Petroreconcavo S.A. (RECV3) Earnings Call Transcript & Summary

Hello. Good morning, everybody. Ladies and gentlemen, let's start our webinar on the earnings results. I will wait so people get into and we start our presentation. We are reaching a higher level of participants. Let's start. So then again, good morning, I am Marilia, Director of IR of the company. We are going to start our earnings result of the company 2023. Jose Firmo; and CFO, Rafael Procaci. And then we are going to open up the floor for Q&A with the Board of Executives. Please send your questions on Q&A and your name so I can address your questions in the end of the presentation. We have this webcast broadcasted on the Internet, and then it's going to be available on the company's website. All the declarations are premises of the Board of Directors on information available. So future consideration will not ensure performance because they bring risks and uncertainties. Now I pass the microphone to Firmo so we can start.

Thank you so much, Marilia. Good morning. It's a great pleasure to be here and present the company's earnings 2023. We are here in Salvador, Rafael and I, Troy, Vitor, Felipe and Marilia. She has introduced herself. She's going to be our moderator. The last time I introduced myself as the new CEO before coming to Salvador. But now after these 2 intense and interesting months ahead of the company, I had the chance to dedicate my time and know better PetroReconcavo. I'll use this opportunity to reinforce my admiration well validated now based on the aspects that differentiate ourselves from the onshore market. Excellence that is well spoken in the industry for our team, our leadership and resilience in revitalization process and secondary recovery of mature fields in Brazil and our robust strategy of verticalization with products and services. It's a great honor to be part of this team now. As you could see in the earnings informed last night, 2023 was a year of production growth, but also a year of material impact on the results because of the challenges of slowing that we had in the first quarter, a year that could have been better, much better. So let's see now the details of this presentation together with Rafael. In the end, we will be in this room for you to answer your questions that we are going to open up the floor for Q&A using the chat. So we concluded the year with the average production 26,000 barrels a day, 29,000 barrels last year. The production was 22% higher compared to the previous year and this number [indiscernible] of 9% growth from the conclusion of Maha Energy acquisition. Among the relevant topic, it's very important to highlight one of the biggest competitive differentials that is probes and services. In 2023, PetroReconcavo reached the highest point in the verticalization process with the operation of 5 new probes of workover and one more for drilling. Just one workover outsourced in all the activity. And this maturity represents that the company is totally not only with the installed capacity to execute their working plans and all the list of projects. And also currently, as the necessary protection, as I call the seasonality price effect, ensuring autonomy that is unprecedented now compared to the peers in Brazil. The next slide, we are going to see more the numbers of the quarter, but I'd like to register that we finished the year with positive cash flow, and then we distributed dividends, BRL 0.99 per share, yield of 4.6%. And currently, we have a strong balance, giving us total capacity to move with our business plan. Next slide, I'd like to highlight the impact that pressure the financial results. We closed the year with an EBITDA of BRL 1.3 billion and net profit, BRL 709 million. And these results were impacted negatively every year by the price of commodities that were pressured by the outflow restrictions. And it's very important to bring my perspective about the challenges of outflow that we had in Potiguar, material, they were more relevant in the final quarter. The problem of gas outflow was identified in February last year and had variation of performance of the total replacement of the pipeline in the first semester. The second semester, although the volume increased, the gas increase in Rio Grande do Norte, there was restriction in the gross net gas volume during the maintenance in [ UPGN Guamaré ] concluded in November. In December, there was a stoppage of Potiguar asset because of the oil restriction in the Guamaré asset. As a consequence, in addition to the financial impacts that are going to be detailed by Rafael aligned with what is expected by our team of reservoir, they know the effects of stopping production in a mature field. We are about 4.5% underneath the production that we had in October in Potiguar. As you can see in our monthly reports of production, our expectation these effects will be solved by May this year. In my point of view, the outflow restrictions and interruption and the effect for PetroReconcavo demand, what I call operational continuity plan with technical, logistics and commercial contingencies designed and implemented following the same premises that we have in all the critical processes as we have electric generators for electricity outage in critical areas, resilience of data structure or using the example of FPSOs, we have 2 different lines. I consider it totally mandatory that our CapEx plan to grow the production of oil must be followed by a contingent and resilient plan of outflow. Some important components for this solution are ongoing, and its public knowledge already. Others are fruit of our discussion in the final month, seeking parallel pathways, bringing organic solutions like the potential transaction of 3R that is being assessed diligently and organic pathway of solutions that I will deep dive later. [indiscernible] and Miranga is under development and this month, we finalized the purchase and the payment of the land that is in the license process moving towards the final decision investment. We signed in February the right of purchase a piece of land, so we start engineering and the environmental license process for [indiscernible], UPGN and Potiguar, we finalized the engineering. We started the licensing for environment and the acquisition of the necessary equipment to install preloading stations. 100% of the oil produced in Potiguar has a land transportation alternative. These and other initiatives are enablers and they require little investment. They prepare critical options for this operational continuity plan. Our plan is based on being auctioned and available in the next 6 months. So we are able to assess the investments and implement this possible project, seeking the best value long term for the company in comparison to long-term trading alternatives that we are going to seek. Although these impacts on the results, it's important to say the financial solidity of the company in a year of inflation, FX and interest rates, very high, leveraging the debt net in 0.69x. We are so prepared to enjoy these good opportunities that we are going to see the future. Talking more about production. Next slide shows the consistency of the production of the company in the last year, showing our capacity of delivering and the potential of our assets. In 2023, we delivered a growth of 18% in oil production and 27% in gas production, reaching the annual average 26 equivalent barrels here. Our expectation is to follow this trend, seeking new types of production and enlarging the recovery factor of our reservations. From point of view of the evolution per asset, we had a year of growth in Bahia, Potiguar as well. Although these assets were in different stages of development, we could deliver growth of 14% in Rio Grande do Norte and 32% in Bahia. In Rio Grande do Norte, it's important to say that after 4 years of [ takeover ] and having passed the phase of low-hanging fruits, we had an investment program that was consistent, drilling new wells, hydraulic fracturing and recompletation, validating our narration that this asset has a high power of development and exploration of new opportunities in mature reservoir. By year 2023 is our second operation in [indiscernible] and 10th month SPE, reaching organic growth of 11% from different interventions in workover, well reactivation, hydraulic fracturing. We also work and installed field compressors and building flow lines for Miranga hub. More than the results of increased production, the work developed in Miranga in 2023 represents advancing study and understanding of this reservoir and processing system. Our expectation is to see more efficiency in our operations, sustain and increase the production with the cost controls, improving the facilities, automation and digital transformation in Bahia. They highlighted the increase of oil production related to Tiê field. This field under development has few wells and is one of the areas of high potential to develop the company. In 2023, we're advancing some intervention with the return of production of interrupted wells, but we did not start the drilling campaign of the asset that is estimated to happen 2024. I pass the microphone to Rafael, deep diving the financial results and other initiatives of the company.

Thank you, Firmo. Good morning, everybody. This slide shows an estimate of financial effect caused by the outflow restrictions. We calculate an impact on the revenue based on production losses and the time that the wells were interrupted, it was 2,200 barrels equivalent in the fourth quarter and 800 barrels in the average. When we add it up to this volume, the volume of gas produced was burned because of restriction in the flow, considering as well the difference between the prices of oil in the period of time compared to the contract prices ongoing before the problem. So this way, the loss of revenue was BRL 196 million in 2023 and BRL 128 million in the fourth quarter. In addition to that, the company incurred extraordinary costs because of the event, for example, logistics cost, purchasing third-party gas and penalties in midstream, BRL 36 million, resulting in EBITDA potential BRL 232 million a year, BRL 171 million in the fourth quarter. So additional BRL 233 million related to problems in flow and trading and EBITDA, BRL 1.3 billion. We would have had EBITDA of BRL 1.5 billion in 2023. In trading, we had an evolution year after year of the average price of the molecule brand beyond taxes and transport, the molecule price went from 7.7% Brent in 2022 to 9.2% of Brent in 2023. And currently, we have contract estimating about 10.2% of the range in the beginning of 2024. Throughout the year, diversifying our clients of natural gas, increasing the radius of action of the company using our NDF and ZCC contracts, signing contracts of purchase and sale of the other companies, producing, helping us in trading gas operations when necessary. For example, in the interrupted period that happened last year, we highlight in 2023 the contract with Sergas and Copergás, representing our first long-term contract. In addition to elevate the average price and perspective for the following years, they have clause of minimum and maximum prices, ensuring a lower volatility in our revenue and higher resilience when the commodity has low price. This good news for trading comes with a caveat that we still have high cost for midstream in flow and processing and also from inefficiencies in the contract that we are addressing in the signed contracts, especially about the penalty in the transport contract. In the oil, we highlight the change in the profile of the clients. We do not sell our production to Petrobras anymore, and now we sell to a more diverse purchase. We have an improvement in the commercial contracts in Rio Grande do Norte, although the difficulty that we found in the second semester, impacting our gains. We could develop alternative routes. We register as oil holders, and we have been working continues to ensure that the restrictions in our production will never happen again. In Bahia, although the difficulties of Bahia in production, we could keep the sales of oils without operational impacts. In the beginning of December 2023, the route of highways that were interrupted are back to normal. Even in Bahia, we could improving the oil contracts of Tiê. Our strategy for 2024 will see commercial and logistics alternatives to maximize revenue from the oil produced. As we mentioned before, the characteristic that is light, low sulfur and good price in the world market. Talking about costs, our extrusion lifting cost is $13.07 boe in 2023, representing an increase of 5% compared to the previous year. And this result received the impact of real and dollar appreciation in the year and the events of production restriction mentioned before. Calculating the lifting cost plus production, we would have a result of $12.69 per boe and a variation of 2% compared to the previous year, lower to the FX rate. Also a negative influence in the cost and expenses throughout the year, some expenses above normality, one associated to the interruption of new probes to our copper and drilling and also the disengagement of third-party equipment expenses related to the take of Maha Energy Brasil, for transaction closing the office in Rio de Janeiro and termination; three, cost with oil transport and trucks followed by [ how it was ] interrupted. The situation was normalized in December 2023. And finally, expenses with sales and logistics. For example, transport, trucks, storage, port tariffs that we incurred because during the second semester, we sold different oil cargo spot. And in this case, for these cases, we paid the logistics cost instead of they are being built in the discount as it happens in a normal contract that we have with [ Tiê. ] Specifically talking about costs in the fourth quarter 2023, we can highlight the services and material, the accounting of oil stock accumulated in the third quarter and sold in the fourth quarter with the impact of BRL 34 million in the quarterly variation. And the personnel, we had a nonrecurring effect in the final quarter on retention program launched in 2022, focusing on technical and operational leadership of the company, especially managers, coordinators of the company. And that is the effect of collective bargaining signed in December '23, with retroactive payment September '23. This agreement was closed with a readjust of 4.5% aligned with the inflation, even in a year that the sector and company suffered pressure of increased personnel. The impact of these 2 events on people was about BRL 14 million in the quarter. Talking about CapEx now. Total CapEx of 2023, BRL 1.1 billion, aligned with the value of 2022. But when we observe quarter after quarter, we see an important change in the trend. The total volume invested dropped from BRL 630 million in the first semester to BRL 460 million in the second. What I mean is a variation of less than 26%, reflecting partially our efforts to reduce cost and also the maturation of the invest in stocks and the enlargement of fleet and drills. We reached the end of the year with all the equipment necessary for the development of our current fields in Brazil and operational, except for PR-14, our heavy drill for deeper wells started in Brazil in February '24 and is in the process of clearance and commissioning. Next slide, we bring a briefing of our cash operation. We started the year of 2023 well capitalized because of the follow-on and the expectations of Bahia Terra acquisition negotiated with Petrobras. Throughout 2023, although the problems of flow, we delivered a robust operational cash, BRL 1.2 billion. investing BRL 746 million of the resource between the development of our production and BRL 340 million, preparing the company for this new level of activities and the first step in the area of midstream with UTG São Roque, fulfilling also the payment of the installments earnout from the assets acquired with Petrobras and Maha Energy Brasil acquisition. Together with this robust investment, bringing an increment of production, we could distribute BRL 300 million, BRL 0.99 per share dividend, reassuring the motivation of PetroReconcavo of offering investors a combination of growth and payment to the shareholders. We finished the year with a cash position of BRL 507 million and low leverage indicator of net debt and EBITDA, 0.69x. Observing 2024, we see less commitment on acquisitions payments associated with remaining installment of Miranga. When we see CapEx, we can see less investments related to the fleet of services. And the objective is to have the positive contribution of using the stocks to fund the investments. This would have happened in the fourth quarter if we do not have spare parts for the new drills. On the other hand, we want to increase the investment associated [indiscernible] of gas and the operational continuity to flow the production, and has been mentioned by Firmo in the opening section. And talking about hedge, in the fourth quarter, we executed a new round of hedge oil price, the total volume of 675,000 barrels, zero cost collars distributed here throughout the second and third and fourth quarter 2024. Then these new volumes are here to complement the hedge contracts, legacy in NDF that we still have open since the time that we have covenants of our debt. For example, the obligation of the hedge 36 months ahead. Our decision of hedge this time was based on the analysis of possible distressed scenarios for the oil price. For example, a scenario that the oil is underneath $50 for 2 years. And in this analysis, we try to answer how many barrels of oil we need to hedge every quarter. So we are able to honor all the financial commitments, keep the leverage in healthy levels and part of our CapEx program. Considering these analysis, the price protection existing in natural gas. So you can see that our volume of hedged in place for 2024, 4,000 barrels of oil a day or 25%, 30% of our production of oil. And the price conditions are better than the old contract during the pandemic and they are finishing. I pass the floor to Firmo. Thank you.

Sustainability attraction, these are critical pillar. Last year, the responsibility of sustainability is in our committee, people and ESG, and we have a Board led by Felipe Araujo. And I pass the microphone to Felipe to talk about this topic.

Thank you, Firmo. Good morning, everybody. I would like to highlight some important events on people and sustainability 2023 March in the beginning of the year. We are part of UN Global Compact. Our volunteer activity highlighting our work, anticorruption in the companies and people. I commented but I'd like to highlight again, '23, we launched a diversity and acquisition program we called, Together, We Are More. And that is the participation of employees in different levels of the company, reflecting the commitment of being a company that diversity culture is present. I highlight that this initiative represents the right choice towards a fair society and a meaningful role to build a solid brand. So we attract more people, contributing to engagement of our employees. In the last quarter '23, we introduced the Leaders Academy to develop and consolidate our position as a company that educates talent in oil and gas. We are going to qualify the need leadership of the company by the end of '24, strengthening the management model of PetroReconcavo, development for trainees and also Young Apprentice, Interns. This program, is seen as the entry point of the company. And I'd like to reinforce our commitment with the communities around in our surrounding with social projects. I have 3. Ciranda Viva by '24 turns 10 years. In 2023, we served 175 children and adolescents, reinforcing the literacy after school and sports. The project, Viva Sabiá is an initiative that increase the quality of life of 138 families semi-arid region for access to quality water, making possible the water recycling to be used in family agriculture, bringing extra income. And our partner that we have in Tamar Project continued for the environmental awareness. I pass the microphone to Firmo for his final consideration.

Thank you so much. Before concluding the earnings presentation and open up the floor for questions, I will talk about a briefing and a takeaway message that describe how I see PetroReconcavo today. PetroReconcavo is in operation for 24 years in Brazil and have built a unique expertise to revitalize mature fields, developing a secondary program considering a benchmark. Developing as well and implemented a vertical of services and products with the capacity of executing the working plan, ensuring autonomy and efficiency that is unprecedented. Getting prepared, assessing active participants of the divestment program of Petrobras in a selective and successful growth strategy, but that's not all. The company has an ambitious point of view for the future, developing technical qualification, seeking the best in their projects, but also qualifying new quality levers in mature fields that we all know, that are still high-potential reserves. The company has always understood this leader role in positioning the onshore industry and keep on investing, fulfilling this role with responsibility and active participation of the evolution in this segment, and I intend to keep on this evolution jointly with the team of PetroReconcavo. The idea is to keep on transforming reserves in wealth for the shareholders, employees and of course, the society. Onshore has a social popularity that is very important for many years, we discussed here in Brazil. I see PetroReconcavo as it is right now, and I am so pleased for reaching here together with this team to contribute with this future that is brilliant. Thank you so much for your attention. Then I pass the floor to Marilia for the Q&A session.

Thank you, Firmo and Rafael, Felipe, for the presentation. I will start the Q&A session. [Operator Instructions] The first is Rodrigo Almeida, Santander. He has 3 questions, but I'll read them separately in order to be easy to answer them. The first question is about activity planning next quarters. In fact in 2023, I think that the focus was Bahia, Potiguar, and the release is clear that you want to focus in drilling activities in Bahia in 2024. Can you guide us about the expectation of our first quarter and second quarter this year, and also an idea of the curve of recovered production in Potiguar after the industrial assets.

Okay. I will start with a general point of view about the activity and the expectation that we had in the company discussing in the first 2 months, discussing with the Board about this year budget and the budget, we would reach a level of total maturity of investment and we would be in this level of investment for 2024. The distinction on how these investments will happen is a discussion that is permanent on assessing projects based on what we know and based on what we learn every day. Onshore work demands a level of learning and return to learn as we advance. And that's why we are very careful before guiding exactly where we are having a plan. Currently, we have hundreds of projects under assessment, a process of prioritization that is robust to choose the best one, but it is also flexible as we evolve during the year. That's why, I'd rather right now, not guide you where we are heading in our operations and also the balance of workover and drilling we assess not only during the process, but also during the full year. I will use this opportunity and I'll pass the word to Troy to talk more about the planning of CapEx this year. Not criticizing your Portuguese, Troy. If you want, you can speak English. I work with you and I see you explain it so well in English. Not a criticism to your Portuguese, it's perfect.

Thank you, Firmo. When we look this year, really, we have multiple fronts investment available to us. As he stated in your question, we focused a lot in development last year in the trend, Bahia and Potiguar and have some positive results from that work. And we continue to look at that in our portfolio as continuing to develop. That area has tremendous potential, not only for a primary point, but the secondary point. So we continue to optimize the schedule of our project, whether there is workover drilling our facilities. Returning to Bahia, which I also mentioned with the importation of PR-14 rig, we are going to have the ability to attack several projects that we could not efficiently in the past with the existing resources in the market. So we are taking a hard look at that. And then we have plans in place for several years to begin some development activities across several of the fields in Bahia, attacking Tiê specifically and specific, and also some other target, gas targets that we've seen around the cluster. So we return to looking more deeply in Bahia, focusing more in workovers. We have an amazing set of projects. We have a fantastic list of drilling wells and also a fantastic listing of workovers. We are constantly trying to adjust this portfolio, and this happens on a monthly basis to maximize our rates of return, payout and our learning so this can -- we can expand our reserves in the future. So you are correct, we are going to focus more in Bahia. And this year and the past years, especially with the advent of these new tools that we are bringing into the company. Thank you.

Thank you, Troy. Perfect. And the second question, Tiê 2024. What are the main projects that we have been working, especially the well that they want to put online, an improvement of infrastructure for water processing.

I have not answered Potiguar, but it was in the beginning of my explanation. The expectation is underneath 5% of the point of production where we were when we closed the fields, and the expectation now is to have the necessary intervention. So in the next month, by May, we eliminate all the effect of the interruption. In Tiê, I believe the project has given us lots of information, especially of our new capacity with drills commissioned in the first semester being used in the second semester. I'd like to understand the capital allocation strategy. Without formal discussion, it's a relevant moment for the company. But it's interesting to understand better the discussions about the policy, bringing more predictability for dividend payments, dividend discussion, I pass to Rafael so he can explain more. But I believe there is an opportunity, an important opportunity to talk about what I understand of the company. I came to the company discussing with the Board the ideal balance between a company that is not -- we are not -- and I found this year, a company of 30,000 barrels focusing only on distributing dividends. Our alternatives of growth, our list of projects, our capacity of implementing after many years that is building, I consider it the maximum part of maturation. Our flexibility with the 3 drills now choosing projects and doing the best we were doing. This brings to the company above expectation that is very interesting. And that's the work to be done this year implementing and definitely choose our growth choices with these new tools and the structure that we have now. I see Petroreconcavo looking ahead with a growth expectation that is very interesting, especially now with the level of maturity that they have from the SO and the material of SO that we reached. Would you like to say something, Rafael?

Yes. Just to complement the policy we discussed since the last semester last year, we had a perception study with the investor. This topic was very relevant. We are going to discuss this in the first semester. Now with fear moving in to see if we're going to establish a formal policy different from what we have right now, but there is no decision about it, not yet. I'd like to reinforce that Petroreconcavo has always been a payer of dividends and we are going to continue like this. In a fixed rule, we are going to debate this later in the next month.

Perfect. We have lots of questions about fusion, merger and for example, there is a question Bruno is asking, Bruno Montanari, another question. I will join these questions to make it something is out by return. Can you talk about the merger proposed on [indiscernible] and 3R considering the company? Do you see benefiting the combination of business? And what is the position of the administration and the Board on this proposal and talking about the growth in the company what are the stages in case of merger, not concrete, what are the alternatives of the company?

I will start addressing and I pass to Joao. He's in the leadership of this process. I had the chance to talk about it before. The company and the management and the Board, they see merit in the potential transaction and we were vocal about it since the beginning of the process. We have the obligation and we are going to pursue an assessment with diligence and efficiency of this opportunity that we clearly see merit in this transaction. Since the beginning, I mentioned that the opportunity of separating onshore and offshore was of one of the biggest barriers of this integration and this transaction has the premise that this area is going to be eliminated in the beginning. I see potential and I see that we are working in a serious way and a platform that can update it led by Joao Vitor. I pass the floor to him.

Thank you, Firmo. Thank you, everybody. As Firmo mentioned, from the provocation and the merits that we see in the transaction, we engaged on our side a discussion with the management of 3R oil, we signed a confidentiality agreement, and we are engaged with advisers, [indiscernible]. And our objective now -- is there a need to define steps or any other topics. So we are interacting, exchanging technical information and both companies are seeing merits in the process, like merger process or any other transaction that we can have. So we are testing it in a diligent way isolated in an M&A segment. So we can see keep on the focus, developing our organic activities as soon as we have the conclusion, we are going to communicate.

About the topic [indiscernible] how do you assess the dependency of structure outsourced Rio Grande do Norte for a bottleneck and the negotiations and discussion of a deal service provision or a potential new partner should we think about our own UPGN because of the low leverage of the company?

Thank you for this question. I have the chance to explain more what I saw operational continuity plan, definitely an agreement of cooperation or adjunction of UPGN, we have discussed it for a while here and it makes sense the shared use of UPGN in Portugal and I believe nobody disagreed. But unfortunately, the companies did not reach an agreement. What I consider is fundamental and our obligation, and I talked very clear about it in the beginning, we must have choices. It's fundamental to flow and treat our gas that we need to have alternatives or advancement. And what we are doing, we are creating enablers. So this alternative could be assessed. We know that new PGM that is exclusive for our use, it's not an alternative commercially good. We should have an agreement with the UPGN, the current one. I think that the company must have alternatives and put the action plan on studying all the alternatives that are available in this plan. Has this task of implementing all the options. That's what we want to have. That's what we are going to do. We are going to look ahead with the bigger investments are assessed, they are based on an alternative that is available technically, but today is most available technically.

Perfect. Next question is Monique, Itaú. She congratulates the company for the quality of the material communicated. And 3 questions, but I will break the questions. The first is about drills and services. You detail about the strategy and I understand that the current drill is enough to execute the investment plan. Is there the idea to use the idle capacity of this plant to provide third-party services?

Thank you so much for the question. Without any doubt, that is my intention. I came to the company with the experience of service industry. And one of my first action is the investigation and the understanding of the potential of SO. It will generate lot of value for Petroreconcavo, nothing new. You will know about it. But it brings the capacity of executing the projects of the company, brings flexibility, protection against price effect, but it also brings the opportunity for the company to do something that is fundamental for offshore. This integration of the partners onshore, I talk about it since I starting this position. Onshore is very young. Some of the companies are not even 2 years in operation. So there is work to be done considering the learning process. The basins around the world work on the premise that the oil companies compete on the bid and the following day, they start partnership to lower cost than efficient production. So I see, especially with the increase of efficiency and the flexibility that we have in our SO with a complementary between different reals, I see opportunities of windows with partners that we choose because we believe in partnership to distribute and increase the use of the equipment, but in general, sharing and getting closer companies in a partnership process, and I believe it's going to be the future of Brazilian onshore. The answer is yes. We are in the moment discussing with some partners all these choices. We are observing our horizon to use the drills based on opportunities based on partnerships. And then we announced when the contract advance, let's call it this way.

Monique and other people ask something similar. Reserve certificate. What should we wait the methodological change to accept this state of reserve available in April? Is the company considering a limit of cost there or the economicity of the projects should be included in the reserves?

You wait for a well-prepared demand by Marilia second week of April. We are going to have Investor Day then present all the results of certificate of reserves. We are finalizing. We are in the final round, finalizing the reserve certificate and of course, when it's over, we are going to communicate and disclose, but we are going to deep dive of the certificate, but also there is a certificate. And our strategy, especially our avenue to choose capital allocation in this event that Marilia promised to organize with high-quality second week of April.

All right. The next question I will gather this question different people and [indiscernible] should we think now that production evolution in the first quarter, reaching levels close to 30,000 BOEs by March. And if the company will have an expectation of production by December.

Now one of my decisions is to make sure that I will not overpromise here in the production. I need to understand the company well before any estimate short or long term for production. It's important to tell you and reinsure the vision that I had from the Board, then I confirm from the Board in the last 2 months, a company that has a list of projects of high level, with alternatives of investments to increase production is still in a horizon that is very promising. So the long-term vision is not a company that will stop in 30,000 barrels just to pay dividends. No, that's not the vision. The vision is to choose well this process of capital allocation, choose the best project based on our capacity, our flexibility with our new drills and technical complementarity, about more promising projects and keep on the process of creating new projects and implementing these products successfully keep on growing in production. We are not where we would like to be. We explained all the effects that we have had in the last month, and we hope to see a production growing and better for 2023, but I will be here. I'd like to assure that I have -- I keep on my reliability, not promise short- or long-term production.

The question is about UTG Bahia. When do you expect the permit of NP and how are we going to ramp up the 4,000 cubic meters of the operation.

We have this process building up and decommissioning the plant. UPG as we talked about it. We are in the final agreement and questions with A&P for the permit process. So we hope that any time we are going to receive the deal and the permit to restart the plant. I believe I try to explain more about the production, but it's clear that the capacity UTG [indiscernible] is 400,000 associated for concessions and the highlights are the concessions producing natural gas [indiscernible] producing. So we have an immediate flow around 200,000 cubic meters of gas testing through the compression in [indiscernible] and we have an enabler of additional capacity in the system to produce from the concessions. Troy, would you like to say something?

Thank you. I will speak in English . We are going through our development programs for all the fields, especially [indiscernible] San Pedro, we have been progressing through the original plans develop in those fields, installation, dealer qualification, equipment and also optimizing compression season that will continue that we're expecting some reasonable results in that area to come closer to the capacity of the plant. We expect this to happen throughout the first and the second semester this year. We are in line with our expectations on what we still could deliver.

Perfect. Next question, Bruno Montanari. Lifting cost adjusted with the production finished the year with $13 barrel rescuing the comments on the previous term. Lifting costs would be the level of cost is expected for 2024 are the inflation of cost and services. Is it still a problem for the industry?

I will address the perspective that I had a chance to discuss in the market in other opportunities that is the perspective of growth and they use and optimize the cost. Petroreconcavo is one of the main levers for the future is to reestablish the competitiveness and the efficiency they had when they were smaller in the growth we have without any doubt, an increase of cost that was necessary to bring us to where we are right now. But the focus on efficiency and discipline, of course, and the focus on speaking in general, increase the efficiency in all the areas, and we are committed to pressure this number. This number would be more pressured by our topic that it's clear to see the Brazil, the effect onshore and offshore Brazil in the service industry is on, we see an increase of activity in offshore at this in general, generate the movement of resources to offshore and lack on onshore. This happened in the last decade here in Brazil. In this way, the protection that we have on table to work on our future list of projects brings the protection that is very big. And my expectation is we are well structure, we do not suffer an inflation effect, material effect in our cost and as a matter of pursuing efficiency and doing greater than what we did our activities on production, lowering the lifting cost as much as possible. The trend in our expectation is lifting costs are under control.

Bruno. Is there an advance in the purchase with Petrobras about Bahia Terra, the company the potential to engage in its assets, even if it's not M&A?

Well, in fact, Bahia Terra process, it was canceled by Petrobras. One of the things that we say we are a historical partner of Petrobras has always been, we are still, we have shared production in Reconcavo Basin and we keep our relationship with the business unit in Bahia and the management a healthy relationship and positive. There is no expectation now eventual transactions of the divesting is clear decision of Petrobras, and there is no discussion about any other type of possibility of partnerships. As Firmo mentioned, we are a company that brings the expertise from mature fields, but also have a very strong service vertical. And if this open possibility of engaging with Petrobras for business opportunity, we are going to be aware of this, but we have a good relationship, but there's no avenue. Let me say something, for many years, for decades, I say, if you want to operate oil and gas, you have to be close to Petrobras. Petroreconcavo close to Petrobras for decades know them so well, and we are keeping -- addressing opportunities together with Petrobras brands to future projects as Petrobras give us the way.

There are some questions about CapEx. I try to join them. CapEx of fourth quarter BRL 46 million lower than the third quarter '23. This drop was aligned with the expectation of the company that there is a drop and lower addition to storage or well is because of the lower activity in Potiguar. If it makes sense to think about the higher consumption of the inventory. And how should we think about the base of workover and drills for 2024? Is it a higher concentration in any quarter?

When we see the quarter after quarter variation, the BRL 60 million of reduction is addition to this inventory what we call more fixed assets, great parts related to the expansion of services and real state. These are the items that reduced compared to the previous quarter. When you see reserve development line, they workover drilling activities process grew compared to the third quarter. So there was no decrease of activities in the fourth quarter compared to the third. I do not remember the other part of the question. Expectation for 2023, I mentioned the inventory during the presentation, our expectation is that decline contributes in a negative way. The consumption of inventory will fund great part of this CapEx and decline of reserve development for 2024. This could have happened in the fourth quarter. Otherwise, we have the inventory of spare parts of the drills.

Question of Lucas, with the normalization of the production, external cost and restrictions for fourth quarter will they exist and details the cost that we had at G&A.

I would answer the first part. The expectation by May you eliminate on the effects, especially the effect of increase of fluid in the wells intervention in the wells that need some lifting and help back to the original production. There are several actions in the field to reestablish and remove this effect and the expectation that everything will be done in May. I don't know exactly the question. Would you like to say something?

Talking about SG&A, the main events I mentioned during the presentation, personnel cost, the retroactive collective bargaining and the retention bonus in the quarter. These were the main ones that bring impact into the quarter. And the final element are the cost idleness of the drill, engagement and disengagement of the drill. We internalize PR21 group did not operate in the quarter, so there was a cost of the team and also disengaging from drills, outsource drills, some of them bring penalty over determination, and this was accounted in SG&A. Just to complement the cost of sales that you mentioned, I mentioned the expenses on sales during the period that we were selling spot instead of having built in, in the price of sales, the discount, logistics discount, all in one. This quarter, we had these costs -- we incurred the costs of course, transporting oil, storaging, import area as well unloading the ship that we incurred in that revenue quarter. Back normal in the first quarter this year, January, that we are selling the oil to 3R in the contract, normal contract and there is discount tariff in the sales price, bringing and considering the quality and also logistics.

Perfect. We ran out of the time. And the final question is for the Board of the company and then the others, the team is available and we are going to ask the final question, so we conclude here. Now that you are at Petroreconcavo, can you talk more your point of view, strong point, but especially the weak points that need to be improved in the company.

Very briefly, I will answer, and I hope that we have still room to talk more about it in our event in April. But the 3 strong points, the strength that I highlighted in my presentation and it hit my attention the level of duration of the company. Looking ahead, with flexibility with auction, on projects, on growth. It was one of my main concerns to understand better mid and long term what the company was thinking about doing. And what we intend to do is to bring more clarity, more visibility not only for us, but also for the market. So they need to understand what the company intends to do and the leverage of growth that we are having. Considering what we need to improve, I name here, and I talk about this challenge of scale. It was a company that has always been able of delivering production growth, cost is under control. It's a company that has a lower cost of lifting here in Brazil, in onshore and is a company that has in the DNA capacity of implementing improvement resilience in everything they do. But it's a company that now has 2 or 3 more activities to do. And this capacity of doing things the same way as they did even better, this is a big challenge. The company needs how to pursue new mechanisms of delivery, especially cost control, capacity of maintenance of growth in a competitive way. So what I would say, efficiency wise, essentially in our growth process of capital allocation with more than 50 concessions and alternative of more than 2,000 elements in the project is the capacity of prioritization to do it every day, month after month with maximize efficiency, this is one of the areas that's going to be focused. So the company can do it better and better. These are the 2 topics, efficiencies and capital allocation. In a robust process and what I call onshore, you need to have lots of boldness for this project, but also capacity of learning fair, as you have one in our list of projects, you must have a continuity process ongoing in an agile way to take the best direction, not insisting or not changing our best way because you have a pretty fine program. So this agility, this flexibility, capacity of allocation of capital that is robust and agile is one of the big areas of focus in the next month.

Perfect. So we are going to conclude the session. I'd like to thank you so much for your attendance. We have an attendance that was very high. I apologize for not answering all the questions, but they are going to be answered by me and our IR people here for you available as Firmo commented. We are working to have Investor Day in the beginning of April. As soon as we have all the details, we communicate. Good afternoon. See you next time. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]