Petróleo Brasileiro S.A. - Petrobras (PETR4) Earnings Call Transcript & Summary

Hello, everyone. Welcome to our Virtual Petrobras Day 2022. Today, we'll have the opportunity to watch presentations and to participate in discussions with our senior management about our new strategic plan for 2023 to 2027. [Operator Instructions] You can send us questions by email [email protected]. Today, we have with us Cláudio Mastella, Chief Trading and Logistics Officer; Fernando Borges, Chief Exploration and Production Officer; João Henrique Rittershaussen, Chief Production Development Officer; Rafael Chaves, Chief Institutional Relations and Sustainability Officer; Rodrigo Araujo, Chief Financial and Investor Relations Officer; Rodrigo Costa, Chief Refining and Natural Gas Officer; and Salvador Dahan, Chief Governance and Compliance Officer. The presentation is available on our Investor Relations website, and we will start by Rodrigo Araujo. Please, Rodrigo, go ahead.

Thank you. Thank you, Carla. Thanks, everyone, for being with us this morning or afternoon. So we can go to the next slide. So in terms of the overall setting up the business plan of the '23-'27 business plan, I think that the main word to summarize our business plan is continuity. So we continue to be focused on the assets where we have most competitive advantages. We continue to be focused on delivering what we've promised, and we've been able to successfully deliver everything that we've promised in the '22-'26 business plan and even more over the course of the year. So we continue to be focused on resilient projects, on investing responsibly, and on creating and delivering relevant value to our shareholders and to the Brazilian society as well. So the main pillars of the new business plan is preserving the solid financial ability of the company, so the business plan is resilient not only to the base case scenario, but also to the stress test scenario. We continue to be focused on being a low-cost, low-carbon company, delivering what we call double resilience, meaning that we produce low-cost oil with low level of emissions, environmentally competitive assets in our portfolio as well. So we're quite focused on delivering results via those assets. We're also a relevant player in the current challenging energy security scenario. We're able to deliver a lot of value and be able to deliver the projects that we've committed to over the course of time. Of course, the latest plan continues to be focused on value creation and delivering the value that we create. Investments are mostly focused on deep and ultra-deep water assets and also on the competitive refining assets that we have, especially the assets on the Southeast of Brazil that are closely connected to the Brazilian pre-salt. We're investing to modernize and increase the quality and reduce the carbon footprint of our refineries and other downstream assets. And we've also taken a step forward with respect to our path to decarbonization and to profitable diversification in the business plan. As we've been talking over the last year, we've been studying several different opportunities to analyze what the capabilities we have for the future and what would be the best fit in terms of potential future businesses for the company, and we're going to talk about this later on. We've made relevant steps on defining what are the potential future business, where we see the company having competitive advantages and being able to actually deliver value. And at the same time, we've increased the CapEx allocated to energy transition to -- by basically 60% (sic) [ 6% ] from $2.8 billion to $4.4 billion, a relevant increase already representing 60% (sic) [ 6% ] of total CapEx. So this plan is an important step towards continuing the value-creation strategy that we've been taking over time. Next, please. In terms of our top metrics, we haven't changed any of the relevant metrics. So basically, we continue to be focused on executing what we've promised. With relevant targets in terms of lower emissions, we continue to have aggressive safety metrics as well in targets. As you guys know, safety is a fundamental value for us and we are continually concerned about reducing recordable injuries and reducing fatalities. We have an ambition of 0 fatalities and safety is always a priority in our operations. We only create value when we're operating safely. We also have relevant targets in terms of reducing spilled volume. And also the main target in terms of value of the plan continues to be the economic value added. We continue to have the structure to analyze the value created by the portfolio and set targets with respect to creating more value. Of course, the value creation metric is supported by an appropriate capital structure. So we have limits in terms of the optimal capital structure for the company. We're going to talk about that. So it's value creation, respecting financial ability and respecting the company's optimal capital structure. Next, please. In terms of our ESG positioning, it's important to highlight that we're taking relevant steps towards integrating the ESG strategy, not only with respect to reducing our carbon footprint and protecting the environment, but also from the social perspective, caring for people and from the governance perspective, also acting with more integrity and transparency. So the main goal of the plan is to deliver sustainable results for a society that is in transition, by acting with social and environmental responsibility and the highest degrees of safety, integrity and transparency. Next, please. When we disclosed this new business plan, it's important to remember that this is -- of course, it's only one flash of the whole story. We've been successfully delivering on and turnaround story over the last 7 years or so. A lot of the relevant results and a lot of the strong ambitions that we have with the business plan come from the financial restructuring work that we've done over the last couple of years and the governance restructuring works as well. We've been able to achieve our optimal capital structure with 15 months in advance. More than half of our debt is due after 2027. So we have a very solid capital structure, very comfortable liquidity situation as well. We have paid more than $100 billion of debt over the last 7 years. Of course, we've reduced the company's interest expenses by more than 60%, almost 70% reduction from more than $7 billion to less than $2 billion. We're also able to diversify our funding sources. We've recently issued sustainability linked loans. We've also issued commercial papers in Brazil and real estate [ energy ] certificates in Brazil. So we've been able to manage the -- our financial liability in a very value-accretive way. We're comfortable with the level of debt that we've achieved, but we still have a lot to do in terms of liability management. So we continue to be active, not only on making new issues on the capital markets and bilateral transactions, but also prepaying and preorganizing debt, so that we can always have the best maturity and the best profile. Over the course of '22, we've managed to bring our cash levels close to the optimal level, close to $8 billion. On this plan, we continue to have the referenced cash of $8 billion, the target level of $8 billion. The minimum cash level is $5 billion. So we're, of course, very comfortable with the company's liquidity. It's always important to remember that we have about $9 billion of revolving credit facilities that also provide additional liquidity to the company and allow us to work with lower cash levels and reduce the carry cost of our cash. With everything that we've done in terms of value creation over the course of '22, a very positive year for the company. We've already declared BRL 13.8 per share of dividends, and we're committed to returning the important value that we've created. Over the last 5 years, we've also paid more than BRL 1 trillion in taxes. So the company has an important role in terms of returning to the Brazilian society the value that it creates. We've been awarded for our transparency. Our financial statements have been elected between the 10 best financial statements in Brazil for the last 5 years and in 2 of them, they were elected the best financial statements in Brazil, so it reinforces our commitment with transparency and with communicating properly to our shareholders and to the overall stakeholders. And alongside with delivering projects on time and making sure that we are able to start up production on time and with relevant quality, we've been working together with the supply chain, so that we can make our supply chain be able to deliver what we need on the proper timing. We've also provided more than BRL 20 billion, almost $4 billion in additional credit to the supply chain. We've created programs that allow them to access lower cost credit and, therefore, provide the services and support that we need to deliver the business plan. Next, please. The plan is focused on maintaining the company's financial strength and maintaining the company's sustainability over time, creating and delivering a lot of value of course. Of course, one of the main pillars of the plan is competitive prices aligned to the international markets. As I've mentioned, we've kept the reference cash level of $8 billion and the minimum cash of $5 billion. We fully forecast dividends according to the current dividend policy and made minor adjustments to the company's gross debt reference range. We've reduced a little bit the range for the optimal capital structure. The prior range was between $55 billion and $65 billion. We've reduced the lower end of the range, but we expect to maintain gross debt around $55 billion over the course of the plan. Next, please. In terms of the assumptions that we've used for the plan, of course, we've updated the expected Brent prices for prices that are closer to the short-term scenario that we're seeing. Just to -- as a reminder, we expected $72 per barrel as the average price for '22. And what we're actually seeing is more than $100 per barrel. So we've maintained the company's long-term view of $55 per barrel in the base case scenario and $35 on the stress test scenario, but we've updated the convergence trajectory to achieve those levels. Should be closer to the current market prices. Our -- of course, our assumptions were always focused on making sure that they are well aligned with the best international forecasts, and we have a lot of [ sanity ] checks in terms of the quality of the assumptions as well. Next, please. From an overall perspective, it's important to highlight that more than half of the value that the companies create -- the company creates returns to the Brazilian society, so more than half of our cash generation goes back to the Brazilian society either via taxes or dividends to the controlling shareholder. We expect to return between $215 billion and $235 billion over the course of the plan. Out of the almost $200 billion of cash that we expect to generate over the course of the plan, we have relevant investments and also expect important dividends, assuming, of course, the company's current dividend policy. As I mentioned before, in terms of leverage, we don't expect relevant changes in terms of the level of our current debt, but we do expect to be active on managing liability over time. Next, please. Finally, an important message is, of course, the important CapEx increase that comes with the recent business plan, but more important than the CapEx increase is the fact that it's a very responsible CapEx. The plan itself [ financiable ] and it's resilient to our stress test scenario. So even in the stress test scenario, we expect to be able to pay dividends above the minimum of the $4 billion of our dividend policy. So the plan is sustainable even in the stress case. We have out of the $78 billion of CapEx over time, we -- 83% of that CapEx is allocated to the Upstream segment. We also have 10% of the CapEx allocated to the Refining business. A lot of additional work in terms of improving quality and reducing carbon footprint. We also have around 2% for Gas & Power, 2% for trading and logistics as well and 3% to corporate activities. Basically digital transformation and higher capabilities in terms of our technological framework. It's important to highlight the relevant increase in the CapEx for low carbon initiatives coming from $2.8 billion to $4.4 billion, about 6% of the CapEx, so allocated to low carbon initiatives in the business plan. And then when we look at the level of CapEx commitments over the course of the plan, we've done an important work in terms of ensuring that the projects will be delivered on time. So if you look at what we've already committed for the next 3 years, we're basically talking about 95% of the '23 CapEx, 90% of the '24 and 80% of the '25 CapEx already committed and procured. So basically, we've taken important steps toward ensuring that we're able to deliver projects on time. As you guys know, it's about 90%, delivering more than 90% of the NPV of the projects come from the proper investment decisions and being able to deliver the projects on time. So we're quite focused on delivering all the projects on time. So overall, a very solid business plan, continuing the trajectory of financial and governance recovery of the company that we've taken over the last couple of years. And I'll pass the floor back to you, Carla, so that we can quickly can jump into the Q&A session. Thank you for being with us this morning.

[Operator Instructions] And the first question that we received comes from Frank McGann with Bank of America Merrill Lynch, and it's for João. How have inflation pressures affected the increase in CapEx, specifically in Upstream how oil service inflation has been significantly increasing globally. How has this affected the plan and expected returns on projects? What are oil service sub factors have been showing the biggest increase in prices? How has this affected the plan and expected return on projects? Does the tighter oil service markets affect how we think about timing of new bids for equipment needs for Búzios for 2026 to 2027?

Good afternoon, and thanks for the question, Frank. How the projection that you had about inflation are reflected in our -- on our projects. We think that is kind of movement, it's normal for the market that the companies that supply to us. They are like how company they need to make money and how the market improves. They need to get their returns also. And it's a good thing because when this movement happens, it happens together with the oil price increase. So it's a win-win situation for the market. The oil companies increase the products and the share of these products goes to the supplier market that must be healthy in order to have a sustainable market. Regarding the returns of the projects, we maintain the breakeven of $35 for approval of all the products. We understand that this make our projects resilient and it is the quality or the design that we need. These -- I'd like to reinforce that $35 per barrel for the approval of products making us to have good projects. We -- this avoid us to waste money in equipment and in these designs that does not make value for the company. Petrobras is always monitoring the markets. And we seek productivity gains and improvements in our contracting strategy. That will help us to keep the gains with Petrobras, not leave everything to the market. We -- in the [ boat ] Búzios, we understand that we have a strong strategy to go to the market and we don't think that we will have an impact in the bidding for the Búzios field development when they go to the market again to buy [ Christmas tree ] and all the equipment that we need to implement to else for the projects. Thank you for the questions.

Thank you, João Henrique. The second question also from Frank, it's for you. What were the reasons for the postponement of CIP1 from 2026 to 2027?

Yes. The main reason was that we were not successful in the bid. We tried innovatively BOT model that is a mix between the EPC and the [ dual ] unit. And the market didn't really under -- find well for these new models that we thought that it could be for the interest of the Petrobras in the market. And the idea is now to return with the conventional [ lease D ] unit for CIP1 and CIP2 to the market probably in the month of December already.

Thank you, João Henrique. The next question comes from Bruno Amorim with Goldman Sachs, and it's for Fernando. Fernando, is it possible to share the line production [ roll ] outlook for 2023 to 2024 excluding asset sales and the breakdown of this growth between pre-salt and post-salt? Production guidance points down to a flat production in the period despite the 5 new production units in 2023.

Bruno. The impact of divestment is approximately 70,000 BOE per day in '23 and 150,000 BOE per day in the coming years. However, it should be noted that all our projects disclosure are net of these effects, reinforcing the resilience of our portfolio. Regarding the future production, it is important to reinforce that the new projects have the commission and the ramp-up phases. Considering that the increase in the production is not immediate. Furthermore, it is important to remember that the production of our assets have a natural decline of approximately 10% per year. In this context, the production of new systems must compensate for this decline. Our investments of $18 billion in Campos Basin renovation in this plant show our commitment to [ this overture ] to take the best of our assets and mitigate the decline. Regarding the first half growth, with the new -- from the new -- [ 14 ] new production system, which represents 78% of our production growth up to '27.

Thank you, Fernando. The next question comes from Monique Greco with Itaú Corretora. And it's for Rodrigo Costa and also João Henrique. The new plan includes an expansion of investments in the refining facilities related to quality improvement and an increase in middle distillates production, which, when completed, will add significant production capacity to the park. Could you talk a little bit more about new projects that have been included in this plan, the expected start dates and their respective size?

Monique, to deliver the growth of low sulfur diesel in this plan, we are now implementing the new hydro treatment unit on our plant, our refinery in São Paulo. And this unit, we were around 63,000 barrels per day, and we will ramp up this unit in the second semester of '25. The revamps of REDUC will add around 28,000 barrels per day, and we will deliver in the second semester of next year. And the revamp of REVAP will add around 41,000 barrels per day, and the ramp-up will occur on the second semester of '25. Another important project is the hydrocracking unit and hydrotreatment unit in the GASLUB, Itaborai, Rio de Janeiro that will deliver around 7,000 -- 6,000 barrels per day in the low sulfur diesel and the ramp-up will be in the first semester of 2028. Regarding the new capacity of distillation and conversion, the second train on RNEST, the ramp up, it's around first quarter of 2028, and will add around 130,000 barrels per day. And the revamp on the coke unit on REPLAN that we had around 10,000 barrels per day, and the ramp-up is in the second semester of 2027. The new lubricant unit in GASLUB occurs in the first semester of 2028 and the capacity is around 12,000 barrels per day and the dedicated facility of sustainable aviation fuel will occur in the first semester of 2028 and it will be around 15,000 barrels per day. This is the main highlights. And João, you want to add other comments about this?

Yes. I'd like to address the challenge that we have with this new projects. We have sometimes without this amount of projects in the down scenario and it is very challenging to put out these projects on the way that we will need to have a successful project. We are working hard with the design of this project to have a good designing of these new units when we go to the market to have it built. We're working also in the prequalification of the suppliers and studying the best way to have a win-win quarter for the construction of these new units, because we cannot -- in huge projects like that, we cannot have quarters that don't [ believe ] Petrobras what we need on time, with the quality that we need to have a good performance and good ability of in order to have a good operation and make money with these new projects.

Thank you, Rodrigo. Thank you, João Henrique. The next question from Monique is for Mastella. Mastella, you talk about the activities to strengthen the company's foreign [ end ] trade. Considering the uncertainty that still hovers over the [ offer ] from Russia. What has been, in your view, on global oil products market? Is there a risk that we will again fear a more severe global shortage that will also affect us here in Brazil?

Well, thank you. Thank you, Monique, for the question. Well, the strengthening of our foreign trade activities aims basically to obtain a more robust global coverage of the markets, on the global market for the export of domestic oil and also for the important export of products that complement our refining in Brazil. Relative to the risk of a global short, as you said, we see the international products market is well supplied these days, and there are no signs of product shortages due to the high levels of refining. We see a reduction in global demand generated mainly by lockdown in China, as they try to meet Zero COVID policy. Of course, we also see high volatility [ themes ] still and to minimize any impact on our business, we are very well positioned abroad with our expert traders always looking for the best alternatives to buy and sell when necessary.

Thank you, Mastella. The next question also from Monique is to you as well. Mastella, can you talk a little more about how AVANÇA LOG can contribute to the development of this potential new business in renewable energy? Are there any of this business, offshore wind or hydrogen that can benefit from more -- from the company's infrastructure and logistics efficiency?

Thank you, again. The AVANÇA LOG program has on one of its [ flows ], we focus on seeking opportunities on the path of energy transition already. We have already met the synergy opportunities for our existing logistics infrastructure for biofuels -- for renewable biofuels supporting and leveraging our BioRefining program in conjunction with our refining guidance. On the other hand, the Brazilian logistics on bio fuels already operating intensively also offers, in my view, good possibilities for new logistics and commercial partnerships. In the future, other opportunities can still be captured as technologies mature and [ concern ].

Thank you, Mastella. The next question comes from Regis Cardoso with Crédit Suisse. He sends us a message. So congratulations to all Petrobras management team for the excellent job that you have been doing. The business plan that was published yesterday combined some balance sheet investments and investor return. Regis' first question is to João Henrique. What drives the reduction of annual CapEx of $18 billion in 2024 and 2025 to $13 billion in 2027? Which are the main risks related to the projection at the end of the business plan horizons, provided that only part of the CapEx is already committed, 40% in 2027 versus 90% in the beginning of the period?

The projects mature at different moments. In addition to having a different contracting strategy, such as the definition between [ now in the beginning ] and the [ shut of ] units that can in influence the CapEx level of each year. We don't have a specific driver to define the CapEx of each year. It is the result of the implementing strategy of each project. When we see the difference between the level of the context for each period, it's normal to have this difference. We understand that it's a good sign that you have the projects that they are closer to us, with a higher contracting level than the project that we have there today. So it's normal for the strategy that we are implementing in the projects.

Thank you, João Henrique. The next question from Regis is for Rafael. Rafael, the presentation mentions 4 segments as potential portfolio diversifications for Petrobras, offshore wind, hydrogen, carbon capture and BioRefining. Which are the main competitive advantage of Petrobras in each of those segments? What would be the best way for Petrobras to enter in those new ventures? The R&D partnerships with other companies that are already positioned in those segments, is that a way?

Thank you. I will start with hydrogen, say some characters that has emerged and fits Petrobras. First one is scalable, compatible with the size of the company. And the second one is a breakthrough innovation, very linked with technological innovation. So hydrogen fits in the portfolio of Petrobras because of that. And those reasons are the same for all others. I will add more for the other business opportunities. Offshore wind, we have experience in offshore operations. If you look to carbon capture, we have what we has been done for many, many years, is to appraise reservoir and managing reservoir. So we are very good with reservoir so carbon capture is -- there is this link. Looking to BioRefining, we have also decades of experience on operating refining assets. And as Mastella mentioned before, we find some synergies with -- between logistics and commercial relationships that BioRefining business can benefit inside Petrobras. So all of the business alternatives, we have a very good synergy and is suitable for Petrobras to invest. In terms of R&D, for sure, we had a big allocation of our resource incentives and a tradition from center of innovative actions. So for sure, science will be present in all of them. We are [ for a results ] partnership. If you look to BioRefino, it is without partnership. We are opening the market by selling some refining assets, and we are focused on operations with 100% of control. So in terms of BioRefining without partnership. Looking to hydrogen, offshore wind and carbon capture, we don't have decisions in terms of business decisions right now, but I will say that because of the high risk, it makes sense to share the risk returns, the risk rewards with partnerships, but that -- it is a decision yet to be made by the normal process inside Petrobras. Very good question. Carla, back to you.

The next question also from Regis is for João Henrique and it's about the commissioning costs. The commissioning costs seem higher at $1.5 billion per year when compared to the previous business plan at which they were closer to $1 billion per year. Could you share more color on which are the main difference behind those numbers?

First of all, it's important to remember that the commissioning is part of our business. We discover the oil, develop the oil, produce the oil in fields. And then in the end, we need to make the commissioning. For this new business plan, we have increased the number of platforms that are in the -- disclose from 18 [ to 26 ]. And we have increased the number of lines, subsea lines to be collected and also the number of wells that must be in the [indiscernible]. This is why we have increased the -- our OpEx from $1 billion to $1.5 billion per year when you compare these 2 business plans.

Thank you, João Henrique. The next question comes from Pedro Soares with BTG Pactual, and it is for Salvador. Salvador, the newly elected government has been conveying a message that could lead most to believe that there will be changes in Petrobras strategic plan. So could you remind us the steps that are necessary for the revision of plan? Pragmatically speaking, how long should the revision process taking in case the goal is to change as soon as January?

Thanks for the question. Basically, we have to remember the process is not one single activity, but actually it's a number of months of dedication of multiple teams from all the business areas. It's a bottom-up approach. We have the technical teams, we will propose and we will submit the proposition according to our process and our governance. Of course, the Board is responsible to set some strategic drivers and according to each Board composition, those drivers can change and can reflect whatever the control ship requires and expects from Petrobras. But ultimately, the process is our construction made based on the bottom-up approach according to our systematic and is a process of multiple months. Considering all the projects, all the criteria and assumptions as we have in the plan are supported by our risk analysis, are supported by an economic revision. And basically, they have to be positive in terms of returns, in terms of sustainability, not only the environmental but also economical sustainability as we already mentioned. In terms of time line, we have a legal obligation to release an annual plan, doesn't mean we have to -- we are obliged to stay only on one plan per year. Of course, if there is any internal decision to review more frequently is it possible legally speaking, there is no -- is there any condition that will avoid this to happen. However, as I already mentioned, it's a process with several steps to be taken, and it's not possible going towards systematic to say this strategic plan can be reviewed in a very short-term period. And the last point I think is important to mention is the approval process. Our governance has established that the Board is responsible to approve the plan after being already submitted and approved by the Executive Committee and prior to that, also should be approved by our statutory technical committee. So all these 3 collective committees, they are responsible and they have to do sharing duties in terms of signing off and validating the assumptions and gauge the proposed plan. So basically, this is how our governance covered the strategic plan construction.

Thank you, Salvador. The next question from Pedro Soares is to João Henrique. João Henrique, on the CapEx plan for the next 5 years, could you quantify how much of the implied growth stems from higher inflationary pressures and how much reflects management decision to accelerate some projects?

Thanks for the question, Pedro. In terms of the exploration of the production CapEx, we have an increase of 12% when you compare to the previous plan. And in the Downstream segment, the increase was around 20%. As seen in the presentation, with some numbers resulting from the review of economic assumptions, new opportunities and the portfolio adjustments. Economic assumptions affect our portfolio differently. Considering contracts signed, where we will have -- in some cases, we have the escalation foremost. And in the scope that is not yet quantitative that is more suitable to have changes due to the market conditions. All these adjustments were incorporated into this strategic plan. It should be noted that we are always looking for [ little tidbit ] gains like you can see in the well construction, for example. And the improvements in our production strategy which helps to mitigate these impacts. The idea is mainly to have a good strategy and we choose the best opportunities to go to the market to make the contracts. Thank you for the question, Pedro.

The next question from Pedro to Rafael. Rafael, I would like to delve deeper into energy transition. It's very clear that the CapEx to be disbursed in the projects to aim to reduce Petrobras' carbon footprint is growing, but its size is relatively small. And I believe that mostly driven by the current strategy to focus on high-return projects. So if you could compare the level of returns that you are seeing between projects that involve the energy transitions and what's being delivered today by the core business, that would be very helpful.

Pedro Suares, thank you, for the question. As you said, you think that it's clear that the CapEx is growing. But at the same time, the CapEx is not big enough according to your question. So I can translate this comment on, you would like to see the CapEx growing faster than you were seeing. So I have 2 comments. First of all, I assess the total CapEx of Petrobras at about $80 billion announced is very appropriate to be executed in a responsible way by a centralized governance model, by a team that is very committed to deliver all the promise that we are making during this strategic plan. So total CapEx of Petrobras, it is very suitable and appropriate. Second, the green CapEx tends to increase over time as we have more maturity. So I will give you 2 examples. If you look to CapEx in forest, it must be executed, engaging local communities to be suitable. It takes time to scale. So we don't want to announce a very big CapEx with a very huge uptake to execute. The other example is the green capture in biofuel is a dedicated plan in our refining assets. It tends to increase over time as well. But we start with the first plant, and we learned and then we can scale and do more. So this is some feelings that I have that we are in the right directions, we should increase the CapEx plan by plan, but as long as we learn with the process and as long as we got maturity. In terms of the carbon capture, offshore wind, hydrogen, we don't have the projects with reasonable expectations for risk reward that we can be comfortable to announce the CapEx. We are keeping studying. And as long as we see a good risk reward return with sustainability and -- sustainability in terms of climate and also sustainability in terms of economic results, because if you have a very good project in terms of climate issues, but without economic sustainability, the result will be a failure. So that's the reason why we are growing the CapEx in a not very fast way, but you should expect continuous growth in this type of CapEx as long as we incorporate the lessons learned, and we can scale our projects. Thank you for your questions. I'm giving the floor back to you, Carla.

The next question comes from Gabriel Barra with Citi and it's for Fernando. Fernando, to us display a relevant increase in exploratory CapEx, mainly related to the Equatorial Margin. Could you please share what's the company's perspective for this new area in relation to CapEx, production and time line?

Gabriel, the assets on the Equatorial Margin are in the exploratory phase and show excellent potential, demonstrated by the sales of projects carried out in Surinam and Guyana. However, we cannot anticipate investments or production of the development phase prior to the execution of our exploratory [ bank ] that is a big one. However, we have a good expectations with 16 exploratory wells to be drilled in 17 blocks in Equatorial Margin. The first of them is scheduled to start in this December in the deep waters off Amapá, if the environmental permit is obtained as soon as possible. These wells depend on the environmental license process that is in course. Thank you for your question.

The next question comes from Conrado Vegner with Safra. And this one is for João Henrique. Considering the current contracts for production platforms, especially those whose delivers are further in time, are there any breakup fees? How long do you believe it would take to go through all the process for the local production of an FPSO up to its delivery?

Thanks for the question, Conrado. Our contracts, we don't have breakup fees. If there is some decision to change the local quantity would be needed to have a negotiation with the suppliers that will deliver you to Petrobras. It's very hard to say the schedule for local production of [Foreign Language]. You have faced the single best and we know the results of this. Today, when we go to the market to hire [Foreign Language], you had a local contact in the [Foreign Language] and one of the difficult parts for the -- difficult to ask for the guide you put on that [Foreign Language] to Brazil is how to deliver the local content that is requested today in -- for the Brazilian market. We can see that the suppliers that have experience and capacity are with the good backlogs, like when you consider [ FOL ], EBR or [ too long ] they are already have the contracts signed and they are with the good performance in delivering the models that they are building to the platform that they are on such today. So I think that it's not easy to predict the delivery time of the [Foreign Language] that is completely built in Brazil. Thank you for the opportunity to clarify this point.

The next question from Conrado is Rodrigo Costa. Rodrigo, regarding our refining facilities, is there any refineries such as RNEST that would allow for a significant increase in capacity with the building of an additional refining train, for example?

Conrado, we are constantly evaluating opportunities for expansion of processing capacity. But to do this, we consider it needs planning. The market conditions, especially the risks of under transition, the CapEx exposure, access to feedstocks, restrictions on logistics among other factors. At the moment at this current revision planning, RNEST was identified as an opportunity for significant expansion with the completion of the second train. With positive economics, mainly due to the production profile, focus on low sulfur diesel. And the fact that we can use the investments that have already been made. So in each planning cycle, we always remain analyzing and looking for opportunities for expansion, but we best with these assumptions and parameters.

The next question comes from Vicente Falanga with Bradesco BBI. And it's for João Henrique. What caused the delay in CIP1? Why were Búzios 6 and 7 switched in 2024 and 2025?

Thank you, Vicente. In CIP1, we had a bid that were not successful in having it win. We had a BOT model project. That is a mix between ADC and this dual unit and we were not successful and we had to turn to the market [ we didn't win it ]. About Búzios 6 and 7, it's only a matter of moment to the group the same players and the -- they were switched, the names the projects, but the step-up dates are maintained. There is no change in the dates of the projects.

The next question also from Vicente to Rafael. Rafael, in terms of hydrogen, does Petrobras plan to potentially become a producer of green, blue hydrogen or invest to become an uptaker of those molecules?

No, as of taken now, we can produce the blue hydrogen in case we decide for green hydrogen and then use the carbon capture as a technological solution to make it cleaner, to capture the CO2 equivalent generated as a result from green hydrogen. Then you can use carbon capture and make the hydrogen the blue one. Also, we may produce green hydrogen if we use the offshore wind combined with hydrogen to generate a hydrogen that is produced 100% with renewable source. So they are both possibilities, the green and the blue hydrogen. And also, we can enter in this type of business like wind offshore and either carbon capture with no relations with hydrogen. That's another possibility.

The next question comes from Rodolfo De Angele with JPMorgan. And it's for Fernando Borges. The plan sees higher listing costs from $5 to $5.5 and higher total production costs from $29 to $33. What's driving higher costs?

Rodolfo, these fluctuations are in the current global geopolitical context that also affects our industry. We see that increase as a natural solution that does not affect our strong portfolio resilience. For the higher total production costs, it reflects the higher oil price forecast in this plan and its effects on the government data.

The next question is from Rodolfo for João Henrique. Your plan calls for 18 new FPSOs in the next 5 years. Can you discuss the challenges around such an ambitious target? How is the market for new FPSOs? And what can be done to mitigate risks?

Thank you for the question, Rodolfo. We cannot say that these are easy challenging. 18 FPSOs is half of the total number of FPSOs that will be built in the world in the next 5 years. We have a strong execution plan for these units, we have a mix between these units and the EPC units. And we made a requalification process where we would select the best EPC company in the world to run these challenges. All the units are the biggest units that we have ever built. And we had our own design without the experience that you have learned in the -- all the result projects. And we are very confident that we will be successful in this journey. It's a very challenging construction, but we are very confident with the results that we are planning for the near future in these events.

The next question comes from Luiz Carvalho with UBS and for Rodrigo Alves and Salvador. Can you please provide more details on the governance process for new investments? Is there a time line for new projects to be discussed yearly, quarterly or other? What steps are needed for approval? Is there a target return? What are the metrics that the company evaluates when considering new investments? Still in governance, what does this need to change the steps for this process?

Thank you, Carla. I'll start with the first part, and then I'll pass the floor to Salvador. So with respect to the overall governance of the new CapEx projects, Luiz. Basically, the whole process starts with the existing business plan where all the company's assumptions in terms of prices, margins, et cetera, are recorded, also operational volumes, et cetera. So it all starts with the business plan, that is the main reference. And alongside with the business assumptions that come from the business plan, we also have all the CapEx budget that is approved by the Board of Directors is also within the business plan. So basically, all the projects that are within the plan are approved to be carried out. It doesn't mean that they're all after the FID or all after the decisions have been made, but they're all authorized by the Board, and they still have to go through the entire governance. So individually, every project has to go through a specific approval process. We have 5 gates process to approve new CapEx. Basically, the third gate is the regular FID. Basically, the main criteria is, of course, having positive NPV at the stress test scenario. So we're talking about for crude, $35 per barrel in the long run. For refining margins, for example, diesel and gasoline crack spreads, $11 and the $5 per barrel in the long run. So basically having positive NPV in the stress case scenario is the main criteria for project approval. And in terms of the process that has to be taken to approve the individual CapEx projects, basically, every project that's larger than $200 million has to go through the investment/divestment committee. That is a committee composed by executive managers that are at the level right below the C-suite. And then they have to be approved by the C-suite executive officers Board and then they go to the Board of Directors to be approved. So they still need to be approved by those 3 different layers, all of them with economic analysis, risk analysis, environmental impact analysis, engineering project analysis, et cetera. So this is all that has to be done for each specific project. And I'll pass the floor to Salvador to talk a little bit about it changes and then how it could play out.

And just adding on Rodrigo's last comment, adding on those 2 different layers, the personnel and criminal liability based on the fiduciary duties, so all of us have as part of the -- our responsibility. And in terms of answering the question very similar to what I mentioned before, it's a bottom-up approach. We have to follow the -- all the criteria and assumptions Rodrigo already mentioned. Ultimately, it's a Board of Directors' decision who approve the plan, but also to change or update the existing rules and existing procedures. So basically, we already discussed that the governance of the company rules and procedures are always evolving. We are always trying to bring and add additional best practices that we may find in other companies, best practices from external institutions, and of course, embedding whatever laws, regulatory requirements, internal/external auditors may bring to us in terms of lessons learned. On top of that, of course, the controller can bring their own requests and requirements through the Board of Directors to the controller representatives, and therefore, define new strategies and new ways to conduct the long-term vision for the company.

The next question from Luiz is to Rafael. Rafael, is there a guided focus for upcoming investments in renewables? What Petrobras could consider, offshore wind, hydrogen, biofuels? And on the other hand, what is off-scope for Petrobras, what the company would currently not consider? Mining, biomass?

Thank you, Luiz. As I said in the previous question from Pedro Soares, we are already investing in the biofuels, in the BioRefining because we have -- it is scalable. We have ability to breakthrough innovation, very linked with technological innovation and [ user sales ]. We have experience in refining assets. We have experience in logistics and commercial -- in commercializing the liquid fuels inside Brazil. So it's very suitable for us. It's already a decision made and we are going to start with the first plant in refining assets in São Paulo to produce both jet fuel and the diesel for trucks with renewable content. So that's a business decision made. And it's the first plant that we need to learn and to scale in next plans after we got maturity of this type of investment. On the other hand, we have hydrogen, offshore wind and carbon capture as possibilities as business is without having any CapEx dedicated to that, but we are going to restart more these alternatives. And we rule out other possibilities as nuclear or as the subsea mining. That's the type of business that we said in the last plan that we should appraise and we decide to focus on 3 of them with hydrogen in the center. It can be hydrogen combined with carbon capture, which will generate blue hydrogen. It can be hydrogen combined with wind offshore, which could generate green hydrogen. And it can be wind offshore or carbon capture without hydrogen associated. So that's our decisions, and let's see how we evolve on the upcoming months.

The next question comes from Bruno Montanari with Morgan Stanley, and it's for Salvador. Salvador, can you walk us through the time line that a potential new Board of Directors and management teams could be appointed? And then the time line for a new team to effectively change the business and investment plan. What would be the implications if a new management team ignored the plan and allocated capital according to its assumptions? Would this trigger any personal or corporate liability? In other words, how enforceable is the CapEx plan unveiled by the company yesterday?

Okay. There are some predictions that I'm not sure I'll be able to answer, but in terms of appointing new Board members. Yes, as you already know, there are -- we have some basic time lines to follow according to our internal procedures and according to some external requirements by CVM and others. But basically, we are talking about around 40 to 60 days depending on the complexity, depending on the number of people involved. But after we or the company received indication from the controller with names and indications to appoint new Board members, to call for our general assembly meeting and therefore, make the election process. So this is very known, well-established, very transparent process we already followed several number of times. We had last year to update our rules to include a new federal decree that requires the eligibility committee to run the eligibility criteria check into the candidates before calling the general assembly meeting and -- which brings an additional to the number of few weeks to add into this process has happened last general assembly meeting election. Other than that, I think in terms of bringing new strategy assumptions, new visions to the long-term company future, I would say they could be addressed and they could be embedded into the plan, if necessary, according then following all the processes Rodrigo and I already explained, in terms of following company systematic approach. More than that, I think, depends on how those new visions and new assumptions will be incorporated in order to say, well, this is according to what company has today or this is a big change. And if they are well funded, if they are well organized in terms of making the cases, building the business opportunities in terms of following the same or the economical viability and all other elements that are relevant for not only Petrobras, but for any company, of course, they will be following the approval process up to Board of Directors. Along the lines, I would say, if there is something that is not concrete enough in terms of economical viability, risk and all of the criteria, therefore, you may fall into those potential liabilities that you already mentioned. But basically, the process is, as I already explained. And according to the past experience in terms of calling a general assembly meeting is the time line as I already explained.

We have one last question from Christian Audi with Santander. And he also sent us a message. I would like to congratulate you once again on a solid strategic plan both from an operational and financial point of view, complemented by a continually strong corporate governance. Christian's question is to Fernando. Fernando, the forward breakeven remains at $20 per barrel as in the previous business plan.

Christian. Definitely, yes. Breakeven is nearly $20 per barrel, given the strong resilience of our portfolio.

At this time, the Q&A session is over. If you have any further questions, you can send it to our Investor Relations team. Rodrigo will now make his final remarks. Please, Rodrigo.

Thank you. Thanks, everyone, for being with us this morning, this afternoon. We're very glad to deliver a very solid business plan focused on maintaining the company's strong financial position and creating and delivering a lot of value. Thank you for being with us, and please feel free to send any further questions to our IR team. We'll be ready to answer any further questions. Thank you, and have a great day.