Welcome to PetroRio's Conference Call to discuss second quarter 2021 results. I am José Gustavo, IR Manager and Treasurer, and I'll be the host in this event. Available on the PetroRio IR website. We also have an interpreter for simultaneous translation. Please choose the sound channel icon on the bottom of your Zoom screen.
This conference call will be presented by PetroRio's CEO, Roberto Monteiro, CFO, Milton Rangel, and COO, Francilmar. They will present the company's results and will be available during the Q&A. All participants are in listen only mode. To ask questions live, you can use the raise hand feature, and for written questions, the Q&A button. Both icons are on the bottom of your Zoom screen. This event will be recorded and will be available on PetroRio's investor relations website. Before proceeding, let me mention that forward-looking statements that might be made during this conference call are based on the beliefs and assumptions of PetroRio's management and on information currently available to the company. Forward-looking statements are not a guarantee of success. They involve risks, uncertainties, and assumptions as they relate to future events, and therefore depend on circumstances that may or may not occur.
Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements. We will start the presentation with Roberto, p lease go ahead.
Good day, everyone. Thank you very much for joining us today for PetroRio's conference call to discuss second quarter 2021 results. I will start the presentation going over the main highlights of the quarter. I will turn the floor to Francilmar, then Milton, and then I'll be back for my final remarks at the end. After which, we will hold a question and answer session. Moving to slide number three of the presentation.
I would like to raise and explain some important points on the accounting side regarding the highlights of the quarter, then some operating ratios, I'll mention some achievements that we had during Q2. Talking about the accounting highlights, in this quarter, we posted a net revenue of BRL 1 billion, the highest ever posted by the company. Our net income at IFRS 16 was more than BRL 300 million. The adjusted EBITDA totaled more than BRL 600 million. Of course, behind all that are the company's offtakes totaling 2.8 MMbbl , obviously, a very strong oil price in this quarter. We have already passed all the effects of COVID, and so on and so forth, the market recovered in a very solid fashion.
The combination of very high sales volumes plus a strong oil price gave us these results, which are perhaps one of the very best results in our history. That is not all. We also had some interesting achievements on the side of our operation. For example, ANP approved the development plan of Frade Field this quarter. We also had the approval for the acquisition of Wahoo Field, both for BP working interest and Total's stake. We were able to solve a point that we always talked about in prior calls, which was our short-term debt. We were finally able, in this quarter, to access the fixed income market in the U.S. We issued a $600 million bond with a book that was five times oversubscribed. We considered this a very successful operation.
These $600 million have a five-year maturity. This relieved the company from that constant refinancing that we had of those short-term loans for working capital, et cetera. The company was able to once and for all sort out its capital structure. I guess that the main highlight of this quarter was the tieback of Polvo and Tubarão Martelo, TBMT. Although technically, we completed the tieback on July 14th, I would say that while we are holding this conference call in August, still I would say that this was another achievement worth celebrating. The tieback is performing well. Francilmar will be speaking about this in more detail. He knows the process backwards.
This was one of the deliverables due this year, and it's a deliverable that is very much linked to our business model, with our business line, and what we intend to do in the future. Now that the project was successful, it gives us a lot of comfort to move forward with our business strategy and all. Moving to the next slide four. Here we have some ratios, some indicators, both operating and financial indicators. Another important highlight in Q2 was our lifting cost at $14.20/bbl . Fairly much in line with what we had recorded in prior quarters. In all of that, taking into account that in the second quarter, we had some scheduled downtime. We can see on the right side of the slide, the increase in production, and we can see production broken down by the different fields.
When we look at the second quarter, although we had 31,200 bbl produced daily on average, and this is net for PetroRio, although we had this volume, which remained kind of in keeping with Q1, that includes a scheduled shutdown for the maintenance of the Frade FPSO. I can't really recall how many days for sure. If I'm not mistaken, seven or eight days. It includes stoppages of Tubarão Martelo, most of the stoppages of TBMT and Polvo on account of the tieback. Francisco Francilmar Fernandes will be speaking more about that. TBMT downtime happening in June, and for Polvo, a little bit of June and a little bit of July. It's all part of that production volume. Production and lifting costs are both under control. Our cash position, I don't think the company was ever this prepared for growth.
We currently have BRL 4.5 billion in our cash. Our net debt, which is not really a debt. We are a net cash company, that is also totally under control. Today I can say that the company in the second quarter is ready and prepared to take some steps forward, actually, big strides forward from the standpoint of growth. I will leave that for later when I talk about the next steps. I will turn the floor now to Francisco Mauro, who will be speaking about our operation, and I'll be back at the end of the presentation. Francisco Mauro, over to you.
Thank you, Roberto. Hello, everyone. I will be presenting some more detail on our operation. Starting on slide five, we have the performance of our assets. I'd like to draw your attention to the first part volume of oil sold.
We had what I think is one of the highest sales volume in the history of the company. This is due to some production increase. Also, in the case of the FPSO Polvo, we had to sell all the oil as we were ending the vessel contract. The vessel stopped producing on the 28th of June or so. We sold all the oil that was left in the vessel. This was a very busy quarter from the operating standpoint. We had some production downtime in three production units to perform preventive maintenance, general maintenance, and to adapt to the new project. There was a big impact on production. On the upside, we had a well that started producing at Polvo field. That helped increase production. Overall, we worked on the lifting cost that ended up at $14.20.
I'll speak more about that. I want to highlight that we had a production increase year-over-year. A significant increase, more than 30% production increase with a significant sales volume, 2.8 MMbbl in Q2. Moving to the next slide number six, I'm going to discuss the lifting cost in more detail. As you know, as we have said many times before, the lifting cost is our main weapon to gain resilience. It is a fundamental point of the company's strategy. In this quarter, we worked to reduce it as much as possible. It was positively impacted with the start-up of production of the new well in the Eocene at Polvo field. We were able to work and reduce some lines of cost. On the negative side, we had some scheduled downtime, as I mentioned before.
Each shutdown lasted eight to nine days, impacting production of the assets and increasing the lifting cost. Here, the upside is that once the stoppages are behind us, we should have a better performance of the assets. Just like when we complete the tieback, we will see an improvement in this number in the coming months. Moving to slide seven, in speaking more detail about Frade field in this quarter, we had to make some necessary adjustments at the plant, and a planned stoppage for preventive maintenance that impacted production and consequently the operating efficiency. Other than that, the unit is operating well at around 99% operating efficiency, so performing as well as always. Another relevant point in this quarter is that we finally got authorization from ANP after many years since we acquired the asset.
We have been struggling to get authorization for water injection in the wells with all the necessary safety, all the necessary analysis done. At the end of June, we started to inject water. There was a big risk that we wouldn't inject anything. We're still injecting very little, and we're studying to see how we can improve that to try and delay a little pressure decline in these reservoirs. We're injecting a little water in, it's something, and we hope to get some results in the future. Moving forward to speak a little about the revitalization plan of Frade field. This is something we had in mind since we acquired the asset. It's our big goal in this field. We got authorization by ANP for the development plan. Now we have a firm commitment to complete the redevelopment of the field.
It includes drilling seven wells, four producing wells and three injection wells. We'll divide this into two phases. Phase I with one producing well and two injection wells. We should be starting that in the first quarter of 2022. For that, we are moving ahead at full speed. The engineering work is underway, as well as the commissioning of goods and services. We signed a contract for a drilling rig, a rig which is operating already in Brazil, with a good track record, a good operating performance. We signed the contract already thinking about the Frade operation, already including Wahoo field, treating them as a cluster. These two fields have some similarities. They are located closer together, we can work against scale. At the end of the day, we'll reduce costs and speed up the schedule.
We signed a contract giving us enough time to allow us to execute all the campaigns, phase one of Frade and Wahoo, and perhaps phase two of Frade. Moving on. Now on slide nine, talking about Polvo field. Polvo in this quarter, well, this was the last quarter when the field produced for FPSO Polvo. Over the years, there has been a decline in the production system and the plant. We suffered a lot with a poor performance of the process plant, particularly the water treatment plant. For a few days, we were impacted by the low quality of the water treated, and we couldn't discard it, so we had to restrict the production of some wells, which ended up impacting overall production of the field, and consequently, it impacted the lifting cost.
The upside of the field was the start-up of production of the Eocene well, which we call POL-K, in May. We were able to complete the drilling at the very best pace to date. This was an important milestone, and this was relevant both in terms of cost and time to execute. We drilled the wells very fast. Overall, the field performed well. The vessel stopped production in the end of June, and it will no longer produce. Now we are producing totally through FPSO Bravo. Now moving to Tubarão Martelo, TBMT. We had a scheduled shutdown in the month of June for preventive maintenance and to prepare the unit to receive fluids coming from Polvo Alpha platform. This is done. It took about eight days in June. Additionally, we had a production loss on account of well number eight, w e have not completed it yet.
We're still working on the well, w e had some more challenges in that well. We are working to complete the workover by the end of August. Other than that, the vessel itself has an excellent performance. Excluding these production losses, the vessel itself is working with an excellent performance, above 98%. Also, for TBMT, we have well number 10 planned for. It will be completed and interconnected to the vessel. As soon as this is done, the rig is set, all of the materials are ready to be mobilized. As soon as we complete the workover on well number eight, the rig will be relocated to well number 10, and then within 30- 40 days, we expect the service to be completed and to start production at the field.
Moving on to slide 11, I'll give you more detail on the tieback project between Polvo and TBMT, putting the assets together as one. This is what we see here on this schematic showing the Polvo Alpha platform, a flexible line connecting to FPSO Bravo. This is already operating today. This is already one single system. We finished the project in the beginning of July. This was truly spectacular. In less than 12 months, we were able to execute the whole project during a pandemic, no less. It showed PetroRio's ability to execute, involving several companies. More than 50 suppliers directly involved in the project to complete the tieback and deliver the project, in addition to hundreds of professionals working, all of them aligned towards one single goal. We were able to complete the tieback on time, on budget, and mainly, with safety.
We didn't have any incidental problems whatsoever during the whole project. We are very happy and very proud to be able to do that. The consequences of this project, now that it is complete, we will reap the fruits. Operationally, we'll have one less unit at the field and the costs linked to vessel chartering diesel. That entails a cost reduction of around $15 million. We will refine these numbers in the coming months, and of course, we'll work to improve them even further. There will be also a reduction in CO2 emissions. We're talking about roughly a 23% reduction in CO2 emissions, but this is just an estimate. In a few months, we'll be measuring this, and very likely we'll have a much better number. There's another relevant point.
As of July, with the tieback being complete, the company, PetroRio, will be entitled to 95% of the oil produced by the cluster or by Tubarão. This was already included in our agreement with Dommo. Moving to slide 12, I'm going to give you more color on Wahoo field. It is part of the cluster, Wahoo and Frade. We got a green light from ANP regarding the stakes of both BP and Total and we are now working at full steam to develop the project in detail the development plan of the asset. We are conducting geology, subsurface studies, the wells project, the subsea project for the tieback, or to adapt the Frade vessel. All of that is ongoing, should take a few more months to have the DP, the development plan, ready to be submitted to ANP for approval.
Meanwhile, we have some resources already planned for us, such as the rig. We have until the end of next year to execute the Frade project, and then the rig will be available for Wahoo. We'll try to derive as many synergies as possible and to gain scale with these projects in a combined fashion. As regards to the next steps, we need to further detail the engineering piece, which is ongoing. The process of signing some contract amendments for the concession is happening. The start of the cash calls is practically done, and then we'll follow the protocol, t he declaration of commerciality.
When the development plan is ready, it will be submitted, then we'll get to the execution part itself, trying to forward as much as possible the start and the end of the project, because what really matters to us is to have first oil flowing at Wahoo field. Now I'll turn the floor to Milton for the financials. Thank you very much.
Thank you, Francilmar, good afternoon, everyone. We'll continue the presentation now focusing on our financial performance. We can see what happened during Q2. On slide 13, on the column that excludes the effects of IFRS 16, we see revenue of over BRL 1 billion on the back of more than 2.8 MMbbl sold at an average price of $66, almost $67/bbl . We achieved this significant result in Q2.
Year to date, in the first six months of 2021, we have almost BRL 1.7 billion, quite a significant number. We can see some line items, such as general and administrative expenses and other operating expenses. We have this quarter driving these expenses up a level. On the other hand, we had a positive financial result in Q2 because of the appreciation of the Brazilian real, the Brazilian currency, that happened in the last few months, which pushed our financial revenue up a little. At the end of the day, we had an income in Q2, a little over BRL 300 million. If we were to include the effects of IFRS 16, we achieved an income a little greater than BRL 420 million. Talking about adjusted EBITDA, which is the EBITDA that excludes all non-recurring and non-cash effects, et cetera.
We posted adjusted EBITDA excluding IFRS 16 in Q2 of BRL 642 million, with an EBITDA margin of 63%. Year- to- date, in the first six months of 2021, this number is a little over BRL 1 billion. Here we have an important highlight to mention. This adjusted EBITDA already exceeds the adjusted EBITDA that we had for the whole year of 2020. Because of the recovery of the Brent oil price and increased production by the company, cost improvement, and so on and so forth, we achieved a significant adjusted EBITDA with an EBITDA margin of 64%, as well, very solid. Including IFRS 16 in Q2, adjusted EBITDA is BRL 725 million with a 71% margin. Now moving to slide 14, speaking a little about funding. The company's funding ability, cash, and debt amortization schedule.
Starting on the left side of the slide, we can see a marked reduction in the cost of debt for working capital. Those more, say, short-term loans for the company's daily activities, down to 3.45% per annum in Q2 2021. This stems from an improved credit rating and improved perception of the company's credit rating. We also issued a bond that had an interesting rating. There was a perception by the market, by the banks that we work with, that the credit rating of the company is improving a lot. We are getting cheaper and cheaper loans for working capital. As for the bond, we raised $600 million in June of 2021. This was a very successful operation. The book was more than five times oversubscribed, more than five times the amount that we aimed to raise.
We raised $600 million at a cost of 6.125% per annum in a five-year loan. The strategy behind this funding was basically to repay those loans that were very much concentrated in the short term and to elongate this profile of financial liability so that the company could have more peace of mind to operate and make investments. We have this liability management. We can see on the right side of the slide a very strong cash position, more than BRL 4.5 billion. The short-term amortization schedule still has some working capital loans totaling BRL 467 million. Concentrated beyond the next five years, we have around BRL 3 billion payable, referring to the bond that I have just mentioned. Moving now to the next slide, we see the performance of the company's net cash.
We ended Q1 of 2021 with a net cash of roughly $212 million. Despite having a very strong EBITDA, we see that our net cash continues at around $210 million. What happened here? It was the EBITDA of a little over $120 million in the quarter. We had a small component of tax payment in cash. We had a strong effect of the working capital because many of the offtakes we had were completed in June, but the cash is received in July. We have an average of 30 days to receive payment, and that impacts the company's working capital in the quarter. Additionally, we also had our CapEx. These are investments that the company made in the tieback between Polvo and TBMT, in drilling at Polvo, as well as improvements made to our rig, the King Maker, and some general maintenance expenses.
Also relevant, we had a cash reduction of $30 million in financial expenses. Here, this includes the bond issuance fee, some expenses related to hedging, some interests paid, and the prepayment of some loans. All of that had an impact, but these are one-time off items, not recurring items. In this quarter, we had a number of non-recurring events that led to slightly higher financial expenses. When we put it all together, we reached a net cash in the end of the second quarter of 2021 of around $210 million. Moving to slide 16, we'll speak a little about the company's leverage. An indicator that we like to follow up close is net debt over adjusted EBITDA, excluding the effects of IFRS 16. We can see the performance of PetroRio starting, I should say, in 2019, when we increased the indebtedness of the company.
We started 2019 with a ratio of 3.3x , given the acquisition of Frade field, the acquisition of the working interest belonging to Chevron. Soon after, we had a marked reduction because of the cash generated by this asset that started being accounted for in the following quarters. In Q1 of 2020, we had a new increase to 2.3x , and this stemmed from the acquisition of Tubarão Martelo, for which we took on another loan. Again, we started generating cash in this asset in the following quarters, and we were able to reduce the ratio quite a lot along the following quarters, getting to Q4 2020 with a net debt over adjusted EBITDA of only 1.2x .
In the first quarter of 2021, we successfully conducted the follow-on offering of the company that brought in a lot of new cash for the company so that we became a net cash company. That's why the ratio is negative. Now we remain at a - 0.6x net debt over adjusted EBITDA on the back of a strong cash generation, strong EBITDA, and the company remains at a very healthy level from the standpoint of indebtedness, and we are ready for new steps in terms of capital allocation. We are in a position of great financial health. With that, I turn the floor back to Roberto to speak about the next steps. Thank you.
Folks, thank you, I'm back. Thank you, Milton and Francilmar, for your respective presentations. I will go over the next steps of the company and what we are thinking, what our agenda is. Well, I did not include any deadlines here or anything, but it is important that you know what PetroRio is thinking and what we are expecting for the next quarters. Of course, our focus will always be the safety and health of our employees and contractors and everyone who has some play at the company. This will always be our main focus and our main driver. We have some deliverables yet to be delivered. We still need to deliver TBMT-8, which is that well that failed at TBMT in March, if I'm not mistaken. The process was delayed because of the rig that was undergoing some maintenance work, and then we started the workover.
During the workover, we had a number of little problems popping up that are being solved. Hopefully, we'll be able to deliver TBMT-8 in a matter of weeks. Then we will move straight to TBMT-10. This is all being done with our King Maker rig. This is the first time that we're working with this rig. The first activities of PetroRio at TBMT field. Of course, there is a learning curve. This will be the main focus of Francilmar and his operating and engineering teams in the quarter. Parallel to that, now we are talking more about preparation and engineering. We're talking about the preparation for the Frade campaign and getting prepared for the development of Wahoo field.
As we said in the past, we intend to declare commerciality of Wahoo still along 2021, so we can submit the Wahoo development plan to ANP, the regulatory agency, so we can start drilling at Wahoo field next year. Our operating schedule now will be TBMT-8, then TBMT-10. Well, this is not certain yet, but we'll be considering the possibility of drilling another well at Polvo. However, this is still being studied. Cannot give you any certainty that we'll do that. Next year, we will start drilling at Frade in the revitalization campaign of Frade that is expected to begin in March of next year. More towards the end of next year, we should start the development campaign of Wahoo field. Now the whole company will get ready to execute on this operating agenda.
Of course, parallel to that, we will always be paying close attention to inorganic growth opportunities through M&A opportunities. Like I said before, the company was never this prepared for this last line of inorganic growth. Of course, we'll try to take as much advantage as possible of the fact that we're so prepared to grow as a company. These are the next steps. I would like to close this conference call thanking our employees, our teams. I know that sometimes it can be hard having all of these organic growth projects together, considering how strong and bold they can be. By bold, I mean a heavy agenda. All of our employees have pushed themselves to the limit and delivered what is expected from them.
I would like to extend my big thank you to the whole team, and I would also like to thank all of you who participated in today's conference call. Now we can open the floor to questions. Thank you.
Good afternoon, everyone. Thank you for joining us. Now we'll start the Q&A session for analysts and investors. If you want to ask a question, you can use the Q&A button for written questions, or you can use the feature Raise Hand so we can unmute your microphone. We will only allow questions from people who identified themselves during the call. We can start the Q&A now. The first question is from Guilherme Levy. Guilherme, we'll unmute your mic. Go ahead. Hello, Guilherme.
Hi, can you hear me well?
Yes, we can.
Congratulations on the results, and thank you for taking my questions. I have two questions related to M&A activities. As much as possible, within the limits of what you can comment, perhaps you could give us an update on the timing for the sale process of Albacora. What are the next steps from the side of Petrobras, and perhaps you could comment on what you're feeling in terms of competition for this asset. The second question has to do with the sale of Manati field. Any update regarding the timing? When should we expect the process to be complete? Thank you.
Guilherme, thank you for the questions. Let me speak about Albacora, then I'll speak about Manati. Regarding Albacora, the last information we got is that the bidding will happen next Monday, August nineth.
This is a binding offer for both assets, Albacora East and Albacora West. We have the binding offer, we understand that, and this is our opinion, but we understand that Petrobras will have a period of some weeks, perhaps a month. This is what we have seen in other processes. There is no formal announcement by Petrobras saying when they will decide. It will take some time, a few weeks to a month. They should decide on what they call the preferred bidder, the highest bid from their standpoint, of course. The preferred bidder will enter a contract negotiation phase with Petrobras. Today what we have, what we received, a package of information. As part of that, we received a contract. We submit a bid, and we mark everything that we would like to change in the contract, w e submit that to Petrobras.
They identify the best proposal. They call the preferred bidder to negotiate. The negotiation process, well, we don't know. That can last anything from four to six months, in my opinion. I've seen this kind of negotiation process take longer. I think it's hard that it will take less than that. We're talking about a negotiation process that will be extending until year-end. By year-end, when this crucial piece of the process is over, Petrobras might have a rebidding, when they'll show the contract to the second preferred bidder, sometimes to the second and third bidders. The second and third players can increase their bidding based on that contract. They have no way of changing the contracts anymore. Based on that contract, the second or third players can raise their bid.
After the rebidding process, Petrobras will see who offers the best proposal, and that's when they'll close the deal. This is how the process goes for Albacora. It will be followed for both Albacora East and Albacora West. In practical terms, next week, there will be a bid. We think that this will entail a long negotiation process. I think that the timing would be perhaps year-end or beginning of next year. As for other bidders, PetroPrio is participating in the process. During this week, we'll run our internal processes for approval to decide whether we will bid and how. In the media, we hear and read the same as you do, that there are four interested groups.
Our group, another group led by a consortium of four companies, two independent producers here in Brazil, competitors of ours, and a private equity fund, plus a company in the Gulf of Mexico. Another big oil company, another small, isolated oil company bidding. Theoretically, four bidders. This is what we know, c an't add anything more to that. As for Manati, as we mentioned before, we signed a contract, a sales contract. The company that signed the contract with us is called Gas Bridge. One of the contract conditions was that it would be successful in acquiring Petrobras working interest. They went through those same stages that I mentioned, t hey bid. They were the winner; t hey negotiated the contract. They're waiting for Petrobras to call the rebidding process, which is the last stage that I explained.
Once that is over, they'll sign with Petrobras the acquisition of Petrobras working interest, and then our business will go through. This will be submitted to ANP approval. Once ANP approves the deal, we'll get paid for the sale of the field. I think that if everything goes well, we can expect the deal to go through still this year. These things do not really depend on us. It requires regulatory authorization, so it's kind of hard to predict the right timing. This is what I had about Albacora and Manati, Guilherme, and I hope I have answered your questions.
Perfect, y ou did, t hank you very much.
Thank you, Guilherme. Next question by Christian Audi with Santander. Christian, your mic is unmuted, g o ahead.
How are you, Christian?
Hello, c an you hear me?
Yes, we can.
Hi, Roberto and the whole team. To begin, congratulations on the results and secondly, excellent presentation. Straight to the point, very clear, c ongrats on that. My question, Roberto, was more directed to the last point that you mentioned, the M&A deals, because the Albacora process, like you explained in detail, takes time. I'm thinking, you have a very strong financial position right now. Of course, you're interested in Albacora. Could you explain to us, how can you manage to remain interested in Albacora, a process that can take nine months, perhaps the next year, and at the same time, looking for other M&A opportunities? Can you do that? Can you explain the dynamic of how you think?
Well, Christian, this is an excellent point you raised. These M&A deals, they take a long time, and they are not really very easy to monitor and follow because it's almost like the company's living that process for a long time. What we do is, we continue working. Since our follow-on in January, we have been saying that our goal for the follow-on proceeds. We didn't want to have an equity raise just for the sake of doing it. We always give the market some color, saying our intent is to participate in the Albacora process and to explore some M&A opportunities. Notably, we always spoke about the possibility, and I'm not saying that the process is happening, but the possibility of negotiating Peregrino or some other asset by Shell, something that belongs to Total.
Our focus was always around Albacora and some other assets. We continue to study those assets. If a new asset happens faster, there are some things that are even greater than Albacora. This is the kind of risk that Petrobras is running with this long process. This is how things are, a t PetroRio, we are keen not to stop exercising. We don't want to be putting all of our eggs in the same basket of Albacora, putting all our hopes in Albacora, because we don't really know how it will play out. It's a windy process. I don't want to say windy process because it sounds like it's not well conducted. It's not badly conducted, but it does have many stages. We are always considering other things, Christian. We are considering other deals. There are other things ongoing, and that's how things go, w e have also to focus on Albacora.
Thank you, i t's clear, m y second question, from the operating standpoint. You made it clear what the next steps are, TBMT-8, then TBMT-10. Could you or Francilmar mention what are the challenging points in these operating projects? What has a higher risk compared to more comfortable processes? We just want to understand the risk in these next steps in the operating aspect of the company.
Sure, I can explain that. You know what is really challenging for us, as Roberto kind of touched on, is our heavy agenda. We set out to execute the projects as quickly as possible to bring forward production. The market is used to seeing companies do things for a long time. We start with the supply chain, and the market thinks about 24- 36 months to have first oil flowing.
We always try to compress that. In focusing specifically on Frade and Wahoo. These are projects that are starting from scratch, so we have to commission all the equipment and services to make that happen. From the engineering and execution standpoint, there's nothing new. We have 100% control on the supply chain. Our suppliers are used to the way we work, so nothing challenging regarding execution. We have to execute on time and on budget. In the case of TBMT, we're executing TBMT-8, and well 10 will begin. There's nothing new there, nothing challenging. Things happen, and they are inherent to our business and our operation. There's nothing really new. Issues happen, and this can delay the project for a few days, but we'll be able to deliver.
That's excellent, t hank you very much.
Thank you, Christian. Always good to have you on board.
Our next question comes from Pedro Soares, Pedro, go ahead.
Hello, Pedro, h ow are you doing?
Good afternoon, c an you hear me well?
Yes, we can.
Good afternoon, Roberto, Milton, José, Francilmar, and Emiliano, the whole team. One last follow-up question regarding inorganic growth and M&As, because I think we've spoken about them as the obvious assets. I just want to understand a little bit more about Wahoo. Roberto, you mentioned the IBV stake, that it was at an advanced stage, so it would be in that binding phase in an analogy with the Petrobras process. You said you were waiting for an answer by the board of IBV. Could you speak more about that negotiation? That would be appreciated.
From the operating standpoint, my second question would be, now that you have completed many of the achievements along the first half of 2021, the tieback is completed, POL-K drilling is complete, and thinking that production will be normalized in the second half of the year, could you give us more color regarding what we can expect in terms of the lifting cost for the second half? There will be some operating leverage, I believe. You will be enjoying the benefits from the tieback. Could you give us some more detail on what you're expecting?
Perfect, Pedro, to speak a little about Wahoo. Here's what we did. We submitted a binding proposal to IBV, which holds the asset. The two partners who own IBV, [guess] and Vitol, they received our proposal, and now they're assessing, evaluating the proposal. Unfortunately, they tend to take longer than we would like. Until now, they haven't said yes, but they haven't said no either. We're waiting for their internal meetings, board meetings, and then we'll know whether it will move forward with a deal or not. It is a little frustrating. Believe me, it is frustrating for us, too. This is the process that we are trying to overcome.
That we're trying to win. On the positive side, they haven't said no. On the other hand, they haven't said yes either. The process is ongoing. We submitted a binding proposal. We are interested in acquiring the rest of the stake. Again, they work at a different pace than we do. We, PetroRio, I have to learn to cope with that somehow. The process hasn't died. We are still interested, and it's just taking longer than we would have liked. It is a rather simple thing, actually. We already have a reference price, t here are contracts. Of course, the reference price that we have in the market is for a stake when you are the operator. You have that premium of being the operator, i t's a good proxy. We continue firm in trying to make the deal go through.
Regarding the lifting cost, Pedro, we're thinking, well, of course, we expect increased production. We'll have TBMT-8 that should resume operation in well number 12. We had a recent failure in our BCS, our pump. I think in the week after the tieback, we had the BCS failing in well 12. We have to end TBMT-8. Well, they're separated, right? We have TBMT-10 to start operating. Yeah, we can expect an increase in production. Our main driver is cost reduction. We had a running rate of consolidated OpEx close to $190 million a year, considering all assets, the leasing of the FPSO. We'll reduce that by $50 million. Our OpEx will be down to $140 million, and that will definitely have an impact on the lifting cost. We expect it to be between $10/bbl and $12/bbl . This is our expectation.
Of course, this is not going to happen in the third quarter because there is a decline. We had 14 days of leasing the FPSO. Yes, we're already stressing a positive effect on Q3, and Q4 will be wonderful. This is what we are expecting for the lifting cost.
Very clear. Thank you. If I may, I'd like to ask a very quick last question to Milton regarding CapEx. Regarding those BRL 36 million in the quarter, could you break it down? What would be recurring maintenance CapEx so we can exclude the growth effect?
Sure, o f the BRL 36 million CapEx, we had about BRL 20 million in the tieback. We're in an intense period to pay for the tieback. Maintenance was the smallest part, BRL 5 million-BRL 10 million. It was very much concentrated on the tieback, the deal with those BRL 36 million.
That is important, I'm sorry to interrupt, Milton. It is important to think that this maintenance CapEx was related to the shutdown of three assets. These were scheduled shutdowns. It is to be expected. A good part of that was what we call the turnaround of the assets. You shouldn't think that this will be repeated every quarter, i t won't. This was a one-time off effect given the scheduled maintenance downtime.
Thank you.
Thank you, Pedro, for the question. The next question is by Leonardo Marcondes with Itaú BBA.
Hi, Leo, h ow are you? We cannot hear you, Leo.
I think you can hear me now, g ood. Thank you for taking my question or my questions. My first question has to do with the tieback projects of the company and the learning curve involved.
I would like to understand what the company has learned from the tieback of Polvo and TBMT in terms of rights and wrongs, and how can you mitigate the Frade Wahoo tieback project, in your view? My second question has to do with M&As. You mentioned that you're looking at the Albacora cluster as a consortium. When we look at the portfolio of PetroRio, we see PetroRio with a working interest of almost 100% in the other assets. I'd like to understand how should we see the company in the opportunities, some of them, which you have already mentioned. Should we expect future projects in partnership, or with the company owning 100% of the asset? If there is any preferred model for PetroRio? If I may, I just want to understand the forward-thinking of the company. What do you consider to be an ideal leverage level for the company? Thank you.
Well, to give you a quick overview, if you stop and look at this, we started with the Polvo and TBMT tieback, which theoretically is a lot simpler. It's one single flexible line, shallow water, 10 km between them. We'll move to greater distances and deeper water. The learning curve was very rich. We had great results, particularly regarding the engineering piece of the work. The Brazilian system works with a EPC contract. They want to hire one single contract, one single company that will deliver everything to you, w e did not choose that path. We chose to do engineering and management in-house because we believe we have this sense of ownership, and it's very strong, t hat had a huge effect.
We were only able to execute as we did because we have control over the project. Another great point was the interconnection of many sectors. Such a project, many companies work with different project departments. Somebody drafts the project and delivers the project to operation, n ot here. The operation that is going to operate the project is integrated during the drafting phase of the project. Everyone pitches in, and everyone works together, and everyone shares the deliverables. That helped the whole process and sped up the whole process. This is something we'll continue to do and will improve the future projects even further. Regarding the geographic distribution and the types of suppliers that we used. We have a lot of lessons learned that we will fine-tune even further for the next project. For Wahoo, we are already at the engineering study phase.
Exchanging ideas with the market, trying to get proposals. We'll use a lot of the lessons learned for Wahoo. I believe that we'll be able to deliver an even better project. Leo, to speak about M&A deals and our ownership stake. It is true, the Albacora process is a little different than what we have done. We have a 50% partnership with PetroRio, 50% a construction company in Spain. They are now in the process of selling to a big French company called Vinci. It's a 50/50 stake. This is not our normal, I cannot tell you that as of now, everything will be like this or not. We simply found a partner who shares our mindset. A partner that has a similar mindset as we do. We had some conversation with them; they said that they believed in our model.
Not in our business model, because everyone knows our business model, but they trusted our operating model. They have an operation in Mexico, an operation in Ecuador or Peru, I'm not sure. I think in Ecuador, I guess. They wanted to have an operation in Brazil, and they trust and believe our operating model. They share the same operating philosophy that we do, it kind of made sense. They thought it would be a good idea to participate in the bidding with us. We thought it made sense to have a partner as long as the partner shares a similar mindset to ours. This is the only M&A deal where we're thinking about a partnership. The other efforts that we have, they are all deals where we are the only players. Perhaps Albacora is the only outlier, I should say, in our history.
I cannot tell you that from now on, this is how it will be or it will not be like this. It just made sense. They think similarly to how we think. We cannot say that from now on, we'll always have a partner or not. We cannot make any final statements about that.
Perfect, w hat do you think to be the ideal leverage level for the company?
When we look at that chart that Milton showed in the presentation, we had 3.3 or 2.6 net debt over adjusted EBITDA ratio. We think that these peaks happen because we buy an asset, the asset is now generating an EBITDA, so we account for just the expense of acquiring the asset that reduces the net cash without the counterpart revenue.
We have to think about an adjusted level once we account for the debt to acquire the field and when EBITDA is generated. I should say the ideal leverage would be between one and two, but a low leverage ratio. We don't want to be having a high leverage because this is a company that lives off M&A deals. We have to have a balance sheet that will allow us to enjoy opportunities, that will allow us to be opportunistic. Something interesting might appear, and until we get ready for it, we'll have missed the opportunity that can get in the way. A leverage of 1x- 2x , closer to 1.5x , 1.5x- 2x, but something around that, not much higher than that.
Thank you very much, v ery clear.
Our covenant is 2.5x , we can't even go higher than 2.5x, t here you have it.
Perfect, t hank you.
Our next question comes from Regis Cardoso with Credit Suisse.
Thank you, t hank you for the questions. Two questions, o ne regarding the timing for Wahoo. I understand that the Frade campaign starts in March 2022. Does that imply, will that lead to a delay in the Wahoo campaign, given that you intend to do one after the other? A second question, also an operating question regarding the drilling schedule. Do you now have more visibility? Could you have an additional drilling in the Eocene reservoir, particularly considering the Frade timing? Also, if you can comment any updates on well number 10 of TBMT. Are you maintaining the expected deadline or will the work over at well eight will cause some delay? I just want to get a sense of the timing of the start-up of the wells.
Okay, Regis, let me try to answer your question. First, with the Wahoo project, it's actually the other way around.
We have this opportunity. We were able to get the rig at a very good price, and it's a rig that has excellent performance. We decided to put those two together and see them as one project. We'll have Frade, the three wells. That should take about 210 days for the Frade campaign, w e'll move to Wahoo. This is bringing forward the start-up of the works to Wahoo. We initially thought of starting that in 2023 for drilling, but we can bring that forward a little. This is positive. We are going to have many synergies when we see this as one in terms of mobilizing, demobilizing equipment. This is going to be very positive for the company. Wahoo is going to benefit greatly from this sequence, t hese 500 days.
Well, we chartered the rig for 500 days to cover phase I of Frade and Wahoo wells. We negotiated some options to renew the contract so that we can accommodate phase II of Frade and other possible opportunities that might arise. We're talking about a two-year time frame, we might have other opportunities. To speak about TBMT, Tubarão Martelo. The event we had in well number eight delayed somewhat what we expected for well number 10 to start production. I always like to wait to give good news and not bad news. I expected to have this well already producing, with the scenario, we were expecting it to start operating for mid-September. Officially, I think it will be kind of the same.
Our guidance for well number 10 was September. Now with everything that happened, we won't be able to bring it forward. It will be in September. It will start operating in September. To your final question, if well number 10 starts producing in September, we'll have October, November, December, and perhaps January free. That's when we will consider the possibility of drilling one more well in the Eocene because we will have these four months practically with the rig free, idle. This is a point that is being studied, considered, debated. I cannot tell you, Regis, that yes, we'll drill. We are in the middle of the work over process for TBMT-8. We call this fishing. When we pulled the column, three, four clamps fell inside the column, and we had to fish them back, i t takes some time.
It's feasible, but it can be a slow process, and this is what is getting in the way of well number eight. We want to be sure that well number 10 will not have this problem, but when this is done for well number eight, we'll have a clear idea of when it will start operating, well number 10 as well, and then we'll know whether we will drill another well.
Thank you very much, v ery clear. Congratulations on the results.
Thank you.
We have one last question live from Bruno Montanari with Morgan Stanley. Bruno, you can ask the questions.
Hello, t hank you for my question. I have just one follow-up question regarding the partnership with the Cobra Group. The question has two parts. Number one, potentially Cobra Group will be sold to Vinci.
Do you see the same mindset alignment with the new controlling shareholder versus the PetroRio mindset? The second question, I don't want to speculate on the valuation of Albacora, but I imagine that the size of the check might be relevant. I want to understand, any restrictions regarding the size of an individual asset in your portfolio in terms of production, in terms of the size of the acquisition, and if perhaps in the future you could buy the Cobra Group stake in Albacora. I just want to get a sense of what you're thinking.
Well, Bruno, this was also our concern regarding the Spanish group that is being sold. Of course, that raised some doubts for us. The process happened even before the first bid, t his was already going.
I'm not sure whether it had been formalized or not, but it is a process that we knew about since the beginning of the story. Since the beginning of the relationship. It was not something that caught us by surprise. As far as we know, and we had some conversations with the group, the C-level of the group. It made sense for the French because the Cobra Group had an interesting pipeline, including our partnership with them. We don't see this as a problem. We don't see this as an issue. We are in constant contact with them, with formal documentation regarding the bid agreement and so on and so forth. We talked a lot. Of course, the decision regarding capital allocation will be done abroad. They have their own board. The French company has its own board. In our day-to-day, nothing has changed.
We continue to work with the Cobra Group, the Spanish group. We don't think that this will bring obstacles. There was another part to your question. What was it, Bruno? Was it this?
Yes, I'm thinking about the valuation of Albacora. It can be a big check, bigger than what we have seen in PetroRio's portfolio. Do you have any restriction regarding the size of an individual asset in terms of production contribution, and if you could think about acquiring the stake of the partner and own 100% of the asset?
No, we don't have any restrictions regarding asset size in PetroRio's portfolio. Yes, in the future, if the partnering group is interested in selling, we'll be the first to look into that, w e like our assets. That's why in Wahoo, we are trying to acquire the rest of the working interest.
If we are to be the owners of a piece of Albacora, it would be no different here. Yes, we would be interested. The main point about our company is how we allocate our capital. Any bid that we submit will need to have the adequate return on the capital invested. We always talked about a 20%-30% return in dollars, and this is our business. With that, we try to allocate capital. This is the main driver of our operations. Of course, there are things that we look at. We will not bet the whole company on one single asset, but more and more, we're getting away of this kind of scenario. We have Polvo and TBMT, w e have Frade, w e have Wahoo, I guess we are beyond that.
We already have a diversified portfolio of assets, and our thinking is a focus on return. We'll bid if it is attractive and if we have an adequate return.
Very clear, t hank you.
Bruno, thank you for the question. We will move to written questions. Given that we are beyond the time allotted to us, we'll answer all of them together. The first is from Rodrigo Siqueira. He asks about NORBE VI rig that we contracted for phase I of Wahoo, and he asks about the second phase of Frade, how this would fit in the schedule.
The contracting model already included that. We closed the first Frade campaign, and we'll move to Wahoo. We left an option. We have 350 days with five possible wells to be drilled, another four wells in the second phase of Frade, and something extra that might arise. We have a two-year horizon for that. These are options. After the 500 days, we will decide on a well-by-well basis. With that, we believe that we have two years of a direct and synergic campaign for Frade and Wahoo.
Perfect, t hank you. One last question by Argeniro Rodriguez. He is asking about our hedging for the next quarters, considering oil price.
Milton, you will help me with this. We recently did some hedging operations protecting the sale price from June to October. Our net selling price is around $68. It is actually between $65.30, $65.40, for 100% of our offtakes in June, July, August, and 50% from September to October. Some time ago, considering a six-month timeframe, we are now studying new possibilities of extending the hedging until November or December. We are following oil prices up close, and particularly volatility in oil prices.
Volatility is 35 points, 36 points. For hedging purposes, when this level is down to 30 points, 32 points, we'll consider this. The company is well hedged until October, as I mentioned, and we're keeping our eyes open. Let me clarify something. Our minimum selling price is almost $68. That is the minimum selling price. Everything above that is ours, i f it's less than that, we'll keep $68. To have this kind of hedging insurance, we pay kind of a little over $2. It would be $68 minus $ 2, around $2. That gives us $65 and cents. These $2 have been paid. They're part of that financial expense that includes hedging costs. Looking forward, what we are going to see is a minimum selling price of Brent of almost $68/bb l. We're talking about June, July, and August.
In September, October, and November, we are talking about half of our production. We look at oil volatility. When volatility is reduced, we redo the hedging. We make adjustments that for the next three months, we have 100% of production hedged, then 50% of production hedged. We hedged our oil in June. Volatility increased a lot. That is why we didn't update our hedging policies. We're waiting to see if we have low volatility. We'll replenish our hedging levels. Well, everyone, thank you very much for the questions. We are closing the Q&A session. I turn the floor to Roberto for his final statement.
I should say thank you, I would like to thank all of you for participating in this conference call. Thank you for participating.
I would like to particularly thank all of our investors who have always backed us up and continue to support us. I would like to thank again all of our employees who delivered a very good quarter. They completed the tieback in very good time, just seven days beyond what we thought a year ago, c ongrats. On budget, on time. I'd like to thank all company employees who were able to exceed the expectations, deliver an extra mile for us to deliver these positive results. I wish you good health. Hopefully, we're at the end of this COVID process. The population is being vaccinated, the economy is recovering, and everyone is getting close to resuming normal life. Thank you very much, s tay healthy, and I'll see you next quarter.
Thank you very much, PetroRio's conference call has ended.