Petroleo Brasileiro S.A. Petrobras ADS

Good afternoon and welcome to Petrobras webcast with analysts and investors to discuss Q3 results. This will be in Portuguese with simultaneous translation into English. The links are in our IR website. All participants will be in a listen-only mode. We'll have a Q&A session. Submit your questions to PetroInvest at Petrobras.com.br. Joining us, Clarice Copete, Director for Corporate Affairs, Paul Schlosser, Logistics, Sales, and Market, Director, Fernando Gareja, IR, Director, Mario Spinelli, Governance Director, Mauricio Tomaschi. Director for Energy Transition and Sustainability, Renata Baruzzi. Engineering Technology Innovation Director, Silvia dos Anjos. Exploration and Production Director and William Franca Product Director. And other company executives. Fernando Melgarejo, our CEO of CFO will take over now. Good afternoon. Thank you for attending this webcast. These are the highlights for Q3 24. We will be available to answer questions you may have at the end of this presentation. On to slide three. These are our operational highlights. Starting with exploration and production, we have come a long way. Back in October, we started Operation 2, FPSO Maria Quitere in Chobarte Field, and Marshal Duque de Caxias in the Merrill Field in the Santos Basin. And we've also received Almirante Tamadaré. It's now in Brazilian waters and will be operated in In the Búzios field, this is going to be the first high-capacity unit, capacity of up to 225,000 barrels and 12 million cubic feet a day. The plan is to start operations next year, but we may anticipate that these are very important deliveries for our strategic plan. In the case of Maria Quitéria, We've anticipated that operation that was scheduled for 2025. This effort results in more revenue as these assets generate or reach their full capacity, which is over 500,000 barrels a day. You can also see other important highlights. Our record production in 2P reaching 3 billion barrels. barrels. In Merrill, the Sepitiba FPSO reached its peak production in less than eight months, also contributing to the production of the quarter. In Explorations, we have discovered a field in Colombia and in South Africa. We have a minor stake in the Orange Basin. On to the next slide. Operational highlights. High level of use of our 95% for the quarter. In September, we reached 97%. We did this maintaining high value byproducts. We've had the best history level of the greenhouse effect emissions in our refining park. We've increased sales for byproducts in the Midwest, and also a partnership with Bali to test low-carbon products, including diesel R with 5% renewable content. We have the natural gas production unit in Rio. We're ready to start commercial operations soon. It's very strategic to Petrobras because it will increase the offer of natural gas in Brazil. We're starting at 50% capacity, and by year's end, we'll have two modules in operations, reaching 21 million cubic meters of gas per day. And we're back to the top 10 ranking of companies we would like to work for. After four years of being outside of that list, these results are very important results for those companies that want to attract and retain talent. This is an indication that we're heading the right way. On to financial results on slide five. We haven't had any non-recurring items impacts in this quarter, unlike the previous quarter, as you all remember. Recurring items. EBITDA was $11.6 billion. Recurring net income was $5.9 billion. We've maintained generating cash, $11.3 billion, a 24% increase quarter on quarter. Free cash flow was $6.9 billion. Gross debt is under control at $59.1 billion within the range we established in our strategic plan. I'll be giving you more detail about these figures, and you'll see that financial debt is at its lowest level since 2008. We paid out $64.4 billion in taxes, and we've approved dividends and our own capital interest at $17.1 billion. So these numbers show that we've reached consistent results despite financial the dropping prices of Brent oil. This is the foreign scenario. Brent prices was down when compared to the previous quarter, just like the crack spread in diesel. Margins were reduced. However, we managed to offset by selling more byproducts. On average, we see a devaluation of real, but FX was 5.45 reals. with a positive impact in our financial numbers. A 2% appreciation of real in Q3 when compared to 11.2 depreciation of Q2 in 24. Moving on to the next slide. This has impacted EBITDA in the Q3. partially offset by more oil production in the byproducts mix, and because of higher sales volumes domestically. Adjusted EBITDA was $11.6 billion, slightly smaller than the previous quarter when we written off the one-off events. Net profit is a result of the FX market. impact, and the fact that there are no expenses that impacted the previous quarter. On this table, we can say that our cash generation remains robust enough to support investments, financial obligations, and the dividends payment. Let me point out that we are investing $4.5 billion, about 30% above previous quarter. That Increase is due to scheduled payments of OLP projects, those related to the new platforms and buzios, and also investments with the start of construction work in P84 and P95. This increase won't change the investments provision for the rest of the year. Investments amount to $10.9 billion. On to slide nine. Before I talk about the debt, let me point out the successful emission that we conducted in August and September. We issued a 10-year bond. Maturity is $1 billion, the lowest spread ever. to the U.S. Treasury bond since 2011. At the same time, we had a repurchase plan. The two operations are in line with the debt management strategy of the company, helping us reduce our leverage. Financial debt was 25.8 billion, the lowest level since 2008. On to the dividends screen. We are committed to distributing the results generated and the financial sustainability. GrowthStat is under control. Accrued positive results. The Board of Directors approved a compensation of 1.32 reals per share. It will pay it out in two equal installments in February and March at JCP or dividends. will be defined by year's end. We will then have enough information so that we can have the best tax advantage possible. On to the last slide. This is the important contribution of our taxes to federal, state, and local governments. This is just a portion of what Petrobras returns to society. On top of that, you have dividends paid out to the government and our strategic plans that can generate high yields that can contribute to generate value to both shareholders and society overall. Petrobras had a 14% increase when compared to the same period of last year. Taxes amount to 64.4 billion reals. In conclusion... I would like to turn it over to Eduardo so that we can get started with our Q&A session. Thank you so very much. Thank you, Fernando. On to the Q&A now. Please ask two questions at most. Matheus Impel from UBS asks the first question. Good afternoon. Thank you for taking my questions and congratulations on the results. My questions are more on the operational side. I'm sorry, but we can't hear you. Can you please go back to the beginning? Can you hear me now, Eduardo? Yes, I can hear you now. Fine. I'm sorry. I'll be focusing on the operational side. Question one, can you give us more color on the Q3 production levels? You had an expectation of better performance. Q2 had a negative impact of scheduled and unscheduled shutdowns. How much of this quarter? including pre-salt, were impacted or was impacted by those shutdowns? And what's the outlook down the road? Can we expect higher production from now all the way to 2025? What is the short-term prediction? And the second question is about exploration. ANP data shows that we had the least or the lowest amount So what is the company doing? Thinking about explorations both in Santos and Campos basins. Replenishing reserves given the domestic difficulties. Would that make sense to acquire companies abroad? Or would it make sense to consider acquiring companies that have a portfolio already in operation? These are my questions. Thank you.

Thank you, Matheus. Silvia will take those answers. Hi, Matheus. I'll begin with your second question. You asked about the reduction in exploration and the potential in Basia de Santos. It's always important to remember that in 2006, we were able to achieve our self-sufficiency, which we had dreamed of for so long. And the determining factor of that is that we are now increasing production and replacing our reserves. That's our track. We see that we have our strategic plan, 27 and 28, over $7 billion in exploration. And in this research project, we have a significant oil potential that we are investing in in three ways. First, you asked about Santos. Yes, we are replenishing that. We're also investing in new opportunities in the fields that we already have, and we're seeking new fields as well. And that's where the equatorial basin comes in, where we have the greatest volume of prospection that has ever been done. That was in 2013. It's also very similar to the Campos Basin. The Equatorial Basin is also similar in its reservoirs in many technical aspects. It's a potential that is also similar. The seismic characteristics are, again, also similar. This occurs both in Venezuela and in the more recent discoveries in Guyana and Suriname. So there's enormous potential there that we need to assess. And we can only assess it by drilling. And for that, we need a license. So that is our primary line of investments, our roadmap. We are investing over $3 billion of our budget into that alone. And your other question is about investments outside of Brazil. So, of course, the more production occurs, the more our need to replenish those reserves. So we are looking in regions that have the greatest potential. So we invest our efforts into places where we have more established potential, and that's our basins. We have conjugate basins in Africa offshore, and those are very similar situations. what we're looking at right now is very similar to Santos in the post-salt region. Of course, always looking at economic viability and profitability for Petrobras. I also want to mention that this year we finished our acquisition in Saint-Thomas and Principe. We also had, we accomplished an investment in another basin in Equatorial Africa. and we are currently waiting for our license in that equatorial margin. There is a lot of potential there, but we can only find out to what extent after we drill, and that is when we will confirm whether or not our model is correct. So I think that's one of your questions. The other question is about the down times. Yes, In fact, this year was atypical. We had scheduled and unscheduled downtime. Scheduled ones were especially in Santos in large-scale basins. Just to give you an idea of the scheduled downtimes, we ceased producing roughly almost 150 barrels a day, 1,000 barrels a day, But those scheduled downtimes are important for the longevity and safety of our units. It's just like a car. You need to stop every once in a while and perform an inspection. So that's what we do. They don't occur every year. They occur in different interspersed periods. And this year, that occurred in Santo. And we also have unscheduled downtime, which occur regularly. for many different potential reasons, such as being legally mandated or because we discover something that occurred. There's also another reason could be worker strikes. The ANP agency in Brazil also atypically ordered us to stop for a period, but again, This was all occurred within a safe margin of risk. So all in all, 2.8 million barrels, which is roughly 4%. All right, thank you, Sylvia. Our next question comes from Monique from Itaewoo. Hello, everyone. Good afternoon. Thanks for taking my questions, and congratulations. on your results. I'm going to follow up on Matos's question for Sylvia again. With regard to the unscheduled and extraordinary downtime, how would Petrobras classify the reasons behind this downtime? What were the main causes? And what has the company been doing in terms of process in order to improve and reduce these unscheduled or unexpected downtimes or mitigate them. My next question is about CapEx. We've been talking with Petrobras over the past few months about a mismatch between the physical and financial advances in regard to the roadmap. And you always mention that there is a improvement process underway to improve the CapEx curve such that the mismatch or deviation will be reduced and so that the plan will be a better fit for reality, the reality of the projects. So my second question is, could you please comment about how the CapEx projection refinement process is proceeding, especially with regard to the future plans? Thank you. All right, our first question will be for Sylvia and the second will be for Renata, but please feel free. The unscheduled stops, they occur due to maintenance reasons that we sometimes detect or sometimes new technologies we want to implement or sometimes actual maintenance. So this year we had several shutdowns for due to requirements of the A&P. Remember that during the pandemic, many of our basins and units were not shut down at all. We extended throughout that period. So we are now working to clear out any and all requirements made by the A&P so that we can really clear the table of any pending demands so that we can guarantee the longevity of all of our units. And that's something that we've been doing primarily to ensure the integrity of all of our investments. Our ultimate goal is to tackle and clear any and all requirements made by the ANP, and we're really clearing all of them out. Hi, Monique. I actually mentioned in an event three months previously about this mismatch you mentioned between physical and financial. And we did, in fact, implement improvements. And in this quarter, you can see to what extent we were able to accomplish more. And one of the reasons for that is precisely because we were able to align the physical and financial advancements. And so from here on out, we did have a liability that we cleared out. And so from here on out, we are confident that we're going to be able to accomplish everything we plan. Thank you, Sylvia, Renato, and Monique for your questions. Our next question comes from Bruno from Goldman Sachs. Bruno? Thank you, good afternoon, and congrats on the results. My first question is with regard to the company's cash position. You've been operating... with a cash position that is far above the $8 billion that you place as a benchmark for what Petrobras would need for its stated operations. So my question is, do you have an intention to reduce that surplus cash? Is that a margin you intend to keep in your balance? And my next question about exploring reserves, There's a lot of comments made about the equatorial margin, but what about the Pilatas location? Could you give us an update on that project's current status? Thank you, Bruno. The first question is for Fernando, and about Pilatas, that will go to Silvia. Fernando? Hi, Bruno. Thanks for your question. With regard to cash, that is available to the company. It's an interesting topic because when we think about projects and the need for cash flow, we look at projects from exploration to first oil with anywhere from five to seven years. So we cannot look at a three-month window, which is the case for other companies with different turnarounds, but that's not us. So we have short, medium, and long-term views. And our strategic planning, which includes investment indicators, cash flow indicators, how much of that is going to be net, and how much of that we are going to use for our investments. And we also have our starting cash. Since today, We are a company that has a strong cash flow generation. It's natural that we'll have different cycles. We generate cash. It accumulates. It builds up in our treasury. And when we need to make investments, then we distribute that cash because we don't have any interest in holding cash surplus above what we need. That cash is dedicated to our investments. And I remind you that having surplus cash has a cost. And the more surplus you have, the more that cost will be. What we have today is $8 billion, as you mentioned. And so we are currently investigating many different scenarios and alternatives, looking at what flexibility we have or don't, and what our mechanisms are, our methods are for working with lower cash. I personally come from the Treasury Department. And I always have a mind to not work with excessive cash. And we'll have an answer by November 21st. Thank you, Fernando. About the Pilatas Basin, in addition to the Equatorial Margin, another region where we've invested into exploration and we acquired 29 blocks of 26 in partnership with Shell, and three more in partnership with CNU. We are currently acquiring seismic data, which is necessary for all exploration. It's a gigantic region, one of the largest we've ever worked in, and we're currently working on part of that. We've already begun, and we're likely to finish acquisition next year. It's a very large region, as I mentioned. After the seismic data, Then we need to interpret the seismic data, select regions, study the blocks, find out which are more favorable, what wells will be drilled, and IBAMA's intentions and permission for that drilling. We're currently working on one of the first stages, the seismic data, and only after that will we be able to really study that data. But it is a very promising region. But all of these assets are part of that $7.5 billion that we've set aside for the 24 to 28 period. So we are currently at the seismic stage, and we are anxiously waiting for more. And, again, we're not going to wait until the end of the year to begin interpreting the data. No. As and when the data arrives, we are interpreting them. All right, thank you, Silvia. Thank you, Hernando and Bruno for your questions. Our next question is from Bruno from Morgan Stanley. Good afternoon, folks. Thanks for taking my question. I have a follow-up with regard to the topic of cash and shareholders and another one about 2P. With regard to shareholders, If there is enough leeway for a complementary distribution, what would be the timing for that? Would that be within this fiscal year, maybe right after presentation or after the strategic plan? And what would be the approval method specifically? Will a board meeting be called today? And how quickly can we expect that to occur? With regard to Tupi, you mentioned that there is a decline phase. And so I'd like to understand whether that is occurring in line with the 10% that the company mentioned, or whether Pre-Salt has proven to be more resilient compared to other fields, such as Bacillus Campus. And what about resource allocation platforms, and where would that production move to over the next few years?

Well, the first question about the compensation for shareholders to Fernando, and then Silvia will be talking about 2P. Hi, Bruno. How are you doing? Oh, this is what we have seen so far this year. It's only natural to make a decision about extraordinary dividends once the strategic plan is ready, taking into account short-term, mid-term, and long-term volumes. Of course, we'll be considering that distribution alongside the strategic plan if we can. meet the deadline, which is to approve by November 21st. Technically, it is possible to distribute that within the same year by the end of December. Thank you, Fernando. Over to you now, Sylvia. 2P is our beloved giant, and results are better than the average. There's a production decline that is below 10%. way below than those in the Campos Basin. We're now embarking on this challenge of 2P+. It's almost 1,000 barrels a day, but the goal is to reach the 1 million. 2P would like to compete with Uzius that is aiming at reaching a million next year. So, 2P is being refurbished. 2P plus would include more additional wells. We're going to review all the infrastructure to inject water and gas to revitalize those pipelines and maybe the use of another platform. We want to have the smaller decline possible. We don't want to experience what we've seen in the compost basin, which is a major decline, including we have the aim of maintaining the very strong re-injection on our oils so that we can keep the production line declining as little as possible. Thank you, Sylvia and Bruno. Gabrielle from Citi is up next. Over to you, Gabrielle. Hello, Eduardo. Thank you for taking my question. I have two questions, actually. Let me go back to the capital structure. We've been focusing on minimum cash and gross debt, but we disregard leverage. There's a more pessimistic outlook for next year, but I would like to understand what you're considering in terms of capital structure.