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.

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. Our first question comes from Vicente Falanga with Bradesco BBI. Mr. Falanga, your mic is enabled. Thank you. Good day, the whole team. Thank you for taking my questions. I have two questions. First, I want to understand how surprised was Atriar with the news of the suspension of the sales program of Petrobras, which ends up impacting Potiguar. What are the next steps and potential scenarios here? And given the interactions you have been having with IBAMA, the environmental agency, which requirements have been fulfilled? Is there any red flag raised by them so far? And my second question goes to Mateus. Mateus, I'd like to hear from you. Perhaps you could zoom out and speak about the execution plan in 2023. In the last earnings conference call, They spoke about the capital slightly under $300 million this year with an expectation of eight work over rigs more towards the end of the first quarter, now in March, and another six work over rigs after closing of Porticoire. In other words, ending the year with 14 work over rigs. And they wanted to end the year with six drilling rigs, two of them located in Potiguar. And they also mentioned about production of Macau close to 8,000 barrels of oil equivalent daily. I'd like to understand, will the plan still apply or has it changed? If so, in what way? Thank you.

Good day, good afternoon, Falanga.

Thank you for your questions. Well, let's start with the first one. About the Ministry of the Environment memo and the transition of Puteguara Cluster. Well, to start, the company did not get any formal advisory from Petrobras regarding a suspension of the contract. So in that context, we continue to fulfill contractor obligations and conditions precedent in the SBA to complete the deal as soon as possible. In our review, considering the fulfillment of contract obligations is that we are at an advanced stage of fulfilling those contract obligations. And even with some very relevant approvals granted, as was the case of A and B in transferring the concessions, and Baikadi, the antitrust agency and other approving agencies when we consider the whole perimeter of the transaction of the deal. So we know that we are quite advanced to complete the deal. specifically regarding the transfer and the license to operate from IBAMA. All processes continue to go forward. We continue working with the government agencies with diligence and so far we didn't feel any delay in the processes. All licensing processes continue to move forward normally. This is bizarro, just to add to the answer. Also, the moment that Petrobras received the memo and communicated the market, we moved forward with some conditions precedent and some fronts. And as Mateus mentioned, in our view, we are quite close to fulfilling all conditions precedent. And we expect that exactly because we have a sales and purchase agreement that is very strong and that addresses the closing without considering a unilateral exit of Petrobras, we don't expect the SBA to We don't imagine that the SBA can be cancelled. On the contrary, it is in effect and we have no evidence whatsoever that Petrobras is not abiding by it to this date and moment. So we continue with our plan. I would also like to highlight that in terms of commissioning and hiring our teams and subcontractors, we're very close to 100% so that we can start the operation very soon. Thank you, Pizarro. And now Falanga to answer your second question. The company continues with the same plan that was mentioned before. So we have a planned CapEx for 2023 of approximately $320 million in total and divided mainly 172 million dollars, 54% to be invested in reactivations, workovers, conversions and drilling. There is also a relevant part of the capex going to the infrastructure of the assets, the facilities of the assets. So that we can have the necessary structure for the existing production and for a higher production eventually. So this involves some new projects, some corrective and preventive actions in the facilities of the assets as a whole. And there is another part that is much smaller. that accounts for $30 million, around 10%, which refers to downstream, and that is already considering with Potiguar Cluster in-house. Just an observation. The part of facilities as a whole, it totals 33% of this budget of $320 million. As refers the rigs, there is a difference in the total number of rigs that you mentioned. And this is an account of a restudy reengineering based on the fact that we seek to achieve. the average production that was budgeted for this year. So we had to increase some rigs. So for this year, yes, the company will have one extra drilling rig on shore. We had planned for four, but we'll have five drilling rigs on shore. One of them is already mobilized as Denise mentioned in his presentation. And most likely this weekend, he will start the drilling campaign. And we will have 16 work over rigs. So it's slightly different. We had planned 14.

And eight have been already mobilized.

And for Papa Terra, our plan is to have a hydraulic rig that has already been commissioned. It is expected to arrive in Q3 of 2023. And this rig specifically will be used at TLWP for dry completion and also a DP, a dynamic position rig. for the wet completion wells to replace the elevation systems. And that will start operating this year. Thank you, Falanga. Thank you, everyone. Our next question comes from Pedro Suarez with BTG Pactual. Mr. Suarez, go ahead. Good day, everyone. Good day. Good afternoon, Matheus, Mauricio, Pizarro. My first question is a follow on question regarding Potiguar. Could you give us some color on what exactly needs to happen in Petrobras after the environmental approval so that the deal can be completed? Because I imagine that given the several M&A's you had with Petrobras, you'll be able to kind of know what are the next stages and steps. I just want to map the risks better. And if you could explain the long stop date, I think it is in October. If you were to write a back case, if the process lags on until then, could both parties review or cancel the deal? And a more straightforward question. Could you elaborate on the earn out provision referring to Ouro Preto acquisition? Could you explain and give us an idea of the potential tax gains that you could extract from these accumulated losses of Ouro Preto? Thank you. Pedro, thank you for the questions. Regarding Potiguar Cluster and the SBA, I think that we have mentioned this a couple of times also in previous earnings conference call. And I stress there is no unilateral exit of Petrobras and there is no breakup fee included. Once the conditions precedent are fulfilled and as Matheus mentioned, we are very close to fulfilling all of them. That's the moment when 3R will make payment to Petrobras in a date agreed upon for the closing. Regarding A and B, normally this is not the critical path, but it is always the last phase. We will not need to wait any longer. We are at a very final phase in terms of the A and P procedures. So what we expect, we are just waiting for the approval from the environmental agencies. And as regards your second question, and thank you for that, because it is an opportunity we get to explain this. We have mentioned this some quarters ago. But let me stress the company when we had the IPO of the company. We also established the old 3R and the Ouro Preto Olho e Gás that was acquired by the same investment funds, which at the time were controlling shareholders of 3R. And now we have a structure, which is a combination of these two two companies, the old 3R and Ouro Preto, and we carried a very positive effect for us, of course, negative for the old controlling shareholders of a tax loss that was quite high, particularly in 3R offshore and also in the subsidiary, which is the concessionaire of the reconquerable cluster assets. So we have a quite relevant volume of tax losses, but the agreement made with the old controlling shareholder. And this was always very explicit in our income statements. And in the past, we also included this in our earnings releases. So we agreed that one third of the use of this tax loss is due to the old controlling shareholder under some conditions. It's not immediate payment. A part of this lump sum sum will be reserved in an escrow account. But if everything goes well, payment will be made and the old controlling shareholder will eventually benefit from that percentage. happened in this past quarter, with the evidence that Perua and Papaterra are in operation in three or offshore and with the evidence that we will definitely have a positive result, we'll start having a deferred EER and this will be positive in our balance sheet and We also have the obligation that was agreed upon with our external auditors that we should also provision for the payment of this rent out. We always include this in our explanatory notes, but since this is now an asset, we have the proportional liability, which is a lot lower than the deferred asset.

Thank you very much.

Thank you, Pizarro. Our next question comes from Mr. Luis Carvalho from UBS. You may proceed, sir. Hello, good afternoon, and thank you for taking my question. If I could go back to that potiguar issue, Matheus, we had some meetings with lawyers that at one point were involved in this process with Petrobras. And then we certainly understand the dynamics. And I know that there are still some documents to be signed by the company, but there is still one S A S A S A S A S A S A S the accounts tribunal, it will be difficult to review that. So the question now is, how do you see a possible change or whether that is in your radar? And as a follow up question, thinking about the worst case scenario, in case the IBAMA license is not issued in the go stop date, what would be the procedure? Would the money be returned in the form of dividends or maybe we think of another acquisition and what will be the cost for the prepayment of these debts in case we get to that point? Well, if you allow me a second question, I know that as you said during your presentation, you're already operating Papa Terra. And probably now I would like to understand what surprised you, be it positively or negatively, because you already talked about the storage tanks, but where do you think your main challenges reside that will lead you to normalize the production going forward? Thank you. Hi, Louise. Good afternoon. And thank you very much for your question. Well, at first I will answer about Pochiguar. As you mentioned yourself, there's a very specific period in the transaction, the SPA. And in addition to the accounts tribunal, any change to that ongoing contract that would have an even greater impact on the regulatory point of view, because all of the endorsements from the pertinent agencies, everything has been issued on behalf of 3R and some licenses have precedent in terms of the industrial assets. So any changes in the period before the closing of the agreement would not work. And I would also emphasize that we do have a contract in effect with a very straightforward period with a long stop date for October. And as for IBAMA, We understand once we look at the evolution, the diligence, and also due to the fact that the licenses are in motion, this particular part related to IBAMA referring to the operating license of Ubarana and the fact that that is part of an asset that is still S A S A S A S A S A S A S A S A S As we monitor the process, we do believe that we are very close to getting all of the licenses. Luis, this is Pizarro now, and I'm here to answer the second part of your question about debt. As a reminder, both obligations to do the funding through debt of the company amounting to $500 million each. They haven't been disbursed. They will be disbursed during Potiguar's closing. This is the agreement with both groups of creditors. Therefore, even though we do not believe in any hypothesis of non-closing of Potiguar, even because we still have some time vis-a-vis the advancement of conditions precedent, we do not envision any other alternative that is not the closing of Potiguar. And without Potiguar, and this is something that I mentioned in previous moments, Without putting where the company will have no debt, our net debt today is close to you know $40 million and if you just consider if you exclude the closing of putting war, the company will be very close to being net cash. And again, the last follow on of the company that brought brought in. S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S A S Speaking about Papa Terra, it's been two and a half months that we are into production. And another relevant aspect refers to the reservoirs. And as our recovery factor is two and a half percent, what we realize when we look at the previous closing and the problems that we have now is that once you close the wells, They return to their original pressure. This is quite important because at the beginning the pressure is quite high and then they reach a stable production of the well. This shows that the volume that we have in the field is very close to the volumes that we calculated. That means that we do have a very good reservoir. We proved that very clearly and I believe that this is quite positive. Another interesting aspect is that we've been working on the operating side and we found some integrity issues which are very common once we take a new S A S A S A S A S A S A S A S what awaits us throughout the year. And also that stoppage that I mentioned in our last meeting is what we will have at the end of the year. And so in terms of integrity, this is part of our plan. There are no major surprises, no negative surprises to us. And on the positive side, we have the closing of the wells that really proves that the volume in our reservoirs are really good. So recovery is underway, even in terms of recovering wells. We have two rigs, one already hired with the forecast to start operating in the third quarter and the pumps should arrive in the third quarter. Therefore, we do not expect any major surprises until the end of the year. Everything is moving according to plan. Luis, just to add something else, this is Pizarro and I also want to make a link with the certification of reserves. When we look at Papa Terra, Before that stoppage, it was producing 17 million barrels. We planned two pump replacements in wells. And the first drilling that I mentioned on a previous moment, which is, A very simplified drilling when compared to starting from scratch, because we we use all of the risers and the subsea lines and we do a sidetrack and we drill precisely in the same direction with the same trajectory of the original well. So these three wells, these two where we will replace the pumps and this third one that we will drill following the same trajectory of the original well. brings on board 10,000 barrels of production. And this was the level of production when the wells stopped producing when they were operated by Petrobras. Also say that when we look at the PDP of Papa Terra and what is proven but not yet in operation, it adds up to 10,000 barrels. So if the operator were to be very focused, I mean, operating that asset for two years, the level of production today would be over 25 or maybe closer to 27 and to 17. Obviously, we didn't have enough time to make all of the work overs and the drilling. All of that is part of our Plan Schedule and we we are doing the best we can to expedite them as much as possible. But all of that just to say that the level of production should be above 25,000 rather than below 20. Thank you. That's very, very clear. Thank you. Thank you, Pizarro. And thank you all. Our next question. comes from Monique Greco from Itaú BBA. You may proceed, ma'am. Hello, everyone. Good afternoon, and thank you for taking my questions. My first question is addressed to Mateus. Mateus, I would like to start by wishing you all the best in your new position. We talked a lot about your short term focus, the focus in the operation, your focus in Portugal. I think this is very clear. I think you are communicating that quite well. But I would also like to know your view about the main challenges of the company in the mid range once You overcome all of these short term goals. How do you see the company going forward after the operation has been consolidated, after your portfolio is consolidated? So how do you see the company in the mid range? And the other question is addressed to Denise. We've been talking a lot about Papa Teja here and we knew and we were already expecting an increase in the company's lifting cost after the incorporation of the field, which is quite natural that this happens every time you get into a new field. But now that production has started and that you already have more clarity about the prospects of the field, could you give us some color on how this lifting cost will evolve going forward? And what about the FPSO's limitation and how can that impact that evolution? How relevant is that in terms of cost dilutions from now on? Thank you.

Hello, Monique. Good afternoon. Thank you for your questions. Well, answering your first question that was addressed to me, our

main goals and midterm goals are pretty much in line with our CapEx planning. First of all, it's important that we have a good structure and asset infrastructure that is capable of being feasible to cope with existing production, not only with existing production, but also incremental production stemming from this, you know, workovers that are part of our capex, you know, validation and also drilling campaigns. So I think this is our main focus in the midterm. And we also talked about reorganizing our structure, optimizing and systematizing our processes so that we can work in a more structured way in all of these projects. we do have a major challenge for 2023 as part of this CAPEX plan. And probably the challenge will be even higher when compared to future years because great part of the structure will be mobilized this year. And this year we are working with what has been previously mobilized in the year before. So for the mid range or midterm, I think that our main focus would be Having an infrastructure that is capable of accommodating our current production and increased production. And indeed, we also want to follow the schedule for workovers and drillings. I would also like to to point out that there might be some alterations and having an integrated overall view of the portfolio. Well, it could happen. Sometimes we may have to take funding from one investment, take, you know, money from one asset and putting in another one, but maybe it would have a better response time or maybe some asset that has better facilities or a better infrastructure. This could probably happen, certainly. But overall, and being very pragmatic, our midterm focus is in following that project schedule according to the company's capex. And if I could add something else, looking at the commercial aspect of the company, In the midterm, we are pursuing, and as I mentioned in my presentation, great part of the contracts that are still in the SPA mode and that are not necessarily the best ones in terms of unit amounts, in terms of oil currents and gas molecules, but great part of them are close to maturity. Some of them we already reached that point. We are already pursuing. I mean, this would be a mid term view. We are now looking for contracts with higher unit values. We already signed one for oil. Approximately 20 to 25 percent higher than the previous contract and our main view on on offshore contracts will be the perennial aspects of the contracts contracts for two three years with more relevant unit values and also better for the company now in regards to gas The same thing applies. I mean, if you look at gas and the balance of gas within the company, we, we have ideal conditions to produce oil being through, you know, steam injection or energy injection, but in the midterm, we look for contracts with an interesting term for a while. We are very close to signing a better contract, a better agreement for the company for a gas with a more interesting term. And these are probably the main aspects, both on the commercial side and also on the operating side. And now I'll turn the floor to Denise to answer the second question. Regarding Papa Terra, during these two last months, we haven't seen any surprise or there were no hiccups that could lead our CAPEX to be different than the plan. We've planned something around $100 to $120 million a year for OPEX and in due time, you know, along the quarters, we will get prepared to receive the field with three producing wells. We already mentioned a fourth well that needs a replacement of the electric cable, and eventually we will also put the fifth well. The first already, I mean, linking to the first part with the first part of your question, we will solve the first part of the tank issue. Some tanks Required cleaning first and then we will do the inspection and replace evolve in the bottom of the tank. I think we will conclude that next month that that first part will be concluded next month. So part of the tank issues will be resolved. So tanking issues can be solved in a short term. And so this will not affect our lifting costs. So with increased production and also considering that a cost of a unit like that is fixed there is no significant increase in cost with increased production. So as we put these wells, you know, between 16 and 17, and as Pizarro was saying, once we reach 25,000 barrels, there will be an interesting lifting gain for the coming months. So I think that it would take about a year, maybe a year from now, just as with other offshore operators, Lifting costs will be high and it will be reduced as we introduce new new wells, so there are no negative surprise surprises in the initial weeks of operation and that's it Okay, thank you, thank you, Denise Thank you my deals.

Our next question is from Leonardo mark on this with Bank of America, Mr Marcus you may begin. Good afternoon. Thank you for taking my questions. My first question has to do with Macau. Did you give us more color on the situation of the water oil separation plants? What are these adjustments that you're assessing through the engineering company and also about the replacement of the pipelines and when can we expect production to normalize? My second question is perhaps a little less conventional. One of the points that were always valued by the market and the company is the level of disclosure with the income statements by cluster that helped us a lot in our modeling and gave us a lot of visibility of land versus actual. But in this last release, You didn't report the information by cluster. You reported only the consolidated income statement and P&L. Why is it that the company decided to provide us with less granularity in the income statement? And how do you think the market should look at the company? Should we look at the company as 3R as a whole? Is it hard to look at cluster by cluster? We just want to get a sense of how to analyze the company. Thank you. All right, so let's divide Macau into four items that explain why we didn't achieve the expected production. The first has to do with the drilling rig. We did not have a drilling rig. The rig is just getting started effectively now. And there will be other drilling rigs arriving along the year. We have one will end the year with five rigs. So we understand that this first item is resolved. It's taken care of. Another item is that in this past quarter, Q4, we worked with two work over rigs. Now we already have four work over rigs on site. So that is another issue that we had that we were not able to solve in Q4. But this problem is behind us. The third point is the pipeline. As mentioned, we had to replace a pipeline. This pipeline was divided into two main exchange moments. One part we exchanged half of it and this is completed. We performed the hydrostatic test and now we are starting to pump, reopen the wells and pump through the pipeline. So part of the production will be resumed. Today and tomorrow we'll start reopening part of the wells. And the fourth and last piece is that re-evaluation of the works. Part of the plant is already operational. 70 or 80% of the plant is operational. And this final part, well, we're doing some analysis. We are making slight, small changes. And by the end of the quarter, we expect to be at full steam operating Macau. So we understand that Macau was a big issue we had. Part of the problem is being resolved, and you will see along the coming months production returning to what was planned at Macau, so we are on our way to resolve the problem is that who. Another Thank you for these two questions now trying to address the second question. The truth is, Leonardo said, unfortunately, we cannot please everyone. We have been getting requests to simplify several investors and even some sell side analysts that found it hard to keep their modeling of the company updated by cluster. Because there are some clusters that are miniscule compared to others, which are huge. Of course, for our scale, I mean. And with that, it was very difficult for some analysts, and that's why we attempted to simplify. We did a benchmark, not only in the Brazilian market, but also looking at independent oil companies with more or less the same size as 3RN. That's why we decided to consolidate information, consolidate the lifting costs and the income statement. as it is typically done by other oil companies. Of course, there are always exceptions. We were an exception. We provided a lot of detail and there's a reason for that because at the time of the IPO, the company had Macau. Macau was in the Belem 35% stake of Pescada and we were still at a very incipient state. Now, Fortunately, we're a company with a pro forma portfolio above 43,000 barrels of oil equivalent daily, with the reserves level above 500 million. In our view, we should no longer report Pescada, Fazenda Belem, Areia Branca, Macau, and so on and so forth separately. So we made an attempt to change. I apologize for that. I believe that there will be a somewhat more complex stage for the sell side to be able to consolidate the information, but we are convinced and hopefully it will feel the same way. The attempt here is to simplify so that both foreign investors and individual investors and our local Brazilian investors, which come from most of our free float, and make a very complete evaluation of the company, but without having to be updating the model every single week. And that was the rationale of this new format of the income statement.

Okay, thank you very much for the answers.

As a reminder, if you want to ask a question live, you can click in the raise hand button. If you want to ask a question in writing, you can click on the Q&A button on the bottom of your screen and you can type your question. Please hold as we collect the questions.

Well, we will get some questions.

written in, well, most of the questions asked via the chat have been answered, but there is a question by Eduardo Tinoco about the value of the breakup fee in Portugal. And Eduardo, what we try to make very clear is that there is no breakup fee in our agreement. There is no unilateral exit of the counterpart Petrobras.

And there is a second question in the Q&A. Let me see. There's a question about Sudan.

And here we always like to stress that our portfolio is well balanced and with several onshore assets located in the northeast that facilitates Power Management, also from the fiscal standpoint, from the tax standpoint. So it's important to note that in the end of the year and beginning of this year, we were able to get Sudeni benefit for Reconcavo and Perua. Although Perua is not in the Northeast, it is included in the Sudeni region. And so we were able to get it. And the positive effect of the company is that We had a 34% tax rate for the production of oil and gas down to income test and social contribution of 15.25%. So 34.15.25%. This is a differential of our portfolio compared with oil companies that operate exclusively in offshore assets. And this is really remembered by many. A comment by our controller. This year we enjoyed a benefit of tax reductions. We know we didn't have to pay a hundred million VRL given the positive effect of Sudene. Although we still had only a part of our portfolio in our operatorship and only a part under Sudene. So in terms of Sydney, I think that we are following the plan by the book and we are. In the subsequent moments of the closing of the assets, we enjoyed this benefit.

Well, I think that we have addressed all of the questions.

So on behalf of the company, I would like to thank you for joining us in this earnings conference call and for your participation. We are working incessantly in both onshore and offshore assets. Mateus and Denise reinforced how asset integrity is absolutely fundamental for 3R. This is the focus of the three of us, not only to have a safe operation, but also so we won't have negative impacts on production. Today, our production capacity given the reservoirs and the existing wells is a lot greater than the production that we've been having in recent months. And we understand that this is totally easy to resolve in the coming months, and that is why we are working hard, focusing in our in-house homework, as Matheus likes to say, focusing on the production of our assets and their integrity and with a capex implementation plan of $320 million. It is a relevant amount of that to be invested in wells, as Matheus mentioned. And as a reminder, looking at 2022 and forward to 2023, the main challenges that we had in 2022 were some delays in the closing and also the implementation of CapEx below what we had planned. and also integrity challenges that we had in production restrictions. But we understand that, of course, no, we haven't been able to solve everything for 2023, but we are starting the year a lot better prepared with rigs commissioned, mobilized, contracts signed, contracts that are not signed and have been mapped. We have the MOU for those in terms of the capex. We're very well prepared for this year. In terms of the facilities, we have advanced a lot. We have overcome our main challenges in Bahia. We have overcome a good part of the challenges in Rio Grande do Norte. And now we have the Papá Terra challenges. And the idea is to improve our uptime, our production, our performance vis-à-vis our capacity. As for the closing of the deals, we have been working with diligence as we mentioned during the call. We don't expect a great variation as we stressed regarding the deadlines for the big putting work cluster. We expect closing for the coming weeks. And with that, I would only like to thank you for joining us and let's have the end of the call. Have a great day. This concludes the conference call at Shreya Petroleum for today. Thank you for your participation and have a good day.