Petrobras : Transcript 4Q23

Webcast - 4th Quarter Results 2023

March 8, 2023

Operator:

Good morning, and welcome to Petrobras' earnings call for the 4Q23. It's a pleasure tohave you with us today.

This event will be in Portuguese, and we have simultaneous translation into English. You can find the links to both on our Investor Relations page.

All participants will be in listen-only mode during the Company's presentation, and then we will have a Q&A session, and you may send us your questions to [e-mail].

We have Jean Paul Prates, President of Petrobras, Clarice Coppetti, Corporate Affairs; Sergio Caetano Leite, Financial and Investor Relations Director; Mario Spinelli, Governance and Compliance Director; Tolmasquim, Energy Transition and Sustainability Director; Joelson Mendes, Exploration and Production Director; William França, Industrial Processes and Products; Claudio Schlosser, Logistics, Trade and Markets; Carlos Travassos, Engineering, Technology and Innovation; and Maiza Goulart. We will start with award from our CEO. Go ahead, sir.

Jean Paul Prates:

Thank you. Good morning everyone, dear shareholders, investors. I am very happy to talk to you today, not only because of the excellent economic and financial results we are going to present today, but especially because I am convinced we are building a more robust Petrobras that is more resilient and is better able to generate value on the long term to its shareholders and for society facing the numerous challenges that we know and do not know created by this world in transition.

From the beginning of our administration, we have emphasized this need to adapt the Company to a new energy context in which the main driver is decarbonizing operations and energy sources. This is due to a legitimate request from society, and it requires new solutions to reduce the use of fossil fuels.

We are aware of the challenge and so we built a strategic plan that was based on realism and being coherent. We aim to be responsible and transparent in our plan. We understand that we will have to go through a gradual transition and so we will continue investing in producing and exploring oil and gas, an industry that generates the biggest returns and also in integrating our downstream logistics, supplies and refinement. We

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are also going to generate value through a fair and responsible transition process. Again, we want to be fair and responsible, diversifying our operations into a profitable low-carbon businesses by prioritizing partnerships.

And as I have emphasized, we want to do what we know how to do. in each industry, we have synergy between what we used to do and what we will start doing as well. And allof it will be done by focusing on capital discipline and on a solid governance remaining rational across all decision processes.

And this rationality has guided the commercial strategy that we have implemented. We are aiming to increase the Company's competitiveness to achieve new markets and to create more stability for our decision-making process and for our consumers as well as our payout policy because we want to consider higher investments and we have a needof maintaining our financial health.

So I would like to highlight the proposed dividends for 2023, R$72.4 billion that will be paid to Brazilian Society, which owns 37% of Petrobras shares, and they benefited from over R$ 240 billion in taxes. We have also had market value records since our administration started. In 2023, the total returns from our preferential shares in the New York Stock Exchange in U.S. USD reached 112%, which is far above the highest returnsof the majors, 20%, 20% versus 112%.

This was all possible because we put people first. And to give them value, it created a diversity, equity and inclusion policy and a racial equality program. People are definitely our highest asset due to their effort, due to the love for what they do, and we are building a solid and promising future for our Company. Actually, people were the driver behind our biggest results this year, especially now that we are celebrating 15 years of exploring the pre-salt layer.

We are reaching record oil and gas production levels with fewer emissions. We have also inaugurated 4 new platforms, we have reached record refinement levels and we have the highest energy efficiency in our history. We expanded our biorefinement capacity and we were able to process 100% of soybean oil in an industrial refinement unit with a Petrobras patent.

We also improved our carbon efficiency, cutting 1.8 million tons of CO2 from our emissions. And that's not all, we won the main global offshore award OTC Distinguished Achievement Award in 2024. So we are being recognized for our efforts in renewing the Campos Basin, which has become a benchmark for the global industry.

We were also record holders in patents. This is only a part of what we have achieved. We had so many victories that it could be an entire book. So that's why I always say to our dear shareholders that Petrobras is back. It's back to prosperity, generating long- term value and building a better world.

We are going to face the challenges we have and make use of the synergies in our business based on our expertise, which is well known by all. We have never neglected and we never will neglect generating economic value, which is a requirement for any company that wants to be competitive and perpetuate its value for future generations.

As I said about a year ago, it's very pleasing to lead Petrobras. And these results are a source of pride for all Brazilians and for all shareholders and investors as well. We are leaving in Petrobras trusting our administration has paid off.

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These are the results that we are giving to the people who are sticking with us, who know that we are on the right track and who know that we are going to get it even more rightin the future.

Operator:

Thank you, Jean. We will begin our presentation on the 4Q earnings results. So I willpass it over to our Corporate Affairs Director, Clarice.

Clarice Coppetti:

Good morning. I have a few highlights from our corporate affairs department of Petrobras. I know that you are probably more interested in other topics, so I will go very briefly through a few highlights. I would like to start by thanking my fellow directors for letting me go first because of the numerous activities we have in the Company currentlyfor International Women's Day.

So I am going to start with something that was very important for the Company, which is reorganizing our workforce. In the last year we took on nearly 2,300 new employees, all completing the training program. No employee can go into the Company without these training courses which can take 4 months to even more than a year depending on wherethey are going to work for.

In the current world, in our society, this could not be different, we created a diversity, equity and inclusion department in the Company and we also established goals to achieve better equity and diversity in the Company's leadership positions. We also launched a diversity, equity and inclusion policy. All of our terms of cooperation have a diversity clause and we also won some awards due to the achievements that our teams had last year.

Some other highlights. I have to mention our supercomputers which are not only designed to have energy efficiency, but they are also reducing processing time for our simulations. Petrobras does a lot of simulations for our oil and gas reservoirs. We are also investing on quantic computing studies. That's the next level that we hope to have some results on this year still.

We had training sessions on human rights for all of our security professionals and everyone who works with corporate security. And this was for our units and our headquarters.

Another important highlight that we had last year is that Petrobras is starting to work across the country, taking advantage of regional potentials. And we started placing our teams in some of our areas that had been in hibernation in the northeast of Brazil, especially in the states of Bahia and Rio Grande do Norte. We also made investments into artificial intelligence. There's a huge discussion in society and so our teams have been working on that as well.

And of course, I have to highlight this, not only because today is International Women's Day, but also because we are making dedicated investments at all levels of the Company in actions aimed at women in the workforce.

When we talk about the workforce, we are not only talking about Petrobras employees. We are also referring to our outsourced workforce. We have a number of actions for this. We will also be available to go into details about them if any analyst is interested.

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Another significant highlight is our commitment to environmental, social and governance aspects. We have a program titled Commitment With Life, which encompasses our environment, operational safety, excellence and health and well-being initiatives. We had great records last year and I have a few highlights for you. We had over 700,000 hoursof HSC training.

We are also working in the Company to be positive in water, so we are launching a number of programs for water, safety and not only do we want to treat all the water we use, but we also want to return clean water to society. We also had a very important process training our leadership in the Company in mental health. This is also a significant discussion that I am sure is taking place in all companies that you analyze. Let's continuewith the next slide.

I also want to highlight the social responsibility actions such as entering the technical cooperation agreement with the Ministry of Human Rights and Citizenship, promoting an enhancement in public policies and business governance practices when it comes tohuman rights.

The launch of our racial equity program last year, also, the 2023 public selection of the Petrobras Social Environmental Program, R$432 million to be invested in over 60 projects over the course of the 3 years of execution in segments where Petrobrasoperates.

So this is a program that we have been dedicating ourselves to very dearly because it has direct impact on the communities that's around our operations. Additionally, the update of our social responsibility policy and also a recognition of our sustainability report as one of the 10 best reports of 2023.

This is my last slide. I know that we are covering several different segments and I would like to make myself available and make Investor Relations available to answer any questions you might have.

And with that, I would like to give the floor to our dear Financial Director, Sergio Caetano. Over to you, Sergio.

Sergio Caetano Leite:

Good morning, everybody, and a very special day to women on this Women's International Day.

Like President Jean Paul said, our market valuation was way above our ADR, 112%, or as the others, at 20%. In the first slide, you see the evaluation of Petrobras in Brazil. The ONs and PNs are highlighted where you see very good numbers and also a comparison with the other majors, with the return to investors, you can see Petrobras.

We added value to the Company in the amount of R$150 billion in compensation to shareholders, R$20.4 billion, with R$19.7 billion in dividends and US$0.7 billion in the repurchase of shares.

To society, we paid between taxes and governance shares R$240 billion, R$36.6 billion of all dividends paid by Petrobras went to the controlling group that's comprised by the federal government. We also contributed another R$54 billion in the valuation of the public assets of the state. So in addition to adding value, that was also an important collaboration to society in terms of reverting these resources in taxes and dividends.

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These are some more data in terms of our financial earnings, an EBITDA of R$52.4 billion, the second biggest in history. The operational cash flow, R$43.2 billion, the second biggest in history of free cash flow, US$31.1 billion, the third biggest in history.And then revenue, net profit of R$24.9 billion, the second biggest in history.

And these numbers, the second highest and third highest they were produced in a very adverse external environment. So we achieved second and third place with special highlights. We are going to look at the devaluation to clients, but there was no decreasein investment. Quite the opposite, Petrobras has been investing, which brings even more value to these results.

Our gross debt is in line between R$55 billion and R$65 billion. And it's important to tell you that at the end of 5 years, the debt has been our forecast to achieve a reduction vis- à-visthe end of last year. Another important aspect when it comes to our financial debt of 28.8 billion, with a reduction of US$1.2 billion this year. Return on capital employed at 11.2%, which is in line with the biggest results.

We also brought about the lowest difference vis-à-vis the American bond to the market, and with that, we won an award, the Quasi Sovereign Bond Deal of the Year Award byissuing US$1.5 billion in 10-yearbonds.

Also, it's worth mentioning the transparency movement by the Event Global Compact.It's an effort that requires the investment and the involvement of the entire company, and we have been disclosing these results to investors and shareholders in the external scenario.

On average, in comparison with last year, we had a valuation of 18% in the Brent, which is significant and has impacts on our financial results. And as you know, the diesel is the oil byproduct that Petrobras sells the most. Between the Brent oil and the diesel sold, we had a margin devaluation of 23%. In 2022, the oil appreciated reflecting the beginning of the Russia-Ukraine conflict. With the stabilization of the conflict it went back to the margin, but we have had an impact of -18% on the Brent, crack spread -23%, the FX, - 3%, the Real appreciated 3% in comparison with the USD. So this combination of factors has a big impact on the net results and the EBITDA.

And we can see that in line with Brent and crackspread, you see a reduction of 21% to our EBITDA. You can see the Brent prices at the bottom of the slide, but we are going to see that in spite of these adverse conditions, Petrobras did well.

Here, you can see our power showing usage sources, showing our cash generation and how it was allocated in 2023. You see a cash flow of US$12.1 billion in investments. We actually invested US$12.1 billion in 2023. And there's also an impact on the debt of US$8.7 billion with the rate of new platforms.

There is also a peak in debt at the end of the year because we anticipated the addition of an FPSO, and that will be felt further ahead with the anticipation of revenue in oil curve. Our dividends, including repurchase, US$20.4 billion, financial expenses and financial amortizations.

You can see at the bottom of the tower, a comparison of the impacts of these scenarios and these are the groups that we compare ourselves to the free cash flow of Petrobras at US$31.1 billion. And we were second to Shell only with the second highest free cash flow in the segment of peer companies.

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If you look at the oil production as Director Joelson will give you the details about, we and at first in a tie with Chevron. And we are by far the leaders in the organic generationof reservoirs. This is the result of the E&P teamwork, something that did not start last year and involves lots of people.

Our EBITDA, one of the best in the segments. We finished third behind Shell and Exxon, which are much bigger companies than Petrobras but we are there fighting for the third place with them. It's important to talk about downstream with an expressive increase in food. This comes from a decision of Petrobras to win market share. We are an integrated oil company. The bigger the foot of our refineries, the bigger the operational results wecan present to our investors.

And now talking about our debt. You see the indebtedness trajectory since 2019 in a decreasing curve. In 2023, you see a slight increase that happened due to the anticipation of platforms with additional inflation costs and the supply chain which is felt across the industry and the US$28 billion line with the decreasing trajectory, there wasa reduction between 2023 and 2022. And that's a difference that refers to freight.

If you look at the amortization, Petrobras closed 2023 with a cash of something in the range of US$18 billion, and cash available in the short term of US$8 billion, which is solid and in line with the market turbulence, which reassures us that Petrobras will be able toface the situation.

In the line, you can see the amortization profile that's forecast for our debt. As we said before, our net profit suffered an impact of the adverse scenario, but it was still able to deliver to the market the second highest net profit in history without divestments, considering only our work even in the face of adverse conditions with the crack going down and the USD going up. Our contribution to society, we also covered that.

You can see the data close to R$277 billion, of which R$36.6 million, almost R$37 million are related to the payments of dividends to the controlling shareholder or the Brazilian state, R$61.4 million in government tanks and R$178.8 million in taxes paid. Remuneration to shareholders, overall, we remunerated the shareholders in R$78.4 billion in 2023, out of R$72.4 million they are deducted from the repurchase program.

This was the first year where Petrobras implemented on a constant basis, a repurchase program. And in this program, we repurchased 3.6 billion shares from the market. This amount is deducted from the total and we distributed in dividends, the R$72.4 billion in 2023.

It's important to say that the net adjusted profit after deducting the payments of dividends and anticipation of dividends and capital interest in 2023, what we were left with at the end of the year we allocated to the administrative council to form a capital remuneration reserve.

As we know, that was extensively discussed in 2023 and the purpose of this reserve is to pay dividends. There were some questions as to whether the resources could be used in investments, and no, they will not be able to be used by investments, so this is for dividend distribution alone.

So we allocated the Petrobras' profit surplus to that line and that's where it's going to stay allocated. To put it simply, these were the results, as I said and as President Jean Paul said, these are very significant results for the first year of an administration. This is the result of the work of the entire company. This makes us very proud.

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And with that, I would like to give the floor to directors, Spinelli, Director of Governanceand Compliance at Petrobras.

Mario Spinelli:

Good morning, everybody. Good morning to those watching us, and special greetings to women. Some highlights in governance and compliance. 2023 was a very important

year, and in 2024, our Board will celebrate its 10th anniversary.

In 2023, we had the first major restructuring in the department, creating new managements and broadening our possibilities in terms of disciplinary responsibilization.I would like to highlight that Petrobras is the entity that applies the anticorruption law most heavily in Brazil. Around 20% of the sanctions are applied to companies under Petrobras' responsibility. We also created an area to work with data science making Petrobras increasingly more capable to detect irregularities and also a specific sectionto deal with violence at the workplace.

Last year, once again, we did a compliance survey with 80% overall. This is a weighted average between all of the replies, and this is a clear demonstration of how thecompliance culture is disseminated across the Company.

We were awarded several prices, of which I would like to highlight 2: the Public EthicsCommittee awarded us a prize, and we were the only awarded company in the 5 categories in the UN global pacts, 100% transparency, which is also a clear demonstration of how our integrity and governance actions are robust; and our professionals also won awards in several different categories.

Now to tell you a bit about something that I think is relevant for everyone, in our decision- making process, we have a governance strategy at Petrobras that gives privilege to technical aspects. So every decision is either shared or done through a collegiate process. In some cases, we need to have statutory committees or technical committees present so that the decision-making process is entirely based on technical aspects.

We also have a governance structure that deals with compliance, and it's very robust. We have a director's office for compliance, which is one of the 8 Executive Directors office in Petrobras, along with our CEO.

Besides that, we also have internal audits which are also independent. We have a reporting channel that works in 3 languages, 24/7 across all the countries where Petrobras is. We are supervised by a number of regulatory bodies and it all aims to ensure that we have technical decisions, we want to prevent undue political interference and ensure that our projects are executed with a financial return for the Company.

It's also important to highlight a few issues in this process that ensures that we have technical decisions. The compliance officer has the power of veto in the Executive Board. And it can be used if any decisions do not comply with the applicable legislation or our internal regulations.

As I said, the Chief Governance and Compliance Officer is independent. They are selected from the market and have a 2-year term, which can only be interrupted if there's a majority of Board members elected by minority shareholders and that ensures that they are independent enough to do their activities.

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I have 25 years of experience in anticorruption and governance and I played many roles in the federal government and also state and city governments and also in the private sector. I have talked about strengthening governance last year.

As I said, our main highlight was the biggest restructuring for the governance and compliance office in the Company since 2014. So we created new management positions responsible for the entire disciplinary process in the Company. So now we havea very robust structure as we have never had before. It's important to highlight that because it demonstrates how this area was strengthened in the previous year.

That's what I had to say. And I will now pass it over to our Executive Officer for Energy Transition and Sustainability Mauricio Tolmasquim. And I will be here for any questionsyou may have at the end of the presentation.

Mauricio Tolmasquim:

Good morning. I would like to greet everyone, especially women who may be watchingus.

So I will start talking a bit about the gas industry. This was a very good year for it, but we launched new products with more flexibility and terms indexing and we made a numberof changes that were accepted very well by the market. That led to a record number of new contracts signed in 2023. We had 34 new contracts with 15 distributors, a total of R$167 billion in estimated revenues.

We also traded 22 million m³ per day starting in 2024. This is about 55% of the total consumption in the thermal marketed result. We also made significant strides in resolving a number of disputes especially with a few of our distributors. So we were able to reach deals and allowed us to sign new contracts.

Next slide, please. I would also like to briefly discuss the importance of thermal generation or our energy transition. Some people might think, how our thermal plants related to renewable energy? We know that renewable generation is intermittent. You can only generate wind power when you have wind or solar power when you have sunlight.

The graph on the left shows how it changes across 2 normal days. In yellow, we see sunlight but as we reach the end of the day, it reduces because you have less sunlight and you need to have sources to replace it during the nighttime.

And here, we have 2 main sources: wind or excuse me, hydroelectric power, when it is available, but usually it is not enough. You also need to complement it with some thermal electric power. So to illustrate this challenge on the right-hand side graph we see the variation in thermal generation.

You can see that significant increase around 12% and that represents thermal generation. So in less than 4 hours we need to add 2 gigawatts to our power generation. That's about the same as what is generated in the Angra 2 and Angra 1 plants.

Next slide, please. We also had a very good year in decarbonizing our processes. At E&P, we had a 10% reduction in our carbon intensity, which is very important for Petrobras to continue to use its oil in the future. In the future, we will only be able to take oil to the market if you can reduce its emissions.

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In 2022 to 2023, the refining industry reduced carbon intensity as well, and the same happened to the thermoelectric industry. There was also a significant reduction inmethane emissions, 51%.

Why is it so significant? Because methane's impact on global warming is much higher than CO2. In 100 years, a methane molecule has a 25-fold higher impact than CO2. Finally, this is the newest section, renewables. In the first year, and actually our term isn'teven 1 year long, it will be in May.

But during this last year we created a governance program to approve projects for renewables. And this is done in a very safe and responsible manner. We signed MOUs with about 45 companies, so we have 45 business opportunities that are being analyzed.

And this does not mean that we are going to take all of them. Actually, it will be a much smaller percentage than this total number but it's important to have this number of possibilities because this allows us to select things better. In carbon capture, we are looking at a new business which is providing carbon capture services for other industrieslike refinement. So we are going to run a pilot in Rio de Janeiro.

And we also want to highlight the low-carbon product area. We have, for example, a partnership with the logistics area launching podium gasoline, a carbon neutral gasoline that has a certain market niche. The refinement office is also working on Diesel R, whichis also very important to ensure that our refineries, even after the age of oil, still have a use, still can add value. We also can produce, for example, low emission asphalt. And I would just like to conclude by showing this graph which was created by BCG. It's a very interesting slide.

The first graph shows that, really, if you look at that green curve it shows low-carbon companies and in blue, a selection of oil and gas companies, we can see that on the short term, the returns of oil and gas companies cannot be denied. In general, they are much higher on average than the returns paid by the selection of companies that have low carbon emissions.

But what properties do we see here? Oil and gas companies have a variable ROCE. They can go to quite low values, while the average ROCE for low-carbon companies is stable.

So we can see that investments into these activities and businesses, the low carbon ones, I mean, mitigate risks and generate value, while you are still protecting and gaining market share.

A good example is Diesel R. If you do not have Diesel R, your biodiesel mandates would, little by little, lose market. So Diesel R is a way of fighting for this space with our products as well. Podium gasoline is an example of how you can gain market share in a special niche, and this can be done at the same time.

The strategy allows you to mitigate risks of having, for example, a rising CO2 costs. So over the long term, and this is shown by the last graph, investors who have invested US$1 in a pool of companies in the oil and gas industry, versus an investor who invested US$1 in a low-carbon company in 2022, they would have about the same returns in total for that investment. This shows the importance of this strategy in the long term. If you have any questions, please let me know.

And with that, I would like to give the floor to our colleague, Joelson Mendes, Director of Exploration and Production.

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Joelson Mendes:

Good morning to all of you who are watching us. I want to start out by showing the numbers of our operated production, last year there was a significant increase vis-à-vis the previous year, that was due to the fact that many projects started production phase, our operated production grows less because many of these projects that started tooperate, we are operating.

So part of the production goes to the partners. We also had very significant numbers. And the pre-salt production in our mix has been growing from 22% to 23%, it grew from 73% to 78%. We had important records last year, the operated production surpassed

4.05 barrels of oil per day, which is compared to the majors and that is a very robust operation.

Our pre-salt production also broke records last year and also very important is the IUGA index in the 4Q, it reached 98%, very good numbers. Our production last year surpassed our initial forecast, but staying within what we call the risk tunnel. We have been working very hard to analyze all of the factors that can influence the production up or down over the course of the year and this level of accuracy of our projection has been around 96% over the course of the last few years, which is very reassuring in terms of what weforecast for the current year.

The highlights in production, and I will repeat myself, we started to operate major production projects, starting with the renovation of the Marlim field, which is something that we worked very hard on. The environmental licensing of these projects was very complex, but we won, and we were able to get involved in projects that will recover almost 1 billion barrels of oil equivalent.

Our fifth unit in Búzios field is now operating at maximum production, the FPSO Sepetiba also started production in the Mero field with the large capacity of 180 kbpd, and Petrobras accounts for 40% of that production. And in 2023, 2 projects that had started in the previous year, Guanabara and 71, they have reached a peak production in a very short time frame.

So this is our lifting cost and total cost of produced oil. The lifting cost went down from

5.8 to 5.6 barrels of oil equivalents produced, a very significant amount. The presence of the pre-salt from 73 to 78, as I said before, largely accounts for this decrease in the total production cost in deep waters and shallow waters, a little more than 20% of our production with very attractive numbers, even though we are talking about mature fields there are still very important numbers.

And our total cost of produced oil has gone down largely due to the decrease in the price of the oil barrel abroad, which allows us to pay our governmental participations based on the oil price. So with this decrease we see this important impact on Brent and US$35 per barrel is a very robust price.

This is one of the most relevant news to us. Director Sergio had already talked about this. We closed the reserves of 2023 with an organic recomposition of more than 150%, which is extremely significant if you consider the universe of majors in the world. And over the course of the last few years we have been achieving 200% in reserve replacement, which shows the consistency of our production curve for the future.

This is the reserve that we have been managing to increase year after year and we were able to replace these reserves after a lot of hard work in Búzios, Tupi, Itapu, Raia Manta,

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