Good day, ladies and gentlemen. Welcome to the conference call to discuss third quarter 2019 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 will be provided. Should you need assistance during the conference call, please dial star zero for an operator. This event is also being broadcast simultaneously over the Internet via webcast and may be accessed through PetroRio's investor relations website at ir.petroriosa.com.br by clicking on the banner 3Q19 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 prospects, projections, and operating and financial goals 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 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 Prio 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. Nelson Queiroz Tanure , CEO, Mr. Francilmar Fernandes, COO, and Mr. Roberto Monteiro, CFO. Mr. Tanure, please go ahead.
Good morning, everyone. Thank you all for participating in our Q3 call. I can see again that there are a lot of PetroRio's employees on this call. Folks, this is excellent.
Most of us are shareholders of the company, it is only natural that we take an interest in the company's results. That's excellent, and I'm very pleased to see so many of you on board, as always. To speak about the quarterly results, again, we had a third quarter of sustainable growth across our assets. We completed six months with Frade field under our management, and we were able to improve all health, environment, and safety indicators of the field that were already very good and were improved even further. That's very positive. Polvo field continues to operate and to produce with a very positive production. That's very satisfactory.
We are now, as we speak, so this will not be reflected in our Q3 results, in the middle of a drilling campaign whose results I hope to be able to share with you all very soon. Lastly, Manati field, which has also been operating really well, like clockwork. It runs as the field's operator, and we have a 10% interest in that field, but we are very pleased with the performance of this asset. I would like to mention just a couple of highlights. For the first time in the company's history, our revenue hit the mark of BRL 1 billion. More than BRL 1 billion. This is very important. In five years of this company, this is the first time that the company exceeds this mark, and we still have three months ahead of us.
One thing to point out is that the company has been growing, both through acquisitions and by developing the assets that we already have. This growth that we've been experiencing, which is very positive, is exactly the company's plan. To continue to acquire producing assets with an upside potential, both in terms of management and efficiency and drilling of wells. We have had very positive growth. As I mentioned, we had very positive results. Our EBITDA, again, has been the very best ever for the company to date. By lifting costs or cost per barrel. At the end of the day, the best strategy we can have to cope with Brent price variability is to keep our costs as low as possible. We've been successful in this strategy.
By the way, it is worthwhile mentioning that we completed the acquisition of the remaining 18% stake of Frade field, which belonged to Impact. This deal took longer than we would have liked, but we came to the closing now, and the asset is 100% ours. Soon, the results of the field will be reflected in our income statement. For this quarter, this is not yet the case, which makes it very clear that from now on, in other words, as of the fourth quarter, we'll have 70% of Frade's production reflected in our numbers. We still have a lot of good news to come. Soon, we expect to share with you all the results of the drilling at Polvo field. We are starting to examine a possible drilling campaign at Frade field. This should happen sometime next year, more towards the second half of the year.
We're very excited with the possibility to drill again at that field. To conclude, as the CEO, I'm very happy with the company's performance and everyone's engagement and constant dedication. All of us at PetroRio know how difficult it is to integrate a new asset and to have a very safe transition. I would like to thank all of you who work here at PetroRio, as well as all of those who came with the acquisition of Frade field. I'd like to thank Chevron for helping us promote a very safe and smooth transition and for being very professional. We can say that because of them, and also because of the work by our own staff, we are now able to know the assets really well and to operate it very safely.
I would like to thank all of you, and I now turn the floor to Francilmar . Thank you.
Thank you, Nelson. I'll start talking about the company's operational performance, starting on slide three. Well, I consider the main highlight of the quarter the consolidation of PetroRio's operation at Frade field. We now have no more ties with the prior operator, and at the same time, we now understand more and more of the field's geology, so that now we can schedule new operations and initiatives to further improve the field's production. At the same time, we have been effectively managing our lifting costs, already reaching a cost below $23 per barrel, 14% lower than 3Q18, showing that we are on the right track. Operating efficiency at the fields remained at satisfactory levels above 98%, which was also the result of our day-to-day work.
Synergies are unfolding well. Land and air logistics synergies have been duly captured with only a few pending items to be resolved this month, and all related to sea logistics. At the beginning of the Polvo drilling campaign, which is already starting. Moving to slide four, we have this map with a general view showing all assets that we operate in. I would like to focus specifically on production. We can see that Frade field, unlike what would normally happen considering the decline of the field, we can see that since PetroRio started to work on the field indirectly and then directly, we have been able to reverse this decline in production. In Q3 '19 compared to Q3 '18, we see production increasing by 15%, and this is the result of our work. On the other hand, at Polvo, we see a reduction of production.
This is explained by, one, the difference between peak production, the start up of production of the wells drilled last year, which is natural for carbonate wells. Two, the low performance of some submersible pumps, ESP, and their failure in the end of September. Failure in two wells, which impacted production that month. Manati field has performed in a relatively stable fashion given the client's demand for gas. It's a field whose behavior we know quite well. It will deliver as planned. Moving to slide five, we see our lifting costs, which shows that we have been doing our part, reducing it slowly but steadily. We're still on a journey. This is not final yet.
We were able to capture a good deal of synergies. Now we have to optimize our resources and apply them to the fields, mainly Frade field. We continue in our plan to reach a lifting cost of $20 per barrel by the end of December, beginning of next year. On slide six, we will speak a bit about our operational performance. We can see and focus on production of our fields, both Frade and Polvo. We can see both fields' operating efficiency. We can see operating efficiency at stable and well-controlled levels with no recent red flags. We can see production with an excellent performance of Frade field. We are very happy and optimistic about the way in which the field has been responding to our actions.
We have some short-term initiatives already implemented, such as gas injection bulkhead for well cleaning and stimulation, the reopening of a well with hydrate formation, in addition to actions to improve flow and reservoir management. For the midterm, there are a number of initiatives that are on the way that we have started to bring about improvements. There is a plan for a BSW reduction in some of the wells. We'll have to inject polymers and some products. It's a slightly complex operation that we are planning with the production and reservoir team, and actions to stimulate the wells, aiming to increase productivity. With that, with the activities carried out and completed so far, we can foresee the considerable increase in Frade's production compared to what was expected considering the natural decline of the field.
We're very happy with that, and we are sure that the actions that are being implemented will bring us the expected effects. On slide 7, in Polvo's drilling campaign, a change was made to its initial scope given the failure of submersible pumps in 2 wells at Polvo in the end of September, beginning of October. In 1 well, we just needed to change the ESP, a natural operation for the field, and in the other, there was also an ESP failure, but this was a well that had been producing for 10 years where we had mapped an opportunity for recompletion, which is an operation similar to that which happened in 2016, in which we accessed a new reservoir behind the casing. This was done in October.
The wells started to produce again this weekend, and we'll need a couple of days to better assess production from these wells. In terms of the schedule, we expect around 60 days for each well. If we start now, we should go until the end of December, beginning of January, to have the result. As for investments, we are expecting approximately BRL 20 million for the stage 1. You are very aware of these figures. Now it's just about keeping up, moving on with the project, and reaping the fruits in the future. On the slide about Frade field, number eight, I want to speak about the plans and schedule for the drilling campaign at Frade, which should happen by the end of 2020, 2021. We'll refine these plans. We already know the numbers in terms of how many wells we'll drill for production and three injection wells.
They will be divided into two phases. This is because we have a lot of supplies in our inventory, we can accelerate the drilling of these first wells. Later at a second stage, we will need to commission some items, it will take a lot longer. For the first phase, around $190 million-$200 million to get started. We have this simplified map for you to see where we will drill the producing wells, the injection wells, where the current ones are located. I just want to focus on this reservoir where we will drill ODP-4, which will be our first producing well. It is a known reservoir and a virgin one, as it was never used for production. We have high expectations for this reservoir.
With this, I turn the floor to the CFO of the company, Mr. Roberto Monteiro, to present our financials. Thank you, and have a good day.
Thank you very much, Francilmar Fernandes. I will go over our financial highlights and analyze our financial performance as a whole in Q3. The first thing I would like to highlight is the company's net revenue, BRL 1 billion in the first nine months of the year, or BRL 1.4 billion in the last 12 months. Two very interesting and very strong record marks for the company, which show how well we've been growing and performing. In Q3, more specifically, we had a net revenue of approximately BRL 400 million, a 78% increase over Q3 '18. Our EBITDA of around BRL 215 million, although not the highest in absolute terms ever reported, posted the highest ever adjusted EBITDA margin.
Which speaks very much in favor of the successful cost reduction campaign that we've been implementing, as well as in favor of the acquisition of Frade. As regards our leverage today, our net debt over EBITDA ratio is at 1.2 times. In other words, that leverage reduction mentioned in prior calls is becoming a reality. Please go to slide ten. The most interesting point to highlight is in this second column related to a financial result of negative BRL 98 million. When we look at this company with its revenue in US dollars and its EBITDA practically all in dollars, these BRL 98 million of financial expenses, which include BRL 79 million related to foreign exchange variation. This is definitely not concerning to us and has no impact whatsoever on the financial soundness of the company. I'd say this is the take-home message.
The company has been performing well with a very strong EBITDA. The company's net income was strongly impacted by an accounting adjustment of foreign exchange variation that does not impact the company's health at all. This analysis is valid both for our results net of IFRS 16 and for our results already considering the effects of IFRS 16. Moving on to the next slide 11, we show you two very important graphs. The first is our EBITDA per barrel. We hit the mark of $31.5 per barrel. Even with a lower Brent oil price along the third quarter, the company posted the highest ever EBITDA per barrel. As I mentioned before, this underscores our success in bringing down costs, thanks to the synergies between the operations at Frade and Polvo, and also the result of the acquisition of Frade in and of itself.
This is a field with a very good performance and already had a very low operating cost. As for our leverage, we are at 1.2 times, and it is important to remember that this 1.2 times net debt over EBITDA ratio takes into account only six months since Frade's acquisition. In these six months of Frade's operation, consider a 52% working interest at the field. As we disclosed at the beginning of October, our working interest at Frade field increased from 52% to 70%, with no increase in our net debt related to this acquisition. Thus, this level of leverage has nowhere else to go but down. Moving to our last slide, a slide on funding, I want to draw your attention to just this loan here on the right from Citibank of BRL 48 million, which is a prepayment of receivables of Frade field.
We were all very excited about this possibility offered by a world-class bank believing in our company. Well, to sum up this quarter, I guess I have four points that I would like to stress. First, the company's financial soundness improves quarter after quarter. It continues to improve every quarter. This quarter's bottom line was impacted by foreign exchange variation, both considering IFRS 16 effects and excluding IFRS 16. IFRS is an accounting rule which does not impact the company at all, considering that our revenue is dollar-denominated as well as our EBITDA. The cost reduction path that we have set, that we have planned and proposed since the beginning of the year, is being followed very successfully. This can be seen in our EBITDA margin, in our EBITDA per barrel, in our lifting cost.
Basically, in any angle you look, we can see that our cost reduction efforts have been very well executed. Finally, the company is gaining more and more muscle to prepare for possible acquisitions, new acquisitions, and getting ready to continue to grow. Thank you very much to all. I'd like now to start the question and answer session.
Ladies and gentlemen, we will now begin the question and answer session for analysts and investors. If you have a question, please press star one on your touchtone phone now. If at any time you would like to remove yourself from the queue, please press star two. First question from Rodrigo Almeida, Santander. Thank you.
My first question has to do with M&As. Are you considering any good opportunities? I would like to have an update regarding what you envision for the future. Second question about Frade campaign. I think you gave us a better idea now. I'd like to know whether you are already negotiating with possible suppliers, vendors, drill providers. If you could give us some color on that, it would be interesting. Thank you.
Well, good morning, Rodrigo. How are you? Let me speak about M&A, then I'll speak about Frade. Our M&A pipeline, I'm being very general here, has never been so large. There are always many opportunities, there are many possibilities to allocate capital. Well, many opportunities, of course, never come to fruition. In addition to the Petrobras divestment program, which is the most traditional one, it's what people normally talk about and participate in, with the other companies in the industry taking advantage of this interesting Brazilian moment. When companies are buying large blocks, pre-sold blocks, the majors.
With that, they are reformulating their portfolio and starting to divest from fields, which in the past were unthinkable to let go. This is a movement that we see as a natural one and with very good eyes for the company. There are many opportunities out there. We are working on many possibilities for mergers and acquisitions. Our pipeline is quite complete. As for the Frade campaign, we have designed this campaign. It was divided into 2 stages, as Francilmar Fernandes mentioned. Obviously, we have started talking with some suppliers, but we haven't placed any formal order yet to these suppliers. We are now at a moment of talking to them to understand pricing, to understand the market, and so on and so forth.
Frade's drilling campaign will start next year, most likely more towards the middle of the year and the end of the year. We're working strongly on funding for Frade's drilling campaign. Thank you.
Thank you for the answers. They were very clear.
We have a question by Rodrigo Siqueira. Two questions, actually.
The lifting cost targeted at $18. When do you think you will achieve it? In the first quarter of 2019? The second question, thinking about a successful drilling campaign at Polvo and Frade, what would be a possible lifting cost number after both campaigns? Hello, Rodrigo. Well, let's speak about lift cost. Regarding the lifting cost, what we said in the prior call, and it remains valid, our target is to get to $20 consolidated lifting cost for Polvo plus Frade.
This is actually the target that we had for the company and that we are pursuing. Of course, if we get to lifting costs lower than finding, it will be more than welcome. It is always important to think that this number does not take into account production increases resulting from the Polvo or Frade drilling campaign. The number would be $20 per barrel, considering the company as it is and considering the natural decline of production. Regarding lifting cost target after both campaigns, well, since we don't give an oil production guidance after the drilling of the wells, I think it's easier to think about our consolidated OpEx. Lifting cost is nothing but a consolidated OpEx divided by the number of barrels produced along a certain period.
When we think about the consolidated OpEx, we should get to a number close to $170 million, or 100% of Polvo plus 100% of Frade. It is important to consider that at Frade, we don't have 100% yet. We have 70% of Frade. If we were to think about OpEx of the company only, it would be around $150 million, perhaps $145 million. This would be OpEx net for Prio. Net for Prio means 100% of Polvo plus a 70% stake of Frade.
We have one more question by Rodrigo Siqueira.
What are the funding options for the acquisition? What is the status of the bonds issuance in Norway?
Well, Rodrigo, regarding funding for acquisition, since an acquisition is an opportunistic thing, our trend is not to have a totally structured long-term funding pre-acquisition.
For us, it is more interesting to use our own resources and, if possible, do a bridge loan or a loan based on an existing asset for the acquisition. This is our funding strategy. If you think about Frade, what we did was very similar to that. We had funding based on an existing asset, Polvo, and then we used our cash, and we took not exactly a loan, but we were financed partially by Chevron. We could compare that to a bridge loan. Now what we are doing, and this is getting to the second part of your question. We are now extending the duration of the Chevron loan and have seen the opportunity of issuing a bond at Norway.
We are quite advanced in this process of a bond issuance, what we call an information memorandum, and at the right timing, we'll disclose it to the market. Brent at BRL 60, BRL 58. Today, the price was increasing, or at least it was before we started the call, so that helped. If we keep a price at BRL 60, BRL 58 and a lot of volatility, it gets a little in the way. We have to work to find the right timing. Sometimes this is more art than technique, but we are waiting for the right timing for this issuance.
Next question from Vinicius Saraiva.
Although the lifting cost has been reduced and the EBITDA per barrel increased, cost reduction is not impacting the EBITDA margin, the bottom line. What happened? What are the expected cost reductions resulting from the synergies between Polvo and Frade?
Hello, Vinicius.
I think that there's a little confusion here, and it is really important that we clarify. The company's lifting cost is dropping dramatically because of all of the synergies we've captured. We are keeping to our original plan to capture synergies, actually doing a little better than expected. This drives down the lifting cost. The counterpart of that is that our EBITDA per barrel will increase, and that's why we posted the best ever EBITDA per barrel, even with a lower Brent oil price. This is very healthy for the company. Now, when you talk about the EBITDA margin bottom line, I think you mean the company's bottom line, which would be net income. What exists between EBITDA and net income is a huge impact of foreign exchange variation.
We reported our results in Brazilian real, BRL, but all of our debt is dollar-denominated. When we have a currency variation, fluctuation as it happened in this quarter, we had $1 to BRL 4, and then $1 to BRL 4.20, around that. We report the exchange effect on foreign currency liability as a financial expense. The company is dollar-denominated. Our revenue is in U.S. dollars. Our EBITDA is in U.S. dollars, and that's why it doesn't impact at all the soundness of the company.
As a reminder, if you want to pose a question, you just need to press star one. Next question comes from William Fitzpatrick.
Could you comment on the provision for decommissioning?
Hi, William. Yes, of course. The decommissioning provision works in the following way. What is posted in our balance sheet is a U.S. dollar liability for decommissioning of the field.
This is an expense or an investment, if you want to call it, that happens at the end of the lifespan of the field, and this is updated from time to time. I'll start with Manati. Today, the company is virtually 100% covered regarding the fund for the provision for abandonment or decommissioning. The company is 100% covered for that. In the case of Polvo. By the way, there's an explanatory note in our balance sheet about that if you want more on that. For Polvo, we are practically all covered. There's a good deal of the decommissioning provision for that. We have a provision of $52 million. More than $40 million given as guarantee. What you see in the balance sheet is net for PetroRio.
What we have there in the balance sheet, what you saw in the closing of September, was a 52% of the provision for decommissioning of Frade field. When we announced the deal with Impact, which increased our stake from 52% to 70%, that provision will increase so as to capture 70% for the decommissioning provision for Frade field. It is important to remember that this provision for decommissioning is reviewed from time to time by ANP, considering market conditions. Decommissioning provision that existed in the past, they considered very high prices for the drill ships, but these were all reviewed downward because of market conditions. That is normal, that this will be reviewed from time to time. This concludes today's question and answer session. I would like to turn the floor back to Mr. Nelson Tanure to proceed with the closing remarks. Please go ahead, sir.
Well, everyone, thank you very much for the questions and for your interest. We are very confident about the company. We are very excited, very optimistic, and we hope to continue to deliver very relevant results. Thank you very much. That does conclude PetroRio's conference call for today. Thank you very much for your participation, and have a good day.