Petroreconcavo SA

BOVESPA:RECV3

Earnings Call Transcript 2023-Q4

[Jose de Mello Firmo, executive]

Thank you so much, Marina. Good morning. It's a great pleasure to be here and present the company's earnings 2023. We are here in Salvador, Rafael and I, Troy, Victor, [ Pedian Marina ]. She has introduced our sets get to be a moderator.

The last time I introduce myself as the new CEO before it could -- to Salvador. But now after these 2 intense and interesting months ahead of the company. I had the chance to dedicate my time in [ Novero Petro Reconcavo ] I use this opportunity to reinforce my admiration well validated now based on the asset the deferation on the onshore market. Excellence that is well spoken in the industry of our team, our leadership and resilience in revitalization process and secondary recovery of [ maturity fields ] in Brazil and our robust strategy of the sanitation. We prove the service is a great honor to be part of this team now.

And you could see in the earnings before last night, 2023 was a year of production growth, but also a year of material impact on the results because of the challenge of the challenges -- flowing that we had in the first quarter, a year that could have been better, much better. So let's see now the details of this presentation together with Rafael, in the end, we will be in this room for you to answer your questions that we are going to open up the floor for Q&A using the chat.

So we concluded the year with the average production 26,000 barrels a day, 29,000 barrels last year. The production was 22% higher compared to the previous year and this number -- on top 9% growth from the conclusion of a Maha Energy acquisition. Among the relevant topic, very important to highlight one of the biggest competitive differential that is pros and service in 2023, Petroreconcavo reached the highest point in the verticalization consent with the operation of 5 new growth of workover and one more for drilling.

Just one workover outsourced in all the activity. And this maturity represents that the company is totally not only with the [indiscernible] capacity to execute their working plans and all the list of projects. And also currently, as the necessary protection, as I call the seasonality price defect ensuring autonomy that is unpreceded now compared to the peers in Brazil. The next slide, we are going to see more the numbers of the marker, but I'd like to register that we finished the year with positive cash flow, and then we distributed dividends, $0.99 per share yield of 4.6%. And currently, we have a strong balance, giving us total capacity to move with our business plan.

Next slide, I'd like to highlight the impact that pressure the financial results. We closed the year with a [ BBR ] BRL 1.3 billion and net profit [ BRL 709 ] million. And these results were impacted negatively every year by the price of commodities that were rented by the outflow restrictions. And it's very important to bring my perspective about the challenges of outflow that we had in [ Bocian ], material, they were more relevant in the final quarter the problem of [indiscernible] in last February last year and had variation of performance of the total replacement of the pipeline in the first and the second semester, although the volume increased, they get increasing -- margin that was restriction in the growth net cash volume during the maintenance in [ Petroreconcavo ] concluded in November. In December, there was a stoppage of [ Potugal ] asset because of the oil restriction for many assets. And the whole sequence in addition to the financial impacts that are going to be detailed by Rafael aligned with what is expected by our team or reserved as they know the effects of stopping production in a mature field, we are about 4.5% underneath the production that we had in October in [ Potiguar 1 ].

As you can see in our monthly reports of prediction, our expectation these effects will be solved by May this year. In my point of view, the outflow restrictions and interruption and the effect for Petroreconcavo or I call directional continuity plan with technical logistics and commercial contingencies, design and implemented following the same premises that we have in all the critical processes. And we have electric generators for electric [indiscernible] area resilience of data structure or using the example that so we have 2 different lines. I consider it totally mandatory that our CapEx plan to grow the production of oil must be followed by a contingence and resilience than in the auto.

Some important components for this solution are ongoing. And its public knowledge already alters our fruit of our discussion in the final month, speaking parallel pathways, bringing organic solutions like the potential transaction of 3R that is being diligently inorganic best way of solutions that I will discuss later.

[indiscernible] Miranga is the development in this month, we finalized the purchase and the payment of the land that is in the license process moving forward defined decision investment. We signed in February, the right of purchase a piece of land, so we start engineering and the environmental license process book, we finalized the engineering. We started the licensee for environment and the acquisition of the necessary equipment to install -- preload the stations, 100% of the oil producing [ Portugal ] has a land transportation alternative. These and other initiatives are in neighbor and they require legal effect -- they prepare critical options for this operational continuity plan. Our plan is based on being option and available in the next 6 months. So we are able to accept the investment and implement is possible project. Making the best value long term for the company in comparison to long-term trading alternative that we are going to seek.

Although these impacts on the results, it's important to say the financial solidity of the company in a year of inflation, FX and interest rates, very high leveraging in the back it in [ 69 ]. We are so prepared to enjoy these good opportunities that we are going to see the future talking more about prevention. Next slide shows the consistency of the production of the company in the last year, showing our capacity of delivering and the potential of our assets.

In 2023, we delivered a growth of 18% in oil production and 27% in gas production, reaching the annual average [ 26 equip ] barrels here. Our expectation is to follow this trend, seeking new types of prevention and enlarging the recovery factor of our reservations.

From point of view of the evolution per end sales, we had a year of growth in Bahia, Potiguar as well. Although these assets are in different stages of development, we could deliver growth of 14% in end of March and 32% in a year. They will have to do more it's important to say that after 4 years of safe offer and has the best face of low-hanging fruits. We hand an investment program that was consistent, ringing in new wells hydraulic fracturing and recomplication, validating our narration that it has a high power of development and exploration of new opportunities in mature reservoir.

By year 2023 is our second operation in [ Palo Wienand ] 10-month FDA reaching an organic growth of 11% from different interventions in moreover, well reactivation, hydraulic fracturing. We also work and installed field comprehension and building flow lines for [indiscernible] more than the results of increased production, the work developing in the mine represents a best study and understanding of this life performance and processing systems. Our expectation is to see more efficiency in our operations, sustain and increase the production with the cost controls, improving the facilities, automation and digital transformation in Bahia, they highlighted decrease of bio production related to -- this field under development as few wells and is one of the areas of high potential to develop the company. In 2023, with different intervention with the return of production of interrupted wells, but we did not start the drilling campaign of gas that is estimated to happen 2024.

I pass the microphone to Rafael who will do the financial results and other initiatives of the company.

[Rafael da Cunha, executive]

Thank you, Firmo. Good morning, everybody. This slide shows an estimate of financial effect caused by the outflow restrictions. We calculate an impact on the revenue based on production losses and the time that these wells were interrupted, it was 2,200 barrels equivalent in the fourth quarter and 800 barrels in the average. We added up to this -- the volume of gas produced first burn because of restriction flow considering as well the difference between the prices of oil in the period of time compared the cost prices on going before the problem.

So this way, the loss of revenue was BRL 196 million in 2023 and BRL 128 million in the fourth quarter. In addition to that, the company incurred extraordinary costs because [indiscernible] for example, purchasing cost, purchasing third-party gas and penalties and midstream, BRL 36 million, resulting in EBITDA potential BRL 232 million by year BRL 171 million in the fourth quarter. So at this BRL 233 million related to promising flow and trading and EBIT is at BRL 1.3 billion. We would have had EBITDA of BRL 1.5 billion in 2023.

In training, we had an evolution year after year of the average price of the [ molecule ] brand beyond Texas and transport, the molecule price spent from 7.7% Brent in 2022 to 9.2% of Brent in 2023. And currently, we have contract estimating about 10.2% of the ranging region in the beginning of 2024. Throughout the year, diversify our clients of natural gas increasing the radius of action of the company using [ LCS ] and CPG contracts signing contracts of purchasing some of the other companies, producing helping us being trading gas operations when necessary. For example, the rough period that happened last year. We highlight in 2023 the contract with [ Serasa Copergas ], representing our first long-term contract in addition to elevate the average price and perspective for the following year. They have closed a minimum metro prices ensuring a lower volatility in our revenue and higher resilient when the commodity has slope. This good news for trading pumps with the caps that we still have high offer lease in flow and processing and also from inefficiencies in the contracts that we are addressing the time contract, especially about depending on the transport contract.

In the oil, we highlight the change in the profile of the clients. We do not sell our production to Petrobras anymore. And now we start to sell more diverse purchase. We have an improvement in the commercial contracts a year, although the difficult that we found in the second semester, impacting our games. We could develop alternative fruit. We register at oil bolder than we have been working continues to ensure that the restrictions in our production will never happen again.

In Bahia, although the difficult as of Bahia introduction, we could keep the sales of oils without operational impacts in the beginning of December 2023, the route of highways that were interested are back to normal. Even in Bahia, we put improving the oil contracts of [ tier ]. Our strategy for 2024 will see commercial and logistics alternatives to maximize revenue from the oil produced. As we mentioned before, the characteristic that is light, low sulfur and good price in the world market.

Talking about cost our extrusion lifting cost is $13.07 -- BOE in 2023 represents an increase of 5% compared to the previous year. This result received a backdrop and dollar appreciation in the year and the advent of production restriction mentioned before, calculating the lifting cost plus production we would have a result of $12.69 per BOE and a variation of 2% compared to the previous year, lower to the FX rate. Also a negative influence in the cost and expenses throughout the year, some expenses above normality. What associated to the direction of new growth to our copper and drilling and also these engagement of third-party equipment expenses related to the cold Maha Energy Brazil, for transaction closing the office [indiscernible] termination; three, cost with IO transport and truck called by sea [indiscernible], the situation was normalized in December 2023.

And finally, expenses with sales and logistics for example, transport, storage, port -- there that we incurred because during the second semester, we saw different oil cargo spot. And in this case, for this cases, we based the logistics cost. Instead of they are being built in the discount as it happens in a normal contract that we have with 3P.

Specifically talking about costs in the fourth quarter 2023, we can highlight the services and material the accounting of IO stock accumulated in the third quarter and solely the fourth quarter with a bank of BRL 34 million in the quarterly variation. And the personnel, we had a nonrecurring effect in the final quarter on retention program launched in 2022, focusing on technical operational leadership of the company, especially managers, card majors of the company. And that is the effect of collective bargaining signed in December '23, with retroactive payment September '23. This agreement was closed with the readjust 4.5% line inflation, even in a year that the sector company suffer pressure increased personnel, the impact of these 2 events on people was about BRL 14 million in the quarter.

Talking about CapEx now. Total CapEx of 2023, BRL 1.1 billion, aligned with the value of 2022. But when we observe quarter after quarter, we see an important change in the trend. The total valves dropped from BRL 630 million in the first semester to BRL 460 million in the second. What I mean is a variation of less than 26%, reflecting partially our efforts to reduce cost and also the maturation of the advanced in stocks and the enlargement of fleet and rails. We reached the end of the year with all the equipment necessary for the development of our current fields in Brazil and operational, except for PR parting, our heavy drill or deeper wells started in [indiscernible] February '24 and is in the process of clearance and commissioning.

Next slide, we bring a briefing of our cash operations. We started the year of 2023, well catalyze because of the follow-on and the expectations of [ via ] acquisition negotiated with Petrobras. Throughout 2023, although the problems are slow, we delivered our robust operational cash BRL 1.2 billion. investing BRL 746 million of the resource between the development of our production and [ BRL 340 ] preparing the company for this new level of activity and the first steps in the area of midstream, we [ don't see so ] much, fulfilling also the payment of base norms earnout of the end sets acquired with Petrobras and Maha Energy Brazil acquisition.

Together with this robust investments, bringing an increment of production, we could distribute BRL 300 million, $0.99 per share dividend reassuring the motivation of Petroreconcavo of offering -- a combination of growth and payment to the shareholders. We finished the year with a cash position of BRL 5.7 million and low leverage indicator of net debt and EBITDA 0.69x.

Observing 2024, we see less commitment on acquisition payments associated with remaining pavement [indiscernible]. When we see CapEx, we can see less investments related to the fleet of services. And the objective is to have the positive contribution of using the stock to fund the investment. This would have happened in the fourth quarter if we do not have spare parts for the new drills. On the other hand, we want to increase the investment associated in gas and the operational continuity to flow the production, and it's being mentioned by Firmo in the opening section.

And talking about hedge in the fourth quarter, we executed a new round of hedge oil pricing, the total volume of 675,000 barrels, 0 score collars distributed here throughout the second, the third and fourth quarter 2024. Then these new volumes are here to complement the hedge contracts, legacy in India that we still have open is the time that we have covenants of our debt. For example, the obligation of the hedge 36 months ahead.

Our decision of hedge this time was based on the manage of particles for the oil brands. For example, scenario that the oil is underneath $50 for 2 years. And this analysis, we try to enter how many bars of oil we need to hedge every quarter. So we are able to honor all the financial commitments, keep the leverage in healthy levels in part of our CapEx program. Considering these acute -- the price protection is test in natural gas.

So you can see that our volume of hedge in place for 2024 for 1,000 barrels of oil a day or 25%, 30% of our production of cost. And the price conditions are better during the pandemic and they are finishing. I pass the floor to CFO. Thank you.

[Unknown Executive]

The Sustainability attraction. These are critical filer. Next year, deliverability process -- is in our committee, people and ESG, and we have a board led by [indiscernible] at the microphone to Felipe to discuss destocking.

[Unknown Executive]

Thank you, Sia. Good morning, everybody. I would like to highlight the key partners advanced on people and sustainability 2023 March in the beginning of the year. We are part of new and global bank. Our volunteer activity highlighting our work on -- presentation. [indiscernible] I'd like to highlight again 2023, we launched it diverse acquisition program we call, Together, We Are More. And that is the participation of in different levels of the company, reflecting the commitment of being a company a diversity culture is friend. I highlight that this initial agreement with the right choice -- tolerates and a meaningful role to build a solid brand. So we attract more people contributing to engagement of our employees.

In the last 4 '23, we introduced the leaders academy to develop and consolidate our position at the company that educates talent in that, we are going to qualify the need leadership of the company by the end of -- management model of Petroreconcavo the envelopment for trainees and also the branding, [indiscernible] this program, the entry part of the company. And I'd like to reinforce our commitment with the communities around in our surrounding with social projects. I have 3 [indiscernible] by '24 in 10 years. In 2023, we served 175 -- or less than [ 340 ] after school and stores, the project, Viva Bahia is an initiative to increase the quality of life 138 [ favor ] in the [ semiarid ] region to far access to quality order making comfortable the water with cycling to be used in semi agriculture, bringing extra income. And our partner that we have in [ Tamar ] project continued -- environmental awareness.

I pass the microphone to Firmo for his final consideration.

[Jose de Mello Firmo, executive]

Thank you so much. We are concluding the earnings presentation and open up the floor for questions. I will talk about a briefing and a takeaway message that described how Petroeconcovo today. Petroreconcavo is in operation for 24 years in Brazil and have built a unique expertise to revitalize mature fields, developing a secondary program considering a benchmark. Developing as well and implementing a vertical of services and products with the CapEx of executing the working plan, ensuring autonomy and execution in precedent.

Gain prepared assessing active participants of safety direct program of Petrobras in selective and successful growth strategy, but that's not all. The company has an ambition point of view for the future developing technical qualification seeking the best in their projects, but also qualifying new policy levers in mature fields that we all know, there are still high potential reserves.

The company has always understood the lever to grow in position in the onshore industry and keep on investing fulfilling this role with reconciling things and the participation of the evolution in this assessment and I intend to keep on this evolution jointly with the team of Petroreconcavo, the idea is to keep on transforming reserves in wealth for the shareholders, employees. And of course, the society onshore has a social popularity that is very important for many years, we did appear in Brazil.

I see Petroreconcavo as it is right now, and I am so pleased for reaching here together with this team to contribute the dispute so much by your attention then I pass the floor to Marilia for the Q&A session.

[Unknown Executive]

Thank you, Firmo. We have a -- before the presentation. I will start the Q&A session. [Operator Instructions].

The first is from Rodrigo Medanta, Santander. He has 3 questions, but I read them separately in order to be easy to answer the question. The first question is about activity planning next year. In 2023, being that the focus was a [ Bahia ] and the relief is clear that you want to focus in drilling activities in Bahia in 2024. Can you guide us about the expectation of our first quarter -- second quarter this year, announced an idea of the cover of recover production in Potiguar after the industrial assets.

[Jose de Mello Firmo, executive]

Okay. I will start with a general point of you about the activity and the expectation that we had in the company discussing in the first 2 months, discussing with the Board about the budget and the budget, we would reach a level of total maturity of investment and we would be in this level of investment for 2024. The distinction on how these investments will happen is a discussion that is permanent on assessing projects based on what we know and based on what we learn every day, not short work in a lean -- of learning and we going to learn as we invest, and that's why we are very careful before guiding exactly where we are having a plan.

Currently, we have hundreds of projects under assessment, a process of prioritization that is removed to choose the next one but it is also flexible as we evolve the years. That's why, I'd rather right now, not a guide where we are heading our operations and also the balance of workover and drilling we assess not only during the process, but also during the full year. And we use this opportunity and assess the work to draw to talk more about the planning of CapEx this year, not really sizing our Portuguese to destroy if you want, you can speak English I work with you and I see you explain it so well it's not a criticism to your part, it's perfect.

[Unknown Executive]

Thank you, Firmo. When we look this year, really, we have multiple France investments available to us. That he stated in your question, we focused a lot in development last year in the trend, [ Sabanci ] and have some positive results from that work and we continue to look at and in our portfolio and continuing to develop that area as tomato potential, not only for a primary point, but the secondary point. So we continue to optimize the schedule of our project, whether there is work over drilling our facilities, returning to Bahia, which I also mentioned with the importation of Tier 14 rig, we are going to have the ability to attack several projects that we could not efficiently in the past with the existing results in the market. So we are taking a hard look at that. And then we have plans in place for several years. to begin some development activities from several of the filing in Bahia affecting chair specifically and if Peciand also some other targets gas targets that we've seen around the cluster. So we return to looking more deeply by focusing more in more offers.

We have an amazing set of projects. We have a success -- of drilling wells and also a fantastic listing of our cultures. We are constantly trying to adjust this portfolio and this has on a monthly basis to maximize our risk of return, payout and our learning so this can -- we can expand the reserves in the future. So you are correct, we are going to focus more in Bahia. And if there -- in the past years especially with the advent of these new tools that we are bringing to the company.

[Unknown Executive]

Thank you. Perfect. And then the second question. Tier 2024 -- were the main projects that we have been working, especially the well that they want to put online an improvement of infrastructure for water processing.

[Jose de Mello Firmo, executive]

I have mend surge, Potiguar but it was in the beginning of my explanation. The expectation is underneath 5% of the point of production where we were when we closed the field and the expectation now is to have the necessary percent. So in the next month by May, we eliminate the effect of the interruption. In TA, I believe the project has given us lots of information, especially of our new capacity with the drills commission in the first semester being used in the second semester. I'd like to understand the capital allocation strategy without formal discussion, it's a relevant moment for the company. But it's interesting to understand better the discussions about the policy, bringing more predictability for dividend payments, dividend discussion, I pass to Rafael so he can explain that. But I believe there is an opportunity, an important opportunity to talk about what I understand of the company. I came to the company discussing with the Board. The idea of balance doing a company that is not -- we are not -- and I found this year, a company of 30,000 barrels focusing only on distributing dividends. Our alternatives of growth, our list of projects, our CapEx that are implementing after many years, decades of building, I consider it the maximum part of maturation.

Our flexibility with the 3 drills now choosing projects and doing the best we were doing. This brings to the company above expectation that is very interesting. And that's the work to be done this year in [ planning ] and definitely choose our growth choices with these new tools and the structure that we have now.

I see Petroreconcavo looking ahead, growth rate expectation that is very interesting, especially now with the level of maturity that they have from the SO and the material vessel that we reached. Would you like to say something, Rafael?

[Rafael da Cunha, executive]

Yes. Just to complement the policy we discussed last semester, last year. We had a perception study with the investor. This topic was very relevant. We are going to discuss this in the first semester. Now with feared -- to see if we're going to establish a formal policy different from what we have right now, but there is no decision about it, not yet. I'd like to reinforce that Petroreconcavo has always been a payer of dividends and we are going to continue like this. In a fixed rule, we are going to debate this later in the next month.

[Unknown Executive]

Perfect. We have lots of questions about fusion merger and For example, there is a question [indiscernible] to another question. I will join these questions to make it something is out by return. Can you talk about the merger proposed on [indiscernible] and 3R considering the company? Do you see benefiting the combination of business. And what is the position of the administration and the Board on this proposal and talking about the growth in the company what are the in stages of merger, not concrete, what are the alternatives of the company.

[Jose de Mello Firmo, executive]

I will start addressing an [indiscernible]. He's in the leadership of this process I had the chance to talk about it before. The company and the management and the board, they see merit in the potential transaction and we were vocal about it since the beginning of the process. We have the obligation and we are going to pursue assessment with diligence and efficiency of this opportunity that we clearly see merit in this transaction.

In the beginning, I mentioned that the opportunity of separate in onshore and offshore was of one of the biggest buyers of this integration and this transaction has the premise that is very eliminated in the beginning. I speak potential, and I see that we are working in a serious way and like a platform that can update led by John Firmo. I pass the floor to him.

[Unknown Executive]

Thank you, Firmo. Thank you, everybody. As Firmo mentioned on the location and the merits that we in the transaction we engaged on our side a discussion with the management of clear oil, we signed a officiality agreement, and we are engaged with advisers, Jeff Raise and Red Siles. And our objective now -- is there a need to define that or any other topics. So we are interacting exchanging technical information and both companies are seeing merits in the process. like merger process or any other transaction that we can have. So we are testing it in a diligent way isolated in an M&A segment. So we can see on the focus, developing our organic activities as soon as we have the conclusion we want to communicate.

[Unknown Executive]

About the topic as soon -- how do you assess the amendment of a structure outsourced [ North Ciabattoni ]. And the negotiations and discussion of service provision or a potential new partner should we think about our own UPGN because of the low leverage of the company.

[Jose de Mello Firmo, executive]

Thank you for this question. I have the chance to explain more what I saw operational continuity plan, definitely an agreement of corporation our adjunction of UPGN, we have detour a while here. Can it make sense the shared use of UPGN in Portugal. And I believe nobody disagreed. But unfortunately, the companies did not reach an agreement. Why do I consider to detrimental and our obligation, and I talked very clear about it in the beginning, we must have choices.

It's fundamental to flow and treat our gas that we need to have alternatives or advancement. And what we are doing, we are creating enablers. So this alternative could be a sense. We know that new UPGN that is inclusive for our -- it's not an alternative commercially good. We should have an agreement with the [indiscernible]. I think that the company must have alternatives and put the action clean on studying all the alternatives that are available in this plan.

Have the task of implementing all the actions and what we want to have and what we are going to do. We are going to look ahead at the bigger investments are set. They are set and alternative that is available technically, but today is most available technically.

[Unknown Executive]

Next question is [indiscernible] congratulate the company for the quality of the material communicated. And 3 questions, but I will break the questions. The first is about drills and services, you said about the strategy. I understand that the current drill is enough to execute the investment plan. Is there the idea to use the idle capacity of this plant to provide third-party services.

[Jose de Mello Firmo, executive]

Thank you so much for the question. Without any doubt, decide my intention. I came to the company with the experience of serving the industry. And one of my first action is the investigation and the understanding of the potential of sold. It will generate rates -- was a value for Petroreconcavo, nothing new. You will know about it. But it brings -- the company -- is acutely the projects of the company brings flexibility, protection against price effect, but it also brings the opportunity for the company to discontinue fundamental for offshore.

The integration of the partners onshore, I talk about it by starting disposition onshore is very young. Some of the companies are not even 2 years in operation. So there is work to be done considering the learning process. The basis are all the world work on the premise that the oil companies compete on the beat and the following day, they are partnership to lower cost than efficient production. So I see, especially with the increase of efficiency and the flexibility that we have in our -- so with a complementary between different relation win both with partners that we choose because we believe in partnership to distribute and increase the use of the equipment, but in general, sharing and getting closer companies in a partnership process, and I believe it's going to be the future of Brazilian onshore. The answer is yes.

We are in the moment discussing with some partners of these joint -- we are observing our horizon to use the dreams based on opportunities based on partnerships. And then we announced when the contract advances call it this way.

Money can other people ask something similar. Reserve certificate should weight metabolic chain -- Mexican of reason available in April is the company considering a little bit of cost now or the economic of the projects should be included in the reserves.

You wait for a well-prepared demand by Marila second week of April. We are going to have Investor Day then present all the results of certificate of reserves. We are finalizing. We are in the final round, finalizing the reserve certificate and of course, when it's over, we are going to communicate and disclose, but we are going to decide -- the certificate, but also there is a certificate. And our strategy, especially our venue to choose capital allocation in this event that Marila promised to organized with high-quality second week of April.

[Unknown Executive]

All right. The next question I will gather this question different people and [indiscernible] should we think now that production evolution in the first quarter, reaching levels close to 30,000 BOEs by March. And if the company will have an expectation of -- by December.

[Jose de Mello Firmo, executive]

Now one of my decisions is to ensure that I will not overpromise here in the production. I need to understand the company well before any estimate short or long term for production. It's important to tell you and reinsure the vision that I had from the Board, then I confirm from the Board in the last 2 months, a company that has a list of projects of high level, with alternatives of investments to increase production is still in a horizon that is very promising. So the long-term vision is not a company that will stopping 30,000 barrels just to pay dividends.

No, that's not the vision. The vision is to choose how this process of capital allocation to the best project based on our effector flexibility with our new price technical complementarity, about more promising projects and keep on the process of creating new projects and implementing these products successfully keep on growing in production. We are not where we would like to be. We explained all the effects that we have had in the last month, and we hope to see a production growing and better for 2023, but I will be here.

I'd like to assure that I have -- I keep on my reliability, not promise short- or long-term production. The question is about [ BTIG ]. When do you expect the permit of NP and how are we going to ramp up the 4,000 cubic meters of the operation. We have this process building us and recommissioning the plant. UPG talked about it. We are in the final agreement some questions with AMP for the permit process. So we hope that any time we are going to receive -- the permit to restart the plan. I believe I can play more about the production, but it's clear that the capacity BTG Soho is 400,000 associated for concessions and the highlights are the concession producing natural gas [indiscernible] so producing. So we have an immediate flow around 200,000 cubic meters of gas testing through the compression in [indiscernible] and we have an enabler of additional access in the system to produce from the contention [indiscernible].

[Unknown Executive]

Thank you. I will speak English . We are going through our development programs for all the fields, especially [indiscernible] San Pedro, we have been progressing through the original plans develop in those fields, installation, dealer qualification equipment and also optimizing compression season that will continue that we're expecting some reasonable results in that area to come closer to the capacity of the plant. We expect this to happen throughout the first and the second semester this year. We are in line with our expectations on what we still could deliver.

[Unknown Executive]

Perfect. Next question, lifting cost adjusted with the production finished the year with $13 barrel rescuing the comments on the previous drug. Lifting costs would be the level of cost is expected for 2024 are the inflation of cost and services. Is it still a problem for the industry. And -- the perspective that I had a chance to discuss in the market in other opportunities at the perspective of growth and they use and optimize the cost Petroreconcavo is one of the main -- efforts for the future is to reestablish the competitiveness and the efficiency they had when they were smaller in the growth we have without any doubt, an increase of cost that was necessary to bring us to where we are right now.

But the focus on efficiency and discipline, of course, and the focus on speaking in general, increase the efficiency in all the areas, and we are committed to pressure this number. This number would be more pressured by our topic that it's clear to see the Brazil, they affect onshore and offshore Brazil in the service industry is on, we see an increase of activity in offshore at this in general, generate the movement of resources to offshore and just like in onshore is happened in the -- here in Brazil.

In this way, the protection that we have on table to work on our future is a project brings protection the big as my expectation is well structure, we do not suffer an inflation effect, material effect in our cost and as a matter of pursuing efficiency and doing greater than what we did our activities on production, lowering the lifting cost as much as possible. The trend in our expectation is lifting costs are under control [indiscernible] Bruno is there in advanced in the purchase with Petrobras about [indiscernible], the companies be potential to engage in its assets, even if it's not M&A. Well, in fact, [indiscernible] it was canceled by Petrobras. One of the things that we say we are a historical partner of Petrobras has always been, we are still, we have shared production in Petroreconcavo Basin and we keep our relationship with the business unit Bahia and the management and not the relationship and positive. There is no expectation now eventual transactions of the divesting is clear decision of Petrobras, and there is no discussion about any other type of possibility of partnerships.

As Firmo mentioned, we are a company that brings the expense from 2 fields, but also have a very strong service vertical. And if this open possibility of engaging with Petrobras for business opportunity, we are going to be aware of this, but we have a word relationship, but there's no avenue that we face -- condition for many years. For decades, I say, if you want to operate oil and gas, you have to be close to Petrobras. Petroreconcavo close to Petrobras for decades know them so well, and we are keeping addressing opportunities together with Petrobras brands to future projects and -- give us the way.

[Unknown Executive]

There are some questions about CapEx. I like to join them. CapEx of [ BRL 46 million ] lower than the third quarter '23. This draw was aligned with the expectation of the company that is a drop and lower addition to storage or well is because of the lower activity in Potiguar. If it makes sense to think about the higher transfusion of the inventory. And how should we think about the base of our over and will for 2024? Is it a higher penetration in any quarter. What we see the quarter after quarter variation, the BRL 60 million of reduction is addition to this -- inventory what we call more fixed assets, great parts related to the expansion of services and real state. These are the items that reduced compared to the previous quarter. When you see reserve development line, they work over rating facilities process grew compared to the third quarter. So there was no decrease -- for quarter compared to the third.

[Jose de Mello Firmo, executive]

I do not remember the other part of the question. Expectation for 2023, I mentioned the inventory during the presentation, our expectation is that decline contributes in a negative way, the consumption of inventory will fund a great part of this CapEx and decline of reserve development for 2024. This could have happened in the fourth quarter. Otherwise, we have the inventory of spare parts of the drills.

Question of Lucas, the normalization of the production -- costs and restrictions for fourth quarter will they exist and details the cost that we had at G&A. I would like the first part. The expectation by May you eliminate on the effects, especially the effect of increase of fluid in the well intervention in the wells that need listing and help back to the original production. There are several actions in the field to reestablish and remove this effect and the expectation that everything will be done in May. I don't know exactly the question. Would you like to say something?

[Unknown Executive]

Talking about SG&A, the main events I mentioned during the presentation, personnel cost, the retroactive collective parliament the retention bonds in the quarter. These were the main ones that we impact into the quarter. And the final element that the cost unions of the engagement and disengagement of the drill. We internalize PR21 group did not operate in the quarter, so there was a cost of the teams and also this engaging on drills, outsource drills, of them bring penalty over determination, and this was accounted in SG&A.

Just to complement the cost of sales that he mentioned I mentioned the expenses on sales during the period that we were selling spot instead of having containing the price of sales the discount logistics discount. Only one this quarter, we had these costs -- we incurred it costs of course, transporting oil, storaging, Import area as well and loading the share that we incurred in that revenue quarter.

Back normal in the first quarter this year, January, as we are spending the oil to 3 in the contract normal contract and the is discussed here in the sales price, ringing and considering the quality and also logistics.

[Unknown Executive]

Perfect, we are we ran out of the time. And the final question is for the Board of the company and then the orders, the aim is favorable, and we are going to -- and the final question, so we conclude here. Now that you are set Petroreconcavo, can you talk more your point of view, strong point, but especially the weak points that need to be improved in the company.

[Jose de Mello Firmo, executive]

Very briefly, I will answer, and I hope that we have still room to talk more about it in our event in April. But the 3 strong points base strength that I highlighted in my presentation and leave my attention and the level of duration of the company. Looking ahead, with flexibility with auction on projects on growth. It was one of my means the -- to understand better meet long term what the company was being about. And what we intend to do is to bring more clarity of our visibility not only for us, but also for the market. So they need to understand what the company intends to do and the leverage of growth that we are having.

Considering what we need to improve, I name here, and I talk about this general of scale. It was a company that has always been able of delivering production growth, cost is under control. It's a company that has a lower cost of lifting here in Brazil, in onshore and is a company that has in the DNA capacity of implementing improvement resilience in everything they do. But it's a company that now has 2 or 3 more trips to do. And this capacity of doing things the same way as they did even better, this is a big challenge the company needs how to pursue new mechanisms of delivery, especially in cost control, capacity of maintenance of growth in a competitive way. So what I would say, efficiency wise, essentially in our both process of capital allocation with more than 50 actions and alternative of more than 2,000 element in the project is the capacity of prioritization to delay every day, month after month with maximize efficiency, this is one of the areas that's going to be focused. So the company can do it better and better -- efficiencies and capital allocation in a robust gross and what I call onshore, you need to have parts of bold net for this project, but also capacity of learning fair, as you have one in our list of projects, you must have a continued process ongoing [indiscernible] to take the best direction not in [ 50 ] are not changing our best way because you have a pretty fine program.

So this agility is flexibility to has of allocation of capital measure of lot and agile is one of the big areas of focus in the next month.

[Unknown Executive]

Perfect., so we are going to conclude the session. I'd like to thank you so much for your attendance. We have an attendance that was very high. I apologize for not answering all the questions, but they are going to be answered by me and our IP -- here for you available as become. We are working to have Investor Day in the beginning of April. As soon as we have all the details, we communicate.

Good afternoon. See you next time. Thank you.

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