Brava Energia S.A. (BRAV3) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to 3R Petroleum Fourth Quarter and Full Year 2022 Earnings Video Conference Call. The conference call and comments about the results will be presented by Matheus Dias, CEO of 3R; by the CFO and IRO, Rodrigo da Silva; and by the Exploration and Production Officer, Mauricio Diniz. [Operator Instructions] This conference is being recorded and will be available on the company's Investor Relations website at www.ri.3rpetroleum.com.br, where you can also find the presentation that we will show here. [Operator Instructions] Before proceeding, we take this opportunity to stress that forward-looking statements are based on the beliefs and assumptions of 3R's management and on current information available to the company. Forward-looking statements may involve risks and uncertainties because they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should understand that events related to the macroeconomic environment, the industry and other factors may cause results to differ materially from those expressed in such forward-looking statements. Now we will start the presentation with the company's CEO, Mr. Matheus Dias, Mr. Dias, you may proceed.

Hello, everyone. Good afternoon. Welcome to the video conference call of 3R Petroleum to discuss fourth quarter and full year 2022 earnings results. The presentation will start with me presenting the main highlights of the period, as well as the perspectives, outlooks and efforts of the company to consolidate our portfolio and complete our deals. We'll continue with Mauricio Diniz, our COO, who will share relevant operational aspects of the assets in production. And then Rodrigo Pizarro who will detail our performance and control metrics of the company as well as information on our capital structure, cash position and debt. To start on Slide 3, we have an overview of the period and its main highlights. First, in the end of December, more precisely on December 23rd, we completed the acquisition process of Papa Terra Cluster, our second offshore asset. This asset has great relevance for the company's portfolio. In terms of the share of its production and cash generation in the whole 3R portfolio as well as in terms of reserve and recovered fraction, it is worth noting that 3R received the asset at the closing date with some pending items and limitations in some systems in both platforms, both in the FPSO and in [indiscernible]. And this will entail a very intense agenda along 2023 with a focus on the integrity of these operational systems, so as to avoid potential bottlenecks in production and above all so that we can have a more efficient operation. 3R currently operates, and therefore, concluded the transition process of 7 assets out of the 9 assets that we acquired. Along 2022, we concluded 4 deals. One of them, as I mentioned, the Papa Terra field. In addition to Fazenda Belem cluster in Reconcavo cluster in Bahia; and Peroa and Cangoa in Espirito Santo. And in this context, it is worth mentioning that all assets in operation, of course, considering their respective closing dates, represented 44% of our portfolio production in Q4 2022. In January of 2023, already considering production from Papa Terra assets operated by 3R achieved an average daily production of 31,000 barrels of oil equivalent, 23,000 of which corresponding to our working interest. Additionally, and considering the portfolio as a whole it is worth noting that 3R increased its stake in 3R offshore through the acquisition of a 15% stake, reaching a total of 85% working interest. Now moving to the main operational highlights, which will be more detailed later on by Diniz. We have a relative production towards significant in this period at the Reconcavo Basin when compared to previous periods and very much backed by improvements in the facilities. This was done as a foundation and so to support the increase in production. As a point of observation, this focus on the whole infrastructure of the assets of the Reconcavo Basin as a whole, both the Reconcavo and Rio Ventura clusters, will still require a great effort on the part of the company 2023. In Macau, the company is at the final stage of implementing the project to replace the [ CNB ] pipeline with the tests, including the hydrostatic test, which is an important milestone, all performed as well as the interconnection of the pipeline. Having said that, the resumption of production that was impacted by this corrective action remains scheduled for the first quarter of 2023. As regards to the separation plans, these are operating at 75% of their nominal capacity. And for that, 3R promptly responded by hiring and mobilizing an engineering company that has an expertise in such projects aiming at correcting possible problems as well as future bottlenecks. Lastly, still on Macau Cluster, 3R starts, still in this quarter, the drilling campaign for which we already have the whole necessary structure mobilized and on-site as well as all of the licenses obtained. Now quickly returning to Papa Terra field, the main current effort by the company lies in increasing the storage capacity of the FPSO. This has been limited since the transition phase in the acquisition process of the asset. And this also limited well reactivation as a subsequent activity. Also, all of the wells planned was reopened just now in February, and the next well will be reactivated after this increase in storage capacity of the FPSO. Talking about workovers, we already have a hydraulic rig contracted, which will operate in dry completion wells, and we are in the process of building a DP rig, a dynamic position rig, which has a slightly longer lead time to work in wet completion wells. Another relevant point to be highlighted by the company is the transition of Potiguar cluster, in which the company is at an advanced stage of fulfilling contract obligations and conditions precedent of the sale and purchase agreement. Internally, we already have the teams mobilized as well as all the third-party contractors, service companies in general to start operating on D+1 post closing date, all taken care of. As for funding, specifically for Potiguar cluster, which will be further explained later by Rodrigo Pizarro, funding is also already structured in the amount of $1 billion through 2 debt instruments. And as a point to be highlighted here, it is worth mentioning the flexible conditions involved, particularly referring to prepayment, which enables the company to be paying attention to the market to consider new alternatives in this spectrum of capital structure. Moving on and still on Slide 3. In terms of the evolution of the operation, the company through our assets in operation and considering the stake of 35% of Pescada, recorded an average daily production of oil in Q4 '22 of 8,660 barrels, up 37% year-on-year and the company posted 15,375 barrels of oil equivalent daily already, including gas, and this is approximately 2x greater compared to the same period of 2021. Here, we should mention another point to be observed. The completion of the 4 deals, as I mentioned before, had a direct impact on the evolution of our production. From the standpoint of financial metrics in Q4 2022, 3R posted revenue of BRL 445 million, up 78% year-over-year and a full year revenue of BRL 1.722 billion. As for adjusted EBITDA in Q4 '22, BRL 113 million. And in the full year, BRL 710 million, approximately 2x the consolidated adjusted EBITDA of 2021. Now moving to Slide 4. We have some data on the company's portfolio. As I mentioned before, our portfolio has 9 assets, 7 of them already concluded and spread into 4 basins as we can observe on the map. Papa Terra cluster in the Campos Basin, Peroa and Cangoa in Espirito Santo Basin, Reconcavo and Rio Ventura clusters in the Reconcavo Basin in the state of Bahia, and in the Potiguar Basin, Macau, [indiscernible], Fazenda Belem, Areia Branca and Potiguar clusters. In this scenario, in December, these 9 assets achieved a daily average production of 45,000 barrels of oil equivalent. And here, we already include the working interest of 3R. This portfolio has as a characteristic and important geographic diversification as well as production diversification. 55% corresponding to Potiguar Basin, 17% coming from the Reconcavo Basin and 28% coming from 3R offshore with Papa Terra and Peroa. Of the total assets that make up our portfolio it is important also to highlight that the mix is divided into 80% oil and 20% gas. I now turn the floor to Mauricio Diniz to give you more detail about the operational aspect of our assets.

Thank you, Matheus. I will give you more details on the operational part, starting with the last field that we closed, Papa Terra field. We had the closing at the end of December. This field is very important for the company, mainly because of the low recovery factor that we have today 2.5%. In other words, with great possibility of growth over time. Just to give you an idea of the importance of this field to 3R. In January, 1/3 of our January production came from Papa Terra. There are 2 units there, and we have a lot of capacity and flexibility in these units to do water injection to interconnect new wells. So over time, once we overcome these initial problems that we are having as was the case with all of our assets, once we follow these integrity issues, we will continue with the drilling and interconnection of new wells. Talking a little about the operating part. We started production in December with 3 wells. In this field, the main integrity issue currently at the field is the tanks. In the next 2 months, we will inspect these things do cleaning and maintenance, exchange the valves of these tanks and this will allow us to reduce the frequency of offloading of this unit 3R 3 as planned for the year, slightly before recent operating issue that we are facing and that I will explain in a minute, we already had 4 wells in production. And these 4 wells produced around 16,000 to 17,000 barrels as expected. For the year, we'll have the arrival of a rig that has been contracted a hydraulic rig. The pump contract ESPs have already been commissioned as well. And in the fourth quarter, we should have both the hydraulic rig and the ESP contracts ready. In the end of the year, we'll have the commissioning of the rig to do workovers in wells with a wet Christmas tree, and it should arrive in the last quarter of the year. As a reminder, the first job of this rig will be to reactivate 2 wells that need to have their ESPs replaced, their pumps replaced. Please remember, as already mentioned in the last call that we are going to have also a production downtime of this unit in the end of the year, most likely divided into 2 periods, an initial 15-day total stoppage, then a part of the system will get back in line, then another total stoppage after 3 months to do integrity workovers in these units. To detail the current problem that we're having, we had a power outage at the unit. And this power outage cost an activation of the emergency generator and then after batteries of the unit. But these batteries were not prepared for that. And this also led to a problem in the automation system. So we are resuming production. We have solved part of the problem, which is the electrical problem. We changed some batteries. We replaced some old batteries that we're not charging anymore. We brought batteries from another unit, the 3R 3. We have already restored the electrical system, and we're now working on the automation system. The unit should be back in production in the coming days. Next slide, let's talk about Potiguar cluster. Potiguar cluster as it was before what it is today under our operatorship. We had a reduction of production in the Potiguar cluster, mainly seen at Macau field. And as mentioned before, we have 4 items. Four items we are working on. First, the workover rig. As we can see on the upper right-hand corner of the slide, in this period, we had 2 workover rigs on site. Now we have 4 rigs there. In March, we already have 4 rigs handling workovers at the field. Another interesting point already mentioned by Matheus is the drilling rig. Most likely this weekend, we will start to drill and to offset January and February, we are hiring another rig, which should arrive in April. In addition, we have the pipeline, which is the third item. I mentioned that this pipeline is in its final stage of the hydraulic test to recover part of the production. In the other part of production will come from the works that are at the commissioning phase. Part of the works have been completed, and we are finishing and working on some tanks, making some repairs and changes to the work that was done. So that's a little bit of the operational part of Potiguar cluster. Moving now to Reconcavo where we have 2 clusters. There, we reported an increase in production. We initiated the cluster. We did some integrity works, and we continue increasing the production in the field. On the upper right-hand side of the slide, it's something important for us. We highlight the important workover. And in the fourth year, we had 3 rigs in operation. And today, we added 1 more. So in total, we have 4 rigs working in the field. Also, in the second half of the year, we intend to initiate the drilling of new wells at Reconcavo. And finally, I would like to talk a little bit about Peroa. In Peroa, we currently have a production potential of about 600,000 to 650,000 cubic meters a day. We are producing approximately 500,000 cubic meters of gas a day, and we are still waiting for the conclusion of a commercial agreement negotiation with Petrobras to increment the fields production. We already mentioned Papa Terra. At the beginning, the average of the fourth quarter is around 17,000. We had 2 wells that closed. One of them have been repaired. We changed the cable on the surface. The well has started production before the stoppage at the end of February. So we should return with 4 wells. And the last one, will return as we repair the cargo tank of the unit. On the next slide, we show production in a timeline. So if we add the company's oil and gas production throughout the entire operating cycle, we see that throughout the quarter, we were able to increase the company's oil and gas production. And on the chart below, we show the oil production, highlighting the reduction in Macau's production. As I already mentioned before, and I talked about the 4 actions we are implementing to foster the resumption of production to normal levels, which should occur soon. Now I'll turn the floor to Pizarro, who will elaborate on the financial results of the company.

Good afternoon, everyone. Thank you, Diniz and Matheus for the introduction. We will now start the financial part of the presentation. Slide 10 shows the company's net revenues for 2022. On the first chart to the left, we show the growth of our net revenues since the last quarter of 2021. Comparing the last quarter of '22 with the last quarter of the year before, we noticed an 80% increase in net revenues, reaching BRL 445 million in the fourth quarter of '22. Now year-on-year, we started with BRL 204 million in 2020. We reached BRL 728 million in 2021; and finally, BRL 1.722 billion in 2022. The positive highlight in the fourth quarter refers to revenue increases in the Reconcavo Basin and Peroa cluster, partially offset by the lower production and as a consequence, lower revenues from the Macau cluster. Even with an increase in gas production in the operation of the Peroa cluster during the entire quarter, oil revenues are still predominant, accounting for 69% of the company's total revenue. On Slide 11, we present our adjusted EBITDA. And even with the transition expenses, mainly those related to the Papa Terra cluster, which was concluded in the last 2 weeks of December, we reached about BRL 113 million with an EBITDA margin close to 25%. On an annual basis, we doubled the EBITDA of 2021, reaching BRL 709 million in 2022. Excluding the transition expenses of the year, we would have reached approximately BRL 810 million. And just restating the obvious, this nonrecurring effect related to transition expenses is eliminated after the closing of all the assets. It is also worth mentioning that cash generation, including CapEx and income tax of Papa Terra during the transition totaled approximately $19 million between the effective day on July 1, 2021, and the closing date, even considering the corrective maintenance stoppage conducted by Petrobras during the period. This amount was enough to pay for their closing installment and also the remaining amounts that will be discounted from the future earn-out installments. It's also important to mention that the EBITDA margin was not only impacted by the increase in transition expenses, but also by a drop in Brent prices when compared to the previous quarter. And finally, by the intensification of the integrity activities, as previously mentioned by Diniz and Matheus that are partially allocated to OpEx. On Slide 12, a we show the company's consolidated lifting cost and its evolution since the last quarter of 2021. I would like to emphasize some of the aspects that impacted lifting costs in the last quarter of '22. On the one hand, looking at the lifting cost, which is the numerator of this metric, we had higher operating expenses related to integrity recovery of the offload systems pumping and production processing; and on the other hand, in the denominator of this metric, we had impacts in the volumes produced due to processing and transportation restrictions at the Macau cluster in addition to the low -- to the lower force flow in Peroa to comply with the demands of the take-or-pay contract. In regards to CapEx, we spent about $69 million in onshore activities in the Potiguar and Reconcavo basins being 45% related to well workovers and 33% in processing plants, injection and production offload. On the next slide, we show our capital structure and our financial obligations. We ended the previous quarter with a cash and cash equivalent position of $245 million and at the end of 2022, we reached $159 million. In the period, it's worth mentioning that Papa Terra's closing date, we acquired the remaining oil that was stored in the FPSO produced prior to the closing, totaling about BRL 95 million. Also, we made the contingent payment related to Brent linked to the acquisition of Rio Ventura, totaling approximately BRL 256 million. Considering the actual debt disbursed, our net debt at the end of 2022 was approximately $42 million. In 2022, we performed the financial restructuring of the company for the acquisition of the Potiguar cluster involving the signing of 2 debt instruments totaling $1 billion. Well, as mentioned before, both instruments can be prepaid with flexible conditions, in particular, the first $500 million, which are not subject to penalties after 12 months from disbursement. Finally, on the last slide of this section, we present our hedge position and our obligations related to asset acquisitions. As a reminder, as part of the commitment to creditors, for the funding of the Potiguar cluster, our obligation entitles that until the closing date, the company will keep 55% of PDP, which is the expected certified decline curve for the next 12 months and 40% for the subsequent 12 months. This follows a rolling strategy, meaning that we will continue to revisit this obligation during the entire duration of the instruments. This calculation does not contemplates the reserves of Peroa and Papa Terra. It only considers the PDP reserves from the assets from the Potiguar and Reconcavo Basins. And finally, at the end of 2022, we had [ 2,750,000 ] contracts, most of them in NDF with an average price greater than $80 per barrel. In the last few months, already in the first quarter of 2023, we expedited a contracting of derivatives, prioritizing collar instruments in order to meet the obligations related to the Potiguar cluster. In terms of acquisitions and as presented in our last earnings release call, the relevant amounts refer to the Potiguar cluster, of which $1 billion will be paid at closing, expected for the end of this quarter or early next quarter and $235 million to be paid in 4 annual installments starting in 2024. In regards to the other assets, we have about $136 million of contingent payments or earn-outs as typically mentioned and $26 million in deferred payments. To conclude the presentation, I turn the floor back to our CEO, Matheus Dias, for his final remarks. Thank you so much for joining us.

Thank you very much, Pizarro and Diniz. To close the presentation on the results of the fourth quarter and full year of 2022, I will talk about our priorities and where the company will concentrate its efforts throughout 2023. First of all, strategically speaking, I would like to mention 2 important points: the company is currently putting great emphasis on the conclusion of the Potiguar cluster already in an advanced phase as mentioned a few times today. Now in terms of the company's overall commercial aspects, we are pursuing better monetization opportunities for the oil occurrence and gas molecule, which are close to becoming a reality. And certainly, a large portion of the trading contracts still related to SPAs are approaching maturity. On the operations side, we are in a new phase searching for systematization of our demands and the maturity of our internal processes that at the end of the day, we'll support the company and our development plans in a broader sense in a more specific way according to our CapEx plan for 2023, also keeping an integrated view of our portfolio as a whole. In that CapEx plan, the main highlights include improvements in recovery of new facilities, projects, which will ensure the proper structure to support current and increase production. Also workovers and drilling campaigns in the Potiguar and Reconcavo basins and in Papa Terra, once again, the reactivation of 2 wells, one of them already activated and the attempt for this year to replace the elevation system of at least 1 wet completion well on FPSO. I'm not mentioning corrective actions in Papa Terra in case they occurred due to a possible well closure. But the company is getting prepared to face a scenario as mentioned before, with a hydraulic rig already contracted. In closing another important point, extensively emphasized by Pizarro today is that given the flexibility of prepayment in the financing structure, the company remains and will remain attentive to the market to find alternatives that could optimize our capital structure. Well, with that, we conclude today's presentation, reinstating that 3R with all of its professionals increasingly more integrated, will relentlessly and diligently pursue structure and responsible growth, focus on aspects like safety, environment, social responsibility and governance. Once again, thank you for joining us and good afternoon.

[Operator Instructions] Our first question comes from Vicente Falanga with Bradesco BBI.

I have 2 questions. First, I want to understand how surprised was that 3R with the news of the suspension of the sales program of Petrobras, so which ends up impacting Potiguar. What are the next steps and potential scenarios here? And given the interactions you have been having with IBAMA, the environmental agency, which requirements have been fulfilled? Is there any red flag raised by them so far? And my second question goes to Matheus. Matheus, I'd like to hear from you, perhaps you could zoom out and speak about the execution plan in 2023? In the last earnings conference call, they spoke about the CapEx slightly under $300 million this year with an expectation of 8 workover rigs more towards the end of the first quarter, now in March and another 6 workover rigs after closing of Potiguar. In other words, ending the year with 14 workover rigs. They wanted to end the year with 6 drilling rigs, 2 of them located in Potiguar. And we also mentioned about production of Macau close to 8,000 barrels of oil equivalent daily. I'd like to understand would the plan still apply or has it changed? If so, in what way?

Thank you for your questions. Well, let's start with the first one about the Ministry of the Environment memo in the transition of Potiguar cluster. Well, to start, the company did not get any formal advisory from Petrobras regarding a suspension of the contract. So in that context, we continue to fulfill contract obligations and conditions precedent in the [ SPA ] to complete the deal as soon as possible. In our view, considering the fulfillment of contract obligations is that we are at an advanced stage of fulfilling those contract obligations and even with some very relevant propels granted as was the case of [ ANB ] in transferring concessions. And by CADE, the antitrust agency, and other approving agencies when we consider the whole perimeter of the transaction after deal. So we know that we are quite advanced to complete the deal. Specifically regarding the transfer and the license to operate from IBAMA. All processes continue to go forward. We continue working with the government agencies with diligence. And so far, we didn't feel any delay in the process, all licensing processes continue to move forward normally.

Falanga, this is Pizarro, just to add to the answer. Also the moment that Petrobras received the memo and communicated the market, we moved forward with some conditions precedent. In some fronts, and as Matheus mentioned, in our view, we are quite close to fulfilling all conditions precedent. And we expect that exactly because we have a sales and purchase agreement that is very strong that addresses the closing without considering a unilateral exit of Petrobras, we don't expect the SPA to we don't imagine that the SPA can be canceled. On the contrary, it is in effect, and we have no evidence whatsoever that Petrobras is not abiding by it to this date in a moment. So we continue with our plan. I would also like to highlight that in terms of commissioning and hiring our teams and subcontractors with a close to 100% so that we can start the operation very soon.

Thank you, Pizarro. Now, Falanga, to answer your second question, the company continues with the same plan that was mentioned before. So we have a planned CapEx for 2023 of approximately $320 million. In total and divided mainly $172 million, 54% to be invested in reactivations, workovers, conversions and drilling. There is also a relevant part of the CapEx going to the infrastructure of the assets, the facilities of the assets. So that we can have the necessary structure for the existing production and for a higher production eventually. So this involves some new projects, some corrective and preventive actions in the facilities of the assets as a whole. And there is another part that is much smaller that accounts for $30 million, around 10%, which refers to downstream, and that is already considering with Potiguar cluster in-house. Just an observation. The part of facilities as a whole, it totals 33% of this budget of $320 million. As refers the rigs, there is a difference in the total number of rigs that you mentioned. And this is on account of a restudy, reengineering based on the fact that we seek to achieve the average production that was budgeted for this year. So we had to increase some rigs. So for this year, yes, the company will have one extra drilling rig onshore. We had planned for 4, but we'll have 5 drilling rigs onshore. One of them is already mobilized as Diniz mentioned in his presentation, and most likely this weekend, it will start the drilling campaign. And we will have 16 workover rigs. So slightly different, we had planned 14 and 8 have been already mobilized. And for Papa Terra, our plan is to have a hydraulic rig that has already been commissioned. It is expected to arrive in Q3 of 2023. And this rig, specifically, will be used at TLWP for dry completion and also a DP, a dynamic position rig. For the wet completion wells to replace the elevation systems, and that will start operating this year.

Our next question comes from Pedro Soares with BTG Pactual.

My first question is a follow-on question regarding Potiguar. Could you give us some color on what exactly needs to happen in Petrobras after the environmental approval so that the deal can be completed because I mentioned that given the several M&As you had with Petrobras, you will be able to kind of know what are the next stages and steps. I just want to map the risks better. And if you could explain the long stop date, I think it is in October. If you were to write the back case, if the process lags on until then, could both parties review or cancel the deal? And a more straightforward question, could you elaborate on the earn-out provision referring to Ouro Preto acquisition? Could you explain and give us an idea of the potential tax gains that you could extract from these accumulated losses of Ouro Preto?

Pedro, thank you for the questions. Regarding Potiguar cluster and the SPA. I think that we have mentioned this a couple of times also in previous earnings conference call. And I stress, there is no unilateral exit of Petrobras and there is no breakup fee included with once the conditions precedent are fulfilled, and as Matheus mentioned, we are very close to fulfilling all of them, that's the moment when 3R will make payment to Petrobras in a date agreed upon for the closing. Regarding ANP, normally, this is not the critical path, but it is always the last phase. We will not need to wait any longer. We are at a very final phase in terms of the ANP procedures. So what we expect, we are just waiting for the approval from the environmental agencies. And as regards to your second question, and thank you for that because it is an opportunity we get to explain this. We have mentioned this some quarters ago, but let me stress the company when we had the IPO of the company. We also established the old 3R in the Ouro Preto Oleo e Gas that was acquired by the same investment funds which, at the time, were controlling shareholders of 3R. And now we have a structure, which is a combination of these 2 companies, the old 3R and Ouro Preto and we carried a very positive effect for us, of course, negative for the old controlling shareholders of a tax loss that was quite high, particularly in 3R offshore and also in the subsidiary, which is the confession of the Reconcavo cluster assets. So we have a quite relevant volume of tax losses with the agreement made without controlling shareholder, and this was always very explicit in our income statement. And in the past, we also included this in our earnings releases. So we agreed that 1/3 of the use of the tax loss is due to the old controlling shareholder under some conditions. It's not immediate payment. A part of this lump-sum some will be reserved in an escrow account. But if everything goes well, payment will be made in the old controlling shareholder will eventually benefit from that percentage. What happened in this past quarter with the evidence that Peroa and Papa Terra are in operation in 3R offshore and with the evidence that we will definitely have a positive result, we'll start having a deferred [ EER ] and this will be positive in our balance sheet. And we also have the obligation that was agreed upon with our external auditors that we should also provision for the payment of this run out. We always include this in our explanatory notes, but since this is now an asset, we have the proportional liability, which is a lot lower than the deferred asset. Thank you very much.

Our next question comes from Luiz Carvalho from UBS.

If I could go back to the Potiguar issue, Matheus, we had some meetings with lawyers that at one point we're involved in this process with Petrobras. And then we certainly understand the dynamics, and I know that there are still some documents to be signed by the company. But there is still one question in my mind. Even in view of some public statements from some officers of Petrobras that there probably was another political concern related to the refinery. So given the systematic of the accounts tribunal, it will be difficult to review that. So the question now is how do you see a possible change or whether that is in your radar? And as a follow-up question, thinking about the worst-case scenario in case the IBAMA license is not issued in the go-stop date, what would be the procedure? Would the money be returned in the form of dividends or maybe we think of another acquisition? And what will be the cost for the prepayment of these debts in case we get to that point? Well, if you allow your second question, I know that, as you said during your presentation, you're already operating Papa Terra. And probably now, I would like to understand what surprised you be it positively or negatively because you already talked about the storage tanks, but where do you think your main challenges reside that would lead you to normalize the production going forward?

Thank you very much for your question. Well, at first, I will answer about Potiguar. As you mentioned yourself, there is a very specific period in the transaction, the SPA. And in addition to the accounts tribunal, any change to that ongoing contract that would have an even greater impact on the regulatory point of view because all of the endorsements from the pertinent agencies, everything has been issued on behalf of 3R and some licensees have precedent in terms of the industrial assets. So any changes in the period before the closing of the agreement would not work. And I would also emphasize that we do have a contract in effect with a very straightforward period with a long stop date for October. And as for IBAMA, we understand once we look at the evolution, the diligence and also due to the fact that the licenses are motion. This particular part related to IBAMA referring to the operating license of [indiscernible] and the fact that, that is part of an asset that is still "hibernating" makes that process a little unique because that leads to a new phase further on for the startup of the operation. And 3R has complied with all the necessary documentation. We submitted all of the documentation. All of the issues were responded quickly. And as we monitor the process, we do believe that we are very close to getting all of the licenses.

This is Pizarro now, and I'm here to answer the second part of your question about debt. As a reminder, both obligations to do the funding through debt of the company amounting to $500 million each, they haven't been disbursed. They will be disbursed during Potiguar's closing. This is the agreement with both groups of creditors. Therefore, even though we do not believe in any hypothesis of non-closing of Potiguar, even because we still have some time vis-a-vis the advancement of conditions precedent, we do not envision any other alternative that is not the closing of Potiguar and without Potiguar, and this is something that I mentioned in previous moments, without Potiguar, the company will have no debt. Our net debt today is close to $40 million. And if you dis-consider, if you exclude the closing of Potiguar, the company will be very close to being net cash. And again, the last follow-on of the company that brought in BRL 2,100 million to the company is the necessary equity for the acquisition of the Potiguar cluster. We have not envisioned anything without the closing for the amounts that we got. And then for the third part of your question, I will refer back to Diniz.

Speaking about Papa Terra, it's been 2.5 months that we are into production. And another relevant aspect refers to the reservoirs. And as our recovery factor is 2.5%, what we realized when we look at the previous closing and the problems that we have now is that once you close the wells, they return to their original pressure. This is quite important because at the beginning, the pressure is quite high and then they reach a stable production of the well. This shows that the volume that we have in the field is very close to the volumes that we calculated. That means that we do have a very good reservoir. We proved that very clearly, and I believe that this is quite positive. Another interesting aspect is that we've been working on the operating side, and we've found some integrity issues, which are very common once we take a new field, the problem that we had just now that is already almost solved, it's the problem that we encounter in new fields or new fields for the company that we get with use of integrity, meaning that we were able to map everything we have in a timeline, things that were within the platform. Therefore, we know exactly what awaits us throughout the year. And also the stoppage that I mentioned in our last meeting is what we will have at the end of the year. And so in terms of integrity, this is part of our plan. There are no major surprises, no negative surprises to us. And on the positive side, we have the closing of the wells that really proves that the volume in our reservoirs are really good. So recovery is on the way even in terms of recovering wells. We have 2 rigs, 1 already hired with the forecast to start operating in the third quarter and the pumps should arrive in the third quarter. Therefore, we do not expect any major surprises until the end of the year. Everything is moving according to plan.

Luiz, just to add something else. This is Pizarro, and I also want to make a link with the certification of reserves. When we look at Papa Terra, before that stoppage, it was producing 17 million barrels. We plan 2 pump replacements in wells and the first drilling that I mentioned on a previous moment, which is a very simplified drilling when compared to starting from scratch because we use all of the risers and the subsea lines, and we do a site track and we drill precisely in the same direction with the same trajectory of the original well. So these 3 wells, these 2, where we will replace the pumps and this third one that we will drill following the same trajectory of the original well, brings onboard 10,000 barrels of production, and this was the level of production when the wells stop producing when they were operated by Petrobras. Also say that when we look at the PDP of Papa Terra and what is proven but not yet in operation, it adds up to 10,000 barrels. So if the operator were to be very focused, I mean, operating that asset for 2 years, the level of production today would be over 25 or maybe closer to [ 27 x 17 ] obviously, we didn't have enough time to make all of the workovers and the drilling. All of that is part of our planned schedule. And we are doing the best we can to expedite them as much as possible. But all of that, just to say that the level of production should be above 25,000 rather than below [ 20,000 ], okay? Thank you.

Our next question comes from Monique Greco from Itau BBA.

My first question is addressed to Matheus. Matheus, I would like to start by wishing you all the best in your new position. We talked a lot about your short-term focus, the focus in the operation, your focus in Potiguar, I think this is very clear. I think you are communicating that quite well. But I would also like to know your view about the main challenges of the company in the midrange. Once you overcome all of these short-term goals, how do you see the company going forward after the operation has been consolidated, after your portfolio is consolidated. So how do you see the company in the mid range? And the other question is addressed to Diniz. We've been talking a lot about Papa Terra here. And we knew and we were already expecting an increase in the company's lifting cost after the incorporation of the field, which is quite natural that this happens every time you get into a new field. But now the production has started and that you already have more clarity about the prospects of the field. Could you give us some color on how this lifting cost will evolve going forward? And what about the FPSOs limitation? And how can that impact the evolution? How relevant is that in terms of cost dilutions from now on?

Thank you for your questions. Well answering your first question that was addressed to me. Our main goals and midterm goals are pretty much in line with our CapEx planning. First of all, it's important that we have a good structure in asset infrastructure that is capable of being feasible to cope with existing production, not only with existing production, but also incremental production stemming from this workovers that are part of our CapEx, validation and also drilling campaigns. So I think this is our main focus in the midterm. And we also talked about reorganizing our structure, optimizing and systematizing our processes so that we can work in a more structured way in all of these projects. We do have a major challenge for 2023 as part of this CapEx plan and probably the challenge will be even higher when compared to future years because great part of the structure will be mobilized this year. And this year, we are working with what has been previously mobilized in the year before. So for the mid-range or midterm, I think that our main focus would be having an infrastructure that is capable of accommodating our current production and increase production. And indeed, we also want to follow the schedule for workovers and drilling. I would also like to point out that there might be some alterations and having an integrated overall view of the portfolio, well, it could happen, sometimes we may have to take funding from one investment, take money from one asset and putting in another one that maybe would have a better response time or maybe some assets that has better facilities or a better infrastructure. This could probably happen certainly. But overall, and being very pragmatic our midterm focus is following that project schedule according to the company's CapEx. And if I could add something else, looking at the commercial aspect of the company, in the midterm, we are pursuing, and as I mentioned in my presentation, great part of the contracts that are still in the SPA mode and that are not necessarily the best ones in terms of unit amounts in terms of oil occurrence and gas molecules, but a great part of them are close to maturity. Some of them, we already reached that point. We are already pursuing -- I mean, this would be a midterm view. We are now looking for contracts with higher unit values. We already signed one for oil, approximately 20% to 25% higher than the previous contract. And our main view on offshore contracts will be the perennial aspects of the contracts, contracts for 2, 3 years with more relevant unit values and also better for the company. Now in regards to gas, the same thing applies. I mean if you look at gas and the balance of gas within the company, we have ideal conditions to produce oil being through steam injection or energy injection. But in the midterm, we look for contracts with an interesting term for Peroa. We are very close to signing a better contract, a better agreement for the company for gas with a more interesting term. These are probably the main aspects, both on the commercial side and also on the operating side. And now I'll turn the floor to Diniz to answer the second question.

Regarding Papa Terra, during these 2 last months, we haven't seen any surprise or there were no hiccups that could lead our CapEx to be different than the plan. We've planned something around $100 to $120 million a year for OpEx and in due time, along the quarters, we will get prepared to receive the field with 3 producing wells. We already mentioned a fourth well that needs a replacement of the electric cable and eventually, we will also put the fifth well. The first already -- I mean, linking to the first part -- with the first part of your question, we will solve the first part of the tank issue. Some tanks require cleaning first, and then we will do the inspection and replace evolve in the bottom of the tank. I think we will conclude that next month, that first part will be concluded next month. So part of the tank issues will be resolved. So tanking issues can be solved in a short term. And so this will not affect our lifting cost. So with increased production and also considering that the cost of a unit like that is fixed, there is no significant increase in cost with increased production. So as we put these wells between 16 and 17, and as Pizarro was saying, once we reach 25,000 barrels, there will be an interesting lifting gain for the coming months. So I think that it would take about a year, maybe a year from now, just as with other offshore operators, lifting costs will be high, and it will be reduced as we introduce new wells. So there are no negative surprises in the initial weeks of operation, and that's it.

Our next question is from Leonardo Marcondes with Bank of America.

My first question has to do with Macau. Could you give us more color on the situation of the water oil separation plans? What are these adjustments that you're assessing through the engineering company and also about the replacement of the pipelines and when can we expect production to normalize? My second question is perhaps a little less conventional. One of the points that were always valued by the market and the company is the level of disclosure with the income statements by cluster that helped us a lot in our modeling and give us a lot of visibility of land versus actual. But in this last release, you didn't report the information by cluster, you reported only the consolidated income statement and P&L. Why is it that the company decided to provide us with less granularity in the income statement? And then how do you think the market should look at the company? Should we look at the company as 3R as a whole? Is it hard to look at cluster by cluster? We just want to get a sense of how to analyze the company.

All right. So let's divide Macau into 4 items that explain why we didn't achieve the expected production. The first has to do with the drilling rig. We did not have a drilling rig. The rig is just getting started effectively now. And there will be other drilling rigs arriving along the year. We have one, we'll end the year with 5 rigs. So we understand that this first item is resolved. It's taken care of. Another item is that in this past quarter, Q4, we worked with 2 workover rigs. Now we already have 4 workover rigs on site. So that is another issue that we had that we were not able to solve in Q4, but this problem is behind us. The third point is the pipeline. As mentioned, we had to replace a pipeline. This pipeline was divided into 2 main exchange moments. One part, we exchanged half of it and this is completed. We performed the hydrostatic test. And now we are starting to pump, reopen the wells and pump through the pipeline. So part of the production will be resumed today and tomorrow, we'll start reopening part of the wells. And the fourth and last piece is that reevaluation of [ rigs ], part of the plant is already operational. 70% or 80% of the plant is operational. And this final part will -- we're doing some analysis. We are making slight small changes. And by the end of the quarter, we expect to be at full steam operating Macau. So we understand that Macau was a big issue we had, part of the problem has been resolved, and you will see along the coming months, production returning to what was planned at Macau. So we are on our way to resolve the problem. Pizarro?

Leonardo, thank you for these 2 questions. Now trying to address the second question. The truth is, Leonardo, that unfortunately, we cannot please everyone. We have been getting requests to simplify several investors and even some sell-side analysts that founded hard to keep their modeling of the company updated by cluster because there are some clusters that are miniscule compared to others which are huge, have got scale, I mean. And with that, it was very tougher call for some analysts, and that's why we attempted to simplify. We did a benchmark, not only in the Brazilian market, but also looking at independent oil companies with more or less the same sizes 3R and that's why we decided to consolidate information, consolidate the lifting cost and the income statement as it is typically done by other oil companies. Of course, there are always exceptions. We were an exception. We provided a lot of detail. And there's the reason for that because at the time of the IPO, the company had Macau. Macau, Fazenda Belem 35% stake of Pescada and we were still at a very incipient state. Now fortunately, we're a company with a pro forma portfolio above 43,000 barrels of oil equivalent daily with the reserves level above [ BRL 500 ] million. In our view, we should no longer report Pescada, Fazenda Belem, Areia Branca, Macau and so on and so forth separately. So we made an attempt to change. I apologize for that. I believe that there will be a somewhat more complex stage for the sell side to be able to consolidate the information, but we are convinced and hopefully, it will feel the same way. The attempt here is to simplify so that both foreign investors and individual investors and our local Brazilian investors, which account for most of our free float and make a very complete evaluation of the company, but without having to be updating the model if it's a single week. And that was the rationale of this new format of the income statement.

[Operator Instructions].

Well, we will get some questions written in -- well, most of the questions asked via the chat have been answered. But there is a question by [ Eduardo Tinoco ] about the value of the breakup fee in Potiguar. And [ Eduardo ] what we try to make very clear is that there is no breakup fee in our agreement. There is no unilateral exit of the counterpart of the Petrobras. And there is a second question in the Q&A. Let me see. There's a question about [indiscernible]. And here, we always like to stress that our portfolio is well balanced and with several onshore assets located in the Northeast that facilitates our management, also from the fiscal standpoint from the tax standpoint. So it's important to note that in the end of the year and beginning of this year, we were able to get [indiscernible] benefited for Reconcavo and Peroa, although Peroa in the Northeast, it is included in the [indiscernible] region, and so we were able to get it. And the positive effect of the company is that we had a 34% tax rate for the production of oil and gas, down to income tax and social contribution of 15.25%. So 34% [ down to ] 15.25%. This is a differential of our portfolio compared with oil companies that operate exclusively in offshore assets. And this is really remembered by many. A comment by our controller. This year, we enjoyed a benefit of tax reductions. We know we didn't have to pay BRL 100 million, given the positive effect of [indiscernible] although we still had only a part of our portfolio and our operatorship and only a part under [indiscernible] so in terms of [indiscernible] I think that we are following the plan by the book, and we are -- and in the subsequent moments of the closing of the assets we're enjoying this benefit. I think that we have addressed all of the questions, so on behalf of the company, I would like to thank you for joining us in this earnings conference call and for your participation. We are working incessantly in both onshore and offshore assets. Matheus and Diniz reinforced how asset integrity is absolutely from the middle of 3R. This is the focus of the 3 of us, not only to have a safe operation, but also so we won't have negative impact on production. Today, our production capacity, given the reservoirs and the existing wells is a lot greater than the production that we've been having in recent months. And we understand that this is totally easy to resolve in the coming months, and that is why we are working hard, focusing in our in-house homework as Matheus likes to say, focusing on the production of our assets and the integrity and with a CapEx implementation plan of $320 million. It is a relevant amount of that to be invested in wells, as Matheus mentioned. And as a reminder, looking at 2022 and forward to 2023, the main challenges that we had in 2022 were some delays in the closing and also the implementation of CapEx below what we had planned and also integrity challenges that we had in production restrictions. But we understand that of course, no, we haven't been able to solve everything for 2023, but we are starting the year a lot better prepared with rigs commissioned, mobilized, contract signed, contracts that are not signed and have been mapped, we have the MoU for those in terms of the CapEx, we're very well prepared for this year. In terms of the facilities, we have advanced a lot. We have overcome our main challenges in Bahia. We have overcome a good part of the challenges in [indiscernible] now we have Papa Terra challenges. And the idea is to improve our uptime, our production, our performance and the capacity. As for the closing of the deals, we have been working in this with diligence, as we mentioned during the call, we don't expect a great variation as we stressed regarding the deadlines for the big Potiguar cluster we expect closing for the coming weeks. And with that, I would only like to thank you for joining us and let's have the end of the call. Have a great day.

This concludes the conference call of 3R Petroleum for today. Thank you for your participation, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]