Petrobras - Petroleo Brasileiro SA Q3 FY2022 Earnings Call

Hi, good afternoon, everyone. Welcome to Petrobras Webcast with Analysts and Investors about the Third Quarter Results. It's great to have you join us today. We'd like to inform you that all participants will follow the transmission by Internet as listeners. After an introduction, a Q&A session will begin. You can send us questions by mail at [email protected]. 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; Paulo Palaia, 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'll pass the floor to Petrobras CFO, Rodrigo Araujo. Please, Rodrigo, go ahead.

Thank you, Carla. Thanks, everyone. Good afternoon and thank you for being with us today and joining our earnings call for the third quarter of 2022. We had a very solid quarter, very important operational and financial results, and I'm very glad to be here with you today to present our results and to go through the Q&A session. So, first of all, starting with our disclaimer for respect to future information and forecast. Next, please. So, starting with safety. As you all know, safety is a main priority of the company, a strong value for us, and we're continually focused on improving our safety metrics. As you can see, our total recordable injuries per million man-hours have been improving consistently over time, and of course, we're focused on achieving even better levels, both through process improvement and technology as well. We're substantially below the acceptable limit. Of course, we aspire for zero fatalities, and unfortunately, we had one fatality in Q3 2022, which reminds us that focusing on continually improving safety must be part of our mission, and we’re strongly focused on that. Next, please. Talking about our ESG agenda, we look at our emission KPIs, and we can see that we've been continually reducing the level of emissions, not only in the upstream segment but also in the downstream segment, both of them below the acceptable limits. The targets we set for 2022 in the current business plan show that the emissions we have in Tupi and Búzios are becoming more competitive, reaching 9.4 and 9.1 kilos of CO2 per barrel of oil equivalent. Of course, those are very competitive fields and support our strategy and our positioning as a low-cost, low-carbon company. When we look at the refining KPIs, we observe that the RefTOP program, focused on improving energy efficiency in our downstream portfolio, has been achieving results, and we will continue to achieve relevant outcomes. The performance of the refineries involved in the RefTOP program is better than the average of the portfolio, and we will continue to improve over time, as we are focused on our ambitions for reducing emissions in the downstream segment as well. Next, please. Discussing total operational emissions and oil-and-gas operational emissions, it’s crucial to remember that over the third and fourth quarters of 2021, we had a substantial level of thermoelectric energy production in Brazil, which increased our emission levels for the first nine months of 2021, but this is definitely not the case for 2022. So we continued the downward trajectory. Not only in oil and gas operational emissions but also regarding overall emissions for 2022. Next, please. Looking at CO2 reinjection, we have the largest offshore CCUS program in the world and we're focused on continuing with CO2 reinjection. We have already reinjected 7.6 million tons over the course of 2022, and since 2008, we've already reinjected 37.7 million tons of CO2. This is a very important part of our strategy in terms of reducing emissions and being a low-cost, low-carbon player globally. Next, please. In terms of highlights for the environmental and climate agenda, I want to emphasize the first 13 projects that have been approved over the course of the third quarter as part of our decarbonization fund we disclosed in our latest strategic plan, amounting to about $250 million in investments. These projects represent $76 million in investments in monitoring fugitive emissions, more efficient vessels, eco-type vessels, and energy efficiency. They all have the potential of reducing 1.05 million tons of CO2 equivalent per year. So, we're very pleased to announce that we've approved the first group of projects for our Decarbonization Fund, and we will continue to develop, study, and find additional projects and technologies that support our trajectory for emission reduction. Next, please. Regarding our social-environmental agenda, we've launched a public bid for waste treatment in Brazil in the city of Rio de Janeiro. We have the potential for the reuse of about 600 tons per year of waste in several Petrobras buildings in Rio de Janeiro, with an investment of approximately $2 million, to be allotted over three years. This project involves waste treatment companies in Rio de Janeiro, where the results of the bids will be announced in November. It's important to highlight that the participants in this bid are mainly vulnerable public groups. Thus, there is not only an environmental impact but also a significant social impact. This exemplifies our commitment to circular economy initiatives, and we’re excited to reduce the amount of waste entering landfills while promoting income and job generation for the companies involved in this critical project. Next, please. In terms of taxes collected over the quarters, it's vital to note that about 55% of the company's cash flow returns to Brazilian society through taxes or dividends. Our contributions to Brazilian society are very solid and significant. This year alone, we've already paid approximately BRL 73 billion in taxes in Brazil, and year-to-date, we've paid BRL 222 billion in taxes, which exceeds the entire year of 2021. We remain a crucial part of the country’s GDP and are dedicated to contributing to Brazil, not only via taxes but also through dividends, job creation, and substantial investments throughout the country. Next, please. Concerning governance, we have made strides in our administrative accountability process program, witnessing a significant increase in fines levied against companies involved in corruption. This contributes to the efficacy of our integrity program and fosters a sound and fair business environment in Brazil while promoting companies with strong compliance and transparency, like ourselves. We have also been acknowledged for our adherence to the Brazilian Corporate Governance Code for 2022, with around 95% compliance with the recommended practices. Petrobras has strong governance, demonstrating a high adherence level to the Brazilian Corporate Governance Code. We also continue to be ranked number one in the Federal Court of Audit’s transparency ranking and have recently completed implementing SAP S/4HANA, which represents an essential step towards digital transformation and efficiency for the company while enhancing our internal controls and improving our capacity for data-driven decisions. This is particularly relevant for efficiency, technology, and governance in terms of internal controls. Next, please. It’s important to recognize that alongside the financial transformation the company has undergone over the past five to seven years, we have also achieved substantial improvements in our FID process for CapEx. The decision-making process for approving new projects has evolved significantly over time. We are now focused not only on approving projects with positive NPV in stress-case scenarios but also on ensuring that projects are continuously monitored by the Board of Directors. Annually, the Board takes a comprehensive look at the entire portfolio of projects, considering the latest assumptions from the strategic plan, as well as the current hurdle rate, while identifying projects with significant variances in terms of NPV. This proactive approach enables actions to be taken to optimize projects and keep them on a positive trajectory following their approval. Next, please. Next. Moving into our financial and operational results, we experienced a solid quarter, as I mentioned initially. From the production perspective, we began to see the ramp-up of Mero, Berbigão, and Sururu. Recently, we also announced a significant discovery at Sépia. We’ve successfully delivered the projects on schedule. As you might know, we recently welcomed P-71, which will be producing in the Tupi field, and we’ve also announced the arrival of FPSOs in Anna Nery and Almirante Barroso in Brazil. As you all understand, over 90% of the NPV of our projects is dictated by project decisions and how effectively we manage those projects. Thus, adhering to timelines is of utmost importance. In the case of P-71, we related the production startup forecast, initially set for 2023, to the end of 2022. We have also signed contracts for constructing units for Búzios 9, 10, and 11, continuing the development of our most significant fields, which will represent, by 2023, about a third of our overall production, and we are making substantial progress in the development of the Búzios project. Regarding logistics, as I previously mentioned, we have incorporated two Eco Type vessels that will help lower our carbon footprint in logistic operations. In the downstream segment, even with relevant scheduled stoppages in our refining portfolio this quarter, we achieved a high utilization rate of about 88%. Eight of our refineries performed on par with the best North American refineries, showcasing the solid reliability of our refining portfolio. Notably, we reached record daily energy efficiency at REDUC. I previously discussed our energy efficiency efforts and our goal to increase efficiency, and I'm thrilled to confirm that we are already seeing positive outcomes, which we will maintain throughout the business plan period. Furthermore, we've achieved record production levels of 10-ppm diesel, the low-sulfur diesel in Brazil, and we've already produced and sold our first batch of R5 Diesel, which incorporates renewable content, demonstrating our initiatives to provide products with a lower carbon footprint and sulfur levels in Brazil. Alongside this, we persist with our commitment to liberalizing the gas market. We continue to advance the opening of the refining and gas market. We have begun processing contracts for the natural gas trading unit of Cabiúnas, and we've finalized Gaspetro's natural gas distribution financial investment. These actions signify our forward momentum in liberalizing the gas market in Brazil. In terms of financial results, we experienced a very solid quarter, marking the second highest in the company's history, trailing only Q2 2022. The highlights include an EBITDA of $17.6 billion, cash flow from operations of $12.1 billion, free cash flow of $10.1 billion, and a net income of $8.8 billion. We continue to maintain our leverage under control. By the quarter’s close, we recorded $54.3 billion in gross debt, slightly below the optimal range of $55 billion to $65 billion. However, we foresee no significant concerns regarding leverage, especially considering that we expect new FPSOs to come online in 2023, which will increase leverage as these units begin operations. As previously mentioned, we've paid substantial taxes in the first nine months of 2022, exceeding the total for 2021. We’ve also been recognized as one of Brazil's 10 most transparent companies by the Brazilian Association of Finance Executives, and our financial statements were acknowledged as among the best in the country. Given our robust financial performance, solid cash position, and commendable capital structure, we approved a dividend distribution of BRL 3.35 per share, aligning with our dividend policy and our commitment to short-term, medium, and long-term financial sustainability. The company has a strong cash position and an excellent capital structure enabling further value creation and the return of value to shareholders, and importantly, to Brazilian society that receives a significant portion of our dividend distributions. Next, please. Regarding the external environment, as noted earlier, we observed a quarter marked by slightly lower prices compared to Q2 2022. In dollar terms, we're witnessing a 55% increase year-to-date in comparison to 2021. Concerning the exchange rate, we observed a depreciation of the Brazilian Real from Q2 to Q3, slightly mitigating the impact of lower crude prices witnessed during the quarter while reflecting a marginal depreciation of the Brazilian Real on an annual basis. Next, please. As previously stated, our focus remains on delivering projects promptly while ensuring that production begins on time. With that in mind, we anticipate bringing P-71 online ahead of schedule by the end of 2022, while maintaining our commitment to timely completion of Anna Nery, Almirante Barroso FPSO, Anita Garibaldi, and Sepetiba by 2023, as outlined in our latest business plan. Next, please. Regarding EBITDA, as mentioned, we had a very solid quarter with a recurring EBITDA of $17.6 billion. This figure was very clean with minimal impact from nonrecurring items. It's evident that the EBITDA closely reflects recurring results impacted by Brent price fluctuations and reduced export volumes, which we highlighted in our production and sales report. A portion of our Q3 production affected inventories, which will positively influence the results of Q4 2022. Next, please. On reviewing the performance of our business segments, as mentioned prior, the upstream segment was impacted by a decrease in Brent prices. Meanwhile, the downstream segment exhibited strong performance, as evidenced by the adjusted EBITDA relative to replacement cost, highlighting operational excellence with improved production and sales results. Concerning inventory turnover, a negative inventory effect from Q2 has been accounted for due to falling prices throughout Q3, which resulted in inventories built at higher prices. In the Gas & Power segment, we reported strengthened results compared to Q2, and we are committed to enhancing our portfolio for natural gas commercialization and production. Next, please. Regarding free cash flow and cash flow generation, we arrived at an EBITDA level of R$17.4 billion after income taxes. A notable influence by government take occurred during Q3, given our quarter of reduced prices compared to Q2. This has warranted the payment of an essential part of government take reflecting higher prices recorded in Q2, while now in October, we expect to pay a lower government take resulting from the lower prices observed in Q3. Consequently, there was a negative impact on cash flow during this period. The company is also utilizing all the prior tax carry-forwards we've carried out, meaning we are now paying corporate income tax without those carry-forwards having been previously utilized. Following CapEx of about $2 billion, we achieved free cash flow of $10.1 billion, which, coupled with divestments of approximately $0.7 billion, results in free cash flow after divestments of $10.8 billion. Most of this cash flow is allocated towards shareholder dividends declared in prior quarters. Next, please. Consequently, we have adjusted cash levels to align more closely with the optimal threshold of $8 billion, while preserving a strong capital structure and maintaining our leverage at comfortable levels just below the optimal range. Currently, our cash position stood at about $7 billion on September 30th, which has increased to $8 billion following the end of October, returning us to the desired threshold. During this quarter, we issued commercial notes in the Brazilian market to mitigate exposure to Brazilian Real fluctuations in the debt capital markets and paid back a portion of debentures issued in 2017 and 2019 maturing in this quarter. Thus, we are recovering our engagement in the Brazilian debt capital market effectively. On the topic of amortization profiles, I want to emphasize that when analyzing financing amortization schedules, lease payments will be settled through the operations underlying the leases. However, the financial aspect of our debt is on a stable trajectory. The amortization levels and schedules align coherently with our company's cash flow generation, and thus we do not foresee any liquidity or leverage concerns in the upcoming years. Next, please. With regards to portfolio management, we are pleased to report significant signings and closures throughout the year. We have already realized about $4 billion in cash inflows this year. Regarding transactions this quarter, key developments include the teaser for optical fibers and our recent investment in Argentina, alongside the initiation of the binding stage for mining rights in northern Brazil in relation to the Pitu development project. Moreover, we've finalized divestments related to onshore fields in Bahia and shallow water fields in Espírito Santo during Q3. Next, please. Regarding earnings, we reported net income of $8.8 billion this quarter. The recurring net income aligns closely with actual net income, resulting in a very clean outcome that was minimally impacted by nonrecurring events. It's important to highlight, along with previously mentioned operational results, that we experienced reduced foreign exchange impacts in Q3 in comparison to Q2. The depreciation experienced in Brazilian Real against the dollar during Q2 was more pronounced than in Q3, thereby benefitting net income due to lesser foreign exchange impacts in Q3. Next, please. Finally, as stated earlier, due to our solid cash generation and value creation capabilities, we have announced dividends in accordance with our dividend policy, comprising 60% of our free cash flow along with additional extraordinary dividends. We maintain a strong focus on financial sustainability all while effectively distributing earnings and the value we generate. Our dividend policy aims at safeguarding this financial sustainability both in the short and long-term. In summary, we have upheld our capital discipline while ensuring leverage remains manageable and cash levels remain resilient. The value we generate fosters our ability to return this value to our shareholders and, significantly, a large portion of this returns benefits Brazilian society, as mentioned before. Next, please. To recap, we had a strong quarter, reflecting not only financial resilience but operational performance as well. We remain committed to implementing our business plan effectively and to continuously deliver on our promises within the 2022-2026 timeline. Thank you once again for joining our earnings call today. I'll now pass the floor back to Carla to kick off the Q&A session. Thank you.

Thank you, Rodrigo. We can now move to our Q&A session. The first question we received comes from Luiz Carvalho with UBS. He sent us a message, so before I go to my questions, I would like to congratulate the management and the Board of Directors for the incredible transformation that you all have led Petrobras to over the past couple of years. I have been covering Petrobras for more than 10 years, and you can all be proud because you have built a legacy. Now to the questions. Luiz's first question is to Salvador. Salvador, about strategy and governance, we have noted several improvements in strategy and corporate governance over the past couple of years. The new elected government has already publicly demonstrated divergences on both fronts. In your view, with all that has been public in the press, what would you consider the main changes, and what cannot change, considering that the bylaws and the SOE law are unchanged? If you could bring some more light on divestments, dividends, and pricing policy, it would be very useful? Thank you.

Thank you for the question, Luiz. Firstly, it's crucial to highlight that Petrobras today is not the same company it was before the Lava Jato operation. Since 2014-2015, we've been evolving and establishing a strong and robust corporate governance and compliance program, along with many initiatives implemented following the new State-owned Enterprise Act and the Anti-corruption Act enacted during this period. Presently, we have numerous internal controls, ethics, and compliance mechanisms in place to prevent risks related to regulatory issues. Additionally, our decision-making processes at the strategic level now include stronger checks and balances to help mitigate any misuse of the company and prevent poor decisions that could lead to the severe issues we faced in the past. Importantly, parallel to our bylaws that were mentioned, the Brazilian legal framework imposes personal and potentially criminal liability on directors and officers in cases of misuse violations. Therefore, any potential changes to our internal controls would encounter public scrutiny, with full disclosure required for all such changes if they occur. To summarize, it's vital to ensure that any alterations in our rules, bylaws, or internal policies undergo systematic review. They can be enacted, but each has a defined threshold for assessment. However, major changes to our corporate governance must always be disclosed to all shareholders, ensuring transparency is maintained.

Thank you, Salvador. Luiz's next question is for Mastella. Mastella, about pricing policy, a clear discrepancy has been noted between the company's methodology and some associations. Could you please offer your thoughts on this difference? Do you see a need to adjust the prices of gasoline and diesel?

Thank you, Luiz. Well, frankly, the estimates regarding import parity can vary significantly based on the references used for calculations. A number often cited by the local press originates from a local importers association. However, this association represents a small fraction of the total diesel and gasoline imports to Brazil, accounting for less than 5% this year. They are small-scale entities, and logically, their estimates derive from a limited scale of operations, like not having access to the necessary discharging facilities or competitive freight prices, and very infrequent market access to optimize prices. When you mention 5%, you might presume that the remaining 95% would fare better, but that is not accurate. Petrobras supplies less than half of the total imports of diesel and gasoline to Brazil, which clearly illustrates that the market is well-supplied and that prices are fair in Brazil.

Thank you, Mastella. The next question comes from Bruno Montanari with Morgan Stanley, and he has sent us a message. He congratulates you all on the continued solid results and constant capital discipline, which have been clear attributes of the management team in recent years. Bruno’s first question is for Rodrigo Araujo. Rodrigo, regarding the strategic plan and CapEx, what would be the process to revise assumptions in the event of a management change in 2023? What would be the steps to change strategy and capital intensity materially, and how rapidly could that happen?

Thank you, Bruno. I appreciate your question and your kind words. As you know, the business plan is an annual process run by the company every year and involves multiple areas with assumptions related to Brent prices, exchange rates, margins, business volumes, and so on. Consequently, we have critical assumptions for the various businesses we engage in, including discount rates. Basically, this annual cycle impacts the entire company. The approval of the business plan also has significant governance surrounding it. We convene an Investment Divestment Committee composed of about 12 executive managers who are the level just below the C-suite. Their votes concerning project or divestment approvals or business plan endorsements are similar in power to those of statutory executive officers at the C-suite level. Following this, the proposal proceeds to the Executive Officer Board and then to the Board of Directors, ensuring multiple layers of scrutiny. This is the overarching process for our business plan. When it comes to capital intensity, approving new projects necessitates further governance. The business plan sets the key guidelines and strategic focus for the company, illustrating the projects to be pursued over time. However, the plan itself does not automatically translate into capital commitments. The projects contained within must undergo thorough scrutiny, similar to that for divestments, and must be validated through various committees, the executive officers, and ultimately the Board of Directors. Projects must demonstrate positive NPV under a stress test scenario and account for risk management from several perspectives. For instance, our current stress case scenario for Brent prices is $35 per barrel in the long run. Once a project receives approval, it must navigate through the procurement process, which is complex, particularly for the kinds of projects Petrobras undertakes. We typically only begin spending significant CapEx after we've reached the Final Investment Decision (FID) for the project, signifying a five-gate project approval process that restricts expenditures until gate number three has been completed. So this is a bit of an overview of how we run business planning versus project execution. Thank you for your question.

Thank you, Rodrigo. The next question is also for you. The company has successfully carried out a robust divestment program, which has contributed to cleaning up the capital structure, leaving it at very healthy levels. Considering the company’s governance and procedures, if Petrobras were to become an acquirer of assets, what evaluation criteria and approval mechanisms would be in place? How quickly could a material acquisition be executed?

Thank you, Bruno, for your insightful question. Much like what we discussed regarding CapEx, we rely on the business plan as central guidance. Hence, any acquisition must align with the business plan strategically. This strategic alignment is a primary criterion evaluated in all acquisition scenarios. Moreover, similar governance applies to acquisitions as to divestments. Internal valuations must be prepared, alongside diverse valuation scenarios. Our analysis entails optimistic base case and stress case scenarios, coupled with qualitative and quantitative risk evaluations for investment and divestment decisions. Most acquisitions must secure approval from the Board of Directors, following a consistent methodology involving our Investment Divestment Committee, C-suite, and Board of Directors, including any relevant Board committees. In specific cases, transactions might also require examination from the Minority Shareholders Committee of the Board of Directors. Therefore, the acquisitions process mirrors the divestments process closely, albeit with some distinctions. We've also incorporated external third-party fairness opinions for all transactions. So that's a glimpse into how we process acquisitions. Thank you, Bruno.

Thank you, Rodrigo. The next question comes from Bruno Amorim with Goldman Sachs, and it's directed at Mastella. Mastella, can you share the current discount to the international reference price that the company observes in diesel and gasoline? Does the company see a need for a price increase to reach international parity?

Thank you for your question, Bruno. I'm glad I can provide some clarity on another often-misunderstood aspect of our pricing practices. Fundamentally, as I noted earlier, many estimates of import parity prices depend on various actors and their particular needs in terms of competitiveness, which can lead to considerable discrepancies. In reality, as we discussed earlier, aside from various concerns from different market actors, we strive to prevent market volatility from affecting our customer prices. This results in an occasional situation where at some points our prices are above, and at other times below international parity. Ultimately, we aim to align with international price averages—this approach confirms we provide competitive pricing in Brazil, which remains evident through activity from larger importers that we reference for our pricing. These companies continue their operations here in Brazil. So, I must reiterate that our pricing remains fair, and we will continue our approach of minimizing the impact of volatility on customers. I appreciate your understanding and questions.

Thank you, Mastella. The next question comes from Christian Audi with Santander. He conveys his congratulations to the management team for consistently strong operational results and solid capital discipline. The first question—actually, he has two questions regarding CapEx, and both are for Rodrigo Araujo. First, can you share insights on the criteria used for project approval in the upstream, refining, and renewables? How do the timing and procedures for approving an upstream project differ from those in refining and renewables?

Thank you, Carla, and thank you, Christian for your question and your compliment. I discussed the annual business plan process and referenced the annual cycle regarding discount rates and hurdle rate approvals. But differentiating the businesses is important. Each business has a unique set of assumptions driving their project approvals. Specific considerations for margins, volumes, competitive behavior, etc., will differ. General assumptions, such as crude prices, FX effects, and inflation rates, are standardized across the business plan. Varying discount rates also exist, tying to different risks associated with distinct businesses. Approval processes, however, bear similarity across all segments. As mentioned previously, the project development process is consistent, requiring passing through comprehensive revisions before the Investment Divestment Committee, followed by approval from the C-suite and, ultimately, the Board of Directors. While the approval processes retain basic similarity, unique project maturity levels vary. For example, we've worked diligently to standardize engineering and financial processes surrounding the development of ultra-deepwater projects in recent years. Consequently, these projects have become relatively mature, leading to a quicker approval process compared to less mature ventures, like renewables, where we continue conducting studies in alternative business areas such as CCUS, offshore wind, etc. There’s a lack of maturity with renewables compared to our upstream and downstream projects. Similarly, supply chain maturity varies; offshore projects in Brazil benefit from a well-established supply chain and reliable suppliers, whereas our onshore counterparts lack that same infrastructure. Thus, while the approval process is similar, various project maturity levels and supply chain readiness heavily influence overall project timeline and execution. Thank you for your question, Christian.

Thank you, Rodrigo. The next question comes from Regis Cardoso with Credit Suisse, and he also sends us a message, congratulating the management team and Petrobras for another excellent result. This showcases that effective management can create value for society, making investments alongside shareholder return sustainable. Regis' first question is for Fernando Borges. Fernando, what are the expectations for the timing of closing the transactions for the 5% stake purchase option auction exercised by CNOOC in Búzios?

Regis, the transaction should be completed in November, with an effective date starting December 1. The remaining steps to finalize this month include the approval of the guarantees concerning commissioning by ANP and the payment of the transaction amount by CNOOC. Thank you.

Thank you, Fernando. Regis’ second question is for Rodrigo Araujo. Rodrigo, how does Petrobras view the possibility of divesting from Braskem still in 2022? Can you also provide an overview on the progress of the ongoing divestment projects?

Thank you. Thank you, Regis for the question and your kind message. With respect to Braskem, as you might have seen, Braskem has announced that Novonor requested Braskem to facilitate its sale transactions with potential buyers. We are actively preparing to engage positively in this divestment process when it becomes viably convenient. Hence, we are conducting our studies and preparing evaluations for when we can be involved as events progress along with Novonor. In terms of our portfolio, it's noteworthy that we recently announced an injunction we reversed concerning Bahia Terra. As a result, we’re reinstating the divestment process for that asset. Throughout the year, we have successfully signed six transactions amounting to $4.4 billion and closed eight transactions thus far in the year. Our commitment remains focused on concluding the transactions that have already been signed, with the anticipation of initiating additional transactions as the year progresses.

Thank you, Regis. The next question comes from Gabriel Baja with Citi and is directed towards Joao Henrique. Joao Henrique, could you please provide more information regarding the operational startup process of the FPSO Almirante Barroso? How long does it take to commission your equipment and production system? When can we expect the first oil production?

Thanks for the question, Gabriel. The FPSO Almirante Barroso arrived at Basel shipyard at the end of sales in October. Next month, we'll conduct some steps before the COA on the shipyard, anticipated early next year. Unitil completes integration, commissioning inspections, and tests. We expect startup by mid-next year. Thank you for the question, Gabriel.

Thank you, Joao Henrique. Gabriel's next question is for Rafael. Rafael, currently, we see the company's investment plan focusing on high-return projects with lower cadence, particularly in the pre-salt region. Looking ahead to the next investment plan, can we anticipate any shifts in focus for the company? Will we see increased investments in renewables, for instance?

Hi, Gabriel. That’s a great question. There will be no change to our discipline regarding capital within Petrobras. Suitable risk-reward considerations are fundamental to our project approvals. This strategy solidifies Petrobras's strength, making us more sustainable. Additionally, we will continue to invest in decarbonizing operations, exemplified by our commitment to high SAP and the innovative technological solutions that increase our capacity to sequester CO2 equivalent in our reservoirs. We will also persist in developing renewable fuels, including investments in a dedicated plant for renewable jet fuel. Our involvement with social responsibility initiatives will persist, aiming to keep forests alive and expand forested areas in Brazil. When it comes to renewables, as long as we discern maturity in investments with suitable risk-reward structures, we will invest accordingly. Executives across different sectors of Petrobras are collaboratively analyzing avenues for investments with positive NPVs under stress scenarios. We await the next strategic plan to determine whether any innovations in our strategic expectations will feature in the initiatives we execute at Petrobras. Thank you, Gabriel, for your insightful query.

Thank you, Rafael. Gabriel has another question for you. With respect to new exploratory frontiers, the equatorial margin is viewed as a great opportunity for the company. However, concerns exist, especially regarding the environmental aspects of developing the region. Could you elaborate on the company’s vision about developing this area? What do you see as the main challenges and potentials relating to CapEx and reserves?

Certainly, Gabriel. Petrobras, first and foremost, actively contributes to sustainable growth and development in all Brazilian regions. Concerning the equatorial margin, we intend to benefit from our investments. We've already earmarked over $2 billion in exploratory investments within that area. Our focus remains on positively impacting local populations through taxation, job creation, and income derived from our investments in these regions, along with both direct and indirect benefits for these communities. It is vital for Petrobras to harness resources responsibly in the northeast, turning them into real wealth for the populations there. We are committed to achieving sustainable growth; it’s unacceptable to push forward with unsustainable initiatives while simultaneously making progress. Petrobras possesses the capability to foster sustainable development throughout those regions, successfully evolving this fossil resource in both the North and Northeast regions into tangible economic wealth for the population. We strive to care for present populations while ensuring future ecological sustainability. The dual commitment to responsible resource utilization while providing sustainable growth is paramount, and we intend to actualize this vision. Carla, I'll hand it back to you.

Thank you, Rafael. The next question comes from Monique Greco with Itau BBA and is directed at Joao Henrique. Joao Henrique, could you please provide an update on the status of the contracting process for the new company of Route 3? Can you also comment on the expansion project status? Should they continue following the next business plan revision? What is the status of these projects?

Hi, Monique. The Route 3 Integrated Project is currently at 93% physical completion. The CBC pipelines are 100% complete and in the commissioning phase. Petrobras has initiated the necessary contracts to finalize the remaining scope of the processing natural unit, aiming to start operations by 2024. We're currently finalizing the contracting stage to facilitate detailed planning with precise timelines aligned for the entire staff at the unit. The construction projects are undergoing technical economic analyses to ensure effective compatibility with production needs. We initiated the sale process on June 27 as part of our portfolio management strategy regarding refining divestments; simultaneously, the Board decided to finalize construction on the remaining scope that meets environmental conditions while adding value to the asset. Thank you.

Thank you, Joao Henrique. The next question and the last question come from Rodolfo De Angele with JPMorgan, and he asks for Rodrigo Costa. Rodrigo, within the elected President's government plan, there's an emphasis on the importance of reducing fuel imports. Can you provide any operational perspective on whether it is feasible to increase production at existing refining facilities? Are there alternative options for brownfield expansions? If so, what would be the potential scale of production increases?

Hi, Rodolfo. Petrobras's refinery operation rates are comfortably aligned with our commercial commitments while respecting safety operations and logistics conditions. This year, our refinery utilization level has approached 90%, despite numerous turnarounds performed in our refining portfolio. This places us close to the first quartile of US refining utilization rates per Solomon's benchmarking standards. Under our current strategic plan, we are investing in expanding capacity and enhancing conversion, focusing on high-margin derivatives and hydrotreating diesel. As Joao Henrique mentioned, we have several refining expansions underway. When the gas lube hydrocracking unit commences operations, it will enhance our capacity by 90,000 barrels per day dedicated to producing both ultra-low sulfur diesel and other fuels while additionally achieving 12,000 barrels per day of lubricants of Group II. Furthermore, we have a project planned to REVAP RNEST's Train 1 and to conclude Train 2, which will increase refinery capacity by 145,000 barrels per day. Alongside these expansions, we are advancing our ultra-low sulfur diesel hydrotreatment capacity by approximately 130,000 barrels per day through additional construction and upgrades of existing units. Thank you for your question.

Thank you, Rodrigo. Thank you all. At this point, the Q&A session is concluded. If you have any additional questions, you can send them to our Investor Relations team. Rodrigo Araujo will make his final remarks now. Please, Rodrigo, go ahead.

Thank you, Carla. Thanks, everyone, once again for being with us today for our Q3 earnings call. As I mentioned, we had a very solid quarter, and the results are commendable. We're delighted with what we have achieved. Of course, these results are not only reflective of the external positive environment but also the effective strategic decisions made and the successful execution of portfolio management and project delivery over the past couple of years. This company has demonstrated that it can tackle difficult circumstances, such as those faced in 2020, while seizing opportunities when the external conditions allow. Thank you for attending our Q3 earnings call.