Petroleo Brasileiro S.A. Petrobras ADS

Good morning and welcome to Petrobras' earnings call for analysts and investors. We're going to discuss our results for the first quarter of 2024. It's a pleasure to have you here. This event will be held in Portuguese, but it is being simultaneously translated into English. You may access the links to both language webcasts on our investor relations website. All participants will be on listen-only mode during the company's presentation. After that, we will have a questions and answers session. You may send your questions via email, petroinvest at petrobras.com.br. We have with us Carlos Travasso, Executive Engineering Technology and Innovation Director. Clarice Coppeci, Executive Director of Corporate Affairs. Claudia Schlosser, Executive Director for Logistics, Trade and Markets. Joelson Mendez, Executive Director for Production and Exploration. Mario Spinelli, Executive Director for Governance and Compliance. Mauricio Thomas King, Executive Director for Energy Transition and Sustainability, Sergio Caetano Leitchi, Executive Financial and Investor Relations Director, and William Franca, Executive Director for Processes and Products. We will begin with a video bearing a message of our CEO, Jean-Paul Prates. Good morning, ladies and gentlemen. Today, we're going to go into the financial results for the first quarter of 2024. The main message I would like to leave you with before presenting the figures is our commitment to executing and financing our investment plan with capital discipline and generating value for shareholders and society. We maintained consistent cash generation this quarter. which gives us security in relation to future investments, including those for production growth. This quarter, and also in comparison to the previous quarter, we had a drop in oil and gas production, which was already expected because we've scheduled maintenance downtimes on platforms. Therefore, it's a planned movement, which does not impact our production curve set out in the strategic plan. I would like to point out that this is a short-term variation because when we compare it to the first quarter of 2023, Petrobras' production grew by 3.7%. In other words, we have increased production in the last 12 months and we are on a growing curve projected in our 24 to 28 strategic plan. In the E&P segment, we had an excellent performance from the FPSOs Almirante Barroso in Buzios and P71 in Itapu, which reached peak production at the end of last year. And we are increasing production from the FPSOs Sepetiba in Mero and Anita Garibaldi in the Campos Basin. In the second half of the year, we're going to start operating the Maréchal Duque de Cachias FPSO, which will be the third definitive production system for the Mero field, with the capacity to produce up to 180,000 barrels per day and 12 million cubic meters of natural gas. Talking about the downstream, you know the first quarter is always weaker in terms of sales volume due to seasonality. We took advantage of this period to make scheduled maintenance stoppages at the refineries. And even with important scheduled stoppages at REPAR and REPLAN, the utilization factor of our refining park remains high, reaching 92% in this first quarter of 2024. Seven percentage points above the utilization factor of a year ago. It's important to say that this increase in the level of refinery processing is taking place with value generation and total safety. Diesel, gasoline, and jet fuel in total production was 67% in the first quarter. We're also keeping an eye on low carbon markets. In this quarter, we expanded our offer of more sustainable products, starting to sell R5 diesel with renewable content at RPBC, which like Repar is already able to sell R5 diesel. We also signed a partnership with the second largest asphalt retailer in the country to sell Cap Pro W, a more sustainable type of asphalt. This is a summary of our operating performance in the first quarter, which led us to a net profit of $4.8 billion, adjusted EBITDA of $12.1 billion, and an operating cashflow of $9.4 billion. An important highlight is our financial debt, which has been falling every quarter.

We ended the first quarter with a financial debt of $27.7 billion, the lowest quarter level since 2010. We should also point out that the return to our shareholders, taking into account share appreciation and dividend payments, continues to be the highest in the industry over the last 12 months. And considering only the first quarter of 2024, our public return in taxes and other government participations reached 68 billion reais. These are consistent figures that demonstrate Petrobras' financial health. This robustness underpins the ambition of a company that wants to keep growing, innovating, and transforming itself. Beyond our recent success, we also want to emphasize that our investment case is a long-term one. We're building the Petrobras of the future, a more efficient company committed to generating value with total attention to people and connected to a just energy transition. Thank you all for your participation and I wish you a great event. We'll now start the presentation of the earnings of the first quarter of 2024. To begin, I'd like to give the floor to Clarice Kopacz, Director of Corporate Affairs. Thank you Anna Paula and good morning to everybody. It is a huge pleasure to be here with you today to go over our financial results for the first quarter and also to give you information about our actions and our activities in Rio Grande do Sul State at this moment when the state is going into its third week. of a climate catastrophe since may 1st we've been giving shelter to more than 600 people inside our center in canoas it's basically adjacent to the alberto pasqualini refinery giving every possible condition to everybody that lost their homes and providing them with food, shelter, hygiene, and protection throughout the day, and also the possibility of spending the night and providing them with as much comfort as we can this is an amazing work done not only with the involvement of our local team but also it's being fully supported by the donations that we've been providing you can see that we donated over seven million six hundred thousand reais to the impacted communities. Our operations are extremely strong in Canoas and Dosteo, where our main asset is located in Rio Grande do Sul, a refinery, Alberto Pasqualini, also fuel. Over 500,000 liters have been donated and always catering to the demands of the civil defense and the state government and other public institutions. Also, there is a freshwater supply crisis in the state. This has been a constant effort, providing also chemical toilets and logistics supplies. lending our helicopters to transport food and also vessels that work for our environmental defense center that have been made available to the civil defense of the state to rescue the victims. And very briefly, our Alberto Pasqualini refinery has been operating, catering to the fuel demands. It's extremely important to the state. We've been demanded by the national operator of the electric system, ONS, that we should start dispatching electricity from the thermal power plant of Kenoas. So the company has been making every effort and not only being solidary, but also encouraging making every effort to keep its assets intact and working. We know that they are required right now for the population and also for the recovery of the state. Here we see information, some corporate highlights, an important part of our businesses to give support to all of our departments. So this shows not only the recruitment and selection process that we've been working on this year, we've been hiring new employees. And along with that, we're also launching our biggest call for the Young Apprentices program with over a thousand positions open. We're also working with many of these apprentices that have been formally hired with all of the formal benefits. A few others are also being formally trained and we're also setting aside some positions for people with disabilities. And that is important, not only for us to have a close relationship with the universities and the technology institutes, but also to develop the Petrobras brand as a major employing brand in Brazil. And obviously... Throughout this process at Patchabrass, every worker that is hired goes through a very solid onboarding process. In the first quarter, over 700 new employees were hired and onboarded at the company, and they're now going through their formal training processes. I can't fail to mention that the Petrobras board has been investing in initiatives to encourage the increase of diversity among the company's leaders. Our leaders are comprised 17% of women and most of them are working on shifts and go on hitches. We've also been investing on male workers for those positions, but we've been investing on females for the leadership positions. I also want to talk about a recently launched project that has a huge impact on Brazil in our areas of operation, which is our autonomy and income program that's offering 20,000 positions for professional training courses for people in a situation of social vulnerability without a formal employment relationship. And of course, this program is integrated with our 2024 to 2028 strategic planning projects, and it intends to train the workforce since our 24, 28 period will require lots of downtimes and that requires a qualified workforce. Also, I should mention that our investors and market analysts are aware of this global mental health problem. inside companies. We were just awarded the UN award, mind and focus in one year, we've engaged with almost 6,000 leaders of the company and we've given them formal training across all areas to try not only to identify, mental health issues, but also to deal with them inside the company. We also launched the Human Rights and Corporate Citizenship Supplement, and it highlights all of the progress that we've made so far in this regard. It poses a huge challenge in that we have to be well positioned in terms of human rights by 2030. And that's a challenge not only to the corporate social responsibility areas, but also each and every department. And with that, I'm sure you're eager to listen to him. I'll give the floor to Sergio Leidy, Chief Financial and Investor Relations Officer. He will speak about the financial highlights. Thank you for your attention. Thank you, Clarice. Good morning, everybody. We are live. solidarity with our brothers and sisters from the south of Brazil in such difficult times. In terms of our results for the first quarter, I want to highlight a few operational aspects. In Búzios, we reached a production of one billion barrels of oil, 2p. 15 years of operation of our largest field with the production of 2.6 billion BOEs. Additionally, several of our units are now undergoing a ramp-up process, of which I should mention the FBSOs Omiran Chibahoso, P71, and Aneri, and Itagari Balji, and Sepichiba. For the second half of 2024, Maréchal Duque de Caxias will start production. It's a very important unit that will add 180,000 barrels of oil per day and 12 million cubic meters of gas. It's an important asset that's located in the marrow field. Also, Speaking about the impacts on our quarterly results, the AAP team adopted the strategy to induce important downtimes in the first quarter and never before in the history of the company have we had a first quarter that's been better than the fourth of the previous year. So it's just natural that this is a slower quarter. And in that regard, the team decided to introduce important downtimes in production and the impact of that vis-a-vis the first quarter of 2023 is twice as high. These downtimes have produced a relevant impact on production. In spite of that, if we compare the first quarter of 2024 with that of 2023, our production grew by 3%. The refinery farms, have been delivering high utilization rates at 92%. We've delivered utilization factors that were significant in 2023 in refineries for replan and repower. And even with the downtimes, we've delivered high productions of aviation fuel and lubricants and 92 kBPD for jet fuel and 11 for lubricants, even higher than 2020 and 2019. The production of lubricants Oil products is concentrated in high-value products. The participation, the share of diesel, gasoline, and jet fuel in total production is 67%, which is very important for the entire company. The refinery farms... We should also highlight the efficiency and energy transition. Our numbers have improved in these areas as well. Pre-salt oil processing has reached a new record of two percentage points above those of the fourth quarter. That's very important for logistics in that it gives us flexibility and allows for gains of scale. R5 diesel, it's a co-processed Petrobras product that started being produced and it started being distributed over highways and roads and the first refinery started distributing it into this system.

Another highlight is our energy transition area. Petrobras has posted a reduction in emissions, 55%. So it was an expressive amount. Another important piece of data. From 2015 until now, we reduced our greenhouse gas emissions by 40%. So this is a transition that is affecting the entire company. In order to have a reduction of this level, we had to go through changes in the RP area and downstream. We also saw a reduction in the amount of CO2 produced per barrow. So this transition area will definitely have some more news in the future, but it is going very well. It's a great area at Petrobras that is doing very well. It's close to innovation, and that's one of our main qualities. We've talked about HICEP, a... system that is on the ocean floor injecting gas. And this was only possible with Petrobras technology due to the constant investments we've made into technology. We have $3.6 billion in our PE, nearly $1 billion a year on average. And most of this investment, at least in the last few years, have been focusing on energy transition. It was this kind of investment, it was this drive for innovation that allowed us to have these results in Pre-Salt. It's a very important area at Petrobras and we're always seeking innovation and technology. Looking at our financial highlights, we've seen many of them during our CEO's video, but these are some important highlights. our adjusted EBITDA was $12.1 billion, the eighth highest in the company's history, nearly 60 billion Brazilian reals, 9.4 operational cashflow, 9.4 billion US dollars, which is about 46.5 billion Brazilian reals. Net income at 4.8 billion, close to 23.7 billion Brazilian reais. And later on, we're going to go over some of these values. We did see an impact from foreign exchange affecting us by about $2 billion or 11 billion Brazilian reais in our net income, but still it was significant. Free cash flow was 6.5 billion US dollars or 32.4 billion Brazilian reals and taxes paid were 68.2 billion Brazilian reais. So our company has been growing, but besides these expressive figures, Petrobras is starting to see its operations through indexes, which often translate the company's efficiency and the space that we have to grow in generating value for our shareholders. we considered that the company's share values, it's still short of what it should be. If we look at the company's value over the approved reserve, and that's very important to measuring the value of oil and gas companies around the world. If we look at the enterprise value, the company value, and the approved reserve, majors grew 3.2%. from 22.2 to 22.9. And this was all in the first quarter of 2024. If we look at Petrobras comparing quarter to quarter, we're growing 10 times that amount. So in this index, enterprise value to proved reserved, we grew 3.3%, excuse me, 33.3%, which is 10 times what we see in the majors average. So not only did we grow a lot, but we still have a lot to add. We also had a case considering enterprise value to EBITDA. So majors grew 48.5% and Petrobras 75%. who were expressive in providing shareholder value. Considering PNADRs, in 12 months, March to March, we had a TSR of 107.3% in U.S. dollars. In ordinary shares, it was close to 84% or 83.9%. So not only are we providing added value, but we are providing it on the middle and long term. If we consider 10 years, our average major values dropped 5%. but Petrobras, excuse me, majors had a 5%, but Petrobras grew 22% despite all of the variations we saw. So that's very important for institutional investors, pension funds, long-term funds, and investors who want their resources safe on the long run. And we're dealing with an adverse external environment during the first quarter. You can see some of the highlights here on the screen, but I'd like to draw your attention to something that is very important. The crack spread for diesel. So the margin between the value of the barrel and how much it is sold. If we look at it on a quarterly basis, it went down 26%. So again, this is a refined product that is the most significant for our revenue, diesel. And it had a margin reduction of 26%. from the fourth quarter of 23 to the first quarter of 24, it reduced by 14%, which impacts not only Petrobras, but all majors. It's important to keep this variation in mind. As we said, we have been affected by seasonality from the fourth quarter to the first. It's easy to understand because in the fourth quarter, you have a harvest, cargo movements due to the holiday season, It's a growing curve from the first to the fourth quarter, but we didn't see a significant reduction in the first quarter. Again, in our history, we never had a first quarter that sold more in fuel than the previous fourth quarter. So this is normal behavior. However, we did see some factors impacting sales besides the seasonal factors. So a higher production of ethanol in the case of gasoline. So this pressured our sales and made some drivers choose ethanol. In the case of diesel, we also were pressured by an increased mandate in biodiesel usage. And although some refineries were stopped, we still were able to post a cash generation of $9.4 billion. And this is also important. Our free cash flow was $6.5 billion. All the resources generated in our cash during the first quarter allowed us to satisfy our needs and have some leftover at the end. So the company is still healthy, robust, and is still posting significant profits. Now let's look at our financial debt. Our gross debt is going down and our financial debt is going down as well. We have the lowest financing debt at Petrobras since 2010. That's the lowest financing debt we've had in the company. And the total gross debt is also going down. Next slide, please. Here we see our net profit. As I said, it was impacted by a currency devaluation. Our net profit was $4.8 billion in the first quarter. If we compare the fourth quarter of 23 to the first of 24, it was a 16% reduction. but if we compare it to the first quarter of 2023, the reduction was slightly lower. But the reduction reflects currency devaluation, meaning that dollar prices were lower during the end of the quarter. Petrobras is, you know, increased its contribution to society 66% of its cash generation is returned to society as dividends to controlling shareholders as government participations and taxes at all levels. So this is a significant highlight for the company as well. we approved a payout of 13.45 billion. Uh, the company is actually generating 14.6 billion in dividends. Um, when we apply the formula to ordinary dividends, 1.15 billion is deducted from our buyback program, which is a very successful program on average, the, uh, deliver 70% of what was programmed and we're at 86% of what is scheduled. This buyback program, as you know, is included in the shareholder remuneration policy and should end at the end of August. It started with a buyback proposal of 157 million preferred shares. So this is a way of remunerating our shareholders and out of the total that was approved in dividends and interest on own capital, we're going to pay 13.45 billion BRL deducted from that 11.15 used for distribution. So our long-term investment theory is still being upheld. The first quarter was impacted by some strategic decisions with maintenance downtime and some of the We had fewer of them during the last term, but now we're doing them again. We had higher utilization rates last year, so it required more maintenance downtime. So we had twice as much of an impact in January from this. The production curve that we presented in our strategic plan will be maintained though, meaning that we're going to recover production levels. Next quarter, we're still going to have some downtime, but we will gradually return to our previous production level. We hope to achieve that curve as we presented in our strategic plan.