Earnings Call: Q2 2020

Aug 4, 2020

Good day, ladies and gentlemen. Welcome to the conference call to discuss second quarter twenty twenty results of PetroRio. Thank you for standing by. At this time, all participants are in listen only mode. Later, we will conduct a question and answer session for analysts and investors when further instructions to participate will be provided. This event is also being broadcast simultaneously over the Internet via webcast and may be accessed through PetroRio's Investor Relations website at ir.petrogiosa.com.br by clicking on the banner Q2 twenty twenty earnings release. Before proceeding, let me mention that forward looking statements that might be made during this conference call relative to the company's business perspectives, projections and operating and financial goals are based on the beliefs and assumptions of PetroHugh'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 are related to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of PetroRio and could cause results to differ materially from those expressed in such forward looking statements. I would now like to turn the conference over to Mr Roberto Montero, CEO, CFO and new business officer Mr. Fansu Mar Fernandez, COO and Mr. Milano Fernandez, Head of Legal Regulatory and Management. Mr. Monteiro, please go ahead. Hello everyone, good afternoon. I see here a large number of investors following the conference call and among them many investors who are PetroHero employees and who are also our shareholders. So thank you very much for joining us. Before I move to the highlights of the second quarter twenty twenty, I would like to mention a more encompassing and broad point regarding the culture of Pedro Rio and Pedro Rio team. I think that this was a very hard quarter from the global standpoint with the COVID nineteen pandemic and all that. But I would also like to point out the PetroRio culture, a culture of efficiency results, low costs, teamwork, empowerment, and so on and so forth. This culture led us to many achievements even in this very challenging outlook. So I think this shows the company's resilience and the resilience of our business model. Now moving to the main highlights of the second quarter twenty twenty, I would like to begin with our lifting cost. Here, for the sixth consecutive quarter, we saw a reduction in our lifting cost. It is now at $13.7 per barrel company wide. We are reaching better and better lifting costs with still room for improvement. We will now integrate Tubarao Martello TBMT and we will derive even more synergies. So a lot has been done, but there is still a lot more to do. So this is the number one point which I believe is very important in the quarter, also to support our cash generation, debt reduction and so on and so forth. The second important highlight of the quarter is obviously the farm in of Tubarao Martello. It was approved by the regulatory agency A and P just yesterday. So as of today, we are officially responsible for Tubarao Matello and its operation. TBMT is producing now 7,000 barrels a day or very close to 7,000 barrels a day. As we speak, we are connecting one well, TB MT four. So perhaps in the next few weeks production will increase. And we will be connecting and doing the tieback of POVO and TBMT, and we'll be connecting yet another well, TBMT 10. But we will be giving you more detail on that later. In addition, we completed the renegotiation of our debt with Chevron. We extended the payment schedule of our debt with Chevron. We had some strong and heavy payments to be made along the second half of the year and we renegotiated with Chevron so as to have a little more time to service the debt and this stretched our cash flow a little. This obviously brought some relief to the company's cash flow and was all around very interesting. The other two important points that we show here are the reduction of the net debt over EBITDA ratio from 2.3 to 2.1 times. Again, that shows the company's ability to generate cash even in such a challenging environment. And a final highlight, is very relevant and which is linked to that, which is the reduction of our net debt. We reduced our net debt by almost a $100,000,000 along q two. So that basically summarizes a good deal of what was done in this quarter. We were able to generate a lot of cash and reduce our net debt. I will now move to slide four and will address another highlight of the quarter, another very important point that needs to be mentioned. And of course, this has to do with the initiatives related to COVID-nineteen pandemic. All along the quarter we maintained and continue to maintain total focus on safety and health and liquidity of the company. The operation along Q2 unfolded most of the time, I would say quite normally and sustainably. But we had one event, one event that was concerning. We had to shut down the POVO FPSO due to a small onboard coronavirus outbreak. So if I'm not mistaken, the FPSO was shut down for seven days. We are now conducting a third party review of the incident to verify the effectiveness of the service provider at the Volvo FPSO BW offshore. Of course, aiming to implement measures to prevent that from happening again. Other than that, I would say that our operations were quite good and Francois Marre will give you more on that in a minute. Other points that I would like to highlight, we continue to do rapid tests and pre boarding screening. Along June and July, we gradually resumed our activities here in Rio De Janeiro. And moving to slide five, I'd like to point out two numbers. We did more than 2,000 tests at the company considering pre boarding testing of all personnel boarding our platforms and rapid testing done here in the Rio De Janeiro head office. We test everyone working at the office. Twice a week we test all of the employees here at the head office, all of us. And this has ensured gradual and safe return of our activities. With these 2,000 tests performed, we found forty one cases, which were then confirmed and all protocols were followed so that we would not have COVID nineteen disseminating, spreading at the company and as part of our operations. So I would say that the company's blocking actions have been working really well. We are more and more confident to resume our operations and activities. With that, I will turn the floor to Franz Yarmar to speak about our operations. After him, Emiliano will give us a regulatory update and then I'll come back for the financials and closing remarks. Thank you, Francois Mar. Over to you. Thank you, Roberto. Hello, everyone. Let us move to the operating highlights on slide five, starting with the most important highlight, the reduction of the company's lifting cost now at $13.5 per barrel. As previously mentioned by Roberto, an almost 50 percent improvement year on year and 20% improvement quarter on quarter. Later on, I will detail all these figures so we can understand what happened and what's coming in the future. PetroRio's production was 23.5 barrels of oil equivalent in the quarter and that is excluding TBMT and the Petrobras' working interest of the 30% stake of FRADI. With the completion of the TBNT acquisition deal, we get to the final stage of the transition and we'll start operating the field in the August and we'll start the process of optimizing resources and capturing synergies. I will also give you an overview of how this is going to happen. Fragis production was 20% higher than the declining curve expected for the field. We can still work and attenuate the natural decline of the field. We have the increased production of POVO, a 30% increase related to the startup of the new well in the Eocene Sandstone Reservoir and I would like to stress that in this case we pay only 5% royalties as was approved. And I would say that one of the most important highlights has to do with the maintenance of efficiency and production levels at the fields, despite all complications related to COVID-nineteen pandemic. This stems from hard and intense work by all departments of the company particularly EHS and the whole operating team in this critical moment. On slide six, we see the performance of our assets. It is important to compare the production level. Even in these turbulent times, we were able to maintain and even increase production a little and always keeping our costs at an exceptionally low level. Moving to slide seven, let's deep dive to understand the lifting cost. We at PetroRio understand that there is no better strategy to protect from the price of the commodity than having an extremely efficient cost. This is key to us. For that, we have been acting on several fronts. Among them, one of the most important actions in recent times has been the review of the scope of several projects and services at our units decreasing costs whenever possible. We also internalize the number of services so that the company's personnel can take over whenever possible. And so as to avoid having to hire third parties, we renegotiated the value of many conflicts and postponed some non essential services, those that do not compromise production or operating safety. So they were postponed, so we can do them when better times come. And we see that this lifting cost reduction does not include the 30% working interest production of Friday nor the inclusion of TBMT. We will be working strongly in the coming months to capture synergies at TBMT and the extra Friday production, which will give us some comfort regarding the lifting costs with a possible further reduction. Work should be intense in the coming months for us to achieve these goals. Please go to slide eight for a detailed explanation of FragiField's operating performance in Q2. Despite all hurdles and challenges, we achieved one of the best operating efficiency rates of the field, 99.8%. We did not have any production halt or shutdown problems, despite the reduction of people on board. We kept only the essential crew on board to handle production and maintenance at the unit with excellent results. With that, as far as production goes, we were able to reduce production decline due to the natural decline of the field and we are maintaining around 20% of what we expected in the beginning when we acquired the field. Obviously, we were not able to do some actions to increase production or to mitigate the field's natural decline given the current situation, but the plans are still on our radar and will be executed in the near future as soon as conditions improve. Moving to slide nine, Polvo's operating performance. We see that there was production increase as a result of the drilling campaign, but unfortunately we had a reduction in operating efficiency caused by a one time event and lower performance of the Polvo leased FPSO. In addition to shutdowns due to equipment failure, unfortunately, we had a number of COVID-nineteen cases on board that vessel and we had to hold production to replace the crew and so on and so forth. So we had a seven day shutdown until we were able to resume operations safely on that production unit. But we are back in business now. And we are now investigating the event to understand the root causes of the problem and to address the issue and prevent new occurrences, which are highly undesirable. Moving to slide 10, I would like to give you an update on the behavior of the well in the Eocene Reservoir, which started production in March. We can see this map of Polvo Field from the top, part of Pol L. This green part is the Eocene sandstone. So we see on the bottom left hand corner that pressure has been maintained practically stable in this period. We've had five months of production. And considering other important data such as production BS and W and other characteristics of the reservoir, that gives us a lot of confidence in a robust analysis for us to continue with new wells in the same reservoir. The reservoir and geology team is still carrying out some studies, but very soon, we should have a final position of what to do in the Eocene reservoirs present at Povo Field, and then we'll start evaluating possibilities at Tubarao Martello Field. Moving to slide 11, we will speak about Tubarao Martello Field TBMT. With the transfer of rights process of the field approved, we are entering the final phase of transition that allows us to start the process of sharing resources and optimizing all resources linked to logistics, operation and maintenance, technical and operational support. This should be accelerated in the coming months. The PEI, the Individual Emergency Programme, has already been approved by IBAMA, Brazil's environmental agency, and that authorizes us to start reducing the number of vessels and helicopters and to optimize our logistics base. The next steps are to deepen our understanding of the asset to understand both the operation of the FPSO, as well as the geology reservoir and production pieces of the puzzle, so as to extract the best out of the field and to accelerate the capturing of synergies. Please go to slide 12 for an update of the tie back project. In other words, the connection between Polvo and Tubarao Martello fields. We got a green light to resume and accelerate this project. So the whole process of acquisition of flexible and umbilical lines and all the necessary subsea equipment as well as the top side piece have been resumed We would like to accelerate this to complete the tie back as soon as possible. Lastly, I would like to thank all of our frontline workers, both our own and third party personnel. Despite all difficulties and obstacles during the pandemic, they were able to prove the company's resilience. We remained firm and strong throughout this period. I'll now turn the floor to my friend Emiliano. Thank you, Franciomer. Well, I'm going to start my part giving you a regulatory update focused particularly on the transfer of rights of TBMT and FRAD assets. These are the most relevant topics today. Well, as you know, and as disclosed yesterday in the material fact, we signed the amendment to the transfer of rights contract. So we completed the process to increase our working interest of Tubarao Martello. This process is complete. The process unfolded fast and we were able to impose a good pace in our dealings with the ANP despite the coronavirus issue that is getting in everyone's way. But anyway, the process is complete. And we are now moving towards the closing of the operation. There are no more objections by the agency regarding the closing of the deal. So on ANP's side, the whole issue is resolved. Now we just have to go through the legal formalities and contract formalities to complete the operation. This should happen very soon. As Francois Mar mentioned on the technical side, we are 100% able to start upgrading the asset. Regarding human resources, we are very anxious to get started. Our people are ready, prepared and standing by so that we can quickly start operating this very important asset. Now moving to a frothy field, as you know, the first half of the year was very much impacted by the coronavirus crisis, remote working, etcetera. But we took this moment to reevaluate the value of the abandonment provision. Our team carried out a number of studies on that topic and we have started this discussion with the agency. This will be, I should say, the central point in the process of transfer of rights in the coming months, we will focus on defining the abandonment provision and then on the guarantee. After the guarantee, the natural result will be the transfer of rights itself, which we believe will happen by year end being optimistic, possibly stretching to the 2021, but hopefully happening by year end. Lastly, speaking a little about our people and the coronavirus crisis, we are now this week entering phase two of our returning to work plan. We'll have around sixty percent of the onshore people back in their offices. Of course, some people will continue to work remotely, but we are moving ahead very cautiously using international benchmarking barriers, not only what is required by the Ministry of Health and the national benchmark, but also international benchmarking measures. We have adopted a number of safeguard measures to improve safety of the building, such as decontamination booth, very intense cleaning, hospital standard air conditioning filters, rapid testing twice a week for 100% of the people coming to work at the head office. Even if somebody not part of our team comes to a meeting, for example, they are also tested. And these barriers have shown to be effective. We identified a few cases of people who were ill or are ill or are immunized and positive and suspected cases were sent home for quarantine. This is proof that these barriers are effective. This week, a great number of our associates are here at the office physically present, and we are very happy to inform that this is being done carefully and safely. We're very happy to count on these people and also on those who are still working remotely. With that, I turn the call back to Roberto. Thank you very much. Thank you, Emiliano. I will now address our financial highlights. The first highlight as could be expected is our EBITDA of 300,000,000 rials with hedges included. Hedging results in the second quarter. Actually, this hedging led us to have an oil price equivalent to $51 per barrel along the second quarter of the year. A lot higher than what really happened considering the coronavirus pandemic and so on and so forth. Another very important highlight in the quarter is our cash position in the June at $113,000,000 In addition to this cash position, which is quite robust, we ended the quarter with $76,000,000 in oil inventory or the equivalent to $76,000,000 in oil inventory. And we postponed oil offtakes deliberately. We postponed these offtakes exactly to seek better oil discount conditions and to avoid selling in this very complicated and difficult moment. And this proved to be a very wise decision as today oil prices are a lot higher than they were in Q2. Another important financial highlight, which I kind of mentioned in the beginning of the call, is the renegotiation of our debt with Chevron that improved the company's liquidity quite a lot for the second half of the year in 2021. We reduced our net debt by almost $100,000,000 and we reduced our net debt over EBITDA ratio to 2.1 times from 2.3 times. Please go to the next slide, Slide 13. Here, what I'd like to show you is our adjusted EBITDA. We had an EBITDA margin of almost 70% in Q2 and an adjusted EBITDA of almost $3.00 6,000,000 rials when we include the hedging results. And in our results for the second quarter, I'm looking at the ex IFRS results. Considering the negative financial results of a 190,000,000 rials, we have more than a 100,000,000 reals related to exchange rate variation. As we know, the exchange rate dropped from 5.14, if I'm not mistaken to 5.04 or something close to that. So the exchange variation corrected our dollar denominated debt and our abandonment numbers or better yet our abandonment provision. And that whole impact is seen in our bottom line. But again, this impact is merely an accounting one. At the end of the day, the company's revenue is packed to the dollar. It is dollarized because we sell oil. So we have, I should say, a natural hedging to protect us from this kind of impact. This impact is not concerning to us. It is actually quite healthy to have a good deal of our debt denominated in the same currency as our revenue. Well, I'm now moving to slide 14 to speak a little about funding. What I actually mean to show you is how our funding and loans are better distributed. If we look at the upper right hand corner graph, we see a better debt amortization schedule for the coming years. We can see in rounded numbers for the next twelve months, 800,000,000 reais plus 900,000,000 reais in the second year and 300,000,000 in the third year on the back of the renegotiation of our vendor finance with Chevron. Another important funding is the Prisma loan, $100,000,000. In June, we post boned payment of this loan to the July. And now in the July, we extended the loan for another sixty days aiming to convert this short term funding into a longer term debt. So this is moving ahead, and I believe that this was the last extension of this funding. We are very close to turning this into a long term debt. Moving to the next slide, slide 15, please. We show you our leverage. Leverage is totally under control. The ratio dropped from 2.3 to 2.1 times, and it is the same comment I made in the previous quarter call. One does well to remember that this ratio of 2.1 times net debt over EBITDA includes the whole debt that we took on for the farm in of Tubarao Martello, a $100,000,000. However, it does not include one single real from the corresponding EBITDA. Starting today, we will begin adding EBITDA from Tubarao Martello, and then we'll have a better correspondence, better matching in terms of debt versus EBITDA. By matching, I mean including the same things or more or less the same things. So leverage is very healthy. No yellow flags here. And as we have mentioned in previous earnings conference calls, our focus is to extend the debt, but there's no concern regarding the size of the debt. Moving to the next slide, I will speak about the next steps. The financial part is over, but regarding the next steps, I believe that the company did quite well in the second quarter of this year. Our business model proved itself, proved to be extremely resilient. The company proved to be extremely robust, supported by our culture, our people, our methodologies, and everything we have in place. And now looking forward, what I think is important to highlight is our continuous focus on our employees' health and safety. This is obvious, but never losing sight of the company's liquidity. We will continue to rationalize and improve our costs as has been our habit, as we have always done. And some interesting things looking forward are that now with Tubarao Martello, we are starting I'd say that we will be connecting another well, well number four, and this is already in progress. And also looking forward, another interesting point is that we are resuming some investments, among them the tie back of Tubarao Martello and Povo, or better yet, the tie back of Povo with Tubaro Martello, as well as the connection of well number 10. I want to stress that these two investments are already underway and we are now starting to look at some mergers and acquisitions opportunities. We do see some opportunities popping up in our radar screen. So things are going back to normal little by little. The company continues to grow, the company continues to do well, continues to be resilient. So this is my take home message for you. I would like to thank all of you for joining us today and we'll start the q and a session. Thank you. Ladies and gentlemen, we will now begin the question and answer session for analysts and investors. If you have a question, please dial 1 on your touch tone phone now. If at any time you would like to remove yourself from the questioning queue, dial 2. Our first question comes from mister Christian Aldi with Santander. Thank you. Hello, Roberto. Congratulations on the results. I know that this was a difficult quarter, but the resilience you mentioned is translated into your results. So congratulations to you and your team. I have three questions that I would like to ask. The first, going back to funding. Regarding the Prisma loan, do you think that in the next sixty days, you will have the chance of turning that debt into a long term debt? Did I understand you correctly? And whether you are considering other funding options? How is this process unfolding? My second question has to do with the usage of the company's cash. Could you give us an update on a potential drilling campaign at Friday? How do you see the dynamics there regarding timing given that as you say, the margin is normalizing a little more and this gives you more visibility in the future. And my third question is also related to using cash in M and A opportunities. We have heard news about Tapateja and I would like to understand if you envision more accelerated moves in the Brazilian market that could perhaps open a door for you to do what you have been doing really well, which is buying assets. Hello, Christian. Good afternoon. Thank you for the questions. Let me try to address all three questions you raised. For starters well, actually, I think all three points are kind of interconnected. For starters, talking about funding and talking about the Prisma loan, yes. Within sixty days, we should be able to turn this loan into a long term funding. No problems there. The process is quite advanced. We haven't done that yet because in the middle of this process of converting the debt to long term, we had the pandemic and everything that it brought along. So things are taking a little longer, but there are no great concerns or stress here. Something else that we are doing regarding Prisma, Christian, and regarding funding is the bond issuance. We have a firm intention of issuing bonds in The United States, a 144 a bonds. We already have the book runners here and Santander is one of them. And things are unfolding well. We are working now on updating the prospectus with our second quarter earnings. And with that, we have a window of couple of months to issue that debt. It is in our radar to do this along the third quarter. And I should say that this will not happen only in case the market closes for whatever reason, in case the market the market conditions are worsened. But this is not what we are seeing. We see the opposite. We see a gradual and steady improvement in the market. So I should say that it is very likely that we will have this bond issuance and we would use the proceeds to extend all of our liabilities, not only the Prisma loan, but all of the debts of the company. Initially, extend five years and this in and of itself will release a lot of cash and this cash flow would be used for the Friday drilling campaign and also for possible m and a opportunities. So this is what we're thinking right now. Now, whatever we do now, Christian, regarding CapEx and all, I can tell you about the current oil prices and in the way the company is structured, we have a green light to proceed with the tie back of Polvo and Tubaro Martello and the connection of well number 10 at TBMT. This CapEx will happen regardless of the bond issuance or not. This CapEx, these investments are already happening. We have everything in place for it to happen. Currently, it depends on the bond issuance and M and As, well, it depends on the size, on the size of the opportunity. And it depends on the bond issuance and the possibility of a capital increase with a follow on or something like that. We see m and a activity coming back. You mentioned Papatera. There are others in our radar, so things are coming back. Some major oil companies had some write offs in their balance sheets just like Petrobras and all oil companies. Some of them have major write offs in their balance sheets and now they are resuming m and a activities and we see this very positively. Perfect. Very clear. And one follow on question regarding the drilling campaigns, Roberto. Could you comment? Of course, you were highly successful in all the improvements made at Povo. As we move towards a drilling campaign at FRADI field, could you comment on differences comparing the fields? What can be harder to improve FRADI compared to POVO? Are they very different? Is FRADE more complex versus POVU or not? Could you comment on possible differences? We just want to get a sense of whether the successful results of POVO can be replicated at Friday. Well, Christian, I think that this is an excellent point. Well, the first thing we need to consider here is the size of CapEx for each one of the wells compared to the expected production increase. At Povo, we talk about 15 to $20,000,000 per well. And if we are successful, we are considering extra two to 3,000 barrels a day in the Eocene Reservoir. We had a good result. So that's kind of what we can expect. In terms of operating complexity, now I'm going to speak about operating complexity. In the case of flooding, we're talking about a cost of 50 to $70,000,000. I'm giving you a wider range because with COVID and everything else, We have to redo the pricing, but pre COVID nineteen, this was close to 70. Today, I think it is closer to 50,000,000 per well at Fradin. So these wells are a lot more expensive. They cost triple the price of Polvo. But these wells produce three times as much, close to 6,000 barrels a day, Around that. So it's a game with bigger numbers, bigger CapEx, but also greater production. What I can tell you is that at Friday, I think that the drilling campaign is low risk because one of the Friday wells has been drilled already and we have discovered the reservoir. So this is a low risk well. The other wells, some of them involve water injection And we've tested water injection at Friday with positive results. So it seems to me that although the numbers are bigger, the risk profile is quite interesting when we take everything into account. In terms of operating complexity, I would say that POVO is even more complex because in the case of POVO, this sounds a little weird, but in the case of POVO, the one doing the whole integration of the work, the drilling and all is Petrojillo. Most of the drilling team is Petrojillos. We then hire a drilling rig to drill. In the case of RADI, we'll hire a drilling rig. So although these are different contracts, a good part of the CapEx involves the drilling rig. But we will hire the service. So if we have a problem with the drilling rig at Povo, Petrojio is in charge of dealing with that. The downtime is on Petrojio, maintenance of the drilling rig is on Petrojillo. And Rancho Mar came from that. So I would say that in the case of Frade, we do have the challenge of having deep wells, but on the other hand, in terms of hiring the services, contracting the services, it seems a little simpler. Understood. Very clear. Thank you, Roberto. Thank you, Christian, for the questions. Our next question comes from Marcio Costa with XP Investimentos. Mister Costa, please ask your question. Next question from the web by mister Rodrigo Siquera. It has to do with the integration of Tubarao Martello. What will be the economics of the asset since the farm in? Can you give us estimate of amounts and the inventory that will be integrated to Pedro News? And the Domo campaign at Tubarao Martello, there's only Tubarao Martello for HP. And the expectation that Tubarao Martello will achieve a 100,000 barrels per day is maintained. What about the continuation of the current campaign and the CapEx of the current campaign to be paid by PetroRio? And the tieback date is still March 2021. Any possibility that this will be brought forward? The tieback CapEx is still estimated at $15,000,000. What is the production volume expectation of TBMT ten h that will be interconnected together with the tieback? Good afternoon, Rodrigo. Thank you for the questions. I'll start with the economics of the asset. We're integrating TBMT with expected 7,000 barrels a day. In the beginning, until the tieback, we'll have 80% of that oil produced. And the production cost, the OpEx of this cluster, because now we look at this as a cluster, as a production cluster, So in economic terms, it makes sense to talk about a production cluster. So the 7,000 barrels of Tubular Martella will have 80 of that, plus these 10,200, 10,500 barrels from Polvo, and the OpEx will be $120,000,000 per year until the tie back. So this is the economics we have in mind. Very soon, Tubarao Martello, we'll interconnect well number four. It will take a few weeks. The drilling rig is there. It is working. Maybe done even earlier. So TBMT should increase from 7,000 to close to 10,000, between nine and ten thousand. That's what's what's 10,000 when we connect well number four. And if we look at the track record of Tubaro Martello, we can have a positive surprise. But we want to be a little more conservative. And then we're going to have this production cluster until we have the tie back. When the tie back happens, the economics change a little. PetroRio will have 95% of Tubarao Martello production, All packs will be all PetroRios, and we will interconnect Tubarao Martello 10 RJS. For Tubarao Martello 10 RJS, we could imagine it will be similar to number four, close to 3,000 barrels, between 2,500 to 3,000 barrels. Again, we're being conservative here and that will be the increase in production. And regarding costs, we should bring the OpEx of the field to close to 70 and $80,000,000 per year. Why? Because we will return the Volvo FPSO. The tieback cost dropped. Francois Mar and his team did good work during the pandemic. And now we are close to 40 to $45,000,000 to be expended for the tieback. And Tuberon Martello 10 when the connection will cost about $20,000,000. So this is the economics of the field. Regarding March 2021, that would be the deadline. Right? Actually, the FPSO is expected to be returned in July. Our base case is to work with it until July. We are considering returning it in the June, July. But this is our base case because our contract with BW ends every July, mid July to be more precise. So imagine we'll end the chartering contract of the FPSO at this time of the year. And this is it. Thank you very much for the questions. Next question from the web by Bruce Barbosa. Hello. Congratulations on the excellent results. Could you comment on the issuance of bonds in The United States, please? Hello, Bruce. Yes. The issuance of the bond. I mentioned a little bit this in Christian's questions, but this process is being analyzed. We are updating the offering memorandum, which is the document required for the issuance and we're updating it with q two earnings and it's all ready. Practically everything is ready. We are at an advanced stage. Now, it's just a matter of finding the right opportunity. The right opportunity to issue the bond. The market is improving gradually, little by little, so we have to follow market conditions and proceed with the issuance. The issuance will be practically 100% to refinance our liabilities. So all that short term debt will disappear. And this is it. What I can tell you is that the process is under control, it's well outlined and we made the decision together with the banks to not do the issuance now but merely because of market conditions. And so we updated our results now, so that we can quickly update the prospectus, the memorandum, and so that we can proceed with the issuance. So it's all unfolding well, as expected. Next question from Rodrigo Siquera. Regarding the Pulvo campaign, when do you expect to resume drilling? When you mentioned that the new discovery in the Eocene open frontiers for infill drilling, does this mean production in the same reservoir? And if we drill other wells in the same Eocene sandstone, if we use a more powerful pump, can production be greater than 2,500 of poll? And would you be able to drill faster? Thank you for the question, Rodrigo. Again, giving you more color on the Eocene reservoir. Firstly, regarding the drilling. The drilling team is anxious to resume work, but we're waiting for the right timing and the right conditions. As regards the Eocene reservoir, I showed you a a chart on the presentation. This reservoir has been showing excellent conditions in terms of volume and quality. When we talk about infill drilling, it means drilling in the same reservoir. When we said that we have a new horizon at Polvo Field, it means that with this level of reservoir in this geological age, it's the first time that we have production and this is breaking down the paradigm because up until recently, we did not assign any value to this reservoir but now we are proving the productivity of this reservoir and this opens up a whole new range of opportunities. So the next steps are, if we confirm everything, when we complete some technical studies, we'll move ahead with the drilling of some new wells in the same reservoir and then we will evaluate the existence of similar reservoirs with good conditions and this will be a new chapter to be explored. Regarding how long it would take, engineering team of PetroRio is devoted to designing a project with cheaper wells in Bouvou. We handle the drilling and that gives us more flexibility. We have some new ideas in house and if they work, we'll have to we'll be able to drill cheaper wells in well under sixty days. Thank you for the questions. Next question by Thiago Noel. Congratulations on the results. What is your expectation for initial production of well number four of Tubarao Martel? When is the timing for production? And the additional CapEx for the campaign is a 100% in the hands of Domo. Right? If the the deal of Freddie happens until year end, I believe that I'd like to know more on the deal of Freddie, please. Hello, Thiago. Let me try to answer the operational question regarding well number four of Tubara and Martello. We are at a final stage. Although Domo is executing, the CapEx and the operating expenses are in the hands of Domo. This operation is expected to end in the short term, in the next two weeks, maybe even earlier. And Pedro Rio is overseeing the operation up close because we'll take over afterwards. Now turn the floor to Roberto. Regarding Friday. Thiago, thank you for the question. Regarding Friday, the next off take by Petrobras will happen in September or close to that. So this is all a cash cost. So soon after this off take by Petrobras that will happen in around September, we imagine that with the price adjustment, it will be close to $3,540,000,000 dollars as soon as we have the closing. And this amount will remain at that level for a while Because we won't have any offtakes from the field until February and then when we have another off take, the price will drop. So it drops and then it increases a little because of the cost, then it drops again and so on and so forth. This is what I can tell you about FRADI. Thank you. Next question from the web by mister Bruce Barbosa. Pedro, you has just gone through a huge challenge, but we can see that the company is already deleverage deleveraged with plans to change the profile of the debt? Do you see new opportunities arising, new mature fields to be acquired? Or is the company focusing only on developing the fields that are already in the company's portfolio? Thank you. Bruce, yes, we've just gone through a challenge and we've sailed quite well through these challenging times. And yes, we are now seeing new opportunities in the market. It's most common opportunities, divestments by Petrobras and so on and so forth. And also, we see other assets from other major oil companies. And so there are opportunities in the market. I think that things are picking up again. Now with this oil price at $40 $45 a barrel, I mean it's not the price we would like to have but it's a price in which the company can start thinking about acquisitions. So yes, M and A activity is picking up again and I would say that we are considering the possibilities that are appearing for us. Next question from Lucas Chavez with Eleven. To start, congratulations on the results. The lifting cost of 13.7, is it close to the bottom line? If so, now with the new integrations tieback and greater volume, can the lifting cost drop even further? Lucas, thank you for the question. Regarding lifting cost of $13.7 per barrel, well, I think it reflects the past. When we think about future expectations for the company, when we think about Tubaro Martello, well four, and then the connection of well 10 with the synergies in the tieback. We perhaps in the summary can expect this number to continue to drop in the coming quarters. On the back of Tubaro Martello acquisition and the capturing of synergies, they will continue to happen from now until next year. And next year, we're going to have a major reduction when we have the tieback. But until then, we will see the lifting cost falling a little more. We haven't gotten a second wave of reduction, but we're going to have the Friday drilling campaign, there will be some reduction in the lifting cost, then we are going to have the EU scene drilling campaign. So, you know, we have a lot of room here to reduce our lifting cost even further. I would like to remind you that if you want to ask a question, please dial 1. Next question from mister Arthur Martins. Hello. Congratulations on the results. I would like to have more color on the net loss of approximately 99,000,000. In your opinion, what led to this negative result? Hello, Arthur. What led to this result was basically the exchange variation. If you look the dollar rate, it increased from 5.14 to 5.14. Most of our liabilities are packed to the dollar, both debt and abandonment provision. And I'm talking about ex IFRS numbers. So these liabilities followed the exchange rate and the exchange rate variation was almost amounted to almost a 110,000,000 rials. When we include IFRS, this non cash amount increases even more so that we can get to this loss of 99. So in a nutshell, as part of the 99,000,000, we have more than a 130,000,000 reals related to non cash factors. When we talk about non cash, here's what we can tell you about non cash. Our EBITDA was not adjusted by the dollar price in the end of the period, it was adjusted according to an average dollar price. On the other hand, the whole liabilities are adjusted according to the dollar in the end of the period. So there are some exchange variations and these effects. And the same goes, if the real appreciates, it would be the opposite. So the fact that this is a non cash effect, well, it means that the company remains solid and healthy. This is merely an accounting effect more than anything else. And if the exchange rate tends to invert and if we tend to have an appreciation of the real, we'll deliver a positive result, and this will be a natural accounting effect. As a reminder, please dial 1. Next question from Victor. Are there other plans to invest in new wells to be drilled in TBMT and Volvo after the tieback. Yes. We do plan to drill more wells soon after the tieback. We'll connect it to Baro Martello Number 10, which is drilled and with completion already installed. And after that, and I cannot really precise what that's going to be soon after or perhaps we'll do a little before. We are going to drill at Povo Field, particularly in the Eocene sandstone. This region that started producing is quite promising. Francois Mer showed the pressure graph for that well. It's something we normally don't show, but in this specific case, we wanted to prove that point and it's a big reservoir. We've been producing for several months and pressure remained constant, it actually increased a little. There was an initial reduction, but then the well recovered the pressure. So this seems to be a very promising area. And to answer your question, I think, yes, we are going to have more drilling, particularly in the Eocene sandstone. This concludes today's question and answer session. I would like to invite mister Roberto Montero to proceed with the closing statements. Please go ahead, sir. Well, I would just like to thank all of you for your participation. I'd like to thank all of you for joining us in q two earnings conference call. And I would like to especially thank the whole PetroRio team. A good part of our team is participating in the call, listening to our results as partners and as investors of the company. So I would like to thank all of you for your determination, for your efforts along this past quarter. And again, thank you all for participating in this call. Thank you very much and I hope to see you onboard in the next conference call. That does conclude PetroRio's conference call for today. Thank you very much for your participation and have a good day.