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.