Petrobras : Transcrição 2T22 - Inglês

Carla Albano:

Good afternoon, everyone. Welcome to Petrobras Webcast with Analysts and Investors about the 2Q Results. It is great to have you join us today.

We would like to inform you that all participants will follow the transmission by Internet as listeners. After the introduction, a Q&A session will begin. You can send those questions by mail at [e-mail].

Today, we have with us Claudio Mastella, Chief Trading and Logistics Officer; Fernando Borges, Chief Exploration and Production Officer; Joao Henrique Rittershaussen, Chief Production Development Officer; Juliano Dantas, Chief Digital Transformation and Innovation 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.

To initiate, I will pass the floor to Petrobras CFO, Rodrigo Araujo. Mr. Rodrigo, go ahead.

Rodrigo Araujo:

Thank you, Carla. Thanks, everyone, for being with us today in this afternoon. We had a very solid quarter in which our solid operational results translated into solid financial results as well. So, I am very glad to be here with you today to talk about our results for the 2Q22.

So next slide, please, which is remind of our disclaimer about future projections and expectations.

So, with respect to safety, as you know, we have safety as a very strong value for the Company, and we are very concerned about improving our overall safety in our metrics. And we are glad that we can see the trajectory of the total recordable injuries over time, and especially, that we have been able to maintain a level that is below our acceptable limit of 0.7%. So, we reached 0.52% in the 2Q22.

Of course, our ambition is to have zero fatalities and our main concern is to make sure that we can achieve that ambition. Unfortunately, we had three fatalities during the year, but we maintain our focus on improving our safety levels and making sure that our operations are always running as safely as possible.

Talking about our ESG agenda, in the 2Q, we highlight the Living Forest initiative, which is the initiative of match funding from the Brazilian Development Bank, BNDES, to restore 33,000 acres and capture 9 million tons of carbon. Petrobras is investing R$50 million in a 5-year time frame to support that initiative. We think that it is a very important step towards de-carbonization and supporting the reforestation agenda in Brazil.

This is going to go through a public selection process for the managing partner and for the execution, alongside with the Brazilian biodiversity front, FunBio. So, we are very glad to be part of that initiative alongside with the Brazilian Development Bank.

Looking at our emissions in the quarter, we can see that both in the upstream and downstream segment, our results were pretty solid and within the targets that we set for

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the year. For the upstream, I highlight the levels of emission for Buzios and Tupi, both of them below 10 kilos of CO2 per barrel of oil equivalent, which is about half the industry average. So we reinforce our positioning as a low-carbonlow-cost company, and the results of our operations are continually back in our assumption of being a very solid player in that sense.

With respect to the intensity in the refining segment, we can see that the refineries that are part of our RefTOP program that is program-focused on energy intensity in a group of refineries has been performing pretty well. So we are below the target set for the year and when we look at certain refineries like RPBC, RECAP, REPLAN, REVAP, and REDUC, we are even below that. So we had the best historical result for us semester, and we keep a very high focus on reducing the intensity in the refining segment as well.

Looking at the absolute emissions, it is important to remember that in the 2H21, we had a very high level of thermal power dispatch in Brazil, so thermoelectricity being produced in Brazil in the second half. So our total emissions increased in the 2H21. But when we look at the overall figures, we can see that the downward trajectory in 2022, our results have come back to a normal level and to a normal trajectory of reducing emissions over time. Looking at oil and gas operational emissions, it reinforces our commitment to decarbonize our operations and reduce our emissions in the upstream and downstream operations. So we had very solid results in the 1H22.

In terms of carbon capture, as you know, we have the largest carbon capture program offshore in the world and we continue to deliver solid results in that sense. In the first half of 2022, we have already re-injected more than what we re-injected in the entire year of 2019 in terms of CO2. We have a target of re-injecting 40 million tons by 2025, and we continue to be highly committed to the target.

During the quarter we also signed our first Sustainability-Linked Loan as a transaction of US$1.25 billion maturing in July '27 is our first financial commitment with ESG KPIs mainly focused on greenhouse gas intensity in the upstream and downstream segment as well as Emissions Intensity. So from our perspective, we think that is a very solid step towards moving from just commitments to actually reinforcing towards Sustainability- Linked Loan our desire to deliver on those targets. Basically, the contracts will become less expensive as we deliver on the lower emission targets that we have. So it reinforces our focus and commitment to deliver those targets.

In terms of engagement of our supply chain, we have started a broad survey of the supply chain to engage and collect data from our suppliers. We expect to collect data from about 25% to 30% of our suppliers by the end of 2022, so that we can monitor not only their level of emissions, but also the maturity that they have in terms of programs to reduce emissions. So this is what we expect for 2022, and start working on that data as well.

And looking at the training of our workforce, we have delivered online programs for more than 35,000 people in the Company. We have 2 different modules. The second module already 10,000 people in the Company have been trained with respect to climate change and the Company's position in terms of the energy transition scenario. So we are very happy to reinforce the commitment internally as well with our workforce.

In terms of governance, we have been focused on automating our internal controls, and we have announced recently this week, an improvement in terms of the governance of our pricing policy, bringing an additional layer of supervision by the Board of Directors. It does not change the Company's pricing policy. It brings another layer of supervision.

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And also, we have made public our general guidance for the Company's pricing strategy. We think that is very important, that step to make public, pricing guideline document that reinforces the Company's commitment to practicing market prices and being a market price player supporting the market opening scenario. So I think that is very important the fact that we have disclosed at the document publicly.

And finally, with respect to our contribution, we paid R$77.3 billion in taxes over the 2Q. More than half of our cash generation is returned to the Brazilian society. So we are very glad with the results and with the fact that the Company is a substantial contributor to the Brazilian society.

Next. Entering to our financial results, we had a very solid quarter, not only in the upstream segment, but also in the downstream segment. We broke monthly records in Buzios. We topped up the production of P-68. We had production started at FPSO Guanabara and the sailing to Brazil Anna Nery and Almirante Barroso as well. We had important results confirming the productivity of the f Alto de Cabo Frio Central area in our exploration segment, very happy with the prospects of that area.

We also had the beginning of the production sharing contract for Atapu and Sepia. This impacted our production in the quarter. It reduced our production in the quarter, given that our working interest in the area has reduced. But of course, we have received cash in advance for that contract as well. So we have been compensated for the deferral of the NPV of the project.

So we anticipated cash and de-risked part of the project. It is interesting to highlight not only the high utilization level of our refineries close to 90% in the quarter, 97% at the end of June, but also the level of integration of our operations and how well our entire supply chain has been working from the upstream segment to the downstream segment.

A general picture, we usually work with 2% to 3% miss ratio for the planning that versus what we produce over time. And this ratio was 0.1% in the 2Q22. So you can see that we have been able to deliver what we have said in terms of planning for the entire supply chain. So this translated into more production and the more financial results as a consequence. We started on a pilot basis producing bio jet fuel at REPAR. We also had monthly record sales of low sulfur 10-ppm diesel. And as I mentioned before, lower intensity by our refining segment, our commitment with the RefTOP program is very solid and is already starting to deliver results.

So looking at the financial metrics, we had US$20 billion of recurring EBITDA at the quarter US$14.5 billion operating cash flow, free cash flow of US$12.8 billion. Our gross debt has reduced to US$53.6 billion. Our net income was US$11 billion in the quarter. So basically, looking at the solid financial results and the Company's financial situation, we were able to approve the anticipated dividend of R$6.73 per share. It is a commitment that we set for the quarter. It does not jeopardize the application of our 60% of the free cash flow formula for the upcoming quarters.

As you know, the way we model this, we look at the results, we apply the 60% formula, we model what we expect to happen and make a risk analysis for the next 12 to 24 months, and this payment is compatible with what we expect in terms of future scenarios, compatible with maintaining the application of the dividend policy for the next 24 months.

So we are very comfortable with the dividends that were approved. Our net debt to EBITDA is 0.6x, it is very solid and very consistent. And as I mentioned before, we paid R$77.3 billion in taxes in the form.

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With respect to the external environment, we saw higher Brent prices in period and an appreciation of the BRL for the average of the quarter. When we look at the period end exchange rate, we had a negative impact in our net income because of the depreciation of the period end exchange rate. As you know, it is not something that impacts cash flow or it is not an economic impact. It is an accounting impact. It does not mean any impact on cash flows or future prospects of the Company but impacted negatively the net income for the period.

Okay. So looking at the future prospects for 2023 and 2024, we can see that most of the contracting that has to be done for 2023 and 2024 is already concluded. So we expect 5 units to come online in 2023 and 3 to come online in 2024. So we are very glad about the fact that we have been able to anticipate the contracting, not only with respect to FPSOs, but with the drilling wells, the drilling campaigns and also the subsea equipment.

So you can see that we are working strongly to make sure that we secure all the contracting so that we have the projects coming online on time more than 90% of the value of the projects come from making right decisions in terms of investment on the way to explore the different fields and also making sure that we deliver the projects on time. So we have a very strong commitment to deliver those projects on time, and we expect to deliver everything that is set for 2023 and 2024 on time.

So looking at the quarter results, as I mentioned before, US$20 billion EBITDA for the quarter, better results, not only in the upstream and downstream segment, but also natural gas had lower volumes of LNG imports in the quarter that also supported our results for the 2Q22.

So upstream was, of course, favored by higher Brent prices. Downstream results, as I mentioned before, the level of integration and the higher industry planning also supported as delivered solid results. Even when we look at EBITDA replacement cost, it was a very solid quarter for the refining segment as well. And for the natural gas at the gas power segment after 2 quarters with challenging scenarios, given the high level of LNG imports and high prices in the international market. We have been working strongly on renewing contracts on changing the contractual dynamics to support better results. And of course, the fact that we had lower LNG imports was also accretive to the quarter. So we had positive results for the Gas & Power segment as well in the 2Q.

So looking at the cash flow generation, we come from a US$20 billion EBITDA to US$14.5 billion operating cash flow, US$1.7 billion CAPEX. We had divestments and the co-participation agreements of the Sepia and Atapu fields, resulting in US$19.6 billion free cash flow after divestment. This was basically used to maintain our leverage within the optimal range and also pay dividends over the quarter, so the cash balance has not changed substantially from 1Q to 2Q.

In terms of our leverage, as I mentioned, we are below the optimal range, below the 55% lower end of the range, but we are comfortable with that level, especially because, as you know, we have 5 units coming online in 2023, which is going to bring the leverage upwards again. So we are comfortable with running it a little bit less than the 55%. And we expect the trajectory to bring it back upwards.

Of course, part of this was because of the conditions of the capital markets, where we had favorable open market repurchase and tender offer conditions in the market. So we have done a lot of repurchases and have not had good conditions to issue new debt. So that is why we brought leverage a little bit down. We also signed a sustainability link. So basically, on a net basis, if we include the US$854 million from the tender offer with the

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he US$1.25 billion Sustainability-Linked Loan, it averages out on a positive basis. So we will try to continue to maintain leverage closer to the optimal range.

In terms of cash levels, very solid cash levels, we also have the revolving credit facilities that we can use. Of course, the cash level at the end of the quarter does not take into account the dividend payments that occurred after the end of the quarter and the new dividend announcements that we made.

So we continue to try to bring the cash levels closer to the optimal range of US$8 billion to US$10 billion. In terms of the debt maturity in the schedule profile, we are very comfortable with the current levels and with the profile for the next 5 years. You can see that in terms of financing, the level of maturity over time is very comfortable compared to the Company's cash flow generation. So it is a very comfortable situation in terms of liquidity and of the next 5 years as well.

With respect to portfolio management, we have signed and closed 6 different transactions in 2022, US$3.6 billion of cash flows already occurred up to July 2027. As we included in our earnings release, we have around US$5 billion of transactions that were signed but not closed yet. So we are focused on closing those transactions and moving fast towards closing those transactions, and we continue to be very committed to the portfolio management strategy of the Company and deliver on the business plan.

All of this translated in a net income of US$11 million for the quarter, as I mentioned, the one-off is the negative impact of the devaluation of the BRL, period end, it impacted negatively net income, but it does not change the operational performance and the cash flow and economic situation of the Company, so a very solid quarter, very solid operational results.

And finally, as I mentioned, keeping all the setting in the Company's financial situation, we approved the dividend of R$6.73 per share to be paid in 2 installments. Basically, as you know, we always look at the 60% of free cash flow formula to make sure that we can comply with the dividend policy. And then we look at the next 12 to 24 months and our expected cash generation eventually inflows coming from either divestments or, for example, the Buzios participation and co-participation agreement. And it allows us to propose extraordinary dividends.

Of course, whenever we propose extraordinary dividends, we take into account the need to continue to comply with the dividend policy over the next 24 months. So it is something that is very solid for the Company and does not jeopardize delivery on the dividend policy in the future.

So that was my last slide. Again, very solid quarter, very happy with the results. I will pass the floor back to you, Carla, so we can jump in the Q&A session. Thanks, everyone, for being with us today.

Frank McGann, Bank of America Merrill Lynch (via webcast):

Rafael, has the changing global energy environment over the last couple of quarters changed how the Company is looking at the energy transition? Might it not be a good idea for the Company to consider increasing exposure to renewables or invest in some technologies that could enable the Company to start to have more exposure to business that could prosper over the medium- and long-term? If not, why?

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