Petro Rio SA

BOVESPA:PRIO3

Earnings Call Transcript 2021-Q4

[Jose Costa, executive]

Hi, everyone. Welcome to PetroRio's Conference Call to discuss fourth quarter and 2021 results. I am Jose Costa, IR and Treasury Manager of PetroRio, and I'll be hosting this event.

For those of you who wants to follow us in English. a free translation of the presentation is available on the PetroRio IR website. We also have an interpreter for simultaneous translation. Please choose a sound channel icon on the bottom of your Zoom screen. The presentation and comments on the results will be presented by Roberto Monteiro, CEO, Milton Salgado, CFO; and Francilmar Fernandes, COO. They will present the company's results and will then be available during the Q&A. [Operator Instructions] This event will be recorded and will be available on PetroRio's Investor Relations website.

Before proceeding, let me mention that forward-looking statements that I may make during this conference call relative to the company's business perspectives, projections and operating and financial goals are based on the beliefs and assumptions of the management of the company and information currently available.

Forward-looking statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they relate to future events and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may also affect the future results of PetroRio and could cause results to differ materially from those expressed in such forward-looking statements.

Now we'll start the presentation with Roberto Monteiro, our CEO.

[Roberto Monteiro, executive]

Good day, everyone. Thank you very much for joining us today and for taking time to participate in PetroRio's Conference Call to discuss fourth quarter and full year 2021 results.

Well, before anything, I would like to start this meeting once again with a big thank you to PetroRio's team for another good year. 2021 was a year of many achievements of record marks and none of that would have been possible without our people, without the PetroRio team.

Well, talking about record marks, I believe we have quite a few, which I could list here. The first of all is our revenue. Our net revenue totaled BRL 4.4 billion. Second highlight, our net income of BRL 1.3 billion. Our adjusted EBITDA was BRL 2.9 billion. Production with a 11 million barrels along the year. And what makes us particularly proud is our lifting cost.

In the fourth quarter of 2021, lifting cost was $11.8. We still see room for improvement, but what makes us really proud is that it would have been able to improve this indicator quarter-after-quarter. And what is behind all that, behind those record marks are tangible and palpable things which we find important to remember always, i.e., the connection between Polvo and Tubarão Martelo, TBMT, the famous tieback.

Well #10 at TBMT that started production in the second half of the year. All the workovers that were required in some of the wells, which 1 way or another caused some disturbance. But these issues were solved along the year. And lastly, our follow-on and the debt that we issued, the bond, which were solutions we found to access the capital market, both fixed income and equity markets.

Now moving to the next slide. I'd like to consider -- I'd like you to consider the 4 graphs on the slide. I would like you to focus on the top 2. They attest to our reduction in lifting costs and our production. That is the foundation of everything. This is what makes us what we are as a company, and this is driven by the people in our team.

This low and controlled lifting cost and this controlled and growing production led us to a very sustainable cash position into this level of leverage, which is very well under control. All of that sets the stage and prepares the company for our next cycle of growth, which, in our opinion, will come soon.

Thank you very much. And I will now turn the floor to Francilmar, who will speak a little about our operational data in more detail. Then Milton will speak about the financials, and I'll be back in the end to speak about the next steps.

[Francilmar Fernandes, executive]

Hello, everyone. Thank you, Roberto. Let's start on Slide 5 for an update on the operation of our assets. This slide brings a big summary of the assets, and we'll focus on the production piece.

We've been working hard to try and improve efficiency at the fields and their production, so that will get more appropriate results at the end of the day. So to detail the lifting cost in Q4, we managed to cross the mark and be under $12 per barrel. And this stems from increased production, we improved basically all the numbers as well as lower costs.

Please go to Slide 6 where I can give you more detail, mainly about the lifting cost. We can see on the top left-hand corner, this graph that we usually show and have been following. In Q4, we achieved $11.8 per barrel, the lowest ever until today, and I hope we can improve even more. Obviously, the tieback between TBMT and Polvo-A contributed the most for that. We were able to eliminate the cost of the vessel. We used to pay for its lease and operation around $15 million a year. And there were a number of other smaller costs that supported that asset.

But this is the biggest indicator of our operation. In other words, how we can produce at the lowest cost possible. That's how the company protects itself against the market volatility and external threats. So linked to cost reduction along Q4, we had the start of production of well #10 at TBMT as well as resumed production at TBMT wells #2 and 8. That helped increase production a lot as this cluster, which in turn contributed quite a lot to reduce the lifting cost as a whole.

Now let's go to Slide 7, here I'll speak a little more about the operating performance of Frade Field. In the fourth quarter, there was a slight reduction in performance. As we can see in this chart that shows operating efficiency, which was 94.8%, almost 95%. This was due to a problem that we had in the automation and control system of the FPSO at Frade.

So we had about 3 days of downtime to solve the issue. That is linked to the fact that we have old and obsolete equipment that we repaired as an emergency basis to bring it back online, back to operation. And a lot is being replaced so we can ensure greater reliability for the asset as regards this specific item.

Other than that, the asset performed as usual for the vessel working really well. No problem whatsoever. And the vessel is now getting ready for the revitalization of Frade, which I will explain on the next slide, but there is a part of the vessel that is preparing for both water injection and to receive production as well as for control systems.

Moving to Slide 8, I'll give you an overview of the Frade Revitalization Plan. This is the big project of the company this year. We are focused on having that working as quickly as possible. As you have all seen, the schematic on the top left-hand corner, with a lateral view of the field.

In this first phase, we will drill 3 wells, 2 production wells and 1 injection well, actually, it's the other way around 2 injection wells and 1 production well. We'll start with a production well now in the end of Q1. That's the plan. Then there is a second phase with 3 production wells and 1 injection well. We are working hard to optimize this ratio according to the budget approved for the year.

So more to come on about that.

The development plan has already been approved by ANP. We have everything in terms of the schedule of third-party contractors, all equipment and materials needed. In terms of environmental licensing, we are at the final stage with just some final clarification requested by the environmental agency. I don't believe that there will be a problem. There is no indication of that. We should receive a green light in the coming weeks.

One important point about the drilling rig NORBE VI it is still operating at Petrobras. It is operating at 1 last well over there. There were some operational delays. But as soon as she leaves this, she will be taken to the port for maintenance, and then she will come to our well. This might impact a little our schedule, but all according to plan.

On Slide 9, we'll speak more about the Polvo and TBMT cluster. Now this cluster went through a great transformation this year. We completed the tieback between Polvo-A platform and FPSO Bravo in July. After that, we could see a clear improvement in operating efficiency. The vessel, as we can see on the bottom right, we see that with FPSO Bravo there is very high operating efficiency close to 100%.

Indeed, the vessel operates really well under the leadership of the PetroRio team that is making a benchmark out of this vessel. And Polvo-A platform follows the same path we have been improving month after month, and both are extremely reliable. We had a bigger impact caused by wells at TBMT, which failed particularly along the second half of the year, which impacted performance. I'd like to remind you that here at PetroRio, we look at operating efficiency as the ratio between production planned and expected and actual production and we include the part related to wells and subsea systems in that calculation.

So we see that in Q4, there was some improvement as these wells resumed production. On the left, in the highlights, we can see that well to TBMT #8 resumed production, and so did well TBMT 2. And we had completion of well #10. And all of that translates into new oil in the system. Here, it is worth highlighting that the arrival of the Kingmaker drilling rig, its addition to our fleet helped improve performance a lot.

If we did not have this rig operated by ourselves, owned by us, we would need to commission a drilling rig abroad. It would take several months with different commercial conditions that would impact both the cost and production. So this drilling rig proved to be a great addition. So these negative points, these production shutdowns did impact our efficiency a little, but these issues have been solved. The last pending item was well #44 at TBMT, which failed in the beginning of December. All were failed ESP pumps. I'd like to remind you that these wells have never failed since the beginning of production, all of them operating for around 7 years.

Well 44 resumed production in mid-January posting already the very best performance in the year already with PetroRio operating with the Kingmaker rig. So this is a world that we worked on in the less than 2 months following this process of continuous improvement, which we constantly seek in our operations. So that's it, the field is doing well, and we expect it to improve even further in the coming quarters.

On Slide 10, I'll give you an update on Wahoo Field. We had the declaration of commerciality in December of 2021. And with that, the evaluation process of the development plan continues at ANP. As for the technical part, we started to [ feed ] from the end engineering design in the end of last year, and we expect to finish it in the coming weeks by the end of this month or beginning of March.

And with that, we will move ahead with the process to send out requests for proposal for all services and materials. We have started negotiating with vendors for all items that we could commission, particularly the main bigger items that take longer to be delivered.

The next steps are to have approval of the development plan. And when we get a green light, we should proceed with the acquisition of equipment and services, particularly for the tieback which requires longer delivery time. Then we will move ahead with the execution of the drilling process and installation of subsea systems and then we expect first oil to flow in 2024 as initially predicted.

And with that, I end my part, and I would like to stress that 2021 was an extremely important and challenging year, but the PetroRio team showed competence, grit and responded quite well. Even with COVID and all challenges in the supply chain, we were able to execute and deliver great projects and to keep focusing on efficiency of the fields, delivering great numbers with an excellent safety track record. No accidents. No environmental incidents. All of that prepares the company to embrace the new challenges that will come soon. Thank you very much. I'll turn the floor to Milton.

[Milton Rangel, executive]

Thank you, Francilmar. Good afternoon, everyone. To continue our presentation. More specifically on Slide 11, we'll speak a little bit about our financial performance, highlighting that Q4 was indeed an incredible quarter for the company. We sold 3.8 million barrels, almost 4 million barrels at an average price higher than $83 per barrel. That contributed to a very strong quarterly result, with total revenue of almost BRL 1.8 billion in adjusted EBITDA which is the EBITDA that excludes nonrecurring and nonoperating results of around BRL 1.2 billion with a margin of 69%, a very significant margin.

And naturally, all of that contributed for us to boost a net income of almost BRL 900 million. So in other words, a quarter that doesn't really require more explanation. This was a very positive and sound result. This naturally drove a very positive full year 2021 result. It was basically the very best year in the history of PetroRio. We were able to achieve revenues of about BRL 4.4 billion. Adjusted EBITDA was around BRL 2.8 billion, almost BRL 3 billion with a 65% margin with total net income of around BRL 1.3 billion.

So I guess that these numbers -- well, I guess they kind of speak for themselves. Comparing with 2020, I'd like to remind you that 2020 was a year strongly affected by COVID. The average sales price in 2020 was $41 per barrel. We sold 9 million barrels. While in 2021, we sold 11 million barrels. So we were very much helped by both increased sales and higher brent prices as well as cost reductions as presented before.

The lifting cost that naturally contributed very positively to our results. Now moving to the next slide, Slide 12. On the left graph, we show the average duration of the company's debt. After the issuance of our bond, the average duration of our debt reached a level above 4 years. I'd like to remind you that ours is a 5-year bond maturing in 2026.

And this increased marginally because of the amortization of some working capital debt with a shorter duration that we still had, and we settled these loans in the end of the year.

On the right-hand corner of the slide, the chart shows our amortization schedule, which basically consists of the bond as the only remaining debt, $600 million with a cash position of about $830 million, $840 million. And we have to remember that many of our offtakes that happened in Q4, happened in December, and we are paid on average after 30 days.

So we still have significant accounts receivable, which reinforces even further our cash position. Now moving to the next slide, Slide 13. We can understand the variation of the company's net cash today at around $230 million. If we start analyzing since Q3 2021, we had adjusted EBITDA of about $220 million, then we had payment of Wahoo, which is the budget that we had set aside for acquisitions of the stakes we have in Wahoo. Then working capital, which is exactly the effect of those accounts receivable, which are quite significant.

CapEx. Here, this includes completion of TBMT well #10 and the final decommissioning of FPSO Polvo. Then Tuscany and TAC, which is basically payment of a court lawsuit involving Tuscany and the final portion of the Frade TAC and financial results mainly related to bond interest and taxes paid in the quarter.

And with that, we ended up with a net cash of $231 million. Now moving on to Slide 14. This is the evolution of our net cash. Our net debt over EBITDA ratio. This is a very important metric that we follow up close, also because of our bond covenants. What we can see is that since the company maintains a net cash position, our debt over EBITDA ratio is negative with a very sound cash balance, a net cash of BRL 1.3 billion. And basically, in a nutshell, we are very deleveraged company and 1 that is prepared to grow and prepared to make room for more debt in a healthy way in our balance sheet to help us eventually make future acquisitions.

This slide summarizes the financial health of the current PetroRio.

With that, I turn the floor back to Roberto for his final comments, and I wish you a great rest of day.

[Roberto Monteiro, executive]

Thank you very much, Milton. I'll speak about the next steps for the company. And then we will start the question-and-answer session. Well, we try to list here the next steps for 2022, what the year should be like? As always, we'll maintain a continuous focus on the safety and health of our staff and third-party contractors.

The return to society. All of that is the foundation the respect for the environment, all of that is the foundation for PetroRio. In addition to that, we have more tangible and operational things that we need to perform during the year. I'd say that the first 1 is operating stability in the Polvo TBMT cluster. I think that the tieback went very well and so did all the workovers that we did last year.

But we have many small issues that happened and were solved. I believe that the main challenge for us in 2022 is to maintain operating stability at the cluster. December was a lot more stable. January was a very stable month as well. And February has been a very stable month so far. So I believe that we are getting to the point that we consider to be ideal.

Another important point for this year is the start of drilling at Frade, the revitalization campaign for Frade. We expect to begin some time in the month of March. I believe that we have all of the elements in place to start drilling. Another important point is to go forward with the Wahoo development plan. We declared commerciality in December and we submitted the development plan. And now we are in the phase of approval of this development plan by the agency, by ANP.

Another very important point for 2022, which will require a lot of focus for the company. A lot of focus by many areas of the company is Albacora and Albacora Leste. As we have mentioned in the past, we were selected by Petrobras as preferred bidders, and we are currently in a negotiation phase for the contracts, and we expect to complete these 2 deals.

After the deals are complete, we have to move forward to work on the funding so that we can develop these 2 fields so that we can get these 2 fields, which would be 2 transformational opportunities for the company. And lastly, as we always stress a focus on inorganic growth through M&A opportunities. Having said that, I believe that 2022 will have a great concentration of efforts on Albacora and Albacora Leste. These are the next steps for 2022.

There aren't too many, but they are all very important. With that, I would like to open the floor to questions. But before that, I would like to once again thank all of you for joining us today. All of you, fixed income investors and equity investors because you have believed in us and you have supported us all along. So thank you. And a big thank you goes to all PetroRio employees, as I said in the beginning. Thank you very much.

[Operator]

[Operator Instructions] Christian Audi with Santander.

[Christian Audi, analyst]

Thank you, Zack. Can you all hear me? .

[Roberto Monteiro, executive]

Christian, how are you.

[Christian Audi, analyst]

Hello, everyone, Francilmar, Milton, Roberto all of you. To start. Congratulations. I know that you've been working hard and you've worked hard in 2021. So congratulations Roberto and all of your team. I have 3 blocks of questions, operational questions, leverage and M&A.

In the operational part very quickly. Again congratulations on the lifting cost. What else can you do to lower the lifting cost even further under $11.8 per barrel. As for Frade, getting to what you commented the second phase of 3 production wells and 1 injection well, when would be the timing for that -- for those to be drilled? And finally, as regards to Wahoo, what is your expectation regarding when ANP will approve the development plan?

Now regarding leverage. Given positive financial situation that you have, I just want to get a sense of the firepower that you have. If the assumption is that you only take debt to enjoy new M&A opportunities. What do you intend to do? And finally, regarding M&A, I know how better you are limited in terms of what you can say about Albacora. But I'm curious, in case you're successful, when can you have access? And when can you start operating these blocks? When would you start posting EBITDA from the company?

[Francilmar Fernandes, executive]

Thank you, Christian. I'm not sure I'm going to remember all of the questions, okay? If I forget something, please remind me. Well, let's start with the lifting cost. You asked what else we can do to reduce the lifting cost, right?

[Roberto Monteiro, executive]

Well, Francilmar -- I'm sorry, I'll start answering that, okay. Well, the first thing we need to do for the lifting cost and something that is happening now. As you will remember that in the past, we said that after the tieback between Polvo and TBMT, there was still a pending item to be executed regarding a gas compressor in the TBMT FPSO, so that we could start branding more gas and less diesel.

Our PFSO all along last year at Tubarão Martelo, TBMT, was mainly powered by diesel and now in January, beginning of January, we were able to end this project. We commissioned a gas compressor that is more adequate for the FPSO. And now in February, we are already burning gas. So we were primarily working with diesel, and now we are working primarily with gas.

I don't want to give you any guidance at this point, but I think that we are going to reduce a lot of cubic meters of diesel consumption FPSO. So that is 1 thing. Another thing that is going to work in our favor is drilling at Frade. Our expectation is to add 6,000 barrels a day when Frade is finally online, and that's going to help. So for this year, I believe that these would be the 2 most important points to reduce the lifting cost even more.

In the past, we said that we could get to a range of $10 to $12. We are at $11.8 per barrel. So I think that we should try to be conservative, but we should try to get a number closer to $11, have something even better than that when Frade is online. So there are still things to do. Of course, the decline of the fields will always speak against us, but we have at least these 2 important points to be executed.

Now what was the next question, Christian?

[Christian Audi, analyst]

It was -- well, you said about the injection and production wells that potentially will start operating in March. So my question would be regarding the other blocks of wells and when it would be drilled.

[Roberto Monteiro, executive]

This will depend on what we'll do regarding Albacora. We have finite resources, particularly the drilling rig. If we didn't have Albacora we would be drilling Frade, then have the development of Wahoo and then go back to Frade -- and go back to Frade with a little more information, particularly regarding water injection. Mostly a little time after you run the first campaigns to adjust geological models and so on and so forth to revalidate everything that you do or all of your assumptions.

So that would be our plan. Now of course, when we have Albacora in the picture. We'll have the limitation of the rig. We will always try to allocate the rig where it will bring us the best return. We always move from the top return to the lowest return.

So if you consider Frade and Albacora. If we complete the deal, then we can put wells to production, and they will yield more than the wells at Frade. So that would probably be a priority. So then really the -- the answer really depends on Albacora. If we didn't have Albacora, it would be soon after Wahoo.

[Christian Audi, analyst]

And my question regarding Wahoo was when do you think ANP will be approving the development plan?

[Roberto Monteiro, executive]

Emiliano is a person who can speak about that, but we're thinking about 8 months. We're thinking 6 to 8 months. In less than 8 months, it's going to be difficult. This is the time it takes on average for them to approve the development -- development plan.

We submitted our development plan. So it will be approved sometime along this year, more towards Q4 of this year. And it's basically hit. But everything moves forward in parallel, you don't have necessarily to have the plan approved to do things. We can start buying the long lead items and we started working on the environmental license.

We have that term of reference, the TFR have the term of reference and then you have to ask for environmental license and so on and so forth, you have the environmental impact study. And all of that is moving ahead so that we can start drilling in 2023.

[Christian Audi, analyst]

Excellent. And about leverage, my question was you've always maintained a very strict financial discipline. So what kind of loan, what kind of debt do you think you can take on maintaining this financial discipline?

[Roberto Monteiro, executive]

Well, today, if we consider Albacora, if we'll bring Albacora to the company, if you think about a scenario where we can only resort to debt. But I think that we can raise something close to $1 billion. It's basically the EBITDA generated by Albacora. So if we think we're going to buy a new project, and I'm going to link it to onetime the EBITDA, I mean, it doesn't seem like the end of the world.

So that's kind of a ballpark figure. And sometimes people ask yes. You're in a corner now because you need to go to the equity market anyway. It's not really so though. Our initial plan is to access the equity market and the debt market for Albacora. We believe we'll need a funding close to $1.6 billion, $1.7 billion divided between debt and equity.

And what we can do is get Wahoo push it forward a little bit. If we don't think that the equity market is right that the share price is not right. We can throw it to push it a little forward, and we can do Albacora with that and the company will remain very healthy.

With a net debt over EBITDA ratio of 1.5% or close to 1.5%. And that makes me really comfortable -- makes me really comfortable to manage the company with that level of leverage. And it also a leverage that falls quickly because Albacora and the whole company are cash cows. So perhaps we'll have 2 quarters had net debt over EBITDA ratio of 1.5% doesn't seem like the end of the world.

[Christian Audi, analyst]

Excellent. And my last question was regarding Albacora. If you were successful in the deal, when do you think you'll start operating the asset, and you'll start having EBITDA generated.

[Roberto Monteiro, executive]

EBIT that's been generated after approval by ANP. So -- let's suppose that we can sign the deal in March, or April of this year, May of course, this is a gross estimate because it really depends on Petrobras. We're still in the negotiation phase. So please do not use that indication as a guidance because there are adjustments to be made. But these processes tend to take about 9 months to be approved. We've seen faster. In our case, the faster deal was TBMT.

We had TBMT in 6 months. It was the fastest deal. So we cannot really ensure all rest assured by your end, we don't know. It is a long process. Try to talk about a year end to get 30% stake of Frade. So on average, 9 months, of course. We'll spare no effort to have this approved as quickly as possible. But there are -- there is the ANP time frame.

[Operator]

Our next question comes from Tasso Vasconcellos with UBS.

[Tasso Vasconcellos, analyst]

Congratulations on the excellent result. Going back to Albacora with a follow-up question. You kind of talked a little about that, but we have heard that Petrobras could eventually reassess things and consider a possibility to reprice the asset considering the higher brent oil price.

So I'd like to understand, of course, considering why you can't disclose to us. What about the conversations with Petrobras? Are they unfolding as expected? Are you running into difficulties? Can you give us an update on that?

And my second question regarding arbitration of Wahoo there were a problem with IBV. What is the estimated timing for the end of the process? And what are the alternatives? Are you thinking of taking over the full project? If you could give us some color regarding the arbitration and possible alternatives in the process. These are my 2 questions.

[Roberto Monteiro, executive]

Regarding Albacora, I have been very open upfront about that. Yes, there is the Petrobras element. We are still negotiating with Petrobras. The [indiscernible] reservoir is better than what we thought when we were bidding better than what we thought and better than what Petrobras thought at the bidding moment.

So Petrobras asked the company, whether we would be constructive and whether we would consider reevaluating the [indiscernible] reservoir, and we said, yes. So we moved to the second phase. And what happens now is exactly that. There will be some kind of reassessment of the asset. Because the reservoir is better than the reservoir that we all thought we were bidding for. You will remember that data was ended in May of 2021.

So yes, that kind of conversation is going on. It's nothing frightening to us. There might be a change, but I think that the numbers you read and hear about in the media between signing and closing, they should continue to be respected because that dictates the funding. But there might be something else in terms of deferred payments and so on and so forth.

But this is still being negotiated. Now there's no such thing as, the brent price went up and now Petrobras wants to renegotiate everything. It's all falling apart. No, no. There is no such theory. It's a technical thing. The reservoir is better, of course, with a higher brent price. And we have to look at long-term brent, its not $95. We have to consider $70, $74, $75 because that's the long term versus the long term when we bid, which was $62. It was in the 60s.

So it isn't -- the brent did not increase from $60 to $90. In the long term, the increase was much less, and this is what we have to take into account. So both companies, Petrobras and PetroRio have been constructive. We work in good faith, and we are going to get there. At least this is what I expect.

As for IBV, an arbitration process can take years. You can take 1 year and more than a year. By definition, at any time you can come to an agreement to supplement. Of course, PetroRio prefers a settlement. Our intent was never to get the field from IBV. In the past, we try to have an acquisition. Now we invited IBV to participate. We showed them the information we thought was relevant. We gave them the diverting agreement terms will put it all on the table, but it is important that we have a partner that also wants to develop the field and not just sit there and wait.

One of the things PetroRio does make quick decisions, act quickly. We made decisions according to the operating contract. And we didn't keep up. But of course, we will always be constructive always try to get to an agreement. The same particular year, or more than a year, but that's arbitration.

But we can settle in the middle of the way, we can have a purchase sale and purchase agreement. It can be an agreement for them to return to the field. So the company as always will be constructive and a partner of our partners. What matters is that the arbitration process itself does not suspend the company's right to develop the field. We can continue to develop it and also because the result of the arbitration might be. IBV has the right to come back to the field. And that would be positive because they would return to a more advanced project. So developing the field is beneficial for both sides.

For us and for IBV in case they win the arbitration. So I have a lot of peace of mind to continue to develop the field.

[Tasso Vasconcellos, analyst]

Excellent. Super clear. And if I may ask a follow-up question regarding Albacora. If the value of the bid changes, would this change the capital allocation strategy or funding strategy of the company? Because you kind of talked a little about that.

[Roberto Monteiro, executive]

I don't think it would. The value that you said -- that you read in the media should be maintained between signing and closing monetary value between signing and closing, and that is what dictates the funding. If an adjustment is made, it should be made in a more deferred way in a contingent way considering oil price. And we are talking about Albacora West, Albacora Leste, Albacora East is very close. There's no discussion there. We have advanced a lot.

Of course, we are still in the contract phase. But what we are talking about here for the reassessment of values that applies to Albacora only. So I don't think it changes anything. This is our strategy. It has always been this. M&A is an opportunistic business. We have to prioritize it because the opportunity is there. Tomorrow, it might not be there. And the funding will be adequate for that.

Our CapEx will be adjusted to our funding capability. And our funding capability relies on the market. If the market will follow us -- it really depends on the market. They might not follow us depending on the election. For example, we might have to adjust our investment schedule as we did in the case of TBMT, Tubarão Martelo. We bought it.

Our intention was to have the tieback a year ago, had to delay for a year because we had COVID, the whole confusion. Not to hold back the project, we didn't know where the brand price would be as much accretive as we are. We wanted to hold back on our cash. These are decisions we have to make.

[Operator]

Now we have a question from Regis Cardoso with Credit Suisse.

[Regis Cardoso, analyst]

Some follow-up questions on my side. Regarding Wahoo, I thought that the development plan included 3 injection wells, actually 2 injection wells sorry. And I would like to know if this is firm decision. And have you decided on this? Is this a final decision? That's 1 question.

And regarding the lifting cost. PetroRio had a lifting cost of $14 or a little more than that. If we get the savings of BRL 50 million and divided by production of 30,000 barrels a day, I guess my question is, I had the expectation that it could get to $10 or even a little under $10 per barrel. And I don't know whether your expectation of keeping the lifting cost at $11 is because you're being conservative or if I did a wrong math.

[Roberto Monteiro, executive]

Regarding Albacora, it strikes me they need to have 1.6% of funding. I don't know whether this affirmative would be for the set of Albacora and Albacora Leste because I must admit that I thought you would need a funding cost and equity in debt. It was greater than that.

[Regis Cardoso, analyst]

And 1 last question, if I may. And I can repeat the questions if you don't remember them. I'd like to have an update on Manati, if that deal is still good.

[Roberto Monteiro, executive]

Well, Regis, let me speak about the wells in water injection because that's the plan to have those 2 wells. I can give you some color on that. Yes, that is the plan. We wanted to be conservative. And we wanted to have these 2 wells to guarantee and to be conservative.

It is possible that in the future with a better evaluation, we might change something. But today, that's what we have. Yes. Today, our mindset is to drill those 2 wells. Nothing has changed really. We tend to be more conservative than anything else. We prefer to use to consider these 2 wells. And if we have a pleasant surprise or if we have a surprise, may it be pleasant.

Regarding the lifting cost, Regis, your math is good, and that's why always provided a guidance between $10 and $12. $10 is the lower range. If I look at the lifting cost of October, November and December. December was a lifting cost under $11. But we cannot guarantee that if everything unfolds perfectly. We should be in the bottom end of the range. But I don't want to guide you to do the math with that number.

Because everything has to happen perfectly, smoothly, all the time. So I think that we need to be a little more conservative and think that we're going to work with a slightly higher lifting cost at around $11. Because pumps fail. Sometimes there are unexpected costs. Every day, something different happens. So we need to have a little bit of fat yes, $50 million, about 30,000 barrels. Of course, it has to be around $10. That's the mathematical calculation.

But I would not work with that number, Regis, not right now. It was -- I think there were more questions. I can remember the rest. They have been very complete and candid.

[Regis Cardoso, analyst]

I had 2 more questions. One was about Manati. And the other 1 was about the funding, 1.6%, whether it relates to Albacora only in Albacora and Albacora East and Albacora Leste. I thought that you would need more than that for both.

[Roberto Monteiro, executive]

As regards to Manati, our intent is to divest from the field. The company that presented a proposal to PetroRio Gas Bridge they want to turn Manati into a gas storage station. This is not our play. This is not what we do. It might be good, might be bad. I don't know. It's not our business. So we decided to sell.

That's still in our mind. The problem is that they found some hurdles with Petrobras because, of course, to turn that into a gas storage location, they have to have 100% of the operation in the field or they have to have partners that want to be part of that play. So they did run into some negotiation problems with Petrobras, and that delayed the whole process, but it's still in our mind to divest.

Manati is generating cash, it's still a very good business. That's great, its still generating cash, but it's much more of a concept. We don't want to get into a gas -- into the gas storage business, into midstream. It's just a matter of focus. So we intend to divest.

When we have more information, we'll advise investors and the market, as it is today, we are kind of waiting to see what's going to happen regarding the deal between Gas Bridge and Petrobras. Your last question was regarding Albacora funding. [indiscernible] signed the media $4 billion our part of this $4 billion would be about $3.4 billion.

We have $900 million in the company cash. We have cash generation from today until the closing we get approval by ANP because that's when you have to do the full -- when we have to pay that amount. And then we have cash generation by the asset that will somehow adjust the price. When you add all that, what you have is $1.6 billion for both assets.

So that's a calculation that we do. Milton looks at this every day, day and night and weekends. And all of that is considering the oil price at around $75 and declining. So we tend to be conservative again. Of course, with an oil price of $90, things will change. And that's thinking that we will continue with our base plan, which is develop Wahoo according to what we have in the plan first oil flowing in 2024 and so on and so forth. So this is what we're thinking. But this is a relatively simple calculation.

[Operator]

Our next question from Pedro Soares with BTG.

[Pedro Soares, analyst]

Hello, can you hear me? .

[Roberto Monteiro, executive]

Hello, Pedro. How are you doing?

[Pedro Soares, analyst]

Good here. I hope you guys are well. I have 2 follow-up questions. Most of my questions have been answered. Regarding Albacora, and I think that you kind of touched on that in the previous answer regarding the right to the cash generated by the asset. There might be some limitations there, but we have seen that some assets that are being divested by Petrobras, the buyer is entitled to the cash generation even before the buyer starts operating asset. I want to understood that possibility also exists for Albacora or not?

And my second question is briefly regarding the Frade CapEx that you will be starting to invest in Q1. In the release you mentioned the Wahoo CapEx. What about Frade? Can we think about $60 million, $70 million per well because that's the number we had for the past.

[Roberto Monteiro, executive]

Yes, $70 million. Yes, that's the number maintained for Frade. So we're thinking of drilling 3 wells. The CapEx is $210 million -- something between $205 million and $215 million. I know Francilmar probably need $215 million, around $70 million, nothing different than that.

As for Albacora, yes, [indiscernible] being entitled to the cash flow of the field from a certain date. I don't want to get into a lot of details here, but that's how all oil and gas deals go. You start having access to the cash flow, starting at a certain point, a certain date. We try to imagine that this is not going to be very different than approval date by ANP.

And sometimes there is a mismatch because of ANP work, and of course, that might happen in access to cash flow translates into a price reduction. You pay a little less because the asset is generating cash. Of course, if the asset is not generating a lot of cash, you pay more. And that's how it works, all deals are like that.

[Operator]

Next question from Gabriel Barra with Citibank.

[Gabriel Coelho Barra, analyst]

Again, congratulations on the results. Like Pedro said, most of the questions have been asked. But I'd like to go back to IBV and the arbitration case. I would like to understand this in more detail. First point, what about cash generation if you continue developing the field without the arbitration ruling? Will the cash be yours? Will it be put in a site account this amount has to be posted separately? And I'm sorry, I don't want to be pessimistic, but what would be the worst case scenario for you? If IBV wins, what could happen given that you're going to continue to invest in Wahoo.

And as per NORBE VI rig, the contract you signed -- would you reduce the lifespan of the contract? Is there any possibility for adjustments to the contract? Because from what I understood, there might be some changes in the timing of use of the rig. These are my 2 questions.

[Roberto Monteiro, executive]

For the worst-case scenario regarding IBV is, we develop the field. And obviously, when we develop the field, we are the ones investing on the CapEx. And we get all the money, and that's revenue for the company. And the risk case scenario is arbitration decides that IBV is entitled to be a part of it, then they will have to contribute with the CapEx, referring to 36% of their working interest, the moment the arbitration decides they'll have to invest that.

And they will receive the results referring to the 36% of CapEx. So we make that kind of adjustment, it's unlikely that this would -- this would totally change the value of PetroRio in any way. When you compare with evaluating PetroRio with 64% stake of the field. This is what you should do. I would not consider PetroRio having 100% of the field for valuation purposes. This is not the case yet. So when you consider that you having 64% working interest of Wahoo, that's what you price. There's no worse case scenario.

You consider 64% stake in the hands of PetroRio and IBV would have to invest their part of the CapEx. In the arbitration, we have to decide what penalty. Today, the contract says that they will return with a penalty of 10x. Now we have to wait for the arbitration process, but that would be the worst-case scenario that could happen.

The second point was -- regarding the rig contract, right. Normally, in these rig contracts and ours is not very different than that is that today, we have 500 days of NORBE VI rig. In our mind, it's enough to drill the 3 wells at Frade and the Wahoo wells. So then we have an option to renew -- how many options do we have? We have 500 days plus 5 options of 70 days renewable, every 70 days. Since most of the contracts are like this, with these 500 days, if we do not want to use the rig, we can sublease it to a third party.

We cannot make profit on the rig, but we can sub rent it. So we can mobilize it to another company, Petrobras, Chevron, Shell, I don't know, whoever needs it and the company that would be subleasing the rig would pay a day rate to Ocyan and the day rate is defined the amount referring to our rig will come to us and the deal gain goes to Ocyan. So that's an option.

If we want to change the contract, we don't want the rig anymore, we want to return it. That can be done. But I don't see why we would do that. But it is in the contract. That kind of flexibility is in the contract, we can remobilize the rig somewhere else, we just won't make any profit. And if I can add to that, the contract is fixed. We have contracted 500 days. There is a delay because the contract is over with Petrobras, but there is a provision that says, if they are finalizing a well, the rig will only leave when the well is finalized, and this is what's happening now. So there might be a delay of 1 week, 2 weeks, a month, but as soon as she leaves Petrobras, our contracts treats kicking in.

[Operator]

Next question from with [indiscernible] Morgan Stanley.

[Unknown Analyst]

Congratulations on the results. My first question again, it's about Albacora. When we look at production in recent months, you see that for both assets, production is a little lower than in the beginning of 2021. So I'd like to understand from you what is the expectation that you have? If everything goes well, what is your expected production from these assets when you take over the operation.

And if it is at the current level, how fast can you bring production back to 60,000 barrels a day, which is what they were producing in the beginning of last year. A second question about Albacora, $1 billion of EBITDA. How much is that linked to -- that is linked to what price of brent?

[Roberto Monteiro, executive]

Francilmar will start answering, and then I'll speak a little more.

[Francilmar Fernandes, executive]

But we cannot give you a lot of information because the asset is being operated by the Petrobras. We do have some information, but we are not -- we cannot disclose this. The asset over there is suffering with some problems, subsea issues, and that's why we see this decline in recent months.

The problem is not related to the reservoir. The production potential is there, but the assets require some equipment repair. We have been following this and how Petrobras is working on the assets. But when the fields come to PetroRio, then it's our plan. It's a whole new ball game.

In terms of production, 55,000 barrels for both fields, you consider that you are not going to make a huge mistake. That should be the initial production. And if you consider brent it's $5, not even the current brent with the brent price that we used for our modeling around $75, we can get to $1 billion. We're going to get to a revenue that is a lot higher than the operating costs, so about $1 billion.

[Operator]

Next question is with [indiscernible] Bradesco Gustavo.

[Unknown Analyst]

I'd like to confirm a few things that you mentioned in the prior answers. First, gives us more color regarding the penalty that IBV would need to pay if they decide to go back to Wahoo. And something else is you mentioned [ 3,400 ] in Albacora relatively to $4 billion. So your stake in Albacora is 85% for both fields or at around 70%, 75%. And my third question about Wahoo. First oil is expected to flow in 2024, but the ramp-up of production should happen quickly in the first year to get to that capacity of 40,000 or 45,000 barrels a day? Will that take long to happen?

[Roberto Monteiro, executive]

Well, the penalty for IBV to go back up forget that. This is something written in the joint operating agreement. There is a clause that's called Back End. Sometimes the non-operator that decided to exit may return, and there is a clause of 10x as a penalty, but this is not what is being analyzed into arbitration.

That has nothing to do with the arbitration. That's related to a clause called the Back End provision. Please don't use this for anything because it's not applicable here. And like I said, I stress 1 more time. We mean to be constructive with IBV. We mean to get to a commercial supplement as quickly as possible. And if possible, have them back in the field. So don't get stuck with that. That's just the contract provision. Don't assign any undue weight to that, please.

With regards to Wahoo, yes, of production is 40,000 barrels. For technical reasons, we're going to drill the wells in 2023. And while the wells have been drilled, we are going to install the lines. When the lines get to the wells, all 4 wells will be drilled. So when we start producing, I mean, the production ramp-up will be very fast. It will be a very short period, almost instantaneous. Of course, you never turn on all the wells at the same time. You turn them on one by one.

But you stabilize 1, you turn on the other 1 and so on and so forth, it's fast. Was there something else in the question? A question regarding your stake of Albacora. Right. The stake of Albacora, we've spoken a lot about that. And there's also something in the media. We are bidding for 100% of Albacora East. We bid -- Petrobras is selling 90% of Albacora East. So we are bidding for 100% of the 90% of Albacora East, Albacora Leste, and for Albacora West, which is just called Albacora, we have a partner. We have 70% and the partner has 30%. Now you're talking a lot about that now, but -- so you get to that order of magnitude that I mentioned, approximate numbers, please.

[Operator]

We are going to close the Q&A session. I'd like to turn the floor to Roberto for his final remarks.

[Roberto Monteiro, executive]

Well, thank you very much I would love to spend more time answering your questions. But our call was post the last 1 hour. It's taking already 115 minutes. But I would love to stay more with you, but I want to thank you very much for joining us. Once again, I'd like to thank the whole PetroRio team.

And thank you for your support, for the support that we have found in Rio de Janeiro in Brazil and in the market. Thank you very much, and I hope to see you in the next quarter conference call.

[Operator]

Well this conference call... [Statements in English on this transcript were spoken by an interpreter present on the live call.]