$12.45—Stale · unknown old
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$12.45—Stale · unknown old
Jose Costa: Good afternoon, ladies and gentlemen. Welcome to Prio's Conference Call. I am Jose Gustavo, New Business and IR Manager. For those who want to follow us in English, we have simultaneous interpreting through the Globe icon on the bottom of the Zoom screen. The translated presentation is available on our Investor Relations website. The comments on the results will be presented by the management. After presentation, the officers will be available during the Q&A session. [Operator Instructions] This event is being recorded and will be available on our IR website. This presentation contains information based on future estimates and forecasts based on assumptions adopted by the company, which can change and should not be considered facts or be used as the basis for financial projections beyond the plans expressed by the company. Now I'll turn the floor to Roberto Monteiro, our CEO.
Roberto Monteiro: Good day, everyone. Welcome to our earnings call for the second quarter of 2026. I will start by going over the highlights of the period. Then I'll hand it over to Jean to discuss the operational side. Milton will cover the financials, and I'll come back at the end to talk about sustainability, the environment and our next steps. Well, to give you a very quick summary of the quarter, I think it was an excellent quarter for the company. Of course, there are 2 aspects explaining this excellent quarter. There's the price factor, right? We had a quarter with oil prices higher than usual, higher than what we had seen in previous quarters. And that was due to a sad reason, of course, the war and so on, but that's one aspect. And I'll leave it at that. We had higher prices indeed. But there was also a second aspect, which I think was the most important and where we are going to focus during this call, which is the operational side and the volume aspect. We had 2 major achievements, 2 great wins this quarter, which were Peregrino field and Wahoo field. We finally reached 40,000 barrels produced daily at Wahoo field, which is very stable with FPSO Forte operating at very high efficiency. It's true that there was an issue with one gas lift line, which had to be replaced and so on, but that had nothing to do with Wahoo. The Wahoo project itself is performing very well with the reservoir meeting our expectations and producing 40,000 barrels daily. We expect this figure to continue for a few more months to come. So this was a major achievement for the quarter. Another very important achievement this quarter was the Peregrino project where we -- well, first, we continued that cost reduction trajectory and achieved very high efficiency in that asset. And we brought well A15 online in the Isolado reservoir. This was a reservoir that had not yet been put into production by the previous operator, Equinor. But we drilled well A15, and it was a huge success. We are now drilling well A13, which is also going very well. We've already passed through the reservoir zone. We are now in the final stages of completion. And that well should come online by the end of the month. So with that, regarding Peregrino production, we practically guaranteed those 100,000 barrels daily through the end of the year with A15 with A13 and with a third well C24, which we will also bring online to increase production later on. So I think these were major pillars explaining our numbers that we will be showing going forward. How does this translate into production? We set a production record for the quarter of 172,000 barrels per day, a sales record of 15 million barrels over the quarter. And that obviously generated record revenue and record EBITDA for the company as well. We kept -- we maintained the lifting cost well under control at $8.90 per barrel. And our -- well, our leverage decreased substantially to 1.5x net debt over EBITDA ratio. Our cash position remained at over $700 million even after repurchasing 9 million shares -- 9.3 million shares to be more precise. So the company did very well. Part of it was the price aspect, yes. And the other part was the production factor, which did very well. Although we had to make some adjustments due to a vessel that failed and had to be replaced and all, we managed to deliver everything we needed to deliver in the quarter and reached a record production level. I'll move on to the next slide. And now I will elaborate on these numbers I'm pointing out with a little more precision and detail. First, to detail this with a little more precision, our lifting cost. We've lowered the lifting cost to $8.9. I expect this lifting cost to be around $7, starting at $7, so between $7 and $8 for the third quarter. This is due to a further increase in production and from the gas line. We'll talk a bit more about that in the next steps. But regarding the gas line, we are already in the final stages of recommissioning at Peregrino. So Peregrino field, which burns diesel, will stop burning diesel to generate electricity to power the field and we'll start burning gas instead. This is not only much better from an environmental standpoint, but it is also much more cost efficient. So combining this increased production with this significant cost reduction from no longer burning diesel to produce electricity, we should be looking at around -- let's say, starting at $7 and ending up with a lifting cost somewhere between $7 and $8 per barrel. As for our production, we had a second quarter figure of 172,000 barrels. As you saw, July was already a much stronger month. We've already reached more than 196,000 barrels per day. So we're already very close to 200,000, and that's before the 20% stake of Peregrino is included. Let's keep in mind that the 20% stake of Peregrino represents an additional 20,000 barrels that will be added to the company's output. We expect to finalize this between the third and fourth quarters of the year. So putting these 2 factors together, in other words, if we consider production combined with this cost reduction, this should lead us to a lower lifting cost. Our cash position, which currently stands at $713 million should also continue to rise. We'll continue our share buyback program. I will touch on our dividend policy a bit at the end. But you see nothing changes regarding our guidance to continue buying back shares. We currently own just over 9% of the company. We should reach 10% soon. We'll cancel the shares again. Then it will be up to the Board of Directors to decide whether we'll cancel 5, cancel 3 or how many to cancel to make room to continue the buyback. And our debt level will also continue to fall. Our guidance remains to reach a net debt-to-EBITDA ratio of 1x by the end of next year. That's based on an oil price at $60. With higher oil prices, that debt level should fall. So for example, with oil at $80 a barrel, we would end up with a net debt over EBITDA ratio of 0.8. So all of these guidances remain absolutely unchanged, share buybacks, cash generation and so on. As for production, we've had some good news. We are slightly ahead of schedule. Will likely end this year above 200,000 barrels daily. Our goal was always to reach 200,000 and maintain that level. This year, we most likely end up with a little over 200,000. But I'll stop here. I've even touched on some future insights, but I'll hand it over to Jean to present field by field, and Milton will discuss the financials, and I'll be back. Thank you, Jean your turn.
Jean Calvi: Thank you, Roberto. I'm going to present in a little more detail the performance of field assets and fields. Well, here is a quick summary of this slide, and I'll go into more detail on each field later, highlighting the lifting cost of $8.9. As Roberto mentioned, sales volume of 15 million, average production of 172,000 barrels daily and the company's overall efficiency for the period, which was 94%. On Slide 6, we have cluster Valente, Frade and Wahoo Field. Average production for the quarter was 61,100 barrels per day. And this quarter, we completed the 4 production wells at Wahoo. So we are starting to produce those 40,000 barrels from Wahoo field. Please keep in mind that in Q1, we connected the first and second Wahoo wells at the end of March in April 3 and on June 13, the fourth well. Initially, the plan was to connect the fourth well in late April or early May, but we had a problem with vessel NO102, which ended up delaying the start of production from the fourth well at Wahoo. This connection was made using our own vessel, the Genesis. So as soon as we encountered the problem with the NO vessel, our team mobilized the Genesis and the equipment, and we were able to connect the Wahoo well using internal resources. This is a practical demonstration of the importance of verticalizing some vessels for Prio's business model. In addition, we experienced the failure of a gas lift line at Frade Field, which caused us to reduce production by 7,000 barrels. 3 production wells stopped due to this gas line shutdown, which occurred in early May. And we completed the replacement of that line in July also using Genesis as the vessel. In addition, we drilled 2 RDA, or Reservoir Data Acquisition wells at Frade. The purpose of these wells is to explore new areas for production. So after drilling, we obtained quite positive results, and therefore, 2 new production wells will be drilled. We are already wrapping up the drilling of the first production well. It should be finished in the coming weeks. And then we will move on to the subsea connection for these wells. After that, we'll drill the second production well in the second half of this year. Slide 7 on cluster Bravo, Polvo and TBMT fields. The field produced an average of 14,300 barrels daily. Production was primarily impacted by the shutdown of well OGX-44, which stopped producing at the end of March and resumed production in mid-May. This well uses a submersible centrifugal pump system, and ESP pump, which requires a workover with a rig to replace it. So the Hunter Queen, which was drilling at Frade, as I mentioned on the previous slide, stopped drilling that well and was relocated to perform the workover on well OGX-44. The team mobilized all of the equipment, and we were able to complete this workover very quickly resuming production in May and restoring the cluster's efficiency. However, having this well offline for a while did have an impact on our efficiency. And that was actually the major impact on cluster Bravo this quarter. On Slide 8, we'll discuss Albacora Leste field or ABL. The field produced an average of 22,100 barrels per day. The main impact this quarter was production halt at ABL-68, which was caused by hydrate formation in the well. As a result, we had to shut down the well. The shutdown occurred back in April. We were only able to resume production or bring the well back online in July, and this led to a significant loss in production and efficiency for the quarter. We had a brief partial shutdown to repair the cooling system of one of the vessels during the month of June. Consequently, we ended the quarter with an efficiency of 85.9%, down from 95.4% in the previous quarter. In July, our efficiency was already back at the 95% level. So we are back on track with ABL. On Slide 9, I'll speak a little about Peregrino field. Peregrino recorded an average daily production of 74,500 barrels in Q2. That was slightly lower than Q1, mainly on account of the shutdown of well C26 caused by a failure of the ESP. As soon as the pump failed, the rig was mobilized for the workover, which was completed in April. In addition, we finished drilling well A15 in the Isolado reservoir, which is a new area at Peregrino field. We began production there in May, which brought us back to a production level above 100,000 barrels, and we've been maintaining that production level ever since. From late May until now, we've been keeping it above 100,000 barrels. We also continued our drilling campaign on both the C and Alpha platforms, drilling another well in the Isolado reservoir, A13 on the Alpha platform and C-14 on the Charlie platform. So we will be finishing both wells now in August, and they are expected to come online in the coming months, thereby helping to maintain the field's production level above 100,000 barrels in the second half of the year. In addition, we have completed the repair on the gas pipeline and have already begun importing gas. We are currently commissioning the entire system. And in the coming days, we should begin to reduce diesel consumption at the field, resulting in a significant reduction in our lifting costs at Peregrino field. Well, I'll wrap up my remarks here. Thank you all, and I'll now turn the floor over to Milton.
Milton Rangel: Thank you, Jean, and good afternoon to everyone that is joining us. So now let's discuss Prio's Financial Performance for the Second Quarter on Slide #10. This quarter, we sold 15.2 million barrels. It was the highest quarterly sales volume ever. It was a very significant result driven by the increase in production we've been delivering in recent times. The reference Brent price for this is $94.6 with an equivalent FOB selling price of $87.70 approximately. It's an average discount of around USD 6.90 per barrel, which we can see as a weighted average for the second quarter. Another relatively new line item this quarter relates to domestic sales and export taxes. This quarter is mostly export taxes. Of the $113.9 million, $111 million relates to export taxes that have taken effect and had a very significant impact on our second quarter. Beyond that, our cost of goods sold is in line with our lifting costs, which we reported at $8.9 per barrel. Royalties and special participation also saw a significant increase. When we compare the reference price used to calculate royalties and special participation, we saw a big jump. In the first quarter of the year, the average reference price was $60 per barrel. And in the second quarter, it was $89 per barrel. That's why we are seeing here a significant increase in this line item. EBITDA stands at $847 million. But then when we look at it and exclude all nonrecurring items, we arrive at an EBITDA of $878 million. And or the combined first and second quarters of 2026, meaning the first half of '26, we've surpassed $1.730 billion. Keep in mind that this first half EBITDA of $1.730 billion is already higher than our entire EBITDA for last year. Of course, this is against the backdrop of lower oil prices. In 2026, now after the war, the price naturally has a major impact on revenue and EBITDA and also due to increase in production. Since last year, for the full year, we've already had 80% from Peregrino. We've seen the contributions from Wahoo and the other projects the company has been executing, which are boosting our production. Now Slide #11, we will quickly discuss funding. So this -- in the central chart, we see the amortization schedule. We had a payment of nearly $170 million of our inaugural bond that was the remaining balance, which wasn't included in the tender when we issued our new bond last October. And we wrote over more than $350 million in bilateral debt that was due to mature in 2027. We deferred that rolling it over to 2028 and '29. So I would say that the goal of these rollovers is to improve Prio's credit spread. We've been able to do that. Well, it's just natural that we are in an environment where costs are rising. But even so regarding our spread, Prio's cost, we've been able to achieve reductions, thanks to the company's improved credit worthiness, increased production profitability and so on. And we will continue to carry out these rollovers as we can secure competitive costs and at the same time, improve the company's debt profile. I mean, alternatively, if the market isn't open to new funding or whether it's through a bond or a debenture, I mean, if the terms aren't attractive, we are also fully confident in our ability to honor all maturities on their due dates. We also see a slight reduction in duration, and this is basically due to the normal maturity of our debt. And the average cost of debt, while up slightly to 6.40% still remains at a very competitive level. Just keep in mind that we've paid off and it's now off our balance sheet. It was one of our cheapest debt, the inaugural bond. But still, we are in a very comfortable position to service our debt in the near future. Slide #12 shows the variation in net debt, which is a proxy of our cash flow in the quarter. We started in the first quarter with net debt of $4.372 billion and ended the quarter just over $4 billion. This is a very positive impact from our EBITDA of $879 million. And I mean, it's a small working capital effect driven mainly by a reduction in accounts payable. CapEx totaled $285 million, and this relates to the conclusion of the producing wells at Wahoo as well as some drilling and repairs on the Peregrino gas pipeline. This is a very important project for future cost reductions due to the decline in diesel demand. And the start-up of development at Arapuca in Albacora Leste as well as drilling wells at Frade. So in preparation for all this. We spent $114 million on share buybacks, financial results of $91 million. This is basically interest along with some maturities from hedges and derivatives we entered into for price protection plus taxes of approximately $21 million. Regarding leverage on Slide #13, due to the company's very strong cash generation and EBITDA, we've been undergoing significant deleveraging, we reached 1.5x. As a reminder, we ended 2025 at 2.3x following the completion of the acquisition of the additional 40% stake in Peregrino from Equinor, which pushed our leverage up slightly. In the first quarter, with cash flow already in place, leverage stood at 2x, and now it's at 1.5x. And we expect this downward trend to continue over the coming quarters due to cash generation, synergies, cost reductions and so on. Well, with that, I will turn the floor over to Roberto, who will discuss the environment and social issues and our next steps. Thank you.
Roberto Monteiro: Thanks, Milton. Well, I'm going to go over the environment, society and people. This quarter, the point I'm most passionate about is this first point. regarding wealth and well-being. And to that end, I would like to say that we modernized the living quarters of our FPSO Forte, which is stationed in Albacora Leste field. When we took over this FPSO when we purchased it, it came with some areas that needed improvement in terms of integrity and so on. And the issue of upgrading the living quarters was always expanding. So we finally started upgrading that superstructure, the living quarters. I mean, that's not just the living quarters, but all the offices, the common areas and so on because we can't have an office as beautiful as the one we have here in Botafogo, whereas we still have very precarious offshore facilities. It's just another way to give back to and look after our people. And this is a project that we like a lot. Nelson himself was also very actively involved in the project, and it's already starting to bear fruit. It's improved a lot, and we are receiving plenty of compliments. We wrap up the safety and well-being section with this point. In addition to the safety day we held, the motto saying stay vigilant forever and so on. And this is the point I would like to highlight with particular enthusiasm this quarter regarding safety, health and well-being. Another interesting area where we continue to make progress is our carbon footprint. For yet another quarter, we posted another successive reduction. We are at 21 kilograms of CO2 per barrel equivalent, that's 16% below the first quarter and 44% below the fourth quarter last year. The main point here is Peregrino, the reduction of emissions at Peregrino and the increasing volume at Wahoo. We are producing more from the same facility. So that's a major positive. And now in the third quarter, we will have another major development, which is the replacement of diesel fuel with natural gas at Peregrino, and this will also significantly reduce our carbon footprint. We expect to likely drop below 20 kilograms of CO2 per barrel equivalent. We continue to make progress from a cultural standpoint. we've wrapped up the Reação Offshore Program that was an entry-level program for people in the offshore industry. So we finalized the schedule, April 2025 and '26, and we continue to support all the initiatives we've always supported. This year and this coming quarter, in particular, we have the Rio Marathon, SP-Arte, and so on. I'm going to move on to the next slide, which covers the next steps. As I always say, the first and last points are constant, our focus on safety and health. And the last one is exploiting new M&A opportunities. But then let's talk a little bit more about the points in the middle, which are, I think, are the main focus this quarter. The first one, I think, is worth addressing, and that is the Frade production wells. As we mentioned, we've authorized the drilling of 2 production wells at Frade, 2 additional wells at Frade. We expect to bring the first one to production still in August. Our expectation is to increase the production at Frade by 4,000 barrels per day or 5,000 barrels per day, something in that range. Most likely with this well in Frade, we will surpass 200,000 at some point, maybe not an average monthly basis, but we might already exceed 200,000 barrels per day for a few days. And then with the second Frade well later in the year, and of course, then with Peregrino as well, we will easily surpass this mark. Another key highlight of the quarter will be Albacora Leste's operating efficiency. Albacora Leste from a topside perspective has improved significantly and has shown good and very consistent efficiency. This quarter, specifically, what impacted Albacora Leste's efficiency was the hydrate at well 68, but that has nothing to do with everything we discussed last year regarding the top side, the compressor, the generator and so on. Therefore, I believe that all the issues we addressed in Albacora Leste are finally yielding results. We've had some very good months at Albacora Leste. In the quarter, there was also the issue with high grade at well 68 this quarter. Well, well 68 is producing again. July was a great month for Albacora Leste, by the way. Therefore, I think that the asset is finally moving in the direction we needed it to go. Another major focus this quarter will be the closing of the Peregrino deal for the remaining 20%. We expect that to happen between October and November. Of course, there are a number of steps here that needs to happen for this to materialize. But we are expecting something between October and November for the closing. And finally, the shareholder remuneration policy. We've begun discussing the policy on the Board. And there is a general consensus by the Board regarding payouts, share buybacks and so on. What we all agree was wait a little while for this turbulent geopolitical and macroeconomic situation to settle down a bit before we announce this policy. But as I told you, our guidance remains unchanged. Our guidance for year-end leverage of 1x based on an oil equivalent price of $60 per barrel at the end of next year remains in effect. We are still buying back shares. And in fact, we are planning to accelerate the buyback a bit in the second quarter I mean, in the third quarter and in the fourth quarter, given that the bulk of our CapEx is already behind us. We've already completed the Wahoo project. We finished the gas import, which is Peregrino. We've drilled the first well at Frade, and we already drilled A13, which was the Peregrino well. Therefore, a lot of things already happened. And now our CapEx is going to start dropping significantly through the end of the year, which will create even more room for us to continue steadily with our share buyback program. Well, that said, I mean, the shareholders' remuneration policy is ready, I would say, or it has been agreed upon by our Board. But we've decided to wait a little while for this macroeconomic situation or even, I mean, this very complex geopolitical situation we are currently facing to calm down a bit before we move forward with it. Well, regarding the search for new M&A opportunities, as I mentioned, well, that's in our DNA, runs in our blood, and we will always keep pursuing them, even though we don't have anything on the horizon right now and no relevant discussions are currently underway. Well, I will wrap up this earnings release presentation. I would like to extend my sincere thanks to our investors, the public and our employees. The results were exceptional. But it was a quarter of hard work, a quarter of significant adaptation. We had the Wahoo issue where there was a charter vessel that failed. We had to replace it with our own vessel, and that led to a major operating reorganization that we had to carry out. There was also the issue of oil trading that we presented here. Well, we didn't even mention it, but we posted strong numbers. However, day-to-day operations were challenging. It was a quarter with spectacular results, but it wasn't necessarily an easy game either. It was a tough one. And -- but with that, I would like to express my gratitude to our employees. And now I'll open the floor for questions. Thank you very much.
Operator: [Operator Instructions] Our first question comes from Monique Greco with Itaú BBA. Monique.
Monique Greco: I have 2. Roberto, perhaps we could start with the trading discounts. We understand that there is a factor which is external to the company. It is related to the ongoing context. But there is a lot of your commercial strategy, the use of VLCC blend. Could you perhaps -- could you perhaps state how much is coming from each aspect so we can understand what is structural in this trading strategy? And my second question, you made a comment at the end that your expectation is that CapEx will slow down by the end of the year. Could you provision us and give us perhaps the full number for the year at the end of 2026, what the CapEx will have been? And if you have some visibility regarding CapEx and the order of magnitude for 2027?
Roberto Monteiro: Look, as regards trading, I cannot really tell what led toward because so many things happened. It was quite confusing during the quarter. I can mention some major points that led us to positive results. But we were very exposed to dated brand. There is Dated and ICE Brent. Dated is the physical market, it is a day-to-day. So as much as possible, we try to be exposed to Dated Brent. And we have the physical market that was tighter. So when we compare with ICE Brent, which is the brand that we see on Bloomberg and so on, there was a mismatch. And that's why our discount improved because of that mismatch. Since the beginning of the Middle East war, we have prioritized contracts in Dated Brent. And I think that this was a major pillar. And there was a call with Gustavo and Bruno thinking the market is going to stretch and if the market stretches, we would better be in Dated Brent. The opposite is also true. When there was that partial opening of the Strait about a month ago, a while ago, and we had a flooding of oil, Dated Brent was the one that suffered the most. So I think that we had [ Q2 ] at $6.90. But the third quarter will not be at $6.90, it will be around $9, $8, closest to $9 because of this effect that China stopped buying. There was that opening so on and so forth. So these were the big moves. As for VLCC or Peregrino. Well, we save $1 to, $2, $1.50. The oil blend is extremely important for the Peregrino sales in VLCC. So there were 2 things about Peregrino. We loaded a VLCC at Peregrino directly. That had never been done before. The prior operator had never done it. It was always done through Aframax, which is a smaller vessel than Suez. And we increased to Suez and now we increased to VLCC. So that was a big one. Together with VLCC, we're blending so that we won't have to heat the oil at the VLCC. We've done that, right? Yes, we mixed it with ABL. So we -- so the super heavy grade mix with Albacora and we had a medium one mixed with[ Merrell ], and these 2 did really well. One went to China, one went to Europe. [indiscernible] answer that. Both were shipped to China and Europe, they were well received and unloaded. And we gave about $2 per barrel, but this is not what's going to make a difference. We are much more exposed to this geopolitical aspect, Dated versus ICE Brent, what's going to happen in the Strait, the canal is closed. So Dated is stretching again. So in August, we'll see what's going to happen if they reopen the Strait, there won't be too many ships loaded. So we won't feel so much of a flooding of oil flooding the market. So these are the pillars that will make a difference. We will keep monitoring the performance of Dated Brent vis-a-vis the ICE Brent. You also asked about CapEx. We had an initial budget of about $500 million a little over that. We are now at $600 million, $6 million and up. And there will be a reclassification of Wahoo. We'll get a part of the inventory in, put it in Wahoo. So this is not real CapEx. This is a simple reclassification. Wahoo would this reclassification will go to $840 million, $824 million with that reclassification at Wahoo, and then next year, we will drill the injectors, and we will freeze that $824 million. Net of this reclassification of Wahoo, we are at $600 million give or take. And why did we have a mismatch of about $150 because we decided to drill another well at Peregrino. So one additional well in Isolado reservoir A13, which we are drilling. So we accelerated the program to maintain those 100,000 barrels at Peregrino by year-end. So this is guaranteed. I mean nothing is guaranteed in this industry. But have practically guaranteed 100,000 barrels daily at Peregrino until the end of the year with the advanced drilling of A13, we decided to drill the 2 wells at Frade, one should be delivered still this month, until the end of the month. And the second one will be in the next quarter. So that's one. And the 2, actually. And the third thing that we should do this year, and this is moving well ahead quite well is Arapuca. We have signed. We, Petrobras, Repsol and Equinor have signed the development plan. We have submitted it to ANP and we'll get the request to anticipate wells. So that when ANP and IBAMA authorize, we can connect them. The line has been laid for Arapuca. So I think that there is a reasonable chance that Arapuca will start flowing oil this year given that we obtain the licenses. So these things played in our favor. Another thing to consider and to reduce CapEx is the reimbursement of the gas import. This is going to happen this year. So this is something else to take into account.
Operator: Next question from Gabriel Barra with Citi.
Gabriel Coelho Barra: I have 2 points, actually still on Peregrino. When we talked about Peregrino, we talked about great synergies and cost reduction for Peregrino. And I guess it over 2026, we will be covering the last mile which would be the change from diesel to gas, to power the field. And perhaps you could remind us, Roberto, of those $500 million, how much of this has been captured? And when we look at the savings compared to diesel, we are following the diesel market and the prices are increasing. Diesel is costing a lot more than it was costing when we talked about synergy and cost reductions. So does this still make sense? Perhaps the $70 million worth of savings have increased compared to what we expected in the past? So that's the first point. Secondly, one of the negative news in the quarter is the export tariff. I don't think you touched a lot on it during the presentation, but that's a very delicate point, very important point for the sector, including for Prio that exports about 100% of your production. And I think that this caught the market by surprise. I don't know whether you were caught by surprise, but we were. We do not expect that the 12% would continue. We didn't expect that the export tariff would continue. So I'd like to hear from you. What are the next steps? What is your base case regarding the export tariff and what you can do about it? I've seen companies moving and even the unions moving. So I'd like to hear from you what can be done regarding that?
Unknown Executive: All right. Gabriel, let's speak about Peregrino, and then we'll speak about the export tax. Well, Peregrino, let's start with the guidance of $70 million of reduction. It might be more. But of those 300 million that we meant to reduce when we acquired Peregrino, the field cost $550 million. Today, the field is running at $260 million. So we have already reduced almost the $300 million that we aimed at reduced. We've reduced $280 million, $290 million. So that's given. And the gas will be a bonus. we will go beyond the $300 million. So let's keep it at $70 million because there's still some little things to be done. We have to commission the new line. There's something else that we can do. You see the total of this can get to $100 million, but this involves taking gas from Platform C. We enrich oil from Platform C to the FPSO of Peregrino and the FPSO with Peregrino, we'll burn that artificially enriched with gas. So that's another system that we can try. It has never been done. So let's be cautious. I don't want to give you a guidance. I don't want to take a larger step or bite more than I can chew. We have reduced a lot the cost. We will reduce even further. Things are really going really well. Peregrino is actually a great field. The Peregrino team is very good. They have responded really well to everything. I think we've been able to do excellent work at the field. Now let's talk about the export tax. We were often caught by surprise. I think everyone was. And what the company has been doing and what we've been doing is to try to take this to court, judicialize it as we call it. If you're not an expert in the industry, you might think, oh, these guys are making money. So they have to pay. But it's not really what's happening. We have to understand market dynamics. Today, Brazil produces more than 4 million barrels of oil, and we can only refine 2. So it's you say you're not going to export oil. Even if we don't export the oil, no one will be able to refine it, number one. Number two, what Brazil needs is diesel and our oil -- I mean, in Peregrino, you don't get diesel out of that. You get bunker fuel. It's ship fuel. So it's an equation that doesn't make sense. So why do they have to price the oil? That's number one. And number two, when you look at what's happening in the world, oil today is almost like in pre-war prices. It's not so different than pre-war levels. Now there's high inflation and there's a problem that can lead to recession in countries worldwide is the product. But the product today, there's a refining margin, which is gigantic. Refining makes more money than ANP, which does not make any sense for a processed barrel. Refining is a fee business. ANP, you have to work for oil, have to extract and lift the oil from the bottom of the sea. So there is a big mismatch. The margin of refining, the price of the product itself is what is damaging and getting in the way of the economy, the price of gasoline, the price of diesel. But the price of oil does not reflect that today. We have a very high refining margin. The reason is that China left the market. When this confusion started to happen, China stopped importing oil and forbade the export of oil products, diesel, jet fuel and gasoline, which are the 3 main ones. When China did that, it removed that ability from the market. And all the refineries in the world other than China. And by the way, to complement that, Russia also lost some capacity given some of the bombing from Ukraine. So they lost the capacity to have refined products. So there's a big shortage of refining in the world and the supply of oil, which is not so stretched. So the refining margin increases a lot. And this export tax on oil, I mean, they have nothing to do about it. We could pass tax the banks because the banks are making money. And that's kind of our thesis. It's not a measure to regulate the market. You can hold back exports to regulate the market, so we can keep the oil in Brazil and refine it here. You can do that as much as you want, but the oil will not remain in Brazil. We won't be able to refine it. We haven't got refining capability to cope with all of the oil we produce. So Brazil has to import fuel, diesel, oil byproducts. And this is the foundation of our thesis. I got kind of a long answer, but this is a very delicate point in our view. And if you look your investors, look, [indiscernible] [ Phillips 66 ], Valero, all-time high. They have a gigantic margin. It is exactly that process. These are refineries abroad. They are importing oil from the United States like Brazil tomorrow, and they're exporting product for everyone at high margins. There was also that comment by Trump 2 days ago saying exactly about the extraordinary results that were coming from refining from Exxon. I can't remember. I'm not going to get into that nitty gritty detail. So this is the whole case that we are trying to use in our legal thesis. Now having said all that, we would have that for another 60 days. It seems that the war is easing up a bit. Apparently, there is an agreement about to come to fruition. And we believe that this might disappear. But this is what we're thinking. I cannot really tell you this will end in 15 days or in 45 days. I would love to be able to, but I can only tell you what is our base case and what we are discussing and what we are trying to do to cope with this.
Operator: Next question is from Rodrigo Almeida with BTG.
Rodrigo Reis de Almeida: I think I would like to hear more about Albacora Leste. I think this is the major investment driver for the company. I mean, Roberto, you talked about CapEx. But going forward, you focused on Albacora Leste. So I would just like to get a little bit more details. May I break it in 2 parts. First, I'll talk about Arapuca and how is the tieback moving along. You said that the development plan is fully aligned with the rest of the partners. But if you could give us some light about how the project is moving along, tieback? And also when do you think that we will see some production and maybe the mid and long term for Albacora Leste? During your Investor Day, you mentioned 7 wells to be drilled in 2027. Could you give us some light about how you see this project? What are the most promising areas? I don't know whether you could say anything about it, but what do you expect about the next prospects? And if you look in the mid-range for the 2027 campaign, how do you see the environmental issues and CapEx expenditures for the projects of next year? I mean what will be the timing that you would start spending money for these projects? I mean for Albacora Leste, and I have an additional question on Wahoo. What about the performance of the wells, the reservoir and Frade in isolation, and you also talked about injection wells that are more productive. I believe you must be very excited with Wahoo performance. So Albacora Leste and Wahoo, if you could give me a follow-up.
Unknown Executive: Arapuca, we already launched the line. We laid the line. So now we are just waiting for the workover license that should be granted by IBAMA soon. We are just waiting for ANP authorization to complete the well and connect it. Once these 2 things happen, we will do the workover with the rig in the well -- in the upper part of the well. And at the same time, we will connect the well to the rigid pipeline that has been laid. So then we have to lay the rigid duct. Also, we have to lay the umbilical in the third quarter. Yes, we have to connect the well to the pipeline. I mean the hardest part of the project is behind us. I mean, to lay the rigid duct we needed a special vessel. And then the edges of the rigid, once one part connects to the well and the other part connects to the to the FPSO. Well, we can do that with our own vessel once we have IBAMA's authorization to make the interconnection and once we have ANP's authorization to connect them. We believe that if everything goes well, we can reach first oil by December. But the bottleneck is IBAMA's authorization or the workover authorization from IBAMA or IBAMA's concurrence and ANP's authorization that can allow us to initiate the work in the reservoir. We went through a very important phase involving the laying of the rigid line, as I said, and also the ANP's protocol for the PD. At the beginning, this was an agreement signed between us and Petrobras because only Prio and Petrobras have a stake in that field. So then ANP came back asking for the signature of the other partners. So now we already submitted the protocol with all of the signatures from [ Repsol ] and ANP as well. So things are moving. It's just a matter of time until we can connect the well. Now in regards to the rest of Albacora Leste, we do intend to start drilling next year, pending the environmental license for Wahoo. However, what we are doing is that our plan for next year will take into account 2 scenarios. One, when we have the license and the other one without the license. I mean, having the license for Albacora to drill the wells there. If we do not have the license for Albacora, we will start drilling wells at Frade. And even some that we have already identified in that campaign where we have the RDA. So we could move from one scenario to the other depending on the license. Well, certainly, the Albacora wells should be slightly better when compared to Frade because it's -- I mean, it's a field that still has a lot of work to be done, but we can if we just drill Frade, we can have 100 barrels a day, not only Frade, but our plan for next year to stick to that 200,000 barrels a day involves drilling 5 wells in deep waters and 5 wells at shallow waters. In deep waters, the wells will vary between Frade and Albacora, depending on having or not a license. And this will cost $500 million per well, so $200 million in total and 5 wells in shallow waters in Peregrino, and this will cost $20,000 per well, $100,000 in total, adding up $250,000 in CapEx. And moreover, you have maintenance CapEx. I mean, so we should reach something close to $450 million to $500 million. So this is pretty much pretty much it, very close to the range of $400 million -- $450 million that we still have to drill. It will depend on the injection of 2 Wahoo wells. But we don't know how much still will be done this year or next year. And that's it, in terms of Albacora Leste. Today, we have already identified 7 wells at Albacora. You might remember that back then, when we started our first plan, we had 11 wells. 3 of them were injection wells, then the number went down to 8 wells. Today, there is only one well at Albacora to be drilled. I mean we are using new seismic that has been rerun, that corroborates with all the wells. But the bulk of the work is done. So we are very comfortable with Albacora. And Albacora topside is bearing good fruit. We will have another scheduled shutdown this year, 12 days, maybe it was supposed to have been done earlier this year, but it will probably be done in November or December. And with that, we will solve most of Albacora's integrity, and we can move on to the next phase. The second question was about Wahoo's reservoir. Things are good. I would say that it is the size that we imagine. The wells have slightly better productivity than what we envisioned at first, but it's pretty much in line with what we thought it would be. Production will be around 40,000. And this production of 40,000 should be sustained for a few months, and then there will be a decline -- business as usual. The beginning of this decline should be at the end of this year or maybe closer to the end of the year and early next year. So it will start declining and then it will follow its normal decline curve. And then we will start injecting water at some time next year, I'll say, in the first half of next year.
Operator: Next question from Tasso Vasconcellos with UBS.
Tasso Vasconcellos: Roberto, I would like to take this opportunity to ask a more general question. In the past few months, we've talked a lot about the possibility of new capital allocation, dividend payout, given the strong cash generation from the company. I would just like to understand about your internal discussions in terms of these organic projects. When you're looking at a new project or a new drilling operation, what are the main metrics that you look at minimum amount of production per well, is FD or if it's IRR, what is the minimum level that you look the same 20% of M&A or some other metrics. And if you could also give me some more details about what else is part of this calculation. I know that you operate several assets, FPSO, you own your own rigs, you have your own vessels, meaning that you already have a minimum fixed cost because you have some assets that can maybe facilitate your decision-making. But I would just like to understand that process of decision-making when it comes to allocation of capital to new investments and the surplus of cash looking at a scenario of 3 to 4 years ahead.
Roberto Monteiro: Tasso, we look at 3 things. We look at return from the asset. We look at new wells, we look return and the NPV and that's the 20%. And also, we look at payback because, in fact, all these projects have like 70 or 70 -- I mean, very high. What is the payback, 3 months, 4 months? These are very quick paybacks and IRR is very high. Honestly, there isn't much you can do or say, okay, I'm no longer buying shares or I'm not doing this or that, so I can buy more shares, buy back more. I mean the valuation gap would have to be gigantic, much bigger than what it is today. And then our first priority is inorganic projects. I mean, because it's much better than anything else that you can think of. If you have a project, 60% of IRR in dollars that can be paid off in 3 months. I mean the answer is already given right there. So we look at these 3 things. Usually, when we have this RDA, we already include that in the cost. So we have an expectation that it will work. And then you say, okay, if I drill a pilot well, no, not a pilot or a pioneer well or a wildcat well and something goes wrong, I mean, you lose $30 million. If I drill and it works well, okay, I will drill this one and then another well. And then I can gain $300 million. And if it goes wrong, I lose $30 million. And if I do it well, I gain $300 million. I mean, it's a no-brainer. The decision is a no-brainer. So that's the way we approach it. And on the buyback subject, I mean, we have enough money to do both. It's not either/or. I mean, we are not letting go of organic projects for the sake of buyback. Organic projects are always more economical. We've already stopped because of M&A, in particular, Peregrino because that was a big thing, $3 billion. That was a major project. But apart from that, I won't say that this is a no-brainer solution. We'll have to look at things, but that's it.
Operator: Next question from Yuri Pereira with Santander.
Yuri Pereira: If I may, I'd like to stress the topic Tasso has just addressed with you regarding the dividend policy. You mentioned just a minute, Roberto, that you want to wait for some kind of geopolitical improvement. So if the Brent price is very high for very long, do you think this possible dividend policy would change? I just want to get a sense of why you're waiting? Are you considering any M&A possibility or any big organic project in the short term. You also mentioned that you talked about 0.8 net debt over EBITDA ratio as leverage, assuming a Brent at $80. Would that be a target in the kind of scenario?
Roberto Monteiro: Well, thank you for the question. No, I think that the dividend policy will not change. We're executing it. One way to look at the policy is saying I want to get to a net debt of $3.8 billion at the end of this year and $3 billion in the end of next year. This is one way of looking at the policy. We're moving in that direction. Our net debt is $4 billion, by year-end will pay $550 million to $600 million to Equinor will generate cash. We'll get to the $3.8 billion of net debt. We will distribute, will buy back what we need to get to $3 billion net debt next year. So our target is unchanged. The flip side of the coin is to say that we'll get that 0.8x by the end of next year, getting to 0.8x net debt over EBITDA ratio with oil at $80, which is equivalent to one time at oil prices at $60. It doesn't really change. It just a matter of being cautious. Not that any opportunities will arise. We don't think about that. But what we are seeing is that oil prices increased $10, then fall $6, and then increase again $9 or $10. And it's fluctuating. So the Board of Directors has been more cautious. And let's wait a little longer just to have a little bit more peace of mind because once we adopt a policy, you will be pressuring us about it, not that we are not executing the policy. We are executing the policy exactly. There is no discussion. But given this scenario, which is so complex, so volatile, we wanted to wait a little. Nothing will change. We'll continue to buy back. We have 9% of the company. Today, we are not buying back, but we will resume the buyback soon. So we'll get to 10%. We'll cancel some shares. So candidly speaking, this should be a nonevent because this policy, sometimes you design a policy for dividends to force the management to do something the management does not want to do. This is not our case. We are all shareholders of the company. Had you wait if you add up the whole management of the company, I guess that, as a group, we would be one of the biggest shareholders of the company. So we are all here together with the same incentives. So it's a matter of being cautious. It's so confusing. Today is something, tomorrow is something else. So keep thinking about what the Americans call unforeseen consequences. We're executing the policy, but everything is so volatile that we said, okay, let's wait. Let's wait for this moment to pass and then we'll disclose it because it has no practical effect now because now we are buying back shares. It's not like formally adopting the policy will change anything. That's it.
Operator: Next question from Leonardo Marcondes with Bank of America.
Leonardo Marcondes: I just have one question, and it is about Wahoo. You mentioned the productivity of the wells came a little higher than expected and that the reservoir is in keeping with the expectation. So I'd like perhaps to look at the other side. I want to understand if there was any bigger challenge that you encountered in addition to what was expected. When you consider the project initially and also about depletion, it was mentioned that we should start seeing some level of depletion perhaps in the coming months. So I'd like to know whether you can give us some indication of what the depletion might be in the short term. I know that there is a stratification, but perhaps if you have more up-to-date number or have some more efficient study that would help us understand the reservoir better.
Unknown Executive: Actually, I think that, perhaps, we have been a little more cautious than we could have been. We could have been perhaps a little more aggressive in the project as a whole in terms of floor assurance, et cetera. Everything we did had a margin because this was the first -- a first big project for us. We did the project with 3 lines. We could have done it with 1 or 2 lines. We did it with 3. Not that we're not going to use them. We are, but we could have done it in phases. We could have started with a slightly more slim project. I've done that. But these are lessons learned for the future. And if we made a mistake, we made a mistake because we were too cautious. And I'm happy with that because the field is producing really well. As for depletion, when I say it is in keeping with what was expected, it is according to this certification, and this is the best data for us to use. I don't want to reinvent the wheel. When I say that the well had a higher productivity and the reservoir as well, imagine to have a car that can ride at more than 100 kilometers per hour. But the speed limit is 100 kilometers per hour. So the same thing for the well. If the well can produce 40,000, we're going to produce 40,000. I know it's kind of a silly analogy, but I think it's the best analogy we can have. And we have to use the data from the certification. So to me, this was a very good project. We have had additional difficulty in the end with the vessel that was going to lay for the last well, and it started failing. And that actually corroborated our thesis of verticalization. So -- but that was the only bigger hiccup that we had.
Operator: Next question from Bruno Montanari with Morgan Stanley.
Bruno Montanari: I just have a follow-up of 2 questions. Going back to the question on CapEx. If I'm looking at the numbers correctly, in the first half, due to your cash flow, you invested close to $595 million. In the second half, in your cash view, you would only have $100 million to be disbursed from now to the end of the year? And my first question is on Peregrino. Now that you are in the Isolado reservoir, do you see any upside that would allow you to be slightly above 100,000 barrels a day? Or whether there is any incremental item that we should look at Peregrino, maybe not now, but throughout the development of the asset. On the demand side, my second question then, do you see any signs of improvement in China's interest or it's still totally out of the market?
Roberto Monteiro: Bruno, Jean will talk about the Peregrino and Bruno to talk about China. Well, CapEx, the calculation is not this one. You have to remove the reimbursement of gas import from CapEx. So this should give you something around 80 million, meaning that you generate an additional 80 million, and there is something else related to inventory reclassification for CapEx. So I think the main thing is the issue of the gas import that we will be reimbursed to compensate for the CapEx that we already spend. So Jean can talk about China.
Jean Calvi: Pellegrino, the isolado reservoir was a pleasant surprise. Bear in mind that the vessel produces a maximum of 100,000 barrels a day. And we are seeking to get average production of 100,000 a day. Well, we may produce 103,000, 104,000 or slightly below that. But the new wells can ensure level closer to 100,000 for a longer period of time. So you won't see a production that is probably surpasses 105,000 or 106,000. But in the production on the other hand, we will not go much lower than 97,000. Therefore, the Peregrino guidance is close to 100,000 barrels.
Bruno Lowndes Dale de Menezes: So about this last part, as Roberto said, China is no longer importing derivatives, and they reduced the consumption of additional -- there of byproducts. In addition to that, they had also other state oil companies that are no longer sending oil there, and they reduce their purchases. They are still buying I mean, occasionally, at lower levels, they didn't disappear completely. They disappear. Sometimes, they come back mostly due to flat price when we see that China is reducing its stake. They are still in the game, but volumes are down.
Operator: Our next question is from Bruno Amorim with Goldman Sachs.
Bruno Amorim: Roberto, tell me how you see the M&A market currently, given the conflicts in Iran. Are conversations still going? Do you see any structural changes in the M&A market as a consequence of the conflict? Some Asian countries may probably look for other assets outside the Middle East to reduce geopolitical risk. And on the other hand, there are other players that may venture into new frontiers. They want to diversify their portfolio, smaller assets will probably be out in the market. So how do you see the M&A market?
Unknown Executive: Precisely now at day zero, every time there is an extreme event, the market disappears, and it's very difficult to engage in any transaction. But now I am saying, I mean, higher level, not even higher because I don't even know how much oil is now. But imagine an oil closer to 90. From 90 on, the M&A market starts to decline because there is a big gap between the buyer and the seller. I mean, the seller -- I mean, the buyer want to buy at 90 to say, I don't -- I can't tell you at 90, but look at how things will move on in a time line. The same thing happens when the price is very low, like it goes down to 50. And this is the moment where we find ourselves now. I don't know how much the oil price is. I think it's 70 some. But then you may say, okay, 70 is a normal number, but then there is volatility that may come as an impediment for any business or maybe it can go down to 69. I think in the future, I don't know whether it will happen to the M&A market, but I believe that especially Asian countries, they will probably rethink their oil sourcing. I mean this is just my own speculation. But I think that countries will think more about the level of risk they accept in the Middle East. Well, depending on what the solution is, but obviously, it will be something debatable. I don't know whether this will change the M&A market. I don't know whether you will see a larger number of Asian companies, but these guys do not compete with us too much because we are operators. And usually, these are large companies or branches of large companies that come up with a non-op. So they don't really compete with us. But this debate will pop up at some point, but I don't know where this will lead us. I have no expectation. But in my view, I don't think any of that should compete with us. And the other discussion has to do with storage. Would it make sense to have more storage in Asia and where and so on.
Operator: Our last question from [ Vinícius Andrade ] from Safra.
Unknown Analyst: I'd like to go back to one point related to the remuneration policy. Basically, I would like to know whether the result of the upcoming elections in Brazil can change in any relevant way, any aspect of the policy you're working on?
Unknown Executive: You see when we spoke about the remuneration policy, we knew that we would have elections in Brazil. As we already imagined that this was going to be a very polarized election. And the policy is sufficiently flexible to deal with that. The Board of Directors can -- if we run into an M&A opportunity, can tell us to suspend the distribution so that the company can accumulate cash to handle any investment opportunity that the Board considers interesting. You see the way it is written gives us sufficient flexibility to deal with the elections. So we don't really know what can happen in terms of new assets, perhaps in a new administration. I mean, I don't know whether there could be an asset -- a mature asset for sale by Petrobras. You never know. So the policy addresses that independently from the elections. I don't want to say that depending on the election results of this all that will happen. No. It will really depend on any opportunities for mergers and acquisitions. And we will have different opinions about M&A opportunities depending on the moment we're living in Brazil. But the policy is flexible enough for us to embrace all of that.
Operator: And with this, we are ending the Q&A session. I would like to turn the floor now to Roberto for his final statements.
Roberto Monteiro: I just want to thank everyone. We had a lot of participants joining us today. As always, I would like to thank you for the way you welcome our company. And I would like to thank again our team. Like I said, it was not an easy game, but we had a good result. And I'll see you in the next quarter. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]