Brava Energia S A S/Adr

Good afternoon, everyone. Welcome to 3R Petroleum Third Water 2022 Earnings Conference Call. The conference call and comments about the results will be presented by Ricardo Savini, CEO of 3R and the CFO and IRO Rodrigo Pizarro. We inform that simultaneous translation is available on the platform. To access it, simply click the interpretation button at the bottom of the screen and choose your preferred language. This conference is being recorded and will be available on the company's investor relations website at 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 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 information currently 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 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, CEO. Mr. Savini, you may proceed. Good day, everyone. We are starting our earnings conference call to discuss third quarter results of 3R Petroleum. It's a pleasure to have you with us. I will start the presentation and then I'll turn the floor to our CFO and IRO Rodrigo Pizarro. On slide three, we show strong results, important marks achieved in this quarter. To start, Regarding our capital structure, we mitigated any funding risk to complete the acquisitions of our portfolio, particularly of the large Potiguar cluster. And regarding that cluster, we signed two firm commitments of funding, one led by Morgan Stanley in the amount of $500 million, and the second one by BTG, again, $500 million. With that, We raised $1 billion for us to finish paying Petrobras at the closing of this cluster, which should happen in the coming months. We issued a local debenture to reinforce our cash position in the amount of 900 million BRLs, also in this Q3. All of these loans, all of this debt, have flexibility and the possibility of prepayment, as Bizarro will detail along our presentation. From the operational standpoint, 3R is already operating six out of the nine clusters acquired from Petrobras. When we consider all production from nine clusters, we're talking about production operated by us and still operated by Petrobras, but with results already coming to the company. With production totaling about 43,000 barrels produced daily as we speak, of which around 16,000 barrels are produced by 3R. Another relevant event in this third quarter was the acquisition of an additional stake of 3R Offshore from our partner, DBO. So we increased our working interest in our subsidiary 3R Offshore to 85%. And with that, our reserves, considering our whole portfolio, including all of the other assets, increased to 534 million barrels. In other words, as we have mentioned before, a portfolio of more than half a billion barrels of 2P reserves, proved and probable reserves. Lastly, in the operating front, Well, we touched on this in the last conference call, and today we can speak openly about it. Our first drilling rig was imported. It's already in Brazil. It's in Mossoró being prepared to start drilling in the last quarter of this year. We should start drilling at Areia Branca cluster, and then we will mobilize this rig, which is an automatic rig manufactured in Italy. And we should mobilize it to Macau Cluster in the first half of next year. Also at Macau Cluster, we finished building our electricity plant powered by our own gas gas from the cluster itself, our gas to wire plant. It's what we call GTW. This electricity generation plant is already working and with that we are going to be able to reduce on one hand emissions and on the other hand our lifting cost. I'd like to remind you that electricity accounts for about 30% of the operating cost of our clusters. In addition, our oil water separation plant, which we have been building for the past months, is now complete. The Macau A plant is ready and working and operational, totally operational. I'd like to remind you that we have two plants at Macau cluster being built. One is Macau A and the other one is Salina Cristal plant in CNB. Macau A Plant is ready and operational. ANP has already inspected the plant and we are waiting for the last approval by ANP to start using a new method to measure production of oil in the region of Macau A. The Salina Cristal Plant is being finalized as we speak and should be ready by December. Still here on slide three, we have four charts to show our operating evolution and our financial performance. For the first time, we can compare this quarter, the third quarter of 2022, with a two-year historical series because our first closed quarter was exactly Q3 of 2020. So in all these graphs here we compared the third quarter of 2020 with 2021 and with 2022. So in a two-year comparison we increased almost two and a half times the production From our portfolio, from 3,900 barrels to over 9,000 barrels of oil. And when we look at total production, oil plus gas at the bottom, we increased production from 4,900 to more than 16,000 barrels. That is, we more than tripled our production in these two years. And from last year to this one, we multiplied production by almost two and a half times. Demonstrating the enormous growth of the company's production in this last year. And our financial performance follows this operating evolution. In terms of sales, we multiplied revenues by six times. Obviously, our sales just from a cow cluster in Q3 totaled 82 million BRLs. And today, in this quarter, we sold more than 500 million BRLs of hydrocarbons. So we have multiplied our revenues by more than six times in the last two years and almost tripled revenues from last year to this one and EBITDA follows this financial performance. We also multiplied by almost four times our EBITDA from Q3 2020 to Q3 2022. And we practically doubled our EBITDA from last year to this one and reached in this quarter 193 million barrels of adjusted EBITDA. Well, here it is important to emphasize this. We will talk about this during the presentation. It's important to emphasize that we generated EBITDA, but at the same time, we still have transaction costs associated with assets There we are in the process of closing, but which are not yet operated by the companies such as Potiguar Cluster, especially Papa Terra Cluster, which we are very close to taking over, but the costs are already in house. So if we did not have these transitions, transition costs, our EBITDA would be around 228 million BRLs this quarter. On slide four, starting here in the graph at the bottom of the slide, we stress the view that we are already a producer that produces over 43,000 barrels. Barrels of oil equivalent per day. So this portfolio has nine different assets, the largest of which is Potiguar cluster as shown in the graph with over 17,000 barrels daily. To build this portfolio, we paid or committed to pay. And as I said in the previous slides, we already have a capital structure prepared to finish paying for these acquisitions. So we paid or committed to pay two point two billion dollars. So these acquisitions are totally sorted out in financial terms. And it is important to emphasize that this portfolio, these assets that 3R has, make us A truly independent oil and gas player in Brazil. We have the capacity. By having specially a Potiguar cluster, we have the Guamaré terminal, the industrial asset of Guamaré, including Clara Camarão Refinery, the tank farm, the piers for importing and exporting crude oil and oil byproducts. All this gives us enormous flexibility and independence from any other player. Today, we have the capacity to export 90% of our production if we want, using our own infrastructure. We have the capacity to import and export crude oil, and especially byproducts if that is the case. So we are really very well positioned in this new oil and gas market in Brazil. Reaffirming what we have already stated a couple of times, our portfolio in terms of reserves is very low risk. 534 million barrels of certified reserves of oil equivalent oil plus gas. 72% of this is proved reserves. In other words, very, very low risk. I always stress this. There is nothing less risky in the oil and gas industry than 1P reserves. And still 34% of those are PDP reserves, proved developed producing reserves with wells already drilled. So a very low execution risk. And as we have already mentioned, we are already operating 16,000 barrels in three basins, Potiguar Basin, Reconcavo Basin, where we already operate our entire portfolio in Bahia State. And in the last quarter, we started operating at Peruá Field in the Espiritu Santo Basin, Peruá being an offshore project. Speaking about Peruá, on slide five, we summarized the Peruá concession which we started operating in August of this year. Here we have a set of images, some photos. On the left, we have a picture of the platform that we are already operating and on the right at the top, We have a picture of the platform from above. You can see the heli deck that is new. It's already painted, also displaying the new name of the platform, which is now called Platform 3R1. And I am very proud to say this. This platform is currently draining the reservoirs of Piruá and Canguá fields. But that we will also use to drain the potential reserves of the Malumbi concession. And I will talk about this in a moment. So our operational transition was very smooth, very uneventful. We didn't have any kind of operational discontinuity. We have been working and please remember that this is an uninhabited platform. We have put a lot of personnel on board exactly to carry out maintenance in this initial phase of our operations, but the asset is producing around 3,500 barrels of oil equivalent. Let me remind you that this is gas with some condensate, but it's basically a gas project and we are selling this gas at a price of $8.8 per million BTUs. With that, we have 11% of our revenue in this quarter already coming from the Perua concession. So a very important result. Perua is a concession that is a strong cash cow and has an EBITDA margin of around 70%. I mentioned that we are working, we are conducting all the studies to proceed with the tie back of the Malumbi discovery. And when we have this tie back concluded, well, Malumbi is a discovery that Petrobras made a few years ago and with a production potential of around 2.5 million cubic meters daily. in a peak production strategy or around 1 million cubic meters per day in a plateau exploration strategy. We mentioned these 2.5 million because this is the real potential of the reservoir. We can opt for a plateau production to have long-term gas sales contracts. So we can have about 10 years producing in this concession in a plateau exploration model.

Talking now about the Macau cluster, we have been working a lot, remembering that we have been operating at this cluster for more than two years. Keep it in mind that we are taking over the operations of mature fields, older fields with an older infrastructure. So normally in the first years, there's a lot of work to do to increase the installed capacity at the surface for oil and water treatment, water injection, et cetera. And here we have some pictures of what we have been doing over the last few months. Starting at the bottom center. This is our three phase separator in Macau A. As I mentioned, this is ready, commissioned, waiting only for ANP's permit. But we are already capable of separating oil from water. and delivering oil within specification that is with less than 1% of water. Speaking of water in the picture also at the bottom and on the left, we see an image of our water injection system that we are still in the process of commissioning, but that is already quite advanced. This green tank is the tank of water that will be injected in the injector wells. In secondary recovery projects, we are already quite advanced. And at the bottom right, the GTW plant, our gas to wire plant, is also ready, commissioned. And we shall see the results affecting or rather reducing our lift costs more robustly as of the first quarter of 2023. Although it is already working, we have a transition here with the electricity contract that we have with the grid. So the results themselves will appear in the first quarter of next year. As you see, we're working very strongly in the McCall cluster. We're also working on the pipeline, replacing pipes that had maintenance issues from the previous operator. Here as a strategy, we work in a very safe way. So some pipes we already started to replace some stretches of pipeline, replacing and placing new pipes so that we don't have any problems with leaks, but also with very low operational loss. We're working, doing the maintenance on one side and replacing equipment on the other while keeping the asset in production. Well, the result of all this that I showed so far is a constant growth in our production. Here on slide seven, we see two charts, oil production at the top and below the production of oil and gas. So we can see that we have been achieving constant increase in our production over the quarters. Starting in 2020, only with the Macau cluster, and the not operated part of Pescada.

We're partners.

And as of 2021, with the entry of the successive assets that we began operating, Areia Branca, Rio Ventura, and now Fazenda Belém and Peruá. So our production today, as we mentioned in the initial summary, is above 9,200 barrels. That's the average for this last quarter. in terms of oil and more than 16,000 barrels of oil equivalent when we add our gas production. But at this moment is quite relevant for this operated portfolio. Approximately 43% specifically for this quarter of our production is gas. Once the Papaterra and the Potiguar assets come in, which are assets for oil, then gas shall return to around 20% of our portfolio, as we have always mentioned. So we're quite satisfied with the increase in our production. We're working hard lately in all of these assets. And we will move on now to the financial results associated to this increase in production in 3R's portfolio. I turn over the floor to our C F O and I R O Rodrigo Pizarro. Good afternoon, everyone. We will begin the presentation of the financial slides. Please remember that these numbers represent only 43% of the total production in barrels of oil equivalent in our portfolio. The remaining 57% generate cash, which will be discounted from the final installments of the acquisition with Petrobras. On slide eight, We present the net revenues of the company. We have reached 502 million BRLs in the third quarter of 2022, representing an increase of 26% compared to the previous quarter and more than 2.5 times the revenue of the third quarter of 2021. The highlight is the beginning of operation at Perua, which has a good gas sale contract and represented approximately 11% of net revenue in the quarter. As a reference, the value of gas sold was of approximately $8.6 per million BTUs, already net of taxes, logistic costs, and any type of processing. Comparing the first nine months of the year to the same period in 2021, the increase is of more than 10 times, reaching approximately 1.3 billion BRLs in 2022. Comparing the first nine months of the year with the same period in 2021, the increases of approximately 2.7 times, reaching approximately 1.3 billion in 2022. If we compare it to the same period in 2020, it would be more than 10 times the increase. On the next slide, we present the company's adjusted EBITDA, even with the transition expenses at Papa Terra, and the Potiguar cluster, we maintained a strong EBITDA of approximately 193 million BRLs. If we exclude those expenses, the EBITDA would have amounted to approximately 226 million BRLs. As for CAPEX in the first nine months of the year, approximately investing an important part of our portfolio today under our operation has been recently transferred from Petrobras and therefore still do not present a positive impact after the first stages of revitalization. And also in the period, some maintenance and construction activities and assembly momentarily reduced the production in Macau and in the Reconcavo cluster. On slide 10, we present the company's lifting cost and a summary of investment. In terms of lifting cost, we had a consolidated value of $14.3 per barrel of oil equivalent, already considering the beginning of recent activities in some clusters, such as Reconcavo, Fazenda Belém and Peroá, which began with higher reactivation costs and still don't have the respective increase in production. At 3R Offshore, the highlight is the lifting cost in Peroá of only $5 per barrel of oil equivalent, which represents a relevant reduction compared to the operational cost of the previous operator. In terms of CapEx, in the third quarter, we invested $41 million, approximately 32% of which in facilities, 46% in well workovers, and 22% in equipment currently in stock for the beginning of new operations and some IT items. We have carried out 91 interventions between workovers and pooling through five onshore rigs that are already operating in the Potiguar and Reconcavo Basins. the investments and operational improvements and facilities, especially in Macau and Recôncavo, shall be concluded by the beginning of 2023, making way for the opening of wells that are currently at limited capacity or closed, which will contribute to dilute fixed costs. On slide 11, we present the company's capital structure. After a successful issue of debt of 900 million BRLs through local debenture, We concluded the third quarter with approximately $245 million in cash, 52 million of which are of a net position, already net of gross debt. We include, and as an illustration, the debt commitments that add up to $1 billion should be used for the conclusion of acquisition of the Potiguar cluster. It is worth noting that these have been the final steps of the company's financial structuring for the acquisition of the current portfolio. and that there is a lot of flexibility in these contracts, especially in terms of prepayment. Remember that the $500 million of the first commitment signed with Morgan Stanley and some other banks in the syndicate may be paid within just one year of the Potiguar closing without any penalty. We also present the amortization profile for the debt contracted and it is clear that the most relevant obligations will occur in 2026 and 2027 and certainly will be previously rescaled either with local emissions or possibly bonds. On the next slide, slide 12 about hedge, we see a significant improvement in the price levels of contract signed in the previous quarters. For the 3,100,000 NDF contracts over the next 30 months, we have an average value of $79 per barrel. And for the 162,000 caller contracts, we have a minimum of $65 and maximum of $94 over the next 12 months. We also summarized the table with the portfolio's future obligations, excluding the assets cash generation. Looking at the fourth quarter, it is worth noting that the earn out at Rio Ventura has already been paid in October and the amount of $8 million referring to Papa Terra shall be discounted from the cash generation of the asset itself. For the first quarter of next year, the debts in the amount of $1 billion will meet the installment for the closing of the Potiguar cluster and the remaining installments, some of them earn out such as Papa Terra and some deferred as Potiguar, will be paid with the cash generation of the assets. Finally, as usual, we present a final slide with the company's priorities for the coming months. From the strategy viewpoint, the idea is to continue working hard, evaluating all the steps of the transition with agility and seeking alternatives to advance the timelines. All of the relevant contracts for the beginning of operations of Pescada and Papa Terra have already been signed. For the OEM contract for Papaterra, for example, more than 180 professionals have already embarked twice. They are 100% trained to take over activities. We're following the corrective and preventive maintenance activities of Petrobras closely. They're currently focused on the gas injection system to enable the entry of production of wells that are momentarily stopped. However, Even with only two wells, the average daily production of the past few days, according to data from ANP itself, is about 15,000 barrels of oil. In operations, the focus is to expand the production capacity and reduction of downtime. Both in Macau and in Reconcavo, we are investing in the increase of processing capacity and replacement of pipelines precisely so that we don't have any production lost due to corrective downtime after the increase resulting from the drilling campaigns. Another highlight is the beginning of the drilling at the Potiguar Basin, both in Areia Branca and in Macau, and the progressive replacement of electricity from the grid with gas to wire, which will reduce Macau Cluster's energy costs. From the financial viewpoint, 3R will remain following the debt market for potential optimization of the instruments already contracted. We close here. And once again, I thank you all for your presence. We will begin the questions and answers session.

We will now begin the question and answer session, ladies and gentlemen. If you have a question, please click on the Q&A icon on the bottom part of the screen and type your question. To ask questions live, click on the same icon and state your name and company, or click on the raise hand button. Hello, can you hear me now? Oh yes, now we can hear you, Pedro. I just got the prompt to unmute my mic. Well, good afternoon, Pizarro, Savini and everyone else. I have two questions. The first is more direct, straightforward, about Papa Terra. Along October, through A and B data that extended until the mid of the month, we saw a production level that was good, varying between 12, 15, sometimes 18,000 barrels daily for 100% of the field. Could you give us an update? Any number? You can give us in terms of how production has been evolving in the last 30 days since the latest data published. And are you happy with this level of production? And you can also perhaps comment on the cost pattern that we could expect for Papa Terra on day one before you can deliver the improvements. I just want to know the cost on day one. So that's my first question. My second question is about priorities. Looking forward. With the Potiguar funding, Being sorted out, perhaps you can start looking at the fundamentals of the case in addition to price, also the operating part and that number of 43,000 barrels daily that the whole portfolio of 3R is producing proforma. It would be interesting to have some color on what would be your priorities in the coming months to start increasing this number in addition to integrating the fields. What other production progress can we see? Will it be in Macau through a drilling campaign you will be starting in December? Or what? So perhaps if you could give us a priority roadmap for the coming months, that would be great and very useful.

Thank you. Peter, thank you for the questions, starting with Papa Terra.

The current level that Petrobras has been producing is about 15,000 barrels. through two wells, the last two wells, PPT 50 and 51. There are three other wells that could resume production. As soon as Petrobras finishes some repairs in the platform, and we could with that reach 20 or 21,000 barrels of production. We are not convinced that Petrobras will be able to do this by the time we have the closing to have these three wells into operation. But our intent is as soon as we take over the operation, we want to have the capacity to reconnect these wells. We don't have to replace them. We just have to reconnect these wells to increase production to close to 20,000 barrels, then would be our production capacity on day zero. Of course, it's not going to happen every day. Our internal expectation is that on average, we'll have something between 18 and 19,000 barrels. It's actually above what we estimate in the reserves stratification. Another update about Papa Terra. Petrobras has completed 100% of the repair of the first boiler. They are completing the second boiler repair. It's a backup boiler. They did three uploads that were successful, being able to pass S A S A S A S A S A S A S A S A S A S A at the PLWP and on the FPSL. So we are 1000% prepared to take over the cluster. We're just waiting for ANP's final decision. Now as for priorities, I will speak a little about that, but I'll turn the floor to Savini first. Good afternoon, Pedro. And still talking a little about Papá Terra, I just want to remind you that some months ago, we mentioned that our strategy was to put pressure on Pedro Braz, to ask Pedro Braz to carry out the mainstream maintenance on the platforms, especially P63, the FPSO, and we are already reaping the fruits of that effort. As Pizarro mentioned, everything has been done. Papaterra Field was out of production for a while due to an agreement between 3R and Petrobras so that we would get both platforms in perfect conditions. So we wouldn't have to have downtime of the platforms when we took over the operations. So that page is turned. A lot of things have been carried out at the platforms. Our team is on board, led by Maurício Diniz, our offshore operations officer. So our personnel has been on board for quite a few months now, and we are prepared to take over Papaterra operations. Regarding priorities, that's a very good question, Pedro. We have two important facts to happen down the road. One is the closing of Papatea and startup of operations there. And the other is the startup of operations at Potiguar cluster. We also have Pescada that can happen at any time.

We are totally ready for that. You can hear me, right? Sorry, there was some interference.

S A S A S A S A S A S A S A S A S A S A S A This extension has been submitted to A&P, and with that extension, they submitted a development plan for each one of the large fields, including Canto Amaro, one of the largest in the Brazilian offshore, and Petrobras took on some commitments to drill wells in these fields. And we are getting ready. Of course, we are going to submit another development plan with our view of the business. But we don't intend to stop drilling wells at Potiguar. So Potiguar will be the first asset that we will take on and take over already with a drilling campaign. So that kind of guides our whole budget for next year, given that Potiguar is the biggest of the clusters. But our first drilling rig is already in Brazil. It's already in Mossoró. It was imported from Italy. It came from the region in Latin America. It's being maintenance and it's ready to go out in the field for drilling at Areia Branca and then It will be mobilized for Macau. So we should start drilling in the coming weeks. And there are two other rigs that are being mobilized for the coming months to operate both in the state of Bahia and in the Potiguar Basin. So a good deal of our activity in 2023. will be reactivation of wells and all of these clusters, particularly the ones will start operating or have started operating recently, such as Potiguar, which we will start operating soon. But we will have a very active drilling phase. If you follow 3R, if you have been following us for two years, we said that in two years we will be drilling. And this is the phase, drilling phase, that will begin with a strong increase in production based on drilling infill wells, a very low risk wells considering existing wells and proofed reserves. Thank you very much, Savini and Pizarro. And I just want to add something just to give you some numbers. In 2023, we intend to drill about 150 wells, more than 35 of those at Macau, more than 600 workovers too in Papaterra, and all the rest onshore, considering reactivations, workovers, and conversions. Half of these onshore activities will happen at Potiguar, a total capex close to $300 million. in facilities close to $50 million as part of the $300 million. So this is the focus of the company. I just wanted to give you some numbers so that you have clarity that this is our focus, that this is the main guidance of the company, the main orientation for all executives that will execute this drilling and work over program. For that, in addition to the rigs that Savini mentioned, and later we can speak about this in more detail, but the expectation is that we will reach eight work over rigs in the first quarter of next year and another six rigs that should be contracted also for work overs as soon as we take over Potiguar. So 8 plus 6 rigs, about 14 work over rigs that we should have onshore close to the closing of Potiguar. In addition, in drilling, we have mobilized the first rig as Savini mentioned. There are another two being mobilized as we speak. And there are another three rigs that we have mapped that we are negotiating to bring them in along 2023. So in total, we will have six drilling rigs active by the end of 2023, two at Potiguar Cluster. For offshore, And this is a recurring, frequently asked questions that we have, and I'm already answering some of the questions in writing that we have received. We have been working strongly. We are at a final contracting phase of a hydraulic rig. It's a rig that will be able to put two wells that were inactive, not the same wells that I mentioned before. The wells that I mentioned before just need to be reconnected, of course. If the pump does not have any problems, these are the two points that I'm mentioning now are wells where we had problems with a pump and we need a hydraulic rig to strap them again. And we could add another 5,000 barrels at Papaterra with that. At the same time, we have been working to contract a BP rig, typically offshore rig that will act in both Papaterra and Perua, initially at Papaterra. Most likely the first well that we will drill is a mirror well, number seven, where Petrobras had a problem with the pump. They tried to replace the pump. They didn't manage. And in our worst case scenario, we might have to drill a mirror well. But with all the reservoir studies very well known, this was an excellent well producing about 5,000 barrels until it stopped. So these activities are expected for 2023 and 2024 and they are aiming exactly a production above 2022,000 barrels at Papa Terra along the next 24 months. And Pizarro's answer addresses a question we have in writing by Lucas Costa regarding the supply chain. So all of these rigs that Pizarro mentioned are either contracted already or at a final stage of contracting. So I have a lot of peace of mind with him saying this over and over for the market. We have everything mapped out. The rigs will arrive on time. So we're not concerned at all, even with a high Brent oil price, which is very good because the product that we sell, we are selling for good prices. But we know we're all very experienced here. We know that this causes a problem in the market because all companies have their portfolios moving fast. But in our case, we already had all of our rigs work over and drilling rigs, both all mapped, agreed upon and in many cases contracted or at final stage of contracting. So we are going to have this park of rigs. A good part of them of the drilling rigs are not yet in Brazil. They are bringing from abroad from many different countries. And something else, Pizarro, just building on what you said, you talked about a mirror well. And this is a drilling that is already expected. It's what we call sidetrack. It's actually drilling that we use. We use a good part of the column of an existing well. We're going to reposition the well in a better zone of the reservoir. The well was already producing really well, as Pizarro mentioned, but our expectation is that we will produce even more. And we are going to be drilling at a very low price because we use a good part of the well that is already there.

Our next question is from Mr. Bruno Montanari.

Mr. Bruno, your microphone is opened. Good afternoon. Thank you for taking my questions. The first is a follow up from Pedro's question about the drilling campaign. Can you give us a number that what kind of increase in production could come from Macau or Portugal from new drilling for what is work over? And the second question, thinking about Papaterra coming in and Portugal coming in, how should we consider the timeline for your cost to start to go down in a consolidated basis? as you place two large assets in the portfolio, which have some heavy inefficiencies from Petrobras' operation. And a third, if I may, can you give us an idea about cash generation of the upstream at Potiguar in the second half of 2022, just to give us a number or an idea of how much could be discounted for the payment of the closing? Thank you.

Thank you for your questions.

As we mentioned, more than 30 wells next year will be directed to the Macau cluster. To remember the timeline of our portfolio a little, as soon as we take over Papaterra, and this is expected to occur by the end of this year, in December, we shall reach 25,000 barrels of oil equivalent per day 19,000 barrels of oil and about 900,000 cubic meters of gas. The average for 23 that we aim for is of approximately 45,000 barrels, 37 barrels of oil, and just slightly over 1 million cubic meters of gas. In Macau, our idea is that by the end of 2023, we exceed 9,000 barrels of All equivalent gas plus oil and the most of this increase will come from drilling. A lot of the activities in work over have already been implemented. Of course, we continue doing pulling activities whenever a well stops. We replace it as or put it back up as soon as possible. And I add that at Macau, we have more than 75% of all production remotely controlled by the control room. And at this time in Macau, we're going through the conclusion of the separation plants, some preventive repairs in pipes, especially connected to one of the stations that represent 40% of total production. And now we have a repressed production, but the potential of this production is much larger. So as soon as we conclude both the separation plans that we can talk about later and the repair in the pipeline by the end of the first quarter with these two activities combined to the beginning of drilling activities, we can recover, resume the, the level of 7,000 barrels of all equivalent. And by the end of the year, getting to 9,000. As for cash generation at the Potiguar cluster upstream, Bruno, we have not yet received the consolidated information from Petrobras. This is something that we have been seeking. We expect that for six months of transition, so from July to December, we should have at least $40 million Total cash generation for upstream, that would be the minimum that we would consider reasonable. But we understand that if it was our OPEX, of course, this cash generation would be much higher. So there's a lot of inefficiencies, wells that are stopped. And we immediately will be able to implement them as soon as we take over the asset.

about the delusion of fixed cost.

Bruno, another excellent question. By the end of the year, we'll take over Papa Terra. And this is an asset that naturally comes with a slightly higher lifting cost compared to our portfolio. Nothing beyond 20 to 22, $23, depending on production, of course. As I said, this production may start at around 15 to 16,000 barrels if Petrobras does not resumes the wells that are stopped, but it can come to closer to 20,000 barrels. So we're expecting between $18 to $23 of lifting costs at Tapaterra, which will lead our portfolio to something around $20 of lifting costs until the end of this year. For next year, this lifting cost, once Potiguar comes in, should remain on the same level between $19 and $22, depending on the quarter or the month. And starting in 2024, the expectation is that we'll start to dilute fixed costs. And in the medium term, we'll reach between $14 and $15. Onshore closer to $13, offshore closer to $15.

Excellent. Thank you, Pizarro. Our next question, Luis Carvalho. Please, you may go ahead. Hello, thank you for taking my questions.

If you could address funding first, obviously you've done an excellent work and getting the funding for the acquisitions, but looking forward with the plan that you have, maybe depending on the brand price and the speed that you want to apply on CapEx, there may be an additional need, again, depending on the speed of CapEx use and the price of rent. But I'd like to understand on the capital allocation viewpoint, how you see maybe 23, 24, the need for maybe replacing these loans that you made with a higher yield. or stick to the faster capex plan, I'd like to pick your brains a little bit. And the second question about the closings that still remain. We saw a change in government now. The message has been more on a state position than the message that we were receiving before, and it attracted my attention. Looking at Petrobras, obviously, Some more recent movements of trying to stop dividends. So I'd like to understand how you're monitoring potential risks with this transition of finding some type of hurdle or something like that, even if it's not entirely up to Petrobras, but depends on other agencies to continue on the process. And if you allow me a final one, we've been talking to A lot of companies in this industry and there's huge concern with an activity in the industry that is picking up heat. But they're concerned with some bottlenecks. You talked about the arrival of the rig that was made in Italy. I'd like to understand what you're thinking. What concerns you or keeps you up at night? In terms of bottlenecks, either labor, equipment, where should we keep an eye on?

Thank you. Thank you, Louise. Excellent questions.

We'll start with the funding part and possible new loans. When we look at the company's internal model, as I mentioned, for 2023, about $300 million of capex. For 2024, something around $480, $470 million of capex. And when we compare this to our EBITDA and the expectation of interest to be paid and taxes, in 2023-24, we have a balance that's slightly positive. So we do not intend to bring new leverage into the company to face CapEx. And also, when we look at the company's leverage, the net debt over EBITDA ratio, very quickly in 2024, we will already be close to one or below one. So we do not intend to make do any new rounds of funding of course that potentially the drilling of an offshore well for example may lead us to bring some leverage some smaller debt but there is no intention of entering into any major debt to foster capex just a sideline in addition to the venture 764 that we issued in the amount of 900 million BRLs. That's about 170 million US dollars. We also have the commitment of $1 million, part of it led by Morgan and part by BTG. So we have these two commitments that will be used for 100% of the closing installment that we have at Potiguar. And with the other loans that are much lower, adding to 80 to 100 million dollars maximum, such as BME, the short term loan that we have at the company, we have the total growth that's completely under control vis-a-vis the company's EBITDA. Now, looking at the political interventions, Savini will start and then I can comment a little about the bottlenecks in the industry and what we see. Please, Savini.

Good afternoon, Luis.

About the political scenario, we are quite comfortable at this time. I keep reminding everyone of this. There was an election now for two presidents, one president in office and another former president who ruled Brazil for eight years in the past, and his party was in office for many years and this Petrobras divestment program. Remember that many of us were Petrobras at that time. This divestment program was designed during Dilma's, President Dilma's government. So we're very comfortable, especially in the upstream side. Myself, I personally do not see any risk. There's a lot of discussion. And if we are to pay too much attention to Every little thing that is said will go crazy. I apologize for this informal language, but what I mean is that we're very confident and we have contracts signed. We have nine contracts signed with Petrobras. Petrobras does not have a tradition of not honoring signed contracts. And even Brazil does not have this tradition of not honoring signed contracts. It doesn't matter what government it is. So we're very comfortable and confident in some cases. It's not your question, Louise, but other people have asked us about Clara Camarón in the Potiguar cluster for the refining. And we'd like to remind everyone that Clara Camarón is a refinery that's completely different and a lot less complex than Petrobras downstream refinery park. It's fully integrated with the upstream, with the oil water separation process. for the entire Potiguar Basin. And physically, it cannot be separated from the other facilities of the Guamaré Industrial Asset. So it's not really a refinery. At Petrobras, with a very brief time exception, it was always managed by IP at Petrobras because it is in the productive operational context of upstream. So we're very confident about Boronac I'll start answering. We talked a lot about the rigs. In terms of human resources, we already have our entire leadership teams in all areas. What we're staffing now, especially for the Potiguar cluster, the Papaterra team is pretty much ready. So we don't really see bottlenecks there. Again, the moment of a high brand is a moment that puts pressure on costs puts pressure on potential bottlenecks. But on the other hand, everybody here is very happy because the product we sell is paid better. The margins are higher. So I think we're very well positioned at this time. And the confidence that we've been talking about to the market for more than a year, that we have everything very well planned and the executions being doing according to plan, we're very confident. Bizarro?

Just a brief additional comment.

One of the features here of 3RS Management is to have a great diversity between Brazilian professionals and Latin American professionals. And this benefits us, especially in the onshore aspect by mapping suppliers that are typical for onshore, but are not as known or well widely known in Brazil. So that favors hiring rigs, contracting some onm contracts for operation and maintenance just as an example our largest onm onshore contract is of a company that operates with more than 6 000 people in Latin America precisely on shore assets in the majority of mature fields so just to give some color the company Just as we do for rigs, but in other aspects, we look not only to Brazil, but to Latin America. Very clear. Thank you. Just another comment about this human resources. I'm remembering that report that you issued. Obviously we try to staff the company as close as possible to the closing. That's why we're monitoring when we imagine the closing will take place, and that depends on a number of things. There's some other recent questions here that address the same point. And we leave some final hires for when it's unavoidable that the closing will occur, just so everyone can understand how this works. After the National Brazilian Oil Agency approves everything and all the conditions are overcome, The seller and the buyer, the old concessionaire and the new one, have a window of one to 30 days for the closing. And this always gives us the possibility for the final hire. So we hold back on costs for as long as possible. Of course, as Pizarro just mentioned, the hiring of suppliers, we need to do a little bit ahead of time, but many of the contracts have a trigger that will start to pay more Once we begin operations, so we try to control costs as much as possible, but of course. There is a transition cost. That comes before the closing of the operation that impacts the other operations, and I think that's what you mentioned on your report excellent that was very clear, thank you.

Our next question comes from Mr. Vicente Falanga. Mr. Falanga, your microphone is enabled. Go ahead. Hello, good afternoon, Savini, Pizarro, everyone. Thank you for taking my questions. I actually have two questions. I know that you have a development plan that you detailed and Pizarro talked about 150 wells and many workovers, but Is there room perhaps end of 2023 or in 2024 to have a share buyback, depending on the performance of the shares? And second, I'd like to explore Malone beam. How much will the tie back cost? One million cubic meters daily is a lot for Brazil standards. Have you been talking with potential buyers? You know, if you could elaborate on the timing, it would be great. And whether you were connected with the with the grid.

Thank you. Thank you for the questions regarding share buyback.

We haven't got that mapped for the coming months or a year. Of course, this would be an agenda that would involve our Board of Directors. So a priori, the answer is no. Regarding CAPEX of Malombe, we have been refining and working on this. Like I said, the BP rig is a rig that we expect to contract very soon so that in the beginning it will handle the two workovers at Papa Terra and subsequently drilling the mirror well, the side track of well number seven. So the same rig should also handle completion and other activities to have this well drilled by Petrobras back in operation. When we add cost of pipeline, the lines that will connect the fixed platform at Perua to the well that is already drilled, plus the rig cost, plus equipment, all of that amounts to 90 to 100 million dollars. This is what we have been mapping, but we are detailing all of the cost items so that by end of 2023, we'll have an estimated amount. We don't expect drilling before the end of 2023. So of course we are assessing all this, but on the other hand, with offshore assets, we have to estimate the capex way, way before. And that's why we're working on those details as we speak. And would you have a buyer for 1 million cubic meters daily?

Are you searching for buyers or not yet? Vicente, we do have some potential buyers.

There are a number of players connected to the pipelines in Spiritus Santo, but these conversations are underway. We cannot disclose any names, but one example would be distribution companies. And of course, the local distribution company has been talking to us. Matheus is here with us in the call. He's the officer responsible for gas and energy. And he just told me that these are the distribution companies, in particular, the distribution company of Espiritu Santo that is very interested in buying that volume of gas. Excellent.

It makes a lot of sense. Thank you very much.

Our next question from Christian Audi. Mr. Audi, go ahead. Your mic is enabled. Good afternoon, everyone. Thank you for taking my questions.

A lot has been said about what we still need to do for Papa Terra. Is there anything missing for Pescada? What about the closing process? You said it can happen anytime soon. Is there anything specific you're waiting to happen? And also, with the start of Bid Wow operations and the start of the offshore operation, I'd like to know what are the main challenges that you underestimated regarding offshore operations and what has been the contributions of BP Energy for the operation, if any?

Thank you. Well, I'll turn the floor to Mateus.

He will comment on Pescada and then I'll turn the floor to Denise who will speak a little about the very successful start of operation at Perua. We've been operating that asset with less than $5 per barrel of oil equivalent, but Denise will tell you more about that. Hello, Christian. Good afternoon.

Thank you for the question. Regarding Pescada. We are at a final phase, very close to the closing.

After a very long phase with IBAMA, the environmental agency, given the complexity of divestment in the existing perimeters, until then it was one single asset belonging to Petrobras. So there was some complexity involved and that lengthened the transition period. But after That phase has been overcome with a Bama. Now we are moving to the last condition imposed by A and P. We are very close to getting this to the end. We needed to handle another condition precedent, but we are at a final stage of completion. So our expectation is that by mid-December, we will be able to take over our stake at Pescada. Thank you. I'll turn the floor to Denise. Regarding the offshore operation, we started on August, the second day operation at Peru. The operation is a unit that had some initial maintenance required and it's being carried out. And eventfully, the operation is done remotely from our base in Victoria. And until today, we didn't have any issues with the operation or the vessels. with all the maintenance that is being done. We have an O and M company that was contracted and they are operating as expected and so are the vessels. So we are operating normally and eventfully doing as we do in all the clusters, the initial maintenance. In the future, we intend to have some upside at the unit and some production upside. A similar model will be used at Pescada as well as in Papateja. As DBO, our partner, several professionals of DBO came to 3R and they are working as 3R professionals and the participation of DBO, while there was this change along the quarter regarding working interest, Their stake differs from 30% to 15%, but this was expected. And they participate actively in the board of directors of 3R Offshore. One additional comment, since we're talking about Peruá and already answering one of the questions, the written questions asked, when I mentioned $90 million for the whole capex related to the tieback of Malumbi in Peruá, But this is 100% of the asset. If you look at these certification of reserves, you'll see something like $43 million, but that certification applies to 50% of the asset.

Thank you. Thank you, Christian.

Our next question, Mr. Andre Vidal.

Mr. Vidal, your microphone is open.

Good afternoon. I have two questions.

The first is that we saw news about a potential sale of Parque das Conchas and I'd like to understand if you were looking at the asset. The news that I saw says that there's a round of proposals this Friday. And if you're interested, if you're looking at it, can you comment on how you see this asset? And my second question is to understand SG&A from now on. The fourth quarter, we saw 92 million SG&A, and I'd like to understand if this level is already stable, what we're going to see in the company from now on. and or if with the conclusion of acquiring Potiguar, if this will increase or not.

Thank you. Thank you for your questions about your first one.

Of course, we can't really talk much, André, about participating on this bid for Parque das Conchas. 3R, as all of you know, we actively participate and M&A operations over the last three years. But for one year now, we've been saying that our focus today is completely operational. We're fully focused on these transitions, the final stretch of the last transitions that will also be the largest ones, the largest assets. So that's where our focus is. That doesn't mean that we're not looking and we look. But for example, the last Petrobras asset sale in the binding phase, we did not participate. It was Bahia Terra. So just to demonstrate our discipline at this time. But again, I'm not saying whether or not we're going to participate for Parque das Conchas. We can look. If we're going to participate or not, I really can't say. About SG&A, I'll turn to Pizarro.

Thank you for your question, André.

In the quarter, we reached 92 million reais in SG&A. This is already very close to what we intend to have. Of course, there is an increase, especially relating to the mid and downstream. And for the company as a whole, we'll probably have an increase between 12 and 15% of GNA and something around 3 to 5% related to upstream. So something around 115 million reais is probably a stable level of GNA for the company expected with an average per quarter next year. We always work not only with absolute metrics like GNA per barrel, but as we always mentioned, a target for the company is to reach about $4 per barrel or less in GNA. Remembering that the company with the closing of the particular cluster will also have the mid and downstream sides. So we always need to discount this part of administrative expenses that are linked to the assets. that are not upstream assets. So we're very comfortable here with the current level. Of course, we always need to think pro forma. The company today is prepared for Papaterra, is prepared for Pescada. And as Savini already said, we have already hired most of the heavy bulk of the team of coordinators, managers, and of course, directors who will also take care of the Potiguar asset.

Excellent, thank you. Next question, Mr. Leonardo Marcondes. You may go ahead. Hello, can you hear me well?

Hello? Yes, we do.

Great. Well, good afternoon. Thank you for taking my questions. Most of it has been answered, but there's two points here on my side about the oil water separation plans. When do you imagine you have both plants fully operational and what's the measure of production fully calibrated? I'd also like to know if you can share the discount of production in Macau today. My second question is about RPCC. I'm assuming you have some Economic Studies of the Refinery. So I'd like to understand whether or not you could share with us what are the entry barriers for importers and producers to reach the gasoline and diesel markets in Rio Grande do Norte. Thank you.

Great questions.

First about the Macau plant. Reminding you here that there's two large areas inside the Macau cluster. The first is Macau A and in Macau A we have the plant that represents 60% of the cluster's total production. This plant is already operational. It's already separating the oil produced. It is already in conditions for the tax framework and now we're working hard and supervising it every day not to mention almost every hour talking to ANP so that we can receive as soon as possible the authorization for fiscal measurement. So every other hour we come here and try to get this approval so that we can actually start having this measurement for 60% of the production. In the CBD plant, it's in the final stages of commissioning. The expectation is to finalize by the first week of December. The regulatory deadline for A&P to grant the approval for CNB is January 23. But what we expect is that this authorization will occur the following week. So by mid-December, we should also have CNB plant in operation with fiscal measurement. What remains for some months is the water reinjection system that we are expected to conclude fully in May of 2023. So from November now to May of 2023, we will partially start to integrate this water injection system and only in May of 2023 we'll exclude that processing cost that is done by Petrobras. Your other question is about the payment for the quarter was 15%. So it's an interesting information that in Macau, when we know how much we're producing as if it were fiscal measurement, it's almost as if there is no division of this payment of breakdown some days more. This apportionment some days more, some days less. But the average effect is that we're producing as if there was no apportionment. Of course, for CNB, it remains somewhat imprecise. But for Macau A, we're quite confident on this information about the refinery. I'll turn over to Matheus again. He's also the director. responsible for the transition process for the Potiguar cluster, in particular the midstream side.

Good afternoon, Leonardo.

Thank you for your questions, reinforcing what Bizarro said. Before the refinery, a question that you asked about Macau. We have a discount there on the oil of $0.7 per barrel. in the scope of some contracts inherited from the SBA. And it's momentary, of course, because it will become a vertical asset. And we still have a sort of discount that a lot of Petrobras' contracts have, which comes from a tax inefficiency from the production chain, especially oil byproducts sold to other states. And that's of around 55%. Now, as for the question about the study of the byproducts, oil byproducts, after we signed the contract with SPA and Petrobras, we did a deep dive in different scenarios, of course, coming from the existing assumption by Petrobras, both for heavier products and for lighter products,

considering diesel, gasoline and KAV.

And especially a logistics study to balance this network and the logistic radius that we would be able to remain competitive. Part of our assumptions, Brazil is a country that has to import, but it comes from That PPI, of course, we create a type of discount, but we consider this.

As far as our strategy goes. We broke it down in two phases, the first phase.

Where we embrace contracts where we have lower risk. And according to the assets, we can indeed operate through. A. Group Seeking Larger Margins. Referring to this first phase, especially for diesel, it's a diesel of worse quality based on Petrobras' assumption. Our assumption is different, but we will use this S10 diesel to make a blend and specify this better. Not today only in the world sphere, but it has great representation for us in what we sell. of around 40%. And the idea here would be for us to sell the remaining S10 diesel that will be imported. So we already have agreements and some contracts almost concluded to import this diesel with a partner. Now stressing, this is a first phase, there's risk. So before we have the table there, we'll seek some security. So we are moving along with negotiations with a partner that has pretty much a weekly flow of vessels. So that assures us of the supply and protects us at a first moment. And if we look today at the stage, the major player there in the lights, ends up being the Clara Camarón refinery, even for logistic terms and our structure with a private use terminal. So this diesel will be pretty much all of it will be imported and what we produce will blend to get a better specification. As for gasoline, of course, we're going to bring a high octane NAFTA to blend with ours as well. And other options and boosters of high octane. The strategy is basically the same. Looking in particular to the Rio Grande do Norte market and some state borders where we can remain competitive in terms of logistics, respecting parity as an assumption. So that for lights, I think that's what you asked. Thank you.

Very clear. Thank you.

Let me make one additional comment. The order of magnitude of barrels that are sold today in oil byproducts is about 65,000 barrels. So the assumption being that we should use maximum refinery capacity close to 40,000 barrels We will need something like, we will have something like 25,000 barrels imported. Most of these would be diesel S 10, as Mateus mentioned. I will now move to some questions that came to us in writing. First, to answer Daniel Hauben with Tavola about potiguar. Is there any possibility of separating closing for the onshore part of the field from the offshore part? Daniel, thank you for the question. But, you know, this is something that, yes, we are working on as a possibility. We've been talking to Petrobras about this and with A&P, the offshore piece. Always has an additional demand that has to be answered by IBAMA. That's why the closing should be taken more towards April. But this is a strategy that we've been working on and on our end and apparently on the side of the seller this strategy could work. There is another question by Odessu, not regarding the expectation of startup of activities at Papa Terra. Odessu, thank you for the question. We have been working strongly in-house, again, working with IBAMA, environmental agency. This is the trend for all assets. Petrobras have carried out the main part of maintenance. I should say that today three are as comfortable to take over the asset as it is. Of course, there's a backlog of activities that Petrobras has not done. So we still have to implement some activities to put the asset at a optimal productivity stage, which is currently not the case. But we can take it over, can take over the asset as is today. What we have mapped in terms of new steps is that by the first fortnight of December, we should be closing Papa Terra. Thank you very much for all of the questions. I will turn the floor to Savini, who will be ending this earnings conference call. Thank you very much. Well, what can I say? Thank you very much to everyone. I just want to make some brief statements. First, I'd like to say that Q3 2022 was a very positive quarter for the company. A number of milestones were achieved, particularly two important closings. Our first offshore cluster, which puts 3R as an offshore operator and also the Fazenda Belém operation. It is a field which is relatively small, but with an important potential that we will be testing in the coming years. Looking forward for the next two quarters, we have some important things coming up, things to do. We are very close to operating 100% of our portfolio, a portfolio we have been building over the last two to three years. With the assets that we are operating, six out of nine, and all of them, including Beirua, as Denise mentioned, We have intense maintenance activity going on in all of these assets and we are talking about an industry of mature fields. Mature fields are old fields and maintenance is an important part of the business. We cannot exclude maintenance. On the contrary, maintenance is what will allow us to have smooth incremental production and with better visibility in the future. We've been working strongly on that and also we are working on safety. Our capital structure is ready to pay for these acquisitions, particularly the big one that we still have to pay for, i.e. particular cluster. So we mitigated a lot of risk in our portfolio and looking forward in the next two quarters, we'll have to start up of the the start of the drilling campaign in We've spoken about this since the beginning. It will allow us to have an aggressive ramp up of production in all of these assets. And we'll start doing that starting in December. Now, with all this portfolio, all of these assets, everything we've done at 3R, looking forward. We are building an independent listed company with 100% operational flexibility. We don't rely and depend on any player. We don't depend on the biggest oil company, Petrobras. And our portfolio is very, very low risk. Both in terms of reserves and in terms of the question asked regarding the political scenario, given that in addition to the fields, we have the whole infrastructure that we are in needs to produce, to treat, to separate oil from water, to store and to export, if that is the case. So our portfolio is totally independent. All of that will materialize in the next two quarters. And with that, I'll close by thanking for your attention, for your interest in our company, and we'll always be available to answer your questions. Thank you very much. Take care. Oh, I would also like to think there are many employees participating in this running school. So I'd like to thank the strong, dedicated work of the whole 3R team in all five states in which we operate. Thank you very much. Take care. This concludes the conference call of 3R Petroleum for today. Thank you for your participation and have a good rest of the day.