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

[Presentation] Good day, and welcome to the conference call to discuss Brava Energia's First Quarter 2026 Earnings Results. The presentation and comments about the results will be made by Brava's CFO, Luiz Carvalho, and other members of the management. There is simultaneous interpreting on the platform. [Operator Instructions] This conference call is being recorded and will be available on the company's IR website, ri.bravaenergia.com, where you can find the presentation that we show here. [Operator Instructions]. Before proceeding, we would like to inform that forward-looking statements are based on beliefs and assumptions of the Brava Energia management and information currently available to the company. Forward-looking statements may involve risks and uncertainties as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should take into account that events related to the macroeconomic environment, segments and other factors and other factors may cause results to differ materially from those expressed in the respective forward-looking statements. We will begin the presentation by giving the floor to Luiz Carvalho. Please, Mr. Carvalho, you may proceed.

Hello. Good afternoon, everyone, and thank you for joining our earnings call. The first quarter of 2026 marked another important step in Brava's transformation, more important than a strong quarter on its own, we believe these results underscore a structural shift within the company. Today, we have a more efficient, more resilient operation with greater capacity to create value for our shareholders over business cycles. We saw operational progress, strong EBITDA growth, positive cash flow and continued deleveraging, all while maintaining capital discipline and a focus on execution. The quarter demonstrated simultaneous progress in operations, strategy and finance, underscoring that Brava today combines operational growth with financial discipline. We posted record net revenue of $596 million and record adjusted EBITDA of $310 million, more than double the result quarter-on-quarter. April production already shows a significant recovery, reaching 80,000 barrels of oil equivalent per day above the target for the first quarter '26. We also continue to make progress in operating efficiency. Lifting costs fell to just under $11 per barrel, one of the lowest levels in our recent history. We reduced CapEx by 57% compared to the previous year and generated positive free cash flow even after making significant payments from the acquired portfolio. And perhaps more importantly, we delivered our fourth consecutive quarter of deleveraging, ending the period with a net debt over EBITDA ratio of 1.8x. Now let's talk a little about results in our portfolio. Over the past few years, we have built a significant diversified platform with long-life reserves. And this slide clearly illustrates that evolution. We have gone from producing 19,000 barrels of oil equivalent per day in 2020 to approximately 80,000 barrels currently. In addition to scale, we now have a well-balanced portfolio of onshore and offshore assets with different risk return -- with different risk profile return and cash cycles. Another important highlight was the update of our reserves certification, reaching 459 million barrels of oil equivalent in 1P reserves or nearly 80% of the company's 2P reserves. This underscores that Brava not only generates cash today, but also have assets that are both relevant and sustainable for the future. The company has evolved from being nearly a story of operational turnaround to becoming a major oil and gas platform in Latin America. Turning now to ESG. At Brava, ESG is directly linked to operating efficiency, risk management and value creation. We continue to make progress on this agenda, always in close alignment with the company's financial and operational performance. Today, we have direct integration between the ESG group and various other departments across the company, strengthening governance and transparency. We have maintained low levels of offshore emissions, made progress in real-time operational monitoring and continue to invest in safety, integrity and training. We have also strengthened our social agenda with investments in local communities and significant progress in compliance and governance programs. Brava ESG is not just a narrative, but it's execution, risk management and operating efficiency. Turning now to some operational highlights. The operational recovery began to emerge more clearly throughout the quarter, and I will go over the key operational highlights. Starting with the production slide, April already shows a consistent pickup in production, reinforcing that we are already in the early stages of this recovery and operational stability. The period still had some one-off operational impacts observed early in the year, mainly at Atlanta and Potiguar. But the most important here is to look at the trend. April already delivered 80,000 barrels of oil equivalent daily, representing the best month of 2026 so far and showing a recovery in production. Offshore assets continue to be the company's main driver of growth and efficiency. I'll now turn the floor to Carlos Travassos, our Offshore Officer, and I'll be back to speak about our financial highlights.

Very well. Thank you very much, Luiz. Good afternoon, everyone, and thank you all for being here at the call. As you can see from the slide, I'm going to focus here on our campaign, the Atlanta and Papa-Terra campaign. But I'd also like to highlight a few points regarding our operating results for the quarter, production results and for Atlanta, Papa-Terra and Peroá, which performed very much in line with our plans. There's nothing out of the ordinary to report. But in any case, I'll be here and fully available to answer any questions you may have about these assets, okay? Very well to talk a little about this slide, the main message I want to convey is that the campaign is going exactly as planned. I'm going to give a slightly more informal presentation, sharing some more operational details of this campaign. But looking at the time line and milestones, I think the major event of this quarter in addition to the start of drilling itself was obtaining the license, which was a key milestone, and that went exactly as we had anticipated. We had already mentioned that we didn't expect any issues regarding the license given the interaction we had with IBAMA, and that was confirmed. We obtained the license without a hitch and began our drilling campaign. So to give you some details about this campaign, as you know, we're starting with Papa-Terra. So we will drill and connect the 2 wells at Papa-Terra in the fourth quarter of 2026, and Atlanta will follow in 2027. And we are sticking to exactly the same date that we set back when we made this investment decision. So we are absolutely on track, on time and on budget. talking a little now about the operational side of this campaign. Here's a video I'm going to play in a moment, which will present this information in a slightly more flightful way. So you'll notice that we ran this campaign in batches. Wait. Now what does that mean? What's this batch business? To put it briefly, our wells are drilled in phases. Specifically at Papa-Terra, there are 5 phases. Each of these phases means that I'm deploying certain types of equipment. You've seen the image actually. I'll go ahead and put the video to play while I'm talking. The video has no -- a disclaimer. I won't be narrating the video. Since I will not be narrating the video -- please hold there was a sound cut. Then we move to the other pages so these images are from Papa-Terra 52. We completed the 2 phases at Papa-Terra 52 and moved on to Papa-Terra 53. We will, therefore, proceed through 3 phases at Papa-Terra 53 and then we'll return to 52 and finish up the well. We'll finish drilling and completing the well, and then we'll begin connecting this well. So folks, that's basically what I have for you today. And once again, I'm here to answer any questions you may have. I hope you liked it. And I'd appreciate it if you could give Godoi some feedback on whether this format works so we can make adjustments for the next call. I'll hand over to Jorge Boeri to go over details on the onshore operations. Thank you very much.

Thank you, Carlos. Today, I'd like to briefly discuss the progress made in the Potiguar field project. As we mentioned earlier, in October last year, we had 85 facilities in operation. So far, 51 facilities have resumed operations, while 34 still remain partially shut down. It's important to note that of the 51 facilities that have resumed operations, only 13 contribute directly to production. The other 38 consists of 36 test facilities needed to test the wells and 2 water injection facilities that support secondary recovery projects. since the start of the partial suspension of production in Potiguar had been declining and reached its lowest point in February. After that, in March and April, we recorded 2 consecutive months of increased production, demonstrating the effect of the facilities returning to operation. During April, we set up a task force to submit the vast majority of pending facilities for ANP's review. At this time, only 4 facilities remain, which are expected to be submitted during the first half of May. ANP is reviewing and approving an average of about 9 facilities per month. Given this progress, we estimate that full production will resume by the end of August. It is also worth noting that by the end of March, the Sanhacu and Bezzecca fields, our main gas-producing fields in the Potiguar Basin will resume production. Looking ahead, we expect to resume steam injection at the Sethu field in May and also resume operations at the [indiscernible] in addition to resuming steam injection and operations, we will also begin nitrogen injection, making the start of the development phase of our EOR project. I recall last year that we conducted nitrogen injection in a pilot phase. And given the positive results obtained, we are now moving forward to the development phase. In summary, we continue to see a gradual improvement in operation with a recovery in production and greater predictability for the full normalization of Potiguar in the coming months. Well, in addition to what was said about ANP's performance, I would also wanted to mention that the remaining of the onshore operation is performing very well. Specifically in Bahia, we are achieving very good results in operations and production, and we are also continuing to work on our workover campaign to restore and recover production across all fields. With that, I conclude my presentation and turn the floor over to our CFO, Luiz Carvalho. Thank you.

Thank you, Boeri. Now speaking about the financial results, the results have begun to more clearly reflect the operational improvements the company has been delivering quarter after quarter, and we will talk a little bit about the highlights of the period. Starting with revenue, the combination of improved monetization and greater operating efficiency drove record revenue for the quarter. We had record net revenue of $596 million, reflecting primarily a better pricing environment, greater operating efficiency and more efficient monetization across the portfolio. Atlanta deserves special mention with no significant discount to Brent during this period. It is also important to note that oil prices began to rise more sharply only in the second half of February. So part of the scenario is not yet fully reflected in the first quarter figures. We entered the second quarter with a more favorable operational and pricing environment. Now moving on to the slide on EBITDA. Margins and cash generation have begun to reach new levels, reinforcing that Brava is becoming structurally more efficient and resilient. Adjusted EBITDA reached a record high of $310 million with a consolidated margin of nearly 52%. The Offshore segment achieved extremely robust margins, close to 68%, reflecting operating efficiency and better monetization. Another key point is the expansion of operating cash flow per barrel across virtually all the company segments. Today, we see that the company is converting more production into cash. Now moving on to lifting costs. The slide on lifting cost shows that operating efficiency remains an absolute priority for the company. Offshore lifting costs fell to just under $11 per barrel in the quarter, a significant reduction when compared to previous periods. Atlanta and Papa-Terra continue to evolve towards highly competitive levels globally, and we see additional room for improvement through production growth, cost discipline and greater operational dilution following the drilling campaign. Onshore, we continue to work to stabilize production to capture additional efficiency gains. Our focus is not just on growing production, but on growing production with returns. Now referring to CapEx. Now we have entered a much more efficient phase of capital allocation. Investment fell 57% vis-a-vis the previous year and 33% when compared to the previous quarter. This trend clearly illustrates the company's transition when we have moved from a more intensive phase of project implementation to a phase of cash capture and operational optimization. Naturally, we will see an increase in disbursements over the coming quarters with the offshore campaign, but within a highly disciplined framework of capital -- or return on capital. In summary, I would say that the intensity of investments has decreased while cash generation capacity has increased. Maybe this slide best reflects the actions we have been taking. Deleveraging is no longer just a plan, but it has become a concrete execution. We ended the quarter with approximately USD 1.1 billion in cash and a leverage of 1.8x, significantly expanding the company's financial flexibility. We moved from 3.4x a year ago to the current level through operational execution, reduced CapEx and a consistent improvement in cash generation. We've seen a shift in value from debt to equity in the recent period, and the trend is for this process to continue going forward. Now speaking about cash flow and debt and building on the previous slide, we now have a much more robust capital structure that is well positioned to weather different oil price cycles. Even after significant payments related to the acquired portfolio, the company generated positive free cash flow in the quarter. We also continue to reduce portfolio obligations, extending the maturity profile while lowering the company's cost of debt. The combination of robust cash, a manageable amortization schedule and operational improvement significantly reduces the company's financial risk. Now speaking about hedging. This has been a focus for investors, and we believe we are well protected while preserving exposure to the upside in oil prices. Our strategy remains well balanced, and we have not made anything significant additional moves in recent months. We have consistent protection through collars, puts and NDFs without margin calls or overhedging risk. At the same time, we have maintained significant exposure to positive oil price scenarios and capitalize on favorable conditions in freight rates and fresh spreads throughout the quarter. The hedging strategy aims to reduce volatility without limiting value creation in a year that has proven more challenging than we have experienced from a macroeconomic perspective. In summary, the bottom line, taking into account the various variables that make up our revenue has been quite positive for the company. Now looking ahead to the remainder of 2026, we view this as the year of operational stabilization and value expansion for equity. The company's next steps are quite clear. First, stabilize production while maintaining operational safety. Second, we will continue to accelerate the deleveraging process. Thirdly, we will execute the offshore campaign on schedule and within budget. And finally, we will continue to advance the Brava efficiency program focused on structural cost reductions and contract optimization. The main takeaway is quite simple. We believe that there is still a significant disconnect between the company's operational and financial performance and the current perception of value. As I said before, more than once, more than just being good oil operators, we seek to be good allocators of capital in the oil and gas industry. Well, we want a Brava that does not depend on high commodity prices to generate shareholder value. Today's Brava is more efficient, more resilient and much better prepared to face the industry challenges. Now before we move on to the Q&A, on behalf of the company's entire executive team, I want to thank everyone at Brava once again. We have shown resilience, dedication and commitment during a period of so many changes in the sector. You are the ones who make everything happen. Thank you for your attention so far. And now we can open for Q&A.

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

I have 2 questions. For the first, it's hard not to touch on this. Regarding the tender offer of Ecopetrol, I'd like to understand the timing, next steps. When do you think this will be completed? And when would you be sitting with the potential new partner to discuss possible changes in the strategy, if any? And still on that topic, perhaps Boeri could share with us his view on the technical ability of PetroEco in offshore. My second question is about the evolution of trading prices as we enter Q2. And still on trading strategy, there was another offshore company considering buying VLCCs. So as an important exporter of oil, have you considered this possibility?

Thank you, Vicente. Before I start answering, I would like to apologize for the technical glitch during the first part of the call. Power went down in our building. It took a little longer for the generator to kick in. And if that happens again, please stay with us because we'll be back. So I'll answer the first and the last part and leave the onshore part, as you suggested, to Boeri. In terms of time line of the tender offer, well, perhaps it's not very clear in the letter we received from Ecopetrol. But what we can say is that there are some conditions precedent for the tender offer to happen. First, we need CADE approval, approval by the antitrust agency of Brazil. So we have to file in the process to submit the process jointly, Bravo and Ecopetrol. We should be doing it soon. Initially, the understanding of our attorneys is that this will go through smoothly. CADE has 45 days to analyze it. And if we don't hear from them, the project is approved. In parallel, the company at a request of the Board of Directors is trying to get some waivers and some financial instruments that we have, particularly debentures, some debentures that Brava has. For our bond, we don't see any need because you're talking about a lowering of the rating, which we understand will not happen. Bilateral instruments are negotiable and more flexible in that regard. Where we're dedicating a little more attention is to obtain these waivers. Yesterday, we published the call for the general assembly of the bank shareholders and I think that there's -- that we need 21 days and then another period for a second call. And that would be a second step. And in parallel, Ecopetrol as the acquiring party will need to follow through with the tender offer. And these 3 processes move in parallel, CADE, the waivers we need to get as a company and the tender offer to be conducted by Ecopetrol. And I mentioned that the company has some time to publish these documents. And then things will follow the regular time line of a tender offer, if I'm not mistaken, 21 days. So again, it's hard to precise the exact timing of the tender offer. But if we consider all of these -- all this time line, I believe, between 2 and 3 months, if there are no setbacks, that should be it. Before giving the floor to Boeri, regarding the capacity of Ecopetrol, we produced 750,000 barrels, practically all onshore, I think in Colombia, and I'll let Boeri mention details on this.

Well, Ecopetrol has almost all state-owned companies in Latin America is strongly capable. They have an expertise in onshore fields. The difference of Ecopetrol from the rest in addition of being expert in onshore, they are experts onshore with heavy oil. And that's the case of Atlanta and Papa-Terra. A good part of our onshore portfolio has heavy oil. Our technical team was in Colombia about 1.5 years to 2 years ago and some of the steam generators come from Colombia. And we believe that they have greater expertise of onshore heavy oil fields compared to Brava. And Brazil has great experience on the other hand, in offshore. And it's totally different than what they have in Colombia. So we believe that this is going to bring technical strengthening. It's going to be a potential to increase efficiency in our field. And moving to your last question, Vicente, about trading prices. No, we do not consider acquisition of a VLCC. Of course, that requires investment. Secondly, it requires scale and Travassos can talk about this. I'd like to remind you that our oil has different characteristics. from the physical standpoint, API grade, contaminants, acidity, et cetera. So in our case, it would not make sense. What I can tell you before I give the floor to Travassos is that we have seen an improvement in the reference price. In the first quarter, we had an average offload price of $74. While we see now a reference price in April that is higher. Use the example of BC-10 that had a maintenance shutdown between December and January. This one way or another forced us to sell that offload at a price below what we normally practice. Now for Q2, we see a reference price, which is much better. Not to mention the crack spreads, which, as we have followed, are very volatile. We also see an improvement. We used to sell with a discount to the Brent. And today, Atlanta now is selling at Brent plus. So if everything remains constant, although the oil dropped almost $15 down in the last few days, we understand that the average for Q2. Again, I stress if the same scenario we are seeing remains, we should have a reference price, which should be substantially better in Q2. Would you like to comment on the VLCC?

I think that your answer was very complete. You mentioned the word scale. This decision has a rationale when you have scale for this kind of operation because today, we have basically 2 assets in which we are doing workovers, sometimes concomitantly. So we kind of looked into that, but it doesn't make sense for us at the moment. It's not in our radar.

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

I have 2 questions. My first is about the new wells at Papa-Terra. Can we have an idea of your expectations of the stratification? I mean, what are you expecting regarding these new wells in terms of peak of production plateau and depletion? My second question is about the lifting cost. We have seen a lifting cost that remains kind of flat. And please correct me if I'm wrong, but over the last few quarters, it's kind of flat. So I'd like to understand, is there any room to reduce the lifting cost more given the same level of production? Or whether the improvement should come by increasing production once we have the new wells at Papa-Terra and Atlanta coming online?

Shall I start and let's speak about the new wells at Papa-Terra field. Our expectation is to reach a production plateau by year-end. We'll connect the 2 wells, and there's no reason why we should have a gradual -- very gradual ramp-up. We'll be starting production in the last quarter, and we are absolutely on track with the campaign. It is unfolding exactly as planned. Today, we will start Phase 4 of the first well. Like I showed you in the video, and I explained in my presentation, we are drilling in batches. So we are in the fourth phase of well 53. And then we are going to change the equipment in fluid we use in the process. And then we get to the fourth phase of PPT-52. So we do have production capacity. Of course, there's always a concern when we think about providing a guidance. But I can tell you, and then you'll be able to calculate the average for the year. I think that will increase production by 2,000 barrels on the average for the year, what we produce today, the potential production, and we have a potential to get to these amounts of barrels. But again, we are talking about starting production at the end of the year. So we would have a production increase that would be substantial at Papa-Terra. As for the lifting cost, we have room to reduce the lifting cost and not just by increasing production. We see a reduction of the lifting cost at Papa-Terra. As we mentioned before, we are prioritizing activity at Papa-Terra. And as of March 2027, we'll take over the operation. To give an idea, in total numbers, we'll reduce our extraction in $23 million in the year with this initiative. And this will bring a significant reduction. Today, the lifting cost at Papa-Terra is about $23. It is rather resilient. We have 2 units. We are talking just about Papa-Terra here. And this will come down to $13 next year with the reduction of the extraction cost and with production increasing. And we see that Papa-Terra will become very competitive. So yes, Marcondes, we do have room to reduce the lifting cost in addition to increasing production. And if I may add something else, Leo, in terms of a flat lifting cost, that's not really true. If you look at the different segments. In onshore, there was a reduction. In offshore, we had a reduction, while onshore, given the partial suspension of some facilities, there was an effect. So we have an effect of the denominator that is being impacted, and we expect this to resume soon. That's what we already mentioned, the number of facilities that are returning to operation. And to add to what Travassos said, we do have an opportunity to reduce the lifting cost ahead, not just by reducing costs at Papa-Terra, but given a basic effect, scale effect with the addition of the new wells.

Our next question is from Tasso Vasconcellos with UBS.

I have 2 questions. I think my first question is to Luiz. This quarter, we already saw a cleaner result in terms of operating adjustments in terms of production. And if we take a closer look in cash generation, excluding nonrecurring -- and even excluding working capital and M&As, which are one-off in the quarter, we still arrived at a cash generation closer to neutrality in the quarter. I would just like to hear your update about that. And how do you see your -- the company's cash generation capacity going forward in the coming quarters of the year, also considering the new Brent scenario. My second question, and maybe it could be answered by both Travassos and Boeri, along the same lines of increased capacity and cash generation. If the company had a lot of exceeding cash and more investment -- a higher investment appetite, where do you see the best possibilities or opportunities for organic growth, either in onshore or offshore, where would you like to anticipate investments or to invest more?

Thank you, Tasso. I will start and then Boeri and Travassos. In the first quarter, as a reminder, this was a cleaner quarter, but there was still some residues from maintenance BC-10 that ended in mid-January. There was also an issue with the Hunter pump that one way or the other also impacted the average of the quarter. As you put it quite well, if you look at the first quarter, there were some earn-out and M&A commitments from the past that were carried over and somehow they also impacted cash consumption coming from the installment payments. And there was also the payment of $50 million for Tartaruga Verde that will be posted in the second quarter. When it comes to cash generation, if you look at the first quarter and again, I was even reading the reports from some analysts. And I could see the work that we are doing to clarify cash generation, this cash generation operation. Some people think that we retain cash and some people think that we are disbursing cash. So we just have to organize the rationale about what will be a recurring cash generation or a pro forma cash generation. Maybe this will help you better. But going forward, we have to remember that in the second quarter, CapEx and going forward will accelerate going forward because the campaign started at the end of March. Therefore, we didn't use a lot of CapEx in the first quarter. But in the second quarter, the campaign will be running in full throughout the second quarter and the following quarters. And as I said, in terms of realization price, it will be lower. We do not have any M&A commitment from now until the end of the year, we will have the return of the amount that we pay for the acquisition of Tartaruga Verde. And in the second quarter, there will be a higher impact -- I mean, the impact of the hedge in the first quarter was very low, BRL 19 million. So it wasn't relevant. But in the second quarter, we expect to see a higher impact. It's still too soon to say what the impact will be given all the volatility in oil prices. But our reading is that higher oil prices I mean, that leads to a higher impact on cash. But net-net, this for the company for the amount that was not hedged, there will be a lower cash impact, but obviously, revenue will also be lower. That may be a little worse, slightly worse. But we are less volatile given the hedging strategy that we are pursuing recently. Now before I give the floor to Travassos and Boeri, and they will be able to talk about onshore and offshore, respectively, all of the approvals of all the projects not only go through an operating criteria and risk assessment, but we also look at opportunity cost for the company and verify whether it fits or it's in line with our budget. And like to remember that we try to acquire 50% of Tartaruga Verde and that would contribute to cash generation and the deleveraging of the company. Therefore, we analyze not only onshore and offshore, but we look at the entire picture involving the P&L of the company, how can that impact our cash generation. And we also look at the operational side. Okay. Go, Boeri you go first.

Well, I'll start speaking about onshore and Bahia. In Bahia, we have 2 additional projects that will be added to our gas production this year. One is the trading of [ Socorro ] is an isolated field. It produces gas and oil. So we separate gas and oil. So gas is reinjected. So this year, we'll start trading this gas. In addition to that project, I mean more sales is translated into more cost, but this will certainly improve Bahia's cash flow. The second thing is that we also want to improve the other project in Bahia, it's a reservoir of high pressure that is competing in capacity with the rest of the operation of PX. And then we are doing some work to bypass the compressor. And then we want to put this guy at the Pitanga formation. And this will increase revenue in Bahia, mainly due to gas. And clearly, this will lead to a reduction in lifting costs. Now as for Potiguar, since the very beginning, since the day that we got that operation, we were surprised with our water production. There was a bottleneck in Potiguar. There was a maximum water capacity that cannot -- well, it's about 150 cubic meters of water, but we produce 98%, 98.5% of water in our wells. And we had a limitation. If we were accelerating a campaign, we had to close other operating wells. So what did we do in the meantime? About 1.5 months, we started operating a pipeline that can capture part of the water in the field, one in [indiscernible] and the other one in Salina Cristal. And this led to a capacity to flow water of 115 -- I mean, we have 15,000 cubic meters of additional water. So this was a drilling campaign that now could generate more value. Well, I had to shut down producing wells in order to incorporate new production. So that was one driver of production in the future. So the drilling campaigns are a very good way to improve production. And recently, we added a workover rig to capture the opportunities we have in that operation. And clearly, our major future growth driver are the EOR systems. I mean, we are not running the pilot yet, but the pilot should start in 2026 with nitrogen injection. We developed a pilot last year. And now this year, we are now developing EOR and nitrogen. So these are the growth drivers, both in Bahia and as well in Potiguar. With onshore, we were not very intensive in drilling, but the CapEx were mostly earmarked for the offshore campaigns. But even then, we have good growth opportunities because when we talk about Peroá, we have first 2, that's a well where we intend to do a work over. We put together a consortium with Total, and we will be sharing a rig. And with that, we intend to increase gas production in Peroá. We don't have any figures yet or any numbers yet, but the outlook is very good. And even in Papa-Terra in the current campaign, we haven't yet made decisions about the investment. We do not have any estimate of expenses, not even for next year. But in Papa-Terra, we see very good opportunities in the central part of it. We have conducted some studies. And then we see possibly something around 4 injection wells and between 6 to 7 producing wells. Again, this is a very infant study. We are looking into it, but it represents an organic growth in Papa-Terra. As for Atlanta, that will depend very much on the performance of these 2 wells. It is the Northeast side of the reservoir, but it's also part of our radar. It's in our radar, but obviously, it depends on the productivity coming from the Northeast well. It's a separate reservoir in Atlanta. So that's organic growth. But we are constantly looking for opportunities. Papa-Terra, you're very familiar with it. We have about 3% of recovery factor. And certainly, more opportunities will come along. I mean to summarize everything before we jump to the next question, this is the beauty of the company's portfolio. And some people think that this is very complex onshore and offshore. But onshore already says that we have a lot of predictability in our production given the situation of the wells. CapEx, I think already it is easier for us to accelerate and reduce. I mean, oil prices are down and we just approved some workover projects. And in the offshore, area, we have more scale, which is very important for a commodity business like ours. Therefore, we can manage somehow not only our portfolio, but the investment per se, given the conditions of the P&L of the company and macro conditions that allow us to capture the best value possible.

Our next question is from Yuri Pereira with Santander.

On my side, the question is about Parque das Conchas. You talked about pricing in the first quarter and improvement in the second quarter. Could you explain again how does that work? And also, my question is whether in the second quarter, you anticipate any sale or whether there is any closed sale that allows you to be so confident about price improvements in the second quarter?

Yuri, in fact, in the first quarter, as I mentioned, at BC-10, we had some impacts, not only in terms of volume because of the scheduled maintenance shutdown by Shell that started at the end of '25 and ended in early '26. But due to that maintenance shutdown, I mean, we still had to get some load. And so our realization price at the end was much lower than what we usually get from that field. Now moving on to the second quarter of '26 and assuming that production will be at the current levels or even the numbers from April, we would certainly reach twice the volume we had in the first quarter with a realization price that is significantly better when compared to what we had in the first quarter. I'm not going to give you any precise figures because it certainly depends on market conditions and the market conditions have been quite volatile in the last few months. But we understand that both in terms of volume and realization price, BC-10 should bring a significant contribution to the results for the second quarter.

Next question from Gabriel Barra with Citi.

I actually have 2. First, I'd like to get an update on the arbitration process. And perhaps you're expecting a verdict this coming quarter. Perhaps you can share with us how long should we expect the results for Papa-Terra? And when should we have a final return regarding the arbitration process? Second point is about taxes. On discussion we had in the conference call, very close to the decision regarding export tax. When we look at the offloads sold by Brava, part of that offload is used for bunker. So there's a characteristic to the offload. And perhaps this could be one way of characterizing Brava's oil as bunker and not as oil. There are a number of legal points and legal discussions of the industry with the government regarding the tax. So I'd like to hear from you what you're thinking about this. There's this? And also in the case of Brava, the hedge fair or not fair if the company hedges oil? What are you discussing internally? What can you share with us? Because we would like to understand what would be the final impact on the company? These are my questions.

All right. Thank you, Barra. Regarding arbitration, arbitration is unfolding. And as for the time line, we would have a final hearing in Q4 of this year. And that's when the decision of the arbitral court would be made. I'd remind you that there was a preliminary decision, judging the merit of the -- forfeiture, which was favorable for Brava. This quarter, we had a very in-depth discussion with the auditors that audit the company's balance sheet to ask them whether we could consider 100% of Papa-Terra with the decision of the arbitration side. We had also a favorable decision by CADE regarding the feasibility of us taking over in terms of market concentration recently. At the beginning of this week, we had a decision, which I believe is part of the ANP process, a decision by ANP that we could go forward with the process, and there are other instances at ANP, including some coordinations plus the collegiate coordination to really give us a green light in terms of this working interest. Again, we're having this discussion with the auditors. We don't want to include in our balance sheet something that could require a reversal adjustment in the future. But we understand that the process is unfolding well with favorable decisions for the company. And hopefully, in the coming quarters, we will advance in that direction. In terms of export tax, as you know, this was signed overnight in mid-March. We were taken by surprise, just like the whole industry. And this is public information. Most of the companies went to court to ask for their rights and to go against that tax. We understand that the government wants to collect more tax. Now from the standpoint of Brava, we're doing the same. We are trying to get our rights enforced and there is some nuance here. Qualifying Atlanta oil as bunker, well, that implies a whole technical process, which I guess would take some time. And I'll speak about the expected duration of the tax. We don't know whether we could have a final decision to qualify our oil as bunker. Now in our approach to the court, we mentioned that the tax applies to the physical volume of exports. While we do have some financial hedge contracts, which make Brava not to capture 100% of its production at spot price at reference price. Of course, this is all very technical, okay? We've had some contacts with the courts, again, to try to have a valid claim. But as a reminder, this kind of decision is liable to appeal. So the 2023 tax, for example, there are still companies today trying to get back or be reimbursed of the impacts they had in 2023. So in terms of modeling and cash generation, I would consider that the export tax will impact Brava, ballpark figure. If we do the math of the considering Atlanta production, BC-10 plus Papa-Terra, this will give us about $10 million a month, $30 million in the quarter, and we expect that this impact will remain. And in talking with some politicians and other companies, the tax would last 5 months, starting in mid-March, and it would be applied for 5 months. The provisional measure is valid for 60 days. It can be extended for another 60 days. The general understanding is that when the Congress is its recess, the time stops. So we would have another month. We don't feel that there is the right atmosphere for this to be approved or voted. So we are working with a scenario of an impact on the company.

Next question from Mr. Rodrigo Almeida with BTG Pactual.

I have a follow-up question. I'd like you to elaborate on CapEx. You spoke about this, the CapEx for the year. And not drilling at Papa-Terra, the connections of the wells and so on and so forth. So what would be the CapEx, not in terms of numbers, but in qualitative terms, will there be peaks and valleys over the quarters? And then in 2027, the campaign will take place at Atlanta. So qualitatively, could you give us some color on the CapEx when we are going to have the big CapEx milestones in the coming quarters? That would be my first question. My second question has to do with the export tax. You just mentioned, Luiz, the export tax at Papa-Terra. So what potential negotiations can take place so that Papa-Terra oil will remain in Brazil so that you will not have this effect of the export tax, what are you thinking about this? And lastly, I'd like you to elaborate on Atlanta. In Atlanta, there was a problem with the pump. So perhaps you could explain the problem you had. Was it a one-off event? Are you looking at the other pumps? Are you taking any preventive measures to prevent this kind of problem from reoccurring with the pumps at the field? Three questions.

All right. Rodrigo, I'll answer the first 2 and the one about the pumps will be answered by Travassos. CapEx was about $70 million in Q1 with practically no impact of the drilling campaign because we began the drilling campaign at the very end. So I'll be very careful, Rodrigo, not to give you any guidance because we don't have a formal guidance. But a drilling campaign costs ballpark figure close to $1 million daily, considering cost of the rig, equipment, et cetera. So with the $70 million we had in Q1, if we add that cost looking forward, we're going to get close to a number of our CapEx. We are not estimating any concentration of the CapEx on Q2, 3 or 4. The trend is that this CapEx will be spent in a more linear fashion over the quarters while the campaign is being executed. So I think that this will give you quite enough color in terms of what we expect for this business. As for the export tax, what we can say is that, yes, Papa-Terra does pay the export tax, although our offload is not being directly exported by us. I cannot give you a lot of detail on this, given the confidentiality agreement we have with the offtaker. But basically, we, as producers, as Brava, we are expected to pay the export tax for Papa-Terra, although this offload is being sold domestically. Would you like to comment on it, Travassos?

Right, of course. Before we speak about the pump itself, it is important to clarify the scenario. We operate a heavy oil field, which is the deepest in the world. It does bring a technical challenge, which is inherent to the activity. It is only natural that issues will come up and need to be solved. What happened with the ESP, the electric submersible pump, it was not a serious problem. I don't want to get technical here, but this pump has a system that protects its sealing. And this system has a fluid, what we call a barrier of fluid used to protect the sealing and we got consumption above expected. So we made a number of -- we adopted a number of protective measures for the equipment. And the problem kind of solved itself. And now we no longer have any problems with the pumps. All 3 ESP pumps are running smoothly. Just for you to understand, this is equipment that has a lot of technology to it and its pioneering technology. But the equipment is running really well. The pumps are performing well. We don't expect any new problem. Again, if that kind of problem happens, we have a spare pump sitting right here in Brazil in case we need to replace the pump. So if needed, we have all of the resources to repair the problem. But we are not expecting to use this spare pump, not in the short, medium or long term.

Perfect. If I can have a follow-up question in a related topic. Perhaps we have a 1-year visibility of work for onshore. We have a reasonable lead time. If you want to execute projects in Q2 of next year, you have a lead time to get the equipment. You spoke a little about Atlanta. So perhaps you will need to check the productivity of the wells that will be drilled at Papa-Terra, some things have been mapped out. We spoke a little about Peroá for a while. We haven't spoken about Malombe. So what would be the list of major projects offshore? Thinking about Q2 2027, perhaps too early. But what would be the next big project in this list of projects?

Well, indeed, it is too soon to affirm what the investments will be. As you know, this investment decision process includes a number of things. We matured the topics. We start with a very conceptual design. And just to share with you the study we did at Papa-Terra. I mentioned the producing wells, the injectors. We called an outside company to validate our data and information, and they confirmed all of it. And now we are at the moment of refining. It's not enough to have oil. The oil has to be economically interesting for the company. As we speak, we are refining all this information to submit it for approval. This will not happen in 2027, perhaps in the second half of 2027. For Malombe, we get that frequently. And we frequently get the same answer. Yes, we are assessing Malombe. Malombe is in a queue of the portfolio in terms of opportunities, a queue of opportunities. It is an interesting opportunity. We requested a postponement of the commercialization authority by ANP. We are waiting for ANP's reply. And then Malombe will be in the queue of the portfolio. But again, it's -- we're being very disciplined in terms of capital allocation. Right now, we have CapEx, significant CapEx for us to allocate, and we are allocating CapEx with a lot of discipline. We are doing well on budget, on time. And that's what we will do. We'll start production. Let's validate these productions. And only then can we think about organic growth. But again, with a lot of caution, discipline and respect for our investors' money. And just add to that, Rodrigo. we have organic growth already contracted. If we get the average of the wells that are into production at Papa-Terra and Atlanta of about 40% after the campaign when the wells are up and running. So there's an investment cycle, really like what Travassos said, an alignment between the operational team and the financial team. And again, we have quite a relevant organic growth contracted in the end of 2026 and over 2027. Again, we are in the process of deleveraging the company. This was the fourth consecutive quarter where our net debt dropped. And for the first time in a long time, we got to less than 2x net debt over EBITDA ratio. And again, like I normally say, it's not a guidance, but ideally for an independent oil and gas companies to have a ratio below 1.5x, actually closer to 1x. So still we have to capture this potential organic growth to reduce our cost of debt, to reduce our gross debt to bring leverage to more comfortable levels. And again, to make the company more resilient when we have lower oil prices. Like I said in the final part of my speech, we don't want to have high prices of oil to create value. We want to be able to work with lower oil prices, knowing that the company will behave well, even facing a more challenging scenario.

Our next question is from Regis Cardoso with XP.

I have 2 topics. One, given the significance of the topic, can you elaborate about how hedges performed in the financial results? I don't know whether there is something related to NDF or zero cost collar or whether it has to do with pricing the inventory rather than just the ones in the period. Could you please comment on the general effect of hedging in the results? And the second topic may be addressed to Luiz and Travassos. Speaking about Atlanta, my impression, and please correct me if I'm wrong, decline seem to be slightly higher than what we used to model here. If you could comment on that, please, I would appreciate it. And also, I would like to understand the interaction of that decline in Atlanta and the time line of the wells and the capacity of the platform. Once you have the 2 new wells, whether the platform will be completed and how you -- maybe if you do the management of the wells, you can produce more water or maybe not. So I would be willing to hear your comments.

Okay. I will answer the first question and Travassos, the second. There is no mystery about our hedge. There is nothing uncommon when compared to other peers. Everything has to go through the financial income. We use MTM with the future curve. And as contracts are maturing, then you have a cash impact, be it positive or negative. And what it is yet to be -- yet to mature, we have to market down due to accounting purposes. So we have to market down that NTM forward. And as I said, in the first quarter, the impact was slightly relevant -- was not very relevant, BRL 19 million because in March, there were some contracts that would mature in April. So from now on, the impact will be slightly higher. And I understand that the market will look at hedging and we try to look at the impact. But I think sometimes I talk about this mismatch because I mean, you manage a company and Travassos is looking at projects for 2027 and Boeri doing nitrogen injection. And also, we have to manage cash generation for the next quarter. So we started the year with a leverage level of 2.4x what we had in the past 3.3 or 3.2 and the scenario not very long ago, everybody was saying and agreed that oil prices reached $50. I mean, to be honest, you couldn't play hero and say, okay, let's go for it. But we have this fiduciary duty of maintaining the company in healthy conditions and safe as well. Travassos and Boeri, they talk every day about operating safety. And my head has to do with the financial health of our P&L. Looking back, I think I would do exactly the same thing. We protected what we needed to protect to ensure cash generation for the company throughout the year 2026 because, again, the macro scenario was more challenging, and there was a visible commitment of our investment. So we decided to go in this direction. Remembering that this is not like a hedging strategy that would linger forever because even though, I mean, the leverage of the company reached a level closer to a comfortable level. It's not to say that today is not comfortable, but even more comfortable than what we have today. So certainly, I think more likely this policy will be reviewed, but we don't have any urgent need to hedge as months go by.

Speaking about the decline, Regis, we talked about heavy crude fields. It starts with an aggressive decline, and it starts high and then it's gradually reduced. Speaking about Atlanta's decline in the last 3 months, 90 days, decline is around 23%, and it's coming down. This number is coming down. So the curve is becoming more horizontal in a time line. So it is in keeping with what we have in mind. It's not any more aggressive than expected. And you also said that in terms of the well time lines, the wells start the first -- they will start in the first quarter of 2027. And again, we don't want to give any guidance, but there will be a decline. But with the addition of the new wells, we believe that we will be very close to the total capacity of the FPSO Atlanta. I mean we have some flexibility in our operation. The unit is capable of accommodating or producing 50,000 barrels a day, but it doesn't mean that with that, we would need to close wells because we do have flexibility. So it's -- we are very comfortable with what the wells will deliver.

As there are no more questions, we now conclude this conference call. I would like to thank you so much for joining us, and we wish you a very good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]