Enauta Participacoes SA

BOVESPA:ENAT3

Earnings Call Transcript 2024-Q1

[Operator]

[Audio Gap]Before we begin the presentation, I would like to make some important announcements. This event is being broadcast live with simultaneous translation into English. The presentation is available for download at Enauta's IR website as well as here on the webcast platform.[Operator Instructions] Before proceeding, let me mention that forward-looking statements that might be made during this conference call relative to Enauta's business perspectives, projections, and operating and financial goals are based on the beliefs and assumptions of Enauta's management and on information currently available to the company. Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or may not occur.Investors should understand that general economic conditions, industry conditions and other operating factors can significantly affect the future performance of Enauta and can cause results to differ materially from those expressed in such forward-looking statements.Today with us, we have our CEO, Decio Oddone; our Chief Financial and Investor Relations Officer, Pedro Medeiros; and our Chief Operating Officer, Carlos Mastrangelo.I would like to turn the floor now to Enauta's management to start the presentation. You may proceed.

[Decio Oddone, executive]

Good morning, everyone. It's a pleasure to have you on board in this video conference call to discuss first quarter results of Enauta. This was a quarter when we started seeing the results of the efforts made by the company to stabilize production of the early production system when we had a solid oil price, which also helped our results. The full development system at Atlanta continues to -- continues.The FPSO Atlanta is arriving at the location. We expect it to arrive in the coming days in Brazil. The installation campaign is about to start to install the subsea equipment. We continue to work for Urugua-Tambau. We continue with the expectation for the closing of these events. Unfortunately, we are having some fluctuation. In the last few months, a lot has been happening at Enauta. And we discussed that business combination with 3R Petroleum. This is still in the due diligence phase.So this is a quarter when we posted solid results. And the expectation is that we will continue to work strongly in the future months so that we can deliver all of the results we have been discussing with our shareholders recently.I'd like to turn the floor to Mastrangelo, our COO, to give us an update on the full development system at Atlanta. Mastrangelo?

[Carlos Mastrangelo, executive]

Thank you, Decio. I'll start with a video, giving you an update on the project. Please run the video. This has been in the news. The FPSO left Dubai on March 15. It's sailing towards Brazil and it's going directly to Atlanta Field. It is expected to arrive at the location on the 11. The FPSO was taking a little longer because it caught a counter current.Here, we see the umbilicals, those lines that control the wells and send power to the bottom of the sea to the seabed to feed the elevation pump. These umbilicals were manufactured by the former Pirelli, the name of the company is Prysmian. The equipment was manufactured in Espirito Santo state. All the material has been delivered on time. It's all being loaded to the vessel to go to the location.Here, we see the arrival of all the flow lines from the [ Baker company ]. The flow lines also arrived at the part at the Triunfo port in Rio de Janeiro. This is the operation of loading the flexible lines and all the necessary lines so we can start production in August. Everything is being loaded onto the vessel.This is a PLEM, a pipeline and manifold. It's a small manifold where the lines interconnect. Our service line is shared between several wells, and we use this manifold. And the operation to bring in from Taubate to Rio took more than 10 days because it blocked the Dutra Highway. So we had very short trips, so it would stop often. And here, we see the manifold being loaded onto the vessel that is going to take it to sea, so that it will be installed in the coming weeks.And just recently -- this photo is the arrival of the installation vessel, Sapura Onix. It arrived on April 23. It's being loaded for inspection by IBAMA. And the FPSO when it arrives at the location, it will be going straight to the field to be connected to the anchoring, which is ready. This is an operation that requires 6 tugboats, 4 tugboats to hold the vessel in position and to connect the lines.This operation is expected to last between 20 and 30 days, and this will happen during the month of May, perhaps stretching to the beginning of June. And then we'll have all activities necessary in place for first oil, which is expected on the original date of the project. In other words, August of this year.Decio, we still have some slides, right? Well, this is the time line. I think you've spoken a little about this.Yes, this is the time line. We are maintaining the date for first oil, no changes since the approval of the project. Now additionally, in this time line that we could add is that we are working with -- we are performing our activities for the FID of Atlanta Phase 2 and for the development of the early production system of Oliva. We already have the companies engaged for Oliva. We've had the kick-off meeting for the base project. And now we're in the phase of fine-tuning this strategy so that we can have the FID or the approval of both projects this year.And why do these 2 simultaneously, because we have synergy and gains of scale, both in terms of drills, the drilling rigs, the drilling activities and the supply of all of the material. And we are still in this space of a transition to close the integration of Urugua and Tambau in our portfolio. So just no news here in terms of deadline. We maintain first oil expected for August. And for this year, we are waiting for the approval of these 2 projects. Decio?

[Decio Oddone, executive]

Thank you, Mastrangelo. In the end of the first quarter, we signed a partnership with Westlawn for 20% interest in Atlanta and Oliva.Please change the slides. It's taking a little longer. Right now you see the slides. We signed a partnership with Westlawn for 20% interest of Atlanta and Oliva. And our goal here was to strengthen our balance sheet and to have a partnership for the next phases of the field. This is our main goal in this deal. This is a company with very seasoned teams, and they will add experience for us in the next phases of Atlanta and especially of Oliva.Next, in the beginning of April, we had a proposal to combine business with 3R Petroleum. Our goal is if this moves forward to create an independent company with scale and diversification of the portfolio. Ours is a business of scale, one in which scale is important to have operating efficiency and particularly cost of capital. And the combination of 3R assets with Enauta's would allow us to create one of the largest and most diversified independent oil and gas companies in the region.In addition, this combination would create a significant amount of synergies, both operating, commercial, financial and capital allocation. And we would create the opportunity of developing new businesses and competitive advantages in a market that we believe will start a consolidation process in the company with a diversified base of shareholders and with enough liquidity to be included in the global indexes. So we see a number of merits in this transaction. And that's why we decided to engage with 3R in this discussion.On the next slide, we see that the combination of the 2 companies would give us a larger, more diversified independent oil and gas company, with a complementary portfolio with onshore and offshore activities that can deal more easily with fluctuations in the oil price and also with different types of activities to develop new reserves and to increase recovery, recovery factor in mature fields. So with a significant level of reserves, it would be a lot greater than the 2 companies isolatedly.And mainly on the next slide, with a portfolio of balanced growth, it is important for an independent oil company to develop a portfolio that is balanced on the whole chain of exploration and production activities, with a strong cash generation, with projects that will give us growth in the short and midterm, and with options in the mid- to long run. So this combination of assets belonging to Enauta and 3R would bring us exactly that a unique combination among Brazilian companies.We have assets which are cash cows already in-house, such as the onshore assets of 3R, Atlanta and Papa-Terra and the acquisitions that Enauta is closing the refining assets. And we have growth with Enauta project and with 3R project. And here, we have the main assets listed. And we have a number of opportunities and options that will allow us to continue to grow along the coming years. So this is a very fortunate combination of assets. It will give us a portfolio with a growth expectation, not only in the short term, but in the mid to long term, which is important to have sustainable profitability for an oil and gas company. This is what this deal would bring us in our view, and this is why we are engaged in this discussion.Here, we have a summary of this deal. We would have the initial exchange, 53% of shareholders of 3R, 47% for the original shareholders of Enauta. This company would issue 2% of shares given the minority share of 15% of 3R Offshore, which is currently with [ Amor Energia ], and we are in the process of due diligence. The process is ongoing, and we have an exclusivity period. The expectation is that the deal will be finalized by June of this year.Next, these are the next steps of the -- after the due diligence, we would finalize the structuring of the deal, and we would submit for approval by the shareholders of both companies. If this is approved, then we would finalize the deal, which would involve approval by the Brazilian Antitrust Agency, CADE. We are now in the process of finalizing the due diligence process.So I end the initial part of the presentation. I turn the floor to our CFO, Pedro Medeiros, who will present the results of the first quarter 2024.

[Pedro Rodrigues de Medeiros, executive]

Thank you, Decio. Thank you, everyone. Thank you, Mastrangelo, for the presentation.Next slide, please. Let me begin the presentation showing the earnings of the first quarter of 2024 with the highlights of the quarter. This quarter showed very consistent results. Atlanta's Field went back to its capacity, close to full capacity of Atlanta's [indiscernible] production system [indiscernible] delivering lower than its potential in the light of market conditions and asset conditions. However, production is relatively similar to the average posted over 2023.So results showing EBITDAX, combined with solid oil prices, like Decio mentioned, of BRL 618 million EBITDAX, a margin around 76%. [indiscernible] that after a long period of net investments, the company delivered free cash flow in light of operating consistency, particularly Atlanta's EPS, and also a very high increase in available cash and cash equivalents, stemming from a corporate agenda not only to support investment in Atlanta's Field, but also invest in the expansion and value generation at the company for other projects.I also highlight adjusted net debt over EBITDA ratio. Our EBITDAX for the last 12 months amounted 0.8x. An annualized -- on an annual basis of the first quarter results, the leverage is around [ 0.5x ], which reflects better production conditions that are very consistent [indiscernible] quarter.Next slide, please. Just very briefly to summarize our results. The main highlight this quarter was resumption of Atlanta's EPS. The company posted total production of around 25,000 barrels per day of oil equivalent this quarter, a recovery after a long time of maintenance -- for maintenance purposes in our loading [indiscernible] production of the EPS or also to improve the [indiscernible] in the early production.And adding to this view about [indiscernible], it's worth underscoring that the company is in the completion phase of the acquisition of a 23% working interest in Parque das Conchas. This transaction has an effective date since August [indiscernible].And on this slide, we are showing potential production net of [indiscernible] is coming from Parque das Conchas. Once the deal is completed, the cash flow stemming from this deal should come to Enauta in light of the deal behind it.Next slide, please. What about production and the [indiscernible] in terms of potential cash generation and also EBITDAX and margin for the company? Really when it comes to Atlanta, we can give you a figure, an image, showing the production delta and what it means in terms of potential revenue [indiscernible]. Please note the company's efforts in terms of diligence and discipline and cash generation when it comes to operation in Atlanta over the last 12 months.And this quarter is very [indiscernible] the bulk of costs associated to [indiscernible]. And now EBITDAX margin in Atlanta is over 75% of average [indiscernible] by the company. On the right-hand side, here, we show only for -- to give an example, so you can understand the potential at stake once we have the production of the new FPSO in Atlanta. The cost base is associated to chartering and also operation and maintenance of the platform, an order of magnitude, which is equivalent to associated costs of the early production system and FPSO.However, production capacity around 50,000 barrels per day. Considering this arrangement of investments led by Enauta in the implementation of this project, Enauta financed part of the FPSO's construction. And part of the funds came back as amortization and payment of interest, and this is shown as potential deduction considering the total operating cost of the field operation once the FPSO is up and running. And we show a potential margin expected in this new unit, which tends to be higher considering that this new platform will be at full capacity.Next slide, please. What about investments? The company maintains a trajectory very similar to what we saw in previous [indiscernible] highlight on the right-hand side, investments to be performed over 2024, particularly related to Atlanta Field and the beginning of potential development and the decision to conclude the investment associated to the early production system in Oliva.The second quarter, we highlight that it becomes more intense as far as investments are concerned, not only concentrating of subsea equipment deliveries and also the beginning of installation and connection of equipment to the platform. We expect investments for the second and third quarter to go through an increase considering the rate or average of the previous quarters. And we expect to remain consistent with the budget approved early in the project in 2022 and also including a broad amount of contingencies. Day after day, we are closer to the execution, and we are convinced that we'll capture these contingencies in Enauta's cash flow.Next slide. When it comes to free cash flow, we recall the posting of this cash flow first quarter in light of Atlanta's operating consistency and solid oil prices, allowing the company to generate $10 million as free cash flow. Please note that this quarter, the company still incurred a significant share related to long-term financing of FPSO Atlanta around $36 million.Investments associated to the acquisition of FPSO Cidade de Santos currently, in Urugua-Tambau field, around $8 million. And considering the trajectory to recover and optimize Atlanta's capacity, the consumption of working capital around $50 million. In all 3 cases, if you look at the next quarters, our expectation is that once we maintain the operating level in Atlanta, our cash consumption would not be associated to these 3 relevant accounts. As a result, potentially, the free cash flow may expand despite the light of higher investment.Next slide, please. When it comes to capital allocation, the company has been doing -- making an effort to continue to expand cash and cash equivalent and short-term liquidity in the balance sheet and also moving forward, our agenda to bring efficiency to the capital allocation process.Here, we highlight cash position around $395 million added by a financing security of long term of FPSO Atlanta of $370 million and a restricted cash position associated to debenture and interest payment in Brazil -- issued in Brazil, an abandonment fund in Manati field around $56 million converted into potential cash and cash equivalent around $850 million.Our efficiency agenda, the company began to give the first steps to replace the abandonment fund at Manati with financial guarantees and collaterals, bringing more efficiency in capital compensation.Number two, we want to capture values associated to government tax in the balance sheet, potentially $17 million. And number three, the first steps to transform long-term credit combined with the operation of FPSO Atlanta with Yinson, and cash and cash equivalent that is more net -- and more net status, bringing more remuneration and compensation of the capital over time. And this partnering process with Westlawn, the company also has a put option of 20% of this long-term credit, $65 million potentially to be exercised over 2024.Next slide. Just to conclude, here, we give you an update, the map of the main events expected at Enauta over 2024. Like we said before, over this conference call, the second quarter, we expect to conclude the due diligence about the integration proposal with 3R, and we might try to bring a proposal to shareholders so we can complete the deal. We expect to start the anchoring system at FPSO Atlanta and connect the new wells to the FPSO in the coming days.And we're also working with a new commercialization agreement with niche oil in Atlanta to be implemented over the second half of the year. We expect that by the third quarter, we will start production of the new FPSO and also conclude acquisitions of Parque das Conchas and partnerships. And finally, by year-end, a decision to invest both in Phase 1 in Oliva and Phase 2 in Atlanta and complete the deal of Urugua-Tambau and the FPSO Parque das Conchas, which is also on the field.So now we can move to the Q&A session.

[Operator]

[Operator Instructions] The first question comes from Leonardo Marcondes with Bank of America.

[Leonardo Marcondes, analyst]

I have 2 brief questions. First question, I would like to better understand what Mastrangelo started speaking, but I'd like to better understand how you've been working with a time line of the process of first oil in the full development system, considering that IBAMA is still striking. We understand that IBAMA would still need to approve a step in the first oil process for the full development system. So I wonder if you could at least give us an estimate of how long, in your mind, IBAMA would take to issue the license so the platform begin or start up once the strike is over.My second question is about your investments made in 3R. It makes a lot of sense considering the merger. But I'd like to know if you could also comment on the rationale behind this strategy. It would be very helpful for us. Well, this is what I had.

[Decio Oddone, executive]

Good morning, Leonardo. Thank you for the questions. IBAMA, Enauta already has the licenses necessary and required for the installation of Atlanta's full development system. This is the license that allows to anchor the vessel in the location. The vessel is about to arrive, like Mastrangelo said. It will be here next week and to install equipment of production in subsea and to connect equipment to the vessel.The missing or the pending license is the operation license. We'll need this license so we can open the wells for production purposes. We expect this to happen in August. Because we already have, well, Atlanta up and running and the emergency plan, which is IBAMA's main concern when the [indiscernible] on production. This is already binding for the early production system. So we believe this process will be relatively fast.IBAMA usually inspects all the vessels that will be up and running in the installation. This is something that is quick. We don't envisage any impact on the time line. And if necessary, both to install the equipment and also for anchoring purposes, we have a leeway in our time line. And IBAMA is not totally idle, it is striking, but it's not idle. Today, we don't see any impact in terms of IBAMA having an impact on Enauta.And what about 3R deal? Pedro, would you mind commenting on this?

[Pedro Rodrigues de Medeiros, executive]

Leo, thank you for the question. Like Decio mentioned, our strategy with 3R involves a broad range of merits. They may be related to the new company's strategic positioning or scale, diversification and also significant synergies that we envisage to acquire in our operations, in terms of capital allocation, commercialization and finance combined to this integration in our mindset.By the way, we show this in a public letter submitted to the company. We envisage synergies amounting to $1 billion, an order of magnitude compatible to the market cap related to each one of the companies right now. Additionally, we expect this combination -- we expect to have a high governance level considering the diversified base of shareholders. And combined with liquidity and potential of growth and return of this company, this can also be related to repricing of assets considering the potential cash flow expected for the last 12 to 24 months.So considering the merits of the transactions, they are very broad. I don't know if your question was specifically about strategies and what we pursue with 3R. Or is there anything more specific that you would like to know?

[Leonardo Marcondes, analyst]

No, I just wanted to have a better understanding of investments already made and that you announced yesterday about 3R. But it's clear.

[Pedro Rodrigues de Medeiros, executive]

Basically, you see a lot of upside in the story as a whole and interesting returns on investment. The company generated free cash flow this quarter considering the strategy building to integrate with 3R. If we think about the strategies designed, we also consider stock to market, and we posted a 3.2% increase in 3R, and it's posted in our cash position and securities in the balance sheet, considering market prices posted in the last day of the first quarter and it's also part of Enauta's strategy in the integration of these businesses. Because we are in the middle of due diligence and final building process, there's not much more we can say right now.

[Operator]

Next question from Bruno Montanari with Morgan Stanley.

[Bruno Montanari, analyst]

I have a couple of questions. First, regarding Atlanta Field. Now that we are getting close to first oil flowing in the full development system, I'd like to hear from you what are the most important stages, perhaps the most challenging and critical ones, the moment that the FPSO is anchored at the location? So what are you focusing on in these first weeks and months?Second question about G&A. I'd like to understand if the level of expenses will remain at this level, with provisions for compensation remaining higher even without a short-term effect on the cash. And a quick third question, if you could elaborate on the strategy about the buyback program? I think you announced, if I'm not mistaken, in the beginning of April. From what we've seen so far, it seems that the company hasn't repurchased any shares. So I'd like to know whether you're thinking of executing this program more towards the end of this time window or is it more price sensitive depending on the share performance.

[Decio Oddone, executive]

Good morning, Bruno. Thank you for the questions. Well, regarding Atlanta Field. As time goes by, as things happen, we'll remove risks from the project. We have the vessel arriving soon. All the equipment for installation has been delivered. The vessels are available. The next steps are installation and preparation of the FPSO for first oil. That's the only part that is missing. Mastrangelo can help me with that. Any comments, Mastrangelo?

[Carlos Mastrangelo, executive]

Well, I think you've summarized it. The critical path now lies in the arrival of the FPSO and then its connection, the installation of the anchoring is all ready. It's just a matter of connecting the vessel.So in terms of the most critical stages, I think it would be the usual business as usual when you have anything starting production. We have to manage what we call carryovers from the shipyard, the remaining activities. There are a number of activities that only happen when the vessel arrives at the location. There are some final inspections for instance. So it's all about managing some pending items and preparing for first oil. And we are on time, on schedule. Our schedule is such that it allows for this kind of management. So we won't have any delays in first oil in August.

[Unknown Executive]

G&A, Bruno, just a comment. After the acquisition of Urugua-Tambau or the decision to acquire Urugua-Tambau, we started preparing to operate the field and the platform. We started seeing along the first quarter of 2024, that there's some additional cost given the hiring of the teams that will work on the project. So this is one of the factors that had an impact on our G&A expenses. More details, I ask Pedro to speak about the buyback program.

[Pedro Rodrigues de Medeiros, executive]

Well, I think your question is very interesting. We have the expectation of a slight increase in the total personnel costs related to the implementation of these projects, as Decio mentioned. In parallel, along the last 12 months, we have been changing the shift and the total compensation of the Enauta employees as part of G&A, privileging variable pay associated to growth targets, profitability, returns, safety and emissions, and long-term compensation more linked to the agenda of value creation to our shareholders. This is reflected in our numbers.In the release, we managed to talk about this transformation of the G&A. And we expect that we will get into a more balanced phase in the coming quarters. Normally, in the second quarter, we pay the short-term annual variable compensation. So this is already provisioned in our numbers. This is part of the annual process of the company. And we don't have any expectations of relevant changes, except an increment in the number -- in our headcount linked to the management of these new projects that are about to be closed -- the new deals that are about to be closed.And as for share buyback, the share buyback strategy is a program that was approved by our Board of Directors. It includes up to 20 million Enauta shares, a base of 7.5% of the capital. Currently, we haven't repurchased any shares given that the execution of the strategy of the company in the last 2 months has been kind of tense, particularly with the proposal -- the public proposal of integration with 3R. We have the expectation of creating value -- adding value and perhaps compensating and remunerating the shareholders through this buyback.I'd like to mention that we have a partner at Atlanta Field in this deal with Westlawn, and they have now -- they have a 20% interest with a minimum payment of $212 million. Implicit value of this deal is higher than the value -- the market value of Enauta in the market. So we have a philosophy of capital allocation when we look at 12 and 24 months that perhaps -- the buyback of shares might be an interesting channel to remunerate our shareholders. But given this proposal of integration with 3R, this program is being revisited daily and in a more opportunistic view in the short term. I think that's all I can say at this point. It's all the extra color you can add at this point.

[Operator]

Next question from Rodrigo Almeida with Santander.

[Rodrigo Reis de Almeida, analyst]

I have 3 points that I'd like to review with you. And I like to go back to FPSO Atlanta. On Slide 15, you showed the difference you're going to have in terms of OpEx, $274 million. And then there's a compensation of $115 million -- an offset of $115 million, which I believe is interest from Yinson. But I believe that those $274 million would be related to chartering and OEM for the platform. So I just would like to understand if there is any additional cost that we should take into account. Looking at Atlanta's cost structure -- actually of FPSO Atlanta, any logistics costs, anything else we should put in the calculation?My second question, I'd like to understand Phase 2 of Atlanta. Mastrangelo mentioned some update on that. So I'd like to understand what we're looking at in terms of your decision making, how many wells in the second phase, parameters of cost per well. And also in Phase 2, we're still talking about Atlanta Field in and of itself? Or are we talking about Atlanta West, Atlanta Northeast? Are we going to new areas of the block?And lastly, I'd like to focus a bit on Oliva and understand if there was any evolution. In the Investor Day in January, you presented a plan, an idea that you would have 2 wells. The Shell development plan that they presented to or submitted to ANP had many more wells, you mentioned just 2. So I'd like to know is the FID closer to Shell's or one that is more cautious with fewer wells. These are my questions.

[Decio Oddone, executive]

Okay. Very briefly, the slide that we showed had the expected cost of FPSO Atlanta and how much would be referring to the financing, $115 million. And there were the operating costs, logistics and other costs. This is exactly what Pedro meant to show on that slide.Yes. I think you understood it well, Rodrigo. The logistics costs associated with FPSO Atlanta are equivalent in order of magnitude to the costs linked to management and operation of Petrojarl 1. The difference in terms of costs is concentrated in chartering operation and maintenance of the units, which we highlighted in the chart for both phases. The EPS, the early production system, and the current contracts for FPSO Atlanta and the $115 million illustrate the potential for interest rates and amortization of the loan for the FPSO -- for the financing of the FPSO and has to do with the cash flow of the company.And Rodrigo, regarding Phase 2 of Atlanta and Oliva, I'll ask Mastrangelo to answer that. But what I can say is that in terms of operating costs, these allow us to have a number of synergies because at the moment, we have Oliva operating, we'll have a significant reduction in operating costs, particularly those related to the vessels. Phase 2 of Oliva has an SBA with 2 wells so that we can get to know the reservoir before we make the decision to have a full development. That's the rationale of having a different project than the one from Shell, which was conceived as a full development.And as Mastrangelo mentioned in the beginning, we are working on both fronts together, Phase 2 of Atlanta and Oliva. The goal being to enjoy gains of synergy in terms of drilling rigs, equipment, purchase, et cetera. But Mastrangelo can add a little more to what I'm saying. Mastrangelo?

[Carlos Mastrangelo, executive]

I apologize, my mic was muted. Well, that's exactly what Decio mentioned. Oliva is going to be a very simple early production system with just 2 wells. So we can do this quickly. We don't have many questions about making decisions. We are not reinventing the wheel. We are using the same specs that we had in the plant, but we can gain speed, implementation time, so we can get to know the reservoir.We are basically working with 2 options, the main one being to relocate Petrojarl from one field to another. We would just extend the life of that unit. You wouldn't have to leave the location so that we can gain time and have the implementation logistics of the project, enjoying synergies between the 2 projects. In the case of Atlanta Phase 2, we are, as we speak, making a decision regarding the pumping system and number of wells. We're considering 2 to 3 wells.But to answer your question, yes, we will have a well in the new Northeast area and it will be connected to the system. Well, the necessary investment at Atlanta is minimum because it's all adapted to receive these new risers, there is no pre-investment in the unit that is arriving in addition to what was included and planned in Phase 1. And the synergy, the fact that we have the 2 projects in parallel that will give us a lot in terms of hiring people, deliveries, installation, logistics, the drilling campaign. And this is our proposal.As of middle of the year, we want to have letters of intent to retain critical equipment. Our process of licensing for Oliva has been started. We are finalizing the studies to submit the whole project. So in a nutshell, Oliva would be an EPS, early production system. And for Atlanta, we are deciding on the number of wells and connections so that we can start implementing Phase 2 after Phase 1.

[Rodrigo Reis de Almeida, analyst]

If I can have a follow-up question regarding Oliva. You said you don't have to leave location. It would extend the useful life or the life span of the unit. How does this fit that slide that talks about the decommissioning of Petrojarl. You wouldn't decommission it? Is that it? How does that work?

[Unknown Executive]

It wouldn't be decommissioned, it would be relocated. Once we have the FID, the only decommissioning we would have would be of the risers because those would be moved to Atlanta. But leaving Atlanta Field and remobilizing in Oliva Field. Oliva is about 22 kilometers away from Atlanta. Well, that would be just an extension of the life span of the unit for a few more years. We would need to acquire a new anchoring system at the new field. And we would just move the unit from one location to another. We would be just relocating Petrojarl. As long as we have the FID, this would no longer be decommissioning, it would be turned into remobilization to Oliva.

[Operator]

Next question, Luiz Carvalho with UBS.

[Luiz Carvalho, analyst]

If I may, I have 3 questions. First question is about the possible deal with 3R. I would like to better understand how you envisage if the fair lockup of shareholders and management after the deal, if this is already set. And I would also like to know more about the recent news about a possible [ default ] of the partner in Papa-Terra, if it could imply any type of adjustments to the exchange ratio between the companies in this deal?Second question is about Parque das Conchas. You recently made an acquisition there. However, I would like to better understand if it makes sense, if there is room in the balance sheet to further negotiate 27% of Indiana, which is also a partner in the [ consortion ].And lastly, I would say, the more [indiscernible]. I wonder if you could also comment, there is a slide where you show what's new on the horizon investment-wise. You have marketing and maybe it stems from midstream and downstream in 3R with a combination of the companies. So I wonder if you comment on your mindset. What is your mindset in terms of diversification? It would be interesting to hear more about it.

[Decio Oddone, executive]

Good morning, Luiz. When it comes to the deal with 3R, I apologize, but we prefer to stick to the due diligence process and conclude it before we make any further comments. So I apologize. I don't think it's the right timing. First, we have to do what we have to do.As for Parque das Conchas, we are focusing our efforts on concluding the deal, the transaction. We have no further goals other than that. So we are prioritizing completing the deal, and then we will plan the next steps in the consortium.As for gas and energy, you talked about this conception of additional business and particularly 3R assets. But not only that, we have Manati, Urugua, Tambau. We have a significant position in the gas business. If the deal with 3R becomes concrete, it will become more simple. We are already positioned as Enauta in the main Brazilian markets. In the Southeast, Urugua-Tambau and in the Northeast with Manati gas, so it brings a lot of opportunities. But the combination with 3R would simplify the potential of the business.Pedro is in charge of that. So I'll ask Pedro to give you more color. But I would say that our plans for gas and energy are not related to 3R deal. It would only come and strengthen and become more robust once the deal happens.

[Pedro Rodrigues de Medeiros, executive]

Thank you for the question, Luiz. It's worth highlighting on that slide about the portfolio. We added this vertical because we believe it is a special merit with the transaction. When it comes to natural gas, it's important to show the combination of both companies. It implies the creation of a player in the integrated system, shown among the top 3 to 5 producers of natural gas with the differential vis-a-vis the average of most companies because there is a significant part of this gas that is associated or produced from nonassociated fields, almost exclusively producing natural gas.So this composition allows us to move forward in some aspects of the natural gas and energy chain with our point of uniqueness. So considering the merits of the deal with 3R, we also consider expanding the scope of performance in this business area. We already have things underway in light of the deal and the acquisition of Urugua-Tambau and also considering the journey, we expect Manati field to be along this journey for the next 3 to 5 years.And additionally, as you said, 3R counts today with industrial assets and terminal assets with strategic positioning, and this is very important in the Brazilian scenario in terms of supplies and also the capacity and ability to expand its operations. So this is all part of the merits of the deal. But like Decio said before, first, we want to conclude the deal and only later, we will tell you more about the strategy.

[Operator]

Next question, Eric de Mello with Itau.

[Eric de Mello, analyst]

Can you hear me now?

[Unknown Executive]

Yes, we can hear you.

[Eric de Mello, analyst]

Well, 2 questions, brief questions. Firstly, I would like to explore oil commercialization, try to understand what is the ideal format in your mindset, and also how this new format fits this integration with 3R.And the second part of the question is about Parque das Conchas. Luiz already brought this discussion to the fore. But as we [indiscernible] closer to the closing phase in the third quarter, how can you consider the production and investment curve in the field for the next years to understand the asset cash basis? It would be really helpful.

[Decio Oddone, executive]

Thank you, Eric. Commercialization, I want Pedro to answer the question. He's in charge of that at Enauta. We talked about a discussion for the next steps for commercialization at Atlanta, and I think Pedro can give you more information as well.

[Pedro Rodrigues de Medeiros, executive]

Good morning, Eric. Thank you for the question. Atlanta's oil, just as oil in Parque das Conchas, they share their performance in a niche market. Both oils are recurring suppliers for a low sulfur content maritime fuel market. And this market over the years has been showing significant premium compared to oil prices or Brent oil prices, for instance. Our vision is that the arrival of FPSO Atlanta brings logistics attributes way superior to what we had in Atlanta's early production system. And they include the fact that FPSO Atlanta was designed on top of a whole LCC and the storage capacity is around 1.6 million barrels.The result is the capacity to react to market cycles and also to meet the needs of the final market in a more efficient and assertive manner compared to what the company could do in the past with operations via FPSO Petrojarl.Number two, our expectation is not only to have higher flow rate, but also operating consistency way above what we had before in the early production system, simply due to the fact how the projects were designed and also the nature of the equipment that is being implemented in the new FPSO. So for commercialization purposes for this niche oil, unlike the past, I believe Enauta will be more and more exposed to the cyclic effects of this premium price of low sulfur content maritime fuel rather than just setting a price for a long time frame because now Enauta will have a better capacity to withstand these cycles, owing to a better capacity of storage in the platform.When we combine all that with our working interest in Parque das Conchas, which is also active in the same niche market, we believe it makes more sense to develop a commercialization solution that is more associated to flexible activities for the market. When it comes to the combination and the deal with 3R, 3R also goes through a journey to recover the integrity of Papa-Terra's platform. Considering the attributes of this trajectory, it considers a broader capacity in the platform. And 3R currently delivers a reasonable volume of low sulfur content fuel through the production flowing in Potiguar port.Both cases bring significant synergies, be it commercially to meet the markets and also considering logistics flexibility, the storage and the geographical positions of these assets. And we are building a strategy considering what Atlanta and Parque das Conchas already represent and what might be added with [ 3R ] interest as well. So I hope I've answered your question within the limits of what we can share today.Eric, when it comes to Parque das Conchas, their production information is public data on the wells, 3 or 4 days of delay. So the whole production since the closing date or the signing better saying, the effective date, which was July 1 last year, this information is public. As for the future, because we are not in the consortium yet, I'd rather be silent. And in the consortium level, we will have discussions with the partners to set the time line, investments and priorities down the road. But for the moment, it's too early to say anything.

[Operator]

Next question from Gabriel Barra with Citi.

[Gabriel Coelho Barra, analyst]

Hello, can you hear me? Hello. Can you hear me?

[Decio Oddone, executive]

Yes, we can go ahead.

[Gabriel Coelho Barra, analyst]

Great, great. I think a good part of my questions have been answered. My last point would be related to the partnership with Westlawn. I think that the company has that -- has explained this move. But my point, what I'd like to understand more about it is the reason of this partnership with Westlawn looking forward. So we had the first partnership at Atlanta. But I want to be very brief in my question.Should we expect a greater move in the future? Is this just a first move with Westlawn? And perhaps, are you thinking about more partnership in the other fields? Could we expect a greater partnership with them in the future? And how do you see their arrival in the group? That's what I would like to know more about.

[Decio Oddone, executive]

Well, Gabriel, the tradition in our industry is that in order to diversify risks and to allow us to operate in more projects and to allow for a richer discussion and decision making in the consortia that the main oilfields be shared. That's a tradition. If you look at a global reference, a consortium with 2 or 3 companies in one field in development such as Atlanta Field is only natural. So much so that the original project of Atlanta at the very beginning used to be Petrobras and then Chevron and Shell. Enauta became the operator with 30%, Baha Energy with 30% working interest and OGX with 40% stake.Given the default of OGX that led to an arbitration process, that ended with Enauta holding 100% working interest of the field. Well, that was atypical for a project this big. If you look at Parque das Conchas, it was Shell Qatar and now it's Enauta and NGX -- NGC actually. So the reason of having partners on board is a common idea, normal, desirable approach in the industry.In prior calls, we discussed this, the fact that we had a concentrated portfolio basically on Atlanta and Manati in its final phase of life. So attracting our partner is desirable usually. What does this deal bring us? What strengthen our balance sheet? It brings a partner that can add knowledge in the future stages of the field and of the fields because now we have Oliva as part of the same Atlanta contract. I'd like to remind you that Oliva is going to be a pilot project for us so that we can get to know the reservoir.Our partnership with a company called Salamander that used to be -- that used to belong to Shell that is specialized in heavy oilfields. So I guess then they can add value, resources, knowledge and they will reduce risks, and it's all very desirable in this type of project.Now based on this initial partnership, whether we're going to evolve to other deals? Well, we have to wait and see. That's a market that is always changing a lot. We always have opportunities to make moves. Oftentimes these moves are taken in partnership. A lot of deals involve partnerships, and having a company with the profile of executives of Westlawn with their ability and their financial capability, that's great for us. It gives us options. That's the rationale.

[Operator]

The Q&A session is ended. I'd like to turn the floor to the CEO, Decio Oddone, for his final statements.

[Decio Oddone, executive]

Well, thank you very much for joining us, for your questions, for this great interaction. We see that this was quite a full of news, good news for Enauta. And we hope to have you on board again in our next earnings call in the beginning of August so that we can bring you more tangible news about everything we've discussed here today. Thank you very much and I will see you then.

[Operator]

Enauta's video conference call has come to an end. Thank you very much for your participation, and have a great day.[Statements in English on this transcript were spoken by an interpreter present on the live call.]