Brava Energia S A S/Adr

Good afternoon everyone and welcome to 3R Petroleum second quarter 2022 earnings conference call. The conference call and comments about the results will be presented by the company's CEO, Ricardo Savini, and by the CFO and IRO, Rodrigo Pizarro. We inform that the simultaneous translation tool is available on the platform. To access it, simply click the interpretation button at the bottom of the screen and choose the preferred language. This conference is being recorded and will be available on the company's investor relations website, www.ri.3rpetroleum.com.br, as well as the presentation that we will show here. Please be advised that all participants will be in listen-only mode during the presentation by the company, and then we will begin the question and answer session when further instructions to participate will be provided. Before proceeding, we take this opportunity to stress that forward-looking statements are based on the beliefs and assumptions of 3R's management and on current information available to the company. Forward-looking statements may involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors, analysts, and journalists should understand that events related to the macroeconomic environment, the industry, and other factors that may cause results to differ materially from those expressed in such forward-looking statements. We will start the presentation, turning the floor to Mr. Ricardo Savini. You may begin. Good day everyone and welcome to our conference call to discuss second quarter results of 3R Petroleum. In a minute, I'm going to discuss our operating performance and financial performance. But before that, I will mention some subsequent events that took place in the last few months. The main one, in a risk mitigating activity, we signed a firm loan with a pool of banks led by Morgan Stanley. in the amount of $500 million, which will be used for the payment for the acquisition of the Great Potiguar Cluster in the state of Rio Grande do Norte that we acquired from Petrobras. We have other initiatives for the financial structuring of the company to cope with this big acquisition, which will be mentioned more towards the end of this presentation, but this is a relevant event that happened in the last few weeks. Other significant events were the closing, I mean, two closings related to operations that were in a transition phase from Petrobras. First, the Fazenda Belém cluster, a heavy oil onshore cluster in the state of Ceará, but part of the Potiguar Basin, with great synergies with the clusters that we already operate in the state of Rio Grande do Norte, especially Macau and Areia Branca clusters. and also the closing of our first offshore project, our first offshore asset, which is the Perua Platform, a natural gas project, the Espírito Santo Basin. So we have been operating these two assets for a few days now. So we are going to see in the timeline that we progressed quite well in the operation of assets that were in a transition phase. A third event is the guest contracts as we communicated to the market that we signed with Bahia Guys. for a better monetization of our gas in the Reconcavo basin, with an average price in the second quarter of 2022 of $6.40 per million BTU, a value considerably higher than what we had in the past, but still impacted by some days in this quarter under the old contract. So our expectation is that we will have a monetization value for this gas higher than this $6.40. Another important event is that we recertified the reserves of five of our clusters. We now have 515 million barrels of 2P reserves, barrels of oil equivalent, in other words, oil plus gas. So portfolio with more than 500 million BOE, as we have always mentioned, a good part of that being proven reserves around 373 million barrels of proven reserves. And with that, this is a reserve replacement activity, and we should expect in the future a continuous activity by the company to replenish the volumes produced every quarter, every year. Lastly, we are going to have a shareholders meeting in the next few weeks, and two new board members were appointed. We also have one of our board members leaving. He was our chairman of the board for a long time, Paulo Mendonça from Starboard, the private equity fund that structured the company. So Paulo is leaving and we would like to thank him for his leadership. That was very important for our company. And we will have two new board members joining, appointed by our reference shareholders. This event marks the transition from a company that was actually no longer controlled by a private equity fund, but that had Starboard actively participating in our management. Transitioning now to incorporation with pulverized free-floating shares and our reference shareholders appointing board members for our board of directors. Now I will speak about our operating performance. Please go to slide three. Please note that Comparing year over year, in other words, Q2 2021 versus Q2 2022, we posted a significant growth in our oil production from 4,800 barrels to more than 8,400 barrels. So we are talking about a 75% production increase. This is related to increased production at all clusters operated by the company, as well as the addition of new operations as we signed more closings with Petrobras. Considering oil and gas total production, we more than doubled production. We are already producing more than 12,000 barrels of oil equivalent with the assets operated in the second quarter of 2022. Coupled with our operating performance and increased production of oil and natural gas, of course, we also posted a substantial revenue increase, up 2.6 times. We had a revenue of 153 million BRLs in Q2 2021, increasing to 400 million BRLs in Q2 2022. Also a robust growth. And following this revenue growth, we also posted increase in the same order of magnitude of 2.3 times of our adjusted EBITDA, which grew from 89 million BRLs to 206 million BRLs. We will see this information in more detail during the presentation. On slide four, We show you our timeline, the timeline of our acquisitions. I'd like to remind you that 3ER made 9 acquisitions, 8 directly with Petrobras and 1 in the purchase of Duna Energia, which we renamed Areia Branca Cluster. So you can see that more than half of our assets, to be more precise, we are currently operating 6 out of the 9 assets that we acquired. So we still have, for the coming months and quarters, Pescada Cluster, whose operations we expect to take over in the next weeks. We are at the final stage. As we said in the previous call, we were at the last mile of Fazenda Belém, Peruá and Pescada. Well, Fazenda Belém and Peruá, we are already operating and we should start operating Pescada in the next few weeks. The two clusters, the largest offshore cluster, Papaterra, and the largest onshore cluster, Potiguar, We expect to have the closing of the acquisition of Papa Terra in the last quarter of this year. And for Potiguar, we expect closing in the first quarter of 2023. So we are very close to having all assets on board. But it is very important to remember that all nine assets are already generating cash for the company the six that we operate obviously and the three assets not yet under our operatorship that are still transitioning from Petrobras according to the contracts that we signed with Petrobras cash generation already belongs to the company and is being deducted from the last payment installments at the closing of the operation We still have two assets that did not generate cash for the company, Perua and Reconcavo, but we are operating them already. And it is precisely for that reason that we state that 100% of the assets operated or not by 3R at this point are generating cash for the company today. Also on the bottom part of the slide, we bring you a graph with the acquisition price at the moment when actually the Brent oil price when we had each one of the acquisitions. And we highlight here the fact that we made those acquisitions with an average Brent price of $56 for this whole set of assets, this whole portfolio. So this whole portfolio was built with an average Brent price of $56. And today in our current production phase, we are producing with a Brent Over $100 in the average of the last few months. Our revenue is linked to a Brent price above $100. So as we have always said, we were building a portfolio in a moment of low Brent price. And now that we are in a production phase with increasing production, we have a much higher price of the Brent.

We will now see

the oil production curve with a little more detail, quarter by quarter. Please note that we took over Macau cluster in the third quarter of 2020. Back then we had a production of 3,700 barrels and now in oil, we got to 8,400 barrels as mentioned before. So you see an ascending production curve that is very important. I would like to point out that of all this production in Q2 2022, about 30%, 30% comes from the Reconcavo Basin with Reconcavo and Rio Ventura clusters, the rest coming from Potigua Basin. Clusters Macau, Areia Branca and our working interest of Pescada, where we are not the operators yet. Also about 30% is our gas production. When we look at the bottom graphs, 31% is gas and close to 70% is oil in our average daily production pie chart. On slide six, we see more detail. It's one of the assets that we are operating right now, the main assets. We have here the top charts. showing reconquer complex assets. So with Rio Ventura, we started operating it in the third quarter of 2021. So we've had some quarters as operators and we can see a strong ascending production curve. We got to almost 1400 barrels doubling the production that we inherited. In the case of Rio Ventura, we actually exceeded the level of production that Petrobras had in the last quarters that they were operating the field. So we have a strong revitalization and we are very happy with our operating performance at Rio Ventura. On the left and at the top, Reconcavo. We could also have an important production increase. We are still at a preliminary phase. We've been operating and producing Reconcavo for a few months. We took over producing with a set of fields producing less than a thousand barrels altogether. And now we're getting close to 1500 barrels. So a very important growth, but we still have a lot to do in Reconcavoo to resume the production levels that Petrobras had before 2020.

As for the Macau cluster, we see at the bottom part of the slide a decrease in our production. And as we were saying during our last meeting, we are still facing the same problems we had in October of last year. And we have been reporting them over the last few months, problems related to the fiscal measurement of the oil. We do not have any operational problems at VR nor at our facilities. So what we have here is a dispute with Petrobras related to the measurement process. So we've been measuring 4,500 barrels since the first quarter of 2021. And so after peaking at 6,200 barrels in the first quarter of 2022, today we are at 5,300. So there was a drop, remembering that this will be sold as soon as we commission our oil water separation plan, which is in the final stages of commissioning. Just as a reminder, there are two plants, one in Macau and the other one in Salina Cristal. We have two plants in the Macau cluster. The Macau plant is in the final commissioning phase. We are already starting to do the oil water separation. We are not yet doing the fiscal measurement. We still have to commission the fiscal meter. And as for Salina Cristal, we must commission it. And we can certainly go over this during the Q&A session. So we must commission it in the fourth quarter. That's when we must commission the Salina Cristal plant. So despite that, We are continuing our revitalization work at the Macau cluster with workovers while pooling. Therefore, there is no delay in our reactivation work. We continue to do our work steadily, but we are still very much impacted by this measurement process. Having said that, on the other hand, I remind you that although part of the production is not yet posted to the Macau cluster, but as of July 1st, All the production from the assets operated by 3R and all of the assets operated by Petrobras that will belong to 3R in the Potiguar cluster, all of this production belongs to the company at this time, as we said at the beginning of the presentation. With that, I give the floor to our CFO and IR officer, Rodrigo Pizarro. You may proceed, Pizarro. Good afternoon, everyone. Moving on to the financial results, slide seven shows another positive evolution in the second quarter. We reached 400 million BRLs in net revenue, with the most relevant part coming from the Macau cluster. But the highlight of the quarter is the relevant increase in revenues from the assets in Bahia, even considering only 51 days of operation of the Reconcavo cluster. Comparing the first half of 2022 with the same period of 2021, we reached 775 million VRLs when compared to 285, meaning an increase of more than two and a half times. Gradually, we will see an increase in the next quarters in the proportion of revenue from the new clusters over our operations, especially in the short term from Rio Ventura, Reconcavo, and Perua. Regarding EBITDA, in the next slide, we report that 3R posted EBITDA of 260 million BRLs in the second quarter, even with the impacts related to assets in transition that contribute to costs and expenses, but excluding the revenue allocated in our P&L. Once again, we remind you that with the completion of the PDWA cluster, all assets generate cash in favor of 3R, even those that are still in transition. It is also worth mentioning that the startup of the clusters is characterized by a sequence of operating activities and reactivations that were not carried out by the former operator and there are not yet accompanied by the constant, consequent positive impact on production, which momentarily impairs our EBITDA. Even so, we maintain the company's EBITDA margin above 50%, both in the second quarter and also in the first half of the year. Next slide. We present our lifting cost. In the second quarter, even considering an interval that I just mentioned between the implementation of the first revitalization activities and the consequent impact on production, and in this case, in Rio Ventura and Reconcavo, we had a very competitive consolidated lifting cost of $12.7 per barrel of oil equivalent. It is also worth mentioning that during the entire quarter, we had impacts in the portion of manufacturing on production in the Macau cluster, as mentioned by Savini. In Bahia, for lifting cost calculation purposes, we are not considering the volume of gas that is currently being re-injected into the reservoir, which one day will be produced, thus impacting the lifting cost in the future on the positive side. for the coming quarters. The company's intention is to simplify both production and the respective financial indicators per sedimentary basin. On CAPEX, also on the same slide, we are gradually increasing investments as we take on new operations. In the second quarter, we had approximately $16 million invested in, well, workovers, facilities, and technology activities. At the end of the second quarter, we had three workover rigs in operation in Bahia and two rigs in Rio Grande do Norte. On the next slide, slide 10, we present a summary of our cash position and obligations. After the payment of the final installment related to the Hikonkovo cluster, our cash position at the end of the second quarter was around $95 million and about $19 million in total gross debt. With respect to portfolio obligations, we expect approximately $59 million in the third quarter, already considering contractual adjustments. And for the closing of Potiguar, the great news is that we have signed a firm commitment with a syndicate of prime banks as Savini already mentioned for the first $500 million with a competitive coupon. And best of all, it is an instrument that can be prepaid by the company without penalties after 12 months from the closing. This firm commitment strategy also avoids allocating a significant amount of funds to the company's cash months before the closing, thus reducing the interest incurred in the period. As for the oil hatch, we signed contracts in the second quarter already in line with the probable future commitment that we will have after drawing down the debt related to the potty block cluster. Gradually, the average levels of NDFs and the floor and ceiling of the collar are increasing in relation to previous quarters. And finally, on our last slide, slide 11, we present the company's main action fronts for the coming months. Regarding our strategy, our focus is mostly concentrated on the execution of the revitalization plans of the now six clusters operated by us and on the final stages of transition of the Pescada and Papaterra clusters. For the Potiguar cluster, we are working hard on the transfer of licensees and on planning the upstream operation and the mid and downstream assets, as well as we are negotiating with operating partners, suppliers and third party contractors. Regarding gas volumes, we are evaluating opportunities for renegotiation and new contracts for the current portfolio that already exceeds 1 million cubic meters per day produced as of the closing of Perua. In terms of operations, our attention is turned to the conclusion of the separation plans in Macau and Salina Cristal. We are in the final stages of commissioning, as mentioned by Savini, especially in the Macau plant, where most of the clusters production comes from. And we are also waiting for the final authorization from ANP to start fiscal measurement. There is also a great focus on receiving the automatic drilling rig planned to spud in still this semester and also on integrating the new operations and the first revitalization activities at Fazenda Belém and Peruá. in Macau. We are also counting on the startup of the gas to wire power generation plant at the end of this quarter, gradually replacing the energy from the grid by the end of the year at the Macau cluster. And finally, from the financial point of view, we are working on the capitalization via debt, both short term to have a healthy cash until the closing of the Potiga cluster as well as in the financial structuring for the payment of the final installment or the closing installment to Petrobras. So therefore, we have a range of good opportunities or good alternatives that are being discussed both internally as well as with financial institutions close to 3R. And with this, we conclude the presentation of our results and open the floor for Q&A. Thank you very much.

We will now begin the Q&A session.

If you want to ask a question, please click on the Q&A icon on the bottom part of the screen and type your question. If you want to ask a question live, click on the same icon and state your name and company or click on the raise hand feature. Our first question comes from Pedro.

Good day, everyone. Savini Pizarro.

I have two questions. The first, Savini, has to do with water oil separation plants that you mentioned. You actually referred to two plants, Macau and Salina Cristal. At Macau, I understood that you are at the final stages of commissioning, so I would just like to understand what it means in terms of a production increase and also the timing. Should we expect this for now, August, September, if you could give us some color on that? And if you could give us more color on this Salina Crystal plant, I think you mentioned it will be more towards the fourth quarter. Do you think that the Macau plant would be enough for the cluster to return to previous production levels? And my second question goes to Pizarro. Pizarro, in terms of hedge, you mentioned in the end that you increased due to obligations referring to Potiguar cluster debt, which you will have to pay in the future. Could you tell us if there is any covenant, if there is any demand in the data instrument stipulating a minimum amount of oil to be hedged or the time horizon when this volume has to be hedged? You could give us more color on that. It would be very, very good.

Thank you. Can you hear me well? Yes.

Pedro, thank you very much for the questions. Okay, let me try to explain the commissioning of the plants. There are two plants. More than half, between 60 and 70% of production of the complex comes from the fields. that are served by the Macau plant. That's where we have the highest performing fields. So that plant is practically ready. We are at the final stage. We are already doing water oil separation successfully. What we are commissioning now is the fiscal meter that depends on approval by ANP. So we're waiting for the new method to measure the plant by the National Oil Agency. So this is imminent. It can happen anytime now in the coming weeks. Our expectation is that this will be solved towards the end of August or beginning of September. That's our expectation. As regards Salina Cristal plant, We had some issues receiving parts or pieces of equipment that arrived were defective. So, you know, we also faced that supply issue that impacted the whole world. So we had small issues, but enough to cause a bottleneck. So I mentioned in the presentation that we should commission this second plant, which is less important than the first one, by the way, in the last quarter of 2022, hopefully by October. But we're putting a lot of effort with our technical teams, the supply teams. to have the defective equipment replaced. And we want to have that as soon as possible. So there is a possibility that we will solve the issue in the next 60 days. But Pedro, I always like to be cautious. Potentially, there is a risk that we will only be able to commission the plant in the last quarter, in October.

For the second question, I will turn the floor to Pizarro. Good afternoon, Pedro.

Thank you for the question. Regarding the hedge policy and potential obligations. Yes. And this, that they've signed this firm loan that was signed with a syndicate of banks coordinated by Morgan Stanley. We have an obligation to maintain a hedge policy for 24 months from the moment that we have the closing of Potiguar. That percentage is linked to one of the curves that we have in our reserves certification, the PDP curve, proven and developed, which in practice accounts to 30, 35% of the production expected in the subsequent year, plus another 15 to 20%. for the 13th to the 14th month. And this is a rolling policy. In other words, every month we are looking at the next 24 months following this guideline. And thank you very much for the question. Thank you for the answers. I'd like to remind you that if you want to ask a question, you just have to click the Q&A icon on the bottom of your page and ask a question. You can type your question. If you want to ask a question live, click on that same icon, write your name and company or click raise hand. Next question by Bruno Montanari. Mr. Montanari, you may speak. Good afternoon. Thank you for taking my questions. I also have two questions. Still regarding funding. I think it's good news that you originally needed $1 billion. So my question is about this. Does the company need to raise another 500 million or can you work with less money? Given that 3R should generate a lot of cash until the effective payment of Potiguar. And my second question talking about overhead. I think it's clear that the company is preparing to absorb the new assets. So this increase is not surprising. The question that remains is what could we expect in G&A for the next quarters? Will the current level stabilize or will it grow considering Portiguario, which is a large business in this whole set of businesses? Regarding the first question, still on the financial structure that we signed, there is an assumption that we will get at least another $300 million. Our intent is that this will be done through debt, but we have the alternative of doing it through a partnership or by injecting equity in the company. In other words, we don't have an obligation, but it is the company's intent to follow the structuring through debt. of a minimum of $300 million. However, the second obligation is that on the date of closing that we have enough funds to honor our final working interest. The idea is that the company will have 100% stake of particular cluster. However, if that working interest is reduced, the lower limit is that we hold at least 70% working interest. So in a nutshell, the company aims to have 100% of the cluster. and do capitalization or funding through debt. But we have an array of opportunities. We have structure via bonds, the structure via infrastructure debenture, or structures similar to what we signed, but with a more long-term amortization schedule. So we are working hard on the analysis of the viable alternative. So we sign these first 500 million dollars and we might bring in reserve capital for the closing of Potiguar. I just want to point out that the structure that we signed is very, very positive for the company because after the closing, after 12 months, we can prepay the debt. If the capital market or another alternative is financially cheaper. So thank you for that question. Second question about the companies G and A. In the last 12 months, we lived a process of putting together the minimum structure for the company in terms of headcount and in terms of our staff at the corporate headquarters regarding also managers, systems and everything that is necessary for the company to be able to operate 45,000 barrels. In other words, already considering particular but in the next quarters, it is possible that we are going to have a GNA increase a lot lower than the increment that we had in the last four quarters, but to take over Papa Terra as well as Potiguar cluster. For Papaterra, we practically have the whole team put together. So the increment will be very small, one time off increase in the next quarter. For Potiguar, that increment starts happening more towards the end of the year and in Q1 2023, with the assumption that we take over Potiguar cluster between January and March. Thank you very much.

Our next question comes from Mr. Vicente Falenga. Sir, the microphone is open for you. Thank you. Thank you, Savini. Thank you, Pizarro and Rodrigo. I have two questions. My first question is about Papa Terra. You said that all the assets are generating cash. So I want to know whether you have any ballpark figure about how much that asset is generating and whether you're already reactivating the production because some of the wells were in maintenance. And about Macau, in terms of the measurements, the measurement issues, when do you think that this will be solved and whether you have any idea of, I mean, if the plant were to operate today, whether you would have any production increment or whether you can tell us anything about that.

Thank you.

About Papateja, cash generation, starts as of July 1st, 2021. So we had a very positive period of cast generation. And after that, due to Petrobras operating issues, production had to be suspended. And now it's gradually returning to normal. Therefore, we find ourselves in this evaluation period. We don't have any more recent status coming from the current operator. Therefore, we believe that that cash generation should be close to zero. Well, we might have more news in the coming months. or maybe, you know, in the next 60 days. Now, I'll give the floor to Denise, our offshore operations director, so he can talk a little bit more about Papa Terra. The current status, I mean, the unit has gone through some operating issues, especially in the boilers, and the boiler is crucial for the operation of the unit, that boiler. went through a maintenance period. It is already in operation. And as the tanks are full, we did two things. At first, we are heating the tanks We opened a well and in the next coming days we will then open more wells to do the offload, meaning that the flow of the unit has resumed its normal pace. Now offload is happening in a regular way. Therefore, we hope that in the next few weeks we will see the full return of that operation. because the boilers are already operating normally. As a reminder, I think during our last meeting, we said that we negotiated with Petrobras a lot because we wanted Petrobras to conduct these large maintenance operations in the Papaterra platforms, still under Petrobras operations, so that when that would come to us, the two units, P1 and P3, would be on perfect operation conditions. This is happening. So the main boiler resumed operations. The reserve boiler is under maintenance right now. Therefore, when we take over a few months from now, we expect that everything will be okay. And now we see just the return of the wells that were not operational in the past. It was very important that maintenance occurred under Petrobras management. Otherwise, you wouldn't look good for none of the parties if we just had to stop the operations the moment that we take over those clusters. And now about Macau. Well, let me just reinstate. We believe that in the next few weeks, we will have the Macau planned in operation, already commissioned, and the Salina-Cristal plan also in the Macau cluster. should be fully operational a few weeks later in the beginning of the next quarter. If everything were in place and we were already doing the oil water separation, but I would like to remind you that this is the only cluster where 3R did not take over a oil water separation plant. So here we were just waiting for Petrobras measuring process. We believe that that if we were doing the separation, if the separation was being done by ourselves, we would have at about 5,500, 60,000 barrels, which is the level that we posted in the first half of the year. Therefore, we expect to resume production in the oil cluster of around 6,500 or 6,000 some barrels. But once again, I would like to reiterate that as of July 1st, All the oil, both oil from a cow cluster and oil from the potiguar fields, they generate cash for the company. What happens is that we see a drop in our production, but if we look at petrobrass production in the potiguar fields, there has been an increase. Even though they are not drilling, we don't see a lot of activities in petrobrass fields. This only reflects that uncertainty. regarding the measurement process in fuels with a lot of water. Some fuels even have 98% of water for every bear of fluid, only two or three actually have oil. So there is an uncertainty in the measuring process, but the production could migrate from agal to another asset, but a total production is then reverted to 3R at this time. Thank you, Sabini. Just the first part of the second question again, whether this measuring issue has been solved or what could we expect in terms of production increase after July? The problem has not been solved. We are commissioning the plant. We expect to see an impact in the production of August and September, not July. July, it's something that we mentioned in the presentation. We highlighted that the July production was even lower. I mean, it was in keeping with the production of the past two months. The past three months was about 4,900 barrels. And in our view, this is a very similar problem that the one we faced last October. when after a major negotiation with Petrobras, we were able to calibrate all of the measuring units. There was an imbalance because of problems that Petrobras had in their own facilities in the Guamare region, not at three R facilities. And now we are doing another calibration of all of the flow meters and PSW. which measures the water content in the petroblast plants as well. This has been done right now, but just to be very direct, Once this is finished, our Macau plant will be already in place, and this will no longer be a problem for 3R. Perfect. So even though you still have some measuring issues, when the water injection begins, the expectation is that by August or September, production should go back to 6,000 barrels despite production issues. Yes, because we won't have any more measuring problems in Macau. We will do the separation in our field and also the measurement will occur in our own field as well. Thank you. That's clear. Our next question from Mr. André Vidal. Your microphone is on. Good afternoon, everyone. I have two questions. My first question As an attempt to understand better, why is it that the Macau royalties were so low in the first quarter? In our calculation is about 5% of the net revenue. And my second question related to Papa Terra, we feel whenever we talk to investors that have a higher risk perception, that they want to understand a little bit more about how that maintenance contract works. I don't know how much of that you can disclose, but I just want to understand how you were aligning all the different interests and also whether you could tell us a little bit about the payment installments that are fixed or variable or maybe packed to production or costs or whether there are some penalties if you do not achieve a certain level of production or if an accident occurs. So that's what I would like to know, if possible. The first thing about Macau's royalties in April. we included the Macau subsidiary at MP853, which allowed the company to be considered a midsize company. With that, we had the reduction to 7.5% as of April. Moreover, the other effects are pegged to the reference price of ANP that not necessarily is equivalent to the sale price of 3R. So in this particular quarter, the ANP reference price was lower than our actual sale price. And there is also a lower percentage that also contributes to that. which is a little bit of the production inventory from the previous quarter was sold during this quarter and the royalties are paid as you produce. Therefore, the combination of these three can explain the fact that Macau's royalty was approximately 5.2% of net revenue. The second part of your question, then I will refer that back to to Denise. Okay. Talking about Papa Terra, let's start with the choice of companies. We were careful enough to make a very crucial selection, you know, choosing what companies will be selected for the bid. And we selected two companies that were part of the consortium. And these companies have long time experience starting with the construction of rigs and FPS. So both companies, and they're also and when it comes to rigs and FPSOs operation, meaning that these two companies have a lot of operating experience. They are sound companies. Therefore, we are very pleased with them. And I think that we will be able to do some excellent work. As for the contract itself, I think we can analyze the contract and see that there was a perfect alignment of interest. So part of the contract is fixed and there is also a variable part of the contract. And let me then break it down into two types of alignment. One alignment refers to indicators as a basket of indicators. And these indicators contemplate operating efficiency, safety. So I'm now re Referring to that part of your question in terms of operating efficiencies, we define efficiency as the production conducted according to plan, considering the reservoir and also facilities. Therefore, if production goes above that limit, there will be an alignment of interest. and that is translated into gains and the contracting company gets part of that gain. So this is just part of that variable element. It is a whole basket of indicators. And the second element refers to costs. So the companies will have to do the planning for other resources that we believe are critical and expensive, like logistics, diesel oil, and other resources that we need for the units. Therefore, if there is any reduction in these costs based on the plan and based on a certain indicator, if there is a reduction of costs, there is also an alignment, meaning that we managed to have a very good contract with a good company. And here we have an alignment of interests in terms of production gains taken into account safety as a very important element. And in case of an accident or something like that, and there is proof that such and such a company is to be blamed, there are compensations. And there is the other part related to cost compensation related to logistics and supply to the units. Therefore, in our view, there has been a perfect alignment of interest. Part of the job involves running a diagnostics. So we have three R people within the unit and there are still people from Altiero working in the unit running a diagnostics. So try to find out if there is anything else that should be reported. So far, we haven't found anything different than expected. So we have experts in the field. They are very knowledgeable about Altiero's you know, work and they are there to put in place an improvement plan. And with that improvement plan, we will discuss further improvements. Therefore, this contract is very comfortable for us, and I'm sure this will bring about further success. Thank you very much.

Our next question is by Mr. Tasso Vasconcelos. Mr. Vasconcelos, your mic is enabled. Hello, good afternoon, Savini, Pizarro, and the rest of the team. Let me have a follow-up question, trying to learn about expected production increase. Some closings were expected more towards the second quarter of this year, and I imagine that this was the scenario used by the company in your initial planning. considering the values of these certifications. But we know that in the hands of the old operator, we had a declining production tendency. Even with a few months from the initial expectation and the effective closing, can we expect a delay in the production peak by the company as a result of perhaps a stronger production decline since you are taking over the field a little later than expected? Or is it possible to accelerate investment? and keep to the original schedule of certifications. And my second question is regarding alternatives to monetized gas. Perhaps the most natural scenario would be to sell directly to distributors. I guess you've signed some contracts in that regard, but Savini, I think you also mentioned the possibility of evaluating monetization through different ways. So I'd like to understand what is the company thinking regarding gas monetization strategies? Do you tend to go more to the side of the distributors or are you assessing opportunities? I just want to understand what you're thinking.

Thank you very much. Good answer for the questions.

Regarding the first question, yes, every delay Every delay to start operation compared to what we had planned does lead to a slight difference of start of operation with an impact on production peak. But if you look in the presentation Reconcavo cluster, you actually described what I'm going to say in the hands of Petrobras. Petrobras in 2020 was producing about 2000 barrels in Reconcavo. In April of 2022 production was 979 barrels. There was a marked production decline in the hands of Petrobras, but that also allows us to do a much faster revitalization than would normally be expected. We increased from 979 barrels a daily to 1,200 after one month. But the resumption is very fast, and this is what gives us confidence that we won't delay so much production peaks according to our reserves certifications. There could be a variation, a month more, a month less, but nothing too severe. We don't expect a great delay in the production peaks of each one of the clusters. Every cluster is different. Every cluster is a different story. Same goes for Rio Ventura. We took over with around 700 barrels daily and we practically doubled production in less than a year of our operatorship, nine months of our operatorship. So just to underscore what I'm saying, resumption is very fast. In addition to reactivating the wells, which we do immediately with the workovers and by opening new reservoirs in old wells. And this is what we are doing in all of the clusters. And very soon with new drilling, which is the big revitalization strategy in mature fields, we are very confident that we will achieve production peaks as planned. Your second question was about gas monetization. My fellow officers can also speak, but yes, I mentioned that we have many alternatives to monetize gas. That's a very open market right now with a lot of monetization possibilities. Our strategy in the start of production has been to sign contracts with Petrobras. That gives us a lot of flexibility and a very attractive price. I'd like to remind you that we communicated the market that in Bahia we are selling at $6.40 still with a mix of old and new contracts but the the value will stabilize above that but in our case we're saying that this is net with no transport costs that we don't have, nor processing costs because we don't have those. We sell to Petrobras the net amount and Petrobras processes everything. It's their cost. So it's an amount of around $7 net for 3R. So we are very happy with the contracts that we have with Petrobras, but we continue to monitor the market. If the market offers more advantageous monetization opportunities, we might have a mixed contracts with Petrobras, contracts with third parties. We are studying all of the alternatives right now, but we are not in a hurry because we are selling our gas quite well at this point. I don't know, Matheus, would you like to add anything? I'll turn the floor to Matheus, our officer in charge of gas and energy. Matheus? Hello, Tasso. Thank you for the question. Well, to underscore what Savini said, and speaking more specifically, the closing, the nearest closing of Perua will still carry a contract that was part of the SPA. But in the short term, we understand that we will be able to have a substantial increase of the gas monetization. This is not necessarily a contract with Petrobras, but we are doing market research because of the high demand we have been having, particularly from the industry. So we believe that in the short term, specifically for Perua that has substantial production of gas for the company, we expect a significant increase. As for the other gas contracts, I should stress that still within the SBA, we were able to have more flexibility in terms of exiting the contract. So we have been alternatives to increment the value of the molecule and there is a parallel infrastructure study so that we can have more flexible solutions for the company to serve the market better and not to be relying just one purchaser of the molecule. You asked about, I think you mentioned thermal power plants. In the short term, the company understands that this is not our focus, not yet. I believe then we still have a long way ahead of us to be able to monetize gas, to enjoy this good cycle of the market. We might think about having thermal plants in the future, but not right now. Thank you Tasso. It's very clear. If I may ask a follow up question, Savini, to the first question, I understand that there is more room to increase production. Correct me if I'm wrong, but this increment also comes with a capex investment, right? Or this capex increase would be marginal if you increase production in the short term. We practically don't invest CapEx. It's very low CapEx in the first two quarters. CapEx increases in practically all clusters when we start drilling. That's when we're going to have the bulk of investments. And in specific cases, when we need to invest in facilities, which was the case of Macau, because we had committed to build the water oil separation plants, but we don't have this commitment in the other clusters. A good part of the investment is linked to drilling of wells and marginally workovers. The opening of new reservoirs and old wells. So what we are doing at this point is reactivating wells that were closed, exchange of pumps, ESPs, the internal part of the wells to put them back into production capacity. And this is what is increasing our production level. Jorge Lorenzon is reminding me that particularly in Bahia, there were a lot of cables and equipment stolen from the field. In the last few months, quarters and years of production by Petrobras, a lot of things just vanished and we're exchanging all of these parts and equipment at the clusters. Okay, clear. Thank you very much. I just want to add This is why we keep repeating over and over that in the first quarters as operators of any cluster, we have a backlog of operating activities that were not performed by the prior operator. That would not happen if we were acquiring from a smaller company that is as focused as TRIAR, but we are buying from a major. So a good part of our clusters always come with a backlog. A smaller part is CAPEX. A more relevant part is included in our operating routine in the first quarters with a lot of reactivation, repair, exchange of cables, pumps, and other instruments as Savini mentioned. And that's when we start having a more accelerated production increase. Of course, there's a delay. Of course, there's a difference in short-term cash generation, but this is not substantial to the point of changing the value of the asset or the value of our portfolio. Our next question by Mr. Pedro Soares. Your mic is enabled.

Please bear with us.

We have no sound. Now the sound is back. Can you hear me? Great. Thank you for accepting my follow-up question, which is related to a previous question, Pizarro, regarding the funding of Potiguar. You mentioned the options for the remaining funding to be raised. The priority continues via debt. But I just want to clarify, you mentioned that as a Plan B, Do you still consider partnership or an equity injection? When you talk about equity injection, are you talking about a private placement potentially, or are you opening the possibility to an offer? If you could clarify, please, that would be great. Thank you, Pedro. What I try to make clear is that we have an array of opportunities. In other words, according to the document we signed, there is no restriction regarding the way to raise funds. The priority of the companies to have funding via a debt instrument. If, for whatever reason, we cannot do it via debt, then we can resort to potential partnerships. And in the last case scenario, as any listed company, and particularly in our case as a very polarized company with very strong reference shareholders in as the last case, we could resort to an equity injection because there is general alignment inside the company and with the board and with the reference shareholders that this asset, Potiguar Complex, is a very strategic asset that was very well negotiated, that was acquired at an exceptional moment A little before the price of the Brent started to increase. But these are alternatives that we have on the table. But the strategy via follow-on is not the first, the second, nor the third alternatives or third preference of the company. Very clear.

Thank you very much. Thank you.

I'll read a question that came from Safra Bank from Bernardo. After the payment of Potiguar, what would be the company's leverage level and what is your level of comfort? Okay. As our basic assumption, we believe that a mid-sized oil company as we are, we shouldn't have more than two times net debt over EBITDA ratio. And so this is the plan. So even when we stretch the oil curve a little bit more, when we look at the future curve and we put a reducing factor on the curve, we get close but below two times during our first year of operation. And this did leveraging help happens really fast due to increased production and dilution of fixed cost and also the backlog of activities that that refers to something that we put in practice, which was not done by the previous operator. So this is a possible indicator two times net debt over EBITDA ratio on year one. And if things are materialized according to the current curve, that leverage is below 1.7 times. I think there is one more question about the rigs. How many rigs the company has? How many rigs do we intend to have? Today we have, as mentioned during the presentation, five work over rigs, six in Bahia, two in Rio Grande do Norte. Not very long ago, one of the rigs went from Rio Grande do Norte to Bahia, precisely because in the Reconcavo cluster, the number of workovers is more relevant and to be done in the next months or quarters. And now we are in the process of internalizing an onshore drilling rig This is a more efficient and quicker rake. It drills wells much quicker and we believe to receive that rake in the beginning of the fourth quarter to initiate drillings in the beginning of the fourth quarter. And all of that is being currently conducted by our supply team, trying to find alternatives for both the work over and drilling in the mid range. In the short range, the idea is to have that work over rig that allows for the replacement of pumps, both in Papaterra and Perua. I'd just like to add to Pizarro's answer. We should start drilling in the Potiguar Basin now in the last quarter of this year, and we should also start drilling in the Reconcavo Basin in the second quarter of next year. It's important to highlight that in the case of the Potiguar Cluster, As we are taking over assets that Petrobras already extended the concession term at ANP, we also take over these assets with the commitment to make investments. Therefore, we are currently getting prepared to take over the operations of Potiguar Field and start drilling immediately. So the market should expect us to do that immediately. And this is different from what we did in the other clusters. Geologically speaking, now we have accumulated a lot more knowledge because we've been operating in the Potiguar Basin for over two years. Therefore, the operation in that cluster should start soon and we will activate the drilling rigs very quickly in 2023. The Q&A session is now concluded. We would like to turn the floor to Mr. Rodrigo Pizarro for his final remarks. Thank you. Thank you all for joining us today. Thank you for your questions. As mentioned in the last slide of this presentation, we are very much focused on taking over the operations. This was a very important quarter for the company because we took over both Fazenda Belém and Perua. So we achieved 1 million cubic meters a day of gas being produced daily by the company. And now we turn our total focus to the Pescada cluster. We want to take over that in a short period of time, Papaterra in the meat term. and Potiguar early next year. Not only we are putting our efforts in the transition, but also in the approval of the development plans, production increase, and benefiting from the synergies between the assets. 65% of our portfolio is concentrated in the Potiguar basin. And this allows us to benefit from operating in commercial synergies and Along the same line, we are negotiating with third-party contractors for the median downstream of the Porta Iguara cluster. And this allows us to be more flexible to sell oil and gas because we can have access to the final clients, both of gas and oil, starting from our own private fields and refinery. These are all aspects that distinguish 3R vis-a-vis other peers. And having said that, I would like to thank you all very much for joining us. And we now conclude the presentation of our second quarter results. Thank you very much and I'll see you soon. This conference call is concluded. Thank you for participating and have a very good afternoon.