Q4 2019 Earnings Call
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Good morning, ladies and gentlemen, welcome to Petrobras webcast and conference call with analysts and investors schools Arnie each for squad. There just tells a 19 we jobs.
We would like to formula that Mark each bench will follow the transmission by Internet and telephone Oleaginous night.
After an introduction at you any session will begin and instructions on how to participate will be provided.
If you need help him during the conference call. Please called you operate or by dialing hi, sorry, she will.
Resentfully Bastard. They are you still hold back to Castello botanical Petrobras CEO.
This is done today, Almeida, chief financial and Investor Relations Officer.
Mr. Cardinals, all back a bit Ada Julie's data chief exploration and production off he said.
Let me just any leaking film lighter chief refining and natural gas officer.
Mr who would you might end todays low teens, Apple Chief production development Officer.
Nice to it at all to Joe made that Chief Corporate Affairs Officer.
Mr Yen equal last Simoni, chief digital transformation and innovation officer.
Mr. hold back the 40 of our banking Keith Institutional Relations officer.
Nice denmar samples anchor chief governance, and compliance officer as well as all their company executives.
We'll start by listening to Petrobras CEO Mr. whole back the best Alabama Cool with the main highlights of the results representation. We were made available throughout the web cast and other companies Investor Relations website.
Please mr. held back they'll go ahead.
Well Oh you.
Its a.
Sorry.
To have the opportunity switch names ideas, we do.
Oh well.
While this was very good the numbers are very clear but.
We aren't the only these wins oil is a business, we've got a long them horizon.
And so.
The strategy and the fusion over to start just easing out.
And.
Oh, it's not there as you know there well, it's a very simple one days is gone.
Five belows.
Five because it's simple to all this will be mine.
These but she is it rules.
Second.
Well it is easy solution.
2019, we delivered what we bromance Dumbs love.
Sure. So that usually is a key issue.
We.
Went ahead, we bought for the management divesting 16.2 billion west goals of noncore assets assets Leach, we are not the natural wellness, we ought to happen, we invested 27.4 billion Wes those he.
Oh.
We're assets.
And particularly.
We've asked the.
Yes, because vision of rights to explore and produce oil he.
Deep waters.
We actually, especially Boozers booze. He is the largest offshore oil field scalable either will use the real ward glass Asa with significant reserves.
Low cost low lifting costs low risk, especially rubberize.
The best is the best the dems understanding no loses.
Petrobras was awarded.
By the offshore technology conference due diligence projects to explore boozers. So it's it's an example, how deep is done knowledge about these giant oilfield.
So it's an example, how bought the portfolio can be managed.
Very efficiently we did go through all of what creating value for shareholders.
Is the same time jointly we'd assume.
Cash flow generation.
We're able to.
Reduce that.
We.
Fed about 24 billion west doors, we that's reducing in.
It's these reductions combine it with a very efficient corporate liabilities medicine.
Retro Bryce was awarded a as by Latin Funnies.
We do the best cooperate liabilities management program.
We.
One of them I said $1.2 billion heaters Petrobras has had had a very heavy.
But then the best.
There were a year's worth Petrobras bed about $7 billion interest.
Who who it's great those more than its needed to invest enough production system, It's about 5.5 billion west doors.
And.
This.
The importance for the future of the company are the same time.
We would replace a more disciplined capital allocation.
Very reduce criteria to approve broadworks, a mean concept at Broadridge has to compete for capital capital is gas.
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Well, we will be located two projects on the old merits not because we like this project, we like that they have merits and one of the.
Most important metrics.
They have to be resilient at a price of oil as low as $40 per barrel.
So we are.
With this we are the safe side.
The same time were implementing several programs.
Dedicated to increase significantly.
The rate of return on projects.
We're able to reduce your ramp up views of our platforms Fps source.
Two.
Knowledge of nine months.
We recently.
We employed.
And innovation the use of I'd like to who.
Dr.
Our new Fps, so be 70 from China.
From the Chinese shipyards to review instead of taking 100 days.
The average the best it took only 45 days and time is key for rates of return them products.
And we are implementing.
Two.
Projects debt.
Have the potential to revolutionize the oil industry one is.
Dedicated.
Two.
I will create significant lead the probability of finding oil in exploration to reduce let's call. It two zero the probability of drilling.
Well in finding new oil.
Indeed.
The other one.
He is.
Our project too.
Uh huh to shorten.
The abuse between.
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Stopped objects exploratory phase to the first oil.
For the pre Salt we had.
An average of 3000 days odd ball.
To reduced 1000 days. This is being executed first results are very.
Good we are very enthusiastic about the future of both products.
That will place.
Oh.
The rate of return of all the rates of return of all products on a Nada plateau.
And we are using.
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We are starting to use a digital transformation to.
Help us we'd these projects even we'd activities in the corporate center lose more data analytics.
Augment that rheology.
A sufficient diligence.
We have created a new division that's in charges walking.
Very intensively in producing results. This soft them, we are strengthening our high performance computing capacity by the end of disease GBP 10 times the capacity 10 times. The one we had.
At the of Linky 18.
Dissolved.
Several initiatives.
That are being.
Executed.
Last year, we announced that the the start of implementation of easy.
We concluded it in Jeez, you were going to is it too.
Is acute.
To be not only a matter.
Two.
Compensation for variable compensation, but it's very important to identify inefficiencies in the various segments of the company too.
No other to be able to correct then to eliminate the new efficiencies and to empower people too few people go to make people do you like into good news taking.
Managing a small business in trying to.
The successful narratives because they know that they will be compensated by the airports. So does this scenario in terms of environmental social and governance.
I'd like to tell you that we have a strong focus.
Environment.
We have us going commitment.
We did these couple of monetization of our operations.
Okay.
Central Bryce is second only to equity nor in terms of emissions per barrel of oil and to continue.
Rental is to pursue the reduction of the nishan of greenhouse gases.
We are advancing in terms of gobble capture.
And Petrobras is a member of the oil and gas climate initiative.
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Our non profit institution.
Of the oil and gas industry dedicated to to sustainability in the world.
And the intent in.
HM social terms.
We are focusing our.
TV using this will show area in the.
Two.
We school.
Education with various programs dedicated to children.
Between zero to six years of age.
Because the design programs with a very high social rate of return.
Is that contribution to better Bryce to reduce poverty in Brazil, Brazil has us.
It's do have many.
People poor just you have.
Serious problems in terms of education and the education.
As.
You know.
Is up.
He is.
It's a very powerful weapon to flag poverty in to promote economic development and we are very happy to know that.
The.
The them that our improvement dams of human rights.
Corporate human rights benchmark.
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That's publish it annually.
Promoted a significant increase significant improvement you position of Petrobras.
We had an index of 17.6 implanted E. G. Now we were classified in 2019 last year, we the.
46.6.
Much above the average for destructive aegis mining and oil which is around 29, so they're very good results in terms of diversity.
So for US I saw Goldman Sachs, saying that the it's not going to walk in IPO. Those companies, we know women e. the boards.
We have three.
We have to Zap two directors to excellent exit is that two directors that numbers of.
As active managers women is active managers doubled from five at the beginning of a 20 990 now have 10.
So.
We're not focusing only on value on generating.
Yeah that is to shareholders.
We have also social cornerstones.
And last but not at least in terms of safety Petrobras.
Seth and not the benchmark for the global oil reserves the rate of.
Uh huh.
Reported accidents.
The bar Hess.
Decreased 2.76.
A new benchmark for the this and you continue to boost to better results.
But.
Having said that I you pass to my colleague CFO and rail leader for her comments on the financial performance of the company.
Thanks Beth.
To be he had to share with you some a summary now.
And I think that's already mentioned the most important ones from the year, but I will go into more maybe some some in more detail.
So regarding the operating cash flow, we were able in 2019 to reach 25.6 billion dollar and free cash flow of 18.4 billion.
Our ebyline and income had a solid performance up $32.7 billion than $10.2 billion, respectively, and we also managed to pay $2.5 billion wireless home.
Our fourth quarter results were positively impacted by external factors, such as Brent and exchange rates.
Brent price increased by 2% and real depreciation by 4%.
One of the greatest achievements, our thousand 19 was a $24.5 billion reduction of our that that reaching 87.1 billion laws.
Gordon to highlight that this amount includes $24 billion our theme packs that we got from I ask for ethic seems limitation.
Our leverage measured mine that that may be not reaching two point 46 times Considine DIFM drastic still a we know we moved already but if we still have a big challenge to reach that 2.5 net debt that is the goal for 2020.
Despite the 9.5% dropping grain prices, our recurring adjusted EBITDA increased 1%, reaching $34.1 billion 19, due to lower production costs lower contingencies, ending XRF classic CNV adoption.
On a quarterly basis, our recurring adjusted EBITDA increased by 2%, reaching 9 billion dollar.
On the fourth quarter due to lower production costs.
Right the appreciation of our IR screen in brand sizes.
The highlight of the EBITDA by business segment is the growth of the MTN refining segment.
In the upstream we had an increase of 9% reaching $8.8 billion.
Mainly due to higher production and the recovery embed Brent prices.
In the downstream segment, we had a strong increase of 68% would be that reaching $1.6 billion in the fourth quarter.
The drawdown of low cost inventory offset the lower margins are no LPG and gap.
The gas and energy segment was impacted by the increase operating expenses. Despite Adam hard is a natural gas.
The strong cash generation and divestments enough for our enabled us to acquire some walk in ending in the E. N P auction specially the transfer of rights of surplus.
That's the around 18.5 billion in the quarter and managed to be paid $5.9 billion in that including 5 billion from the China development Bank.
As a result of our efficient liability management in 2019, we reduced the cost of hard that to 5.9 per cent per year below 6% and managed to increase the that meant to eight to 10.8 years.
In addition, given the availability of $9 billion in revolving credit lines, our cash management in working cap optimizations, we established a new target for a minimum cash holdings of 5.5 billion.
Having three me active in our liability management activities and I would like to highlight some important financial transactions network, including 90.
The prepayment off 24.9 billion laws, including my back of bonds in banking market and the biggest one or China development Bank exchange of bonds amounting to 3.7 billion laws with a regional lotteries between 2023 in 2029.
For a new one more liquid bond that has a much reaching 2030 within yudof 5.09 to treat the lowest since 2013.
We did I.
Exports.
And we symbol sales of Eletrobras and receivables up $2.1 billion.
It was related to that and what's going to mid 2025, we should the benches in the local market about $1.7 billion that consumers will help us on the liability.
And that last anomalies, we were we receive from lots of finest award for the best corporate liability management programming thousand 19, inner cognition up to global bond offerings in March and the more we purchased loans and offerings in September 2019.
Our initiatives have continued to improve our risk perception by the market from the beginning of 17 until now there was a compression in our credit spreads by 283 basis point.
That is related to the 10 year bond.
From April 2019.
I said shifting from debt to equity from April 2019 to February 2020, we concluded three important follow on offerings.
Speaking almost $10 billion. The first was the sale of the artist really Dorotea arts, reducing our state to 37.5%. It was the first privatization of update on company than through the capital market.
In addition, we had cash Nbn. There secondly offers that showed the market's confidence in implementation of our transformation agenda.
After these transactions our free floating increased from 36% to 49.5% and the now are off shareholders increased significantly in Petrobras, reaching 480000 investors.
We had been working hard in order to reduce the company's contingency we.
We had important achievement in 2019 attacks and single contingency decreasing by $11 billion.
The reduction already include the monetary effects of 4.2 billion in a period showing that our results were even more outstanding.
Now I'd like to update you about changes in our pension funding issues.
After that is our pension plan has been both increasing that simple 2019, whether that's up 10 30 billion reals.
During 2019, we implemented an important changes in order to include management and governance, we want to approve a much more effectively equalization plan that we do think back on employees proposing elite new long term defined contribution plan that is odd Arnold tdthree.
In the in that line, we continue to focus on developing that pre salt, we invested $10.7 billion in 2019.
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Effectively respecting the target that we set 40 years.
And if we end the signing on as our total assets reached 27 point $5.4 billion.
Our net income reached $10.2 billion in 19 and increase our 42% mainly due to the capital gains on the divestments APAC NBR.
If we can see recurring net income. The result was slightly below last year, mainly reflecting the brand depreciation which impacted oil margins in 2019.
The quarterly results were impacted by Paramount usually concentrated in the fourth quarter, maybe to the revision of the assumptions authenticity plan.
Recurring net income increased by 25% compared to the third quarter. This growth was mainly due to higher oil margins as a result of higher price lower costs and lower financing expenses.
We are paying 2.5 billion dollar so our shareholders.
2020, we have the expectation to be around 3 billion as already mentioned on on the better Bradley.
In the future if we have if we reach than the total that up $60 billion, we expect to increase the payment of dividends to our shareholders and at this point in time, we'll be able to distribute 60% of the difference between operating cash flow and investments.
We have not yet reached the dividend yield of our peers peers. However, our total shareholder return outpaced our competitors, reaching 33% for that preferred deferred 80 hours in 25% part a common on the art.
I would like to highlight the tax divestment of which was as well award at the end the best Cross border M&A transaction bilateral finals.
And I could not everything from emphasizing the importance of our portfolio management process.
2019, we were able to get $16.3 billion up total my baseness with $14.7 billion of cashing phones.
In the fourth quarter of 19, we had some important it out developments, we signed two operations.
And we conclude in an additional four transactions.
Now we leave the floor two questions.
Thank you Vic Una session will now gets underway.
Each participant will be limited.
Most two questions.
Question should we make our secretively and we kindly ask you're not to use the speaker phone.
Other triples, a question please press star one.
Question from the Q fresh start chip.
Our first question comes from Frank Mcgann Bank of America.
Hello, Thank you very much.
I was wondering is two things one on refining Andy.
Sales process that ongoing now if you could perhaps.
On what the latest is in terms of timing.
For the different pieces of that process and secondly on in terms of.
In key in production levels for 2020, when do you expect that were really begin to see the effects of maintenance you have any guidance you could provide in terms of which month.
I could see the most important levels of maintenance and what potential actually we could see in those month.
Hi, Hi strength.
Regarding our divestment in the refining process, we are in the bybee see.
Means that the and now the potential buyers they are.
Evaluating the big data information that they received about eating refinery.
To make a binding proposal that we expect so he was here by the second quarter of this year.
We we keep our expectation to have the SPJ signed by the end of the here and to have the closing by the end of 2000, Glenn you one according to their antitrust authority. The document that we signed lease Sachin.
Oh, Thanks couple.
Yes, because.
About the delinquency effect that we are going to shield.
Action with you.
Last month, Jerry we didn't see this effect yet.
Yeah, we produced almost anything that we have you said.
The similarities about premium barrels equivalent per day.
Now this is Michael and we have started with the stopper jobs platforms.
And we'll start to see this effect the effect will be mostly.
And the first semester up busier when we are going to July two two thirds off dollar stopped but.
The number of this property that we have planned funding.
So mostly having to see defect chilling alone.
This semester.
No.
So see its beginning this month.
Praveen.
Okay in terms of the number of platforms that are affected how many are there and what is the average time that each would come down for maintenance.
I wish I realize it's different for each one but the average that the effect might be for each unit that affected.
But what is out there as topics that the deeper rice.
On the average we could think about 15 days yes.
There is a figure for where the stock but.
And a number of platforms, it's well we'll have three topics this year.
And.
37 platforms.
Okay. Thank you very much.
Our first question next question comes from don't know Ahmadi Goldman Sachs.
Hi, Good morning, everyone I have just a quick follow up on all your production in Brazil.
Your production reached a near 2.4 million barrels per day in the fourth quarter of 2019, why you're you are guiding for two points you are in Chicago and plan. If I just wanted to understand trucks and can give guidance would be considered a conservative you can write off the reliability safe and integrity to me.
Activities, you intend to perform and if it fails in Chicago 19 of the reference you Overdelivered on your targets, providing me last year by roughly 4%. So is it fair to take these new guidance is a conservative forecast for or not thank your for much.
Oh, okay.
We don't think its.
So it is in fact, what we Joe is that we have made a extensive analysis what risks and looking what we have faced it last year also the years before and we decided to include it in our predictions because now we have very well at this just at the beginning of the we the year, but some things can happen.
Well, the yet and when we look back to the best and see what happened. So we decided that it should include this this.
Things that generally add this relative in our analysis of risk of our prediction. So.
We have this yeah. We have considered this 200000 boes per day in our figure for this year 2020 and that it has to do with integrity safety and reliability of our systems.
And in this figure we if we can split or the effects of that.
Contributes to this 200.
Thousand barrels of likely that because they are less and all the prediction. We could split this 40% that has to deal with the what he called the SS Ccs yield to the the cracking careers effect.
Based on this year chew on the older.
Well there the is it has to do with inspection and maintenance success. He pipelines. It's around 40%, 40% is it has to deal with the prediction stop but all the pre salt platforms and 20% has to do with as excess topics that we will have on the post salt platforms and it also related this 20% to the.
The agreement has we have made with it Brahma and where we have to.
But self.
Injection water plants.
On the platforms.
So it's it's split at all this is this facts but.
Going back and go straight to your question, we will work with just think that'd be the protection.
Prediction that we have set for the year 2000, but is correct, we'll see what was happening during the year.
For sure we had a very good production at the beginning of the year. Although we don't we have already so the the the quarterly dividend of 50% of the target over here and also the assets that we haven't Nigeria, but we'd have to wait but so far we think that the disagree with what is headset.
Thank you Andrew very quick follow up so I guess you do maintenance every year right. So can you. Please confirm this 200000 barrels is on top of what you usually do in terms of maintenance or is it you know the total maintenance in fact, you expect further your including what you would usually do in let's say a normal year.
Yes, Oh. It's also included it is all included in that the target for two years 2020. We include all the maintenance that we have for you.
Okay, and then how can you give an idea of how much the usual impact of maintaining some production I understand this year maintenance for you in fact production track record and then.
What's the usual number so you know usually how how to.
How does this 200000 number look like in my regular year, let's see.
Well.
Yes, it doesnt.
And he it's what I mentioned, 40% of the no. The figure 200000 barrels per day, we would view is due to that maintenance of the pre salt platforms and 20%.
Related to them and their software both salt platform. So it would consider some things like 120000 barrels of both of.
That was a flexible per day for their 2020, that's because the fever relates to the methods of the platforms.
The next question comes from Andrew Delucca Barclays.
Yeah, Hi, Thanks for taking my question I wanted to ask on it allow me. So there were some interesting color you guys provided on the Portuguese call you mentioned that you're looking to reduce the cost of funding to about 5% from where you are a little bit under 6% up the another quarter, but at the same time, if we look at the last transactions are done in the market theres been some reluctance for bondholders to tender bonds just because.
How comfortable there with the company's trajectory.
So if I'm not mistaken you mentioned on the Portuguese call, you're looking at creative ways to reduce your debt and maybe increased his participation rates for future. Let me transactions is there any color you can provide from from the comments did you provide on the Portuguese call and maybe any sense of timing for these transactions. Thank you.
So oh, we will have to be created for the reasons you just mentioned and our now it's hard to nobody wants to sell adds back the bonds that they have a high return and definitely now we will be issuing England, where.
You too much receipts that the reality off a better Brad moving forward.
So when I say, we will have to be create has as we will have to give investors.
Something different may be more liquid bonds in a in the buyback would that with some cash we'll have to or maybe to explore a window of time and I always getting the bond that is like closer to the to the maturity that the bond holder has.
It's hard to tell you when those things are going to happen because those things are totally related to the when those opportunities that we have in the capital market.
What I can tell is right now inside and has been as being an amazing liquid markets at the beginning of the year.
So unless there is opportunities right now, but I'm not saying, we will do something right now, we just saying that that the beginning of the yet has been really positive for people issuing Neil Neil transactions that with a very low.
I would say yield yields compared to the pass we will explore those opportunities, but it's not just about capital markets. It's about that renegotiating that that's that we have seen the bilaterals and this is everyday work. So we already did some this year and we will keep doing that so that the.
The bilaterals that we have flexibility to buyback will be always are negotiating that damn to reduce increase terms and windows. We lose the amounts outstanding we do think interest on them and increase.
The much rates on them, it's going to be our work I would say in the next two years.
Forever maybe.
Great. Thank you very much.
The next question comes from Mohammad cooler Raymond James.
Hey, guys. Thank you for taking the questions. This morning so.
Several of the large global integrate oil and gas companies have recently made pretty ambitious announcements regarding to reduction of carbon emissions some of them, even going as far as targeting net zero emissions.
Can you talk about any specific goals you guys might have and can we expect be similar now front for me that in the foreseeable future.
Hi.
Hello.
Thanks for your.
Action if you weren't.
I cannot announce now that Petrobras, who have zero emissions by dengue outboard busier.
So you won't be there so I can any announcement for 2050, but let's go to the real wall.
Let's be Frank.
[laughter].
First.
We are not invest the the yield was what now because.
We are very humble guys.
We don't have the complete the stood to drive in this type of these different from oil loyal.
We are the best but.
We're not willing to lose money just because it will be on companies are doing so and so.
Oh, we have.
Then commitments.
To sustainability.
Zero gross.
Absolute operating.
Issues due to 80 85.
I hope I will be alive.
[music] alive in Threeq, Ptwenty, five perhaps not as Youre Petrobras, but that's all buys will be here and you continue to be the financial results.
Zero G flaring by 2030.
As we are committed also to carbon capture have a startup GAAP gobbled capsule.
Uhhuh is a 40 million.
Owns of Seo reads rejection by 2025.
And a 32% reduction in gobbling density the upstream segment.
By 20 to 25, so there is at least of.
And committee can find eaten up presentation of now for the the announced more of this strategic plan for a lot, but in the Petrobras day 29 gene.
We made this presentation are the NYSE and London as well.
But.
That's a a wheel.
The last but not least I'd like to tell you that Petrobras in terms of gobbling mission, but by barrel of oil is second only to ethanol in the global.
Oil and gas is that's that's it added regarding renewables, who we are investing he.
Research and development trying to acquire the completeness for immediate future. If you go for this business we are.
We'll go or do we not to lose.
Okay. Good answer. Thank you that's all for me.
Yeah.
Thank you all at this time, thank you Wendy session of Petrobras.
Always over.
Back to celebrate.
Thank you for final remarks. Please go ahead.
Okay.
Well, Oh, well I'd like to thank you for attendee our.
Conference call.
It does it's always a good opportunity where exchange ideas to hear your questions to have the opportunity to be more transparent transparency is one of them our one of our goals.
It's very each key.
To give reduction of cost of capital and we'll be very open to your questions up anytime.
We are very welcome to our offices. So we will then eyes of this too one of our operations this year.
So.
And.
My message is that is.
That.
We are strongly committed to make Petrobras a much better company.
Our goal is to become did bass.
And as globally focus in oil and gas in terms of a value creation to shareholders.
Well.
Thank you.
For for you for your tenders.
Thank you.
This conference call for replay will be available on Petrobras Investor Relations website at <unk>.
That's right.
Slashed our thank you very much for your participation have a great Dane.
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