Brava Energia S A S/Adr

Good afternoon, everyone. Welcome to 3R Petroleum fourth quarter and full year 2022 earnings video conference call. The conference call and comments about the results will be presented by Matheus Dias, CEO of 3R, by the CFO and IRO Rodrigo Pizarro, and by the Exploration and Production Officer Mauricio Diniz. To 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 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 where you can also find 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 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 may cause results to differ materially from those expressed in such forward-looking statements. Now, we will start the presentation with the company CEO, Mr. Matheus Dias. Mr. Dias, you may proceed. Hello, everyone. Good afternoon. Welcome to the video conference call of 3R Petroleum to discuss fourth quarter and full year 2022 earnings results. The presentation will start with me presenting the main highlights of the period. As well as the perspectives, outlooks and efforts of the company to consolidate our portfolio and complete our deals. We'll continue with Maurício Diniz, our COO, who will share relevant operational aspects of the assets in production. And then Rodrigo Pizarro, who will detail performance and control metrics of the company, as well as information on our capital structure, cash position and debt. To start on slide 3, we have an overview of the period and its main highlights. First, in the end of December, more precisely on December 23rd, we completed the acquisition process of Papaterra Cluster, our second offshore asset. This asset has great relevance for the company's portfolio in terms of the share of its production and cash generation in the whole 3R portfolio, as well as in terms of reserve and recovered fraction. It is worth noting that 3R received the asset at the closing date with some pending items and limitations in some systems in both platforms, both in the FBSO and in the attention leg. and this will entail a very intense agenda along 2023 with a focus on the integrity of these operational systems so as to avoid potential bottlenecks in production and above all so that we can have a more efficient operation. 3R currently operates and therefore concluded the transition process of seven assets out of the nine assets that we acquired. Along 2022, we concluded four deals, one of them, as I mentioned, the Papaterra Field. In addition to Fazenda Belém, Cluster in Ceará, Reconcavo Cluster in Bahia, and Peruá Canguá in Espírito Santo. And in this context, it is worth mentioning that all assets in operation Of course, considering their respective closing dates, represented 44% of our portfolio production in Q4 2022. In January of 2023, already considering production from Papaterra, assets operated by 3R achieved an average daily production of 31,000 barrels of oil equivalent, 23,000 of which corresponding to our working interest. Additionally, and considering the portfolio as a whole, it is worth noting that 3R increased its stake in 3R Offshore through the acquisition of a 15% stake, reaching a total of 85% working interest. Now moving to the main operational highlights. which will be more detailed later on by Denise, we have a relative production that was significant in this period at the Reconcavo Basin when compared to previous periods and very much backed by improvements in the facilities. This was done as a foundation and so as to support the increase in production. As a point of observation, this focus on the whole infrastructure of the assets of the Reconcavo basin as a whole, both the Reconcavo and Rio Ventura clusters, will still require a great effort on the part of the company in 2023. In Macau, the company is at the final stage of implementing the project to replace the CNB pipeline with the tests, including the hydrostatic test, which is an important milestone, all performed, as well as the interconnection of the pipeline. Having said that, the resumption of production that was impacted by this corrective action remains scheduled for the first quarter of 2023. As regards the separation plants, these are operating at 75% of their nominal capacity, and for that three are promptly responded by hiring and mobilizing an engineering company that has an expertise in such projects, aiming at correcting possible problems as well as future bottlenecks. Lastly, still on Macau cluster, 3R starts, still in this quarter, the drilling campaign, for which we already have the whole necessary structure mobilized and on-site, as well as all of the licenses obtained. Now, quickly returning to Papaterra Field, the main current effort by the company lies in increasing the storage capacity of the FBSO. This has been limited since the transition phase in the acquisition process of the asset, and this also limited well reactivation as a subsequent activity. Also, one of the wells planned was reopened just now in February and the next well will be reactivated after this increase in storage capacity of the FBSO. Talking about workovers, we already have a hydraulic rig contracted, which will operate in dry completion wells, and we are in the process of building a DP rig, a dynamic position rig, which has a slightly longer lead time to work in wet completion wells. Another relevant point. to be highlighted by the company, is the transition of Potiguar cluster, in which the company is at an advanced stage of fulfilling contract obligations and conditions precedent of the sale and purchase agreement. Internally, we already have the teams mobilized, as well as all the third party contractors, service companies in general, to start operating on D plus one post closing date, all taken care of. As for funding, specifically for Potiguar Cluster, which will be further explained later by Rodrigo Pizarro, funding is also already structured in the amount of $1 billion through two debt instruments. And as a point to be highlighted here, It is worth mentioning the flexible conditions involved, particularly referring to prepayment, which enables the company to be paying attention to the market to consider new alternatives in this spectrum of capital structure. Moving on and still on slide three, in terms of the evolution of the operation for company through our assets in operation and considering the stake of 35% of Pescada recorded an average daily production of oil in Q4 22 of 8,660 barrels up 37% year on year. And the company posted 15,375 barrels of oil equivalent daily, already including gas. And this is approximately two times greater compared to the same period of 2021. Here we should mention another point to be observed. The completion of the four deals, as I mentioned before, had a direct impact on the evolution of our production. From the standpoint of financial metrics, in Q4 2022, 3R posted revenue of 445 million BRLs, up 78%, year over year, and a full year revenue of 1,722,000,000 BRLs. As for adjusted EBITDA, in Q422, 113,000,000 BRLs, and in the full year, 710,000,000 BRLs, approximately two times the consolidated adjusted EBITDA of 2021. Now moving to slide four. We have some data on the company's portfolio. As I mentioned before, our portfolio has nine assets, seven of them already concluded, and spread into four basins as we can observe on the map. Papaterra Cluster in the Campos Basin, Peruá, Canguá in Espírito Santo Basin, Recôncavo and Rio Ventura Clusters in the Recôncavo Basin in the state of Bahia, and in the Potiguar Basin, Macau, Pescada Arabaiana, Fazenda Belém, Areia Branca, and Potiguar Clusters. In this scenario, in December, these nine assets achieved a daily average production of 45,000 barrels of oil equivalent. And here, we already include the working interest of 3R. This portfolio has as a characteristic an important geographic diversification as well as production diversification. 55% corresponding to Porticoir Basin, 17% coming from the Reconcavo Basin, and 28% coming from three are offshore with Papaterra and Perua. of the total assets that make up our portfolio, it is important also to highlight that the mix is divided into 80% oil and 20% gas. I now turn the floor to Mauricio Geniz to give you more detail about the operational aspects of our assets. Thank you, Matheus. I will give you more details on the operational part, starting with the last field that we closed, Papaterra Field. We have the closing in the end of December. This field is very important for the company, mainly because of the low recovery factor that we have today, 2.5%. In other words, with great possibility of growth over time. Just to give you an idea of the importance of this field to 3R, in January, one third of our January production came from Papaterra. There are two units there, and we have a lot of capacity and flexibility in these units to do water injection, to interconnect new wells. So over time, once we overcome these initial problems that we are having, as was the case with all of our assets, once we solve these integrity issues, we will continue with the drilling and interconnection of new wells. Talking a little about the operating part. We started production in December with three wells. In this field, the main integrity issue currently at the field is the tanks. In the next two months, we will inspect these tanks, do cleaning and maintenance, exchange the valves, of these tanks and this will allow us to reduce the frequency of offloading of this unit 3R3. As planned for the year, slightly before a recent operating issue that we are facing and that I will explain in a minute, we already had four wells in production. And these four wells produced around 16 to 17,000 barrels. As expected for the year, we'll have the arrival of a rig that has been contracted, a hydraulic rig. The pump contracts, ESPs, have already been commissioned as well. And in the fourth quarter, we should have both the hydraulic rig and the ESP contracts ready. In the end of the year, we'll have the commissioning of the rig to do workovers in wells with a wet Christmas tree, and it should arrive in the last quarter of the year. As a reminder, the first job of this rig will be to reactivate two wells that need to have their ESPs replaced, their pumps replaced. Please remember, as already mentioned in the last call, that we are going to have also a production downtime of this unit in the end of the year, most likely divided into two periods, an initial 15 day total stoppage, then a part of the system will get back in line, then another total stoppage after three months to do integrity workovers in these units. To detail the current problem that we're having, we had a power outage at the unit and this power outage caused an activation of the emergency generator and then of the batteries of the unit. But these batteries were not prepared for that. And this also led to a problem in the automation system. So we are resuming production. We have solved part of the problem, which is the electrical problem. We changed some batteries. We replaced some old batteries that were not charging anymore. We brought batteries from another unit, the 3R3. We have already restored the electrical system and are now working on the automation system. The unit should be back in production in the coming days. Next slide, let's talk about Potiguar Cluster. Potiguar Cluster, as it was before what it is today under our operatorship. We had a reduction of production in the Potiguar Cluster, mainly seen at McAufield. And as mentioned before, we have four items. Four items we are working on. First, the work over rig. As we can see on the upper right hand corner of the slide, in this period we have two workover rigs on site. Now we have four rigs there. In March, we already have four rigs handling workovers at the field. Another interesting point already mentioned by Matheus is the drilling rig. Most likely this weekend, we will start to drill. And to offset January and February, we are hiring another rig, which should arrive in April. In addition, we have the pipeline, which is the third item. I mentioned that this pipeline is in its final stage of the hydraulic test to recover part of the production. And the other part of production will come from the works that are at a commissioning phase. Part of the works have been completed and we are finishing and working on some tanks, making some repairs and changes to the work that was done. So that's a little bit of the operational part of Boutiquoir cluster.

Moving now to Reconcavo, where we have two clusters. There, we reported an increase in production. We initiated the cluster, we did some integrity works, and we continue increasing the production in the field. On the upper right hand side of the slide, it's something important for us. We highlight the important work over and in the fourth year we had three rigs in operation and today we added one more. So in total we have four rigs working in the field. Also in the second half of the year, we intend to initiate the drilling of new new wells at Hikonkabu. And finally, I would like to talk a little bit about Peruá. In Peruá, we currently have a production potential of about 600 to 650,000 cubic meters a day. We are producing approximately 500,000 cubic meters of gas a day, and we are still waiting for the conclusion of a commercial agreement negotiation with Petrobras to increment the field's production. We already mentioned Papa Terra, At the beginning, the average of the fourth quarter is around 17,000. We had two wells that closed. One of them had been repaired. We changed the cable on the surface. The well had started production before the stoppage at the end of February. So we should return with four wells. And the last one will return as we repair the cargo tank of the unit. And the next slide. We show production in a timeline. So if we add the company's oil and gas production throughout the entire operating cycle, we see that throughout the quarter, we were able to increase the company's oil and gas production. And on the chart below, we show the oil production highlighting the reduction in Macau's production, as I already mentioned before, and I talked about the four actions we are implementing to foster the resumption of production to normal levels, which should occur soon. Now I'll turn the floor to Pizarro, who will elaborate on the financial results of the company. Good afternoon, everyone. Thank you, Denise and Mateos, for the introduction. We will now start the financial part of the presentation. Slide 10 shows the company's net revenues for 2022. On the first chart to the left, we show the growth of our net revenues since the last quarter of 2021. Comparing the last quarter of 22 with the last quarter of the year before, we notice an 80% increase in net revenues reaching 445 million BRLs in the fourth quarter of 22. Now, Year on year, we started with 204 million BRLs in 2020. We reached 728 million BRLs in 2021. And finally, 1,722,000,000 BRLs in 2022. The positive highlight in the fourth quarter refers to revenue increases in the Reconcavo Basin and Perua Cluster, partially offset by the lower production and, as a consequence, lower revenues from the Macau Cluster. Even with an increase in gas production in the operation of the Perua Cluster during the entire quarter, oil revenues are still predominant, accounting for 69% of the company's total revenue. On slide 11, we present our adjusted EBITDA. And even with the transition expenses, mainly those related to the Papateja cluster, which was concluded in the last two weeks of December, we reached about 113 million BRLs with an EBITDA margin close to 25%. On an annual basis, we doubled the EBITDA of 2021, reaching 709 million BRLs in 2022. Excluding the transition expenses of the year, we would have reached approximately 810 million BRLs. And just restating the obvious, this non-recurring effect related to transition expenses is eliminated after the closing of all the assets. It is also worth mentioning that cash generation, including CAPEX and income tax of Papa Terra during the transition, total approximately $19 million between the effective date on July 1st, 2021 and the closing date, even considering the corrective maintenance stoppage conducted by Petrobras during the period. This amount was enough to pay for the closing installment and also the remaining amount that will be discounted from the future earn out installments. It's also important to mention that the EBITDA margin was not only impacted by the increase in transition expenses, but also by a drop in rent prices when compared to the previous quarter. And finally, by the intensification of the integrity activities, as previously mentioned by Denise and Matheus, that are partially allocated to OPEX. On slide 12, we show the company's consolidated lifting cost and its evolution since the last quarter of 2021. I would like to emphasize some of the aspects that impacted lifting costs in the last quarter of 22. On the one hand, looking at the lifting cost, which is the numerator of this metric, we had higher operating expenses related to integrity recovery of the offload systems, pumping and production processing, and on the other hand, In the denominator of this metric, we had impacts in the volumes produced due to processing and transportation restrictions at the Macao cluster, in addition to the lower force flow in Perua to comply with the demands of the take-or-pay contract. In regards to CAPEX, we spent about $69 million. in onshore activities in the Pochiguara and Jacopo Basins, being 45% related to well workovers and 33% in processing plants, injection and production offload. On the next slide, we show our capital structure and our financial obligations. We ended the previous quarter with a cash and cash equivalent position of 245 million US dollars. And at the end of 2022, we reached $159 million. In the period, it's worth mentioning that at Papa Terra's closing date, we acquired the remaining oil that was stored in the FPSO, produced prior to the closing, totaling about 95 million BRLs. Also, we made the contingent The contingent payment related to Brent linked to the acquisition of Juventuda, totaling approximately 256 million BRLs. Considering the actual debt disbursed, our net debt at the end of 2022 was approximately 42 million US dollars. In 2022, we performed the financial restructuring of the company for the acquisition of the Portuguese cluster involving the signing of two debt instruments totaling $1 billion. Well, as mentioned before, both instruments can be prepaid with flexible conditions, in particular, the first $500 million, which are not subject to penalties after 12 months from Finally, on the last slide of this section, we present our hatch position and our obligations related to asset acquisitions. As a reminder, as part of the commitment to creditors for the funding of the Portuguese cluster, our obligation entitles that until the closing date, The company will keep 55% of PDP, which is the expected certified decline curve for the next 12 months, and 40% for the subsequent 12 months. This follows a rolling strategy, meaning that we will continue to revisit this obligation during the entire duration of the instruments. S.A. This calculation does not contemplate the reserves of Peru and Papaterra. It only considers the PDP reserves from the assets from the Potiguar and Recôncavo basins. And finally, at the end of 2022, we had 2,750,000 contracts, most of them in NDF, with an average price greater than $80 per barrel. In the last few months, already in the first quarter of 2023, we expedited a contracting of derivatives, prioritizing collar instruments in order to meet the obligations related to the Potiguar cluster. In terms of acquisitions, and as presented in our last earnings release call, the relevant amounts refer to the Potiguar cluster, of which $1 billion will be paid at closing, expected for the end of this quarter or early next quarter, and $235 million to be paid in four annual installments starting in 2024. In regards to the other assets, we have about $136 million of contingent payments or earn outs, as typically mentioned, and $26 million in deferred payments. To conclude the presentation, I turn the floor back to our CEO, Mateus Dias, for his final remarks. Thank you so much for joining us. Thank you very much, Pizarro and Denise. To close the presentation on the results of the fourth quarter and full year of 2022 I will talk about our priorities and where the company will concentrate its efforts throughout 2023 first of all. Strategically speaking, I would like to mention two important points. The company is currently putting great emphasis on the conclusion of the Potiguar cluster, already in an advanced phase, as mentioned a few times today. Now, in terms of the company's overall commercial aspects, we are pursuing better monetization opportunities for the oil currents and gas molecule, which are close to becoming a reality. And certainly a large portion of the trading contracts still related to SPAs are approaching maturity. On the operations side, We are in a new phase searching for a systematization of our demands and the maturity of our internal processes that at the end of the day will support the company and our development plans in a broader sense in a more specific way according to our CapEx plan for 2023. Also keeping an integrated view of our portfolio as a whole. In that cap explained, the main highlights include improvements, recovery of new facilities projects, which will ensure the proper structure to support current and increased production. Also workovers and drilling campaigns in the Potiguar and Riconcobo basins and in Papaterra, Once again, the reactivation of two wells, one of them already activated and the attempt for this year to replace the elevation system of at least one wet completion well on FPSO. I'm not mentioning corrective actions in Papaterra in case they occur due to a possible well closure, but the company is getting prepared to face this scenario as mentioned before with a hydraulic rig already contracted. In closing, another important point extensively emphasized by Pisao today is that given the flexibility of prepayment in the financing structure, the company remains and will remain attentive to the market to find alternatives that could optimize our capital structure. Well, with that, we conclude today's presentation, reinstating that 3R, with all of its professionals increasingly more integrated, will relentlessly and diligently pursue structure and responsible growth, focus on aspects like safety, environment, social responsibility and governance. Once again, thank you for joining us and good afternoon.

Ladies and gentlemen, we will now begin the question and answer session.