Good afternoon, everyone. Welcome to 3R Petroleum fourth quarter and full-year 2022 earnings video conference call. The conference call and comments about the results will be presented by Matheus Dias, CEO of 3R, by the CFO and IRO, Rodrigo Pizarro, and by the Exploration and Production Officer, Maurício Diniz. We inform that the simultaneous trans-translation tool is available on the platform. To access it, simply click the Interpretation button at the bottom of the screen and choose your preferred language. This conference is being recorded and will be available on the company's investor relations website at www.ri.3rpetroleum.com.br, where you can also find the presentation that we will show here. Please be advised that all participants will be in listen-only mode during the presentation, then we will begin the question and answer session when further instructions to participate will be provided.
Before proceeding, we take this opportunity to stress that forward-looking statements are based on the beliefs and assumptions of 3R management and on current information available to the company. Forward-looking statements may involve risks and uncertainties because they relate to future events and are therefore dependent circumstances that may or may not occur. Investors, analysts, and journalists should understand that events related to the macroeconomic environment, the industry, and other factors may cause results to differ materially from those expressed in such forward-looking statements. Now, we will start the presentation with the company CEO, Mr. Matheus Dias. Mr. Dias, you may proceed.
Hello, everyone. Good afternoon. Welcome to the video conference call of 3R Energia to discuss fourth quarter and full-year 2022 earnings results.
The presentation will start with me presenting the main highlights of the period, as well as the perspectives, outlets, and efforts of the company to consolidate our portfolio and complete our deals. We'll continue with Maurício Diniz, our COO, who will share relevant operational aspects of the assets in production. Rodrigo Pizarro, who will detail performance and control metrics of the company, as well as information on our capital structure, cash position, and debt. To start on slide three, we have an overview of the period and its main highlights. First, in the end of December, more precisely on December 23rd, we completed the acquisition process of Papa-Terra Cluster, our second offshore asset. This asset has great relevance for the company's portfolio in terms of the share of its production and cash generation in the whole 3R portfolio, as well as in terms of reserve and recovered fraction.
It is worth noting that 3R received the asset at the closing date with some pending items and limitations in some systems in both platforms, both in the FPSO and in the tension leg. This will entail a very intense agenda along 2023, with a focus on the integrity of these operational systems, so as to avoid potential bottlenecks in production, Above all, so that we can have a more efficient operation. 3R currently operates, Therefore concluded the transition process of 7 assets out of the 9 assets that we acquired. Along 2022, we concluded 4 deals. One of them, as I mentioned, the Papa-Terra field. In addition to Fazenda Belém Cluster in Ceará, Recôncavo Cluster in Bahia, and Peroá Cangoá in Espírito Santo.
In this context, it is worth mentioning that all assets in operation, of course, considering their respective closing dates, represented 44% of our portfolio production in Q4 2022. In January of 2023, already considering production from Papa-Terra, assets operated by 3R achieved an average daily production of 31,000 barrels of oil equivalent, 23,000 of which corresponding to our working interest. Additionally, and considering the portfolio as a whole, it is worth noting that 3R increased its stake in 3R Offshore through the acquisition of a 15% stake, reaching a total of 85% working interest. Now moving to the main operational highlights, which will be more detailed later on by Maurício Diniz, we have a relative production that was significant in this period at the Recôncavo Basin when compared to previous periods, and very much backed by improvements in the facilities.
This was done as a foundation to support the increase in production. As a point of observation, this focus on the whole infrastructure of the assets of the Recôncavo Basin as a whole, both the Recôncavo and Rio Ventura clusters, will still require a great effort on the part of the company in 2023. In Macau, the company is at the final stage of implementing the project to replace the CMB pipeline with the tests, including the hydrostatic test, which is an important milestone all performed, as well as the interconnection of the pipeline. Having said that, the resumption of production that was impacted by this corrective action remains scheduled for the first quarter of 2023. As regards the separation plans, these are operating at 75% of their nominal capacity.
For that, 3R promptly responded by hiring and mobilizing an engineering company that has an expertise in such projects, aiming at correcting possible problems as well as future bottlenecks. Lastly, still on Macau cluster, 3R starts still in this quarter, the drilling campaign, for which we already have the whole necessary structure mobilized and on site, as well as all of the licenses obtained. Quickly returning to Papa-Terra field, the main current effort by the company lies in increasing the storage capacity of the FPSO. This has been limited since the transition phase in the acquisition process of the asset, and this also limited well reactivation as a subsequent activity. Also, one of the wells planned was reopened just now in February, and the next well will be reactivated after this increase in storage capacity of the FPSO.
Talking about workovers, we already have a hydraulic rig contracted, which will operate in dry completion wells, and we are in the process of bidding a DP rig, a dynamic position rig, which has a slightly longer lead time to work in wet completion wells. Another relevant point to be highlighted by the company is the transition of Potiguar cluster, in which the company is at an advanced stage of fulfilling contract obligations and conditions precedent of the sale and purchase agreement. Internally, we already have the teams mobilized, as well as all the third-party contractors, service companies in general, to start operating on D plus one post-closing date, all taken care of. As for funding, specifically for Potiguar cluster, which will be further explained later by Rodrigo Pizarro, funding is also already structured in the amount of $1 billion through two debt instruments.
As a point to be highlighted here, it is worth mentioning the flexible conditions involved, particularly referring to prepayment, which enables the company to be paying attention to the market to consider new alternatives in this spectrum of capital structure. Moving on, still on slide three, in terms of the evolution of the operation, the company, through our assets in operation and considering the stake of 35% of Pescada, recorded an average daily production of oil in Q4 2022 of 8,660 barrels, up 37% year-on-year. The company posted 15,375 barrels of oil equivalent daily, already including gas, and this is approximately 2 x greater compared to the same period of 2021. Here we should mention another point to be observed.
The completion of the four deals, as I mentioned before, had a direct impact on the evolution of our production. From the standpoint of financial metrics in Q4 2022, 3R posted revenue of 445 million barrels, up 78% year-over-year, and a full-year revenue of 1.722 billion barrels. As for adjusted EBITDA in Q4 2022, 113 million barrels. In the full-year, 710 million barrels, approximately 2x the consolidated adjusted EBITDA of 2021. Moving to slide four. We have some data on the company's portfolio. As I mentioned before, our portfolio has nine assets, seven of them already concluded and spread into four basins as we can observe on the map.
Papa-Terra cluster in the Campos Basin, Peroá, Cangoá in Espírito Santo Basin, Recôncavo and Rio Ventura clusters in the Recôncavo Basin in the state of Bahia. In the Potiguar Basin, Macau, Pescada Arabaiana, Fazenda Belém, Areia Branca and Potiguar clusters. In this scenario, in December, these 9 assets achieved a daily average production of 45,000 barrels of oil equivalent. Here we already include the working interest of 3R. This portfolio has as a characteristic an important geographic diversification as well as production diversification. 55% corresponding to Potiguar Basin, 17% coming from the Recôncavo Basin, and 28% coming from 3R Offshore with Papa-Terra and Peroá.
Of the total assets that make up our portfolio, it is important also to highlight that the mix is divided into 80% oil and 20% gas. I now turn the floor to Maurício Diniz to give you more detail about the operational aspects of our assets.
Thank you, Matheus. I will give you more details on the operational part, starting with the last field that we closed, Papa-Terra field. We had the closing in the end of December. This field is very important for the company, mainly because of the low recovery factor that we have today, 2.5%. In other words, with great possibility of growth over time. Just to give you an idea of the importance of this field to 3R. In January, 1/3 of our January production came from Papa-Terra.
There are two units there, and we have a lot of capacity and flexibility in these units to do water injection, to interconnect new wells. Over time, once we overcome these initial problems that we're having, as was the case with all of our assets, once we solve these integrity issues, we will continue with the drilling and interconnection of new wells. Talking a little about the operating part. We started production in December with three wells in this field. The main integrity issue currently at the field is the tanks. In the next two months, we will inspect these tanks, do cleaning and maintenance, exchange the valves of these tanks, and this will allow us to reduce the frequency of offloading of this unit, 3R .
As planned for the year, slightly before a recent operating issue that we are facing, and that I will explain in a minute, we already had four wells in production, and these four wells produced around 16,000-17,000 barrels as expected. For the year, we'll have the arrival of a rig that has been contracted, a hydraulic rig. The pump contracts, ESPs, have already been commissioned as well, and in the fourth quarter, we should have both the hydraulic rig and the ESP contracts ready. In the end of the year, we'll have the commissioning of the rig to do workovers in wells with a wet Christmas tree, and it should arrive in the last quarter of the year. As a reminder, the first job of this rig will be to reactivate two wells that need to have their ESPs replaced, their pumps replaced.
Please remember, as already mentioned in the last call, that we are going to have also a production downtime of this unit in the end of the year, most likely divided into two periods, an initial 15-day total stoppage, then a part of the system will get back in line, then another total stoppage after three months to do integrity workovers in these units. To detail the current problem that we're having, we had a power outage at the unit, and this power outage caused an activation of the emergency generator and then of the batteries of the unit. These batteries were not prepared for that, and this also led to a problem in the automation system. We are resuming production. We have solved part of the problem, which is the electrical problem. We changed some batteries, we replaced some old batteries that were not charging anymore.
We brought batteries from another unit, the 3R . We have already restored the electrical system and are now working on the automation system. The unit should be back in production in the coming days. Next slide, let's talk about Potiguar cluster. Potiguar cluster as it was before what it is today under our operatorship. We had a reduction of production in the Potiguar cluster, mainly seen at Macau field. As mentioned before, we have four items. Four items we are working on. First, the workover rig. As we can see on the upper right-hand corner of the slide, in this period, we had two workover rigs on-site. Now we have four rigs there. In March, we already have four rigs handling workovers at the field. Another interesting point already mentioned by Matheus is the drilling rig. Most likely this weekend we will start to drill.
To offset January and February, we are hiring another rig which should arrive in April. In addition, we have the pipeline, which is the third item. I mentioned that this pipeline is in its final stage of the hydrostatic test to recover part of the production. The other part of production will come from the works that are at a commissioning phase. Part of the works have been completed and we are finishing and working on some tanks, making some repairs and changes to the work that was done. That's a little bit of the operational part of Potiguar Cluster. Moving now to Recôncavo, where we have two clusters. There we reported an increase in production. We initiated the cluster. We did some integrity works, and we continue increasing the production in the field. On the upper right-hand side of the slide, it's something important for us.
We highlight the important workover. In the fourth year, we had three rigs in operation, and today we added one more. In total, we have four rigs working in the field.
In the second half of the year, we intend to initiate the drilling of new wells at Recôncavo. Finally, I would like to talk a little bit about Peroá. In Peroá, we currently have a production potential of about 600 - 650 thousand cubic meters a day. We are producing approximately 500 thousand cubic meters of gas a day, and we are still waiting for the conclusion of a commercial agreement negotiation with Petrobras to increment the field's production. We already mentioned Papa-Terra. At the beginning, the average of the fourth quarter is around 17,000 . We had two wells that closed. One of them had been repaired. We changed the cable on the surface. The well had started production before the stoppage at the end of February, we should return with four wells.
The last one will return as we repair the cargo tank of the unit. On the next slide, we show production in a timeline. If we the company's oil and gas production throughout the entire operating cycle, we see that throughout the quarter, we were able to increase the company's oil and gas production. On the chart below, we show the oil production, highlighting the reduction in Macau's production, as I already mentioned before, and I talked about the four actions we are implementing to foster the resumption of production to normal levels, which should occur soon. Now, I'll turn the floor to Pizarro who will elaborate on the financial results of the company.
Good afternoon, everyone. Thank you, Diniz and Matheus, for the introduction. We will now start the financial part of the presentation. Slide 10 shows the company's net revenues for 2022.
On the first chart to the left, we show the growth of our net revenues since the last quarter of 2021. Comparing the last quarter of 2022 with the last quarter of the year before, we notice an 80% increase in net revenues, reaching BRL 445 million in the fourth quarter of 2022. year-over-year, we started with BRL 204 million in 2020. We reached BRL 728 million in 2021, and finally, BRL 1,722 million in 2022. The positive highlight in the fourth quarter refers to revenue increases in the Recôncavo Basin and Peroá cluster, partially offset by the lower production and as a consequence, lower revenues from the Macau cluster.
With an increase in gas production in the operation of the Peroá cluster during the entire quarter, oil revenues are still predominant, accounting for 69% of the company's total revenue. On slide 11, we present our adjusted EBITDA. Even with the transition expenses, mainly those related to the Papa-Terra, which was concluded in the last two weeks of December, we reached about BRL 113 million with an EBITDA margin close to 25%. On an annual basis, we doubled the EBITDA of 2021, reaching BRL 709 million in 2022. Excluding the transition expenses of the year, we would have reached approximately BRL 810 million. Just restating the obvious, this non-recurring effect related to transition expenses is eliminated after the closing of all the assets.
It is also worth mentioning that cash generation, including CapEx and income tax of Papa-Terra during the transition, total approximately $19 million between the effective date on July 1st, 2021, and the closing date, even considering the corrective maintenance stoppage conducted by Petrobras during the period. This amount was enough to pay for the closing installment and also the remaining amount that will be discounted from the future earn-out installments. It's also important to mention that the EBITDA margin was not only impacted by the increase in transition expenses, but also by a drop in Brent prices when compared to the previous quarter. Finally, by the intensification of the integrity activities, as previously mentioned by Diniz and Matheus, that are partially allocated to OpEx. On slide 12, we show the company's consolidated lifting cost and its evolution since the last quarter of 2021.
I would like to emphasize some of the aspects that impacted lifting cost in the last quarter of 2022. On the one hand, looking at the lifting cost, which is the numerator of this metric, we had higher operating expenses related to integrity recovery of the offload systems, pumping and production processing. On the other hand, in the denominator of this metric, we had impacts in the volumes produced due to processing and transportation restrictions at the Macau cluster, in addition to the lower force flow in Peroá to comply with the demands of the take-or-pay contract.
In regards to CapEx, we spent about $69 million in onshore activities in the Potiguar and Recôncavo Basins, being 45% related to well workovers and 33% in processing plants, injection, and production offload. We show our capital structure and our financial obligations. We ended the previous quarter with a cash and cash equivalent position of $245 million, at the end of 2022, we reached $159 million. In the period, it's worth mentioning that at Papa-Terra's closing date, we acquired the remaining oil that was stored in the FPSO, produced prior to the closing, totaling about 95 million barrels. We made the contingent payment related to Brent linked to the acquisition of Rio Ventura, totaling approximately 256 million barrels.
Considering the actual debt disbursed, our net debt at the end of 2022 was approximately $42 million. In 2022, we performed the financial restructuring of the company for the acquisition of the Potiguar cluster, involving the signing of two debt instruments totaling $1 billion. As mentioned before, both instruments can be prepaid with flexible conditions, in particular, the first $500 million, which are not subject to penalties after 12 months from disbursement. Finally, on the last slide of this section, we present our hedge position and our obligations related to asset acquisitions.
As a reminder, as part of the commitment to creditors for the funding of the Potiguar cluster, our obligation entitles that until the closing date, the company will keep 55% of PDP, which is the expected certified decline curve for the next 12 months, and 40% for the subsequent 12 months. This follows a rolling strategy, meaning that we will continue to revisit this obligation during the entire duration of the instruments. This calculation does not contemplate the reserves of Peroá and Papa-Terra. It only considers the PDP reserves from the assets from the Potiguar and Recôncavo basins. Finally, at the end of 2022, we had 2,750,000 contracts, most of them in NDF, with an average price greater than $80 per barrel.
In the last few months, already in the first quarter of 2023, we expedited the contracting of derivatives, prioritizing collar instruments in order to meet the obligations related to the Potiguar cluster. In terms of acquisitions, as presented in our last earnings release call, the relevant amounts refer to the Potiguar cluster, of which $1 billion will be paid at closing, expected for the end of this quarter or early next quarter, and $235 million to be paid in four annual installments starting in 2024. In regards to the other assets, we have about $136 million of contingent payments or earn-outs, as typically mentioned, and $26 million in deferred payments. To conclude the presentation, I turn the floor back to our CEO, Matheus Dias, for his final remarks. Thank you so much for joining us.
Thank you very much, Pizarro and Diniz. To close the presentation on the results of the fourth quarter and full-year of 2022, I will talk about our priorities and where the company will concentrate its efforts throughout 2023. First of all, strategically speaking, I would like to mention two important points. The company is currently putting great emphasis on the conclusion of the Potiguar cluster, already in an advanced phase, as mentioned a few times today. Now, in terms of the company's overall commercial aspects, we are pursuing better monetization opportunities for the oil currents and gas molecule, which are close to becoming a reality. Certainly, a large portion of the trading contracts still related to SPAs are approaching maturity.
On the operations side, we are in a new phase, searching for a systematization of our demands and the maturity of our internal processes that at the end of the day, will support the company and our development plans in a broader sense, in a more specific way according to our CapEx plan for 2023, also keeping an integrated view of our portfolio as a whole. In that CapEx plan, the main highlights include improvements, recovery of new facilities projects, which will ensure the proper structure to support current and increased production. Workovers and drilling campaigns in the Potiguar and Recôncavo basins and in Papa-Terra. Once again, the reactivation of two wells, one of them already activated, and the attempt for this year to replace the elevation system of at least one wet completion well on FPSO.
I'm not mentioning corrective actions in Papa-Terra in case they occur due to a possible well closure, but the company is getting prepared to face this scenario as
Mentioned before, with a hydraulic rig already contracted. In closing, another important point extensively emphasized by Pizarro today is that given the flexibility of prepayment in the financing structure, the country remains and will remain attentive to the market to find alternatives that could optimize our capital structure. Well, with that, we conclude today's presentation reinstating that 3R Petroleum, with all of its professionals increasingly more integrated, will relentlessly and diligently pursue structure and responsible growth, focus on aspects like safety, environment, social responsibility, and governance. Once again, thank you for joining us and good afternoon.
Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please click on the Q&A icon on the bottom part of the screen and type your question.
To ask questions live, click on the same icon and state your name and company, or click on the Raise Hand button. Our first question comes from Vicente Falanga with Bradesco BBI. Mr. Falanga, your mic is enabled.
Thank you. Good day, the whole team. Thank you for taking my questions. I have two questions. First, I want to understand how surprised was 3R Petroleum with the news of the suspension of the sales program of Petrobras, which ends up impacting Potiguar. What are the next steps and potential scenarios here? Given the interactions you have been having with IBAMA, the environmental agency, which requirements have been fulfilled? Is there any red flag raised by them so far? My second question goes to Matheus. Matheus, I'd like to hear from you. Perhaps you could zoom out and speak about execution plan in 2023.
In the last earnings conference call, they spoke about the CapEx slightly under $300 million this year, with an expectation of eight workover rigs more towards the end of the first quarter, now in March, and another six workover rigs after closing of Potiguar. In other words, ending the year with 14 workover rigs. They wanted to end the year with six drilling rigs, two of them located in Potiguar. They also mentioned about production of Macau close to 8,000 barrels of oil equivalent daily. I'd like to understand, will the plan still apply or has it changed? If so, in what way? Thank you.
Good day. Good afternoon, Falanga. Thank you for your questions. Well, let's start with the first one about the Ministry of the Environment memo and the transition of Potiguar cluster.
Well, to start, the company did not get any formal advisory from Petrobras regarding a suspension of the contract. In that context, we continue. We continue to fulfill contract obligations and conditions precedent in the SPA to complete the deal as soon as possible. In our view, considering the fulfillment of contract obligations is that we are at an advanced stage of fulfilling these contract obligations. Even with some very relevant approvals granted, as was the case of A NP in transferring the concessions and by CADE, the antitrust agency and other approving agencies when we consider the whole perimeter of the transaction of the deal. We know that we are quite advanced to complete the deal. Specifically regarding the transfer and the license to operate from IBAMA. All processes continue to go forward.
We continue working with the government agencies with diligence. So far, we didn't feel any delay in the processes. All licensing processes continue to move forward normally.
Falanga, this is Pizarro. Just to add to the answer. The moment that Petrobras received the memo and communicated the market, we moved forward with some conditions precedent in some fronts. As Matheus mentioned, in our view, we are quite close to fulfilling all conditions precedent. We expect that exactly because we have a sales and purchase agreement that is very strong and that addresses the closing without considering a unilateral exit of Petrobras, we don't imagine that the SPA can be canceled. On the contrary, it is in effect. We have no evidence whatsoever that Petrobras is not abiding by it to this date and moment.
We continue with our plan. I would also like to highlight that in terms of commissioning and hiring our teams and subcontractors, we're very close to 100% so that we can start the operation very soon.
Thank you, Pizarro.
Falanga, to answer your second question. The company continues with the same plan that was mentioned before. We have a planned CapEx for 2023 of approximately $320 million. In total and divided mainly, $172 million, 54% to be invested in reactivations, workovers, conversions and drilling. There is also a relevant part of the CapEx going to the infrastructure of the assets, the facilities of the assets, so that we can have the necessary structure for the existing production and for a higher production eventually.
This involves some new projects, some corrective and preventive actions in the facilities of the assets as a whole. There is another part that is much smaller, that accounts for $30 million, around 10%, which refers to downstream, and that is already considering with Potiguar cluster in-house. Just an observation. The part of facilities as a whole, it totals 33% of this budget of $320 million. As refers the rigs, there is a difference in the total number of rigs that you mentioned. This is on account of a restudy, a re-engineering based on the fact that we seek to achieve the average production that was budgeted for this year, so we had to increase some rigs. For this year, yes, the company will have one extra drilling rig onshore.
We had planned for four, but we'll have five drilling rigs onshore. One of them is already mobilized, as Diniz mentioned in his presentation. Most likely this weekend, he will start the drilling campaign. We will have 16 workover rigs, so slightly different. We had planned 14, and eight have been already mobilized. For Papa-Terra, our plan is to have a hydraulic rig that has already been commissioned. It is expected to arrive in Q3 of 2023. This rig specifically will be used at TLWP for dry completion, and also a DP, a dynamic position rig for the wet completion wells to replace the elevation systems, and that will start operating this year. Thank you, Falanga.
Thank you, everyone.
Our next question comes from Pedro Soares with BTG Pactual. Mr. Soares, go ahead.
Good day, everyone.
Good day.
Good afternoon, Matheus, Mauricio, Pizarro. My first question is a follow-one, follow-on question regarding Potiguar. Could you give us some color on what exactly needs to happen in Petrobras after the environmental approval so that the deal can be completed? Because I imagine that given the several M&As you had with Petrobras, you'll be able to kind of know what are the next stages and steps. I just want to map the risks better. If you could explain the long stop date. I think it is in October. If you were to write a bad case, if the process lags on until then, could both parties review or cancel the deal? A more straightforward question, could you elaborate on the earnout provision referring to Ouro Preto acquisition?
Could you explain and give us an idea of the potential tax gains that you could extract from these accumulated losses of Ouro Preto? Thank you.
Pedro, thank you for the questions. Regarding Potiguar cluster and the SBA, I think that we have mentioned this a couple of times also in previous earnings conference call. I stress there is no unilateral exit of Petrobras, and there is no breakup fee included. Once the conditions precedent are fulfilled, and as Matheus mentioned, we are very close to fulfilling all of them, that's the moment when we'll make payment to Petrobras in a date agreed upon for the closing. Regarding ANP, normally this is not the critical path, but it is always the last phase. We will not need to wait any longer. We are at a very final phase in terms of the ANP procedures.
What we expect, we are just waiting for the approval from the environmental agencies. As regards your second question, and thank you for that because it is an opportunity we get to explain this. We have mentioned this some quarters ago, but let me stress the company. When we had the IPO of the company. We also established the old 3R and the Ouro Preto Óleo e Gás that was acquired by the same investment funds, which at the time were controlling shareholders of 3R.
Now we have a structure which is a combination of these two companies, the old 3R and Ouro Preto, and we carried a very positive effect for us, of course, negative for the old controlling shareholders, of a tax loss that was quite high, particularly in 3R Offshore and also in the subsidiary, which is the concessionaire of the Recôncavo cluster assets. We have a quite relevant volume of tax losses. With the agreement made with the old controlling shareholder, and this was always very explicit in our income statements, and in the past, we also included this in our earnings releases. We agreed that one-third of the use of these tax loss is due to the old controlling shareholder under some conditions. It's not immediate payment. A part of this lump sum will be reserved in an escrow account.
If everything goes well, payment will be made, and the old controlling shareholder will eventually benefit from that percentage. What happened in this past quarter with the evidence that Berru and Papa-Terra are in operation in 3R Offshore, and with the evidence that we will definitely have a positive result. We'll start having a deferred, a deferred earn-out, and this will be positive in our balance sheet. We also have the obligation that was agreed upon with our external auditors that we should also provision for the payment of this earn-out. We always include this in our explanatory notes, but since this is now an asset, we have the proportional liability, which is a lot lower than the deferred asset.
Thank you very much.
Thank you, Pizarro.
Our next question comes from Mr. Luiz Carvalho from UBS. You may proceed, sir.
Hello, good afternoon. Thank you for taking my question. If I could go back to that Potiguar issue, Matheus, we had some meetings with lawyers that at one point were involved in this process with Petrobras, and then we certainly understand the dynamics, and I know that there are still some documents to be signed by the company. There is still one question in my mind, even in view of some public statements from some officers of Petrobras, that there probably was another political concern related to the refinery. Given the systematic of the Federal Court of Accounts, it will be difficult to review that. The question now is, how do you see a possible change or whether that is in your radar?
As a follow-up question, thinking about the worst-case scenario, in case the IBAMA license is not issued in the go/stop date, what would be the procedure? Would the money be returned in the form of dividends, or maybe we think of another acquisition? What will be the cost for the prepayment of these debts in case we get to that point? Well, if you allow me a second question, I know that as you said during your presentation, you're already operating Papa-Terra. Probably now I would like to understand what surprised you, be it positively or negatively, because you already talked about the storage tanks, but where do you think your main challenges reside that will lead you to normalize the production going forward?
Thank you. Hi, Luiz. Good afternoon, and thank you very much for your question. Well, at first, I will answer about Potiguar. As you mentioned yourself, there's a very specific period in the transaction, the SPA. In addition to the Federal Court of Accounts, any change to that ongoing contract, that would have an even greater impact on the regulatory point of view, because all of the endorsements from the pertinent agencies, everything has been issued on behalf of 3R, and some licenses have precedent in terms of the industrial assets. So any changes in the period before the closing of the agreement would not work. I would also emphasize that we do have a contract in effect with a very straightforward period, with a long stop date for October.
As for Ibama, we understand once we look at the evolution, the diligence, and also due to the fact that the licenses are in motion, this particular part related to Ibama, referring to the operating license of Ubarana and the fact that is part of an asset that is still
Quote, unquote, hibernating, makes that process a little unique because that leads to a new phase further on for the startup of the operation. 3R has complied with all of the necessary documentation. We submitted all of the documentation. All of the issues were responded quickly. As we monitor the process, we do believe that we are very close to getting all of the licenses. Luiz, this is Pizarro now, and I'm here to answer the second part of your question about debt. As a reminder, both obligations to do the funding through debt of the company amounting to $500 million each, they haven't been disbursed. They will be disbursed during Potiguar's closing. This is the agreement with both groups of creditors.
Therefore, even though we do not believe in any hypothesis of non-closing of Potiguar, even because we still have some time vis-à-vis the advancement of conditions precedent, we do not envision any other alternative that is not the closing of Potiguar. Without Potiguar, and this is something that I mentioned in previous moments, the company will have no debt. Our net debt today is close to, you know, $40 million. If you disconsider, if you exclude the closing of Potiguar, the company will be very close to being net cash. Again, the last follow-on of the company that brought in BRL 2 billion, 100 million to the company is the necessary equity for the acquisition of the Potiguar cluster. We have not envisioned anything without the closing for the amount that we got.
For the third part of your question, I will refer back to Maurício Diniz. Speaking about Papa-Terra, it's been 2.5 months that we are into production. Another relevant aspect refers to the reservoirs. As our recovery factor is 2.5%, what we realize when we look at the previous closing and the problems that we have now is that once you close the wells, they return to their original pressure. This is quite important because at the beginning, the pressure is quite high, and then they reach a stable production of the well. This shows that the volume that we have in the field is very close to the volumes that we calculated. That means that we do have a very good reservoir. We proved that very clearly, and I believe that this is quite positive.
Another interesting aspect is that we've been working on the operating side, and we've found some integrity issues which are very common once we take a new field. The problem that we had just now that is already almost solved is the problem that we encounter in new fields or new fields for the company, yeah, that we use in integrity. Meaning that we were able to map everything we have in a timeline, things that were within the platform. Therefore, we know exactly what awaits us throughout the year. Also that stoppage that I mentioned in our last meeting is what we will have at the end of the year. In terms of integrity, this is part of our plan. There are no major surprises, no negative surprises to us.
On the positive side, we have the closing of the wells that really proves that the volume in our reservoirs are really good, so recovery is on the way, even in terms of recovering wells. We have two rigs, one already hired with the forecast to start operating in the third quarter, and the pumps should arrive in the third quarter. Therefore, we do not expect any major surprises until the end of the year. Everything is moving according to plan.
Luiz, just to add something else, this is Pizarro, and I also want to make a link with the certification of reserves. When we look at Papa-Terra, before that stoppage, it was producing 17 million barrels. We planned two pump replacements in wells.
The first drilling that I mentioned on a previous moment, which is a very simplified drilling when compared to starting from scratch, because we use all of the risers and the subsea lines, and we do a sidetrack, and we drill precisely in the same direction with the same trajectory of the original well. These three wells, these two, where we will replace the pumps and this third one that we will drill following the same trajectory of the original well, brings on board 10,000 barrels of production. This was the level of production when the wells stopped producing when they were operated by Petrobras. Say that when we look at the PDP of Papa-Terra and what is proven, but not yet in operation, it adds up to 10,000 barrels.
If the operator were to be very focused, I mean, operating that asset for two years, the level of production today would be over 25 or maybe closer to 27 than to 17. Obviously, we didn't have enough time to make all of the workovers and the drilling. All of that is part of our planned schedule, and we are doing the best we can to expedite them as much as possible. All of that just to say that the level of production should be above 25,000 rather than below 20.
Okay. Thank you. That's very, very clear. Thank you. Thank you, Pizarro, and thank you all.
Our next question comes from Monique Greco from Itaú BBA. You may proceed, ma'am.
Hello, everyone. Good afternoon, and thank you for taking my questions. My first question is addressed to Matheus.
Matheus, I would like to start by wishing you all the best in your new position. We talked a lot about your short-term focus, the focus in the operation, your focus in Potiguar. I think this is very clear. I think you are communicating that quite well. I would also like to know your view about the main challenges of the company in the mid-range. Once you overcome all of these short-term goals, how do you see the company going forward after the operation has been consolidated, after your portfolio is consolidated? How do you see the company in the mid-range? The other question is addressed to Diniz.
We've been talking a lot about Papa-Terra here, and we knew, and we were already expecting an increase in the company's lifting cost after the incorporation of the field, which is quite natural that this happens every time you get into a new field. Now that production has started and that you already have more clarity about the prospects of the field, could you give us some color on how this lifting cost will evolve going forward? What about the FPSO's limitation, and how can that impact the revolution? How relevant is that in terms of cost dilutions from now on? Thank you.
Hello, Monique. Good afternoon. Thank you for your questions. Well, answering your first question that was addressed to me, our main goals and midterm goals are pretty much in line with our CapEx planning.
First of all, it's important that we have a good structure and asset infrastructure that is capable of being feasible to cope with existing production. Not only with existing production, but also incremental production stemming from this, you know, workovers that are part of our CapEx, you know, validation and also drilling campaigns. I think this is our main focus in the midterm. We also talked about reorganizing our structure, you know, optimizing and systematizing our processes so that we can work in a more structured way in all of these projects. We do have a major challenge for 2023 as part of this CapEx plan, and probably the challenge will be even higher when compared to future years because great part of the structure will be mobilized this year.
You know, this year we are working with what has been previously mobilized in the year before. For the mid-range or midterm, I think that our main focus would be having an infrastructure that is capable of accommodating our current production and increase production. Indeed, we also want to follow the schedule for workovers and drillings. I would also like to point out that there might be some alterations in having an integrated overall view of the portfolio. Well, it could happen. Sometimes we may have to take funding from one investment, take, you know, money from one asset and putting in another one that maybe would have a better response time or maybe some asset that has better facilities or a better infrastructure. This could probably happen, certainly.
Overall, and being very pragmatic, our midterm focus is in following that project schedule according to the company's CapEx. If I could add something else, looking at the commercial aspect of the company, in the midterm, we are pursuing, and as I mentioned in my presentation, great part of the contracts that are still in the SPA mode and that are not necessarily the best ones in terms of unit amounts, in terms of oil currents and gas molecules, but great part of them are close to maturity. Some of them, we already reach that point. We are already pursuing, I mean, and this would be a midterm view. We are now looking for contracts with higher unit values. We already signed one for oil, approximately 20%-25% higher than the previous contract.
Our main view on offshore contracts will be the perennial aspects of the contracts. Contracts for two, three years with more relevant unit values and also better for the company. In regards to gas, the same thing applies. I mean, if you look at gas and the balance of gas within the company, we have ideal conditions to produce oil being through, you know, steam injection or energy injection. In the midterm, we look for contracts with an interesting term. For Peroá, we are very close to signing a better contract, a better agreement for the company for gas with a more interesting term. These are probably the main aspects, both on the commercial side and also on the operating side. Now I'll turn the floor to Diniz to answer the second question.
Regarding Papa-Terra, during these two last months, we haven't seen any surprise or there were no hiccups that could lead our CapEx to be different than the plan. We've planned something around $100 million-$120 million a year for OpEx. In due time, you know, along the quarters, we will get prepared to receive the field with three producing wells. We already mentioned a fourth well that needs a replacement of the electric cable, and eventually we will also put the fifth well. The first already... I mean, linking to the first part, with the first part of your question, we will solve the first part of the tank issue. Some tanks require cleaning first, and then we will do the inspection and replace a valve in the bottom of the tank.
I think we will conclude that next month, that first part will be concluded next month. Part of the tank issues will be resolved. Tanking issues can be solved in a short term, this will not affect our lifting costs. With increased production, and also considering that the cost of a unit like that is fixed, there is no significant increase in cost with increased production. As we put these wells, you know, between 16 and 17, and as Pizarro was saying, once we reach 25,000 barrels, there will be an interesting lifting gain for the coming months. I think that it will take about a year, maybe a year from now, just as with other offshore operators, lifting costs will be high, and it will be reduced as we introduce new wells.
There are no negative surprises in the initial weeks of operation. That's it.
Okay. Thank you. Thank you, Diniz. Thank you, Matheus.
Our next question is from Leonardo Marcondes with Bank of America. Mr. Marcondes, you may begin.
Good afternoon. Thank you for taking my questions. My first question has to do with Macau. Could you give us more color on the situation of the water oil separation plans? What are these adjustments that you are assessing through the engineering company? Also about the replacement of the pipelines, and when can we expect production to normalize? My second question is perhaps a little less conventional. One of the points that were always valued by the market and the company is the level of disclosure with the income statements by cluster that helped us a lot in our modeling and gave us a lot of visibility of planned versus actual. In this last release, you didn't report the information by cluster.
You reported only the consolidated income statement and P&L. Why is it that the company decided to provide us with less granularity in the income statement? How do you think the market should look at the company? Should we look at the company as 3R as a whole? Is it hard to look at cluster by cluster? We just wanna get a sense of how to analyze the company. Thank you.
All right, let's divide Macau into four items that explain why we didn't achieve the expected production. The first has to do with the drilling rig. We did not have a drilling rig. The rig is just getting started effectively now. There will be other drilling rigs arriving along the year. We have one. We'll end the year with five rigs. We understand that this first item is resolved.
It's taken care of. Another item is that in this past quarter, Q4, we worked with two workover rigs. Now we already have four workover rigs on site. That is another issue that we had that we were not able to solve in Q4, but this problem is behind us. The third point is the pipeline. As mentioned, we had to replace a pipeline. This pipeline was divided into two main exchange moments. One part, we exchanged half of it, and this is completed. We performed the hydrostatic test and now we are starting to pump, reopen the wells and pump through the pipeline. Part of the production will be resumed. Today and tomorrow, we'll start reopening part of the wells. The fourth and last piece is that re-evaluation of the works. Part of the plant is already operational.
70% or 80% of the plant is operational. This final part, well, we're doing some analysis. We are making slight, small changes, and by the end of the quarter, we expect to be at full steam operating Macau. We understand that Macau was a big issue we had. Part of the problem is being resolved, and you will see along the coming months, production returning to what was planned at Macau. We are on our way to resolve the problem. Pizarro.
Leonardo, thank you for these two questions. Now trying to address the second question. The truth is, Leonardo, is that unfortunately, we cannot please everyone. We have been getting requests to simplify. Several investors and even some sell-side analysts that found it hard to keep their modeling of the company updated by cluster.
There are some clusters that are minuscule compared to others, which are huge. Of course, for our scale, I mean. With that, it was very difficult for some analysts, and that's why we attempted to simplify. We did a benchmark, not only in the Brazilian market, but also looking at independent oil companies with more or less the same size as 3R . That's why we decided to consolidate information, consolidate the lifting cost and income statement, as it is typically done by other oil companies. Of course, there are always exceptions. We were an exception. We provided a lot of detail. There's a reason for that, because at the time of the IPO, the company had Macau. Macau was in the Belém, 35% stake of Pescada, and we were still at a very incipient state.
Fortunately, we're a company with a pro forma portfolio above 43,000 barrels of oil equivalent daily, with the reserves level above 500 million. In our view, we should no longer report Pescada, Fazenda Belém, Areia Branca, Macau, and so on and so forth separately. We made an attempt to change. I apologize for that. I believe that there will be a somewhat more complex stage for the sell side to be able to consolidate the information. We are convinced, and hopefully you will feel the same way. The attempt here is to simplify so that both foreign investors and individual investors and our local Brazilian investors, which account for most of our free float, can make a very complete evaluation of the company, but without having to be updating the model every single week.
That was the rationale of this new format of the income statement.
Okay, thank you very much for the answers.
As a reminder, if you want to ask a question live, you can click in the Raise Hand button. If you want to ask a question in writing, you can click on the Q&A button on the bottom of your screen, and you can type your question. Please hold as we collect the questions. We will get some questions written in. Most of the questions asked via the chat have been answered, but there is a question by Eduardo Tinoco about the value of the breakup fee in Potiguar. Eduardo, what we try to make very clear is that there is no breakup fee in our agreement. There is no unilateral exit of the counterpart, Petrobras. There is a second question in the Q&A.
Let me see. There's a question about Sudene. Here we always like to stress that our portfolio is well-balanced and with several onshore assets located in the Northeast. That facilitates our management also from the fiscal standpoint, from the tax standpoint. It's important to note that in the end of the year and beginning of this year, we were able to get Sudene benefit for Recôncavo and Peroá. Although Peroá is not in the Northeast, it is included in the Sudene region, and so we were able to get it. The positive effect of the company is that we had a 34% tax rate for the production of oil and gas, down to income tax and social contribution of 15.25%. 34 down to 15.25%.
This is a differential of our portfolio compared with oil companies that operate exclusively in offshore assets. This is rarely remembered by many. A comment by our controller. This year, we enjoyed a benefit of tax reductions. We know we didn't have to pay 100 million BRL given the positive effect of Sudene. Although we still had only a part of our portfolio in our operatorship and only a part under Sudene. In terms of Sudene, I think that we are following the plan by the book, and we are, and in the subsequent moments of the closing of the assets, we're enjoying this benefit. I think that we have addressed all of the questions. On behalf of the company, I would like to thank you for joining us in this earnings conference call, and for your participation.
We are working incessantly in both onshore and offshore assets. Matheus and Diniz reinforced how asset integrity is absolutely fundamental for Three Ar. This is the focus of the three of us, not only to have a safe operation, but also so we won't have negative impacts on production. Today, our production capacity, given the reservoirs and the existing wells, is a lot greater than the production that we've been having in recent months. We understand that this is totally easy to resolve in the coming months, and that is why we're working hard, focusing in our in-house homework, as Matheus likes to say, focusing on the production of our assets and their integrity, and with a CapEx implementation plan of $320 million. It is a relevant amount of that to be invested in wells, as Matheus mentioned.
As a reminder, looking at 2022 and forward to 2023, the main challenges that we had in 2022 were some delays in the closing and also the implementation of CapEx below what we had planned. Also integrity challenges that we had in production restrictions. We understand that, of course, no, we haven't been able to solve everything for 2023, but we are starting the year a lot better prepared with rigs commissioned, mobilized, the contract signed. Contracts that are not signed and have been mapped, we have the MOU for those. In terms of the CapEx, we're very well prepared for this year. In terms of the facilities, we have advanced a lot. We have overcome our main challenges in Bahia. We have overcome a good part of the challenges in Rio Grande do Norte.
Now we have the Papa-Terra challenges. The idea is to improve our uptime, our production, our performance with the VR capacity. As for the closing of the deals, we have been working in this with diligence, as we mentioned during the call. We don't expect a great variation, as we stressed regarding the deadlines for the big Potiguar cluster, we expect closing for the coming weeks. With that, I would only like to thank you for joining us. Let's have the end of the call. Have a great day.
This concludes the conference call of 3R Petroleum for today. Thank you for your participation. Have a good day.