Q3 2022 Petroleo Brasileiro SA Petrobras Earnings Call

So third quarter 'twenty two results, it's great to have you join us today I would like to inform you that all participants will follow the transmission by Internet as listeners. After an introduction a Q&A session will begin you can send us questions by email and bathroom invest at Petrobras.

Doctor called ZR to be here.

So they will have with us cloud to wash, the Allen Chief trading and logistics officer Van under Walsh, Chief exploration and production officer.

Drawing he he says housing cheese production development officer, followed by Lyon, Chief Digital transformation, and innovation Officer, <unk>, Chief Institutional relations and sustainability officer, what they would've ocean, Chief financial and Investor Relations.

Officer cause anywhere quash them, chief refining and natural gas officer, and Salvador, Uh-huh, Chief governance, and compliance Austin to initiate our glass before to visit a rough CFO cause erosion. Please go ahead.

Thank you Carla thanks, everyone. Good afternoon, and thank you for being with US today and joining our earnings call for the third quarter of 'twenty two.

We had a very solid car, a very important operational and financial results and I'm very glad to be here with you today to present our results since we go through the Q&A session.

So first of all starting with our disclaimer with respect to future information of harsh guests next please.

So starting with safety as you go as you guys know safe to do so.

For our priority of the company is strong.

<unk> for us and we're continually focused on.

Improving our safety metrics and as you can see our total recordable injuries by.

Permit them and ours has been improved improving consistently over time.

Of course, we're focused on.

Achieving even better levels, both with process improvement and with technology as well and were substantially below the acceptable limit.

Of course, we do have an ambition of zero fatalities and Unfortunately, we had one fatality on Q3 22.

That reminds us that focusing on continued improving safety has to be part of our mission and we're strongly focused on that's next please.

Starting with our ESG agenda.

We look at our emission Kpis and we can see that we've been continually.

Continually reducing the level of emissions not only on the upstream segment, but also downstream segment both of them.

Below the acceptable limits and the targets that we set for 'twenty, two and our current business plan.

You can see that the emission stuff, we have to pay and bonuses are getting more and more competitive silver.

Reaching nine 4% nine one kilos of huge Hooper Bell ROI equivalent and of course, those are very competitive fields and support our strategy and our positioning as a low cost low carbon company.

When we look at the refining Kpis, we can see that the wrapped up program focused on improve.

Improving energy efficiency in our downstream portfolio has been achieving results and we will continue to achieve relevant results. If we look at the refineries that are involved into wrapped up program. We can see that their performance in terms of emissions is better than the average of the portfolio and we will continue to improve over time as we can.

C downwards focussed on our ambitions for reducing the debt.

The emissions in the downstream segment as well next please.

Talking about total operational emissions in the oil and gas operational emissions, it's important to remember that.

Over the third and fourth quarters of 'twenty, one we had.

A substantial level of thermal electric.

Energy being produced in Brazil, which increased our level of emissions.

On the nine months for 2021, but this.

This is definitely not the case for 'twenty two so we continue the downward trajectory.

So not only on the oil and gas operational emissions, but also with.

With respect to the overall.

Admissions for 2022 next please.

Looking at the C O Chew reinjection.

No we have the largest Ah <unk> program offshore.

Offshore <unk> program and the award and we are focused on continuing with COPD Reinjection, we have already re injected seven 6 million tons over the course of 2022 and since 2008, we've already rejected $37 7 million tones of Seo true so very important part of our.

Strategy in terms of reducing emissions and being a worldwide low cost low carbon player next please.

In terms of highlights for the environment, though in climate agenda, it's important to highlight.

13 projects that have been approved over the course of the third quarter.

As part of our Decarbonization fund that we disclosed in the latest strategic plan about $250 million of investments.

So those projects represent $76 million of investments in monitoring fugitive emissions.

More efficient vessels equal type vessels and also energy efficiency.

They all have the potential of reducing once here 5 million tones of C O two equivalent per year.

So we're very happy to announce that we've approved the first a group of project. So far de Carbonization fund and we will continue to.

Develop study and find additional projects and technologies that support our trajectory for emission reduction next please.

In terms of our social environmental agenda.

We have launched a public bid for.

Waste treatment and in Brazil in the city of <unk>.

We have the potential of the potential of reuse of about 600 tonnes per year of waste and several of Petrobras buildings in Rio de Janeiro and investment of.

About $2 million, a little bit more than $2 million to be invested in three years, we've waste treatment courtyard chips in Rio de Janeiro, where have the results for the for the bids coming out in November .

It's important to highlight that the.

The players that are involved in this in this bid or.

Mainly ah.

We're in a row public debt will be involved.

So there is not only an environmental impact, but also a very relevant social impact.

This is one of our relevant actions in terms of circular economy, and we're very happy to.

Not only.

<unk> the disposal to reduce the waste that is disposed on landfills, but also contribute with income and employment generation four.

The comparative steps that will support us in this relevant project next please.

In terms of tax collected over the quarter or is always important to remember that the company.

About 55% of the company's cash flow is returned to the Brazilian society via taxes or via dividends.

So the company has a very solid in the relevant contribution to the Brazilian society over the course of this year, we have already paid about 73 billion. He is in taxes in Brazil.

The nine months already paid 222 billion highs and taxes that represent more than.

And the entire year of two.

2021.

So we continue to be a relevant part of the country's GDP in the relevant contribution to Brazil, not only with taxes, but also with dividends our income generation and relevant investments.

Overall throughout.

Throughout the country next please.

In terms of governance, we have advanced.

Our administrative accountability process program.

With with.

An important increase in terms of fines that were levied against companies that are involved.

Involved in acts of corruption. So this just is a relevant contribution should effectiveness how far integrity program and also foster is a sound and impartial business environment in Brazil, and the development of our company is to have that have a strong sense of our compliance and transparency like ourselves.

We have also.

Been evaluated.

With respect to the adherence for the Brazilian corporate governance code for 2022, and we have about 95% of injuries to the recommended practices. So the company.

<unk> has of course, a very relevant and strong governance that is quite the jewelry into the Brazilian.

Corporate governance code.

We are also we also continue to be number one in terms of the the federal courts of audit transparency transparency ranking and.

Also have recently concluded the implementation of SAP, four Hana, which is not only an important step in terms of digital transformation and efficiency for the company, but also unimportant.

The enhancement of our internal controls environment and developing the potential for a while.

An increase in terms of data driven decision. So this is a quite relevant in terms of efficiency in terms of.

Technology and also in terms of governance.

From the lens of internal controls next please.

Yeah.

It is important to remember that alongside with the financial transformation that the company has gone through over the last five years to seven years.

We have also made substantial improvements in terms of our FID process for for Capex. So the decision process to approve new projects has substantially evolved over time.

Not only talking about approving projects that are only positive NPV in the stress case scenario, but also making sure that the projects are continually monitored by the board of directors. So we do have a manual process that the board of directors goes through the entire portfolio approach.

It's considering the most recent assumptions from the strategic plan and also the most recent harder right and looks for projects that have a relevant variance in terms of NPV.

So the actions are taken to mitigate or to optimize the projects to make sure that they are returned to the positive trajectory that they had when they were approved. So this is quite important in terms of monitoring by the board of directors as well next please.

Thanks.

Getting into our financial and operational results, we had a very solid quarter as I mentioned at the beginning.

From the production perspective, we'd start to see the ramp ups of Matto, maybe going through it all we have also announced recently.

Important discovery at the <unk> as well.

We've been able to deliver the projects on time and to develop.

The projects, sometimes so we have recently announced the arrival of <unk> 71 that will produce <unk> and we have also announced that our <unk> range by holders have arrived in Brazil.

Of course as you guys know.

About 90% or more of the NPV of the projects are are.

Our are determined by the project decisions and how well we manage the projects. So it's very important for us to deliver the projects on time and indicates a <unk> 71, we have anticipated.

The production startup that was.

Forecast to be 23, it's going to be by the end of 'twenty two we.

We have also signed contracts for the construction of the units for Boise was 910 and 11.

We are continuing the development of our most relevant skills that will represent by 2023 about a third of our production and <unk>.

Fencing substantially into the development of the <unk> project in terms of our logistics. We have also incorporated as I mentioned before our chew eco type vessels.

We'll reduce our carbon footprint.

In terms of the of the logistic operations in the downstream segment.

Even.

In this quarter, where we had.

A relevant scheduled stoppages in the in our refining portfolio.

Had a very high utilization rate of about 88%.

Eight of our refineries have dara availability compatible with the best North American refiners, so were developing.

Very solid and reliable portfolio of refineries in Brazil, we have achieved.

The record daily energy efficiency, yet so.

So I was talking about the energy efficiency programs that we have and how we're focused on increasing energy efficiency. So we're already seeing results and we will continue to be focused on that.

Over the course of the business plan.

<unk> also produced record levels of 10 ppm DSO, the low sulfur diesel in Brazil, and have already produced and sold the first batch of the <unk> diesel that is our diesel with renewable content.

Showing the results of the initiatives that we have to deliver products with a lower carbon footprint and lower sulfur levels as well in Brazil.

Of course, we continued with the opening up of the gas market. So we continue to be committed with the opening up of the refinery and the gas market we have the.

Processing contract.

Started for the natural gas treating unit of property owners and we also had the closing of our guest bathroom the natural gas distribution.

Finishing investment that we had so we are moving forward towards.

Concluding that the opening up of the gas market in Brazil. So in terms of financial results as I mentioned, we had a very solid quarter or the second highest in the company's history.

The first was the.

The second quarter of 'twenty, two so a very solid quarter of $17 $6 billion EBITDA.

$1 billion cash pro forma operations, our free cash flow of $10 $1 billion net income of $8 $8 billion.

As I mentioned in the previous quarter, we continue to maintain our leverage under control because the quarter with $54 $3 billion of gross debt that has a little bit below the optimal range of 55 to 65, but we don't see any any relevant concerns with respect to leverage, especially given the fact that over the course of 'twenty.

Three we're going to have.

New <unk> coming online and the leverage we will automatically increase as dose units start operations. So we will be back.

At the optimal range over the course of time.

I've already mentioned the relevant taxes that we paid in the nine months of 'twenty two we've already paid more than the entire year of of 'twenty one.

We have been not acknowledge again.

That's one of the 10, most transparent company.

He is in Brazil by the Brazilian Association of Finance executives, our financial statements. We are therefore elected as one of the 10 best financial statements in Brazil, and given all of the financial performance and the solid cash position and capital structure that we have.

We approved the distribution of $3 35 per share of <unk>.

Dividends debt.

That are consistent with our dividend.

Dividend policy and also consistent with our.

Short term medium and long term financial sustainability. So the company has a very strong cash position very strong.

Capital structure position and is able to.

Create more value and therefore to return more value to its shareholders and of course definitely to the Brazilian society.

Receive.

A relevant portion of the dividend that we distribute next please.

Looking at the external environment as I mentioned before we have seen a quarter with slightly lower prices compared to two 222.

In dollar terms when we look at the annual.

Increased we have 55% increase year to date compared to 21.

In terms of exchange rate, we saw depreciation of the precedent how from Q2 Q3.

Which reduced a little bit of the impact of lower.

Crude prices over the course of the quarter, but.

We did have slightly.

Lower performance compared to Q2, given the lower prices.

In terms of the annual change in the exchange rate, we see it's a <unk>.

Depreciation of the Brazilian highs.

Next please.

As I've mentioned before.

We're focused on delivering the projects on time and focused on.

Making sure that the units start production on time, and therefore, we have anticipated the prediction of PS 71 is the pool for the end of 'twenty, two and we continue to be focused on.

Making sure that on.

And then Andy on <unk> biology, and <unk> are.

Concluded and start production on time.

Over the course of 'twenty three as we disclosed in our latest business plan next year.

In terms of EBITDA.

As I've mentioned before we have a very solid quarter $17 6 billion recurring EBITDA you can see that it was a very.

Uh huh.

Clean result, with.

Low impact of nonrecurring items, you can see that the the EBITDA was very close to the recurring EBITDA impacted as I mentioned before by the patient.

The valuation of a Brent prices and also by lower export volumes. This is something that we highlighted in our production.

Production and sales report we.

We had part of our production of the third quarter.

Impacting the inventories and we will be impacting the results of the fourth quarter positively. So we did have some of the exports ongoing by the end of the acquirer. So this will positively impact our Q4 'twenty two next please.

Looking at the performance per business segment.

I've already mentioned the upstream segment was impacted by the reduction in Brent prices.

The downstream segment had a very positive performance when we look at the.

EBITDA adjusted by our replacement cost we can see the operational performance was very solid.

Better results in terms of production and sales. So this impacted positively David.

The refining segment results for the quarter when we look at the EBITDA with inventory turnover, we had the negative inventory effect impacting Q2.

As you guys know prices are.

Nearly fell over the course of Q3, so we basically sold.

Inventories that were built at high prices. So when we look at the replacement cost we can see that the operational performance was very solid in the gas and power segment, we had stronger results compared to Q2, and we continue to improve our portfolio of natural gas commercialization and also our port.

Palio of imports and production for the natural gas supply. So we continue to be very focused on.

Improving the performance of our gas and power segment next please.

In terms of free cash flow and the cash flow generation, we come from an EBITDA of $17 4 billion and after income taxes.

We have had an impact of government take over the course of Q3, that's basically since we had acquired off lower prices compared to Q2 and the payment of an important part of government take is done at the month. After the end of the quarter. So in July we paid higher government.

Uh huh.

As a result of the higher prices in Q2 and now in October .

To pay lower government take coming from the lower prices in Q3, so there's a negative impact in terms of cash flow coming from that.

The company has also used all the.

The previous tax carryforwards that it had so now it's we're basically painful.

Corporate income tax without the carry forwards that we've used over time.

After capex of about $2 billion, we had a free cash flow of $10 $1 billion.

With divestments of <unk>, when we go to a free cash flow after divestments of $10 $8 billion and as I'm going to show later on most of the cash flow was used to pay dividends that we declared in the previous quarter.

Next please.

So we can see that we have.

Adjusted the cash levels to be much closer to the optimal.

$8 billion, the optimal cash level that we consider.

So alongside with having a very strong.

Capital structure position with the leverage under control slightly below the optimal range.

We now have adjusted the cash position as I've been mentioning over the last couple of quarters that we were going to do so we basically brought the cash levels much closer to the $8 billion.

The cash position at December 30, or force about $7 million and it's already reason to $8 billion left at the end of October So we're back to the optimal range.

And it's it.

It's important to mention that over the course of the quarter. We have issued the commercial notes commercial papers in Brazil.

<unk>.

To replace part of the Brazilian how exposure that we have in the Brazilian debt capital markets.

We paid some of the debentures that we issued back in 2017 and 19 that were maturing over the course of the quarter. So we are basically recovering the exposure to the Brazilian.

Debt capital market over the course of requirement in terms of amortization profile was it's important to highlight that when we look at the financing.

Amortization schedule. The lease of course is going to be paid by the operations that are underlying the leases, but the finance portion of that that is it.

Substantially under control, we can see that the amortization levels into schedule over the course of the year over the course of the years is this a quite consistent with the company's cash flow generation. So we don't see any.

Liquidity or leverage issue for the issues for the upcoming years next please.

With respect to portfolio management.

Important to highlight that we've had.

Relevant signings in closings over the course of the year. So basically we already had about $4 billion of cash inflows over the course of 'twenty, two and then with respect to the to the third quarter.

The main differences are the teaser of the optical fibers and our investment in Argentina that we disclosed recently also they startup of the binding stage of the mining rights that we havent, nor for Brazil, and a development project of it too.

We have also closed our onshore fields and by yen Shadow shuttle Waterfield since Suntrust well over the course of a few.

Tree next please.

In terms of earnings as I've mentioned before at $8 $8 billion net income over to acquire.

The recurring net income is very close to the actual net income so very clean result earnings step toward not.

Relevantly impacted by nonrecurring events I think it's important to highlight.

From the operational results that I've mentioned before the fact that we had.

As a smaller impact of <unk>.

FX depreciation on Q3, when we compare to Q2's full depreciation of the period and Brazilian how over Q2 was higher than Q3. So we had a smaller impact of all.

Foreign exchange variation of required as you guys know this is not a cash impact but.

On the Q3 it impacted positively net income when we compare to Q2 next please.

Finally, as I have mentioned before considering the solid cash generation and all of the value creation that the company has been able to show and should deliver.

We announced dividends according to our dividend policy, so 60% of our free cash flow and.

Part of extraordinary dividends as well alongside so are we.

Of course.

Our quite a responsible when focused on maintaining the company financial sustainability.

At the same time on distributing the results the earnings and the value that would generate.

So of course as you guys know the assumptions behind the dividend policy is to make sure that we maintain the company financial sustainability over short medium and long term. So this of course has been.

I achieved and will continue to be.

Achieved over the course of time, we have maintained our capital discipline.

We have leverage under control cash levels are very resilient.

So therefore.

The results and the value that we create allow us to distribute this value to the shareholders and of course relevant portion of the value that we create it goes back to the Brazilian society as I have mentioned before next please.

So just to summarize a very solid quarter not only from a financial perspective, but also from an operational perspective.

We expect to continuing to deliver the business plan and should continue to deliver the projects as we have committed ourselves in the 'twenty to 'twenty six business plan. Thank.

Thank you once again for joining us in our earnings call today, and now <unk> that we can jump into the Q&A session. Thank you.

Thank you Jose.

We can now move to our Q&A session. The first question that we received comes from.

<unk> with UBS.

And his centers our message so before we go to my questions I would like to congratulate the management and the board of directors.

What incredible transformation that you all have already been asked too.

Over the past couple of years I have been covering bedroom and ask for more than 10 years and you can all be proud because you have mute.

Now to the questions Luis first question Salvador.

Some of them are balanced strategy and governance.

We have noticed several improvements on the strategy and corporate governance over the past couple of years.

Elected government already publicly demonstrate divergences in both fronts.

Yeah.

All of that has been public in the press what would you be the main changes and what cannot be change considering that the bylaws and therefore, we lost or not changing if you could bring some more color on divestments dividends pricing policy. It would be very useful. Thank you.

Thank you for the question Louise.

I think first and foremost.

That's.

Sure Brad.

One other thing.

Before Paul Walsh.

Rich.

Thanks.

Well <unk> bin.

Establishing a strong.

The corporate governance and compliance program.

Many initiatives.

On top of.

The state owned enterprises that.

Yes.

Yes.

The timeframe.

Today, we have.

On the operational level.

Mexico is more from thermal controls ethics and compliance.

Quick one.

Any risk related to regulatory issues, but also in terms of.

As you are making cross is always strategic global.

We also had a strong checks and balances in place to prevent.

Use of the company.

Thank you.

That decision that could lead us.

The two issues that we've had in the past.

Of course.

Together with that.

Not only as I mentioned in our bylaws.

Okay.

Legal framework.

There is also the result of course.

No.

The liability.

Alright.

Officers.

If there was any.

Use of the relation please.

Any of those potential changes.

Thermal controls mechanism.

Lab.

Eventually too.

At least.

Public scrutiny with full disclosure of all of those.

Yes.

Right so.

To conclude my answer.

To make sure that any.

Any change.

Changes in our rules no buying.

Our internal policies.

Need to go through our systematic.

It can be.

First question has to be.

Testing to validate that.

The options.

All of the major changes in model.

Most of it is close to their shareholders.

Mitchell.

The transparency.

This is applicable to all the case. Thank you for your question.

Thank you.

Louise.

<unk> is well Mustang Mustang.

That's down about pricing policy and there is a clear difference between the company and some associations methodologies could you. Please share some thoughts about this difference today do you see any need to adjust prices of gasoline and diesel.

Thank you Luis.

Well, thank you Louise.

<unk>.

<unk>.

No.

The import parity estimates.

And then it can be very different numbers, depending on the HRS is used to calculate.

Alright, Thats often used local branch number generated my local.

Important as association can be cool.

This.

Few pointers Association.

Andrew presented this year it sounds like since too small.

5% total imports of diesel and gasoline.

Brazil, they are small scale.

So it's small scale.

They create.

Premium estimates, which is available for them.

<unk>.

Small small scale.

Mike.

That doesn't have access to.

Facilities for please.

Please charge.

And don't have access to.

Alright prices for example.

Sure.

Great. Thanks, just two markets to deal with.

So it's 40%.

Better prices.

When you see.

5% is for let me call you may think that does it.

95%.

Petrobras.

That's still the case.

The reality is that as it presents.

Leslie.

Let's move on.

Okay totally once appears leaving gasoline in Brazil.

Rich.

Transformation.

Very clear that the market is disciplined.

The prices in Brazil.

Thank you.

Thank you Mr. Allen. The next question comes from Bruno Montanari with Morgan Stanley .

Consensus isn't message congratulations QUADRA continuous solid results and constant capital discipline.

<unk> features from the management team in recent years.

First question's for what they want I wish them clearly.

Regarding the strategic plan and Capex, what would be the process to revise assumptions in the event of a management change in 2023, what would be the steps to change strategy and capital intensity in a materially.

How fast could that happen.

Thank you Bruno Thank you for for your question and thank you for the message.

So as you guys know the business plan is a semiannual process that is run by the company every year and Bay.

Basically it involves a relevant number of areas with our assumptions are not only with respect to Brent prices and exchange rates, but also with respect to margin business volumes et cetera. So we do have.

Rather our assumptions for the various businesses that we are engaged in the discount rates as well.

So basically this is an annual process that impacts the entire company.

The approval of the business plan.

He is also a process that AR has the.

Relevant governance around it so basically.

We have a committee that is called investment Divestments Committee, where we have about 12 executive managers that is the level right below the C suite.

Does managers those executive managers are statutory.

Similar to statutory directors whenever they vote on that committee, so basically their votes.

In terms of project approval or.

Divestment approval or business plan approval for example is similar too.

Default of a statutory executive officer.

At the C suite. So basically it has to go through with the investment Divestments Committee and then.

It goes through the Executive Officer Board the C suite and then it goes to the board of directors.

Of course before being analyzed by the board the board of directors.

It is annualized by some of the board committees.

The investment committee and the audit committee as well so basically.

We do have several steps.

Approval of the company's business plan.

We are now in the middle of preparing the most recent business plan as we do every year. So we're.

We're going to be delivering to $23 97 business plan by the end of this year.

So the process will be Daniel process will be concluded for 'twenty two.

That's where we are in terms of.

Of.

Business plan. So this is this is how the cycle goes.

In terms of.

Capital intensity and actually.

Spending money on new projects.

It's of course, it's not only about the business plan. So the business plan has the main guidelines the strategic positioning of the company. The areas. The company will be focused projects that will be.

Pursued over time, but.

<unk> by itself doesn't mean.

Capital commitments have been made.

So the projects that are within the business plan have their own governance. So similar to what we have for the divestments we have.

Our strong governance process for Capex approval as well.

As I mentioned before.

The projects have to go through.

The same kind of committees and then to the Chief Executive officers and then the board of directors they have to be positive NPV on the stress test scenario.

All the assumptions are also.

Analyzed from a risk management perspective, so it's a.

We don't only run the three.

Terminix scenarios that we use for planning so we don't use only the optimistic base case and stress test scenario that we have for the business plan. We also run.

Probabilistic analysis.

With sensitivity analysis of several of the relevant variables for the project. So that we can also analyze the probability of having a positive MPV projects alongside with a with a resilient task that we do.

Just to give you. An example in terms of assumptions. The current stress case scenario assumption for Brent prices is $35 per barrel.

The long run.

So after the project is approved.

You have the procurement process and you can imagine the degree of complexity that.

No.

Exists for the for the kind of projects that the Petrobras.

So we do have a very high degree of complexity, especially for onshore projects. So it's a it's not something the procurement process is not simple. It takes a lot of time not only because of the technical complexities that are involved but also given all the governance and the statutes.

Would you have to follow in the procurement process as well so basically.

Number one we have the annual cycle of the business plan than we have the projects that they have to be not only designed in.

Develop they are scrutinized.

On several different layers of the company and then you have the procurement process and after all of that you start to actually spending money. So one of the one of the relevant changes that we've done over time is that we only spend relevant capex. After we have gone through the through the idea of the of the project we have a five.

Five gates project approval.

Process and we only started spending after gate number three that is basically the <unk>. So this is this is a little bit of how it works and.

The business plan and the projects. Thank you. Thanks for your question.

Thank you Anthony.

Next question is also for you.

The company has delivered a robust divestment program, which contributed to clean up its capital structure today. Its a very healthy level. Thank you about the company's governance and procedures is Petrobras were to become an acquirer of assets what would be the evaluation criteria and approval mechanism.

Good day Mchugh acquisition being made.

Thank you. Thank you Bruno for your question So first of all.

A little bit similar to what we were talking about in terms of Capex.

We do have the business plan is the main guidelines so any acquisition has to be.

First of all connected to the business plan somehow from a strategic perspective. So the strategic adherence is one of the criteria that is analyzed for any acquisition and then.

Similarly to what we have for divestments, we have similar governance for investments as well so for acquisitions as well.

We have internal valuations that have to be done we have.

A different valuation scenarios that have to be done so as I mentioned.

Optimistic base case and stress test case, we have risk analysis, not only quantitative but also qualitative for all the investment and divestment processes.

Most of them of course are our.

Approved by the board of directors. So they will all go through the kind of the same methodologies that I mentioned before so that they will go through the investment Divestment Committee then they will go through the C suite and then to the board of directors, including the board committees, depending on the kind of acquisition.

Might go through the minority committee of the board of direct minority shareholders Committee of the board of directors as well.

So we can basically.

Think about the acquisition process is a little bit similar to show the divestment process is not exactly the same but it's similar.

We also have a fairness opinion external third party fairness opinions for the for the transactions as well.

So that's a little bit of color on what's the acquisition process. Thank you Bruno.

Thank you hope to deal with the next question comes from Bruno <unk> with Goldman Sachs.

Thomas Allen must Allen, what's the current discount to international reference price that the companies are serving.

Gasoline does the company see the need to an eventual price increase to reach the international.

Yeah.

Thank you for your question.

Can you help me.

Yes.

On that topic.

Usually Ms Grant.

Hi.

People that comment on the pricing practices.

Thanks.

Tools.

Lease.

Oh.

Besides there is many estimates.

Thank you Bryce, depending on which activities is to make any new HR.

Needs it turns on.

Its competitiveness.

There is also.

Our practice.

We have been repeating that.

Yes.

The void.

Ooh.

Our claims.

The international markets.

It's impossible.

Clearly.

To have prices daily alignment with international.

What happens is that.

Okay.

Second point, we are stepping points below.

To keep one.

Yeah.

Looking for good alignment with international prices.

This translates.

The average price in Brazil.

Which is clearly.

Hi, Bruce.

Okay.

Actual bank.

Factors like honoring partners leading partners.

The ones that we use as references for oil pricing.

They continue.

Continuously operations in Brazil continue his participation.

The local market.

Imports so that's proof that our prices up.

As I said.

And that we will continue to avoid person Alibaba too.

So local is mutual.

Cool.

No.

Hello, Hi.

Prices.

Relative to your.

So the question about.

And how is the.

<unk> bye.

So oh.

<unk>.

Inflammation.

Thanks to issues.

<unk> momentum.

Thank you.

Thank you Marcia Allen. The next question comes from Christian Audi with something there.

I would like to congratulate you on continuously solid operational results and strong capital discipline.

MS Georgeson my accretion to us.

The first question.

There are two questions about capex and they are both to see what it was.

So first can you give us a sense in the current plan of the criteria used for project approvals in the upstream refining and renewables.

How different is tiny and procedures for approving an upstream project conversions refining versus renewables.

Yes.

Thank you. Thank you Carl Thank you Christian for the question and for the message.

So I'll talk a little bit before about the business plan approval of the annual cycle with the discount rate hurdle rate approval that is also an annual cycle.

So in terms of differences between our.

Businesses are what we do is basically of course, we have a set of assumptions that is different for each business.

The specific assumptions that.

Ah connected with that business in terms of margins volumes.

Market and competitive behavior et cetera, but are we off.

Of course have a similar assumptions for the overall business plan things like a crude prices or FX.

This does inflation rates these are all standardized.

For all of the businesses, we also have a different discount rates for different risks and different businesses.

So this is a little bit are the differences in the assumptions but of course.

The approval process is very similar to all of them as I've mentioned before and described our first the process that the project has to be developed a it has to go through all the technical revisions we have technical revision group's four for all of the projects than I have.

It should be approved by the investment divestment khameni than than the C suite and then the board of directors. So this is a little bit of the of the approval process for new projects, but.

It's important to highlight that.

I think that what differentiates the businesses and the project is of course the level of maturity. So if you consider for example.

The development of ultra deepwater projects that we have we have.

Focused on standardizing the project standardizing the prediction units over the last couple of years. So nowadays we have a very solid a standardized engineering and financial processes for all of those projects, which.

Which of course makes the approval process for them faster than other projects, where we have a substantially last maturity in terms of project management.

So for a segment for example, like renewables.

We don't have a.

Relevant maturity. So it's a it's a different business for the company.

Of course, we have our ongoing studies.

Different alternative businesses like <unk> like <unk>.

Offshore wind power et cetera, but the level of maturity is much lower when we compare to the upstream and downstream projects that we have within the company.

It's also important to highlight.

That we have different maturity is also at the supply chain level. So when we consider the offshore projects that we have in Brazil, we have a very consolidated supply chain very solid suppliers.

This is something that's also relevant are not.

And not only for the procurement process, but also for the for the development of the projects when we think about onshore projects.

The supply chain is not as mature in the large and complex <unk> projects that Petrobras has.

The procurement process tends to be slower and the project itself itself tends to be slower compared to what we have in the end.

Offshore segment, but this is a little bit of the differences.

The approval process is very similar but there are assumptions of course are different and.

The degree of maturity of different projects and different businesses is also something that impacts the process. The project approval process at Petrobras. Thank you. Thank you Christian.

Thank you with any of them. The next question comes from has just got in Belgium.

Lease.

And he also centers the message.

Congratulations to the management team and pitted overnight for another excellent result. This is a good example that good management can create value for society as well as reconcile investments and shareholder return.

Hi. This is first question is for us to handle bunch.

What kind of expectations around timing for the closing of the transactions of the 5% stake purchase option exercise by two little English.

Okay.

The transaction should be completed in November .

With an effective date.

On December 1st.

The steps to be completed this month or the approval of the guarantees referring to the commission Miami.

In the bin.

The <unk> mine.

Hello.

You.

Thank you Tim.

How does your second question is for <unk>.

But how does that sort of where I see the possibility to divest from breast cancer steel in 2022 can you also provide an overview on the progress of the ongoing divestment projects.

Thank you. Thank you hedges for the question and thank you for the for the message as well so with respect to true Brascan as you've probably seen a braskem has announced that the novel nor has.

Requested brascan chew engage and support it's a sale transaction with potential buyers.

We are of course preparing ourselves.

To engage in the end of the divestment process whenever it say it's convenience so we're.

Making our own studies, and and and and and preparing ourselves to be part of the sale transaction.

As things move forward with.

With respect to <unk>.

So this is where we are with respect to your Brascan of course, it's difficult to give you a sense of timing.

But we continue to be engaged in the divestment transaction.

With respect to the to the rest of the portfolio.

The in terms of relevant news, it's important to highlight what we announced yesterday the the injunction that we've referred to with respect to buy up there. So now we're able to restart the process and continue with the divestment of a buy up there.

Over the course of the year, we have already signed six transactions. The total amount of $4 $4 billion and we have closed eight transactions over the course of the year. We of course continue to be strongly focused on.

Closing the transactions that we've already signed and we expect to close additional transactions over the rest of the year.

And this is a little bit of where we are in terms of divestment.

Divestments. Thank you. Thank you.

Thank you Jose and that next question comes from Anthony <unk> with seating and as far as the only the only.

Would you give us more information about the operation start process of the Sps alone literature for horizon.

Long does it take to commission earthquake mint and production system.

Can we expect the production of the first time.

Thanks for the question.

Yes.

<unk> shipyard at the end of the season in October .

Yes.

Next demand some steps before the sale from the shipyard.

Which will happen early next year.

You wanted to you complete.

Complete integration.

Thanks, Tom.

We expect the.

Is that that could be looked at the until the middle of next year.

Thank you for the question nobody else.

Thank you Kim.

Danielle This is Nick a question for Phil.

I'll file so they will see the company's investment plan focused on projects with high returns and low risk.

Mainly in the pre Salt region looking at the next investment brand can we expect any changes in the Companys focus can we expect greater investments in renewables for example.

Hi, Gabrielle excellent question, there will be no change in terms of capital disciplined here in Petro Rod Sweet low risk return. The reward is a key assumption for us to project approvals. It makes petrobras stronger stronger means sustainable.

Top of that we are going to keep investing in Decarbonizing. Our operations. For example, the high set the new technological solutions that increase our ability to re inject fuel to equivalent and all of US. Therefore, we are going to keep growing with our renewable fuels.

Dosing.

Investing in a dedicated plan for it.

Jeff you with renewable content, we're going to keep investing through social responsibility area.

Morris to keep for us to live and to increased tourist area. As it is it is a location here in Brazil in terms of more investments in renewables as long as we see maturity investment with reasonable risk return you are of course, we are going to invest on that that is the group the seasons, we have men.

Executives inside Petrobras studying depth to assure that we have a positive NPV.

The risk stress scenarios, we have executives from financial department to risk the parkman.

Our engineer.

That used to develop projects, we have people from market to select market conditions. So whenever we see a.

<unk> reached the return reward in this type of project, we are going to invest so we need to wait for an expert this plan to see if there will be any innovation in our <unk>.

Winner.

These could plan that is in place here.

Hearings death row Ross. Thank you for your question.

Back to you.

Thank you.

<unk> has another question and this is also for you.

Looking at the new exploratory frontiers, we see the equatorial margin as a great promise for the company.

However, there are some concerns mainly regarding the Ohio mental parts of the region development.

Tell us a little about the company's vision in relation to the development of the region well I'll turn the main challenges and potential for the region in terms of Capex and reserves.

Okay got it.

It's a little bit.

First of all it's important to say that Petrobras contributes to <unk> to sustainable growth and development of all country regions regarding equatorial margin, we expect benefit with our investment we have already announced that more than $2 billion in exploratory inverse.

<unk> in the margin Equatorial we are going to benefit populations through decks that are generating income and employment to investing.

In these regions with both directly and indirectly benefit.

We will overcome bought bought amato.

He will go on doing that so it's very important that Petrobras did there to develop the resource the Brazilian resource in the north and the northeast of the country, making into real wealth for population, we focused in sustainable growth it is unacceptable.

To have unsustainable growth, but it is also unacceptable.

To have no growth at all.

We have the ability the capability to provide sustainable growth off of those regions and we are going to develop this parcel resource in the north and the northeast of the country and so on.

Late in two wheel, we are going to take care of the people to date and we are going to take care of the planet Tomorrow, it's possible to develop.

Sustainable growth, we have responsibility and Petrobras will do that Carlos back to you.

Thank you have found great.

The next question comes from when you kick in April .

And as far as Julie joined could.

Could you. Please provide an update status on the contracting process for the new company off route three could you. Please comment on the expansion project status of NXT and Gaslog should they continue after the next PJM business bring revision what is the status of these projects.

Yeah.

And when you look at <unk>.

Great.

You've hit the 92%.

Bruce <unk> lines.

The percent complete.

You too.

Indeed.

No phase of <unk>.

Beth.

It is necessary.

Finish.

We maintenance scope of Diplosis natural unique index.

<unk> bye.

And thats for them.

The week before.

No other too heavily diesel blending.

Good day.

Type of deal.

All seemed a little bit.

HCC Anda equals.

Equally.

All right.

Technical economy.

It is.

I would be prepared to produce group two gating Beasley inquiries diesel.

He will do.

You go ahead and ask falling all report for the <unk> Mint.

And to do finding to death.

Lynn.

The sale process on drilling fluid system.

At the same time decide to finish the question <unk> scope of clean one.

We can meet environmental conditions, Indiana.

Perfect.

Thank you.

Thank you is only <unk>. The next question the last question as well.

Along those lines you Lee with Jpmorgan and it's for the whole question.

And the elected President governance plan, there is a discussion well the importance of reducing SKU in points.

Comment from an operational point of view is it possible to increase production.

Listing refining facilities are there alternatives alternatives for brownfield expansion is positive.

What would be the size of the potential production.

I have no further adoption at all three brands are refiners operation rates are comfortable with our commercial commitments and we respect the safe.

Operations and logistics conditions.

The refinery utilization level is close to 9%. Despite several refining is still around that we did.

This year.

This brings to mind that we are close to the fourth quartile of U S refinery utilization rate.

Two saw almost benchmarking.

In line with our current strategic plan, we are investing in on capacity expansion improvement our conversion.

Focus on high margin there.

The rebates on the hydro diesel.

As Julie Hicks said would have some refining expansions under way and when that gets lube hydrocracking unit.

That's operating it will increase our capacity by 90000 barrels per day of both ultra low sulfur diesel and jet fuel.

12000 barrels per day of lubricants of group too.

In addition, we have a project to revamp <unk> train one and to conclude <unk>, two which will increase the refinery capacity by 145000 barrels per day.

With this expansion in place we will have an extra output capacity of 90000 barrels per day of ultra low sulfur diesel.

We are also investing in our expansion of our hydro treatment capacity.

For our low sulfur diesel by approximately 140000 barrels per day with a new unit.

On the construction.

Block and improvement of existing units had Luke and I have up.

Thanks for your question.

Thank you and many of them. Thank you all at this time the Q&A session is over and you still have any further questions you can send it to our investor relations team.

Well, what I was you will now make his final remarks. Please go ahead.

Thank you Carla thanks, everyone once again for being with US today in our Q3 earnings call.

As I've mentioned before very solid quarter very solid results, we're very happy with the results.

There are of course, a result, not only of the external positive external environment, but also from the important strategic decisions that we've made over time and with the capability of our <unk>.

Properly executing portfolio management and project delivery.

That we've had over over the last couple of years. So the company.

<unk> has proven that it's a not only ready to face.

Stress scenarios like we saw in 2020, but also.

Capture the upside when the external environment is favorable so very happy with the results and thank you for.

Being with US here during the Q3 earnings call. Thank you.