Petroleo Brasileiro S.A.- Petrobras Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 10, 2023

Key Takeaways

  • Petrobras achieved a record 4 million boe/day operated oil and gas production in Q3, up 8% QoQ, driven by five pre-salt platform start-ups adding 630 k bpd capacity.
  • Refineries hit a 9-year high 96% utilization rate, with record low-sulfur diesel output and launches of carbon-neutral Podium gasoline and high-recycling CAPPRO AP asphalt.
  • Q3 EBITDA of $13.6 billion and free cash flow of $8.4 billion marked the 4th highest operating cash flow ever, supporting BRL 56 billion in shareholder returns via dividends and buybacks.
  • Despite strong operations, adjusted EBITDA fell 22% YoY as Brent crude prices dropped 14% and diesel crack spreads shrank 16%, though Petrobras outperformed the broader industry average decline of 43%.
  • CapEx rose 31% YTD to $9.1 billion (forecasting R$13.1 billion for 2023) to fund traditional and energy-transition projects, while gross debt remained well-structured at $61 billion (net $43 billion).
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Earnings Conference Call
Petroleo Brasileiro S.A.- Petrobras Q3 2023
00:00 / 00:00

There are 3 speakers on the call.

Operator

Morning and welcome to Petrobras Earnings Results Webcast for the Q3 of 2023. It's a pleasure to be here with you. This event is being held in Portuguese and it is simultaneously translated into English. Links to hear both languages are available on our Investor Relations page. We would like to inform you that all participants will Be in listen only mode during the company's presentation.

Operator

After this introduction, we will have a questions and answer session and you may send your questions to petroinvestpetrobras.com.br. We have with us today Ana Paula Zettel, Executive Director for partnerships and exploration and production processes representing the Executive Director of Exploration and Production, Joelson Mendez Carlos Travasos, the Executive Director for Engineering Technology and Innovation Claudio Schlosser, Executive Director for Logistics, Commercialization and Markets Mauricio Tomasquin, Executive Director of Energy Transition and Sustainability Sergio Caetanoleti, Financial and Investor Relations Officer and William Franza, Executive Director for Industrial Processes and Products. To start off, we will hear a message from our CEO, Jean Paul Prontes.

Speaker 1

Good morning to all of you. We are very proud to present the results of the Q3 of our management. Petrobras has once again achieved records and significant figures, which highlight the quality of the work being done. We broke Our quarterly record for operated oil and gas production reaching around 4,000,000 barrels of oil equivalent per day, Which represents an 8% increase compared to the Q2 of this year. Our results prove Activity of the pre salt, this giant that collects exceptional results.

Speaker 1

Since December last year, we have already started up for new production platforms and we still have one more planned for the end of the year. With The start of production from FPSO Cepetiba in the Merril field. The installation of these 5 units in the space of 12 months It's a major milestone adding 630,000 barrels to the company's oil production capacity. I'd like also to highlight the operational performance of our refineries in this Q3. We had record utilization of our refining plants reaching 96%, the highest quarterly level in 9 years As well as a record production and sales of 10 PPM diesel.

Speaker 1

We continue to launch products with Mental impact such as the podium gasoline neutral carbon, the first gasoline on the Brazilian market to have its greenhouse gas emissions Fully offset through carbon credits and CAPPROAP, high penetration petroleum Asphalt cement with a high capacity for recycling aged asphalt. We also made progress With the plan to sell diesel with renewable content under the biorefining program of Petrobras with record Sales in September. We closed this Q3 with a robust operating cash flow, the 4th highest in the company's history. Operating cash flow was influenced by the appreciation of Brent, higher oil exports And sales of oil products in our domestic market. Our investments continue to grow and the company's debt remains under control.

Speaker 1

And all of this was accomplished with total attention to people through actions such as the approval of the diversity, Equity and Inclusion Policy published in September, taking another step towards becoming a benchmark in these areas, ratifying our relentless pursuit of a diverse, inclusive And today, it is the largest offshore oil operator and one of the oil producers with the lowest emissions in the world. But we want to evolve even further towards a low carbon economy relying on Partnerships with various companies and institutions. Looking ahead, Petrobras' goals focus on the sustainability of The business and the world, the decarbonization of processes and products and the fair energy transition Our philosophy with which the entire company is in tune and determined to deliver. The results We have achieved and our ambitions for the future are only possible due to an extremely dedicated and skilled workforce, which enables us to guarantee the energy Brazil needs to continue developing. Thank you and have a good event.

Speaker 2

We will now start our Q3 2023 results presentation. And for that, I'll give the floor to our Financial and Investor Relations Director, Sergio Leggi. Good morning. Thanks for participating in the Results webcast. As President Jean Paul Fracci said, It's a record breaking quarter for Petrobras and its workforce, its business partners, The public and private sectors and society in general celebrating As you can see, we have a very robust quarter.

Speaker 2

Our EBITDA reached $13,600,000,000 a consistent Net profit, a good operational cash flow generation and free cash flow in line with our growth at $8,400,000,000 And net debt EBITDA rate that's consistent return to society of around BRL56 billion, payment of BRL9 billion in dividends, approved dividends As I said, it's a record breaking quarter and we have a few operational highlights, A few of which have been mentioned by the President in his speech, but it's worth highlighting a few more aspects. A record breaking production of 22.25 BOED Coming from gas, the use of the refining Park or farm, this is a direct consequence of the commercial strategy that we adopted reflecting, among other things, our prices through an integration between the oil and gas company and a refining farm of global dimensions And with a use of 96% of the firm, An adequate FUT in addition to being a high also very efficient. The energy intensity Of CAD101.7 billion, an important operational milestone is diesel S10, 10 representing 62 percent of our total sales. Be salt natural gas processing Also breaking records, all of these highlights in the presentation are new records. The refining emissions index also in line with our requirements.

Speaker 2

And we also brought Anita Garibaldi as a highlight, which in around 4 to 5 months reached peak production at 150,000,000 barrels in record breaking time. The Carbon Emission Index per barrel under control with a forecast of decreasing. And we had a forecast of 2.1 for oil and gas and now it's updated for 2.3, the commercial production at 2.3 1,000,000 BOEDs and that was moved to 2.4 and a total production from 2.6 to 2.8 A few more milestones Worth highlighting are in line with our strategic guidelines published in March, the diversity Policy of Petrobras was approved and is being consistently implemented, The strengthening of the company's governance, the restructuring of the corporate Board of Directors and The launch of a new department In addition to transparency, that was approved by Enerfab, the main institution to measure the transparency index So we reinforced our governance and we added transparency to our entire process as we grow. Petrobras is the biggest developer of wind farm projects in Brazil. Developers are those that take a project from the very beginning And it's celebrated it signed a partnership with VEG to develop the biggest aero generator onshore and the biggest campaign remapping the capacity and potential of generation, new job positions.

Speaker 2

We're coming from a phase of divestments and with divestments, the workforce of the company diminished and now we're at a different stage where we are reassessing our portfolio and making investments in the traditional business areas and also in new areas. And with that, we have to make adjustments to our workforce. We hired approximately 2 70 new employees between July September, And we are now looking into hiring more personnel. Also the largest public selection of social environmental projects, followed by the launching of the podium carbon neutral gasoline. If you use this gasoline, you're actually buying Common credits from the market to offset the emissions of the podium Gasoline during that period.

Speaker 2

We have a few more highlights in terms of products. As the President mentioned, The CapPro AP Asphalt and also sustainable products and the Decommissioning of P33, there are several platforms and oil rigs that will be decommissioned in the next few years and that will be done with a social environmental responsibility in mind. And regardless of all of these records, we're dealing with adverse external conditions, both Petrobras and all of the oil and gas If we look at the Q3 of 2022 and the Q3 of this year, the Brent went Down by 14%. That had a huge impact on all oil and gas companies. The crack spread of diesel, the main Refining products in Petrobras decreased by 16% and the fields went down by 7%.

Speaker 2

So the external environment in addition to the geopolitical or in spite of the geopolitical instability Yielded good results. The EBITDA, in line with the external Conditions grew between the 1st and Q3 of this year. So Petrobras is on an expansion route. We had an EBITDA growth if you consider Adjusted EBITDA of 15% from the last quarter to this quarter in spite of the adverse external conditions. We keep on growing.

Speaker 2

If you compare the adjusted EBITDA of this quarter with the same quarter of last year, there was a decrease of 22% In addition to intrinsic issues at Petrobras, PPI, FUT and The use of refineries was much lower than it is today. We didn't have this perspective of Petrobras being an integrated energy company, there was a decrease of Brent and to the exchange rate. So there was a decrease of 22%, but it's important to say that on average, This decrease reaches 43%. Petrobras is more resilient than the external market, and that's a good quality of the company, which is in a growing path, As you can see between quarters, if you look at the EBITDA per business segment, The EBITDA of exploration went up by 25% between the last quarter and this quarter, in line with the growth This segment is more sensitive to external conditions. If you look at the EBITDA with the inventory Turnover, the growth was 32% and the replacement cost reflected the crack spread and the Brent decrease at a negative rate.

Speaker 2

In case of gas and power, we saw a growth of 49%. Our FCO or OCF and the cash generation of the company is robust and it's sufficient to deal with in debtman and investment requirements and cash flow, which is quite robust and continues to be robust. Our CapEx was CNY9.1 billion in the 9 months of 2023. This investment CapEx is 31% higher than the investments in the same period. So what's new in this about this information?

Speaker 2

Well, absolutely nothing. The previous strategy was one of divestment and a concentration in EP and not considering Petrobras as an integrated energy company, but rather as an exploration A company that explores a presold, which would jeopardize the investments of the company owners and shareholders that would decrease the company's resilience for the future. So in line with the strategic changes and in line with the new guidelines After analyzing the 9 1st months of 'twenty two compared to those of 2023, Petrobras is investing more and better. We have forecast the year to be ending at around R13 $1,000,000,000 worth of investments, which will represent more than 30% of what was invested last year. All right.

Speaker 2

Debts are under control. As we all know, our indebtment is under impact of the IFRS Standards and our internal CRC in Brazil, the debts reached $61,000,000,000 which is Within the variation range, Ben, between DKK55 1,000,000,000 and DKK65 1,000,000,000, one of the measures adopted by Petrobras. The $61,000,000,000 if you discount the cash flow, the result is 43,000,000 The gross is CAD61 1,000,000,000 and the net debt of CAD43 1,000,000,000. Our financial debt is around CAD29 1,000,000,000 out of The $1,000,000,000 that Petrobras has in terms of total gross debts, dollars 29,000,000 are From financial debts and debts issued in the market with an average term of 11.5 years for payment. It's a well structured debt that's very comfortable for our cash flow.

Speaker 2

With the rest, the balance between 29,000,000 and 61,000,000 coming from FPSOs that increase Our debt. Next slide please.

Operator

This year with our new investment Policy, in line with the main companies of the market with the major peer companies. We have started a share buyback program. This was approved by the Board As we reviewed our shareholder payout policy, it is a part of our shareholder payout policy. So when it was approved, we Disclosed this buyback program as the first one under Controlled Dimensions between Well, an acquisition of up to 157,000,000 preferred shares. And so far, we have reached 35%, about 28,000,000 in September 27 million in October.

Operator

Next slide please. Net income. So on this graph, we can see a comparison Between the second and the third quarters, we can also see a comparison between the Q3 of 'twenty two and the Q3 of 'twenty three. You can see that the net income for Petrobras between the 2nd and third quarters reflected the company's performance, meaning it is growing. Gross income is lower than what we had in the Q3 of 2022 And this is due to the external environment.

Operator

Again, Brent is dropping 14%. The cracked Fred, for diesel, which is Petrobras main product is also dropping and we also had foreign exchange effects. So with all of these factors combined, we really have to celebrate Petrobras resilience. So There's a debt impairment effect here when we consider foreign exchange and other financial values that can impact our net income to some extent. Next slide.

Operator

It's also very important to see Petrobras' strategic drivers, meaning taking care of society and taking care of people. So we are providing returns to society. BRL65.5 billion have been paid in taxes and dividends this quarter, a significant amount. And here we can see the split per Federal level, so federal, state, municipalities, government and dividends. When we add all of that up, We can see the importance of Petrobras for society.

Operator

Remuneration to shareholders, we have Approved RMB17.5 billion in dividends. We had a total buyback of RMB974 dollars 4,000,000 according to our policies, this buyback is coming out of dividends. So we Approved $18,400,000,000 in dividends minus buyback That is R974 million. So we are paying out our Dividends and IOC representing BRL17.7 billion. So this concludes our presentation.

Operator

This was a summary of our results for this quarter. As I said, this is a record quarter for Petrobras that we should celebrate. The company is moving towards a more resilient future. So we're keeping investments in the most traditional areas of the company, oil and gas, but we're also reinforcing our investments into new areas. So thank you for listening.

Operator

Thank you, Sergio. We will now begin the questions and answer session. The first question we received came from Mr. Bruno Bontamari from Morgan Stanley. He's asking a question to Sergio about potential extraordinary dividends for the 2023 fiscal year.

Operator

What financial indicators will the company used to decide on this payment. Petrobras is working at a very low leverage level. Even when we look at the last 12 to 24 months. It seems like the company's cash position is robust and could afford a dividend payout. So how should we what should we expect for this year?

Operator

Sergio? Hi, Bruno. Thank you for your question. It's true the company's indebtedness is under control, but It should fluctuate between KRW 55 1,000,000,000 as an average level and KRW 65 1,000,000,000 as the maximum level. As we published, we are currently at R61 1,000,000,000.

Operator

So that's R4 billion away from the upper threshold. Of course, we have amortization, we're paying Interest rates for this debt consistently in the 1st 9 months of the year and until the end of the year, we will pay more than what we paid last year. So Our debt is under control, but we're not only looking at that. We're also looking at investment needs. We're looking at the external environment, the adversities caused by the wars, but we're not only looking at the quarter either.

Operator

So as you know, extraordinary dividends are usually paid out at the end of the year. And we're looking at the probabilities for the next 2 years, simulating several scenarios with different levels of confidence for each scenario. So We're being very cautious in our management to control our debt. And only by doing that and looking at our future investments is that we can look at this possible payout. And then, this can be approved.

Operator

So that's the criteria we look at to answer your question. It's not only based on a quarter or our indebtedness, but we look at many quarters. As you know, Petrobras is a major company and any decision that you take during the Q3 may impact your entire next year. So we have to look at that in order to make these decisions. Thank you, Sergio.

Operator

Bruno has a second question for Ana Paula. The company posted robust Results this quarter, which was a surprise. Internally, is your production performance also a surprise for the company? Would it make sense to think that the future production levels can have an upside bias? Anna?

Operator

Thank you for your question, Bruno. Good morning, everyone. Actually, it was not a surprise. We have a risk analysis for our projection considering units that have been implemented and new units. So we have a 12 month study, in which we started 5 new units.

Operator

So we look at the risk factors that may affect our production. What we've seen throughout the year is that it's been robust and it's not been as affected by outside factors. So our production is at the upper threshold of our margin of error. And this allowed us to review our production guidance. This was a part of the material fact that we had yesterday.

Operator

So, 12.8 Equivalent barrels, so this is not a surprise. As we can see, our production was robust, but this was according to our projections. Thank you. Thank you, Ana. The next two questions will be asked by Vicente Falandou from Bradesco PBI and they're directed to Sergio.

Operator

The first one is, does the company intend to publish In a strategic plan, how much will be dedicated for M and As and may this decision be out of the plans? Saoirse? Hi Vicente, how are you? Thank you for your question. So We have been discussing this plan.

Operator

As always, the new strategic plan for Petrobras is highly expected by the market because of the effects that it causes. So we truly are talking about this right now. A lot has been said on the press, but it's still an ongoing process. So It might change. We're in a stage in which we'll be validated by the different executive managers, by the Board, by The upper leadership, so this is something that is watched closely in the company.

Operator

We don't have a full answer to your question yet. There are several possibilities, but We want to be in line with what I said before. We want to be transparent. We want to give Predictability for everything that Petrobras does. So we want to give an idea to the market about what we're going to do.

Operator

But the most important thing is to say how we're going to do the future mergers and acquisitions. As you know, these processes have their own rules. They're guided by confidentiality agreements. Not Everything we want to do is allowed. So we need to be very cautious, especially because of strategical reasons.

Operator

This is a part of the business that Has a lot of competition, not only in Brazil, but we have competition from around the world. Petrobras works on a global stage and we can't simply say that we intend to buy something in this or that industry. But once the decision has been made, once we decided to propose an acquisition internally, Then, of course, we're going to disclose this with every step. We have this obligation to publish relevant information to the market. So to answer your question directly, yes, we will Make an effort to show what our budget is for mergers and acquisitions in our plan.

Operator

Thank you, Sergio. So Bruno's second question is, how do you assess a potential asset for an acquisition. What's that process is like? And will you reveal that in your strategic plan? Vicente, our process for acquisitions In general terms, it's broadly known by the market.

Operator

We work with an investment and divestment methodology that is well known. There are different levels to each guideline. They have statutory committees that the company doesn't participate in. So we have executive managers who deliberate on that. So these processes are very transparent.

Operator

We have a very solid governance that Discloses all of these things. Of course, we can't disclose some aspects which refer to our competition, but this process of acquisitions and this investments are communicated to the market. So whenever we have a decision at our board, this is Published, the Central Bank keeps track of this process at every stage from A proposal to a viability study with every step. This is followed by the Brazilian TCU. And this is online, in systems shared with the the Brazilian TCU, and this is communicated to the market and to control agencies.

Operator

This process has been established in Petrobras for many years and it will be maintained.

Speaker 2

Thank you, Sergio. The next question comes from Bruno Marin, Goldman Sachs. The creation of the new reserves allows us to allocate 70% of the Profit for the payment of dividends, what are the predefined criteria if the cash will become a reserve or will Hello, Bruno. Thank you for your question. The oil and gas companies have Characteristics companies that work with commodities have very specific characteristics In terms of how they define cash flow and Net profits, they're not interconnected.

Speaker 2

We revised the asset values that have a direct impact on the assets, and that will have an impact on the net profit. We could have a high net profit and Not produce the same increase on the cash flow and vice versa. They're not interconnected, As you probably know, the reserve that we created is a reserve that's allocated and you know that the creation of a Reserve has a purpose. So the purpose of it is to Equalize the payment of dividends. It's an evolution in Petros' governance in terms of maintaining the interests of The shareholders, whether they're private or public, you can have lots of dividends on 1 year for a quarter and you may not see the same effects in the next quarter or you may see a variation between this to this reserve.

Speaker 2

The resources that are in the reserve are allocated to the payment of dividends. So if it goes to the reserve, it will definitely go back to the payment of dividends. It's important to make that clear. Petrobras has a reserve for investments in capital. And oftentimes, in the past, The disclosure of this information caused a lot of buzz in the press.

Speaker 2

Many people would ask, well, will Petrobras retain the dividends and then reinvest them. The dividends are paid after the investments. Petrobras has a market reserve for that. It wouldn't be necessary if to create a new reserve if that was the intention. The reserve is strictly Allocated to the payment of dividends, that's a positive thing for investors and for shareholders.

Speaker 2

The dividend payment policy of Petrobras is linked to the cash flow. So we're going to pay the Gross cash flow and deduct the CapEx. And over the rest, we applying the formula and our policy for dividends payments. So there is no direct connection, as we said. Other big companies in Brazil have the same reserves or companies abroad as well.

Speaker 2

That's a revamping of our governance and an additional care so that we have more predictability To the payment of dividends, we are reinforcing the predictability in line with everything we do in terms of providing greater transparency and trying to Publish our resources allocated to mergers and acquisitions and payment of dividends. It's the same thing. We want to add transparency and allow investors to have greater visibility. And also the fact that the reserve was proposed and it has not been approved yet, It's important to say that the creation of the reserve has not yet been approved. It's still at the approval level.

Speaker 2

It hasn't been created. So the fact that the reserve is approved, if it is approved, It's not linked to the payments of extraordinary debts or not at all. The payment of dividends, not debts, dividends. It means the requirements of the policies, It requires a decision that has to go through several different levels. So paying or not paying extraordinary dividends is not connected to the creation of the reserve at all.

Speaker 2

The reserve may be approved or not at the shareholders' assembly. And in case of approval, The resources may not be allocated in the next quarter or the quarter after that or the one after that. Thank you. Now I have three questions from Pedro Soares. The first one to Anna.

Speaker 2

Today, the company understands that to say that we might grow to other regions of Latin America. If yes, so where do you see the biggest opportunities? Anna, over to you.

Operator

[SPEAKER CANDIDO BOTELHO BRACHER:] Thanks for your question,

Speaker 2

Pedro. We're always monitoring the opportunities to explore both inside and outside of Brazil. And that is related to our participation in bids in The countries and also in Brazil, Petrobras is the preferred operator of many companies. 70% of our Production comes from partnerships. We have around 20 partner companies.

Speaker 2

So they also provide opportunities to explore abroad and we keep on monitoring these opportunities and we evaluate them. And if we think that something is interesting to us, we submit it for approval. Of course, that's a strategy that affects our competitiveness, so we do not disclose our areas of interest. And in terms of South America and Latin America specifically, we have a project of exploration in Colombia, which has been published in our plans, and it's also our CapEx reserve project in our strategic plan. Thank you.

Speaker 2

Thank you, Anna. The next question to Thomas Quinn. Concerning the energy transition, Petrobras has been very vocal about the greenfield investments it will make over the course of the next few years. I'd also like you to talk about The brownfield project opportunities and companies that are already operating. In other words, are there potential target companies that might Thanks for the question, Pedro.

Speaker 2

We're looking at 3 project categories. 1st, from companies that are already operating. And the idea here is to have The partnership formed with an existing project and the biggest benefit of that is to immediately generate a cash flow for the company and to bring renewable energy to our portfolio. We're also looking at Or more specifically, we are mainly looking at projects under development. And here, we have 2 categories, Projects that are at an advanced stage with environmental license that are connected to the grid and that are ready to be built and other projects under development.

Speaker 2

Of course, The less mature the project, the longer the construction time, but So is the upside. So our intention is to find a balance between operating projects, Projects that are ready to start construction and projects that are still under development. Thank you, Thomas Kin. Pedro's last question goes to Sergio. The press has been talking a lot about litigation, said Coffey.

Speaker 2

What are the internal and governance related projects at the company to approve an agreement about that. Is there any amount that you would consider to be unfair for this agreement if it ever happens, Sergio. Well, Pedro, it's Important to say something. As you saw in the presentation, Petrobras pays taxes at several different levels, federal, state, municipal levels, and it's common practice in our history To be in constant contact with the Secretariat of Finance, the national Taxation system is full of different laws and regulations. And for a company as big as Petrobras, It causes certain clashes or disagreements between interpretations where The legal team and other teams will have different interpretations about the same standards.

Speaker 2

And if that's the case, We tried to contact the Secretariat beforehand. So it's been a historical practice at Petrobras to be in daily contact with the Secretariat. Either we call them or they'll call us and to try to sort out this type of situation. At the federal level, there is a discussion chamber, which is not super legal, which is to say that for any decision, we might appeal against that decision. And Petrobras understands that and it's always on the lookout for Litigations or claims and it always attempts to meet all requirements, Whereas at the same time, we also try to save as much resources as possible.

Speaker 2

And it's in this From this perspective that Petrobras analyzes if we will accept or propose an agreement. So any agreement entered into with any of The government levels, whether it is the federal, the state or municipal levels, if it's proposed to Petrobras And these proposals are always analyzed by the Board of Directors depending on the proposal And legal and taxation teams, it's not a discretionary process. Actually, this word is never even heard And Petrobras, it's something that is constantly rolled out in any decision that the company makes. If Petrobras And understands that there is economic and financial benefits to Petrobras If the agreement creates a positive VPL, if the agreement will be And then we'll discuss it. There were many statements referring to 40,000,000,000, dollars 30,000,000,000, dollars 50,000,000,000, so many things have been vented that I ended up giving up on watching the news about that.

Speaker 2

But I can tell you that, yes, that exists and there are discussions between Petrobras And the revenue service, they go through a 1st level of decisions, which is coffee. And recently, a decision by the coffee was approved, providing more Benefits to agreements. So Petrobras always analyzes if the VPL of the agreement is positive, if it's better to settle the amount or if internal or legal teams or governance recommends that Petrobras initiates an appeal against the decision. So there's no preset amount, 15, 20, 30. But we might see small agreements at all levels, federal, state and municipal, as long as it's Beneficial, advantageous for Petrobras to pay and not moving on with the discussion.

Speaker 2

And it's at this Point that we are now having a discussion with the revenue services. Thank you, Storgyo. Now, I have three questions from Caio Ribeiro from Bank of America. The first one to How does the company see the different potentialities of the basins of the Equatorial margin, do you believe that the falls of the Amazon has more potential than the others?

Operator

Okay. So we have a robust portfolio. We have 6 blocks In the Amazon Basin in Amapa in deep waters, we have 2 blocks and one assessment Plan for the Para Maranon Basin, 1 block and 2 discovery assessment plans in the Bahirinas Basin and Three blocks and one plan in the Poitiguar Basin, meaning that we are very well positioned in that area. We operate all of these blocks and we have a relevant amount for these investments for our 2023-twenty Our exploration team believes in the potential of this area due to how close it is to Guyana and Suriname, but this needs to be proven through explorations in the region and We're waiting for Ibama's position and the obtainment of a license to explore this area. That's when we will be able to know if there is potential and if it's commercially viable.

Operator

So we need to wait to see how this portfolio will unfold to assess its potential. But once it has been discovered, then We can imagine that it will become significant for the country, will lead to regional development and will generate income for people. Thank you, Anna. Here's another question from Caio. About the Bahia Deja asset, which was removed from the divestment Plan.

Operator

Do you expect to continue onshore developments in Brazil? Are there any partners to develop this asset? And what Kinds of contact is the company considering for this project? Okay. So we've had a change in our strategic direction in 2023.

Operator

Our strategic direction so far had been deep and ultra deep waters. And now we're focusing on profitable assets. So based on this update, We are assessing our portfolio. So we're actively managing our portfolio and reassessing our position. So that's why we published a conclusion for the divestment projects for Maratea, Uruku and RRT.

Operator

Since they were profitable, they were maintained in our portfolio. So once we have them in our portfolio, we will try to add more value to the assets that is having complementary investments to extract more value from the assets And so partnerships have not been ruled out. As I said, 80% of our production comes from assets with partnerships. We have many partners in Brazil and abroad. So we don't rule out any partnerships, including ManaT in Bahia.

Operator

This is an asset in which we have A 35% stake with partnerships with other stakeholders. Thank you, Edu. Thank you, Anna. This is the last question and it's asked to Trevassos. Trevassos Kayo has one last question.

Operator

So how does the company see the platform supply market today. And how has that affected new contracts? Good morning. Thank you for your question, Caio. So we do see some significant movements in the FPSO's market and in the supplier market overall.

Operator

We see a post COVID Effect of prices going up in our supplier market. We've also seen Some changes to the market, which is transforming itself and looking towards the future with its own take on the energy transition. We've seen some mergers, some temporary scarcity that affects the 2nd and third supply layers and there's also a difficult access to funding. All of these Effects have reverberated across our projects and naturally we've considered them in our plans, and our plans for the future. We're taking some actions to recognize the impacts of these effects on the ongoing projects.

Operator

So with all of that, we have had to redesign and readjust our clients and even the way we approach the market. Our main source of information has been the market itself. We usually have collaboration rooms and we actively listen to all of the feedback we receive and we adjust our plans to ensure that the process is competitive. But we also have to recognize and Understand that when we look at our strategic plan there are 17 units across it. 5 are in allocation and 4 are in production.

Operator

So Some will tend to start this year. So 9 are contracted and ongoing And there are 3 units which are still under auctions. So This shows a very positive process. We really believe that we have a winner in this market. There are 6 units that are still looking at.

Operator

So Of these, 3 already have proposals. We have Cepidozia Notacutu Dozi. So we've received proposals from the market on those. And we have 2 SIABs and Barracuda, which are also open for proposals. So the main source of demand for FPSOs in the world is that It's a very robust plan.

Operator

Of course, we expect the market to respond, but we're paying close attention to this process and we're looking at this auction by auction. This is how we've been working Caio. Thank you, Trevassos. We now have a question from Rodolfo Angiely from JPMorgan. I'll pass it over to Shlots.

Operator

Refinement results have been resilient with good margins. With the Increase in production, we've seen that utilization rates have reached 96% in the Q3 of 2023 for Maria. So what should we expect for this industry considering utilization rates and sustainable margins. Good morning, everyone. Hi Rodolfo.

Operator

Thank you for your question. Although we see some volatility in the international market, our Expectation is that margins for diesel will be sustained for the next months. Why am I mentioning diesel? Because diesel still responds for about 40% of our production of byproducts. So it's a significant driver for this in market.

Operator

Gasoline has international markets, which impacts the next few months, but this is due to seasonal factors and they usually get weaker as we come close to the winter in the Northern Hemisphere. So our planning models and the economic utilization for the downstream Do indicate that utilization rates for refinement will still be high. I'll pass it over to William, who will add to this answer, who will give his take on that. Thank you for your question Rodolfo. Thank you, Claudio.

Operator

It's important to highlight, as Claudio said, that we are receiving many demands in logistics, which is quite good. We've been able to meet this demand with high utilization rates as Claudio said. What's important to highlight here is that our prediction is that considering seasonal effects for the next quarters, for the Q4 and the Q1 of 2024, but this demand bold remains strong as Claudio said. So we're working to ensure that we will continue to have good utilization rates. So we're going to reinforce our asset management tools.

Operator

We're making strong effort in Downtimes, so planned downtime so that we can have the best maintenance level for our equipment, our reactors or pipeline systems, so that we can have Planned downtime in our refineries at the right level of quality and with good operational availability. And operational availability means the possibility of starting a refinery. You. There are some problems that might lead to stoppages for a plant or a system. And the utilization factor is Having a higher load in comparison to our reference load.

Operator

In the last quarter or rather in the last two quarters, we were able to increase our rates with very good yields. So we went from 66% to nearly 70%. So it's important to highlight that our utilization rate is going up, loads are going up, but we're not just melting this value for fuels. We're producing Diesel and Aviation Fuel. As Claudio said, we have good expectations here.

Operator

We're working to ensure that our systems will be able to have higher utilization factors. And this will ensure that we have good demands for our logistics utilization areas. Thank you, William. We have two questions from Monique Greco from Itau BBA for Schlosser. So Schlosser, in the last weeks, we saw a significant reduction in international refinement margins, especially for gasoline.

Operator

How was that reflected in the company's strategic management? Is there any space of seeing interest rates reflecting the international market? Thank you for your question, Moniki. So you're asking about how we monitor our commercial strategy. So I'd like to underscore that one of Our commercial operations core values is to mitigate the volatility seen in the international market.

Operator

That includes foreign exchange rates and the price of fuels for the Brazilian market. Right now, We are seeing high volatility again, as we've seen before. This is being caused by What everyone knows, right, the uncertainties on the supply and demand sides for fuels. On the other hand, we have some data on the Chinese economy that raises some concerns. We also have geopolitical conflicts that affect us.

Operator

And the production cuts in Saudi Arabia and Russia, which create some pressure on the supply side. It's a complex environment to monitor. We're always keeping our eye on that. And this is reflected in our commercial strategy. You asked specifically about gasoline.

Operator

So the end of this cycle and its deceleration with oil has allowed us to reduce prices in October. So right now, as we see a high level of volatility. We're still looking at the basis for the market. If gasoline prices go to a different level that is structural, of course, Petrobras will analyze it and readjust its internal prices to maintain balance. We can't give you any details on what these readjustments will be like though.

Operator

Thank you for your question. Thank you, Schlosser. So this is another question from Moniki about imports. We see that there was a reduction in volumes of diesel, NGL, KPN imported. Will this affect refinement?

Operator

And how should the company see this for the future?

Speaker 2

Well, certainly, the increase in the production of byproducts at our refineries, This production increase follows certain quality standards, which are for the production of diesel and that led to the reduction of imports. About the future forecasts, The decision to import is a result of a complex operational planning involving several Company departments that we use, computing tools, just like every other competitor does, to maximize The value of assets and these plans take into account a series of factors, just like Seasonality of demand and the availability of our logistic assets and the stock level that we're exposed to as well as the future expectations of the market. That is our position. Thank you, Schloss. Gabriel Baja from Citi has three questions.

Speaker 2

The first to Anna, Could you give us more information about the discussions with the Environmental authorities about the development of the Amazonas Falls, is the project in line with the pre salt projects after an approval if it happens. And when can we Expect the company to produce the first oil. Thank you. Thank you for the question. As I said, we're well positioned at the equatorial margins, especially at the falls of the Amazon, Amazonas, what we call the Amapod deep waters.

Speaker 2

According to our latest discussions, we had a denial refusal from IBAMA that did not allow us to drill at Morpho. And then we made an appeal. And in August, there was a decision stating that An environmental assessment of these areas is not required to issue an environmental license, Which is in line with the Supreme Court decision. Since then, with the conciliation process that's In course, we've been trying to solve any disagreements to then obtain the license to perform the pre operational assessment and to move forward with our exploratory activities. Right now, we cannot estimate an investment.

Speaker 2

I can tell you that our business plans Allocate $3,000,000,000 for the drilling of wells, 16 wells in that area. And after There is a decision from Ibomao, and I'd like to highlight our Understanding that we meet each and every environmental requirement, then only we'll be able to proceed and have more information about any businesses in the region. Thank you, Anna. Second question from Gabriel to Sergio. According to the news, there is a discussion about the selling of Braskem that may be completed before the 1st Q of 2024, we've been seeing some integrated oil and gas companies trying to find a way out from this In the long run, in the perspective of the company, would it make sense to have control over Braskem or should it continue to be a minority shareholders?

Speaker 2

Can we expect this to be completed before the 1st Q of 2024? What do you expect from a new Partner in this business, Sergio. Hello, Gabriel. Thank you for your question. Petrobras and the oil industry as a whole and more specifically Petrobras, we see a lot of value in petrochemicals.

Speaker 2

And this is not something new. Internal monitoring and the sharing of information about future possibilities is occurring internally at Petrobras. And this Lead the Administrative Council to approve The integration of petrochemicals into the business chain of Petrobras. So there are guidelines currently stating that Petrobras should assess its investments in petrochemicals. We have a relevant position in the petrochemical industry through Braskem.

Speaker 2

And for that reason, and because we believe in the future, we believe that petrochemicals contribute to the energy We and the Board see a greater resilience in the medium and long term in the petrochemical industry at the expense of gasoline. So it's a rational and strategic movement. All of the integrated companies in the world are doing the same thing. So yes, the growth of petrochemicals is relevant for Petrobras. In this specific case of Braskem and the offers posed by Braskem, You can see that so far the proposals have been non binding, If I'm not mistaken, 2 or 3 non binding proposals made about the acquisition of the Novanor These proposals were made to Novanor, which is actually the seller of their share.

Speaker 2

They Inform the banks and Petrobras as the business partner. So then a proposal is made to Novanor. And I want to highlight that just to state the fact that the decision to sell or not It's not with Petrobras. Petrobras has a tag along and a selling preference if it The fact that the administrative board approved this and that Petrobras has been Monitoring the petrochemical industry in Brazil and in the world as a potential for growing its businesses, These decisions may not be conflicting with Braskem, the selling of Braskem, Or it may further reiterate the decision to Purchase BreastCam. So Petrobras is currently doing due diligence.

Speaker 2

These proposals, like I said, are non binding And if it becomes a binding proposal, Petrobras will have to make a decision Since it has the right of preference in the purchase or tagalog, Petrobras has a Finement, a firm that's quite powerful and updated. What we see in the world is that the integration With petrochemical industry is oftentimes made directly at the refinery level. So of course, BRISKAM is a shortcut, but It's not the only way out we have at Petrobras, the only solution we have. I need to make that clear so that there's no confusion as to whether Petrobras has decided to buy or sell. We're analyzing the business and we're analyzing it very carefully.

Speaker 2

After all, we have 47% of the shares. It's a very relevant position at the company. Concerning, the timeframe or partners, I wouldn't be able to give you An idea, Gabriel, because right now, it does not depend only on Petrobras. Last week, we Saw a new non binding proposal about the purchase and there has been no decision from Novanor. There is A time frame, a deadline for them to make a decision and this is not at the hands of Petrobras.

Speaker 2

So I can't give you an idea of when that's going to happen. In terms of the decision as to whether we're going to have a business Yes, Petrobras intends to grow in this sector and the Petrobras partners should be aligned with Petrobras' vision. But Given the importance of Petrobras in Brazil, it's very important that buyers take care of All the interests of those involved and that the interests are aligned with those of Petrobras, potential investments and technical capability And that they preserve the interests of the creditors of Braskem and any creditor at that and The Novo Nord interests, Petrobras is interested in making the business grow in harmony. That's what I can tell you right now, Gabriel. Thank you.

Speaker 2

Thank you, Sergio. Gabriel's last question goes to Trevassos. The oil and gas industry has been Constantly concerned about inflation and the cost of investments, the market is quite tight for the acquisition of new rigs, ships and platforms. How can we find a balance? Can we Expect to see the company investing again and capitalizing these assets.

Speaker 2

Over to you, Trevassos. Thank you for your question, Gabriel. That is somewhat connected to my previous answer. Actually, the market is quite upset when it comes to the escalation of courses. And we've been defining the strategy on a case by case and proposal by proposal basis.

Speaker 2

And our intention It's still one of diversifying. We do that in the FPSO market. The subsea lines and systems In that market, we acquired these components. And in the market of rigs, we work with Great. And this is a these are temporary demands for rigs.

Speaker 2

So to answer your question, we have no intention of purchasing the rigs. We keep on monitoring the market and entering into contracts that are more advantageous to us that allow us to reduce the risk of operators and contracts where we can guarantee the and when we can flexibilize the use of the rigs, that is how we've been dealing with the Thank you, Trevassos. The last two questions come from Luis Carvalho. The first one goes to Sergio. If the company generates cash in excess of the reference cash flow that's been Defiance, what are the policies, dividends above the policy, at which Point of the list of priorities, does the company think about finding a balance between distributing dividends as it did in 2023 as opposed to the new reserve.

Speaker 2

Sergio, over to you. Thank you for your question, Louis. Well, as I said in some of my previous answers, we should take into account that there might be A lack of connection between a net profit and cash flow. The reserve It is comprised is built based on cash flow. The cash flow is not Directly related to that, so we need to take that lack of connection into account because the reserve was created to guarantee the dividends resolving Any kind of problems with the cash flow and net profit.

Speaker 2

But to your point, The guidelines state that we have to maintain a strong and robust balance across all of its levels, assets, Liabilities, indebtedness, maintenance of the net assets of the shareholders and whatnot. So The first guideline for the generation of cash is to reinforce our balance always and that is What is going to make sure that the to help us make sure that the company will keep on growing. It's one of Petrobras' growth vectors. And Petrobras, we have this value creation culture. We look at the Cash allocation from a perspective of value creation, and this will keep on happening.

Speaker 2

We'll keep on focusing on the creation of value. Cash has to be allocated wherever it adds more value to the company's portfolio, including oil and gas, energy transition, any area the company decides to invest in. Dividends are an important part. And one of the reasons for the company to exist is to Compensate its partners, and there are others, of course, to contribute to society, I mean, several others. Dividends are a very important part of it.

Speaker 2

So the decision to create a reserve indicates that Petrobras is still committed to Meeting all of its requirements, the generation of cash flow is intended to generate value, considers the creation of dividends and the creation of The reserve was meant to add transparency and to rule out any possible impacts in adverse scenarios And this lack of connection between cash flow and net profits, any potential impacts on the payment of dividends or a policy of 45% over the net cash flow. So these are our priorities to generate value and allocate capital in investments that generate value for the company. Of course, always taking care of the payment of dividends, which is fundamental for the company. Thank you, Sergio. The last question goes to Thomas Quinn.

Speaker 2

In addition to offshore wind, does the company see itself as a producer of biofuels, whether it is an ethanol or biodiesel? And what about new biofuels like SAF and renewable diesel? What are the company's ambitions given the Brazilian excellence in producing sustainable biomass.

Operator

Thank you for your question, Luis. So as you said, Brazil has this gift producing biomass very well. We have a lot of land available. We receive a lot of Sunlight, we have abundant water. So we really are the country of biomass.

Operator

Besides that, it makes sense for Brazil, especially Petrobras, to be in liquid fuels because we have logistics for that. We have our infrastructure built for Oil byproducts. So at Petrobras, we're looking at this entire chain. We're seeing how consumption takes place and how biofuels can play there. So in transportation, we're looking at renewable biodiesel, which uses 5 A 5% mixture of plant based oils, this requires very little investment.

Operator

And it produces high quality products, meaning diesel with the same quality as diesel that is produced from oil. In aviation, we have plants that are dedicated to use 100 percent plant oil for aviation fuel. What's the importance of that? Well, from 2027 on, the aviation industry has a goal of decarbonizing itself. So it will be a huge market that will open up in a short while and Petrobras It's very well positioned to supply this market.

Operator

In the maritime industry, we also have significant opportunities. We have a ship operated by Transmetro and it uses a 24% Biodiesel mix and the results have been very good. Still concerning biomass, but not necessarily biofuels, we can also talk about the replacement of some petrochemical products. We have the Rio Grandece Refinery in Southern Brazil using vegetable oil to produce substitutes for petrochemical products. So it makes a lot of sense, but I'll pass it over to William, who He's responsible for the refinery area and he can give us more details on that.

Operator

So Luis Carvalho asked the question, right? Yes, exactly. So thank you. So his answers was great. I'll just add something.

Operator

Along with the energy transition area that is being led by Professor Thomas King. We have 3 important fronts. The first one is biorefineries. We have 3 Plants are producing or processing R5, which is renewable biodiesel. In Cobaltung, Heparqui was the first one.

Operator

And now this week, we're starting operations with Repla. By the end of December, we're also going to have Reduca. So that will give us Some capacity of 10,000 cubic meters a day. Considering renewable plants as Professor Thomas Kini said, we have a plant in PL2327 under studies in Coopbaton where we're going to have EFA technology, meaning hydro refineries. So it will be completely plant based to create our San diesel, our 100 diesel and Safi as was said.

Operator

And that will comply to international regulations. In Refineries, we had a test with our Braskem partners and the Ultra Group in the Rio Grande Ninsi refinery, processing 2,000 tons of soy being oil. So we're producing some byproducts there that are completely plant based, especially Green NAFTA that has a significant market and Green Propane, which is very interesting, and many other green products. So with this test, and we're talking to a few partners, we will Have a biorefinery that is completely green and we hope to have it by the end of 2026. So that's the first pillar.

Operator

We're talking about energy transition here. We're also working with our own Energy Efficiency Program to reduce the carbon footprints for our refineries. According to our international consultants that analyzes many companies in all continents. So we're We're working on that. We have artificial intelligence in this program as well.

Operator

We have a digital twin. So we're optimizing our refineries not only in processing products, but also reducing the consumption of, coke. And With that, we'll reduce our carbon footprint. And besides that, as was said before, we're also working to improve the quality of our energy production. We have 4 refineries still being studied with the transition area.

Operator

We want to include photovoltaic cells in some of them. First one is Regatta and if it's approved, it will start in the first half of twenty twenty five. So first, 11 and then 80 megawatt hours of production. Replan, RedNest and Revaaki are also studying that. So to give you an idea, our proposal is to have 80 megawatts of production.

Operator

So We're going to be net exporters of energy depending on season. As you know, solar power is intermittent. And the 3rd pillar is A proposal that we're also looking at, which is replacing the gas Fineries to produce low sulfur gasoline. And then we'll replace it for hydro refinery using Hydrogen, and this is a capacity of 500 tons a year of hydrogen consumption. So We hope to replace this production, which is now being done with natural gas for green gas, biomass, methane or electrolysis.

Operator

So we're talking to several international technology companies and we hope to move in that direction. That will also be a very important step. We have an agreement with Unigel to produce green ammonia through FASIMPAY synthesis generator. We have an NDA So we can't give you many details there, but that's the 3rd pillar replacing Gas with a green nitrogen. So this is what we have been doing with Thomas Kings areas.

Operator

So that's what we're doing concerning Energy Transition. Thank you for that question. Thank you, William and Thomas King and everyone who participated. This concludes our questions and answer session. If you have any additional questions, you can send them to our Investor Relations team.

Operator

I will now hand it over To our Investor Relations Director, Sergio Li Chi, who will give us his closing remarks. Thank you to everyone who sent us questions. It's very important for Petrobras to get questions from analysts to answer them and understand what needs to be clarified to you. We'd also like to thank our fellow directors who participated in this webcast. So just as a closing remark, I'd just like to say that Petrobras is still growing.

Operator

It's solid. It has provided robust results. It grew during the second and third quarter and continue to provide solid results. Of course, Comparisons are always pertinent and they help our management team. The team that organized this event in fact Deserves congratulations.

Operator

Accounting, risks and everyone involved Has provided a lot of information to the market, but we need to be very careful when we draw comparisons. If you look at the same company in different strategic moments, that comparison requires some Attention, so during the same quarter last year, the company was reducing its investments and concentrating on exploration and production. Right now, We're looking at our resilience for the next 70 years. So we hope to deliver value to our investors for the next 70 years. And Petrobras' growth in market value right now reflects How we understand this strategy and what deliveries the team will provide?

Operator

We're growing 75% of the market cap, About 8% in the 1st 9 months of the year. This growth is based on some strategic changes, which require discounts. We had a reelection, The team changed. So for the 1st year, it's expected for the Company to go down because there are different expectations on what the new management will be like. And as the team has been working and as strategic drivers become clear, some risks are ruled out And usually, the company is valued again at the level it deserves.

Operator

So although we have faced adversities and although we had a reduction in our Brent and our crack spread, Although we had a 7% foreign exchange effect, our gross income is going up, our EBITDA is going up, we're having record level Production, so we're giving value to our investors. So again, thank you. And As per usual, recommend that people buy Petrobras shares. That's the best thing that you can do. Thank you and have a good day.

Operator

Thank you, Sergio. This concludes our presentation. It's already available on our Investor Relations website and this Webcast will soon be available there as well. Thank you and have a good Friday.

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