Petróleo Brasileiro S.A. - Petrobras Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 8, 2024

There are 2 speakers on the call.

Operator

Good morning, and welcome to Petrobras' Earnings Call for the Q1 of 2023. It's a pleasure to have you with us today. This event will be in Portuguese, and we have simultaneous translation into English. You can find the links to both on our Investor Relations page. All participants will be in listen only mode during the company's presentation, and then we will have a Q and A session, and you may send us your questions to petroinvestpetrobras.com.br.

Operator

We have Jacob Batz, President of Petrobras Clarissa Kopette, Corporate Affairs Sergio Caetanoleti, Financial and Investor Relations Director Mario Spinelli Governance and Compliance Director Thomas Manasquin, Energy Transition and Sustainability Director Joelson Mendez, Exploration and Production Director Emilio Fronza, Industrial Processes and Products, Lager Schlacher Logistics, Trade and Markets Carlos Travassos, Engineering Technology and Innovation and Maisa Golar, SEPs. We'll start with a word from our CEO. Go ahead, sir. Thank you. Good morning, everyone.

Operator

Dear shareholders, investors, I'm very happy to talk to you today, not only because of the excellent economic and financial results we're going to present today, but especially because I am convinced we're building a more robust Petrobras that is more resilient and it's better able to generate value on the long term to its shareholders and for society, facing the numerous challenges that we know and don't know created by this world in transition. From the beginning of our administration, we have emphasized this need to adapt the company to a new energy context in which the main driver is decarbonizing operations and energy sources. This is due to a legitimate request from society, and it requires new solutions to reduce the use of fossil fuels. We're aware of the challenge. And so we built a We aim to be responsible and transparent in our plan.

Operator

We understand that we will have to go through a gradual transition. And so we will continue investing in producing and exploring oil and gas, an industry that generates the biggest returns and also in integrating our downstream logistics, supplies and refinement. We're also going to generate value through a fair and responsible transition diversifying our operations into profitable low carbon businesses by prioritizing partnerships. And as I've emphasized, we want to do what we know how to do. In each industry, we have synergy between what we used to do and what we will start doing as well.

Operator

And all of it will be done by focusing And all of it will be done by focusing on capital discipline and on a solid governance, remaining rational across all decision processes. And this rationality has guided the commercial strategy that we've implemented. We're aiming to increase the company's competitiveness, to achieve new markets, and to create more stability for our decision making process and for our consumers as well as our payout policy because we want to consider higher investments and we have a need of maintaining our financial health. So I'd like to highlight the proposed dividends for 2023, BRL 72 point 4,000,000,000 that will be paid to Brazilian society, which owns 37% of Petrobras shares. And they've benefited from over $240,000,000,000 in taxes.

Operator

We've also had market value records since our administration started. In 20 23, the total returns from our preferential shares in the New York Stock Exchange in U. S. Dollars reached 112%, which is far above the highest returns of the majors, 20%, 20% versus 112%. This was all possible because we put people first.

Operator

And to give them value, we created a diversity, equity and inclusion policy and a racial equality program. People are definitely our highest asset due to their effort, due to the love for what they do, and we're building a solid and promising future for our company. Actually, people were the driver behind our biggest results this year, especially now that we're celebrating 15 years of exploring the pre salt layer. We're reaching record oil and gas production levels with fewer emissions. We've also inaugurated 4 new platforms.

Operator

We've reached record refinement levels and we have the highest energy efficiency in our history. We expanded our bio refinement capacity, and we were able to process 100% of soybean oil in an industrial refinement unit with a Petrobras patent. We also improved our carbon efficiency, cutting 1,800,000 tons of CO2 from our emissions. And that's not all. We won the main Global Offshore Award, OTC Distinguished Achievement Award in 2024.

Operator

So we are being recognized for our efforts in renewing the Campos Basin, which has become a benchmark for the global industry. We were also record holders in patents. This is only a part of what we've achieved. We had so many victories that it could be an entire book. So that's why I always say to our dear shareholders that Petrobras is back.

Operator

It's back to prosperity, generating long term value and building a better world. We're going to face the challenges we have and make use of the synergies in our business based on our expertise, which is well known by all. We've never neglected and we never will neglect generating economic value, which is a requirement for any company that wants to be competitive and perpetuate its value for future generations. As I said about a year ago, it's very pleasing to lead Petrobras. And these results are a source of pride for all Brazilians and for all shareholders and investors as well.

Operator

Believing in Petrobras, trusting our administration has paid off. These are the results that we're giving to the people who are sticking with us, who know that we're on the right track and who know that we're going to get it even more right in the future. Thank you, Jiang. We'll begin our presentation on the 4th quarter earnings results. So I'll pass it over to our Corporate Affairs Director, Clarisse.

Operator

Hello, good morning. I have a few highlights from our Corporate Affairs Department at Petrobras. I know that you are probably more interested in other topics, so I'll go very briefly through a few highlights. I'd like to start by thanking my fellow directors for letting me go first because of the numerous activities we have in the company currently for International Women's Day. So I'm going to start with something that was very important for the company, which is reorganizing our workforce.

Operator

In the last year, we took on nearly 2,300 new employees, all completing the training program. No employee can go into the company without these training courses, which can take 4 months to even more than a year depending on where they're going to work for. In the current world, in our society, we also invested in, this could not be different. We created a diversity, equity and inclusion department in the company, and we also established goals to achieve better equity and diversity in the company's leadership positions. We also launched a diversity, equity and inclusion policy.

Operator

All of our terms of cooperation have a diversity clause. And we also won some awards due to the achievements that our teams had last year. Some other highlights. I have to mention our supercomputers, which are not only designed to have energy efficiency, but they're also reducing processing time for our simulations. Petrobras does a lot of simulations for our oil and gas reservoirs.

Operator

We're also investing on Quantic Computing Studies. That's the next level that we hope to have some results on this year still. We had training sessions on human rights for all of our security professionals and everyone who works with corporate security. And this was for our units and our headquarters. Another important highlight that we had last year is that Petrobras is starting to work across the country, taking advantage of regional potentials.

Operator

And we started placing our teams in some of our areas that had been in hibernation in the Northeast of Brazil, especially in the states of Bahia and Rio Grande do Norte. We also made investments into artificial intelligence. There's a huge discussion in society. And so our teams have been working on that as well. And of course, I have to highlight this not only because today is International Women's Day, but also because we're making dedicated investments at all levels of the company in actions aimed at women in the workforce.

Operator

When we talk about the workforce, we're not only talking about Petrobras employees, We're also referring to our outsourced workforce. We have a number of actions for this. We will also be available to go into details about them if any analyst is interested. Another significant highlight is our commitments to environmental, social and governance aspects. We have a program titled Commitment with Life, which encompasses our environment, operational safety, excellence and health and well-being initiatives.

Operator

We had great records last year, and I have a few highlights for you. We had over 7 100,000 hours of HSE training. We're also working in the company to be positive in water. So we're launching a number of programs for water safety. And not only do we want to treat all the water we use, but we also want to return clean water to society.

Operator

We also had a very important process, training our leadership in the company in mental health. This is also a significant discussion that I'm sure is taking place in all companies that you analyze. Let's continue with the next slide.

Speaker 1

Also, I want to highlight the social responsibility actions, such as entering the technical cooperation agreement with the Ministry of Human Rights and Citizenship, promoting an enhancement in public policies and business governance practices when it comes to human rights. The launch of our Racial Equity Program last year, also the 2023 public selection of the Petrobras Social Environmental Program, dollars 432,000,000 are to be invested in over 60 projects over the course of the 3 years of execution in segments where Petrobras operates. So this is a program that we've been dedicating ourselves to very dearly because it has direct impact on the communities that surround our operations. Additionally, the update of our social responsibility policy and also a recognition of our sustainability report as one of the 10 best reports of 2023. This is my last slide.

Speaker 1

I know that we are covering several different segments, and I'd like to make myself available and make Investor Relations available to answer any questions you might have. And with that, I'd like to give the floor to our dear Financial Director, Sergio Caetano. Over to you, Sergio. Good morning, everybody, and a very special day to women on this Women's International Day. Like President Sean Paul said, our market valuation was way above our ADR, 120 percent, whereas the others at 20%.

Speaker 1

In the first slide, you see the valuation of Petrobras in Brazil. The ONs and PNs are highlighted where you see very good numbers. And also a comparison with the other majors, the TSRs, with the return to investors. You can see Petrobras. We added value to the company in the amount of R150 1,000,000,000 in compensation to shareholders, R20.4 billion with $19,700,000,000 in dividends and $700,000,000 in the repurchase of shares.

Speaker 1

To society, we paid between taxes and governmental shares BRL240,000,000,000, thirty R6.6 billion dollars of all dividends paid by Petrobras went to the controlling group that's comprised by the federal government. We also contributed another R54 $1,000,000,000 in the valuation of the public assets of the state. So in addition to adding value, that was also an important collaboration to society in terms of reverting these resources in taxes and dividends. These are some more data in terms of our financial earnings. An EBITDA of $52,400,000,000 is the 2nd biggest in history.

Speaker 1

The operational cash flow $43,200,000,000 the 2nd biggest in history. Free cash flow $31,100,000,000 the 3rd biggest in history. And net revenue, a net profit of $24,900,000,000 the 2nd biggest in history. And these numbers, the 2nd highest and 3rd highest, they were produced in a very adverse external environment. So we achieved 2nd and third place with a special highlight.

Speaker 1

We're going to look at the devaluation to customer to clients, but there was no decrease in investment. Quite the opposite, Petrobras has been investing, which brings even more value to these results. Our gross debt in line between $55,000,000,000 $65,000,000,000 And it's important to tell you that at the end of 5 years, the debt has been forecast to achieve a reduction vis a vis the end of last year. Another important aspect when it comes to our financial debt of $28,800,000,000 with a reduction of $1,200,000,000 this year. Return on capital employed, 11.2 percent, which is in line with the previous results.

Speaker 1

We also brought about the lowest difference

Operator

vis a

Speaker 1

vis the American bond to the market. And with that, we won an award, the quasi sovereign bonds deal of the year award by issuing $1,500,000,000 in 10 year bonds. Also, it's worth mentioning the transparency movement by the UN Global Compact. It's an effort that requires the investments and the involvement of the entire company. And we've been disclosing these results to investors and shareholders.

Speaker 1

In the external scenario, on average, in comparison with last year, we had a valuation of 18% in the brand, which is significant and has impacts on our financial results. And as you know, the diesel is the oil byproduct that Petrobras sells the most. Between the Brent oil and the diesel sold, we had a margin devaluation of 23%. In 2022, the oil appreciated reflecting the beginning of the Russia Ukraine conflict. And with the stabilization of the conflict, it went back to the margin.

Speaker 1

But we had an impact of -18 on the brand. Cracked spread -23 percent. In the FX, minus 3 percent. The real appreciated 3% in comparison with the dollar. So this combination of factors has a big impact on the net results and the EBITDA.

Speaker 1

And we can see that in line with Brent and crack spread, you see a reduction of 21% to our EBITDA. You can see the Brent prices at the bottom of the slide. But we're going to see that in spite of these adverse conditions, Petrobras did well. Here you can see our power showing usage sources, showing our cash generation, and how it was allocated in 2023. You see a cash flow of $12,100,000,000 in investments.

Speaker 1

We actually invested 12.1 $1,000,000,000 in 2023. And there's also an impact on the debt of $8,700,000,000 with the freight of new platforms. There's also a peak at that at the end of the year because we anticipated the addition of an FPSO and that will be felt further ahead with the anticipation of revenue in oil curve. Our dividends, including repurchase, dollars 20,400,000,000 financial expenses and financial amortizations. You can see at the bottom of the tower a comparison of the impacts of these scenarios.

Speaker 1

And these are the groups that we compare ourselves to. The free cash flow of Petrobras at $31,100,000,000 And we were second to Shell only with the 2nd highest free cash flow in the segment, in the segment of peer companies. If you look at the oil production, as Director of Jolson will give you the details about, we ended first in a tie with Chevron. And we are by far the leaders in the highest generation the organic generation of reservoirs. This is the result of the E and P teamwork, something that did not start last year and involves lots of people.

Speaker 1

Our EBITDA, one of the best in the segments, we finished 3rd behind Shell and Exxon, which are much bigger companies than Petrobras, but we are there fighting for the 3rd place with them. It's important to talk about downstream with an expressive increase in food. This comes from a decision of Petrobras to win market share. We're an integrated oil company. The biggest the bigger the foot of our refineries, the bigger the operational results we can present to our investors.

Speaker 1

And now talking about our debt, You see the indebtedness trajectory since 2019 in a decreasing curve in 2023. You see a slight increase that happened due to the anticipation of platforms with additional inflation costs and the supply chain, which is felt across the industry and the $28,000,000,000 line with a decreasing trajectory. There was a reduction between 20 232022. And that's a difference that refers to freights. If you look at the amortization, Petrobras closed $23,000,000 with a cash of close something in the range of $18,000,000,000 and cash available in the short term of $8,000,000,000 which is solid and in line with the market turbulence, which reassures us that Petrobras will be able to face the situation.

Speaker 1

In the line, you can see the amortization profile that's forecast for our debt. As we said before, our net profit suffered an impact of the adverse scenario, but it was still able to deliver to the market the 2nd highest net profit in history without divestments, considering only our work, even in the face of adverse conditions, with the crack going down and the dollar going up. Our contribution to society, we also covered that. You can see the data close to R277,000,000,000, of which BRL36.6 billion, almost BRL37 billion are related to the payments of dividends to the controlling shareholder or the Brazilian state, dollars 61,400,000 in government takes and dollars 178,800,000 in taxes paid. Generation to shareholders.

Speaker 1

Overall, we remunerated the shareholders in R78 point 4 gyrinh in 2023. Out of 72.4, they're deducted from the repurchase program. This was the 1st year where Petrobras implemented on a constant basis a repurchase program. And in this program, we repurchased 3,600,000,000 shares from the market. This amount is deducted from the total and we distributed in dividends the 72.4 $1,000,000,000 in 2023.

Speaker 1

It's important to say that the net adjusted profit after deducting the payments of dividends and anticipation of dividends and capital interest in 2023, what we were left with at the end of the year, we allocated to the Administrative Council to form a capital remuneration reserve. As we know, that was extensively discussed in 2023. And the purpose of this reserve is to pay dividends. There were some questions as to whether the resources could be used in investments. And no, they will not be able to be used to buy investments.

Speaker 1

This is for dividend distribution alone. So we allocated its profit the Petrobras profit surplus to that line. And that's where it's going to stay allocated. To put it simply, these were the results. As I said and as President Trump all said, these are very significant results for the 1st year of an administration.

Speaker 1

This is the result of the work of the entire company. This makes us very proud. And with that, I'd like to give the floor to Directors Pinelli, Director of Governance and Compliance at Petrobras. Good morning, everybody. Good morning to those watching us.

Speaker 1

Special greetings to women. Some highlights in governance and compliance. 2023 was a very important year. And in 2024, our Board will celebrate its 10th anniversary. In 2023, we had the 1st major restructuring in the department, creating new managements and broadening our possibilities in terms of disciplinary responsibility.

Speaker 1

I'd like to highlight that Petrobras is the entity that applies the anti corruption law, most heavily in Brazil. Around 20 percent of these sanctions are applied to companies under Petrobras' responsibility. We also created an area to work with data science, making Petrobras increasingly more capable to detect irregularities and also a specific section to deal with violence at the workplace. Last year, we once again did our survey, a compliance survey, with 80 percent overall. This is a weighted average between all of the replies.

Speaker 1

And this is a clear demonstration of how the compliance culture is disseminated across the company. We were awarded several prizes of which I'd like to highlight 2. The Public Ethics Committee awarded us a prize. We were the only awarded company in the 5 categories in the UN Global PACS, 100 percent Transparency, which is also a clear demonstration of how our integrity and governance actions are robust. And our professionals also won awards in several different categories.

Operator

Now to tell you a bit about something that I think is relevant for everyone in our decision making process. We have a governance strategy at Petrobras that gives privilege to technical aspects. So every decision is either shared or done through a collegiate process. In some cases, we need to have statutory committees or technical aspects. We also have a governance structure that deals with compliance, and it's very robust.

Operator

We have a Director's Office for Compliance, which is one of the 8 Executive Director's Office in Petrobras along with our CEO. Besides that, we also have internal audits, which are also independent. We have a reporting channel that works in 3 languages 20 fourseven across all the countries where Petrobras is. We're supervised by a number of regulatory bodies, and it all aims to ensure that we have technical decisions, we want to prevent undue political interference and ensure that our projects are executed with a financial return for the company. It's also important to highlight a few issues in this process that ensures that we have technical decisions.

Operator

The compliance officer has the power of veto in the Executive Board, And it can be used if any decisions do not comply with the applicable legislation or our internal regulations. As I said, the Chief Governance and Compliance Officer is independent. They're selected from the market and have a 2 year term, which can only be interrupted if there's a majority of board members elected by minority shareholders. And that ensures that they are independent enough to do their activities. I have 25 years of experience in anti corruption and governance.

Operator

And I played many roles in the federal government and also state and city governments and also in the private sector. I've talked about strengthening governance last year. As I said, our main highlight was the biggest restructuring for the governance and compliance office in the company since 2014. So we created new management positions responsible for the entire disciplinary process in the company. So now we have a very robust structure as we've never had before.

Operator

It's important to highlight that because it demonstrates how this area was strengthened in the previous year. Well, that's what I had to say. And I'll now pass it over to our Executive Officer for Energy Transition and Sustainability, Mauricio Thomas King. And I'll be here for any questions you may have at the end of the presentations. Good morning.

Operator

I'd like to greet everyone, especially women who may be watching us. So I'll start talking a bit about the gas industry. This was a very good year for it, but we launched new products with more flexibility in terms, That led to a record number of new contracts signed in 2023. We had 34 new contracts with 15 distributors, a total of BRL 167 1,000,000,000 in estimated revenues. We also traded 22,000,000 cubic meters per day starting in 2024.

Operator

This is about 55% of the total consumption in the thermal market in Brazil. We also made significant strides in resolving a number of disputes, especially with a few of our distributors. So we were able to reach deals and allowed us to sign new contracts. Next slide, please. I'd also like to briefly discuss the importance of thermal generation for our energy transition.

Operator

Some people might think, how are thermal plants related to renewable energy? We know that renewable generation is intermittent. You can only generate wind power when you have wind or solar power when you have sunlight. The graph on the left shows how it changes across 2 normal days. In yellow, we see sunlight.

Operator

But as we reach the end of the day, it reduces because you have less sunlight. And you need to have sources to replace it during the nighttime. And here we have 2 main sources, wind or excuse me hydroelectric power when it is available, but usually it is not enough. You also need to complement it with some thermoelectric power. So to illustrate this challenge, on the right hand side graph, we see a variation in thermal generation.

Operator

You can see that significant increase around 12, and that represents thermal generation. So in less than 4 hours, we need to add 2 gigawatts to our power generation. That's about the same as what is generated in the Angra II and Angra I plants. Next slide, please. We also had a very good year in decarbonizing our processes.

Operator

At E and P, we had a 10% reduction in our carbon intensity, which is very important for Petrobras to continue to use its oil in the future. In the future, we will only be able to take oil to the market if you can reduce its emissions. In 2022 to 2023, the refining industry reduced carbon intensity as well. And the same happened to the thermoelectric industry. There was also a significant reduction in methane emissions, 51%.

Operator

Why is it so significant? Because methane's impact on global warming is much higher than CO2. In 100 years, a methane molecule has a 25 fold higher impact than CO2. Finally, this is the newest section, renewables. In the 1st year, and actually our term isn't even 1 year long, it will be in May.

Operator

But during this last year, we created a governance program to approve projects for renewables. And this is done in a very safe and responsible manner. We signed MOUs with about 45 companies. So we have 45 business opportunities that are being analyzed. And this doesn't mean that we are going to take all of them.

Operator

Actually, it will be a much smaller percentage than this total number. But it's important to have this number of possibilities because this allows us to select things better. In carbon capture, we're looking at a new business which is providing carbon capture service excuse me, carbon capture services for other industries like refinement. So we're going to run a pilot in Rio de Janeiro. And we also want to highlight the low carbon products area.

Operator

We have, for example, a partnership with the logistics area launching Podium Gasoline, a carbon neutral gasoline that has a certain market niche. The refinement office is also working on diesel R, which is also very important to ensure that our refineries, even after the age of oil, still have a use, still can add value. We also can produce, for example, low emission asphalt. And I'd just like to conclude by showing this graph which was created by BCG. It's a very interesting slide.

Operator

The first graph shows that really, if you look at that green curve, it shows low carbon companies and in blue, a selection of oil and gas companies. We can see that on the short term, the returns of oil and gas companies cannot be denied. In general, they're much higher on average than the returns paid by these the selection of companies that have low carbon emissions. But what properties do we see here? Oil and gas companies have a variable ROCE, they can go to quite low values, while the average ROC for low ROC for low carbon companies is stable.

Operator

So we can see that investments into these activities and businesses, the low carbon ones I mean, mitigate risks and generate value while you're still protecting and gaining market share. A good example is D. E. S. L.

Operator

R. If you don't have diesel R, your biodiesel mandates would, little by little, lose market. So diesel R is a way of fighting for this space with our products as well. Podium gasoline is an example of how you can gain market share in a special niche. And this can be done at the same time.

Operator

The strategy allows you to mitigate risks of having, for example, rising CO2 costs. So over the long term, and this is shown by the last graph, investors who have invested $1 in a pool of companies in the oil and gas industry versus an investor who invested $1 in a low carbon company. In 2022, they would have about the same returns in total for that investment.

Speaker 1

This shows the importance of this strategy in the long term. If you have any questions, please let me know. And with that, I'd like to give the floor to our colleague, Jarlson Menges, Director of Exploration and Production. Good morning to all of you who are watching us. I want to start out by showing the numbers of our operated production last year.

Speaker 1

There was a significant increase vis a vis the previous year. That was due to the fact that many projects started production phase. Our operated production grows less because many of these projects that started to operate, we are operating. So part of the production goes to the partners. We also had very significant numbers.

Speaker 1

And the pre salt production in our mix has been growing From 22% to 23%, it grew from 73% to 78%. We had important records last year. The operated production surpassed 4.05 barrels of oil per day, which is compared to the majors. And that is a very robust operation. Our pre salt production also broke records last year.

Speaker 1

And also very important is the IUGA Index. In the 4th Q, it reached 98%, very good numbers. Our production last year surpassed our initial forecast. But staying within what we call the risk tunnel, we've been working very hard to analyze all of the factors that can influence the production up or down over the course of the year. And this level of accuracy of our projection has been around 96% over the course of the last few years, which is very reassuring in terms of what we forecast for the current year.

Speaker 1

The highlights in production and I'll repeat myself, we started to operate major production projects starting with the renovation of the Mar Lim field, which is something that we worked very hard on. The environmental licensing of these projects were very complex, but we won and we were able to recover almost to get involved in projects that will recover almost 1,000,000,000 barrels of oil equivalent. Our 5th unit in Buzios field is now operating at maximum production. The FPSO, Cepicheba also started production in the Meroe fields with a large capacity of 180 kilobytes PD and Petrobras accounts for 40% of that production. And in 2023, 2 projects that had started in the previous year, Guanabara in 'seventy one, they have reached a peak production in a very short timeframe.

Speaker 1

So this is our lifting cost and total cost of produced oil. The lifting cost went down from 5.8 to 5.6 barrels of oil equivalents produced, very significant amounts. The presence of the presalt from 73 to 78, as I said before, largely accounts for this decrease in the total production costs in deep waters and shallow waters, a little more than 20% of our production with very attractive numbers. Even though we're talking about mature fields, they're still very important numbers. And our total cost of produced oil has gone down largely due to the decrease in the price of the oil barrel abroad, which allows us to pay our governmental participations based on the oil price.

Speaker 1

So with this decrease, we see this important impact on Brent and $35 per barrel is a very robust price. This is one of the most relevant news to us. Director Sergio had already talked about this. We closed the reserves of 2023 with an organic recomposition of more than 150%, which is extremely significant if you consider the universe of majors in the world. And over the course of the last few years, we've been achieving 200% in reserve replacement, which shows the consistency of our production curve for the future.

Speaker 1

This is the reserve that we've been achieving. We've been managing to increase year after year. And we were able to replace these reserves after a lot of hard work in Buzios, 2P, Atapu, Hayamanta, Hayapintada fields with and the approval of new complementary projects, especially in the Campos Basin. So this work around reserves involves costs, projects, and lots of simulations and a very hard technical work by the team that coordinates this segment. Lastly, these are some highlights in the production area with our operations in Africa and also in the Pilotsos Basin, we are also exploring Latin America as a whole and West Africa.

Speaker 1

These are areas that we know very well and we're always looking for opportunities. And I also have to mention that we will continue to explore the equatorial margin and now we're drilling a well in the Portugal Basin. And in the future hopefully we're going to be able to drill new wells. We're also exploring new wells in the Compose and Santos basins as a routine. So that's what I had.

Speaker 1

If you have any questions, please let me know. Director William, you have the floor. Thank you, Director Joelson. Good morning. Now we'll talk about the RTC segment with possibly the best results in history, both from an operational and financial standpoint as well as from a sustainability perspective with HSE results and also with very good progress in energy efficiency.

Speaker 1

The utilization factor has to be highlighted. We reached 92% on average. And in some months, we reached more than 97% in the utilization factor due to the integration across the entire RTC division and also with the RP division achieving very good results for the company, which has certainly contributed to us reaching the financial earning results. With the presalt load of 65% in the processing of the presalt oil across all refineries. And this utilization factor comes along with an increase in the value reaching 68%.

Speaker 1

We're talking about diesel and aviation kerosene. So we're using our refineries with better yields. Our current CapEx, at 3,100,000,000 in 2023 with very important stops for our refinery system with the longest downtime in Cubatao with very important projects to optimize the refinery, refop with important downtimes and regap and our Dukigikashiyas refinery, including the downtime of 1 of the loop trains for 2024, we predict at $3,800,000,000 dollars in current CapEx. We'll move forward with the maintenance of our units, leading to high availability of our units to refine oil, especially presalt oil. We ended the year at 60% of participation from diesel as 10%.

Speaker 1

And you can see on the left hand side a few important production numbers in several of our production units with our refineries having contributed to these fantastic operational results in 2023. Best historical results in energy efficiency with our Raftop program with reduction in carbon intensity and also with an increased energy intensity in the refineries, leading to a lower consumption of fuel, natural gas with very significant results, putting us on the path to even faster energy transition. We also reached our lowest historical level of gas flaring rate and a record in pre salt gas processed in our PGMs. In 2023, we saw the return of investments in fertilizers and petrochemical sectors and fertilizers. We're working towards achieving a definitive solution for paella and sergepi plants.

Speaker 1

We also closed studies for the Anokhadea plants, harana and UFN3 in Treslagos. So we soon will return to being a strong player in the fertilizer sector and not only a plant. And for that, we've been engaging in discussions with several partners and also with the strategic partnerships involving biomethane, green ammonia and other interesting byproducts that will lead to a carbon footprint reduction. As I said, we're focusing on high value, low carbon products. And with that, we're working in Cubatao and Gas Lube Plants in Cubatao were entering Phase 3 this year as well as in gas lube.

Speaker 1

And Srivastos will talk about RNS, TRIN2 and PGN with the route 3 being completed by the beginning of the second half of this year. We have very good results that give us strength to face the challenges involved in expanding our downstream in line with our strategic planning, as I said. So it's a year of achievements. And we'll continue to work strongly in that direction to achieve these goals. With that, I'd like to give the floor to our Director of Logistics, Trade and Markets, Claus Schlosser.

Speaker 1

Thanks to William. Good afternoon, everybody. It's a pleasure to be with you today to talk about our 2023 results. I'd like to take the opportunity to greet all women, both in person and online. The first line covers the selling of byproducts, both in Brazil and abroad.

Speaker 1

The sales of gas grew and they were powered by a greater competitiveness of gas versus ethanol. If you look at diesel, you see a reduction of 1% as compared to 2022. Basically, because of 2 factors, Remanc had been considered up until the end of 20 23. And also because of the mandatory mix with biodiesel that went from 10% to 12% in April. Concerning the exports of byproducts, there was an increase of 5%.

Speaker 1

And I'd like to highlight the increase in the exports of gas because of the change in quality, which is quite positive for the operation. Concerning the oil sales, we had an increase resulting from an increased production in exploration and production as Director Shu Elsund mentioned. What I'd like to highlight in 2023 is that we added 3 new refineries as clients in addition to expanding the purchasing of our oil by other refineries, which resulted in a significant increase in the refining of oil. And now we have 26 new pairs in our customer portfolio, which allows us to capture and diversify in new destinations for our oil. We're constantly trying to expand our customer database to maximize the value of our oil, which is extremely valuable in terms of quality and also carbon footprint.

Operator

Talking about market share, our share of the market is stable in comparison to 2022. And as you can see here by adding up the blue parts of the graph, the share of gasoline imported and produced is a consequence of optimizing production and the change in quality with the foreign market. So we're capturing more value for Petrobras. The diesel market grew overall. We were able to maintain our share.

Operator

And the diesel produced by the company increased due to higher level of refinement. And this higher availability of refineries and our Logistics Park utilization in 2023 was mentioned by William, and it contributed to reducing diesel imports and capturing margins from the Brazilian market, which is a better destination to monetize our reserves. Here, Director Thomas King has also made a point of mentioning each topic here. We talked about our commitment to low carbon products. So the Petrobras Podium Gasoline, DSO R, CAPPRO, our asphalt line.

Operator

And I would add as a highlight that we started selling our diesel in Sao Paulo. That's a significant market for us and it was a milestone. We were able to advance in that area. Also related to diesel R, this is voluntary consumption. We don't have any mandates for it.

Operator

So we're working through partnerships with national and regional distributors, especially Seam and Ipiranga. Simba, if you don't know it, is a regional distributor in the state of Rio Grande do Sul, and it has values related to reducing a carbon footprint. And it's the only company that has a specific contract to buy diesel R. Some other highlights that we have for you are on the next slide. They're related to how we execute our commercial strategy.

Operator

This was mentioned by the President. We were very successful throughout the year, considering the best logistics and refinement conditions we have. We're offering to our clients a very competitive price, maximizing how we optimize our assets, and we're capturing good margins from the Brazilian market, as we said before. Considering sales hubs, we created 2 of them in line with our strategy to improve access in different markets of the country. It's a way of improving our logistics chain and also to be in communication with our clients.

Operator

In 2023, we expanded our operations in Rondonopolis in the state of Mato Grosso. And recently, we started selling diesel and gasoline in Rio Ferde. One final highlight is platform recycling. We are decommissioning some of our vessels and this is making Petrobras a reference company through the ship breaking platform NGO in responsible vessel disposal. And this is a very important milestone for us.

Operator

So those were our main highlights in this area. And I'll pass it over to Travassos. Thank you, to greet everyone, especially any women watching us. I'm going to continue talking about technology with the OTC award, the highest award in the oil and gas industry. In 2023, we received 7 awards by OTC, 2 from OTC Brazil and 5 from OTC International.

Operator

In Brazil, this was about our technology that allows us to use dynamic wells and stable waters and this gives us a higher decommissioning capacity. The OTC award we receive in May refers to the innovations and technologies that were used in our revitalization process in Marlin and other areas of the compost basin. We're celebrating the 50th anniversary of its discovery. So, we are now receiving another award for its revitalization. It's the very current approach for the oil and gas industry because this is a very resilient process from an environmental standpoint because we reduced greenhouse gas emissions by 55% and also makes it more economically viable because we are increasing production capacity by replacing 9 units with 2 new ones.

Operator

This is a peculiar project because not only are we installing new lines, but we're also removing active lines, decommissioning old wells and building new wells. We have about 60 wells that will be connected. And I highlighted 3 of the 9 pioneering technologies we have been developing. TOT 3P, a well design that accelerates the construction of post salt wells, reducing 110 days to 56 days on average. This is in the Compose Basin.

Operator

We also have flexible pipe envelopes that reduce engineering processes and allow us to reuse lines and that even reduces our inventory. And the last technology I'd like to highlight is a new methodology and extension tools that allowed us to extend the life of wet Christmas trees and pipelines. So this will all add to how economic our projects are. The next slide refers to another milestone that we had in the last 12 months. We were the only company that installed 5 production systems in 12 months from December 2022 when the P71 unit started to December 2023 when FPSO Cepitiba was started.

Operator

We're highlighting FPSOs, but we actually started 5 production systems with 1300 kilometers of lines and 106 wells. So that gives the company an installed capacity to produce 630,000 barrels in 12 months. We'd also like to highlight FPSO Almirante Parroso, the 5th unit in Buzios that started its production in less than 5 months, another record for the company. This used to be P76 that reached this production level in 8 months. This is due to a joint effort with the company, but we're also delivering units at a very high reliability and safety level.

Operator

And this is a benchmark for the entire world. The next slide also highlights how we are decommissioning some platforms. This was an effort that's started with our exploration and production companies. We were prepared for decommissioning the unit. And it's a significant highlight for the submarine teams that de connect and unmoor the unit and also the wells team.

Operator

This is a very important portfolio for Petrobras. In our strategic plan, we will decommission 23 units. And after 2028, we will have an additional 40 units to decommission. So it's a circular economy market. We're building opportunities for Brazilian companies.

Operator

Schlosser has mentioned that we were recognized by a Belgian NGO called Ship Breaking Platform for establishing a new green disposal policy. This is an organization that represents several environmental agencies that monitor how maritime units are being decommissioned. And we were recognized by them. And this is very relevant for our practices and how aligned they are to sustainability and governance. Let's continue with the next slide.

Operator

Here we have some of our highlights downstream. Some of the advances we've had in the Duque de Kashias refinery, adapting our hydro treatments, diesel S10. We also have a hydro treatment area for diesel S10 being built by replan and also revap. We're also increasing our diesel capacity. We heard about Renesse.

Operator

This is not on the screen, but we are also conducting some works there. And in the next weeks, possibly next week, we will receive proposals for the second adaptation and that would allow it to process 260,000 barrels of oil a day. We signed a contract to acquire HEFA technology, which will be adopted in RPBC's dedicated plant. And another significant milestone was that we are completing our natural gas unit in Taboray. That will be UPGN Gas Lube, which will increase our capacity.

Operator

This is forecast to be concluded in the second half of twenty twenty four. The next slide will be my last. Another thing I'd like to highlight about our technology is that we started lab tests and a pilot plant. And in November last year, we concluded industrial scale tests to produce bioaromatics, so products that can be used for the petrochemical industry based on vegetable So we're not concluding with me this time. We're still going to talk a little bit about CEMS, but I'd like to invite a young executive, Maisa Golar, to do that.

Operator

She's been in the company for 20 years. She's worked offshore, she's released platforms, she's led FPSOs, Our production development area has been led by her. And now she is a leader for the biggest research center in Latin America, CEPS. So I'll pass it over to her. Thank you, Travesos, for that introduction.

Operator

It's a pleasure to be here on International Women's Day. And it will be an opportunity to talk about some of the achievements by some female researchers at CEPs. Before I mentioned them, I'd just like to say that we are the biggest, applied research center in Latin America. We have over 1,000 employees, nearly 1,000 researchers and we invested BRL3.6 billion in RTI last year. Of course, we're very proud of the results we had in implementing our technologies at Petrobras, the industry for which we work.

Operator

And we're also celebrating the different awards that we've received. Travazos and our CEO have mentioned our OTC award, but I'd also like to highlight that we were finalists for 5 categories in NP awards, and we won 4 of them. We were among the top 20 most innovative companies in Brazil according to the MIT Technology Review. We were the 2nd placeholders for Valor in Brazil, an award for companies that work across several industries. So being in 2nd place was our highest position.

Operator

It was the highest for oil and gas. And we also had a very good placement in the top 100 corpse ranking on innovation with startups. Last year, we also celebrated a national record of partnerships in our Connections for Innovation program. And for the 3rd year in a row, we had the national record of registered patents. But I'm here to talk a bit about women.

Operator

If we can go back just one slide. No, excuse me, go ahead. We used to have a picture And the picture you see behind the slide was a picture that we took this week at SIMPS. It doesn't include all women in our research center, but I'm very happy to see every smile and every story there. We have brilliant women in our research center.

Operator

25% of our researchers are excuse me, 25% of our employees are women, 32 percent of our leaders are women, and 21% of our researchers are women.

Speaker 1

I could say something about each one of them out of these 270, but we, of course, we have to select a few of them. I'd like to start out by talking about Aline Machado, who was awarded the Brazilian Women in Chemistry Award last year. Marcia Khalil, a very experienced consultant, a leader in one of the research lines at Sempis in 2023, we would like to highlight our digital monitoring of guarantee of flow occurrences projects that avoids many losses due to hydrate formation. Director Trevassos talked about the test at the Rio Grandezae Refinery. Behind that, there's a brilliant advisor, Andrea Pino Tamiris.

Speaker 1

She's one of the youngest researchers in a brand new sector. They search for geological hydrogen with remote sensing, use of AI and satellite data to find what the industry calls the fairy circles, where there is indication of geological hydrogen formation. Katya Moniz, she worked in the development of carbon neutral gasoline that started at the Cempas Labs. And behind that, there's this brilliant researcher, Katya Moniz. Theresa Villano, she developed an anti corrosion adhesive made from 100% recycled PET.

Speaker 1

You can use that on surfaces that are starting to corrode and that's going through the development phase with the market. Anna Mus, she also leads the research line for the capture of CO2. And Helga and Priscilla for the implementation of something that resulted in the one of the highest GPR VPRs, the implementation and scope of magnetic devices and topside systems to reduce falling. As I said, I could talk about the achievements of each one of these 270 women. But through these few women, I'd like to pay this tribute to every woman at Sempice.

Speaker 1

And I'd like to convey this message to each woman watching us. I think that our biggest achievement is to be what we want to be and be respected for that. Thank you, Maiza. Now we will start the Q and A session. The first question comes from Mr.

Speaker 1

Rodolfo Angielli. Go ahead, Rodolfo. Good afternoon everybody. Thanks for the opportunity to talk to the Board. I have just one question about the dividends.

Speaker 1

Until the beginning of last year, Atrobras would pay minimum and extraordinary dividends each quarter. One of the changes for this year is that the extraordinaries are no longer paid on a quarterly basis. And with that, the investors created the expectation of seeing that after the publication of the 4th Q results. But the Board decided to pay only the minimum dividends and did not approve any extraordinary dividends, which is kind of opposed to what the market expected. So as discussed in the call Petrobras had very significant results last year with very low leveraging.

Speaker 1

And it seems that there's leeway But still the Board decided not to pay the extraordinary dividends. And it's approximately $9,000,000,000 that were allocated in the capital reserve accounts. My question is, we'd really like you to help investors to understand how to see the extraordinary dividends moving forwards taken into account for aspects. 1st, maybe the most important one, what's the rationale behind not paying more if apparently there was some leeway to do so? Secondly, the periodicity, so for the extraordinary dividends, should we expect them to be paid only at the end of 2024?

Speaker 1

Or do we have a different possibility? The third one is about the reserves, how they work. I understand they cannot be used for investments, but can they be reverted and capitalized? And if so, when will it start being used to pay dividends? And lastly, if that affects the repurchase program in any way?

Speaker 1

Thank you. Thanks for your question, Rodolfo. This gives us the possibility to go over the subjects that will certainly be questioned about. As you said, we had significant results and low indebtedness. And this leads to your question about this leeway to pay extraordinary dividends.

Speaker 1

In fact, that was true. But the Board decided to allocate that to the reserves accounts based on what was published in the strategic plan, the search for a robust balance and a commitment to be careful in using capital in years, especially 2025 and 2024 that require huge investment efforts from Petrobras. The rationale behind it is basically that the years 2024 and 2025 will require significant investments and a portfolio that's already been considered. And that in turn leads us to having to manage the cash flow differently. And that may lead to misunderstandings.

Speaker 1

So this resource that's allocated to the reserve, can it be used for investments? And the answer is no. The resources allocated to that reserve are to be used to pay dividends. So from the BRL43 billion or $9,000,000,000 of surplus, which are the net profit minus what was paid in 2023, they were allocated to the payment of dividends and not investments. That is important.

Speaker 1

I know that's not part of your question, but I'm using your question to answer other questions that we received in the chat concerning dividends. Concerning the periodicity, you compared it to the change that was made to the remuneration of shareholders. We'll keep waiting for the results of extraordinary results at the end of each period, not every quarter. That's according to what the policy says. As for the time frame, we have no indication of a time frame right now.

Speaker 1

What we do have is a study of the variables that led to the decision to allocate this to the capital remuneration reserve. So behind this decision of the Board, there's this preservation of capital and this careful cash flow control. And we are still monitoring. We keep monitoring these issues. So as of now, we have no idea of a timeframe.

Speaker 1

Thank you, Sergio, and thank you, Rodolfo. The next question is from Roniki Gregor from Itau BBA. In the meantime, let's move to the next question from Bruno Montanari from Morgan Stanley. Bruno, you have the

Operator

floor.

Speaker 1

Go ahead, Bruno. Thank you. So in line with Rodolfo's question, I have 3 questions. I'll try to be quick since you only asked one about the extraordinary dividends. Maybe you could share with us your the process that took place during the board meeting and the proposal by the administration and how this decision to retain 100% of the amount was made.

Speaker 1

Was it a unanimous decision or not? That could help us understand the process. And also about the dividends. So does it make sense for us to think that during the 2024 quarters in a hypothetical scenario where the CapEx is lower, which was the case of 2023, that we could expect that the reserve could be reallocated, the capital remuneration reserve could be reallocated and also about the dividends. In what hypothetical scenario would you make the decision to add this reserve to the capital of the company, which according to the articles of association is a possibility?

Speaker 1

My second question is about production. I know it's still early in the year, but the last few months were quite solid. So maybe you could talk about your perspectives for production for this year, if there's any downtime that's been scheduled in the short term. And maybe if we could expect the production to occupy the upper range of more or less 4%. And the third one is that the company was very transparent in its communication to the market about the market the contract with Uniqiao.

Speaker 1

And congratulations on that. Since the subject led to anxiety in the market, maybe you could explain to us the decision making process that led you to choose the tolling. And please correct me if I'm wrong. I understand that that's the least damaging solution for the company among all options. Thank you, Bruno, for your questions.

Speaker 1

Even though I might want to, I cannot make any comments on the meetings that take place with the board, governance does not allow us to. The minutes are public though. And of course, you can download them and read them. So I cannot answer that question. Well, very briefly, Rodolfo Abruno.

Speaker 1

Since the minutes are public, of course, if you do research, you're going to see that the government counselors voted for 100% of the reserve. The private councils voted for 100% of exclusion. And as the president, I abstained from voting because it would make no difference and was together with my Board of Directors. So they proposed fifty-fifty. That was our proposal.

Speaker 1

The discussions were normal and those were the results. We're going to work on those results. We'll respect the sovereign decision of the Council. And of course, as a reminder, it could change. We could go back to doing a

Operator

a

Speaker 1

And about the allocation, I'll give the mic back to Sergio. About internalization of capital, that's allowed by law. And it's also provided for by law that the company uses any reserves to pay for its losses. We do not forecast these situations for the next few months. It was allocated for dividends and must be used as such.

Speaker 1

Speaking about transparency, thank you for your comments. Thank you for the acknowledgments. We've been really making every effort to give transparency to the market. I'll talk about Unitiao, a very short answer. And then I'll give the floor to Joelson, the Director of Exploration and Production, to talk about production.

Operator

So Unigel, since we had those two meetings with Brazilians and foreigners, we talked about the company's governance and their role in the decision. You asked about the process, right? So if I'm not mistaken, we had over 70 people looking at this contract throughout months. So the situation is last year, the board allowed Petrobras to continue to invest in petrochemicals and fertilizers. So we've been looking at processes and Unigel was started.

Operator

So 70 people started working on that and the process carried on normally. We signed, certified it and recognized it according to the different powers in Petrobras and you're right. The director and the managers involved chose the best solution in the existing scenario. So it was a normal process with the entire company's governance. I'll pass it over to Joao Celan.

Operator

Yes, if you'll allow me, I'd just like to does not affect our management at all. This is not a standalone project. It's not a new project. We're not buying assets. So in the governance process, it shouldn't even be taken to the Board.

Operator

It's a service contract to maintain 2 of our plants at Petrobras. So for example, this refers to our own assets with an operation that doesn't imply on selling gas. We're delivering raw materials and receiving industrialized products. And it's for 18 months, which is the time we need to think of a solution and implement it for these plants that were not sold well or were not rented well to correct the ongoing process. As Sergio said, this appeared in the end of the strategic decision making process.

Operator

We couldn't work on fertilizers before it was approved, so these 18 months started then. And we're going to submit this activation to the different levels of decision makers. This was perfect. So we feel the process was perfect. So we feel free to deliberate on this process if this is what the directors vote on.

Operator

Hi, everyone. Good afternoon. Yes, the decision making process for this industrialization process was passed, as Sergio said, through the company's leaders. The risk group worked with many areas of the company generating a report. And with that, we made the decisions we had to, according to the governance, to sign our contract.

Operator

And we voluntarily, as soon as we signed the contract, contacted TCU, and we voluntarily had a meeting with them in the Q1 in January. So we decided to go to the court of accounts and to inform them under their request about the different things related to the contract itself. As a highlight, this contract has several possibilities, and we understood that this was the best one for the group. We understood that this was the most advantageous for the company because these are our plants, although they are rented, so they have to be cared for. They are petrogress plants and we're continuing the approved process to do it in the most strategic way possible.

Operator

So this contract will give us some leeway to analyze what's happening. And this group is working in the company to find a definitive solution for it. According to our interests, according to the country's interests, and our strategy to reduce our dependence on fertilizers, imported fertilizers? Good afternoon, Bruno. Thank you for that question.

Operator

About the downtimes you mentioned, they're all in line with what had been foreseen, nothing new. The production from the Q1 is in line with what we've forecasted last year. We had 4 new production systems and 2 that were ramping up. So we were a bit above the production levels that we had foreseen last year, but still within that range. We have some forecasts that fortunately did not materialize in terms of possible delays and so on.

Operator

This year, we have fewer foreseen problems, right? We have 1 FPSO that's ramping up and some areas in decline. So I would say that, well, you asked if we could be above the range, and I'd say that our best bet is 12.8 equivalent barrels per day and we're going to announce a certain range, but I would bet that we would be about on that average, in the middle of that average. Thank you, Bruno, for your question. Moniki, we'll pass it over to you for the next question.

Operator

I do. Can you hear me? Yes, we can hear you. Good afternoon, everyone. I apologize for the technical issue before.

Operator

I'd like to thank you for this opportunity to ask questions. This is very important for us on the other side. So I have 2 questions here for you. The first one is a follow-up question about two points that Jun and Sergio mentioned. Jun mentioned during his speech that as the reserve was constituted, this will continue to, that would continue to be a possibility for us to pay extraordinary dividends.

Operator

But Sergio mentioned that this would only be inspected at the end of the year. So my first question is, if we can expect any other decisions throughout the year or would it only be at the end of the year? And my second question is about your investment intentions in integrating Downstream. This was in the release and in your strategic arguments. Jean mentioned that they you expected to invest in logistics and refinement.

Operator

So my question is how you believe that this integration will happen, how it will integrate downstream besides that partnership that you mentioned with Relun, what other investments are in this strategy? Returning to distribution, would that be in the scope? So that's my question. Thank you. Good morning, Monique.

Operator

Congratulations for International Women's Day. So you asked about 2 different things, I think, Since there was a comment about extraordinary dividends being inspected quarterly and since there was a change at the end of the year, I was referring to that question. So it will still be at the end of the year with every fiscal year. And the other question is about what is being analyzed, the resources that are being analyzed that can be redistributed at any point. Before I pass it over to William, who's going to answer your question about the downstream integration, I'll ask if Sean wants to say anything.

Operator

Well, in terms of the downstream integration, there are many dimensions, of course, but you have to look at at least 2 dimensions. The first is logistics, assets that might be lost. And we also need to adapt, modernize and update some of our logistics processes. So we need to adapt, for example, to biofuels. We'll need to adapt to new fuels, not just the ones that are part of the mix right now.

Operator

So other types of fuel are joining and will need to be a part of the process. So these two dimensions need to be analyzed. It's not only people might think that it's all about buying refineries and ABRs. So we're not doing the same old thing. We're looking at the future.

Operator

So we spent nearly 10 years looking at assets and selling them. And we need to do that again, but it will be responsible according to our perspective and according to what we know how to do. Thank you for your question. And I think it's important to mention that integration for the company, especially downstream, is permanent in its execution. Last year, we had a great example where we saw our refinery park working, we processed more national oil in Brazil.

Operator

We processed more presalt oil. And we can see this happening in a scenario of high inflation, strong pressure on shipping. And when we integrate or process our oil, we can capture the freight costs from Europe and China, and we are capturing a margin and still gaining the shipping costs. So integration for itself is an exercise on that. So our integration is based on that because it will allow us to compete for the different markets and that's essential.

Operator

So the future of oil will be based on the market, and that's how we're positioning ourselves. We're looking at integration. And if we look towards the future, we can see opportunities and energy transition and what's ahead. And integration is a very relevant factor at that. Major consumers like Joe Musking mentioned, the renewable energy generated will probably be based on the assets we already have, and their integration is extremely relevant.

Operator

So when we talk about hydrogen, the Petrobras Park is the biggest user of hydrogen on the country or the biggest producer of hydrogen. And that's very important when we talk about energy transition and transformation of our refineries. And at the end of the day, in the future, when we move away from the age of oil and switch to renewables, we will need to use all of this transition that I'm mentioning. So HVO units, processing renewable cargo, This integration has a lot of value. So it's very simple.

Operator

We captured margins, we captured results for the company as a result of this integration and in the future we will have even more than that. So that's the value of integration right now. That's a very strong competitive advantage. And thank you for your question.

Speaker 1

Thank you. The next question comes from Luis Carvalho from UBS Bank. Hello, good afternoon. Can you hear me? Yes.

Speaker 1

I have two questions and my apologies on insisting on this subject, but I'd like to take advantage of President Sean Paul's experience as an experienced politician to understand the importance of Petrobras in the process of construction of the law of the federal government and how that conversation between the company and the governmental agencies happen based on their forecasts. And if the forecasts are not met, the government must provide explanations and etcetera. And along the same lines and based on news published in the media, how an agreement with Coffey could have had an impact or guided the decision of the council in terms of a retained little more cash even though that's allocated to dividends? And also the second question, could you shed some light on the allocation of capital? The President has been vocal in terms of SLM.

Speaker 1

And this week, there were a new there was news about febra. Maybe you could talk about Braskem as well? Louis? When it comes to the law, we at the end of the Q3, we usually submit an earnings forecast, which is not a detailed forecast. And that is a result of this process of state owned whereby state owned companies send their forecast to the government without any detailed information.

Speaker 1

But from then onwards, we to what we can in terms of the dividends and the discussion about dividends is not related to that. It didn't appear to me that that had a direct relationship with the returns for the federal government, which is also reflected in taxes and royalties. And in this case, the dividends to majority shareholders and 37% goes to the government. So in that regard, there's a certain balance in that process. It's just a matter of defining the timing.

Speaker 1

And I understand that that was the case. It's basically related to timing. The reserve is allocated to dividends in any way. We should not propagate the incorrect information that that dividend specifically can be used to pay debts or to invest. That was already discussed if that could be invested, but this is profit.

Speaker 1

So having said that, I think that this issue goes away because we know that these reserves are allocated as a dividend in any case. And I'll leave coffee with you. And also in terms of where we were going in terms of acquisitions, all that, Louis, is related to governance and the processes that we must undergo. B and R is not an R rater as I always say. We have no ongoing studies related to reacquiring our Vibra like that.

Speaker 1

We have a relationship with the main clients and we have regular conversations with Vibra, especially because they have the usage concession of our brand. So we can have joint plans on some projects. But all of that is covered by the umbrella of our confidentiality and the governance stages that we have to and do respect. Broadskam involves a process of selling and acquisition that's conducted by Novanor not us. And of course we're involved because we have the right of preference and also because we want to know and engage in preliminary conversations with the potential proponents that may become partners along with us in the co management of that company.

Speaker 1

Concerning SLM, we have a process that's been openly published where we are combining projects for biofuels for the future and also for the present from the perspective of reintegrating the refinery of Bahia to the Petrobras refinery system to bring about the advantages that it lost and to see how the group works. And this entire process is ongoing and is being disclosed as per the norms that we have to follow. And Sergio, maybe you can talk about taxation. Thanks for the opportunity, Louis, to shed some light on the off subjects. Since last year, we've been seeing news being published.

Speaker 1

I don't know where they came from, talking about agreements between Petrobras and COUGH. Petrobras has always engaged in conversations with the fiscal areas of the several different governmental agencies across all governmental levels, state, municipal and federal. And whenever an operation produces a positive VPL and is financially advantageous for Petrobras and is approved across all levels, there is no discretionary involved in this type of operation. If it is beneficial for Petrobras, if we have cash in hand and that will be done. We do that with the states, with the municipalities.

Speaker 1

We've engaged in several of those with the federal government. It was a routine procedure in Petrobras that already existed and will probably continue to exist before and after this current administration. So there is no specific agreement with the CAF. Other people from the media and analysts have asked us about that. It's more specifically about even less possible.

Speaker 1

As the President said, if there is one subject to where there's an agreement between public and private, it is receiving dividends. Everybody wants to receive dividends, both private and public shareholders. So we're aligned. So there wasn't any impact on the decision in terms of moving the extraordinary dividends to the reserve. And it's also worth mentioning that at any point, the administrative board of Petrobras can redefine that the resources that are in the reserve and allocate them to the payment of dividends.

Speaker 1

And we have the support of legal with that, but it's for the payment of dividends. It can happen at any time, not for any fiscal agreements or investments, only for the payment of dividends. Thank you, Sergio. Thank you, Luis. Next question comes from Caio Ribeiro from Bank of America Merrill Lynch.

Speaker 1

Caio, your microphone is open. Please proceed. Good morning, and thanks for the opportunity. Given the decision to not pay extraordinary dividends this half and also that you said that this is related to a decision to preserve the balance given the investments that must be made in the future. Maybe you could give us a bit more details about this decision and an expectation around M and As happening in the short term?

Speaker 1

Or is it only related to greenfield and brownfield investments in the short term? And also about releasing the resources allocated to the reserve this half, maybe can we assume that if an M and A transaction does not happen this year, could that be a trigger to announce that these amounts will be paid? Thanks for your question. That's related to the previous question. I understand the approach, but that's not actually related to M and A or acquisition projects.

Speaker 1

The projects under analysis by Petrobras today are the projects that were disclosed in the strategic plan. It's 2 portfolios, implementation and analysis. And the new governance was implemented so that the projects in the portfolio under analysis will migrate to the confirmed CapEx. The PE in Petrobras is funded by the operational cash flow preferably. And this year we introduced this term preferably because in some M and A projects other types of operations can be involved, such as a finance financing project.

Speaker 1

But the administration of the company always works with a very conservative perspective in terms of cash flow. So what is in the plan that was published involves the cash generation. If you look at the plan and the strategic plan, there is a provision for the payment of extraordinary dividends. It's already there. And the tower that indicates the use of sources.

Speaker 1

So in the PE, we have this provision for investments for all projects under analysis and the confirmed projects and also for the payment of dividends. What the Administration Board justifies by making this decision is to better understand the criteria, external criteria included that may have an impact on the 2024 2025 year. So I believe that this is a process where as the Board sees this more clearly it will make a decision. Thank you, Sergio. The next question comes from Pedro Suarez from BTG Pactual.

Speaker 1

Pedro, probably your microphone is already open. Please proceed. My first question is to try to understand the capital structure of the company in the context of these investments that will occur given that the leverage of Petrobras is at extremely healthy levels, would it make sense for us to think that the company may work with more leverage to leverage investments and maybe M and As in the future? And if that is a possibility, would you be willing to change the dividends policy? And my question is because currently in the current remuneration policy, 45% of cash flow less CapEx, that only happens if the gross debt is also below the maximum debt established by the business plan of $65,000,000,000 So since the current debt is not too far from that amount, maybe it would be good to understand if you're going to prioritize maintaining the level of indebtedness below that level or if it will be possible to reduce the dividends to something closer to the minimum mandatory levels as per the law.

Speaker 1

And also about M and As, I think that several recent messages from the company and the directors, they say that yes, more inorganic investments will be made, but that will not reinvolve the renationalization, as you said, of any asset. Is that still valid for investments under evaluation? Or is there any possibility of Petrobras having stakes higher than 50%? Thank you. Well, I can answer the last question first and then I'll give the floor to you, Sergio.

Speaker 1

Concerning the renationalization, this is not only part of our vocabulary. We look at any of these assets as a business asset. If we need a majority to have control for strategic reasons, we will. If not, we won't. If it's an asset that's important for us, we'll analyze it.

Speaker 1

If it's not that important, if it's part of the past and it's not worth looking into it, we'll not submit a proposal or approach it. So when I say that there will be no rationalization, it's because there's no reason for us to use this term. We're not here to or bring something back to the state or reprivatize anything. In the case of Bahia, I was we're talking to them because we got an invitation to combine the entire process that was ongoing. And we thought it would be positive, so we're analyzing it.

Speaker 1

So I just think that we have to rule out this old fashioned terminology. Thank you. Pedro, thanks for your question. And there is no indication and I believe that will remain like that for a while predicted for to change the remuneration to investors. And what is behind the policy that we approved?

Speaker 1

There was a policy of 65% on the free cash flow in the past, but several details that you're familiar with. But there was an important detail that was 65% less investments. But interestingly enough, it was not CapEx as we see in literature. If there was an acquisition, it would not be deducted from the 65%. On the other hand, it did not make clear which CapEx was under analysis.

Speaker 1

So now in this more transparent process, we started to highlight the CapEx that's under analysis that there might be mergers in this amount. On the other hand, we started to include CapEx as literature what's said in terms of what's deducted in the policy and we reduced it to 45%. If you compare the 2 towers that indicate the use of sources, you're going to clearly see a migration from close to 20% of the CapEx moving from dividends and going to investments. And why was that decision made? First, because the future is more challenging.

Speaker 1

Like President Jean Paul said, this is not considered a transition, but rather a transformation. And second, because Petrobras wants to continue to generate profit and remuneration for the next 100 years. And thirdly, because Petrobras is a world class company. And as approved, it will resume its internationalization process. So it made no sense for assets like Petrobras Quality Assets to pay such a different dividend than the majors.

Speaker 1

So we looked at the majors. We checked the average. It was at 39%, 40%. And since this is a new administration, we decided to add a small risk premium. And we added to this reserve another practice, which is the purchase of shares.

Speaker 1

And with that, we are now leveling with the majors. So there is no reason for us to change the dividend policy. There is no indication that there is any willingness to change that. The policy will be maintained. Leveraging has a direct connection with the policy, as you mentioned very well.

Speaker 1

Petrobras works between the $55,000,000,000 to 60 $5,000,000,000 range. If there's any change to that range, that requires a new policy and changes in the company. Now we're close to $62,000,000,000 or $63,000,000,000 At the end of 5 years, the leverage forecast is of around 57% lower than 59% considering the regular amortization and additional investments that we're going to make over the course of the plan. So in addition to a robust balance and a commitment to capital management, so the maintenance of the leveraging level is one of the pillars of this administration. And not going over this level of leveraging is one of the prominent features of Petrobras right now.

Speaker 1

The M and As that you see in the PE consider that will maintain the indebtedness level. So right now, we don't see any need to think about additional leveraging for an M and A. We are working with the idea of maintaining the range. Okay, we cannot go over this range. What can we do within the what's outlined in the plan and not the other way around?

Speaker 1

That's very important. Maintaining the leveraging level, capital management is almost like a mantra internally at Petrobras. So I'd like to pick it up on your question. I'd like to once again reiterate, we're looking at the chat and there is an indication that there's still some confusion about the reserves. The reserve was created to balance out the payment of dividends, period.

Speaker 1

There is a possibility, which is provided for in law. Any reserve has that possibility of being incorporated into the capital. But for that to happen, it requires certain triggers that are far from happening at Petrobras and this needs to be decided by the high administration of the company. There's another possibility that's equally remote. If Petrobras has losses in 24 months, the possibilities of Petrobras to generate cash with its capital structure and considering how it manages its finance of generating loss in 2034 is a very small possibility.

Speaker 1

And these two cases are provided for in law, but they're not even a remote possibility in any scenario that we're working with. So this reserve is going to be allocated to dividends. The money that's there is for the payment of dividends. The administration board looking at a BRL25, BRL24 with our current strategic plan and with the appetite for investments plan of R500 $1,000,000,000,000 if it's not the biggest, it's one of the biggest plans. It's a clear bet in the future.

Speaker 1

So Petrobras will continue to grow for more than a century. Whatever it sells in the future electricity, liquid energy or if it will continue to sell oil, the future is going to show us. But this reserve, again, is not to be used for investments or fiscal agreements. There is no indication that it will be incorporated into the capital. It is not going to be used to fill any gaps or losses.

Speaker 1

This is for the payment of dividends. And what I cannot tell you is the time frame. It's going to be paid like this or like that. The council is now analyzing this subject. It's concerned with the global scenario in 2024 and 2025.

Speaker 1

That's the highest management's level of the company. Whenever they feel comfortable, they're going to decide. And that can happen next week, next month, in 45 days, in 6 months. It may happen at any time. But unfortunately, today, we have no indication of that.

Operator

But just to repeat, it will not be used for investments, for any deals, for M and As. This is in the plan. It's to pay dividends. Thank you, Pedro. Thank you, Sergio.

Operator

That was very clear. So the next question will be asked by Gabriel Barra from Citi. Go ahead, Gabriel. Hi, everyone. Good morning.

Operator

Thank you for taking my questions. First, thank you for your initiative. This is going to make our discussion much better for the time that we have here after the results. You talked a lot about dividends and M and As. And I'd just like to ask about seem again.

Operator

I have a couple of points here. First, we've been seeing a challenging scenario in services. The company has been discussing discounts. We know how much inflation can impact the future. So I'd just like to understand how we can mitigate the risk.

Operator

In the past, we saw some movements to capitalize assets, and I'm referring to building probes, building vessels. So considering future contracts and the company's strong growth pipeline, I'd just like to understand what your strategy is, not only in probes in vessels but also FPSOs and so on. We've also heard a strong discussion about the strike in IBAMA. We've talked about equatorial margin, how much it's impacted the company, the future of the company and future value generation. So I'd just like to understand how that impacts the company currently, projects, timeline for this year and for the next years?

Operator

Is there anything that we should pay attention to on the short term? And my third question is, we saw relevant growth in the company's production in the last years, especially led by the presalt layer. And we've also heard a special an important discussion in Brazil about consolidating We see that the company is removing investments in the last years. So could there be contrary movement, maybe future acquisitions, not only in Brazil, but abroad? And not only looking at organic growth, but also inorganic growth, if that would be a part of the company's growth strategy.

Operator

That's all. Thank you. Thank you for your question, Gabriel. I think you addressed at least one to Trevassos, a couple of them to Joao. So I'll pass it over to Travaso, who is our Engineering Director at Petrobras.

Operator

Thank you, Sergio. Thank you, Gabriel. Thanks for that question. So your perception is correct. We are looking at the supplier market and we see an atypical movement from what we had in the last years.

Operator

It was a movement that was much more aligned to bench prices, the prices of our inputs and equipment In the last 18 to 24 months, we saw that it was disattaching itself to that and it was a bit random. And of course, this is caused by the COVID pandemic and by the ongoing conflicts. You mentioned capitalizing assets. So to answer that clearly, that's not on our radar. We're not looking at capitalizing assets.

Operator

What we are doing is a constant reading of the market. We're establishing a system for each of these processes, Building a collaboration room where we're going to little by little look at the market, understand its needs and adjust our processes to ensure its competitiveness. So this doesn't only happen in the FPSO market. We had a significant oscillation in the probes market. We've had over 50% of probes contracted.

Operator

So we will possibly not have the same impact as we had in 2023. And similarly to that, we also see changing behaviors caused by the demand of Petrobras, where the biggest users of the marine system in the world. So we're establishing a way of analyzing the market and adjusting our internal products so that we can capture the market and reduce its impact. So I'll pass it over to Joao also who will answer your next two questions. Thank you for the question.

Operator

Yes, you're right. It is concerning to see that Ebond strike. We renew many licenses every day. So besides that is, well, for example, license for Marcia Cote d'Orion, for example, we don't have a license for the 3rd well. So it may have an impact.

Operator

We also have licenses to drill some blocks in Southeast of Brazil. That's not our forecast, but we might need to change our portfolio. So it is concerning. We've been talking to IBAMA consultants, but this is also in our risk analysis. So our exploration team with the data it has is trying to acquire more data from Latin America and West Africa, especially.

Operator

So we have been talking to governments, to peer companies, and we're also looking at opportunities to acquire producing assets as well. It's not very common, but it is a part of what we do. We have people who are always looking at that. So we might have more concrete studies to acquire exploration blocks and also to analyze production. So if we have a negotiation for that, we have a lot of governance, we have many steps.

Operator

So going into a new country would require authorization by a board. So we have been working in that direction. Thank you. And the next question will be from Vicente Falanga from Bradesco. Go ahead Vicente.

Operator

Thank you. Thank you, Jean Paul and Sergio. Drivers for you to pay the extraordinary, right? Maybe gross increase or something like that. And I'd also like to know if this reserve has been used by WebEx for the buyback program.

Operator

So no metrics, just looking deeper into some analysis and we'll just find that later on. Thank you, Vicente. I haven't seen you for some time. Good to hear from you. So buyback is considered And it's a pilot.

Operator

We have some goals. We're delivering monthly reports to CVM on how it's doing. It's at 80% or close to 80% execution, RMB157 1,000,000 in preferential shares. And we use a bank rotation system so that we don't get any criticism that we're being discretionary. So we don't we're always looking at daily operations whenever we have an important event.

Operator

Like in this process, we suspend purchases. And it's been working very well. The difference, one of the biggest drivers of EBITDA has reduced even if we count the cost of doing business in Brazil and exchange variations. This is another parameter that Petrobras may overcome in the future. So we're doing well.

Operator

The buyback processes around the world have an average of 70% to 80%. So we can still complement it later on. We'll see if we can take this forward. It is the intention of the company to continue with this program. So you can call to Nardi, ask him, but we are preparing a new program to be proposed and to analyze it.

Operator

This is an attribution of the board to approve a proposal from our management. It's a way of redistributing value for our investors as well. It's a part of our remuneration policy, so it makes sense. Thank you. Thank you, Sergio.

Operator

The last question will be asked by Rodrigo Almeida from Santander. Good afternoon. Can you hear me? Thank you. I actually have a question and a follow-up.

Operator

So we see net debt close to $73,000,000,000 So considering the amount of rent values that will still come in, Is there any liability that might require your cash to be above the reference value? So looking at the plan, maybe the most CapEx heavy moment will be between 2024 2025 because of the number of platforms. So I'd just like to understand that it would be important to have that for the next quarters. So with the different spreads, it might help us to imagine that the valuation would be higher than before. So how is Petrobras working with the trial of accounts to justify it?

Operator

Those are my questions. Thank you. Thank you, Rodrigo, for your question. Starting with liability management. The peak in the debt was especially due to anticipating a receivable from 1 of our FPSOs.

Operator

Usually, it would not reach 62. We would have amortization for it and then that would create the curve. We presented a slide for the debt amortization process, even what we call the productive debt. That is a good debt from the rental. So it's under control because it allows you to create a forecast for the oil curve.

Operator

And that shows a reduction versus the beginning of that period. What I'm seeing here is that it's under control. It's under control. It's close to 65, yes. But considering the receivables from FPSOs and the amortizations calendar, it's going down and regressing according to our projections.

Operator

This was discussed. This was something that we analyzed. We looked at the different risk scenarios in finance impact to cash. So there are dozens, if not hundreds of analyses that we run before we decide on that, but the curve is under control. And I understand your question, but it's under control.

Operator

Considering liability management, Petrobras has won awards and issued a global bond of $1,250,000 And it used these resources for liability management. The difference in rates and other things, the spread of Joe's rates and other things allow us to reduce the debt to a similar amount, dollars 1,200,000,000 from a financial debt. It's important to say that we got the lowest rate compressions in this operation and the highest rates for the period. So we looked at our cash, we saw if we needed to do it. And Petrobras was outside of the issuance market for a number of years and we decided to test it.

Operator

It was a very successful operation. We even received awards. As the best in Latin America and one of the best in the world. So it really was an operation that we studied. The 1,250,000,000 was used for liability management.

Operator

And whenever the market presents a favorable spread for VPL for Petrobras, Petrobras may go to the market for an LP. There's no need because our financial debt is very low. If you look at a company like ours, our debt is nearly negligible. The 0.8 that we present is less than 1 and that's much more related to our productive debt than a financial debt. So the answer is yes, we are looking at liability management so that we can manage this.

Operator

Whenever the spread presents itself, we extend our debt. This is an ongoing process at Petrobras. So thank you for your question. Oh, we forgot to answer one of them on M and A processes. As Jean Paul said, there's an example that we always use.

Operator

If you're on a conveyor belt and you try to go back, even if you jump, you're not going to go back to the same point. What we're analyzing is the whole green fuel for aviation. There's a growing demand for that. People who call us, who ask about biorefineries. This is a new horizon, right?

Operator

We don't need to buy 100%. But this is all being analyzed right now. But we're not considering gaining debt for this acquisition, as I explained before. So we invited were invited for an analysis. We are constantly in talks with others.

Operator

It's a normal petrobras process. It's not light. It's a heavy governance process, so it takes some time. Thank you. Thank you, Sergio.

Operator

This concludes our Q and A. If you have any additional questions, they can be sent to our Investor Relations team. We'll be happy to answer them. I'll now pass it over to Xia for his closing remarks. Thank you.

Operator

So I just have a very positive and upbeat note to say goodbye. This is something that we mentioned to our employees, but we want to highlight how good of a result this was. And we don't want to be influenced by asset sales bonuses or refinery bonuses or anything else. As Brent is going down, as diesel cracking is going down, We are still achieving the 2nd best results in our history, EBITDA and operational cash flow, the highest profits among publicly traded Brazilian companies, the 3rd highest in global companies below Exxon and Shell, but above Chevron and Total 13 operational records gas processing, refining, logistics, patents, engineering, reducing financial debt. I think we're showing that despite going through challenges, this 1st year was extremely satisfactory and

Speaker 1

rewarding.

Operator

This is something that we've been trying to do. And I think any company like ours would need to do that. We need to do it every day. It's not something special. This is our mission.

Operator

Our mission is to match the interests of our stakeholders, and we've clearly been able to do it. Our returns were the highest in the industry. We made rationality prevail by being insistent and by being respectful. So I'd like to ask you to stick around and to trust us. We're doing serious ethical transparent work and we're being efficient.

Operator

We're going to show you that for you who are investing in us, we're trying to be a source of development. And there's only one way of making it consistent and perennial. It's making that happen as often as we can. There might be some noise, But if we can do that, this is the winning formula for Petrobras and for any company that has our capital composition. Thank you, everyone.

Operator

Thank you, Xiong. Thank you, everyone, for listening to this webcast. Have a great day.

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Earnings Conference Call
Petróleo Brasileiro S.A. - Petrobras Q4 2023
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