Q3 2021 Petroleo Brasileiro SA Petrobras Earnings Call
Reducing emissions in our operations next please.
In terms of the results with respect to emissions in the.
In a year 2021.
Our results are coming as expected and we our outlooks for 2021 are very.
<unk> healthy and we expect to achieve the goals that we set for 2020 one in terms of kilos per ear.
<unk> two per barrel of.
Of emissions in the upstream segment, our carbon intensity is $15 seven compared to our target of 17 are acceptable maximal event of 17 so were.
Comfortably below the target that was set for 2021 and in terms of the emissions in our refining operations were also below we have $39 nine kilos of Suzhou equivalent per tone of our complexity weighted.
Uh huh.
In our refining operations send our acceptable maximum limit is 40. So we're below the target set for 2021 and in terms of viable absolute a G. G emissions for 'twenty 'twenty. One we're also at a with we permitted 46 million tons of steel tune. This and this year and is also a.
Compatible with the targets that we set for 2021 as well.
Next please.
In terms of Soo Choo emissions are in terms of steel Chew Reinjection, sorry, we've been focus on Reinjection re injecting a relevant portion of our C. O two emissions and when we look at the what we've done since 2008, we've already re injected 2028.
Point 1 million tons of Seo Chew and are only in 2020. One we've already rejected $6 7 million tonnes, which is very close to the level three injections of 2020 and ER work.
<unk> focused on achieving the our our commitment of Reinjecting 40 medium tones of Seo chew by the year 2025, and we're focused on achieving that target and continually improving the level of suture Reinjection next.
Next please.
Another important aspect of our ESG strategy is of course, a recognition of improvements in our governance.
October Desir, we have completed the obligations that we had under the agreement with the U S Department of Justice a disagreement was signed in 2018 and is now closed and there are important recognitions that were made and the conclusion of this process of course related both to the improvement of our internal controls.
And should the evolution of our integrity program are the companies are compliant system has evolved substantially since 2015.
And of course, we're highly committed to continued improvements in our governance and compliance systems, but it's an important achievement and recognition to the conclusion of the agreement with the U S. Doj are of course. The agreement also acknowledges that with Roswell says a victim of the corruption schemes that occur.
In the past.
And as I mentioned before we're focused on continually improving our governance are now compliant systems next please.
In terms of our financial and operational highlights are of course, we have to choose a highlight the fact that we've achieved.
Our target of 60 billion dollar of gross debt.
We expected to achieve that in 2022, and we closed third guard at 2021 with a gross debt of $59.6 billion, which is a very important achievement and brings us to a capital structure that is much more compatible with our peers and allows us to compete much more.
Lee in the oil and gas market makers and other peers.
We had a recurring EBITDA drop with $2 billion and our recurring net income of $3 $3 billion in the third quarter of 2021.
A very solid operational performance with highest higher sales of oil products and domestic market, especially diesel gasoline and jet few our oil and gas production also increased in third quarter, we have the pre salt representing more than 71% of our total production now so we had a very solid operational.
Water Ah that resulted of course in the in our in our unimportant.
Unimportant generation of cash from our operations of $10 $5 billion, San our free cash flow of $9 billion.
During the third quarter. We also had important inflows from our portfolio management strategy of course, the remaining shares that we had in pits registered we daughter.
It resulted in a cash inflow of $2.2 billion and we also had the payments of the co participation agreement for the Boozers field.
Oh $2.9 billion that was also a relevant cash inflow and represented a are there the entrance off our partners in the in the bushes for U S.
Yesterday, our board of directors approved a new anticipation of dividends of $6 billion debt alongside with $6 billion that we had announced in August totals $12 billion of anticipated shareholder remuneration for the year and this is of course, a an important contribution and Ah represents.
The company's commitment with at generating value and distributing its earnings are an important contribution both to its shareholders entered the Brazilian society.
Not only in the form of dividends of course, but in the form of a tax paid and our social responsibility as well so the company.
It's getting stronger and healthier and being able to substantially contribute to the Brazilian society, as well with relevant investments and our commitment with operational efficiency.
Next slide please.
When we look at the external environment.
The Brent prices were 7% above our Q2 2021.
And the average exchange rate was a there was a little appreciation of the how when converted to U S. Dollar during the quarter, but me a relevant figure here is are the changing to end of period exchange rate.
Which impacts our end of period AR.
That's when we translated into Brazilian highs, our functional currency and it impacts our earnings. So we had an important impact in the earnings of the third quarter of 2021.
That is of course, a noncash in fact, but it impacts a relevantly our third card 2021 earnings next please.
And when we look at the gross debt as I mentioned before we reached the target of $60 billion and anticipation. We originally forecasted two mediating 2022.
And when we look at the track record of the company. Since 2015, we had in the past $166 billion and gross debt when we considered a finance leases and the multiple of our cash flow from operations was in the past above seven so it's and impressive corporate turnaround germ.
Any that has been made by the company and of course allow us to be even more focused now on operational efficiency and on returning the.
And the cash that would generate.
In the third quarter of 2021 we prepaid $6.1 billion in gross debt and there was of course their startup of the F. P. S O Carioca, which added another $3 billion in finance leases are there's a an important achievement with respect to refuse F. P. S O chaotic as well.
We're very close to start producing the second producing field.
From a pull must be S. OCA, the orca and continuing with the ramp out of the platform, which adds a relevant production shore portfolio.
Ed strategy to our truck portfolio overall, and when we look at our leverage in terms of net debt should be die close Q3, 2021 at $1 17, which is very in line with the four peers, if majors and of course, our when we think about the $60 billion debt target that we set.
That is a level that allows us to be committed with the company is finished with sustainability and to navigate scenario is much more challenging than the one that we're seeing now.
$60 billion are that allows us to go through scenarios like the one we saw last year, when we had Brent prices around 40.
A barrel without substantially increasing our leverage so it brings us a very optimized capital structure and allows us to look very enthusiastically to the future next please.
In terms of our EBITDA, we had a very solid quarter as well, we improved our recurring EBITDA was 7%.
Total IV die off a trough point $2 billion of recurring EBITDA in the third quarter of 2021.
As I mentioned before this is of course, a result of a very solid operational performance.
The upstream and downstream segments next please.
Looking at the performance by segment are we had have an important impact of Brent prices for the upstream segment.
Our predict and of course.
Increased by around 1% the squad as well in the pre salt is.
Improving its share in terms of our total portfolio, which also adds value to our to our portfolio and our results are in terms of our RTC segment are we had also important results in the second quarter and despite the improvement in the operational performance, we had higher expenses with.
Legal proceedings that offset the other improving the operational performance and with respect to our gas and power segment of course, we had no lower natural gas margins.
The substantially D should the increase in LNG costs.
I believe LNG costs internationally are substantially higher and we have a longer term contracts. So we had an impact of the LNG cost in our long term contracts in this quarter, but are the annual result is also very solid and in line with our.
Planning for this year as well next please.
In terms of cash generation and the distribution of our cash.
Alongside with our EBITDA, we had a the impact of income taxes and working capital that was relevant in at the acquirer are we're seeing higher prices. So we see some increase in terms of our working capital as well as.
As I mentioned before we had and we had $9 billion of free cash flow in third quarter of 2021.
And when we include the inflows are from the portfolio management strategy and from the Booze used co participation agreement.
We have a free cash flow after divestments of $14 3 billion.
Billions of dollars and of course that was mainly used to reduce our gross debt. We would we prepaid $6.1 billion of gross debt and we also had additional scheduled payments soda total payments in terms of that was $6 $8 billion disquiet.
And we also had the first payment after dividends that we announced in August.
$4 billion. So in terms of cash are India, and we have a positive cash change of a 1 billion dollar.
In the third quarter of 2021 next please.
Okay.
In terms of our liability management strategy of course were in terms of debt level, we're quite comfortable.
With the current capital structure of course, this is something that the company continually monitors, but we believe that 60 billion dollar debt level allow us to to.
Be able to manage the company efficiently and challenging scenarios are but when we look at the profile of the remaining debt of course, we see opportunities to.
Increased its maturity and to reduce costs or current costs at 6% and we improved the maturity in the third quarter was 2021 from around 12.5 to 13.5.
When we look at the amortization schedule for the next year next years Ah is quite compatible with the company's cash flow generation and we see that we have a very smooth amortization profile down at all as to make the relevant investments that we need to make and to distribute a dividend so without committing the company's financials.
Sustainability a.
We also had a we have a revolving credit facility lines of $8 $7 billion and a cash level of 11.51 would think about the cash level are we see that we're we have a cash level that is higher and our optimal cash level that we believe that is around a two two.
$10 billion, but of course, we still have.
The potential challenges coming from the pandemic scenario that is of course, it's improving but we still see a potential challenges in depth coming futures. So we're we have a higher cash level than we think it's optimal at least for the short term.
But would you expect to bring our cash levels to lower level closer to.
Of two which will range from $8 billion to $10 billion in the third quarter. We also had the the early redemption.
Of $1.3 billion in our bones.
The make whole of some of our bond series. We also have $3 $5 billion in prepayments of bank loans and we have very we have very positive news in terms of credit profile Moody's upgraded our credit risk from BH, who choose to be a one are in the third quarter of 2021 next.
Please.
In terms of portfolio management are as you can see the highlighted transactions, we had six signings and forecloses and third borrow 'twenty 'twenty. One are of course, a relevant transactions that support our deleveraging and.
And help us achieve our the optimal portfolio focused Don Ward class, our upstream assets and world class refining assets in Brazil.
Of course, especially in the ultra deepwater pre salt and a workout class at refining assets in the South East software Zoo that is the focus of our portfolio. Our next please.
In terms of highlights of this third quarter, we had.
The follow on off our remaining shares in badge in Pityriasis Rubra, daughter that I mentioned before we also had relevant signings both in terms of our agreement with a catchy with respect to the refining assets answered in natural gas assets. So we signed a.
The SBA for him on that Istar, North refinery and also we sign guest bathroom and auto relevant assets.
The natural gas agreement with the preceding them to Tris authorities.
And also we had the closing of the hobbled, but uncle fields are in October 'twenty 'twenty. One so our total cash inflows into <unk> in 2021 is $2.9 billion and the total value of the already signed transactions in 'twenty, 'twenty, one and $5 $6 billion and that of course supports our deleveraging strategy.
And distribution of earnings so it's a very positive.
Inflow in terms of of cash next please.
So in terms of our earnings for the quarter, we had $3 $3 billion off our recurring earnings in the third quarter was 2021, we had a 5% increase in gross profit and as I mentioned before we also had a negative impact.
With respect to the depreciation of the how that impacted our.
As I mentioned, it's noncash, but it impacted substantially our earnings. We also had a reversal of impairments are from upstream assets given the more positive price scenario.
And capital gains from the losers.
Losers co participation agreement does were partially offset by our actuarial losses really to our corporate health plan.
A we had a we had a relevant change in terms of legislation here in Brazil because of the sensation by Vinci trays that was part of our labor agreement with the with the unions and it impacted negatively the third quarter of 2021.
Next please.
Finally, as I mentioned before our board of directors approved.
In 2021 and in anticipation of $12 billion 6 billion were approved in the second quarter of 2021 and an additional 6 billion has been approved now in the third quarter.
This anticipation of shareholder remuneration of course is compatible with our financial sustainability.
And reinforces our focus on our focus on capital discipline on optimizing our capital allocation.
And of course on distributing all the earnings that we generate.
That of course is very positive both to our shareholders and to the Brazilian society that India and receives a relevant portion of the dividends that we pay. So this is a very important in terms of <unk> contribution to the Brazilian society to swell and we believed it.
Having a stronger and more solid Petrobras is a very positive for the Brazilian society, So and as I mentioned before we continue to be highly committed with the execution of our strategy and we believe that the results that we haven't declared acquirer represent unfortunately.
<unk> in terms of delivering our strategic plan.
Thank you I'll pass the floor back Chicago. Thank you.
Thank you.
We can now move to our Q&A session and the first question that we receive from strong Frank Mcgann.
You can think of America Merrill Lynch.
Sure Anthony.
And then what cost pressures are you seeing more relative to operations announcements.
Could this affect future capex decisions.
Thank you Frank for your question.
We do not expect costs in <unk>.
<unk> this year since the contract of goods and services that are being accepted before.
And also because even inflation corrections do not the pie at the same time for all of our contracts.
With respect to the future investments we continuously access.
Oh, the applicable variables not only cost, but exchange rates rents in Manhattan.
In short and long term and it's also possible.
Project optimizations analyze them, that's pets are computed on the future capex.
Capex decisions, we are concluding and crews to announce.
By the end of November beginning of December 'twenty, two train six strategic plan.
Which we'll detail all investment choices.
Your question.
Thank you and then the second question from think ethos.
So my view isn't that significant improvement in the Companys balance sheet and expected think global supply and demand that is expected over the next few years could the company moved to increasing upstream projects over the next several years.
Okay.
Thank you for your question Frank.
Of course, the more positive oil price scenario is supportive of a increase in capex in upstream assets, but are when we look at our portfolio in terms of future perspectives, where of course concerned with long term prices and we're committed.
To invest in assets that are both environmentally and low price resilient. So we have a very solid threshold in terms of project decision of 35.
Brent price in terms of resilience for a long term project and we can expect some increase in terms of capex for the 'twenty to 'twenty six business plan that we expect you announced by the end of November beginning of December but again.
The cap takes our increases that we're that.
We eventually make our will be related to resilient assets and that are able to be.
Be profitable and have adequate returns even in quite challenging scenarios, but thank you for your question.
Yeah.
Thank you.
<unk>.
Yes.
So the company has been very vocal in the sense of highlighting slipping to contribution to society in this one.
How can we see developing in the next 12 to 18 months.
And the country in the Gulf of challenging macro situation.
Even it's to benefit the currency.
Could we understand the potential neenah to fund distributions could there be the case for potential high percentage than the 60% of the different muscle breaking cash flow and capex.
Thank you. Thank you for your question Louise Ah well of course 'twenty 'twenty. One is a is a transition year in which we achieved our 60 billion gross debt target 6 billion dollar of gross debt target and our we have of course of course manage to AR balance.
Reducing our leverage this year with distributing our earnings as well. So this is this has been an important part of our strategy for 2021 are of course that depending on the results of the fourth quarter of 2021, we may see additional dividend distributing depending on the scenario of the reserve.
<unk> and the company's financial sustainability as well.
But in terms of the future for 2022 we expect to to comply with our dividend policy and distribute 60% of our free cash flow I starting from 2022.
And then of course, a depending on the scenario and and and and the results that we have we may think about additional distribution, but again it will be depending on the scenario and the upsides that we have in terms of what happens next year are of course, where we're now looking at the 22.
26 business plan and considering aspects like the timing of dividend distribution and we want to have a more consistent a distribution in terms of timing as well considering potentially quarterly or half year distribution, where we don't have a straightforward answer now, but it's something that we are.
We're looking for we're looking at and we May have.
Does discussions concluded by by the announcement of our 'twenty to 'twenty six business plan.
For your question.
Thank you Heidi limousines and answer the.
The questions normally.
Oh great.
Down three so the first time to be Fahad legal question, what changes to the brands.
This was <unk> first the additional investments by other players in the market potentially in your refineries.
Second part is for my family. So how do you see the Brazilian refining market advancing after they were finding their suite also how the company sees the guarantee of domestic seen supply. Once there are other players in the market and want to be the Petrobras who is listening in to third parties.
So following the housing off the same process farhan asking him.
How long of claims from the final optimal good quality clinical you.
You said your breath, considering changes needs configurations or can we expect the company to continue to focus on the only refinery.
Even in the long term.
Yeah.
Louise we are prepaying, our company to this new environment implementing three action plan. The first one is regarding improving our efficiency through a program that we are calling here have stopped.
This program and to put our refineries in the first quartile of benchmark Solomon.
We used the reference of United States and refine their performance.
We are trying through this project gets optimize our Louisiana officials.
Looking for to reduce cost Zings chain natural gas and power actually we are in the Fi projects that are.
It's around the $300 million in Capex.
They'll horizon until 2025.
The second line that we are working here is prepare our hardware to follow market conditions, we are increasing our hydro treating capacity.
Around 10000 cubic meters per day.
And we are looking for increasing our conversion capacity around 9.7 thousand cubic meters per day.
To implement those projects our current business plan.
He is a point to a capex around three $7 billion. The floored lying olfaction is capturing that.
Upper tenants that we have in energy transition of horizon, He gardening bio refining.
Here, we are trying to analyze the opportunity to produce bio that fuse and renewable diesel.
So that's through two Mastella to answer your second question.
Thank you.
The question is talking amongst our new refiners.
Yeah.
Competition.
Refiners will occur naturally.
It tends to be positive to the market supply risk.
Risk sharing.
Besides I think will create to healthy tissues.
Tissue semi.
<unk>, Thank you messages.
It's important to highlight.
Brazil already has his passion for sneakers and competitive environment most diesel gasoline.
Thanks, a lot.
In the participation of Gpus.
<unk>.
Okay.
Mainly in Fourteens boots.
Talking about the competition with Petrobras.
We've already demonstrated that.
That's.
Arrival.
Thank you.
Well Im Luisa. Thank you for your question in terms of the third part.
Where the west coast with respect should it should the halting of the processes I'll finish and have poppy and whether we have any changes in terms of strategy and portfolio. No. We don't have any any any changes of course, we will continue to be.
We are committed we are complying with the agreement of the agreement that we have with the Brazilian antitrust authorities to divest a of a relevant portion of our refineries.
Given a more general perspective are we already have the signings of Halo and Hema.
That were wolf and the person's second quarter of 2021.
And we're moving faster towards concluding a six.
We also have a look not in <unk> that are more advanced.
In terms of the ones that were unsuccessful and then meaning a gap and sorry hip hop you had bought in the and in that she.
We expect to continue our conversation with the Brazilian antitrust authorities. So that we can relaunched the processes are in a way that we can be more effective and successful in and actually be able to should conclude the transactions in this in the second opportunity.
So we've been having discussions in terms of timing and strategy of our household to launch the processes in terms of of timing as well. So that we can improve the competition in the in the M&A process and be able to successfully sign and close.
So this is where we are now but thank you for your question.
Thank you al.
The next question comes from Noah <unk> with J P. Morgan.
And it's for sale, whether you can you give us an update on the process I'll say after refining park, what can be done to make these assets wanting just for buyers and what would be a reasonable timeframe.
Thank you. Thank you for your question hold on for a while as I mentioned before our ware.
Considering the timing and the strategy.
I don't know how true to relaunch the processes that we're not successful they were unsuccessful for for different reasons. A hip off for example are the bids that we received were substantially below our minimum valuation and have poppy, we could not agree on the terms.
As of the transaction.
Unfortunately, but a N S. C. We didn't receive binding offers so we expect schuh to relaunch dose dose transactions are after we conclude discussions with the preceding ounce addressed authorities are but we're concerned.
About improving the level of competition in the transactions and how can we ensure.
Ensure that we were able to relaunch in and sign and close them successfully. So we're working on this now and this is where we are in a in terms of the order processes I've already.
Already mentioned, where we we are in terms of timing, but thank you for your question.
Thank you Rodrigo.
<unk> also made a question trying to own those lung can you give us an update on the option of Cowen.
I haven't seen each restaurant companies to partner with different.
Brian.
Thanks for both before a question.
As the company has publicly announced on April with robots, who has expressed its ramp to drive to work as operator on both areas are stepping up.
For a minimum of 30% working interest.
Unfortunately, as you know.
<unk> disease is ongoing and we are not be able to Shannon perceptions of the other companies that this moment finally, we reinforced it with robots among things.
Our innovation to work in park initiatives, you can always be areas in order to reduce the risks and costs.
For the question.
Yeah.
Yes.
Thank you your own and the next question comes from going on with English Goldman Sachs.
And my third do you attribute to the recent rise in demand for pistol that she has for November.
Stronger demand in the domestic market overall on Harrington to Ashish to one more internal sourcing investments of less imports minus yields to us.
Okay.
Bruno Thank you for your question.
We haven't noticed anything that could support.
To go into.
And demand.
The most demanding November we choose.
Seasonally a weaker month October.
E technical demands.
Interest programs.
Well remember.
We must have.
Yes, we have almost 200 clients each with different perspectives.
Market to absorb.
It can speak.
Each of them, but it's who he has some data.
It's <unk>.
Sure sure sure.
Thank you.
Okay.
Thank you my salary.
Second question from Bruno 200 Eagle.
Can you please clarify the rationale.
Determining the size and timing.
Going forward.
Retards story now behind it so is it reasonable to expect kind of company to pay out 60% of operating cash flow minus capex on a quarterly basis.
Okay.
Thank you. Thank you for your question Bruno well as I mentioned before are the anticipated dividends that we've already announced.
Of course, we took into account balancing achieving our $60 billion gross debt target a we've been able to chew distributing our earnings and being able to start improving.
Improving not the level of dividend distribution.
'twenty 'twenty. One is of course is a transition year and we expect to start from 'twenty 'twenty true forward band of 60% of our free cash flow.
Consistently and complying with our dividend policy, we're currently discussing wetter.
Ah Choo Choo to have a more consistent dividend payment in terms of timing as well.
Thinking about whether we do it quarterly or half annually, but we expect you to keep.
A closer timeframe in terms of dividend payments as well.
And with respect to 2021.
As I mentioned before depending on the Q4 results and the scenario and companies are finished sustainability and performance for the fourth quarter are we may see the announcement of additional dividends depending on the on the scenario. Thank you for your question.
Okay.
Oh yeah.
We now have pricing zone, Bruno Montanari with Morgan Stanley and the questions on Mustang the metallic fuel prices in Brazil have been making their headlines since the beginning of the how can better brands contribute to make this price adjustments last north tile to final consumers without taking on additional margin.
How can the company contribute to the discussions regarding potential tax changes on the implementation a few price stabilization funds in the country in order to reduce the negative impact of high priced to final consumers.
Thank you Ruud.
Hello.
Our contribution to the additional.
<unk>, we do avoid.
<unk> customers all of them a silty.
The Florida market and the exchange rates.
This translates into a loan lower frequency adjustments, but doesn't prevent us from following structural changes.
Traditional pumps limbs.
Finally with regard to public policies.
Yes.
The refinery.
When requested.
He has contributed.
We all technical knowledge to the various government agencies.
Most of these various issues relating to marketing person.
Thank you.
Yeah.
Thank you my salary.
Bruno.
Uh huh.
So when you compare to peers rice has adopted a more pragmatic approach towards energy transition.
See more on short term goals and we've kept its capital.
This management expect to implement any changes to this approach in the new business plan.
I mean, the high level of free cash flow generation and the entire Io prices could it makes sense for the company to increase investments in research when you energy in order to be better positioned in context of energy transition.
Thank you. Thank you Bruno for for question Ah I think that our we have a several.
Several perspectives are choking to this question I think the first of them is a of course the quality of our portfolio.
Both in terms of environmental and low price resilience as we saw in 2020, the companys portfolio was quite resilient to much lower oil price scenario.
And $40 are around $40 of.
Average of Brent prices in 2020, so we of course have a very resilient and strong portfolio in our hands. So this allow us to think about this does discretion and much more carefully.
And look at it in a more pragmatic way as you mentioned of course, we're focused on reducing the level of our emissions and we have already set targets in <unk> S. A we happen as.
Ah I explained earlier, we also announced the <unk>.
Vision align with deal GCI as well.
And.
Of course, alongside with reducing the level of emission in or our operations, which is something that we're continually investing on and looking for projects that allow us to reduce the emissions in our operations.
Both in the upstream and the downstream segment in a more efficient way.
Elected have talked project that we announced this year that is focused on reducing on improving energy efficiency in the refining operations. We also think about developing a framework.
And our governance process to look into this.
This future potential projects energies.
And future potential scenarios as well, but of course is not something that we expect to substantially improve or increase capex are related to dose our alternative businesses for the 'twenty to 'twenty six business plan. So we expect you to continue to be focused on the current portfolio that we have.
And on improving the level of emissions in our in our own operations. Thank you for your question.
Okay.
The next question comes from has totally crazy.
Sneezing also for you.
Alright, so the mountain edition distributions plenty plenty more.
Cash flow generation was strong in the first quarter 2021 now with you it would be possible congrats to distribute even more.
The cash generated in <unk> 2021 should we expect to announce more on dividends.
And on the balance sheet two year results.
Yeah.
Alright. Thank you. Thank you hedge as for your question as I mentioned before are depending on the scenario for the fourth quarter of 2021, and while we have in terms of earnings and cash flow generation, we may see.
The additional dividend distributions.
For the fourth quarter, but again it will all depend on the company's financial sustainability and on the future scenario.
Uh huh.
On the on the fourth quarter of 2021 and of course as I mentioned during the presentation our cash level.
Now as above the one that we think it's optimal but we do see east we still see challenges.
In terms of the overall scenario, so we expect to be able.
The short to medium term to being to bring our cash level to somewhere closer to $8 billion to $10 billion debt, where we expect our optimal cash level should be.
But again this will all depend on the scenario and the in the upcoming months and.
As a as I mentioned before of course.
We're committed to a start applying our dividend policy and sarbanes, 60% of our free cash flow a 40 year 2022 as well. So this this this.
This will all be taken into account.
And to analyze our financial sustainability is an order that we can announce additional dividends. Thank you for your question.
Thank you heard of any of them.
Second question from Hans is two months Dallas unless talent.
And gasoline.
And recently there were some news, saying that right now.
Feeling additional fuel demand from Q2.
Above contracted volumes, which was called medical could you comment on that how do you see the capacity of current parties to supply local demand for your products.
Right.
Basketball.
Belief.
Lastly, a few price provide enough incentive to court.
Sams focus Nebraska to not supply markets, where parks could make more sense for example on the coast up in the north and northeast regions.
Okay.
Thank you. Thank you for the question.
First of all.
That's the wrong is truly complying with its contractual illusions, it's very important to me clean.
Specifically for the wound revenues in Singapore, Sydney, and with typical additional demand much much higher <unk> expenses.
Yes.
So even so it is creating new leads capacity it was not possible to lease the extra demand overall.
20% of Deason, 10% gas.
Well to.
I presume market.
We will not be short space currently several other players besides documents.
Distributors trading companies refineries, which produce any thoughts.
Gasoline and diesel truly capable of.
On the <unk> can do it.
Talking about our commercial strategy.
We don't.
Avoid markets. Its advance we will continue to operate in similar location, where we find profitability.
And competitions, including coastal markets.
Thank you.
Thank you Ms. Valor. The next question comes from we think for longer.
<unk>.
These islands.
Yeah.
It seems like that's been around since the balance sheet to pay more than 60% of operating cash flow minus capex.
The company discuss this possibility for disease.
Thank you for your question with St. Jude.
Well as I mentioned before a 'twenty one is a transition year.
So we're.
Of course, we were highly focused on reaching the $60 billion gross debt target.
That we've reached now in the third quarter and of course that depending on the results for the fourth quarter and on the company's <unk>.
Sustainability in the in the scenario.
For the short term we may announce.
Additional dividends and as I mentioned for 2022, our expectation is to start complying with our dividend policy and just start distribute and 60% of our free cash flow and of course whenever we have scenarios that allows us to have stronger cash flow generation, we will be.
Taken into account and considering potential additional dividends, but thank you for your question.
Thank you. The next question also from thanks as far as your own those don't prospective monthly parking.
Potential partners funded Tijuana auction in December.
The interest from current incumbents.
Thanks for a question as I mentioned for the transfer of rights.
<unk> is actually ongoing and investigators.
Unfortunately, I can't disclose.
Does it formation are both competitive weakness at this time, okay. Thanks, a lot for your question.
Yeah.
Thank you John.
The next question comes from Liliana Yang with HSBC.
Uh huh.
So let me can you please update us similar monetization practice of asking I hadn't taken so long to Macquarie Airlines.
Thank you Liana. Thank you for your question well currently we're we have ongoing discussions with novel nor that of course is another relevant shareholder.
In terms of next taps and trying to reach some kind of come on point in terms of the conditions of a potential sale transaction. So this is where we are now.
Of course, we continue to be committed to divesting our interests in baskin, but we want to maximize value. So we're currently.
Having ongoing we're having discussions with our novel nor are with respect to the conditions of a potential sale. Thank you for the question.
Okay.
Indiana also has another question for you from a cap expense so.
Making more money than what wed.
Expected in our budgets leveraging test chips and has announced.
Ounce entirety audience isn't the time to increase capex above cost inflation.
Well make more sense to allocate cash management.
Management preferred to recommend for Manav directors to distribute more of these units.
Thank you Liana.
It's as I mentioned during the presentation. When we think about the of course, the more favorable oil price scenario.
It's supportive of increasing capex in upstream projects and we expect to see a certain level of capex increase for the 'twenty to 'twenty six business plan, especially related to projects that were postponed given the more challenging price scenario last year and that could be.
The anticipated specialty projects that are closer to the end portion of the business plan, but again, we will continue to be focused on assets that are resilient. Both in terms of emissions and our resilience to low price scenarios. So this is how we look at this and that.
Projects that we will be focused on.
Of course, depending on the scenario.
Even considering the potential capex improve we could see additional dividends, but this is something that would would depend on the upcoming scenario, but thank you for your question.
Thank you <unk> now we have questions from Christian Audi with Santander.
And the first question is for you and it's about uses of cash. So how would you prioritize your uses of cash going forward.
Okay.
Well, Thank you Christian for your question.
Of course S as I mentioned.
As I mentioned before we believe that the $60 billion gross debt level.
These as an inadequate level in terms of capital structure, but we do need some flexibility around that level, especially after reaching eight a.
We believe we need some flexibility at our flexibility around.
60 billion, so that we can.
Managed the company's future financial sustainability more efficiently.
But then as I mentioned, the higher oil price scenarios is supportive.
For increases in Brazilian projects are in terms of upstream capex.
And of course, our additional dividend distribution and depending on the upcoming scenario. So R. R.
Future capital allocation will be focused on of course, having the capex that is already committed.
In our 'twenty, one 'twenty five minutes as plan.
Focusing on some certain level of Capex increase that we expect for 'twenty through 'twenty six.
But of course complying with the 60% our free cash flow of our dividend policy and eventually they mod into 60% whenever we have a supportive scenarios like the one we've been seeing now but thank you for your question.
Thank you, we'll now have questions. So that'd be a battle with C. D. The first question's for you.
Looking at the company's strong cash generation divestments and current leverage situation. How can you read the current dividend policy.
There've been room for payments beyond what wasn't Randy been disclosed by the company.
Well. Thank you for the question <unk>.
As I mentioned before are of course 'twenty. One is it is a transition year, but again with we've been able to reach starts to reach a $60 billion of gross debt target before we expected and depending on the upcoming scenario from.
You know depending on our earnings and cash flow generations for the for the fourth quarter of 2020, one we may see a additional dividends.
Announced but again it will depend on how things play out in the fourth quarter of 2021, but thank you for your question.
Thank you.
The next question from MPL is to Moscow to Mustang currently one of the major discussion Petrobras it's pricing.
Looking at the current scenario for FX and I, we believe that pressure if you will.
<unk> and <unk>.
In the short term however, when we look at the import parity with do you see the company charging prices below than partner.
Therefore, I would like to understand a needle bad habits, Nebraska.
About pricing policy on it.
Current moment in punishing transplant.
The possibility of changing that strategy.
Thank you and thank you for the question.
In the video.
You understand that Dale and neutral mineral prices with the global market utilization towards the material amount of competitive markets.
When you resume.
With respect to <unk>.
Agents that will be encouraged to make investments.
<unk> logistics.
And also share risks.
You bet.
We can build a stronger market.
Next <unk> com.
Super.
<unk> features in the future. So we continue to seek this smells moderate.
We've not seen volatility.
This is David.
Since <unk>.
Okay.
Yeah.
Thank you Mr. Allen.
We have questions from.
And any new.
Bank of America Merrill Lynch, we have one question.
Brittany.
And 60 billion that target has been masked one to be the next goals or targets on the data management language trumps.
Yes.
Yeah.
Oh. Thank you. Thank you Ani for for a question are we think that 60 billion is inadequate level that allow us to to navigate through challenging scenarios like the one we saw last year without.
Jeopardizing the company financials sustainability, even in lower prices.
Lower price scenarios like the one we saw in 2020.
But again of course, we do need some some level of flexibility.
Around the $60 billion a level. So so that we can efficiently manage the company's cash and then of course.
Distribute our earnings and pay future dividends. So we expect you to work on some level of flexibility around 60 in the upcoming future, but we don't expect you to bring this debt level substantially lower.
Actually the one that we have now.
We think that Ah.
From looking at this from different perspectives.
60 billion on gross debt level allows us to be quite resilient and have a strong financial sustainability for the future.
Thank you for your question.
Thank you have you not only have questions from Andrew sliding sleeve.
The backdrop.
Questions for you. So we brought that target now achieved what should we expect in terms of capital allocation in the coming quarters.
Could you provide an update on your medium levels of cash in Baidu company can we expect payments beyond the 6% operating cash flow minus capex.
Thank you Peter for your question Oh, Yes, as I mentioned before our optimal cash level was just somewhere around $8 billion to $10 billion.
This is where we expect to be working in the future, but again was to have certain challenges in the independencia scenario that we we are expecting huge seeing the upcoming future. So we think about.
Short term trajectory to being to bring our cash level closer to eight to 10 leveled out I may should in terms of gross that I've mentioned before we don't expect to substantially reduce the companies that we don't want to under leveraged the company as well so we think that.
60 billion is inadequate level for now and of course this assumption that we continually monitor but for the current scenario, we think that $60 billion races.
Sustainable level and then it is optimal in terms of our cash allocation and supporting our dividend.
Probation and future Capex strategy.
And in terms of additional dividend payments of course, depending on the upcoming scenario.
Whenever we have a constructive once that constructive scenarios like the ones. The one we have now.
We can.
Pose additional dividend payments and have additional payments, but we're now focused on complying with the existing dividend policy and paint is 60% of our free cash flow. Thank you for the question.
Thank you heard me. So next question also from Kansas Mines is too high cost.
Refinery utilization rates are currently a Thailand was can we expect some utilization reduction in the coming months as distributors are expected to increase fueling points.
Pedro.
All our utilization rate is relate to know with value generation output. This is one condition in the second one is the market.
The demand and the third one is hey, gardening our hardware.
He guarding availability of our refineries.
So the first quarter, we achieved 85% of the utilization rate and now at the October.
Our forecast point to 90% of utilization rate.
Thank you Jose not.
Now we have our last question.
Question is from Violet at Commerce tasked with keeping margins. He has two questions. So the first one would be 200 gigawatt hours.
In terms of capital structure, assuming the divestment program is completed.
Atlanta loss that the company would be comfortable with.
Thank you Barbara for for your question.
With <unk>, we think that $60 billion that is a it's an adequate level in terms of capital structure, we do need some flexibility around that number but with unexpected bring it much lower than 55 are much higher than 65.
Some flexibility around 60 would be more than enough. So that we can manage the company's capital structure efficiently and edit and add value to our shareholders.
That is where we expect Q2 to have our gross debt level set.
And of course this is something that we will continue to monitor in the future, but we think that 60 billion allows us to go through challenging scenarios of lower prices like the one we saw this year.
Thank you.
Do you have any England.
I'm going to ask one more question Fahad.
For hunting Carsten.
Can you provide more color on the natural gas engine is in LNG.
Julie.
Into more fourth quarter of 2021, we heard many companies complaining about freight costs has been repriced encountered the same issues for allergy part.
The pass through mechanisms in the schemes.
Hi, Barbara that Tom Rice is a hell of a player in Brazilian natural gas market. It works, we have a portfolio bowfin supply and the demand side.
We also have multiple contracts the lines with different commercial conditions in charge period contracts, we have pass through mechanisms that reflect the conditions of the moment of the market.
If we see the fourth quarter, we expect a high demand in our market.
Because we see high demand zing, Tampa electric and our industrial markets for the supplier we have all our production pipeline imports from believing in LNG.
And the way increase our <unk>.
Gas capacity in Rio Janeiro terminal.
Around 50% and in capacity and expand our capacity.
For the LNG supply, we already bought around 112, cargos and though we are assessing the need of additional approaches depending on the supply and the demand conditions, especially in the power generation.
We.
According to our profile, we didn't face problems with the Friday costs consider that Brazil has in the athletic amazing market. So we have we also have our own ship that allow us to manage bunch old market and our operational issues.
Thank you for your questions.
Thank you Lindsey.
At this time the Q&A session is over Felicia has any further questions you can send it to our Investor relations team.
The way I will now make his final remarks. So please go.
Go ahead.
Well. Thank you. Thank you Carla thanks, everyone for your time. This morning, as we've presented we're very happy with the solid acquired that we had.
Both in terms of operational and financial performance, we've been able to reach our gross.
Our gross debt level.
Our gross dollar debt level target that we'd set of $60 billion gross debt.
And of course, we're quite happy with the results we've had a in the year 2021, we've announced relevant dividend payments, we were able to make relevant investments and two relevantly contribution of Brazilian society as well so.
Thank you for your time today and thank you for all your questions.
If you have any further questions. Please feel free to contact our investor relation teams.
Thank you.