Brava Energia S A S/Adr

Good day everyone and thank you for waiting. Welcome to 3R Petroleum, 4th Water and Full Year 2020 Earnings Conference Call. We have with us Mr. Ricardo Savini, CEO of the company, Mr. Rodrigo Pizarro, CFO and IRO, and other members of the management team. We inform that at this time all participants are in listen-only mode. Later, we will begin a Q&A session when further instructions to participate will be provided. Should you need assistance during this conference call, please press star zero to reach the operator. I also informed you that this conference call will be held in Portuguese with simultaneous translation into English. This event is also being broadcast simultaneously over the web via webcast. Before proceeding, let me mention that forward-looking statements that might be made during this conference call relative to the company's business perspectives, projections, and operating and financial goals are based on the beliefs and assumptions of the management of 3R Petroleum, as well as on information currently available to the company. Such forward-looking statements involve risks, uncertainties, and assumptions as they relate to future events that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors may also affect the future results of the company and may lead results to differ materially from those expressed in such forward-looking statements. Now I'll turn the conference to Mr. Ricardo Savini, who will start the presentation. Mr. Savini, you may begin. Good day, everyone. Welcome to our conference call to discuss 3R Petroleum fourth quarter and full year 2020 earnings results. As you can imagine, 2020 was a particularly challenging year for the whole oil and gas industry. It was a challenging year for 3R. But we end the year very happy with our performance. It was a special year for 3R. We started our first operation at Macau, clustering the seven fields in the state of Rio Grande do Norte, six onshore and one offshore. More towards the end of the year, in the fourth quarter, we had our IPO. It was a very successful IPO. Our general operating performance overall was very positive across the company as we will see along this conference call. After the IPO, we completed the acquisition of Reconcavo Cluster in the state of Bahia, a new onshore cluster added to the company's portfolio. And we also received a tax benefit from Sudene for Macau Cluster. So the last quarter had abundant positive results for the company. We're very happy about that. As regards our strategy, we achieved all of the goals that we set out to do at the time of the IPO. As I mentioned, we acquired Reconcavo Cluster, and later, in January, as a subsequent event, we also acquired Beiroa Cluster, an offshore cluster off the coast of the state of Espiritu Santo. With these two clusters, we added around 73 million barrels of oil equivalent to our 2b reserves, proved plus probable reserves. did these acquisitions with very cheap entry multiples, as we will see along the presentation. As I said at the beginning, we got a tax incentive with a 75% reduction of the income tax rate for the Macau cluster for a period of 10 years. This was the first achievement in terms of tax benefit, and we will definitely repeat that in all of our clusters, because practically all clusters where we operate are covered by Sudeni. Rodrigo Pizarro, our CFO, will give you more detail on that later on. And with the acquisition of the Perua cluster in January, We became one of the largest gas producers of Brazil. We will have a very balanced production considering gas and oil assets. And it is part of our strategy to have exposure to both types of hydrocarbons. As for our financial performance, our net revenue totaled 85 million reals in the fourth quarter, basically with production at Macau cluster and our working interest of Pescada Arabiana cluster. This represents an increase of more than 4% over the first quarter of last year. And we added more than 2 million reals to our net revenue in 2020, our first operational year. The lifting cost is very important and we are very happy with our operating performance. The lifting cost per barrel at Macau ended the fourth quarter at $5.26, an exceptional result proving our resilience to low price scenarios. We consider this to be a benchmark in the Brazilian oil and gas industry for mature fields. And we recorded an adjusted EBITDA of 50.5 million in Q420, very much in line with the result of Q3 with an EBITDA margin of 59%. Our IPO took place on November 12 of last year. On the curve that you see on the right, we marked the main events along the fourth quarter, as well as events taking place in this first quarter of 2021. And please note our share performance over the following weeks and months since the IPO. We saw a share price increase of about 110% in these four months, since the IPO pointed to a clear increase in value of the company, and there were very positive events associated with this increase in the share price of 3R, which obviously benefited from a brand price on an ascending trend worldwide. But we had, as I mentioned before, the acquisition of Reconcavo Cluster in mid-December of last year, the approval of this tax benefit from Sudeni for Macau Cluster in the state of Rio Grande do Norte more towards the end of December. And in January, we signed the acquisition of Peruá Cluster from Petrobras. Peruá is off the coast of Espírito Santo, an offshore gas asset. And we started to communicate to the market our production performance on a monthly basis. with very positive results both in January and February of this year. Lastly, also in keeping with the increasing price of our share, our operating performance at the asset that we are operating, Macau Cluster in the state of Rio Grande do Norte, posted a growth of around 28% compared with the startup of our operations back in June of 2020 when we started producing around 3,600 barrels and ended February at 4,600 barrels. A very interesting growth. And I always like to stress with very safe operations. We did not have one single accident since we took over the operation of Macau cluster in very few incidents. In other words, our operation has operating safety indicators that are very strong. Moving to the next slide, please. We can see on the map the clusters where we operate. Onshore, we have the following clusters, Macau, Fazenda Belém, and Ventura Recôncavo. But we formed what we call Clusters with synergies. In the Portibor Basin, we have three clusters. Macau, that we are already operating. Viscada Arabiana Cluster, which is an offshore gas project, also in Rio Grande do Norte, very close to Macau. And Fazenda Belém Cluster in the state of Ceará, but very near the border with Rio Grande do Norte. And in these three clusters, we enjoy clear advantages in terms of operating synergies among the set of fields. We managed to have the same effect in the Reconcavo Basin in the state of Bahia with the acquisition of two clusters, Rio Ventura and Reconcavo. In these clusters, we are in a transition phase with Petrobras. We signed the acquisition and are now between signing and closing of the operation with Petrobras. So we have 22 fields there and we are already establishing our position in the region and we already have a base in Catum to operate these 22 fields in Bahia. And lastly, the last cluster that we acquired, Perua Cluster in the state of Espiritu Santo. We have already introduced ourselves there and are very excited to start our operations, most likely towards the end of 2021 in Espírito Santo. With that, it is clear what we used to say at the time of the IPO. We are a relevant oil and gas producer in Brazil already. In terms of onshore oil production, we clearly posted the biggest growth among private oil and gas companies. Our strategy remains very much focused on revitalizing mature fields with low recovery factors. And we always highlight something very important. In our portfolio, we do not have exposure to exploration risks. Our company is focused and anchored on producing assets and projects. And that is why we are a relevant player in the Petrobras divestment program. With this, with these six assets, These six clusters that we have acquired, including Macau that is already operational, total production of all fields in these six assets reaches almost 18,000 barrels of oil equivalent, oil plus gas, in 2020. 14,200 barrels of oil equivalent refer to the stake of 3R Petroleum, the working interest of 3R Petroleum in the sum of these assets. We are very satisfied with our management. I'd like to remind you that we have a very seasoned team with fast experience in the revitalization of mature fields. And we are supported by a strong corporate governance especially since our IPO process. Our growth path follows two main avenues. The first, the redevelopment of the portfolio that we already have. We are talking here about 36 fields in these six assets, 36 oil and gas concessions in Brazil. And we have the possibility to grow our production and reserves simply by revitalizing by redeveloping these assets, assets that we have acquired at very low entry multiples. And we also have the possibility to have inorganic growth through new acquisitions from Petrobras. And I'll turn the floor to Rodrigo Pizarro. Hello, good day, everyone. Thank you, Savine. I am Rodrigo Pizarro, Chief Financial and Investor Relations Officer of 3R Petroleum. I'll start this presentation with comments on our financial performance, starting with a timeline and our history of acquisitions at attractive multiples. 3R Petroleum from 2019 to date has committed $599 million in deals related to the Petrobras divestment program. Of these, we have paid $216 million with $383 million still pending, of which approximately $64 million are contingent installments pegged to the brand price returning to a certain level or other contingent installments already communicated in our advisories to the market. regarding Reconcavou Cluster acquired in December of 2020. This is a deal amounting to $250 million of which $10 million have already been paid to Petrobras at the signing of the deal. And we expect that by December of 2021, we'll have the deal completed with the payment of $240 million upon approval of the concession transfer by the regulatory agency ANP. Regarding Peroá, I highlight that this is a deal for which we submitted a proposal together with DBO Energy. Our working interest in this asset is 50% of a total of $55 million. In other words, our stake is $27.5 million of which $2.5 million have been paid at the signing with $25 million pending. A good part of that linked to contingent installments. $3,750,000 at the closing of the deal expected by year-end as well. $11,250,000 conditioned to the brand pricing returning to a level above $48 in the mobile average of the last 12 months after the closing, and also conditioned to extinction of the concessions, plus $10 million linked to the declaration of commerciality of Ma Long Bich, a field which is also part of the package Part of Perua Cluster acquired from Petrobras, about which Savini will be speaking in more detail momentarily. With that, we had an average of entry multiples to PIE value committed to Petrobras for the acquisition of such assets divided by the total certified to be reserves which today total around 174 million barrels, giving us an extremely competitive entry multiple of 3.4 times, something to be indeed highlighted in our portfolio. I'd like to remind you, and I'll speak more about this later, that this portfolio consists of assets with a lifting cost that is very efficient, which can be proven by our efficiency. in our result at Macau cluster. And for the other assets, you can verify in our certifications of reserves also posted on our website. Okay, let's speak a little about our reserves. At the time of the IPO, we mentioned that we had a portfolio with the assets we have back then of around 101 million barrels of 2B reserves, proved plus probable reserves, all certified by independent auditors. Well, since then, as mentioned, we have signed the Reconcavo Cluster in December of 2020 and Perua Cluster in January of 2021. So here we are presenting already the reserve certifications of these two clusters. We're also very happy because we increased our total reserves by more than 70%. Today, we have in our portfolio 173.8 million barrels of oil equivalent of 2B reserves, again, certified by independent auditors. And in recent months, we added 61 million barrels at Reconcavo Cluster. So it becomes our biggest asset in volume of reserves. And at Perua, that gas cluster, 12.2 million barrels of oil equivalent. So to stress one more time, totaling almost 174 million barrels of oil equivalent of 2P reserves. A good part of that corresponds to proved reserves. 73% of our certified reserves are 1P, showing that our portfolio is very, very low risk. And finally, another very important point to be highlighted is the net present value of our portfolio, always according to certified reserves. We also stress that our certifiers are the two main independent reserves auditing companies, DeGaulle and McNaughton and Gaffney Klein. In their opinion, our portfolio of 2P reserves represents $1,768,000,000, thus showing that 3ER today has a very robust, solid and high value portfolio. As we mentioned during the introduction of our conference call, we are very happy with our operating performance at Macau Cluster, which is the cluster that we are currently operating. As we can see on the chart on the right, Our production increased, as we had mentioned, from 3,600 barrels, which was the production when we started operating in the cluster in June of 2020. I'd like to underscore that we took over already in the middle of the pandemic. So this was an important challenge for 3R. But you can see that we managed to increase production significantly. By the end of February, we achieved practically 4,600 barrels produced. I like to say that we expect production to increase at all clusters operated by 3R. We just cannot promise that in every subsequent month we will be producing more than in the previous month because operational surprises do occur, particularly in clusters and fields that are so old with decades. in operation 30, 40 years. And this is exactly what happened in October. We had a production drop related to equipment that we needed to replace. Equipment that was systematically failing. So we replaced it. Since then, we resumed our pace of production increase at Macau cluster. When we look at the aggregated quarterly oil production of the cluster, we can appreciate the fact of the reversal of that declining trend that the cluster was presenting. We are already producing on a quarterly basis something similar to what Petrobras was producing in the end of 2019. In the first quarter, at least considering January and February, we recorded a production that is substantially higher. So I'm very happy with our great operating efficiency at the cluster. As we mentioned, we have increased the production by around 28% compared to production when we started operating the cluster in 2020. And we have to remember the advantages of mature fields that are onshore. We have our production pulverized across dozens of wells. Today, there are around 160 wells at the cluster corresponding to more than 80% of production. We automated more than 50% of the wells of the cluster in these few months since we started operating them. And the effect that we expected There was a reduction in downtime. We expected that and we managed to reduce downtime. In other words, the time that a well is inoperable with no production for some kind of mechanical or operational problem. From our control room, we can see if a well is out of production and in a matter of a few hours, we can react and resume production at a halted well. Also to be highlighted is that in the last quarter of 2020 we activated our work over rig that is already at work reopening opening reservoirs that were closed to production in existing wells in old wells. This drill started working in Q4 and the results of this opening of new reservoirs to production is starting to show. in our results. As a reminder, at Macau cluster, we still don't have drilling rigs. According to our plan, drilling should be starting in the coming years. As regards production of the six assets already acquired from Petrobras, we can see that average production is around 14,500 barrels of oil equivalent A relevant share of Macau cluster and Recôncavo cluster, as well as a certain relevance of Perua cluster. I always like to highlight that the company's portfolio has good quality oil. In most cases, light to medium weight oil. that has a discount from the brand agreed upon in contracts with Petrobras and in keeping with the natural commercialization of these fluids in the international market. A very competitive discount, very efficient average discount for our portfolio. On the next slide, we have the financial performance of Q4 2020. Here I highlight that our financial statement includes 100% of Macau cluster and 35% of Pescada cluster. I'd like to remind you that the other assets are in a transition period during which Petrobras is responsible for their operation. We started a takeover process and are awaiting approval of the transfer by ANP. So here we have 100% of Macau and 35% of Pescada. With these two assets, our net revenue was 85 million rials in Q4 2020, a little higher than the 82 million posted in the previous quarter in Q3. If we look at our cash generation for the full year 2020, we had a net revenue of approximately 204 million rials. And if we were to add here all the revenue of the assets that Petrobras will deduct from the amounts payable at the closing of the deal, which are 65% working interest of the SCADA and 100% of Fazenda Belém. And if we were to add here all the cash generation, all the net revenue, from Macau cluster during the transition period from January to May 2020, we would have here a total of approximately 400 million reals. When we look at the company's adjusted EBITDA, we have here around 50 million reals in line with the 15 million reals obtained in the previous quarter. maintaining approximately the same adjusted EBITDA margin of around 59%. As regards to the lifting cost of Macau cluster, here we have another big highlight. In Q4, our lifting cost was $5.26 per barrel of oil equivalent. As Savini mentioned, this is indeed a big highlight. It is a benchmark for any mature field worldwide, especially in Brazil. Also considering a non-investment process of pitcher of rice for many years. So we are very happy with the results obtained already in the start of our operation. And when we analyze our CapEx, we always like to stress that mature fields require investments that are less sensitive, less representative when compared to the potential production increase. So with around $1 million in Q3 and $1.6 million in Q4, we jump-started the work over process, investing in work overs of wells to search for new reservoirs, at fields in existing wells, and here we will gradually have return on this capex along subsequent months. On the next slide, we present the company's capital structure. I'd like to remind you that of all the acquisitions, as I mentioned, we committed $599 million for acquisitions from Petrobras As part of the Petrobras divestment program, we have paid around $216 million and we still have $383 million, which include those contingent installments that I have mentioned. So in terms of net debt, By deducting our cash position on December 31st, 2020 of around $136 million and including the obligation related to the bankers for the acquisition of Macau Cluster, we have a net debt of approximately $377 million if we include contingent installments or $313 million if we exclude these contingent installments. Here on the right, we present the schedule and expectation of payment of these obligations of the $319 million relative to firm installments. We have approximately 293 million at the closing of the deals. Another $10 million linked to the acquisition of Fazenda Billing Cluster payable 12 months after the closing. That's why it's marked here 2022. and another $16 million linked to the acquisition of Rio Ventura cluster payable 30 months after the closing. That's why it's marked here 2024. We also have here the schedule of obligations related to the debenture obtained for the acquisition of Macau cluster. We have here gradually between 2022 and 2025 payments every six months that make up $130 million. My last highlight on the slide is that contingent installments related to the average brand performance in the last 12 months total around $54 million. One of them being conditional to Extinction of the Concession of Perua Cluster, as I mentioned. And here we have $10 million, which are contingent to the Declaration of Commerciality of the Malumbi Field, which is part of Perua Cluster. Lastly, as regards the commissioning cost, which is something always very analyzed and observed for both onshore and offshore assets, we always like to highlight that In all of our negotiations, we have decommissioning cost sharing agreements, i.e. an abandonment agreement, according to which Petrobras reimburses a part of the total abandonment cost of the assets that we acquired. In our estimates, around 40% of the total abandonment cost of the six assets that we have already acquired will be reimbursed by Petrobras and this totals $191 million. I also have to stress that this estimate might be reduced as new technologies are adopted and new in-depth studies are conducted, gradually reducing the total abandonment cost of our fields. I turn the floor back to Savini to give you an update on the acquisitions of Reconcavo Cluster and Perua Cluster. Thank you, Pizarro. Starting with Reconcavo Cluster, which was our most recent acquisition, the largest acquisition amounting to 250 million. And not by chance, it was our biggest investment in the Petrobras divestment program. This is a very, very attractive cluster. As you can see on the map, we are talking about 14 fields. Very near Topo dos Santos Bay, close to the city of Salvador. In the middle of these fields, we also have the Candeias Field, the oldest field in Brazil where it all started in the Brazilian oil and gas industry. Candeias One Well will complete 80 years in December of 2021. This is a large cluster in terms of volume of oil in place. We are talking about 1.4 billion barrels of oil in place. And with a recovery factor that is still low, although these are very old fields, pointing to a potential of production and reserves increase to be pursued by 3R. It is exactly by improving this recovery factor that we have already managed to certify around 61 million barrels of 2P reserves. A good deal of that, considering the average of the assets in our portfolio, A good deal of that, more than 70% of that is classified as proved reserves. In the specific case of this cluster, we're talking about 73% of proved reserves of very high quality oil. I like to say that this is the best oil anyone can ask for with 31 to 41 degrees API. With the acquisition of this large cluster by 3R, we are creating a large synergic cluster with Rio Ventura, which is located immediately to the north of the fields in the Reconcavo Basin in the state of Bahia. Okay, but let's go back and continue to address Reconcavo Cluster. Petrobras has drilled more than 1,400 wells in this cluster. Around 160 wells are still active which indicates that we have many possibilities to reactivate wells that are now closed. Daily production of the cluster is of a little over 2,100 barrels of oil With the 468,000 cubic meters of natural gas, the total is over 5,000 barrels of oil equivalent per day. This is, again, a cluster that reinforced a lot of our daily production since we took over the operation of the cluster. With Hekongavu Cluster joining our portfolio, total 3R petroleum production rose by around 71%. increasing from almost 8,000 barrels to more than 13,000 barrels of oil equivalent from November to December. And average daily integrated production of both clusters in Bahia is estimated by us to be of 6,300 barrels of oil equivalent in the state of Bahia. You can see the curves certified by the independent auditor. Please note that the cluster is so large that 16 million barrels of oil equivalent result from a small revitalization in the oil curve and from continuity of gas production that the cluster already had in the past. So we are resuming gas production that started being injected by Petrobras and we will gradually implement a project to replace gas injection by water injection so we can have gas available for sale. This is the three-hour plan for the Reconcavo cluster. Very well, now let's move to Peruá Cluster. That is the most recent acquisition and we recently signed a contract with Petrobras this year, 2021. Peruá Cluster consists of two production concessions, Peruá and Canguá gas fields that flow their production to a single platform, the Peruá platform. It's very modern equipment. It was delivered in 2005. This is an automated platform. operated remotely with no crew on board, and the whole production flows through a pipeline to Casimbas Hub onshore in Espirito Santo. Very modern equipment with low operating cost. Close to this cluster, there is the Malombi area, an exploration discovery by Petrobras a few years ago. They have already drilled a well, so we have no exploration risk. Our strategy, which was also Petrobras' strategy, is to have a tie back of the Malumba well to the Perua platform a few years in the future when we manage to reduce a little the pressure of the fields of Perua and Cangua. Malumba would have the potential to produce up to 2.5 million cubic meters of gas daily. in a peak strategy, but we can also produce about 1 million cubic meters daily on a plateau production strategy, which is our base case today. With that, we can extend the lifespan of the peruá platform until the end of the 2030 decade. This is what we intend to do, and this was Just like many others, an opportunistic acquisition with a very low entry multiple around two times the value of 2P reserves, including the payment, the contingent payments explained by Pizarro. And in terms of reserves, in our working interest, we are adding around 12 million barrels of oil equivalent of reserves to our portfolio. As a reminder, this cluster as a whole, 100% of it represents 24.5 million barrels of oil equivalent. Let's talk a little about sustainability. 3R Petroleum also stresses that our business plan is supported by high ESG standards. As an example, we can mention that we are listed under B3 Novo Mercado, In other words, we comply with the highest corporate governance standards of the Brazilian Stock Exchange. We also like to stress that we are focused on energy consumption, reducing water consumption, and we're focused on remedies for any forest impact resulting from production in our reservoirs. As an example, we have the implementation of a power generation project from small thermal power plants known as gas to wire. We start generating energy with our own gas, typically in the hands of the previous operator of the Macau cluster. The gas was directed to the flare, was ventilated directly into the atmosphere, but now we're able to capture this gas to generate power. In addition to positive environmental aspects, that also contributes to reduce our lifting costs. I also stress that we are in the middle of a bidding process to choose a contractor, a company that will be responsible for maintenance and operation of the three wind turbine generators that we have at Macau and that will account for around 30% of the energy consumed at the hub with 100% clean energy. And finally, I stress our focus, intense focus on prevention. because of the pandemic that still exists in our clusters and generally all over Brazil. All preventive measures are in place such as broad COVID-19 testing. It's always performed in all our work fronts and operations at Macau and also in our Corporate Office in Rio de Janeiro. Finally, I'd like to stress our management message that 3R is prepared to continue on our growth strategy to grow organically and inorganically. As Savine explained so well, we want to become one of the most relevant players in the development of mature fields in Brazil. We are taking part in other divestment processes. We have a strategy to continue with the transition of the assets that make up the company's portfolio, following up close what Petrobras is doing. And we are ready to react if there's any further requirement, any need of additional information by A&P, so that we can anticipate things and accelerate as much as possible the takeover of all of these assets. We are totally prepared. to start our first operation in the Reconcavo Basin to take over the Rio Ventura asset. And by year end or beginning of next year, we want to be ready to take over Reconcavo Cluster, both operated in a very synergic way. We also focused on continuously improving the operation at Macau Cluster, analyzing, implementing opportunities to reduce our lifting cost. As for ESG aspects, as I mentioned, we have the gas to wire project and revitalization of the wind turbine generators. These are two of the main aspects that make up our short and midterm planning. And as for our financials, we are interested in replicating the tax incentive, tax benefit from Sudeni for all other assets acquired by 3R and this can be applicable to offshore assets that are connected onshore through pipeline. That is the case of Peruá, Camboá and Malombé cluster and also the case of Pescada, Arrabayana cluster, both already acquired by 3R. We intend to optimize our capital structure and through have funding or take on debt at competitive conditions to continue acquiring assets for our portfolio. I'd like to thank you for your attention and I'd like to open the floor to your questions. Myself, Ricardo Savini and the other officers of the company are available to answer your questions. Thank you very much. Thank you. Ladies and gentlemen, we will now begin the Q&A session. If you have a question, please press star one. If at any time you would like to remove yourself from the question in queue, please press Start To. Questions will be answered in the order in which they are received. We kindly ask you to take your phone off the hook when you ask a question so as to improve sound quality. Please wait as we collect the questions. Our first question comes from Andre Hachen with Itaú. Hello, Savini Pizarro. Congratulations. on the results. I have two questions. Number one, regarding Macau. Macau was the first field that you started operating and I imagine you had many lessons learned. So in terms of operations, in terms of efficiency, what will you do differently in Fazenda Belém and Rio Ventura? What would you do differently? And do you think you can accelerate the recovery curve? That's my first question. My second question, perhaps you could elaborate on the process to contract services at the industry. Do you see idle capacity? Do you see the industry available to provide services? Any pent up demand? Thank you very much. I think that we have to start answering from the start because we had a problem in our microphone. Oh, I'm sorry for that. Is everything okay now? Yes, right? Well, hello, Andre. I'm sorry for the technical glitch. What I was saying is that, yes, we have a number of lessons learned with the transition of Macau cluster. We are among the first companies to complete an operational transition with Petrobras. in Rio Grande do Norte together with other players in Rio Grande do Norte. So yes, Petrobras is learning to sell fields and the companies are learning to buy them and to take over their operation. We can do some things better, and certainly, Andre, we are already implementing these lessons learned at Rio Ventura Cluster, which should be the next cluster that we will take over in the state of Bahia. And as our supply chain, what we are observing is that there is a lot of interest in the industry. also because of Petrobras' decision to divest, particularly of onshore fields. In recent years, Petrobras made the decision to stop investing, which is a totally understandable decision, but it impacted the supply chain and the local communities as well. And we said that everybody is keen to resume investments. We are doing this. As you could observe, we are starting to make investments, modest investments, For no other reason than this learning curve that you mentioned. We're taking over the fields, we're getting to know them better. And we are starting to invest by reopening existing wells using a work over rig. We should only start drilling in the coming years, perhaps starting next year. So this is a learning curve which is ascending as time goes by for each one of the clusters. Specifically, we need to master their geology, their reservoir engineering for each one of the clusters. On the other hand, we see that the industry is rather mature to serve companies, to supply companies like 3R. In Rio Grande do Norte, we are proud to be interacting with local industries and service contractors that are local, particularly in the region of Mossoró. It's impressive how dynamic the whole region is. So we are very well supplied. We are very well served. And we are embraced by the communities around the areas where we operate in Rio Grande do Norte. Perfect. Very clear, Savini. Thank you very much. Our next question comes from Pedro Suarez with BTG Pactual. Hello, Savini Pizarro. I have a couple of questions on my end. First, has to do with Macau cluster. You mentioned that you managed to deliver some operating improvements at the field and without a lot of complexity, just by reactivating some wells that were not operational by replacing some obsolete equipment. And in the previous question, you mentioned that you're only going to start drilling next year. So I'd like to hear from you. To what extent we can imagine that along this year in the next work overs, not including drilling, what could be the expected production increase this year? Or to what extent the lifting cost can be further reduced? Perhaps while you revitalize the field and you can reduce the lifting cost even further. Second question has to do with the reserves that you announced for Reconcavou and Perrois. Can we have more visibility regarding OPEX and CAPEX for the fields? Perhaps you can share with us your view if there are upsides for those values. If so, What would be the cost curve per barrel, particularly in Reconcavo? It's next to Juventura, so perhaps you can capture some cost synergies that might not be incorporated yet in the certifications reports. Thank you. Hello, Pedro, this is Bizarro. regarding our ability to increment production and reduce the lifting cost only with activities related to revitalization and reactivation of existing wells, excluding here production increment coming from new wells. We always emphasize that our target is to follow exactly what's expected included in our reserves certification. There is a potential production increment, and this is what we are working on. We have just one work over rig that is operating at Macau cluster. So as mentioned in our release, we had 30 reactivations. This is a process, an ongoing process. So we will always continue with our approach to reactivate wells. This is a specific equipment, not a rig. So in parallel, we always have activities going on to reactivate wells and parallel to work over operations. But yes, there is a potential production increment following our reserves certification. This is our intention. And as for lifting costs, as we normally say, representative part of our cost of our lifting cost is fixed cost. So naturally when we increase production, we have the intention to reduce the lifting cost announced to the market for Macau cluster. We always say that Macau cluster in terms of operating efficiency, it is one of the best set of fields in the whole of Brazil. And we always try to have a lifting cost under two digits for our onshore assets on average. So that's to answer your first question. And as for cost synergies and upsides regarding reserve certifications, you're right when you say that Synergies, potential synergies, were not considered between Rio Ventura and Reconcavo clusters. And this was done by two different certifiers, one, Gaffney Klein, and the other, DeGoglie and McNaughton. And because of they had the most adequate commercial proposals, but typically the certifiers work independently. They do the analysis and certify the reserves of the cluster independently. So yes, there are potential synergies to be captured. For us internally, we work them as one single cluster, the by-year cluster, with two stages to implement our operations. So in all of our contracts, We already work with a provision to expand the scope the moment we start operating at Reconcavou cluster. And yes, we do expect to derive a gain of scale in many synergies, both from the operational standpoint and commercial standpoint. For example, at Reconcavou cluster, we have BGM that came together with the cluster and we might be able to prepare it to treat gas from both of the clusters in a synergy approach. Very clear, Pizarro. Thank you very much. Our next question comes from Regis Cardoso with Credit Suisse. Hello, Sabine Pizarro. Congratulations on the results so far. I have two points that I would like to touch on. You have a big agenda ahead of you of new assets to take over. What I want to understand is how do you intend to go about this? Is it possible to have parallel operations? Is it a first step to look for cost efficiencies and then perhaps plan the workovers and well reactivations? I mean, Can you sequence these processes with different teams? I guess my question is, what are the steps that you have to go through when you take over an asset and how are you going to go about doing this with many assets being taken over at the same time? That's my first question. My second question is a little simpler. It's specifically about Fazenda Belém and Papa Terra. peels with a low degree API heavy oil, and they have a higher discount from the brand. Do you really see a discount for this oil in the market? Hello, Regis. Thank you for the question. Your question is rather interesting. Our approach here is to form teams for this cluster of clusters, for every cluster. So in Rio Grande do Norte, we have a team that is very integrated. Still, we have operations, operation managers specific for each one of the three clusters, Macau, Pescadera Baiana and Fazenda Belém. But the technical teams are very integrated and We take advantage of this regional synergy. But there's independence of resources, human resources and equipment. If we compare Rio Grande do Norte and Bahia, this is our plan so far, Spiritus Sanctum. P E R O A C A N G O A have a more automated operation, so that requires fewer people. And it's also independent from the other two sets of fields. As Pizarro mentioned, we're going to have a team for the Potiguara Basin and another team for Reconcavo Basin. In Regis, we believe we already have enough synergies. In Reconcavo, we are going to operate 22 fields. So the idea is to have rigs dedicated, one rig or all rigs dedicated to that cluster. Eventually, it is possible to have some sharing between the basins. But it's not considered in our models for now. But yes, there is a possibility to derive macro synergies, as you pointed out. For the second question, I'll turn the floor to Bizarro. Regarding potential discounts for volumes produced with a lower API degree oil that is more dense, heavier infusion In Fazenda Belém, we have a contract with Petrobras, a mid-term agreement with them. Just like the other contracts between 2024 to 2025, the current discount for Fazenda Belém, all cash generation from April 1st, 2019, will be deducted from the amount payable at the closing of the deal, among other adjustments in the SBA. But we have that agreement in force, in effect. So we immediately sell the oil to Petrobras at a discounted price in line with what we can expect for a somewhat heavier oil. It is a good quality oil, although heavier. It has no contaminants. It has a controlled sulfur level. The order of magnitude of the discount is between six and six and a half dollars discount per barrel. And this is in keeping with market practice. And this is validated by 3ER and by an external consultant specialized in the industry. As for other volumes of heavy oil produced in offshore fields, all this has advantages and disadvantages. The disadvantage is that you cannot have a fixed contract when you know exactly the discount that you're going to have over subsequent years. On the other hand, you can direct it to refineries that are better prepared to receive oil from Papaterra and other fields that have heavier oil. Here in Papaterra, that's a case when we do have a potential of reduction compared to what is commented in the market, a reduced discount, but this needs to be validated. This needs to be studied in that same attempt to seek for refineries that are prepared to treat heavier oil. Today, The market has a pent-up demand. In other words, there is an incentive to direct volumes of crude oil for the generation of bunker oil for tankers. And with that, we can enjoy smaller discounts compared to what the price of lighter oil. Thank you. Very clear. The company will now read questions from the webcast. Please go ahead. Well, we received here one question by Gabrielle. How are you doing, Gabrielle? The question has to do with activities and workovers planned for Reconcavo Cluster. Well, we recently published the reserve certification of Reconcavo. In that, we expect around 160 wells producing wells to be drilled. The majority of these wells are vertical. Some of them are directional, but these are very simple wells with a very low cost per well compared to directional long haul wells. In other words, these are simple wells with a typical cost of vertical cost. As regards to workovers, we have a significant volume given the size of the field and the ability to reactivate existing wells. Around 98 wells can receive workover activities. And in terms of reactivations, the volume is even more significant, around 165 potential reactivations that have been considered for reconcavure cluster. It's all very well described in the reserves certification. Any additional detail can be researched in the certification. There's also potential investments on PGM. As I mentioned, this is a PGM with a very wide treatment capacity. The capacity is so big that it needs to be prepared for smaller volumes. And this is what we are including or we had included in our certification so that we have the capacity to use gas. This was recently approved. And we will be able to sell gas directly to distributing companies. I mean, all the gas produced at Reconcavo Cluster. So we have the ability to increase monetization of our gas and this can be representative. Regretting the question of impact on reserve certifications, if we exclude Malombé, this is also reflected in the reserves certificate. For a 50% working interest in the cluster, which is the current stake of 3R, we would have a little under 5 million to be reserves and an NPV of approximately $38 million. And this is for 50% stake. If we had the whole cluster, we would have to double the values. The third question I can answer, Chika was congratulating us on our results. I'd like to remind you that if you want to ask a question, please press star one. Please wait as we collect the questions. There's a question by Rodrigo Siqueira. Which Petrobras processes are being analyzed and what is the financial strategy for potential new acquisitions? Rodrigo, here we are very thorough and careful in our analysis. We are very financially disciplined. Onshore assets and perhaps offshore assets that are being divested from Petrobras. Well, some assets are not interesting to us. They've been discarded. Some of them we are interested in, but they are not a priority for us. So we are extremely conservative when we are preparing a non-binding agreement. And of course, there are assets that have synergies to be derived with our current operations. And of course we are interested in potentially acquiring them. I cannot be more specific than that at the moment, given the current context. And of course we signed a non-disclosure agreement with Petrobras regarding the process, the whole process. We are now ending the Q&A session. I would like to turn the floor to Mr. Ricardo Savini for his closing statements. Mr. Savini, go ahead. I just want to quickly thank everyone for participating. We had a lot of active participation from you. This is our second earnings conference call. We are very happy with the 2020 results of 3R Petroleum. I think that we were able to establish the company as an independent operator with size and scale in Brazil, side by side with sister companies, as I like to call them. We still have a challenging year ahead of us because the pandemic is still here, we're facing it, but we are very motivated to deliver on our strategic vision that we have been sharing with our investors. I would like to give the floor to Pissahu for his final comments. Well, everyone, thank you for joining us, for your questions, for participating. As Savini mentioned, we are prepared to continue on our organic and inorganic growth path. Always stressing our bias of revitalizing mature fields. In other words, working with very, very low risk assets, low exploration risk, low execution risk. And we remain committed to maintain our capital discipline So that whenever we look for new assets, we'll have very attractive entry multiples for 2P reserves of value paid for 2P reserves, as mentioned in our material. So thank you very much. We remain available, just like our investor relations team is always available if you have any further clarification needed. Thank you very much. This concludes 3R petroleum conference call. Thank you very much for your participation and have a good afternoon.