Petróleo Brasileiro S.A. – Petrobras (PBR) Q1 2023 Earnings Call Transcript


Thank you, William. Now I’ll call Claudio Schlosser, Chief Logistics, Commercialization and Markets Officer. Schlosser, go ahead.

Claudio Schlosser

Yes, thank you. Hello, everybody. It’s a pleasure to be here with you today to talk about our first quarter ’23 results. Next slide please.

On this slide, we’ll talk about the oil product sales. As you can see, there was a reduction in sales of oil products in the domestic market, dropped 5% compared with the previous similar quarter. This was already expected, as diesel and gasoline seasonally have a weaker consumption in the first quarter of the year. It is important to see that in this quarterly composition, there is still the impact of divestment of REMAN, REMAN we had to cool in at the end of the last year. Even so, it is important to highlight that gasoline sales were the highest versus that the first quarter in the last six years, driven by the greater competitiveness of gasoline in relation to ethanol.

Regarding the foreign markets, the drop of fuel oil export was caused by lower production due to the scattered shutdowns of some of our biggest refineries, as mentioned by Director William.

Typically the topic of the product sales, I will like to take the opportunity to bring for us our focus on the market. Retail market has even become part of the name of this world. That’s why I want to highlight the startup of the new diesel and gasoline sales center in November in Almirante Barroso, Búzios. This action constraints our presence in the Midwest and enables the practice of specific commercial action in the region. This is a very important milestone that guarantees Petrobras’ presence in the region that should grow the most in the coming years.

Next slide, we will talk about oil exports flow. As you can see in this slide, talking about oil exports, our main destination remains China. However, it is important to enhance that we continue to work constantly to seek global opportunities and to develop new clients, which generate more value for Petrobras in addition of diversifying the client portfolio. Another key action is the market development for oil streams such as Sururu, Mero and Atapu. The Búzios and Tupi streams are already well known in the international market with the guarantees and better liquidity in the pricing.

Next slide. Finally, I present the highlights of the quarter that reinforce Petrobras’ commitment to supplying more responsible fuels. We have our first bunker filling fleet vessel with renewable content with Darcy Ribeiro, this ship that is in the picture and it’s part of the Petro strategy. This fuel was formulated with 10% soy biodiesel, reducing about 7% of greenhouse gas emissions, considering the complete lifecycle of the fuel, a big step towards the goal of reducing carbon emissions. During the 40 days of testing, no anomalies were reported by the fuel or operational differences in relation to the mineral bunker. Samples of collected fuel and ship monitoring data are in the final stage of analysis.

Another action in the same line was that we started offering the domestic market exclusively fuel oil with a maximum sulfur content of 1% discontinuing the sale of fuel oil with a maximum sulfur content of about 2%. By ensuring that all fuel oil sold by the company in the domestic market has a low sulfur content, we help consumers in the industry segment to reduce their emissions. I also highlight the sales of the new product, the Ultra Low Sulfur Marine Gas Oil, marine fuel with the maximum sulfur content of 0.1%. The new marine gas oil is produced at the Presidente Bernardes refinery, RPBC in Cubatão, São Paulo.

Previously, the products sold at the Port of Santos to long haul and the [coverage] ship haulers was conventional Petrobras marine gas oil containing a maximum super content of 0.5%. And introducing this Ultra Low Sulfur MGO, we started helping ship haulers to reduce emissions of the problem content sulfur oxide, in addition to avoiding fueling stops and all the way up the vessels passing through the sulfur emission control areas, reducing the cost and the time. These actions show that we are on the right track in developing cleaner fuels and guaranteeing lower emissions, generating great value for the company, society and the environment.

That’s the final slide. And going back to Carla.

Question-and-Answer Session

A – Carla Albano

Thank you, Schlosser. Thank you all, we can move on to our Q&A session. And the first question that we received comes from Bruno Amorim with Goldman Sachs and it’s for Sergio. Sergio, Petrobras CapEx is poised to grow in the next few years under the current and possibly the new strategic plan to be announced, what is the comfortable level of cash position the company should target, more, less or in line with the prior management target of $8 billion?

Sergio Caetano Leite

Thank you, Bruno, for your question. I believe that the levels set up in the current business are very prudent. I think we must keep solid parameters in terms of liquidity and leverage. We wanted to always keep robust financial health territory, which allow us to face inevitable downcycles in oil prices. Also, we need to be sure that our investments will be self-funded with our operational cash flow, nonetheless, allowing to emphasize that the execution of the new business plan may result in a revision of the current targets. Than you, Bruno.

Carla Albano

Thank you, Sergio. The next question comes from Vicente Falanga with Bradesco BBI. And it’s for Travassos. Travassos, the company recently announced the delay in the startup of some platforms. What was the major cause of that?

Carlos Travassos

Thank you very much for your question. That’s a very good question. Actually, we have in that — actually it’s a minor adjustment on the schedule. Despite of we see the shift from one year to another year, yes, we are talking about minor change, and then maybe due to some perception of our risk analysis, and these perceptions is regarded for the supply chain markets, both for top sides and also for subsea. But just for information, if you take a look at into an IPB, that’s we’re talking about 13 days of shifts, yes, not too much. Of course, when you see a shift probably one year to another year, seems that you have a big change yes. But here we’re not talking about a big change. But Petrobras, all the time that we are having a change, that appears in our business plans, we are very transparent, and it’s important to show up and analyze to the market, yes. But this change does not bring any impact on our production curve, okay? Thank you very much for your question.

Carla Albano

Thank you, Travassos. The next question comes from Luiz Carvalho with UBS. And it’s for Tolmasquim. Tolmasquim, we are seeing a series of comments regarding the company’s focus in the future, particularly with diversification of investments focused on energy transition. Could you list some potential investments options, how fast the investment portfolio could be built? This portfolio could be made through organic investments or potential acquisitions? Will the company pursue assets in petrochemicals, renewable power generation, offshore wind, fertilizers, biofuels, fuel distribution, new refiners, or some other sector? In your view, is there any target on how much this could represent from future investment plans?

Mauricio Tolmasquim

Thank you very much, Luiz. Well, in fact, we are planning to diversify our investment regarding renewables. Let’s say, we are talking about the investing in offshore wind, green hydrogen, CCUS and other possibilities. We’re still doing our strategic plan for the next cycle. So this strategic plan that we are being able to understand to know which technology we are going to invest. What costs? The investment can be, let’s say, through costs — organic investments, but it’s not just got the possibility to make some acquisition out. So our preference for organic investments. We want to do this mainly with partnership with other companies, I think is the best way to do new investments, and mainly with big companies.

And in terms of target about future investment plans, we don’t have yet the targets, because as I have said, the strategic plan is being doing, but I could say that we are going to do this with derisked financial responsibility. The idea is that it’s possible to do some diversification, but maintaining our financial indicators.

Carla Albano

The next question also from Luiz Carvalho with UBS is for Schlosser. Schlosser, the company’s current fuel price policy considers international price and import costs. What parameters could be used in a possible new policy? Is exports parity for the domestically produced products an option? Does the company considers holding lower margins on the domestically produced products in order to reduce price pressure for the final consumer?

Claudio Schlosser

Thanks for your question, Luiz. First, I would like to take the opportunity to comment that although the current price policy is using a lot, what is up to Petrobras is to elaborate its commercial strategy. That being said, the import parity is a reference to the cost of our importing competitors. But it doesn’t have to be the only reference for Petrobras. We have other opportunities that we can explore through our installed refinery capacity, logistics integration [with all the shine] and operational efficiency that allows us to compete efficiently, preserving the company’s valued innovation. That is there — that’s the answer. Back to you, Carla.

Carla Albano

Thank you, Schlosser. The next question comes from Monique Greco with Itaú BBA. She sent us a message. Thank you for the opportunity for addressing our questions. On behalf of Itaú, I’d like to wish the new Executive Board good luck in this new phase.

The first question from Monique is to Spinelli. Could you comment on the challenge you expect to encounter in your new position? And if possible, share some outlook plans and ideas to be implemented during your term.

Mario Spinelli

Hi, Monique. Thanks for your question. First of all, I consider that’s important to point out that we already had a very robust integrity…

Carla Albano

Spinelli, you have to turn on the camera. Sorry.

Mario Spinelli

Turn on. Is it working, Carla? Can you see?

Carla Albano

Now I can see. Thanks.

Mario Spinelli

Okay. And so first of all, I think that we must consider that we have a very robust integrity and governance system. But that doesn’t mean that there isn’t anything to do. Quite the contrary. What we need to do is now to enhance this system, so that it becomes more sustainable and totally aligned with our business. And there are important aspects related to improving our performance that can be considered, such as our strategy to prevent and combat harassment, it’s just an example. This is an important point for us, and we will include it.

Moreover, some technology tools can be incorporated into our compliance actions, making them more efficient and agile. We will enhance our compliance risk management, also focusing on issues that may represent risks of damage to the company’s strategic objectives. And with this, we will be able to identify the most exposed areas and work in a preventive way.

But the point that I consider most important is that we need to ensure that our integrity program is strong and responsive enough to protect our assets, to protect the company, and at the same time, to ensure efficiency, respecting all the rules and focusing on people. I think that’s it. Thank you, Monique.

Carla Albano

Thank you, Spinelli. The next question from Monique is to William. William, despites the refinery maintenance carry out in the recent quarters, the company has managed to maintain high levels of refinery utilization rates. In this regard, is there still room to increase the current utilization levels? What would be the desired level of refinery utilization for the refining park as a whole?

William França

Hi, Monique. Thank you for a good question for us. The answer is, yes. We have got conditions to increase our refinery utilization because of two reasons. Okay? First one, we’re performing and operating our refiners and we have an excellent reliability. So important to remain in this kind of this one. And the second one, the second point is because we won’t have got big turnarounds for the next month and through the end of the year. Then I think that we have who have good rules to increase our utilization for the next month above 90% in order to get to market opportunities, okay? But the goal is to maximize our production and the quality of our operations, by respecting all of the aspects of safety, environment, health, any integrity, okay? Thank you for your question, Monique.

Carla Albano

Thank you, William. And the next question is about E&P and I’ll call Anna Paula Zettel. Anna Paula, regarding the equatorial margin, could you comment on the company’s expectation regarding the approvals at IBAMA? If the regulatory agency president follows the negative opinion presented by the technical area earlier this month, could you discuss the medium long-term alternatives for the company to continue increase its production figures?

Anna Paula Zettel

Thank you, Carla. Thank you, Monique, for your question. Well, Petrobras is awaiting for IBAMA positions on the preoperational assessment. This is an exercise to evaluate the company response capacity in an unlikely accident event. So it’s part of the process and we are pursuing that authorization to the next steps of the permitting process. We are following strictly the requirements of IBAMA. And there are no pending issues from Petrobras. All the resources are in the locations waiting for IBAMA’s authorization.

So we understand that the activity in the region is very safe. That’s the reason we have planned $3 billion to drill 16 wells in the equatorial margin. But we also have investments plan in exploratory phase, and we are monitoring closely all opportunities abroad. That’s part of our strategy to build up our reserves and to manage our portfolio. So thank you very much, Monique, again.

Carla Albano

Thank you, Anna Paula. The next question comes from Gabriel Barra with Citi and it’s for Mauricio Tolmasquim. Tolmasquim, could the managers give us more information, return levels, time for construction on offshore wind farms, projects being studied together with ethanol?

Mauricio Tolmasquim

Well, thank you for the question. Until the moment we have only let’s say a Memorandum of Understanding and some projects, some areas that we apply to environmental license at the IBAMA. But let’s say we are waiting for the establishment of the regulatory framework to start studying specific projects. So at the moment we don’t have any figures about investments, timeframe and so on. I believe that means not sure of time of — we are going to have this kind of formation. Thank you.

Carla Albano

Thank you, Tolmasquim Thank you all. At this time, the Q&A session is over. If you have any further questions, you can send to our Investor Relations team. I’d like to thank you all for your attention. It’s very important quarter with a solid result from operation and financial point of view. Thank you all and have a great day.