We continue with Andrés Cardona from Citibank. Mr. Cardona, you may ask your question.
Hi. Good morning, everyone. Thanks for the presentation. I have two questions on my end. The first one is, as you mentioned during the presentation, you already have some assets in Brazil, like Orca and some others. If at some point you have considered to merge these assets and create one single platform in Brazil, if there are any synergies on doing so. The second question is, if as of today, you have considered to take Brava private, or if you see any merit in keeping it as a public asset in the capital markets. Thank you.
Andrés , thank you very much for your question. I will reply to your first one. This is Julián Lemos, again. As part of the strategy analysis, we are exploring different scenarios. Of course, we recognize the complementary features of both assets or both portfolios, Ecopetrol Óleo e Gás do Brasil, with exploration portfolio and an ongoing project, which is operated by Shell and expected to be in operation by 2029.
On the other hand, Brava asset portfolio that we just acquired. I would say to your question that we are running those analysis, running different scenarios, and through the conversation we will have internally, and of course with the consideration of the minority shareholders in Brava, we will define which will be the best scenario and the most efficient for Ecopetrol. But so far, no decision at all regarding that matter.
Good morning, Andrés , this is Camilo again. Regarding your second question about the alternative or if we have considered to take Brava private or delist it, I can only say so far that we haven't think about that option. We feel comfortable with Brava listed in the Brazilian market, and we haven't considered that alternative so far.
Thank you, guys.
The next question comes from Leonardo Marcondes from Bank of America. Mr. Marcondes, you may ask your question.
Hello, everyone. Thank you for picking my questions. I have actually two follow-ups from my side. The first one is regarding the company's capital allocation strategy. How do you see the alignment between Ecopetrol and the minority shareholders of Brava? Is there any plan to return capital to investors with Brava's free cash flow generation, or should Brava focus on increasing production and reserves in the short to mid-term? That's my first question.
My second question is regarding the due diligence process that you guys had on Brava. How did you assess Brava's reserves? You showed a slide with Brava's 1P reserve, but part of this reserve, and a very relevant part of this reserve, incorporates a strong growth in the onshore production, which is something that the market does not believe much in. I would like to know if you guys could provide some color on how was your due diligence process, and also what you expect from the onshore assets in the mid-term. Thank you very much.
Well, Leonardo, good morning. Camilo Barco again. I will talk about the minority shareholders' rights and how we are planning to handle those rights in terms of capital discipline criteria. It is important to say that the capital discipline criteria will be exactly the same that we have currently in Ecopetrol at Ecopetrol level. What I would say is that we are very much focused on creating value, regardless the shareholders, majority or minority shareholders. It is important to say that the pillar of our capital discipline is returning value and having the right returns, depending on risk associates. Of course, there will be same levels of hurdle rates that will be required for those investments in Brazil.
I could only add that those projects from Brava will, as Julián mentioned before, those will be part of a portfolio that we carefully monetize on a daily basis. Those will have to compete in terms of returns, but also in terms of paybacks. Maybe we have speak about that in our previous conference calls, but it is very important for Ecopetrol currently, the paybacks, and the capacity of those assets to return on the short term cash generation. It will be basically the same for Brazil or Brava assets, in line with the criteria and policy for Ecopetrol.
Thank you, Leonardo. This is Julián. I will take your second question regarding the due diligence. I would start saying or remarking that Brava is a public company, public listed company. The due diligence process and all the approach that Ecopetrol did for the last 12 months was always respecting the access to public information that only shareholders would have. As you may imagine, we were not in a position to request information that the market shouldn't have. Basically, our due diligence started with a public data that Brava has published, in which the annual report of reserves is available.
Brava released that report back in April. Of course, internally, we made all the necessary analysis and challenges to that numbers to result in a compelling and comfortable investment case for Ecopetrol, which was the base for the internal valuation and all the approval matters. Other than that, I would say that we will follow the reserves standard process that Ecopetrol has, and as part of the integration, we will assess from now on any possible consideration regarding that. But wanted to insist that the due diligence was with a highly strict protection standards for the confidentiality and securing that Ecopetrol didn't get any information that the market didn't have. Thank you.
That is very clear. Thank you.
From UBS, Tasso Vasconcellos joins us with a question. Mr. Vasconcellos, you may ask.
Yeah. Hi, everyone, and thank you for hosting this call with us today. Two questions here. First, what happens in case Brava lose the arbitration process that Westlawn started in Atlanta? Did you guys have any discussions, or do you have any kind of discussions included in the deal, in the contract? Then, a second question here, more related to the timing of this transaction.
It occurred in a very fast pace after you first announced the deal, and it all happened right before the presidential elections in Colombia. We have seen the recent elected President in Colombia being very vocal about improving the sector dynamics in the country, in Colombia. Can you let us know how the full process worked, and why this transaction now, right before the election? Why would it not make sense to maybe wait on the outcome of the election and maybe take this decision after it? Those are my two questions. Thank you.
Thank you, Tasso. This is Julián Lemos. I will reply to your two questions. First of all, regarding Atlanta, this is an ongoing process in which both Westlawn and Brava have their own legal independent analysis and opinion. We consider Atlanta as a key asset for the portfolio, and we are following closely this kind of procedures. Our understanding is that the legal claim process recently started, and this is not a matter that is normally solved in a very short term. We will be following up that through our presence in the Board of Directors and all the proper channel that are under Brava's management control.
For the second question, I will start saying that Ecopetrol has an existing strategy, the 2040 Strategy that is in place since 2021, in which the hydrocarbon business is a core area for Ecopetrol, is the central part of the strategy, and also in which we defined the necessity of diversification, not only in businesses, but also geographically. That is why we made important investments in the U.S. with Oxy for unconventionals.
Now, after 20 years of presence in Brazil, we found a good opportunity to increase our presence there with an M&A process that took more than a year of internal analysis, challenges, and approval processes. I would say that at the end, the closing date being after the new President taking over seems to be coincidental. Remember that the authority in Brazil suspended the auction for a month. Several things happened in between, and I would clarify that the teamwork, based on a very strict schedule, and we were not targeting any decision or any date based on a political criteria. Thank you very much.
We continue with Vicente Falanga from Bradesco. Mr. Falanga, you may ask.
Hi. Thank you, Camilo, Julián, and the IR team for putting this call together. I had three, if I may. It seems like you're definitely seeing Brava as a growth vehicle in Brazil. But, with the current government, and if it's reelected, there might not be so many opportunities to grow in the country, while with the recent change in government in Colombia, Ecopetrol can have much more investment opportunities in oil assets in Colombia and Venezuela. My question is, can this growth strategy in Brazil change depending on how opportunities present themselves?
Why not use Brava as a cash cow for dividends, right, and investments in other countries? My second question is, you also mentioned in your presentation exploration opportunities in Brazil that could fall under Brava's new strategic guidelines. Where do you think exploration could become attractive to the point that Brava could invest on? My last, in terms of financial metrics, what sort of leverage do you see as optimal for Brava over the long term in terms of net debt to EBITDA? Do you see any potential G&A redundancies to be addressed with Ecopetrol's corporate structure in Brazil or any other cost or tax synergies? Thank you.
Well, Vicente, good morning, and thank you very much for your question. Please let me take your first one and then pass to Julián, maybe to go over the second one. I would say that there must be a balance between long-term returns and dividend payment. Important to say, like Julián did in the last question, that in Ecopetrol, we have a long-term view and strategy. Brazil has been our target since a long time ago. As long as it is, you can imagine it is even now that Venezuela arises, Brazil is still one of the most important markets in oil and gas in Latin America. So definitely, Brazil will become a very interesting platform for growth for Ecopetrol.
We will keep on going on exploration, as you just mentioned, but we will also implement our knowledge in terms of enhanced recovery and increasing production onshore in Brazil as well. So I would say that, to put it in a nutshell, there must be a balance between those two things. As the transaction have been made, basically leverage acquisition, it is important for us to receive dividends and cash flows from the company. But it will also work as a platform for growth.
Vicente, thanks for your second question. Julián will reply to that. I would say that the strategy or the appetite of Ecopetrol in Brazil remains. Of course, we need to balance both the exploration portfolio and the ongoing operation that we have with Brava. It doesn't mean that we are going to quit from doing what we have been doing in Brazil. We need to consider from now on a wider and a complementary portfolio in which both Brava and Ecopetrol Óleo e Gás do Brasil needs to be assessed to identify the qualities of it and, of course, pursuing opportunities in Brazil.
In general, that opens the second point that I wanted to touch at is under the current strategy of Ecopetrol, again, hydrocarbon is the core of our company strategy. We need to focus and analyze potential investments in those countries, on those geographies in which we have good opportunities, materiality, synergies, and where Ecopetrol can add value through the knowledge or gain value and knowledge for future developments.
I would say that in general, we will focus in Brazil, in U.S., Colombia, of course. Certainly what is happening in Venezuela invite us to pay attention closely, and depending on the maturity of the opportunity, this will be analyzed and, whether the case is positive, informed to the market. This is what we have been doing from an M&A standpoint for the last five years. Thank you.
Again, me, Vicente, Camilo Barco, to take your third question about the optimum capital structure and leverage for Brava. What we could say about that is that Brava has performed a strategy of deleveraging for the last five quarters, and we find that very positive. Also, we definitely are aligned with that strategy and with that decision, but important to say that we also see very interesting opportunities to optimize that capital structure in terms of cost and chances for Brava to have a lower cost due to the fact that Ecopetrol is backing Brava now as a major shareholder.
So we will keep on monitoring those opportunities. Definitely, we think that there might come some in the short term to, again, optimize and lower the cost of financing in Brava, and why not to have a better maturity profile. Those will be the components that will be taken into account at the time to make any decisions regarding the capital structure.
Thank you very much.
The next question comes from Juan Felipe Becerra from Credicorp Capital. Mr. Becerra, you may ask.
Hello, and thank you very much for taking my questions. I have two from my side. The first one is if you could comment on the project that Brava is currently investing in, exploratory projects, and maybe if you expect any news regarding these CapEx allocations in the short term, given that, if I understand correctly the CapEx allocation will be maintained in the very short term. The second question is regarding the downstream segment in Brava. Could you provide maybe a little more detail on your estimate for Brava's refining margin per barrel, as maybe you do so for the Colombian refineries? Thank you very much.
Juan Felipe, thank you for your question. Julián Lemos speaking. Regarding your first question on projects, I will highlight what Brava has publicly mentioned, and is the focus on the drilling campaign to both Papa-Terra and Atlanta offshore fields. They are completing two wells in each asset, and the expectation is to have those coming production by the end of this year and beginning of the next one for each asset. As a new shareholder, we are fully committed with the CapEx for this year and for everything that has been already committed.
Anything that is new, of course, would be duly discussed, analyzed at the Board level, in which we need to protect all the interest of the shareholders. For that, as we have mentioned, the value creation is important. We are a convinced company that the capital discipline is relevant, especially when we have a multiple geographies portfolio. It is important that every investment competes in the same kind of conditions.
We need to remark or remind that in Brava, we have 51% shareholders. We have also an obligation with the minority shareholders to respect that, in terms of the expected value for them. For the second question, I would say that for the downstream, we recognize that as a key factor for the transition of us. We operate a couple of major refineries in Colombia. We know that Brava has their own target on that. According to the latest presentation of Brava, their refining margin was around 13%.
We need to compare that with the standard we have, but also recognizing that there could be some differences in the approach of the downstream segment regarding what Brava handles, on how Ecopetrol handles, in terms of independent companies. For instance, in Colombia, Reficar is an independent company that has a different set of considerations. This is part of the newly acquired tasks that the transition team will perform from now on. Thank you.
Thank you.
Next question comes from Andrés Duarte from Corficolombiana. Mr. Duarte, you may ask.
Hello. Thank you for taking my questions. I have three questions. The first one is related to profitability. Could you provide Brava's current netback per barrel, and the main drivers versus last quarter or last year? The second question has to do with reserves. Remind us whether Brava's proved reserves would be higher or lower under SEC reporting standards than the reserves it currently reports. Finally, a question related to the transaction. What specific operational milestones should we monitor over the next two years to assess whether the transaction is meeting your objectives in terms of IRR, value creation, and other indicators? Thank you.
Andrés, thank you very much for your question. I would start saying that in general, all the details regarding the operational matters of Brava are going to be handled by them as well. From Ecopetrol as an investor, I would say that our investment thesis relies on the possibility of a good acquisition. In the presentation, we mentioned about the 1P and 2P reserves metrics, that it is $8.4/bbl in 1P reserves and $6.3/bbl in the corresponding 2P reserves. We think this is a compelling acquisition metrics compared with comparable transaction and other transaction we have been seeing in Colombia and Brazil.
The way we see the profitability of this business is to grow the company, to increase the cash flow for the shareholders, and to increase the margin in every deal and barrel that is produced from Brava. Regarding your second question regarding reserves, I would say that it is too early to determine whether Brava's proved reserves would be higher or lower under the Ecopetrol SEC reporting framework. Following the closing of the transaction, all reserves would be evaluated under Ecopetrol SEC-based reserve governance, certification, and control processes. Any differences would depend on asset-specific technical, economic, and regulatory considerations rather than on the acquisition itself. Thank you.
Julián, please allow me to add a couple of things about the profitability criteria, just to refer to EBITDA margins and ROACE that we will bring up to Ecopetrol from Brava. Just to remember that Brava seems to be a very efficient company. It has announced an adjusted EBITDA margin above 49% that we will add in terms of EBITDA margin and profitability to the Ecopetrol Group. Also speaking about ROACE, just to mention that the ROACE levels will be very much aligned with ours in Ecopetrol, would be around 9.1%, 9.2%, which is basically the same level that we have here.
And about lifting costs are slightly higher than in Ecopetrol, and that is one of the opportunities that we will be focused very soon, to keep on working on that and try to apply some of the knowledge that we have in terms of efficiency here in Colombia, and we will try to transfer those and that experience and knowledge in trying to make it lower in Brazil and try to put the levels of the lifting costs better aligned with ours, and sharing our goal for this year to have those lifting costs below $12/bbl .
Thank you.
We continue with Ricardo Sandoval from Cibest . Mr. Sandoval, you may ask.
Hi, thank you for the call. I have three questions. The first one is related to CapEx and production. I have seen that Brava invests something around $700 million annually in CapEx. I would like to know if you see this amount to be good enough for maintaining production in the company. Related to production, I would like to know also if you see any opportunities of growing production in Brava, and if you do, maybe if you can tell us a percentage that we can assume for this future increase in production.
The second question is about the first quarter 2026 and the fourth quarter in 2025 results. I see some net losses that I query peak in Brava earnings results. I would like to know if you can give us some information about these net losses that we have seen in these quarters. Thank you.
Ricardo, thank you very much for your questions. I will try again to reply, reminding that the role of Ecopetrol with this company's shareholder, this is a listed company in the Brazil stock market, in which Brava has their own reporting and projection information available to the investors. In terms of CapEx, we recognize the intensivity of the 2025 and 2026 campaign, mainly focused on the offshore developments that I mentioned before, executing for drilling campaign in Papa-Terra and Atlanta.
The analysis we have conducted so far is that after those two drilling campaigns, there is no major CapEx committed for expansion, and that is why the next discussions at the Board level will be focused on the 2027 and 2028 campaign. Based on that discussion, would be Brava the proper channel to inform to the market what would be the CapEx number. From our side, as Camilo mentioned, we would like to find a proper balance in terms of cash flow generation, CapEx allocation for growth, but also return dividends to the shareholders.
So the idea of Ecopetrol or the target for Ecopetrol is to find the best and proper balance to attend the necessities of the company in terms of growth, but also the expectation of the shareholders in terms of short-term return. For the second question, let me take a minute on that, Ricardo. For your second question, I would limit to say that this is something that was included in financial statements of Brava. The market already knows about it, and I will refrain to explore or explain a little bit more on that. Thank you.
Next question is from Alvaro Leyva from BTG. Mr. Leyva, you may ask.
Hi, and thank you for taking my question. I have three. The first one would be how much value underpinning the acquisition price come from Brava's existing assets versus synergies, operational improvements, or future growth opportunities? The second one is, does Ecopetrol have a target for how large Brazil could eventually become within the portfolio in terms of production reserves or capital employed? The third one is, if you have identified any accumulated losses or any other sources that could bring tax benefits to Brava if there is a merger with Ecopetrol Brasil. Thank you.
Alvaro, thank you for your question. I will take the first question. I would say that from our valuation analysis, all we got, or mainly we focus and value the existing production. We know and we have information regarding the existing projects or the ongoing project that will increase the production, and we base on that.
Anything that is incremental that will require further investment would be an upside for Ecopetrol or for the shareholders, but that potential upside will rely on several factors like the proper CapEx execution, environment of prices by the time of the projects are coming online. We are confident that the base production will pay for the investment, and we are focusing on how to increase, with a highly economic and profitable standards, the coming projects from Brava, in order to attend the expectation not only for Ecopetrol, but the other shareholders.
Alvaro, good morning. I will refer to the tax benefits not only from Brava, but also from Ecopetrol Óleo e Gás do Brasil. There is certainly an opportunity, a very interesting opportunity to take advantage of those tax shields that we have from previous investments that were made by our affiliate company in Brazil. This is something that is still too early to define or to give you a certain answer about that.
This is definitely something that we are exploring, and we have identified that there is a very important opportunity that will allow us to increase our return. As Julián mentioned before, it was considered as an upside, was not taken into account at the price that we paid for the purchase of the stake in Brava. This is something that is under evaluation, and very soon we will have the proper strategy to cover that front. Thanks.
Alvaro, for your second question regarding the target, I would say that Ecopetrol in the strategy has not any specific size for any geography, neither Brazil, neither U.S., or any incoming country. As for your question that if Ecopetrol has a target for how large we could be, I would say no. It will depend on the opportunities on our portfolio.
What I could say right now is after the Brava acquisition, the contribution of international production to Ecopetrol portfolio is around 20%. We need to assess if we want to get more exposure or not. But in general, would be depending on the market opportunities, the price environment, and the specific conditions of the businesses, not only in Colombia, but in the countries that we are analyzing. Thank you.
Thank you.
Thank you. There are no further live questions. We will now proceed with the questions from the chat. William Smith from LLM Financial asks, "Could you please describe the funding plans for the Brava acquisition?
Well, William, thank you very much for your question and good morning. Please let me go over that question, let's say in general terms. Just to say that Ecopetrol maintains access to a wide range of financing alternatives and sources, and we continuously evaluate alternatives to optimize its maturity profile and capital structure. The company actively monitors market conditions to identify opportunities to extend the average life of its debt portfolio, and pursue alternatives that may contribute to reducing financial cost.
In the first stage, we leveraged this transaction with a short-term facility, and this facility will be taken out in the next months with a more structured long-term facility. This is basically what we could say. For that long-term structure, we will definitely evaluate all different alternatives, as I mentioned before, from capital markets as well as banking facilities and also some portfolio managed that we have within Ecopetrol Group. That's basically, in general terms, our strategy for funding and financing this transaction.
[Paulo Sanuelo] from [NAS System] asks, "When is Brava expected to begin paying dividends?
Thank you, Paulo. This is Julián. I would say that the payment of dividends, it's a sole responsibility decision on the shareholders meeting. It will depend on several factors, including the final result of the company. We are so far in the middle of the year, so I would say that it's too early to say when would be paid, but of course, this is a matter that we are going to focus on our investment thesis. But once the company decides to do so, if this is the case, Brava will announce that in the proper channels to do that. Thank you.
Regis Cardoso from XP asks, "Would it make sense for Ecopetrol to increase its economic stake in Brava or eventually make it a wholly owned subsidiary?
Thank you, Regis. This is Julián Lemos. As we mentioned before, we are in the phase of integration. We are evaluating several alternatives. So far we haven't take any decision regarding next steps, and the market will be informed once it comes a real decision for Ecopetrol. Thank you.
Camilo Diaz asks, "Does the Brava acquisition include any refining assets?
Thank you, Camilo. Yes, the acquisition that we completed includes all the asset that Brava has so far, which is include the downstream assets and refining assets. Thank you.
Michel Gálvez from Principal Financial Group asks, "Ecopetrol's second quarter 2026 results were supported by exceptionally strong refining margins, while production declined 6.6% year-over-year. How should investors think about Brava's role in offsetting production declines and supporting earnings quality over the medium term?
Well, basically, I would say, and thanks, Michel, for the question. Yes, indeed, Ecopetrol second quarter 2026 results were very much supported on exceptionally strong refining margins. This is very important when it comes to speak about an integrated company with a downstream, midstream, and upstream. This is part of our value offer.
Having this into account, it allowed us to have a kind of a natural hedge when the upstream goes down, the upstream normally do it in the opposite direction. We definitely are offsetting part of our production decrease with exceptional results from downstream. Important to say also that our decision on decreasing our production is a strategic decision. This is a decision that was made taking into account our focus on value generation. We prioritize value over volumes.
If we take that into account at the end of 2025, we make the conscious and mindful decision of decreasing production, especially in Permian, taking into account the projected prices that we had by that time at the end of last year. Having said that, we can plan and we can see and foresee that Brava will have a very interesting role adding value to our consolidated results in terms of growth, but also in terms of efficiency, EBITDA generation, and net.
Our last question from chat is from Felipe de Almeida from Savvy Advisors. He asks, "What are your views on the Potiguar Basin, and do you believe it should be the first area of focus for operational and value enhancement initiatives?
Thank you, Felipe. This is Julián. We see Potiguar Basin as a key and attractive asset within Brava's portfolio. Certainly, an area where we believe a meaningful value can be created. Let me explain that. Potiguar is a mature asset, where Ecopetrol can leverage its experience in enhanced oil recovery, reservoir management, and production optimization that will improve recovery factors and support reserved growth.
That said, our approach is not only to prioritize one asset over the rest of them, but to analyze Brava portfolio as a whole and discuss at the board level what will be the proper capital allocation for each of those assets. Certainly, I am remarking what Ecopetrol has to bring in terms of knowledge to Brava could be applied for this specific asset. It wouldn't be the only one. Thank you very much.
Thank you very much. The Q&A session has ended. For some closing remarks, Julián Lemos, the floor is yours.
Thank you very much, everyone, for joining us today. It was a pleasure to present to you from a closer point what was the motivation and the details of the transaction we completed last week. We will be doing our best to deliver to our shareholders the commitments with this investment, and we will be open to attend any questions so far. Again, please remind that Brava's team has their own IR team and channels that could attend any specific question regarding the operational or financial topics of the company. Thank you very much.
Thank you, everyone. This concludes the conference. Thank you for your participation. You may now disconnect.