Petrobras - Petroleo Brasileiro SA Q2 FY2023 Earnings Call

Good morning everyone. Welcome to Petrobras webcast with analysts and investors regarding our Results for Q2 of 2023. It's a pleasure to be here today. This event will be presented in Portuguese with simultaneous translation into English. The links for both languages can be found on our Investor Relations page. We would like to inform that all participants will follow the broadcast over the internet as listeners. After our intro, we will have a Q&A session where you can send your questions to [email protected]. Today with us we have Carlos Travassos, Chief Engineering, Technology and Innovation Officer; Clarice Coppetti, Chief Corporate Affairs Officer; Claudio Schlosser, Chief Logistics, Commercialization and Market Officer; Joelson Falcão Mendes, Chief Exploration and Production Officer; Mário Spinelli, Chief Governance and Compliance Officer; Maurício Tolmasquim, Chief Energy Transition and Sustainability Officer; Sergio Caetano Leite, Chief Finance and Investor Relations Officer; and William França, Chief Industrial Processes and Products Officer. To initiate we will watch a video with a message from our President, Jean Paul Prates.

Good morning. It is an honor to be here again to share our results with all of you. It has been six months of achievements and accomplishments, which reflect the quality of the work that we are doing within Petrobras. In this first semester of management, we were able to establish a new commercial strategy that is producing the results we wanted so much, more flexibility and competitiveness for fuel prices. At the same time, we are committed to leading the energy transition in the country in a fair, safe, and inclusive way driven by partnerships we are building with companies of technical excellence and by the growing decarbonization of our operations. One of these results is the neutralization of Scope 2 emissions since all electricity purchased by Petrobras now has a proven renewable origin. It is important to highlight that we approved the revision of the strategic elements for our 2024-2028 strategic plan, as well as the driver to increase low carbon investors to up to 15% of our total investments. In the operational side, FPSO's Anna Nery in the Campos basin and Almirante Barroso in the Búzios field started up production. FPSO's Anita Garibaldi and Sepetiba are expected to join them soon, helping us to continue increasing pre-salt production. The utilization factor of our refineries reached 93% with the highest level since 2015, even with several scheduled shutdowns at our refineries, respecting safety, environment and health issues. And we achieved record sales in the first half with 10-ppm diesel accounting for 62% of the total diesel sales of Petrobras. Regarding Diesel R, which is our diesel with 5% of renewable content, we project to increase our processing capacity by 146% later this year. We increased our investments to $5.7 billion in the first half of the year, and we kept our debt under control at a gross debt of $58 billion while our operating generation reached $10 billion. In the first half of 2023, we continued with our total focus on people. We had an unprecedented initiative with the launch of our diversity supplement to reinforce awareness among our internal public and our society at large. All these results were achieved in the first half of this year represent only the beginning of a journey that will take us increasingly further for our benefit and for the benefit of the shareholders and the society. Thank you very much.

Now we will initiate our results of Q2 of 2023. And now I will hand it over to Sergio Caetano Leite.

Good morning. I am very pleased to be here today to discuss our results for the second quarter. During this quarter, our gross recurring EBITDA was BRL12 billion. This operational cash flow demonstrates the resilience of our company despite an adverse foreign scenario. We have approximately BRL10 billion, BRL9.6 in operating cash flow. Our debt – our net debt over EBITDA also shows the control of our indebtedness and the financial soundness of our company that would be 0.74 times. Now, the return on capital employed is almost 13%. This is 12.8%. Our net profit totaled $5.8 billion, free cash flow $7 billion, and we continue contributing sustainably. We're promoting inclusive development paving R$56.1 billion in taxes contributing towards social development. Our dividends totaled $6.2 billion and we have a comfortable cash flow of $15.8 billion. So despite external adversities, Petrobras' financial soundness is positive and the results take us to this. This is why we're – this is one of the ten best years of the company. Now here you can see the foreign environment. There was a drop in Brent. It was significant. We're talking about the second quarter of 2022, $114 in Brent. Now during this quarter, $78 per barrel, this drop in the barrel price was highly significant although the exchange rate is in line with last year's quarter. The drop of Brent is another factor that I will comment subsequently. And this is why this dropped our results, although we continue with sustainable development and the company continues to be resilient. Our EBITDA demonstrates that we are aligned with the drop of the Brent and the appreciation of the dollar, but there is an important interpretation since the beginning of the year. I mean Q1 and Q2, our adjusted EBITDA is very close, almost at the same level of a recurrent EBITDA or recurring EBITDA. This is because there has been a lower disinvestment program because of our asset portfolio. So, our company continues adjustment presenting very important value. Below you can see the devaluation of Brent, which impacts significantly our operations. There was a lower Brent reduction in exploration and production. Now, refining and marketing captures the foreign scenario factors. If we consider the EBITDA with a stock turnaround, we have a drop of 33% vis-à-vis Q1 with a replenishment cost, we have an EBITDA minus 42%. Gas and power aligned with the refining area. So we have a 33% drop if we consider the first quarter in comparison to Q2. Now, our cash generation, as I mentioned, continue strong and robust. There was a slight contribution of non-recurring results that are because of the sale of Potiguar and Norte Capixaba Complex our debt management allowed us to – to amortize $0.7 million and these are data. This is data that is aligned with the market in reality. In oil and gas, Petrobras has presented one with the best results despite an adverse scenario. Now, when we talk about our debt, there was a slight spike in our total indebtedness because of the freight of Anna Nery and Almirante to Búzios, but our financial debt maintains its dropping trajectory. We drop, we’ve lowered 0.6% million in debt. Our gross debt is within the limits that we establish and what we announced in our strategic plan. Now our next slide. Now, portfolio management. This is a question – this is a constant question mark from our investments. We have a dynamic portfolio in Petrobras. So, this means that we are going to work with these divestments with investments and with partnerships. There are assets that are of interest and we can do this through partnerships. So, all our portfolio is being reassessed under a different view. This is a long-term view. In addition or aligned with what we announced regarding the signed contracts for divestments, they remain, there are fields Albacora Leste that was sold in Q1. We have Norte Capixaba cluster or complex or Potiguar Complex. Now, in terms of cash inflow generated from these divestments until June of 2023, we are talking about the end of the second quarter, well, this was $3.5 billion. Well, our net results reflect the stringency of the market, the drop of the Brent and the appreciation of the dollar vis-à-vis the dollar what is important is the crack spread of the diesel. The market is being pressured by the low offering of Russian diesel dropping 40% will hire operating expenses US$0.4 billion. And this has been reduced to – when we compare it to other quarters. Now, what we give back to society? This is part of our ESG program. It is highly consistent and strong. We give back to society in terms of taxes and we gave back R$56.1 billion. Another important fact was we reviewed the shareholders’ remuneration policy. In this policy review – we will maintain important aspects that will guarantee the financial soundness of the company, the control of that. We maintained the same periods, we continue with the same guides of indebtedness. We have a reference, we have our gross debt and how we pay out quarterly our dividends. And we’ve reformulated our formula going from 60% to 45% of free cash flow designated to dividend payout. This level is in line with the major worldwide enterprises. I am here considering independent enterprises and also state companies. Remuneration to shareholders, I would like to highlight the main dates that were already announced to the market here for the second quarter remuneration. The base date will be August 21. The first tranche will be paid on November 21 and the second December 15. We continue controlling our debt using capital principle that is part of the guidance of the company. And we continue committed to generate and to distribute value. Now our buyback program. Well, Petrobras is one of the companies that communicates most with the market in Brazil and abroad. These are the shares that are mostly traded abroad. What we do have impacts, and this is why we have to be careful, therefore, our buyback program will start in a conservative fashion. We will buy 157.8 million preferred shares. This will be done with preferred shares, which represent a small amount of these Free Float that would be 3.5%. And this is a pilot program that will last around 12 months. So, we expect to conclude this, we believe that this will not cause major price fluctuation and it’s the first share buyback program that Petrobras will use to remunerate their shareholders.

But I am just giving you a general overview. So here we see a lower emission rate of greenhouse gases in refining. Since the beginning of the operation in 2019, we signed our first charter contract for hybrid support vessels, meaning using batteries and marine fuel. This has allowed us to reduce emissions by about 15%. We certified our energy production through I-REC, a renewable energy certificate guaranteeing that 100% of the electricity purchased was generated by renewable sources. Additionally, we invested BRL 200 million in a new gas treatment system at REPLAN and REFAP, which reduces particulate matter emissions that have a negative health impact. These efforts pertain to Scopes 1 and 2, focusing on decarbonizing the company's processes. In Scope 3, which refers to products with a lower carbon footprint, our goal is to expand our diesel production capacity with renewable content by 2023, particularly through processing. This was authorized by ANP to operate another unit with REPAR, allowing us to expand our production to 12 million liters per day. We signed a cooperation agreement and began a new test for maritime transport with a chartered vessel from Transpetro, which has 24% renewable content, enabling us to reduce emissions by about 17%. Those were the highlights I had for you, and I'll pass it over to my colleague Joelson.

Good morning, everyone. It's a pleasure to be here. We're going to start by discussing the growth of our operated production in the second half, or excuse me, in the first half of 2023, we have seen significant growth. There was a slight reduction from the first quarter to the second, which is expected considering our maintenance operations, which had been programmed and planned. Our own production is also in line with what we had planned. It seems like we are going to finish the year along what we have planned without major issues and in line with what happened in the second quarter of 2022. Our pre-salt owned production as expected had a significant increase, which represents 78% of our own production already with more than 2 million barrels equivalent coming from pre-salt. Next slide, please. In Buzios, we have a relevant production level. We are producing 800,000 BOEDs total. It's very significant and due to the relevance of this production. In five years only, we have an accumulated production of 1 billion barrels of oil, which was much faster than what we did in Campos Marlim in the 2P field as well. So it's extremely significant how quickly we were able to grow our production from Buzios with these five units, which are the five original units foreseen, we have an additional six that will produce oil in excess to this. Next slide, please. Another important activity that we had during the second quarter was returning all of our production from the Bahia Terra Cluster. We had to adapt our production there according to the new requirements from the ANP. And we had a long contact with them with the risk analysis for all of the activities needed. And it was a new outlook on safety and how our activities are done. So next slide, please. At the end of last year, we also participated in a bid round and we were able to acquire three important blocks in investment of over BRL 700 million in the Norte de Brava field, which is the most significant one in investments. We acquired 100% of it and it's close to an area where we are already in production, which is very important. We want areas where we already have an infrastructure that can be used. Also, Água Marinha, we had some partners there and also Sudoeste de Sagitário with other partners. So this consolidates our exploration strategy with profitable assets close to our activities in borders that we already know very well. There are other frontier areas in Brazil, but these are well-known areas where we can produce with lower extraction costs and certainty of that exploration area. We're very confident that we're going to get good results from these areas, and we're planning to start this exploration next year. Wells are planned for 2024. Next slide, please. Within our strategy of recovering more and getting more value from the assets that we have, we concluded a major seismic survey in Tupi and Iracema through partnerships. So this is a major area. We have very high-quality images, which will allow us to plan how this area will be explored. And of course, this is a deep conversation that we're having with the ANP to decide how we can have another production in this area. So it was an extension and we expect this to have a lot of value for Petrobras and for Brazil if we can increase the prediction time in these areas. Next slide. This slide shows the extraction cost for pre-salt, which is in line with what we had during the first quarter in mature areas deep waters and shallow waters. Naturally, we would see lifting costs go up. There's a reduction in production due to the depletion of these fields, and there are also need other associated costs. So the total cost of oil produced is quite significant for our financial results around $35 per barrel, which is in line with what we had been expecting considering all of these production changes that make us very competitive. That's my last slide, so thank you very much and I'll pass it on to Marcos Travassos. Thank you.

Thank you, Joelson. Good morning. I will begin my presentation by highlighting some of the technological advancements we've made. Our company holds the highest number of active patents in Brazil, exceeding 110,000. For the second consecutive year, we achieved a record in patents licensed, with 214 made available to the market. During this period, we received several awards for innovation, including the MIT Award as one of Brazil's most innovative companies, although there is no formal ranking, we are recognized among the top. We also received the Elite Awards in Nevada and the U.S. for our HAZOP program and the Valor Inovação Award as one of the most innovative oil and gas companies globally, as well as the second most innovative company in Brazil across all sectors. This represents our best historical achievement and is an important recognition as it underscores our commitment to innovation, which is crucial for transformation. This is the direction in which the company is moving and preparing. The following slide will display some of these innovations, including our all-electric FPSO. Our next project will incorporate our combined cycle technology to utilize all available technology in our units, aiming to lower our emissions rate. We also made strides in remote operating marine technologies, utilizing artificial intelligence in our drones and onshore monitoring systems. Our PEP70 Well Efficiency Program has progressed with the goal of reducing the cost of each well in the pre-salt region from around $100 million to $70 million, and we successfully completed this program. In downstream efforts, as Tolmasquim mentioned, we reached an agreement for industrial-scale tests to produce bio-aromatics in the Riograndense refinery using vegetable oils. This allows us to develop plant-based products, which will be processed and tested next year, potentially enhancing our refineries by increasing our FCC load through plant-based oils, resulting in a lower carbon footprint. We've made advances in our robotics program, including testing our Petrobot for equipment inspection, as well as a firefighting robot developed in collaboration with startups, which is currently being tested in a smaller version for use on our platforms. The next slide presents some of our projects. At Almirante Barroso, we commenced operations on March 25 and are ramping up production. We are also holding an auction for the P-32 area to ensure sustainable density for this platform. We had 31 new wells in operation during the first half of 2023, marking a 25% increase in interconnections. P-78 represents our first project following the revitalization of our hiring strategies, focusing on the Búzios field. Additionally, FPSO Sepetiba is on its way to Brazil from close to South Africa, and it is expected to enter operation in September, marking the last unit to do so in 2023. FPSO Anita Garibaldi is also in its final stages, set to start operations in August and will be the second unit to operationalize in the Marlim Sul field. We’re announcing today the Barracuda REVIT, a call for bids for a production unit with a capacity of 100,000 barrels, part of our renewal program for Bacia de Campos. The next slide showcases our downstream advancements. We are significantly expanding and modernizing our refinery, and we also published an auction today for the second train for RNEST, which will enhance our processing capacity from 115,000 to an increased capacity of 130,000, aiming for a total of 260,000 barrels of oil per day and generating 30,000 jobs directly and indirectly. Additionally, our RBPC coke drums project, which was a substantial overhaul, has been successfully modernized. At the REPLAN treatment plant, we are on track with adding diesel capabilities, and we've celebrated the completion of work at Reduc HDT, where we've introduced a new reactor, increasing diesel output. Lastly, we resumed work on GASLUB rapidly, completing what previously took 30 months in just six months. This includes engineering and construction contracts for the UPG work in Itaboraí, related to GASLUB. We have initiated a project conditioned on an auction for this thermal plant unit and we will present a proposal throughout 2024. This concludes my presentation, and I will now pass the floor to our Chief Industrial Processes and Products Officer, William França.

Thank you, Travassos. Can you hear me? Can you hear me and see me? Yes. So during this quarter, our results were excellent in terms of operation in our natural gas plants and refining our natural gas plant had high results here the best in the history, the sustainability plant excellent. We also had a burning rate that this measures the quality of decarbonization in our natural gas area. We had very good burning rates. This means that we’re evolving in energy efficiency lowering our carbon footprint, which is very positive. Well, I’m sorry, I didn’t say good morning to everyone. Now, in our refineries, our utilization factor was 93%. This is a result of our planning and logistics and marketing and allowed us to increase the utilization factor guaranteed by the excellent operational availability of our assets. Here you can see our refineries, therefore, this is a very good result. The best result since 2015. This is the best result in the history of refining pre-salt oil in refinery input. We are almost 70% the oil that comes from pre-salt. We are increasing the share of pre-salt in the processing of our unit. We increased gasoline days almost 70% and this result was positive because we ended the REVAP, Reduc, REPLAN shutdown and RPBC although there were shutdowns in the refineries, we achieved this result. This means that we can make even more progress in the utilization factors of our refineries during the second semester.

William, your microphone is muted.

Our result of oil byproducts highlighting diesel oil, once again, we achieved a record in with 2.11 million cubic meters of produced diesel and we will reach another record in July with 2.38 million. Here we have 2.38 million and then we will outperform in August because we started at the end of July with the 700. Our unit was readapted. We included another reactor and other offsite accessories that here we have offsite structure to produce diesel with 4,000 cubic meters a day and due to our operational availability and the trust on the unit, we will outperform and we will outperform July and this is due to the excellent working structure of our commercialization area. This is Tolmasquim mentioned, we have excellent result in gas emission in emission intensity. Here, we had 103.7 results and we reached 102 in the region. That is the best historic result in all refining. We're close to the standard number achieved by refineries. There are refineries with something lower than 90 like RefTOP. So emissions intensity Tolmasquim in June, we had the best historic result in terms of CO2 with 37.2. This shows that we are evolving in trust, increasing utilization factor, and lowering our carbon footprint regarding the assets of our refineries.

Thank you, William, and everyone else. It's a great pleasure to be here. I'm talking about the highlights of the office and we're going to start with this slide, presenting sales of derivatives in our market. Our oil product sales, which had an increase versus 2022. We had some effects that led to this. One of them was the higher competitiveness for gasoline. We also had LP seasonality – LPG seasonality and diesel. This diesel effect was partially offset because during this time, we saw a higher rate of diesel mix-ins from 10% to 15%. This happened in mid-April. So if we look at the data from the second half of 2022, we were very aligned despite these divestments in the Reman refinery in Amazonas. One item that was mentioned by William was the excellent result of availability, which led to historical levels in refinery availability, which really supported the sales of these oil products. As a consequence, we had lower margins, but our margins were still above our historical levels. This increase in refinement allowed us to capture this margin across all of our industries. So it reduced oil exports and we allowed the country to process more oil. As another highlight, gasoline sales grew 5% this quarter. It happened, especially due to the higher competitiveness against our main alternatives for clients. And in addition to that, we had an increase in fuels for light vehicles, that is automobiles, motorcycles. Gasoline had more competitiveness versus hydrated ethanol due to tax reasons. This can be explained by tax reasons. And just for your reference, Petrobras Gás participation in the second half of 2022 was 40.3%, and in the second quarter it was 42.3%. And it shows how we have significantly evolved during this cycle. Looking at the foreign market, we had higher exports due to our production of oil products and our availability. Due to the concentration of programmed downtime during the first half of 2023 in refinement. So this slide discusses oil sales. There was a reduction in exports, which was expected due to this increase in availability in the refinery park and the higher utilization of pre-salt oil in refinery loads. And this adds a lot of value to how these assets are generating value. We had about 150,000 barrels per day produced nationally in comparison to other quarters. Another point that allows us to understand this variation was the inventory in the first quarter. So it was a favor in the first quarter, because we were carrying out some ongoing exports from the previous year, which ended up being carried out in the first quarter. So that had an impact of a 100,000 barrels a day. Next slide please. The next topic is the approval of the new commercial strategy. This was widely communicated, and I'd like to take this opportunity to underscore that this was a very positive change for Petrobras. We started having more room to work in our commercial strategy, and of course, this is aligned with the best production conditions, our refinement assets, the use of our logistical assets to have much more competitive prices and to be able to compete in markets that add value to the company. So overall, this measure optimizes our refinement and logistics assets. Another essential value that was reported in this strategy was the mitigation of volatility peaks, which gives our clients a more stable price environment. This allows us to work in balance with the international market in a way that is sustainable and profitable. This is my last slide in the presentation. It was widely discussed and presented by Tolmasquim, our Director. And I'd just like to underscore our hybrid vessel. Not only does it reduce emissions, but it also reduces costs. And this is a part of our offense a lot program, which is focusing on better reliability and safety, but also in logistics costs. So this was an important effort that was carried out. We are advancing significantly in reducing emissions. And I can also mention the new test that we are performing using 24% biodiesel produced from plant sources. And there's also a pioneer process of green recycling of one line, which is following international ESG best practices. So that's all we had to say. Thank you for your attention and we'll give the floor back to Carlos.

Thank you, Schlosser. And we're now going to begin the questions and answer session. The first question we got was from Vicente Falanga from Bradesco BBI. And he asks, Sergio. Sergio, how do you see the company's minimum optimal cash $28 billion? Can you work with less than that?

Hello, Vicente, I hope you are doing well. Well, we are still creating a strategic plan for 2024 to 2028. As you know, these answers will be addressed in the projections that will happen in this plan. But I'd like to remind you that our – the minimal cash is $5 million in our PO. So our reference is $8 billion. So this is well in line. That's our idea. We want to keep it like that. Thank you.

Thank you, Sergio. The next question was also asked by Vicente. It's a question for Schlosser. Schlosser, Petrobras is selling gasoline below marginal levels. For how long does the pricing committee believe that this kind of discount will be sustainable for? Schlosser, you have to turn on your microphone.

Thank you, Carlos. Vicente, thank you for your question. As we presented before, the essential value of our commercial strategies is based on three points to be competitive, having competitive prices for our clients and generating assets through marginal value. And another very important value is international volatility. So we’re providing to our clients price stability. What we’re seeing right now is a lot of uncertainty about the global economy. And this affects the demand for energy, how much is expected and the supply of oil and fuel due to these geopolitical issues, the Ukraine war. So this short-term combination of factors led to high volatility in the market. The reference levels adopted by the international market fluctuated wildly. And another important point is an inflow of Russian products to Brazil. Our monitoring shows that in July, Russian diesel was over 80% of our production in Brazil. So we’re monitoring the market every day and whenever it’s necessary, we’ll have readjustments in our commercial strategy. Obviously, we can’t advance these decisions yet, so thank you for your question, Carlos.

Next question from Gabriel Barra from Citibank for Joelson. Joelson, could you elaborate on the information regarding the government discussions and with the environmental authority regarding the – first Amazonas the margin equatorial development? How much will you invest in exploration and development? Could Suriname and Guyana be an alternative for long-term investments?

Thank you, Gabriel, for your question. Well, the portfolio management – margin has five basins that go from Rio Grande do Norte until the Amazon basin in Amapá. So we initiated our environmental licensing projects in two basins for Amazon and Portuguese in a sequence of wells, one in Amazon and another wells in the Portuguese basin. And we already supplied all the information requested by IBAMA for these two areas, these two licensing processes already from Petrobras’ point of view. And we have let the government view the – the government is informed by all of our actions and we have exchanged information with IBAMA that is environmental agency trying to ask questions. In July, we ended this communication. So now this is being analyzed by IBAMA. We have no pending issues and we depend – we don’t have to give any more information. Regarding investments, well, we expect in our planning and 16 wells in the five basins in five years, this is an exploratory investment of US$3 billion in these areas. All the areas here in Latin America and also Western Africa are of our interest because they’re similar to our activities. We have planned exploratory activities for Columbia next year in Suriname, Uruguay, and Africa. Our exploratory team is in communication and is paying attention to auctions and is talking to partners. These are areas where we will possibly invest, but this is still under negotiation and we have to wait for the end of these negotiations. We are reassured that this year we will be able to initiate one of the most advanced basins in terms of the licensing process and this would be a first well.

So thank you very much, Joel. So we have an additional question from Gabriel Barra about Braskem. According to there is a discussion regarding the sale of Braskem and some are interested in buying the control of a company. Could you give us the view of the management regarding the prospects for the oil sector and investment? Should this be a long-term focus for Petrobras, the petrochemical sector? As he’s facing technical problems, we will go to the next question and Sergio will answer the question about Braskem.

Can you hear me? So thank you for the question. Braskem is appearing in the media. The operators are questioning these proposals together with a partner. In our strategic plan, they mentioned the management of the company – I’m sorry, we’re having sound problems. I would like to apologize. We’re receiving very choppy sound. This is a business that makes sense for our company in the mid and long run.

Thank you, Sergio. The next question from Bruno Montanari, Morgan Stanley and it’s for Schlosser. Regarding the company’s commercial policy, there are questions regarding market international reference with dispersion and parity accounts that go from 10% to 30% currently. Now, naturally each player has a cost structure which hinders the comparison. Now from the Petrobras system point of view, could you mention in average where the price of the company is when we compare to the marginal bands and the cost of the client?

Bruno, thank you for your question. Here we have the opportunity to reflect on each one of the agents that perform in the Brazilian market. For instance, you are talking about a parity, the dispersion of the educators just demonstrates how the supply alternatives are different or can be different depending on the scale, infrastructure, logistic costs. And this is all reflected on the efficiency of this agent. And when they import certain byproduct in terms of Petrobras, we also have our own costs and production opportunities and also the import and export fronts of oil or fuel. Our efficiency is significant because we’ve implemented this type of logistic. So when we implement this commercial strategy, we already incorporate within it all of these elements. These are the elements, these are differential, competitive elements of Petrobras. So we have the best production conditions and logistic conditions. And this is one of the elements of our commercial strategy as a competitive price mitigating market volatility as we see currently as we mentioned. Now regarding the current positioning of the price, regarding reference marginal value, we cannot disclose this because we would expose data that is very sensitive for the company from a competition point of view. So this is it.

So thank you very much Schlosser. The next question is for you from Bruno Montanari regarding the commercial policy. Assuming that the independent importer is competitive in terms of price, how can the company believe that the market will balance from here and due to the structural need to import diesel and gasoline? Can Petrobras import with a competitive margins? What about Russian diesel with the company consider importing Russian diesel for the market?

Well, now regarding the market balance, it is very important to remember that the greatest diesel importers and gas for Brazil are the distributing companies. They make up their mix with different suppliers nationally, international and this from different origins. This could be Russia. When we analyze the month of July, we can see that over 80% of the imported diesel by third parties to Brazil came from Russia. This is a product that presents certain restrictions from sanctions, but it has flowed in the international market. Now from our side, we are meeting the commitments with our customers. We are optimizing our refining complex, broadening the use of our cluster and our logistic assets and complementing our national offering with very specific imports. Petrobras tries to operate – to optimize its operations of foreign trade to use its logistic capacity and analyzing the synergies of its assets with this what happens at the end of the line. With promising results is that we practice competitive margins regarding the margins offered by other players that are not integrated. So regarding opportunities import of Russian diesel, we are constantly assessing the risks and returns. As I said, there are particularities regarding the sanction and this is why we observe closely the sanction loss regarding Petrobras Global activities. So thank you, Schlosser.

The next question from Bruno Amorim from Goldman Sachs. And this is geared to Sergio regarding the dividend policy. The new policy was very clear, but this means that all no free cash flow will be for dividend payout and by batch, can you pay an extraordinary dividends at the beginning of next year due to intend to draw the net debt of the company.

Thank you for your question. Our dividend payout policy remains consistent with our past practices. Unfortunately, there are issues with the sound, can you hear me? The audio is a bit choppy. The sound quality from my laptop is not great. As I mentioned, our current policies allow for the payout of extraordinary dividends, and we do plan to distribute these dividends. The decision will depend on a technical analysis of the company in the short, medium, and long term, along with certain adjustments that we will focus on at the end of the year once we have a comprehensive view of the company's results for the entire year. Regarding our net debt, the financials show that our debt is impacted by the charter but remains at a comfortable level in relation to our strategic plan expectations. We will continue to monitor this and may make adjustments during our next strategic plan. Thank you for your question, and thank you, Sergio.

The next question from Lilyanna Yang from HSBC. And she said, in this management, will Petrobras take their investments to a new level? Can you talk about the strategic view regarding energy transition? Could you elaborate on the rationale in expanding investments in biofuel and negotiations with Unigel? And when can we expect an announcement about complete strategic plan for 2024 between 2028? Now Tolmasquim and William have the floor in order to answer the question.

I will begin by discussing the energy transition and biofuels before passing it back to William, who will cover fertilizers and Unigel. Thank you for the question. There are three main reasons why Petrobras is entering the biofuel sector. First, Brazil has a significant amount of available land and water, making it unique among countries. Second, while many transportation methods are becoming electrified, the country's logistics still rely heavily on liquid fuels, which allows us to utilize biofuels effectively. Third, Petrobras can adapt its existing refining units to produce biofuels, giving us a competitive edge over other companies. We can incorporate vegetable oil into our diesel production, and we have a dedicated unit for air transportation that exclusively uses vegetable oil. As global demand for sustainable aviation fuel (SAF) is set to increase by 2027, Petrobras is well-positioned to meet this need. In maritime transport, we're testing vessels that can use a combination of biodiesel, and we also produce bunker fuel. Additionally, there’s potential in the petrochemical industry for producing plastics using bio oils. We plan to conduct tests at the Rio Grande refinery with bio oil and vegetable oil. Strategically, Brazil is the ideal place to invest in biofuels, and Petrobras is the right company to do so given our refining capabilities. Now, I will pass it back to William to discuss refining and answer questions about fertilizers and Unigel.

Thank you very much, Lilyanna, for your question. It's interesting that the vertical integration is crucial as we see how various sectors complement each other, specifically refining, petrochemical production, and fertilizers. We are currently examining our return to fertilizer production and have formed a dedicated team to initiate this effort. One significant advantage is that the process does not require natural gas, as it can utilize asphalt residue from our Paraná refinery. This refinery enhances our operations, and we are evaluating the economic viability to begin UFN-III, which is primarily a gas facility. We are also looking at completing UFN-III Três Lagoas, which will have the capacity to produce 3,200 tons of urea and ammonia daily. Additionally, we will have the production of lubricants using gas from Reduc, with a plant expected to be operational by mid-year, contributing to CO2 plus production, which is a valuable raw material for ethane and polypropylene. While we have a non-compete clause with Braskem, their role is crucial, given their size and integration with our processes. The integration with refining industries is vital, as they provide sufficient natural gas, particularly with our refineries located near significant industrial clusters. Gas Lube will generate 2 million cubic meters of gas, which can also be utilized in fertilizer production and support a Biofine plant that uses entirely green raw materials to produce biodiesel and sustainable aviation fuel. In November, we will conduct a test at the Riograndense refinery in partnership with Ultrapar and Braskem to produce green naphtha and propane from 2,000 tons of soybeans in our catalytic cracking unit. This initiative focuses on using renewable sources for petrochemical applications and aims to be the first fully green refinery in the country, backed by an international patent. Therefore, we are enhancing our capabilities in petrochemical, biorefining, lubricants, fertilizers, and refining. Thank you for the question.

Thank you, Tolmasquim. Thank you, William. And the next question will be asked by Rodrigo Almeida from Santander Bank for Schlosser and William again. After nearly three months of the new pricing policy being announced, what advances have you made in gaining competitiveness for the company considering the competition with Russian diesel? How are internal production costs and commercial costs changed with the increase in production? Is there any significant cost dilution? How has the company dealt with a higher production of products that have a limited demand in the domestic market?

Rodrigo, our entire commercial work as its starting point, a planning process that is quite complex. It involves over a 100,000 variables, 40,000 restrictions. So it’s a very complex process, but what I can tell you is that I joined the company 36 years ago and our process was exactly that, it was based on that foundation. And not only Petrobras, companies around the world are adopting this planning mechanism and it takes into consideration, for example, the production of each kind of oil per refinery per unit. And it also uses all of the logistics restrictions which are also placed there. And why do we depend on the model? What information do we get from it? As a final result, we optimize our refinement and logistics assets. So what we’re seeking are economic assessments for each of our operations and for each production alternative that we have, both taking oil to some refinery or exporting it. Similarly, following this planning model, we have different production fronts from all sorts of oil products. It analyzes changes in quality. So its entire goal is to find a more efficient process. So the utilization of our refineries and increasing production was supported by these economic assessments and they had a very positive result for the company. Considering costs as you mentioned, I would draw your attention to this. Most of the costs or the cost of the product sold is mostly including the entire business, a result of the raw material oil. If we add in the energy it takes for it to be produced, then it’s basically over 90%. So the dilution effect is basically in existence. So we don’t really take it into consideration in our planning and optimization plans. So in the operational plan, we don’t take this into account. A lot of it is connected to the bread I don’t know if William has any comments about this, but I’ll pass it over to him.

Thank you, Claudio. Yes, that was a good question, Rodrigo. Thank you. To add to what Claudio said, our refinery cost has a synergy across all of our refineries. Some of them have a higher cost due to their complexity location, and others have a lower cost. But since there is a synergy across all kinds of refinement, our cost is about $2 or $2.5 per barrel, which is quite reasonable considering our refinement. And even considering the last program to down style – downtime which increased our cost, we were able to keep that stability around $2 to $2.5 per barrel. And I’d also like to highlight this. We’re getting very good utilization factors around the level of 93% to 95%. In May, we had 95%. In June, we were able to stay at 93%. Obviously, this depends on planning as was said. So planning is what is going to define what load is received in each refinery, the different products of course. And obviously, we have availability, which is a significant factor. Looking at our systems, they have a certain maximum load, but we also have maximum loads that are adjusted and authorized by agencies. So it defines the maximum loads that we have with environmental agencies. So this is due to planning and we hope to work at 95 or even a bit higher, but of course it will depend on the pan demand of our logistics provider. Thank you.

Thank you, William. The second question from Rodrigo is from Sergio, and he asks about capital allocation. So Sergio, I’d like to understand if the additional project for energy transition being studied are influencing your minimum cash and your reference cash indications that you passed to us before. In theory, the company will conclude 2023 with cash levels above the indications that we have for the minimum and for the reference. And it would be interesting to learn a bit more about what will be done with this excess cash in the short term.

Hi, Rodrigo. Thank you for that question. As I said before, we are at a very comfortable position in cash. We don’t have on the horizon any sort of radical changes to manage excess cash. And excess cash can be used to pay additional dividends. It can become additional dividends. If the administrators understand that that’s the best use for our capital. So thank you very much again.

Thank you, Sergio. Still on this topic. We got a question from Pedro Soares from BTG Pactual addressed to you. He would like to know a bit more about extraordinary dividend payouts. We know that this possibility is established in our payout policy, but we would like to hear from you if it would make sense to have a new statutory reserve to use resources to expand the company or if that doesn't make any sense? And if there's an extraordinary payout, will it only be defined when we receive results from the fourth quarter?

Hi, Pedro. Thank you for your question. So some of it has been addressed in the previous answer, but yes, the extra results may be used for payouts extraordinary or additional payouts. But if a reserve is created considering what you said, since it doesn't exist yet, it would need to be approved by an extraordinary shareholders meeting and we would need to have a justification for it but it is feasible. Connected to – but it needs to be connected to shareholders and their interests need to be represented.

Thank you, Sergio. The next question is from Monique Greco from Itaú BBA. And it will be addressed to Spinelli. So Spinelli, can you tell us a bit about the first impressions you've had since you took on this position? And if you can tell us what has been your focus in your office?

I'm Mário, thank you. Good morning and thank you for your question. I knew this office because I was an ombudsman for the company for nearly six years. So we have a governance system at Petrobras, which has already been robust but can be strengthened. Our compliance participates in decision making processes. So whatever decisions are received by the Board are examined by our governance department. And when it comes to compliance, we also have a very robust system and this is paying attention to new challenges. So in our compliance department, we have been looking at all acquisitions of sexual harassment in the company, which is very important even for our reputation. So we're going to try to make compliance come closer to the business working with our managers. And similarly, it's important to highlight that when we need to work with a more repressive initiative we just had the 10-year anniversary of the Anti-Corruption Act in Brazil. But you have to know that Petrobras is the company that most uses more – most enforces this Act that most punishes for corruption. Of course, we don't want it to happen when it does – when it does happen we need to punish it. So over $90 million have been applied in fines to companies, there has been a volume of sanction applied to all levels of the government and Petrobras represent 21% of them. So I had the opportunity of working with this Bill, and I'm very happy to see how Petrobras is using it. And the most important part is that 61% of these sanctions or the initiative is being enforced by us, by our Directors. So identifying regularity was done by the manager itself, which shows that our compliance culture is being spread across the company. So these are some of our results and future challenges. Thank you.

Thank you, Spinelli. The next question from Monique will be asked to William. William, even with the maintenance carried out in the last quarters, the company has maintained high utilization levels for its refineries. Is there still some space to increase these utilization rates? And what would be the desired level for a refinery or for the entire refinery structure?

Well, I've answered a similar question to that, but I'll add in some information. We've been able to get very high utilization factors increasing availability.

Sorry, your microphone was closed, William.

We have increased availability in our refineries due to our commercial and logistical plan, but it's crucial to keep in mind that we must respect all factors including safety, environment, and integrity, which also encompasses diversity. We've previously discussed the importance of diversity and we need to maintain those standards. I'm pleased to report that our refinery infrastructure's recordable incident rates stand at 0.37, which aligns with the global benchmark. However, we cannot become complacent. We understand that safety maintenance is an ongoing process that requires constant attention. It is essential to adhere to all procedures, ensuring that our operations are conducted safely, consider environmental impacts, prioritize people's health, and uphold integrity. Operational results are significant, but they must be achieved sustainably. Thank you for your question.

Thank you, William. We're going to repeat Gabriel Barra's question about Braskem to Sergio since he had a technical issue. Sergio, there's a discussion on selling Braskem and some people are interested in buying it. So can you give us the management's take on these investments in the petrochemical industry? Should this be one of the company's long-term focuses?

Gabriel, thank you. We didn't get enough sound during the first part of my answer, but around May, we launched a review of the company's strategic directives and this guides a new plan, which is ongoing. It takes one-year to generate these strategic plans, so it's at the end of its conclusion. So with diversification for petrochemicals and fertilizers, this will allow us to look at petrochemicals differently. So it's also important to see that major integrated companies have a strong position in petrochemicals. Petrobras has a strong stake at Braskem because we understood that petrochemicals were important to develop our business as a whole. So this integrion provides value and there's a matter of long-term security here, since the long-term scenario is lower, margins for example, for gasoline. So we will require oil to be used in more noble purposes. So if you consider these three things that Braskem has a strategic compliance, allowing it to or determining it to diversify in the petrochemical industry. If you look at the medium- and long-term perspective and the importance for the resilience of our business, yes, we can consider that petrochemicals are very attractive and aligned to our long-term strategy. Thank you for your question.

The next question is from Luiz Carvalho from UBS to Schlosser. He's asking for the national spread of gasoline on Brent was at negative levels. Other local products could export diesel at these levels, but from our understanding both points represent that the company is below the marginal price levels. So how do you understand this? Does this assumption make sense? Can Petrobras be below its pricing interval exporting for a marginal value? Does that make sense for the company?

Thank you, Luiz for your question. This topic involves marginal values for Petrobras. So as a highlight – I’d like to highlight that this is the result of a complex operational plan, as we said before, involving different areas and the alternatives that we have to run our business. What I would add about to what has already been said is that basically refining is a joint process. So when you’re refining a bear of oil, you’re not producing a single product. You have a basket of gas products, and the relationship between them influences the marginal value of one to the other. So to summarize it for these reasons, the marginal values are not limited to exportation. It involves production, importing the products. So it cannot be only compared to exportation. And the other value that we have to highlight here is the mitigation due to volatility peaks in the market. We have a very volatile market. If we looked at the previous strategy, Petrobras would make these adjustments immediately for this volatility, and would provide stability for their clients. So we were able to overcome this moment and we’re still monitoring the domestic and international markets. And when we have to adjust the prices up or down, we will according to technical parameters in our commercial strategy. Carlos?

Thank you, Schlosser. The next question from Luiz Carvalho is for Sergio, and it asks about the strategical plan. Sergio, the strategical plan included diversification. Now, as the plan is being developed, what have been your focus in your internal discussions? Will you make more organic investments, or is there a procedural for mergers and acquisitions? How much diversification is the company considering 6% or 15% of the CapEx direction for low carbon? Would that also include these activities, petrochemicals, renewable developments, or should we see new investments in M&As?

This range between 6% and 15% is specific for energy transition in the world. There is a business of low carbon actions and initiatives of low carbon. Today, 6% that we see in the CapEx, the use of 6% of Petrobras CapEx is US$4.4 billion. And it is used, and it is part of our way of operating internally, decarbonizing our operations. And this has been successful. We are amongst the greatest investors in decarbonizing the operations of oil and gas. Now it’s obvious that Petrobras has to recover a space that was left behind. We did go toward Scope 3 of decarbonization, and there is this range. We establish this rate between 6% and 15%, specifically for energetic transition, decarbonization of our operations and new investments. Any M&A that emerges in the area will fit within the range between 6% and 15%. It has to be within the range of CapEx allocation. Now for these new investments, Petrobras has decided the upper management has decided to embark in partnerships with big companies like Petrobras. Because we do understand that partnerships faster the accelerated – transference of a know-how, and they mitigate are – that is inherent, inherent. When you embark in a new business area, the company may consider an M&A or a certain acquisition as long as it is between 6% and 15%. But these M&As must meet a number of criteria strategic compliance, whatever is the M&A. It has to be in accordance with our strategic planning. It has to be in compliance. We are not going to invest in transition for the sake of investing. The economic part is important. We need a return, we need a consistent cost structure. So dimension and strategic compliance would be the main criteria that we take into account when we think about mergers and acquisitions.

Sergio, the next question from Régis Cardoso from Credit Suisse for Schlosser, it’s about fuel prices. Can we guarantee a country’s supply when there is high volatility and international prices? Could Petrobras be forced to increase import levels taking to, although it can take it can result in economic losses. What is the share of Russian fuel in Brazil?

Well, the Brazilian market is properly supplied, and there are a number of agents that work in this market. So in addition to Petrobras, there are other national companies. We have distributing companies, we have diesel and gas importers, independent importers, and even distributors are the main importers. And in addition, there is an alternative of biofuels. Now, when we talk about Russian diesel, there has been an evolution since the beginning of the year reaching values above 80% in July. And this environment results in great competitiveness. Petrobras six is a market share that allows us to use our assets, our logistics structure, and our refining as is creating value in a sustainable fashion and also part of our commercial strategy.

So thank you Schlosser. We have the last question that is for you for Rodolfo Angele, JPMorgan. In May Petrobras published a new policy prize seeing opportunity cost for clients and opportunities for Petrobras. How can the Russian diesel dynamic and the refining capacity will impact the second semester? Could you talk about the range of gasoline prices currently?

So thank you, Rodolfo. I would just like to highlight the commercial strategy and its evolution. In the past there was a reference that was the price of import parity. Ours has been implemented, it is underway. We have two market references. One is the alternative cost of the client, and the other one is the marginal cost. The Russian diesel is an additional alternative for supply, and we already mentioned this now simultaneously, the essential part of our commercial strategy is volatility of prices. Nonetheless, we continuously are seeking the optimization of a refining assets and seeking other opportunities like import and the export of oil and byproducts to create more value for the company. Now, regarding margins and positioning because of the competition, we cannot disclose our position vis-à-vis the internal references, but we want to clarify that each agent has its own characteristics for production, for import. Here we have, we have a logistics system for supply and even with other alternatives. And this results in commercial strategies that are totally different from these agents with diversity, that results in a new dynamic for the market. So now I give it back to you.

So thank you very much Schlosser. So now we bring our Q&A session to an end. Should you have additional questions, they can be sent to our IR team. And the presentation of the event is available on our site. And in brief, we will make available the audio. Thank you very much and have a very good day.