Petroreconcavo SA

BOVESPA:RECV3

[Interpreted] Generation of cash achieved a new record in the story of the PetroRecôncavo and over the year, we reformulated the capital structure of the company, and we closed 2024 with 0.8x of the net debt over EBITDA and a reduction of 25% in the average cost of the debt as Rafael was going to show you later on.

Operationally, we had several advances and production was stable and there was increased production and there was growth in [indiscernible]. We started the acceleration of the program in the company and for the first time in our story, we have 3 probes operating at the same time in our fields. And besides that, we have a deeper well, the deepest we've had at PetroRecôncavo and this is in Biriba in Bahia. With regard to mainstream, we signed an MOU with Brava for the acquisition of 50% and it's another important step in the resilience plan of PetroRecôncavo.

We closed the year with 26.3 million in the region with an increase compared to 2023. We started the acceleration of the preparation program, the drilling program, and we have 7 new wells in the last three months of the year, and we've already seen the -- started this with an average production in February of 7.3 million barrels per day, representing 4% with regard to the average production in 2024.

We have 2 more probes, 2 more rigs, and it's 202 workovers and 212 done in 2024. We were able to reduce the backlog with regard to the certification -- reserve certification, but it's still 7% below the number of workovers that were planned for 2024.

This slide is well known, and it shows the advancing of our commitments since April of last year, and we have some targets for 2024. So São Roque started its activities in the beginning of July, operating without any restrictions in the last half of the year -- last quarter of the year and also the natural gas with continuous delivery to Bahiagás. The model that excludes this division of the payments. This is for -- according to the gas that is delivered and besides that, we have also operational gains.

UPGN Miranga, as promised, we closed the year with a final decision from the administration Board that approved a capacity plant and the possibility of expansion until 1.5 million cubic meters a day and expectations starting in the end of 2027. In Potiguar the company signed an MOU with Brava to acquire 50% and operating in [indiscernible]. Truck loading in Potiguar was finished and the loading operations increased our flexibility and this allows for more capillarity [indiscernible].

Besides that, we are evolving in the negotiations of studies with new routes and as we announced in the last call, very soon, we're going to have more updates about this topic. And finally, we delivered the monitoring center and we have an advanced monitoring system in the electrical grid of the company's assets. And this allows for faster and more efficient responses when there's variation of energy, so avoiding loss of production because of electrical issues. And definitely, we have more reliability in our grid. And other operation that are being taken care of, and we're going to give you the details in this presentation after.

Thank you very much. And moving over to Rafael.

[Interpreted] Thank you, Firmo. Good morning, everyone.

So our net revenue is BRL 3.3 billion in 2024. There is an increase of 16% with regard to 2024, impacted by the high value of the dollar and the hedge and the external perforation drilling systems. So on the negative side, we have a reduction of 2% in the price of the oil barrel.

Now as we can see, the negative impact of the oil hedge in the year was about half of the impact in 2023, reflecting the fact that we have come to the end of the things we did in the pandemic -- the payments we did in the pandemic. Going over to the costs, we had an increase of 4% in the lifting cost or the extraction cost of the company and closing the year with an average of $13.60 per oil barrel.

With regard to the quarter, the lifting cost was $14.52, 5% above the third quarter and these increases were a reflection of the increase in the cost of repairing rigs because they broke down during this period and also the assets associated to the increased operational resilience of the company.

In terms of royalties, over the year, we had benefits with ANP reduction of the instalments in terms of incremental production, together with the concessions. And in the annual comparison, we had a reduction of 6% in the royalties and during the quarter, we had an increase of 19.1% because of the increased dollar and the increased production in the field, and this is above what we have in the other fields.

Now in midstream, we had another downfall. We had an accumulation of 13% a year. And in São Roque the reduced cost of processes and the transport of natural gas because of the deliveries to Bahiagás. And there's improvement in processing with third parties in Bahia and [indiscernible].

In 2024 we had a record EBITDA of BRL 1.6 million, 29% above the previous year because of the increase of BRL 450 million in revenues, as explained before and a reduction of BRL 3 million paid royalties that was partially compensated by an increase of BRL 98 million in the expenses. We closed 2024 with the EBITDA margin of 50.3% and 5 basis points compared to 2023.

The EBITDA of the fourth quarter was BRL 403 million, a reduction of 8% in the quarterly comparison in the same period. And then we started the year with a record EBITDA in oil showing our operational excellence and our financial discipline.

Two important points in 2024. The generation of free cash and payment of dividends was a record. The company moved to a new standard in terms of free cash. So the company paid for all its CapEx program and generated BRL 1 million in free cash. That's operational cash plus the discounts and the intangibles. And as a result, it was possible to pay our shareholders, and it was BRL 2.75 per share with a dividend yield of about 14.5% a year, reinforcing our commitment to the generation of value and remuneration to our shareholders.

The total CapEx was BRL 307 million, a total of BRL 822 million a year. There was a reduction of 25% when compared to 2023. As explained before, we accelerated the drilling program with 3 [indiscernible]. Then, in the fourth quarter, we did an investment of BRL 280 million in the development of our reserves, where BRL 109 million were allocated in the drilling of new wells and then BRL 69 million in facilities.

We also invested BRL 49 million in other lines of fixed assets, especially in the acquisition of software. For example, the implementation of our [ SAP S/4HANA ] in the company, and there was a go-live in January of 2025. And we had several installations in different areas of the company. So we have an additional reduction of stocks of BRL 22 million in this quarter. So it's a total of BRL 95 million in the reduction of the accumulated for the year.

We had a profit of BRL 681 million. So that was the adjusted profit. And the adjustment is to try and remove the non-cash effects of the exchange rates in the long-term debt of the company. The adjusted profit, as a result, had a reduction of 4% with regard to the previous year, and this was impacted by the increased costs and expenses, as I explained before, and the depression because of the increased investment in the reserves and increased production in the Tiê field.

And finally, 2024, this is definitely an extraordinary year in terms of the redesigning of the capital of the company. We very successfully did the first 2 emissions of debentures in the story of PetroRecôncavo and the main results were a debt of 220 basis points cheaper and 2.5 years longer.

We also received the first rating of [indiscernible] AA by Moody's Brazil, proving its financial soundness. And we closed the year 2024 with a net debt of BRL 1.3 billion, which is equivalent to 0.8x net in 12 months with a dollarized cost of 6.4% a year and that is very easy for a company in our sector.

So now we can start the Q&A session with Marilia.

[Interpreted] Thank you. The first question is from Tasso from UBS.

So, I'd like to go back to the discussion about how you prefer to position yourself between dividends versus M&A. So, feedback are the option. So, in 2024, you paid dividends, and now in 2025, there's a discussion of an M&A potential. But looking 4, 5 years ahead, how do you see the company? What is your input? Do you have any target for a minimum production volume?

Thank you. I think these are the main questions of the day. Let us begin with the dividends. The company or the discussions that we've had in 2024 with the Board and over here internally with the management, it was about what is the best strategy. And I had the opportunity to discuss this a lot during the year with several investors at different conferences about our alternatives. So what we consolidated last year with the Board was a revision process for capital allocation that would be clear internally speaking, talking about the alternatives that the company has.

So the main driver for this, in my opinion, is related to the external environment. So today, we work in an environment in what we call the Brazilian onshore environment. And even if I expand into an environment of mature fields because, in this Brazilian sector, this is very young. And most of the companies, maybe there's like 5 years of operations. That's very little time for us to have a good idea about how this is going to evolve, how this sector of mature fields is going to evolve.

In other words, we have an external environment that can change quite rapidly and can change its behavior and the opportunities for the company. So, since we've already seen, it is an environment that definitely calls discussions and M&A, and the company has to choose, or most of the companies, I'd say, they have to choose well before what they're going to do about it. And PetroRecôncavo because of its capacities to generate higher margins compared to the others. And there is a balance sheet that is very solid. It has the opportunity to have greater flexibility.

Last year, we chose, and we continued to choose as our strategy, flexibility. And this flexibility is in the alternative to accelerate the development of reserves or not. So consuming more CapEx in the alternatives of entering the midstream that was chosen in 2024. It also allows the company to develop its reserves, especially gas reserves, much more assertively. We talk about the treatment of gas in the future. And in the M&A alternatives, so what we have available today in this medium and short term in terms of M&A and in the return alternatives return to the shareholder and especially dividends or stock buyback.

So this structure that was reviewed, it was established and it worked last year. And in total, when we evaluate everything, the best alternative for the company was the payment of dividends, and it was done according to this kind of structure. So, this continues to be our guide. It continues to guide us and continuing this kind of structure, and this is from 2025. And if we decide to change to a more assertive dividend structure, then we communicate this to the market. But today, the Board of the company understands that the best strategy to capture opportunities that are still beginning to appear, but there's a huge potential for them to appear, is to be flexible.

Now, in terms of production, 2024 definitely was a year where the challenges for execution in the first half made it difficult, and it did not -- they did not allow us to achieve the production standard we expected. But it's also a year where we had a review of our structure, especially in those medium and long-term projects for drilling, and we redesigned the field. We saw a huge potential there, and it was proven, especially in the last -- at the end of last quarter. We reviewed the development plan for Tiê, and we started implementing it at the end of the year. This made us reduce the amount of CapEx in the first quarter, and this is definitely -- there was an effect in production.

And then starting in the last month of last year, we saw the main components in production. So execution of the workover, repairing of the wells and drilling. So this is according to our growth expectations and our growth in production. So our expectations for 2025 is a robust growth in production.

And when we talk about onshore, when you have this number of activities, hundreds of activities a year, it comes and it's going to be discussed in the next event. And there's a range of probabilities of projects and there's a range of CapEx consumption as well. So we're going to have a huge opportunity to review this in the next presentations of the next event.

So these are the 2 questions, right? Okay. So next question is from Bruno Montanari from Morgan Stanley.

So with the acceleration of the drilling in the fourth quarter and advancing of the results in the first months of 2025, could you mention if the performance -- the operational performance is already more stable. So we don't really have failure of the rigs and production is higher. And then if we can have a lower lifting cost now in the beginning of the year.

So all of us have a commitment. The policies of the company is a benchmark. It's the smallest. So taking what Rafael said in his presentation, [indiscernible] in his presentation. So that's exactly when we use lifting costs and G&A per barrel and we compare the company. So it is a benchmark, but it has been small and there's a potential of continuing to go down. So this is the objective, right? Increase efficiency of the company is always our objective. However, this year, especially 2024, we made a strategic choice of using most of our initiatives in trying to increase the operational resilience of the company.

So I have the perception, and we discussed this a lot internally was a company that had grown a lot with a lot of growth capacity still that needed to make a better arrangement to suffer less in terms of external effects, external effects that could cause production problems such as the electrical failure problems or failure in the wells. So this whole structure in terms of operational resilience, there was a lot of investment in that. So this is not a decision where it's perennial costs we're talking about.

They were used this year. They're going to continue to be used in the first month of this year, the first quarter, but our expectation is to have a reduction of the lifting cost trend. When we look at our reserves, the ambition of future lifting cost is well described. So it's a lifting cost that over the years will be reduced at every moment. But we understand that last year, this investment, this focus was necessary. It is still not 100% sold. We still have projects. We still have a series of initiatives that are going to continue to happen this year. But there's an average lifting cost that we expect, and we think there's going to be an average production increase that will be robust this year and a reduction of the lifting cost from last year compared to this year. So this is our expectation for 2025.

Okay. The next question is from Pedro [indiscernible] from Citi.

So considering -- just a second. The company talked about few certification for reserves. And the company is going to compare – is going to focus more on other assets and not the Potiguar asset. Why did you make this change? Could you have certification as a guidance for the next few years?

So that's an interesting perspective. I'm not -- I didn't understand how the reserve is going to actually give you that impression. So it's not a reality in the company today. The reserve certification and once again being careful to leave this discussion for the next event, the certification comes due to a strong robustness and above my expectations, especially because it shows strong points in Potiguar as well as in Bahia. So if we look at the reserve replacement ratio of PetroRecôncavo 1.7, it is exactly 1.7 in Bahia and 1.7 in Potiguar. So our certification shows robustness in both assets.

And of course, in Bahia, it has to do with the new development in the review of the development of Tiê, but it also shows a lot of robustness in the Potiguar projects. So in our choice, and you will be able to see this in the slides of the next event, our choice of projects is very pragmatic in terms of allocation of capital and in the return of all of these projects. So they created more than 400 new projects certified in the reserve certification matures. And these are opportunities. And these opportunities compete almost on a monthly basis in a more structured manner.

They compete in terms of the best projects to be developed. And they have a certain level of visibility. Of course, we understand the more than 1,200 projects on the list, but they also have flexibility of learning coming from the previous quarter, the previous year. So it's a very interesting challenge in terms of planning and flexibility, and this makes us choose that. So the projects that compete gas, oil, Potiguar, they all compete to go into the list of priorities because of their return. So nowadays, we don't have a preference or an alignment of investment in Bahia or Potiguar.

In the last quarter, there was a great focus on Tiê because we have developed this new plan, this review of the development plan, and it was calling for investment. So it's not only the reservoir but also the SO, the drilling and the expansion of the facilities, investments in facilities and also the flow in Tiê. So when this became ready, we invested in Tiê to get the result that we've seen over the last few months. And we're going to talk about this a lot in the next presentation.

The next question is from Monique Greco from Itau BBA.

So the selling of crude oil in Potiguar changes pricing, and we're talking about the change in the margin. Could you give us more -- a greater explanation about how this is going to work?

Thank you, Monique. Basically, we have changed from a contract that discounts taxes sort of, let's call it that, where the discussion was what is the discount that is going to be applied over the next 12 months. And we moved to a contract to try and find efficiency together. So this is a great advance, and we had talked about the discussions that we've been having with the team from Brava and special recognition to the team and to the engagement that we had this year with this team from Brava that brought a lot of advancing and -- a lot of advance in the improvement of systemic improvement in Brazilian onshore. So we go from fixed point contract to a contract that seeks efficiency.

So if we're talking about logistics to deliver oil or maybe dividing the value of the spread between crude oil and derivatives that we produce there. So it's a mix that allows us to have discounts that are as low as we've had in better contracts and discounts that are more or less, let's say, with cap -- so it makes us safer to operate with this contract. It's a 2-year contract. And this contract Monique it also brings a commitment that has already provided a lot of value.

So increased tanks so that we have flexibility for the companies to operate. So we have had a business interruption in the refineries of almost 2 where both companies were able to this time not stop any of the wells and not reduce their production. So this is because of the tanking partnership.

So it's a lot more advanced. And in my opinion, it shows visibly the partnership and that's what I've always talked about in onshore. We complete even in the bidding process and the next day, we start developing partnerships that bring value to everyone, reducing the cost; everybody's cost. So this is a little bit of the view that we have in the contract.

And afterwards, I don't want to take away Joao's information. Joao is going to have the opportunity of giving you more details after the next event. Would you like to add anything, Joao? Do we have a microphone for Joao, please?

So only about the possibility of recovering the spread. So we worked in the long term, and we recognize that last year, the products derived from the refinery, they had a negative spread. And we work so that we could look forward in the view of having the possibility of a better market. If that happened, considering the refined products sold, we would be able to sell them. Of course, we've had ups and downs regarding that, but it's very important because the market is going to continue to be what it was because in the beginning of last year, we were able to recover the spreads that we had lost in the previous years.

Next question is Luis Carval from BTG.

So can you update the negotiation with Brava in terms of onshore assets and about the negotiation with UPGN Guamaré? what are the next phases for the negotiation and the closing of UPGN?

So let's start with UPGN Guamaré. So we advanced over the last 2 quarters the understanding how we want to operate and how we believe we should operate. So I would even say that we have a consensus about how all of this is going to happen. And now we are in the phase of construction of the legal structure that's able to take us to signing.

So I'm very motivated and happy with the advancement of what we did in Guamaré. But I had a previous leader that I worked with who said, let's wait for the ink on paper. Let's wait for the signing so that we can announce this contract. But I'm quite satisfied and never satisfied with the timing because we always want to accelerate things as much as possible. But I think we've never been this close to finding a definite solution for the future of gas treatment of PetroRecôncavo and Brava in UPGN Guamaré.

Out of the M&As, I think it's the traditional response that I can give. So I learned to give this after 17 days in PetroRecôncavo. PetroRecôncavo is recognized for its operational capacity and its balance sheet that is ready, just like the main event. [ Bronto ] is ready. And to start the process, I go back to the organic growth business and it works and Joao, myself, Rafael everybody here. We are or we will be in all of the discussion tables of M&A opportunities for onshore. However, in spite of all of us, we all understand this, and it's almost obvious about how this should happen in the future. So this pricing, the decision of how to do this, if it's going to be an acquisition, if it's going to be something else, if it's going to be an advance or a different structure for the future. So obviously, they're very hard, its complex, and we need to get to the final pricing.

This is something that evolves. And I've been discussing, I've been discuss -- I've been seeing these discussions for many years, and I'm happy to see onshore where it is today. And if we check where we were 10 years ago and where we are today, the advance is fantastic. It's really brilliant to see you having the opportunity-- you had the opportunity to see our discussion about the advance in [indiscernible]. But this is a continuous process, and we're going to continue giving you updates as things take on different levels in these negotiations.

Next question is from Marcondes from Bank of America.

The midstream costs are continuing to go down every quarter. And you explained this due to the new UTG. So what is the expected cost in dollars per million of BTU after the conclusion of UPGN Miranga and also UPGN.

I think Joao is not going to want to give us the number here. I think it's easier to give you an example and you're going to see this in the example of UTG. We had a reduction of $1.14 -- $1.70 actually in the cost of – in midstream cost when we put to UTG work. So this is a number that we can talk about.

But the expectation is the follow. [ Proxy ] in Brazilian onshore. It is not the cost that it will be in the future. So this is one of the effects of this structure of gas treatment and the infrastructure of how it was divided in the process in Petrobras. And maybe this is one of the greatest advancing opportunities for reduction of systemic reduction of the cost, so that's for the future. And our strategic decision to verticalize enter midstream, it has its main source and the fact that we believe that these values are absurdly high, and we have a window of opportunity to capture value.

So the cost has been going down every month, every quarter. And the expectation is for it to continue going down, especially now because now we have definitely entered the midstream activity, and we have made this investment decision for Miranga. So Miranga is funded in 2 great topics, growth of future production of gas in PetroRecôncavo because of our view and our gas reserves in Bahia and the possibility of -- through investment and very efficient operation, reduce the midstream cost to the international standards, let's call it that. And in this way, have value for the company.

So this is the dilemma proxy is basically looking at the midstream cost in the more developed areas of onshore in the world. We have a good proxy of our benchmark. As Troy usually says, that we are the benchmark in Brazil, but our benchmark is not in Brazil. Our benchmark is to operate in an even more efficient way, trying to get the efficiencies that we see in less land. And here, we have the representative that reminds us of this every week, reminds us of our efficiency objectives, right, Troy?

Yes.

So next question is from Gustavo from [indiscernible]

Last year, the company seems to maximize [ Tachyus ]. What is the payment of JCP in terms of legal limits, although there has been organic growth, there seems to be room for the remuneration of shareholders. Can we expect minimum dividends or they're going to maximize the JCP again?

That's an interesting question. It's very good for you, Rafael.

All right. Is my microphone working? Yes. So the strategy to share dividends is always what we prefer to do because of the benefits, right? And following this, we will have room for significant payments similar to the amount that was paid JCP last year.

And the reference amount compared to the equities, it's a robust amount. But what we showed in 2024 and what the certification of the reserve shows, the organic expectation of the company will continue to consume a fraction of its operational cash to pay for the CapEx and there will be a significant amount remaining.

And what I think could change is an M&A event, more significant events where you can reserve a little more free cash flow so that you don't really leverage the company too much. So besides M&A, I think there is a lot of room to repeat a little bit of the dose of what was done in JCP in terms of JCP in 2024. Historically, the preferred manner of paying the shareholders to maximize JCP first before we go to dividends and buyback.

Okay. Because of the time since we still have a longer agenda after the closing of this call, I left this question to the end. It's from Luiz Carvalho from BTG Pactual. He wanted to take this opportunity to reflect upon this last year. It was the first 1, this first year in the company. So what surprised you when you arrived 1 year ago? And what are the main challenges that you found? And looking at the next 2 years, what are your priorities? And where are you investing more time in your agenda?

I think it's a reflective question, an interesting question. And I can't start answering this question without making a comment joke. So nobody -- nothing actually surprising more than a later 17 days after I entered this position.

But jokes aside, this was a year with a lot of learning and especially understanding PetroRecôncavo and the dynamics of Brazilian onshore. So I was following this up at a distance. And this year, I have to go in and understand company that is so capable with a huge potential. How can it maximize this, especially in the medium term in these onshore opportunities.

And this perspective, this strategic issue, trying to maximize everything that PetroRecôncavo has, it was one of the great topics to be able to understand, and it was facilitated by the surprises and it was dynamic because it was an extremely dynamic year and it was in the beginning and I started at the beginning, and it has to do with the speed with which I have the opportunity of understanding the dynamics and the onshore strategy compared to the PetroRecôncavo strategy.

Definitely, operationally speaking, it was a challenging year because I got there right after an event. We talked a lot about it, but we have to talk about it. It is a unique event of complete interruption of the operations [indiscernible] and the long-term effect this had in the whole structure of the company in the view of the reservoirs and injections and all that.

So it made us have a very tough first half of the year, very different than what we would like to have in terms of production. And there was a reset that we did that was very strong and looking at the second half of the year with a lot more ambition and strength. And this was the motto for me and this is what I expected in 2024.

And then I hope that you have the opportunity of seeing this in the video after the event. This is exactly the result of what we were able to get, what we harvested in the second half of the year, and we have the sensation that we have today. I think the name of the event was chosen because we tried to express the sensation and a company that, after this year, after implementing its main initiatives from last year, it feels it is in a different moment compared to what it was in the middle of last year and now in the beginning of the year.

So I think this is -- my reflection is about a year that was very difficult operationally speaking and I think it reduced in the second year, it really increased our courage for the next few years. So I'm going to conclude this with a positive surprise that was kept very carefully by [ Valgone and Santiago ] who's here. And for those who would like to understand more about how the reserve report is done, so we brought our small giant over here in Santiago, who is a specialist in reserve reports.

So how the robustness in the reserve report. So our main reserves last year were how to go back to producing more reserves. And we have to increase our reserves through its specialization in the reservoir. So understanding the reservoir and developing projects during the year. And at the end of the year, they can be robust enough to be able to convince the certifier to sign this and to certify this.

And we had a reserve report that we're going to talk about a lot now. And it was very important and trying to continue to generate results, and we produced a little over 9 million barrels of oil equivalent, and we generated a little over 16 million reserve barrels, new reserves certificated for PetroRecôncavo and the cost of the reserve is in line with what we're trying to do every day, so increasing efficiency.

So I would say this was the final reflection. It was the pleasure of seeing the certification, accepting the certificate of accepting everything we did and certifying our reserve report that was very robust with the PetroRecôncavo DNA and with the concern about efficiency that is well marked. And this is what happened in the last -- what we published last month, our reserve report. So we're going to talk a lot about that starting now. Thank you very much, Marilia.

Thank you, everyone. And I would like to call your attention to the fact that together with the results, we have already published the certification for 2024. The presentation of the certification has more details. It is already available in the site and the video of this presentation will be available on the site as well to mark the end of the day. Thank you, everyone, and see you next meeting.